German pharmaceuticals and chemicals producer Merck is divesting its Biosimilars business to compatriot firm Fresenius Kabi, a unit of medical technology and healthcare group Fresenius. Merck said it is shedding the business to focus on its pipeline of innovative medicines.

CEO Stefan Oschmann called the divestment a step toward transforming Darmstadt-based Merck into a science and technology company. The deal is planned to complete in the second half of this year, subject to all approvals.

Part of the company’s Healthcare business segment, the Biosimilars business is headquartered at Aubonne and Vevey in Canton de Vaud, Switzerland and will continue to operate from the two locations after the sale. The business is developing a portfolio focused on oncology and inflammatory disorders.

Under the terms of the transaction, Merck will receive from Fresenius an upfront payment of €170 million and milestone payments of up to €500 million, along with royalties on future product sales. The two companies have also sealed supply and services agreements, which include drug development support and manufacturing services.

In particular, said Belén Garijo, CEO Healthcare at Merck, the aim is to align R&D to the company’s priorities. “We have increasing confidence in our Biopharma pipeline and this transaction will help prioritize innovative drug development of high quality and first-to-market best-in-disease assets,” she said. “The partnership with Fresenius will allow us to exploit our biosimilars portfolio to full potential while granting Merck a substantial return on prior investments.”