Nov 14 (Reuters) - Merck ( MRK ) has signed a licensing

agreement worth up to $3.3 billion with Shanghai-based LaNova

Medicines to develop, make and sell an experimental cancer drug,

the two companies said on Thursday.

The deal allows Merck ( MRK ) to take over development of LaNova's

LM-299, a drug candidate targeting a protein called PD-1, which

prevents the immune system from killing cancerous cells. It also

curbs levels of another protein called VEGF, which can encourage

tumor growth if found in excess.

Under the agreement, Merck ( MRK ) will pay $588 million upfront to

LaNova. The Chinese company is also eligible to receive up to

$2.7 billion in milestone payments.