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Continuing to execute on its new R&D strategy, GlaxoSmithKline has agreed to buy the rights to a next-generation cancer immunotherapy from Merck.

The British pharmaceuticals group will pay Merck KGaA up to 3.7 billion euros ($4.2 billion) for the rights to the immunotherapy, known as M7824. Merck, a German firm with no ownership ties to the American firm Merck & Co., will receive 300 million euros upfront, and be eligible for additional payments of up to 500 million euros, based on development milestones. Depending on commercial milestones, Merck could get up to 2.9 billion euros, bringing the total value of the deal to as much as 3.7 billion euros.

GlaxoSmithKline launched a new research and development strategy last year, focused on immunology, genetics and technology, as part of CEO Emma Walmsley’s plan to rebuild the company’s drugs pipeline. M7824 fits neatly into this plan by bolstering GSK’s cancer drug development pipeline. Walmsley was appointed CEO in 2017 and previously ran GSK’s consumer business.

In December GSK paid $5.1 billion to acquire Tesaro, an American firm focused on oncology. That same month, it formed a joint venture with U.S. rival Pfizer’s consumer health division to create a new consumer health business, thus separating its prescription drugs and vaccines business from its over-the-counter products unit. “For GSK, this alliance is a further step in the company’s priority to strengthen its pharmaceuticals pipeline,” the company said.

M7824 is being tested on 10 types of tumours, and shows promise in treating a certain type of lung cancer. Merck has started a mid-stage phase II trial in non-small cell lung cancer that compares M7824 directly with Keytruda, U.S. rival Merck & Co.’s blockbuster. Keytruda is currently considered the most promising cancer immunotherapy on the market, with 2018 sales of $7.2 billion. Keytruda is a checkpoint inhibitor, a class of immunotherapies that are expected to generate in excess of $20 billion in combined annual revenues over the next few years.

Merck KGaA is competing in that same class with a cancer drug called Bavencio, developed jointly with Pfizer. M7824 combines Bavencio’s mode of action with another immune response booster, Reuters reports. “This combination in a single molecule is unique. We don’t know of any other at this time,” said Belén Garijo, who heads Merck’s healthcare business.

Analysts from Deutsche Bank said that the trial against Keytruda is the main pharmaceuticals study to watch. “We expect investors to see the deal as a bold move to build GSK’s late stage oncology pipeline, bringing in an asset with very large potential but with substantial risk,” they stated.

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