Merck will pay $75 million upfront, $452 million in development fees, $200 million in sales milestones, plus royalties.

Ariad Pharmaceuticals and Merck & Co. will jointly develop and commercialize Ariad’s mTOR inhibitor for use in cancer. It is expected that AP23573 will enter Phase III development for the treatment of metastatic sarcomas beginning this quarter.

The agreement provides for an initial payment of $75 million to Ariad. The company stands to earn a further $452 million in development milestones and $200 million in sales milestones plus royalties.

Development thresholds include initiationg of the Phase III trial in metastatic sarcomas and other Phase II and Phase III studies, which will trigger $13.5 million and $114.5 million, respectively. Achievement of sales thresholds and potential commercial returns from profit sharing in the U.S. or royalties paid by Merck outside the U.S. will trigger the $200-million payment to Ariad.

While Ariad will pay $150 million toward global development costs, Merck will contribute at least $200 million. Merck could then pay up to $200 million more in interest-bearing repayable development-cost advances to cover a portion of Ariad’s share of global-development. In certain circumstances, either party may opt-out of conducting and funding certain late-stage clinical development of AP23573, which would result in changes in development and commercialization responsibilities and compensation arrangements.

Merck and Ariad anticipate conducting a broad-based global development program in which clinical trials and biomarker studies will be conducted concurrently in multiple cancer indications. In the U.S., Ariad will be in charge of development of AP23573 in the metastatic sarcoma indication. The companies will share responsibility for development of the drug in all other cancer indications in the U.S. Outside the U.S., Merck will have primary responsibility for development in all cancer indications being pursued.

Similarly, Ariad will distribute and sell AP23573 for all cancer indications in the U.S., while the companies will co-promote the drug, each receiving 50% of the income. Outside the U.S., Merck will distribute, sell, and promote AP23573. Merck will pay Ariad tiered double-digit royalties on such end-market sales of AP23573.

Ariad will be responsible for manufacturing the active pharmaceutical ingredient used in the product, and Merck will be responsible for the formulation of the finished product.

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