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Endocyte Shares Double on Cancer Drug Partnership With Merck


The big pharmaceutical maker will pay Endocyte $120 million upfront and up to $1 billion if an experimental treatment can be approved for multiple types of cancer.

Shares of cancer drug developer Endocyte (ECYT) more than doubled Monday morning after the company announced Merck (MRK) will pay it $120 million for rights to an experimental treatment.

Endocyte would collect $1 billion in total if its drug vintafolide can be approved for six different cancer uses. (The companies aren't being forthcoming with milestone details.) The drug is being tested in a late-stage study for use in ovarian cancer patients. It's also being tested for lung cancer. But Merck and Endocyte say they see a potential for vintafolide to treat multiple cancers.

Shares of Endocyte rose to $7.65 in morning trading. The stock is still down 30% since December when the drug failed to show a benefit in a study.

A number of companies expressed interested in striking a deal with the biotech, Endocyte CEO Ron Ellis told a conference call of analysts and investors.

In the end, there was "a feeling with Merck that we understood each other," Ellis said.

Endocyte's drug is used in combination with an experimental diagnostic imaging agent also developed by the company that helps identify patients who are most likely to respond to vintafolide. In a statement, Merck said the drug fits its own strategy of developing more personalized medicines for treating cancer.

Under the deal, Merck will get worldwide rights to develop and sell the drug. Endocyte will be responsible for completing and paying most of the cost of the late-stage ovarian cancer study. Merck would take over future development costs. Endocyte will be responsible for the development of the imaging agent. If approved, Endocyte would share the profit from the drug in the US and receive a royalty for sales outside the country. Endocyte and Merck would sell the drug together in the US.

Merck recently was dealt a setback when an experimental cancer treatment it developed with partner Ariad Pharmaceuticals (ARIA) was rejected by a panel of Food and Drug Administration advisers. The 13-1 vote recommending no approval for the drug ridaforolimus for the treatment of sarcoma pretty much dashed hopes of a near-term market clearance in the US. The agency is expected to decide on possible approval of the drug by early June.

Whether Endocyte's cancer drug is a winner or another bust remains to be seen. The cash infusion is an obvious plus but there's a long way to go before this drug proves it's for real.

"We look for meaningful clinical progress before getting more positive on the stock," Robert W. Baird analyst Christopher Raymond says in a note this morning.

Twitter: @brettchase

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