Merck made a daring $100 million bet last month on futuristic messenger RNA therapies. Today, it’s investing even more in “old school” biotech.

The pharmaceutical giant is announcing today that it is spending $450 million in cash over the next five years as part of a broad collaboration with South San Francisco-based NGM Biopharmaceuticals. Merck’s hope is that the little-known biotech company has what it takes to develop biotech drugs for chronic ailments that affect millions of people—diabetes, obesity, and nonalcoholic steatohepatitis (NASH).

NGM will get a $94 million upfront cash payment, plus a $106 million payment from Merck for a 15 percent equity stake—which effectively values the private company at a lofty $706 million. Not only that, but Merck is agreeing to pay $50 million a year over the next five years to support R&D at the smaller company, with options to extend the collaboration in the future. The grand total in committed cash is $450 million to NGM, without even counting future milestone payments and product royalties that could flow back if any of the experimental drugs turn into products for Merck.

Dollars of that magnitude are rarely given to small biotech companies like NGM, with just 80 employees. It’s especially remarkable given that NGM was able to retain 100 percent ownership of its most advanced drug candidate in development—a drug called NGM282, which is in mid-stage clinical trials for primary biliary cirrhosis and NASH. The programs Merck is getting dibs on haven’t yet advanced into clinical trials. It had to ante up because it was in a competitive bidding situation with other Big Pharma companies that saw value in NGM’s work.

“We are pinching ourselves,” said Jeff Jonker, NGM’s president.

Roger Perlmutter, the president of Merck Research Laboratories, said in an email: “I believe that NGM has developed an outstanding R&D capability and that Merck, with its translational expertise, can help to advance NGM-originated biological therapies for the benefit of patients around the world.”

The players on both sides of the table know each other unusually well. NGM’s founder and chief scientist is Jin-Long Chen, and the CEO is William Rieflin. They worked together before at Tularik—a biotech drug developer that was acquired by Amgen for $1.3 billion in 2004. One of the key players in that acquisition happened to be a guy named Roger Perlmutter, who was then the head of R&D at Amgen AMGN +0.41%. After the acquisition, Chen stayed at Amgen and worked closely with Perlmutter to build up that company’s pipeline of experimental drugs. But the connections run deeper than that. NGM’s board includes Dave Goeddel and Arthur Levinson, two of the most respected people in the biotech industry, dating back to the early days at Genentech.

“There’s a tremendous amount of trust and respect going both ways, that dates back more than 20 years,” Jonker said.

NGM has purposely kept a low profile on what it’s up to, partly because it has raised so much private money that it didn’t need to toot its own horn to attract more investment. Prior to today’s announcement, the company had raised about $180 million in equity investment from a crew that includes The Column Group, Prospect Venture Partners, Rho Ventures, Takeda Ventures, Tichenor Ventures, and Topspin Partners. There are also several unnamed sovereign wealth funds, and wealthy individuals who have invested, Jonker said. Previously, the company had struck some smaller partnerships with AstraZeneca , Daiichi Sankyo , and the Juvenile Diabetes Research Foundation.

There’s no particular whiz-bang technology that can sum up what NGM does. Consistent with the philosophies of its Genentech and Tularik lineage, it focuses deeply on understanding the underlying biology of what it does. Once it has a clear idea of the problem, it brings a variety of technology tools to the task, in engineering of targeted antibodies, bispecific antibodies that can hit more than one target, or genetically engineered fusion proteins. It all depends on bringing the right tool to the task, to borrow one of Perlmutter’s favored phrases from his Amgen days.

“It’s old school biotech,” Jonker said. “We begin with very basic biology and do a very heavy push to elucidate biology that hasn’t lent itself well to being drugged…there’s no secret sauce that’s proprietary. If someone wanted to do these things, they could. For us, it’s about the people, methodology, and the energy and money.”

Read more: Merck Bets $450M On ‘Old School’ Biotech From NGM

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