deCODE, which specialises in unravelling the links between genes and disease, will carry out clinical trials on a range of Merck's developmental compounds, with tests on as many as five products conducted concurrently.
The Reykjavik-based company has built up a database of DNA samples from the Icelandic population of just 250,000, along with their medical histories and genealogy. It will use this information to analyse the effect of experimental drugs developed by Merck on different groups of people, in a move designed to complement the US group's in-house clinical trials programme.
The hope is that the approach will identify the patients that are most likely to benefit from treatment with a drug, as well as those who may be prone to side effects. Under the terms of the deal, the companies may collaborate on the development of pharmacogenomic tests that can be used to guide treatment choices.
The agreement calls for Merck to purchase $10 million of deCODE common stock at a price of $14.50 per share, and the US major has received a warrant to purchase up to $50 million of additional shares of deCODE stock at $29.00 per share over the next five years. In addition, deCODE will receive royalties on sales of any compounds in the alliance that reach the market.
Dr Kari Steffanson, deCODE's chief executive, said that the company would integrate into clinical trials detailed data on many other variables - disease subtypes, biomarkers, genotypes and gene expression patterns - to understand not just whether people respond to drugs, but also who responds best and why.
deCODE already has a relationship with Merck, having isolated two new genes under a collaboration with the US drug major last year in a programme aimed at discovering novel drugs for obesity. The genes were identified through population- and genome-wide linkage scans and association analyses of at-risk haplotypes, using data from 17,000 subjects involved in deCODE's obesity program in Iceland.
News of the deal sent deCODE's Nasdaq-listed stock up by 28 per cent to $13.60 in mid-morning trading today.
Merck spending spree
Analysts said the alliance was a good one for deCODE, but pointed out that it is a long-term strategy aimed at improving the chances that drugs make it through development, and will not have any impact on Merck for a number of years.
The US major is currently facing something of an under-supply in new pipeline products, and has been forging a number of technology agreements intended to help it cope with the loss of US patent protection on its biggest-selling drug - the cholesterol-lowerer Zocor (simvastatin) - in 2006.
The company is also growing its pipeline by acquisition, and earlier this week snapped up privately held biotechnology company Aton Pharma for an undisclosed sum.
This was only the latest in a string of small-scale acquisitions of companies and products aimed at bolstering its pipeline, a strategy which sets Merck apart from its peers (such as Pfizer, GlaxoSmithKline and AstraZeneca) which have gone down the mega-merger route.
Merck recently bought Rosetta Inpharmatics for $620m, and in the last year forged product licensing deals with Actelion (up to $272m) for renin inhibitors, Lundbeck for anxiety treatment gaboxadol (up to $270m) and Neurogen (up to $160m) for new-generation pain drugs. It has also forged numerous smaller deals with companies working on hepatitis C, Alzheimer's disease and anti-infectives.
With the purchase of Aton, Merck signals its intention to re-enter the market for cancer drugs three decades after its last product launch in the category.
The Aton deal would give Merck a number of experimental cancer medicines that work by a new mechanism, blocking an enzyme called histone deacetylase, including a drug called suberoylanilide hydroxamic acid now in Phase II human trials as a treatment for cutaneous T cell lymphoma.