Merck & Co. has paid $120m to license a cancer drug from US company Endocyte – and it could end up costing them as much as $1bn.

Vintafolide (or EC145) is in phase III trial as a treatment for ovarian cancer and has five other potential indications in cancer treatment.

Merck will pay $120m upfront for global rights to the drug, with an additional $880m depending on its reaching milestones across all six indications.

An example of personalised medicine, Vintafolide is being developed with a companion diagnostic to select patients who will benefit from the drug.

Vintafolide combines folate (vitamin B9) with a chemotherapy agent, and is designed to target fast-growing cancer cells in ovarian, lung, breast, colon and renal cancers that actively take up folate.

The drug is currently being evaluated in a phase III clinical trial for ovarian cancer and a phase II trial for non-small-cell lung cancer.

Endocyte will retain ownership of its companion diagnostic agent, etarfolatide (or EC20), which identifies tumours that over-express folate receptors.

The milestone payments depend on the regulatory and commercial success of vintafolide in six cancer indications. Endocyte will receive 50% of profit in the US and over 10% of sales royalties in the rest of the world.

Endocyte has rights to co-promote vintafolide with Merck in the US. Merck has exclusive promotion rights in the rest of the world. Endocyte will fund and complete the current phase III ovarian cancer trial, whereas Merck will be responsible for other development activities.

The EC granted orphan drug status to vintafolide in March 2012, and Endocyte had planned to apply for EU marketing approval in the third quarter of 2012.

Peter S. Kim, President of Merck Research Laboratories, described vintafolide as “a promising and innovative late-stage cancer drug candidate”.

The deal reflects industry confidence in personalised medicine and in the value of licensing deals with drug development specialists.

Merck is to invest $1.5 billion in China over the next five years and create approximately 600 new positions at a purpose built R&D headquarters in Beijing.

The 47,000 square metre facility for innovative drug discovery and development will be located in Wangjing Park with first phase construction scheduled for completion by 2014.

Peter S Kim, President, Merck Research Laboratories, says the Asia headquarters “represents an important milestone” and Merck will now be able to “facilitate new collaborations with scientists in the region and across emerging markets.”

The new office and laboratory space will work in the areas of drug discovery, translational research, clinical development, regulatory affairs and external scientific research programs. Merck will maintain its commercial headquarters in Shanghai and its other manufacturing capabilities in other locations throughout the country.

Michel Vounatsos, Chairman and President, MSD in China says the company has a “proud legacy” of turning drug discoveries into medicines and vaccines to improve the health of people around the world.

“We are immensely proud of the impact that MSD’s medicines and vaccines have had on improving health for the people of China as we have grown our business here, and are we eager to build on this legacy by directly investing in R&D here in China to bring forward more innovations that can help people in China and around the world.”

Merck is known as MSD outside the US and Canada.