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By Michael Fitzhugh

Japan’s Astellas Pharma (OTCPK:ALPMF) will pay $125 million upfront and as much as $1.3 billion later to develop and commercialize an experimental cancer drug created by Aveo (NASDAQ:AVEO) Pharmaceuticals.

The partners are seeking to get the drug, tivozanib approved for kidney cancer. If successful, the drug would put new competitive pressure on two leading cancer medicines while helping Astellas further establish its U.S. cancer franchise, a presence it firmly established in May 2010 when it bought OSI Pharmaceuticals for $3.5 billion.

An early-stage study has already shown tivozanib to be as effective as Pfizer’s (NYSE:PFE) Sutent. Now the medicine is in a head-to-head, late-stage trial comparing its safety and efficacy to Nexavar. Data from that study is expected in mid-2011. Meanwhile, Aveo is running further trials of the drug in the treatment of other solid tumor types.

The $125 million payment for Aveo covers both licensing and early research and development costs for tivozanib. In addition, Aveo is eligible for $575 million in clinical and regulatory milestones and more than $780 million in commercial milestones.

Aveo will lead commercialization of tivozanib in North America and Astellas will lead commercialization of tivozanib in the European Union. The companies will share equally all North American and European Union development and commercialization costs and profits for tivozanib. Outside of North America and the European Union, Astellas will be responsible for the development and commercialization costs of tivozanib and will be obligated to pay Aveo tiered, double-digit royalties.

The deal does not cover Asia, where Aveo has already licensed rights for tivozanib to Kyowa Hakko Kirin.

Aveo CEO Tuan Ha-Ngog says the collaboration with Astellas will help his company meet key strategic objectives, including the build-out of its North American commercial infrastructure to support the company’s ambition to become a fully integrated cancer therapeutics company poised for future oncology drug launches. The company’s second most advanced product candidate, AV-299, is currently being tested against non-small cell lung cancer.

The deal is not Aveo’s first contact with Astellas. In December 2010, Astellas subsidiary OSI said it would pay $12.5 million to exercise an option to internalize certain elements of AVEO's proprietary Human Response Platform technology. Aveo anticipates receiving another $12.5 million from OSI in July when the technology transfer is complete.

Source: Astellas/Aveo Cancer Drug Deal Expected to Push Competition, Establish U.S. Presence