Merck (MRK) agreed to pay Daiichi Sankyo $5.5 billion for the rights to develop and sell three of the Japanese company’s potential cancer treatments jointly.

Merck stated that it will pay Daiichi Sankyo $4 billion now, plus $1.5 billion over the following 24 months, and that depending on how effectively the therapies meet specific milestones, Merck might pay Daiichi Sankyo up to $22 billion.

While there is no certainty that the treatments will gain the necessary regulatory clearances or be commercially successful, the businesses believe the drugs to have a multibillion-dollar revenue potential by the mid-2030s.

If the pharmaceuticals are authorized, Merck will sell them anywhere in the world except Japan, where Daiichi Sankyo will have exclusive manufacture and supply rights. One of the medications will submit an application for approval by March 2024.

The acquisition is estimated to result in a pre-tax charge of around $1.70 per share for Merck, as well as a decrease in profits per share of about 25 cents per share in the first year after the sale is completed.

Merck may benefit from the transaction by adding fresh and promising therapeutic options to its cancer portfolio. Daiichi Sankyo is also working on additional cancer medicines alongside AstraZeneca. One such agreement is with ADC Enhertu, which is estimated to produce more than $10 billion in revenue each year.

As of 9:45 a.m., Merck shares were up 1% in early trade. Following the announcement, ET on Friday. They’ve lost over 10% of their worth so far this year.

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