Leap Therapeutics Inc. agreed to grant BeiGene Ltd. an option to obtain an exclusive license for the development and commercialization of its experimental drug DKN-01 for $3 million up front.

Under the agreement, BeiGene will make an additional payment at the time of exercising the option and will acquire rights to develop and commercialize DKN-01 in Australia, New Zealand and Asia, excluding Japan.

Cambridge, Mass.-based Leap will be eligible to receive up to $132 million based on certain development, regulatory and sales milestones. Additionally, BeiGene will pay Leap royalties on the sales of DKN-01 in the region.

Concurrently, BeiGene will make a $5 million investment in Leap as part of a larger equity financing agreement that also includes two institutional investors.

Leap will sell 1,421,801 Series A convertible preferred shares to the lead investor and 1,137,442 Series B convertible preferred shares to BeiGene and Perceptive Advisors LLC at $10.55 apiece in the private placement. Leap expects to raise gross proceeds of about $27 million from the equity financing that will close on or before Jan. 8, subject to closing conditions.

The lead institutional investor will also receive a voting preferred share to elect one director on Leap's board. Raymond James & Associates Inc. was the placement agent for the equity financing.

Leap's DKN-01 is designed to target certain signaling pathways that are often implicated in cancer, enabling cancer cells to grow and divide and to suppress the immune system. A combination of DKN-01 and Merck & Co. Inc.'s blockbuster therapy Keytruda extended the lives of certain patients with a type of stomach cancer in a study testing the therapy.

Leap will study DKN-01 in combination with BeiGene's tislelizumab in patients with gastroesophageal junction — the point where the esophagus joins the stomach — and gastric cancer whose tumors expressed high levels of the DKK1 protein during the option period.