Merck & Co. has reached an agreement to acquire privately held biopharmaceutical company Peloton Therapeutics for an upfront payment of $1.05 billion in cash.

Peloton had been set to price an initial public offering Wednesday with a range of $15 to $17 per share, giving it a valuation of about $904 million at the top of its range, including underwriters’ options and other outstanding shares.

Under the merger agreement, Peloton shareholders can receive another $1.15 billion if the company reaches certain regulatory and sales milestones.

The deal strengthens Merck’s cancer drug portfolio and gives it access to Peloton’s kidney cancer drug candidate. Last month, regulators approved Merck’s immunotherapy drug Keytruda for the treatment of renal cell cancer. In a separate statement, Merck said Keytruda failed to meet its stand-alone goal of treating an aggressive type of breast cancer.

“The deal announced today should also underscore the opportunity for other small and mid cap biotech names in the cancer biology space,” Cantor Fitzgerald analyst Louise Chen said.

Peloton expects to begin late-stage trials of its kidney-cancer drug in the second half of the year.

“This is a classic bolt-on deal. Peloton has a drug that looks promising in renal cell carcinoma, and there’s actually been a lot of success in the field in recent years,” said Brad Loncar, manager of the Loncar Cancer Immunotherapy ETF.

“Peloton scientists have applied their unique expertise in HIF-2α biology to develop PT2977, which has already shown intriguing activity in the treatment of renal cell carcinoma,” Merck Research Laboratories President Dr. Roger Perlmutter said in a statement. “We look forward to advancing this late-stage asset as part of our broad oncology R&D program.”

Merck was advised by Credit Suisse. Peloton was advised by Centerview Partners.

The deal is expected to close in the third quarter of 2019.