Under the terms of the deal, the company will gain the exclusive global license to develop, manufacture, and commercialize Chinese drugmaker Hansoh Pharmaceutical Group Co.’s HS-10535, an experimental oral drug that targets the receptors for GLP-1, Merck said in a statement Wednesday.

It will pay Hansoh $112 million for rights to the drug, with the potential for an additional $1.9 billion in milestone payments.

The news caused shares of two biotechs developing weight-loss drugs, Viking Therapeutics Inc. and Structure Therapeutics Inc., to close down 18% and 11% respectively, as investors speculated that a possible deal with Merck was now off the table. Hansoh shares rose as much as 4.7% in early trading before erasing those gains to trade 2% lower. Merck shares closed 1.7% lower Wednesday in U.S. trading.

GLP-1 is the same gut hormone mimicked by injectable drugs such as Ozempic and Wegovy from Novo Nordisk A/S. Drugmakers have been racing to come up with pills that could duplicate the effects of Ozempic but would be more convenient to take.

Merck chief executive officer Rob Davis has previously indicated an interest in gaining more assets that lead to second- and third-generation approaches to treating obesity, diabetes and related diseases.

Dean Li, president of Merck Research Laboratories, said in the statement that the drug had “potential to provide additional cardiometabolic benefits beyond weight reduction.” In the release, Merck didn’t specify which diseases it planned to test the drug on first.

The pill is at a preclinical stage of testing, meaning it has not yet entered human trials. Other drugmakers that have been testing potential new obesity pills include Roche Holding AG and Pfizer Inc.

Under the terms of the deal, Hansoh Pharma would also receive royalties on sales, and may co-promote or solely commercialize the drug in China subject to certain conditions, the companies said in the statement. To account for the deal, Merck will take a $112 million pre-tax charge in its fourth quarter results.

Their tie-up marks the latest high-profile deal involving GLP-1 assets from China. In November 2023, AstraZeneca Plc paid $185 million upfront to license Eccogene’s oral candidate, which has since progressed into Phase 2 testing. A few months later, a consortium of U.S. investors pooled $400 million to create a new startup, Kailera Therapeutics, based on three GLP-1 programs from Jiangsu Hengrui Pharmaceuticals Co.

“HS-10535 has rarely been discussed by investors and may not have contributed much at all to Hansoh’s valuation,” Morgan Stanley analysts wrote in a note, adding that the deal is a de-risking move given the increasingly competitive GLP-1 landscape.

For more on weight management:

• Zepbound vs. Wegovy: New clinical trial says this weight-loss medication sheds more pounds
• Most Americans who want to lose weight don’t want to take GLP-1 drugs like Wegovy and Zepbound, new survey says
• The 5 biggest weight loss myths that ‘need to die,’ according to an obesity doctor
• GLP-1 drugs like Wegovy are all the rage—but people are quitting them too fast to achieve meaningful weight loss, finds 170,000-patient study
• Exclusive: The COO of Hims & Hers was the third person to try their new weight loss drugs—and she’s ready to share her story