Merck, Bristol-Myers agree to settle Keytruda patent suit

(Adds settlement details, litigation background and share movement)

Jan 20 (Reuters) - Merck & Co said it agreed to enter into a settlement and license agreement with Bristol-Myers Squibb Co and Ono Pharmaceutical Co Ltd to resolve all global patent-infringement litigation related to its cancer drug, Keytruda.

Merck will make an initial payment of $625 million to Bristol and Japan's Ono. The company will also pay a 6.5 percent royalty rate on Keytruda sales from January 2017 to December 2023, and a 2.5 percent rate for the subsequent three years.

Bristol will get 75 percent of the royalties and Ono will get the rest.

Bristol and Ono, which co-developed the first PD-1 antibody called Opdivo, filed the suit against Merck in September 2014, alleging that its sale of Keytruda, also a PD-1 antibody, infringed their patents in markets including the United States, parts of Europe, Australia and Japan.

Merck said the $625 million payment will be recorded in the company's fourth-quarter and full-year 2016 results.

The settlement comes a day after Bristol-Myers said it wouldn't seek faster approval for a combination of its two immunotherapy drugs as an initial treatment for lung cancer, further solidifying Merck's leading position in the burgeoning immuno-oncolgy field.

Bristol's shares closed down 11 percent on Friday, but rose marginally in extended trading after the settlement agreement.

Merck's shares, which closed up 3.6 percent, were unchanged after the bell.

(Reporting by Gayathree Ganesan in Bengaluru; Editing by Maju Samuel)