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AstraZeneca (AZN - Analyst Report) recently entered into a worldwide licensing agreement with Merck & Co. Inc. (MRK - Analyst Report) for MK-1775, an oral small molecule inhibitor of WEE1 kinase. MK-1775 is being developed for the treatment of patients with P53-deficient ovarian cancer (phase IIa).

As per the terms of the deal, AstraZeneca will make an upfront payment of $50 million to Merck. Apart from this Merck will also be eligible to receive development and regulatory milestone payments, sales-related payments and tiered royalties on net sales of MK-1775, on approval. AstraZeneca will undertake all future development, manufacturing and marketing responsibilities.

This deal is in line with AstraZeneca’s strategy of boosting its pipeline by acquiring candidates. Generic competition has been adversely impacting AstraZeneca’s revenues over the past few quarters. This has put significant pressure on the company.

In a bid to add late-stage candidates to its pipeline, AstraZeneca entered into a number of acquisition deals (Pearl Therapeutics and Omthera Pharmaceuticals) in the last few months and agreements with companies such as FibroGen, Inc.

We believe the licensing of MK-1775 makes strategic sense. With this acquisition, AstraZeneca will strengthen its oncology pipeline. Last month, AstraZeneca entered into an agreement to acquire privately-held U.S. based company, Amplimmune. The acquisition will add oncology candidates such as AMP-224 (phase Ib) and AMP-514 (late-stage pre-clinical trial with investigational new drug filing planned by year end) to AstraZeneca’s pipeline.

AstraZeneca currently carries a Zacks Rank #4 (Sell). At present, companies like Novo Nordisk (NVO - Analyst Report) and Bayer (BAYRY - Analyst Report) look well-positioned with a Zacks Rank #2 (Buy).

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