Seeking Alpha
Profile| Send Message| ()  

Announced Monday night, the antibody development collaboration between Amgen (AMGN) and AstraZeneca (AZN) represents another interesting risk-sharing deal from the UK pharma giant. Encompassing five anti-inflammatory agents, the flagship drug is anti-IL-17 antibody brodalumab, belonging to a class that only last week attracted attention for promising data in psoriasis (Therapeutic focus - IL-17 antibodies looking encouraging in psoriasis, April 2, 2012).

The collaboration means the pharma giant gets to beef up its pipeline as the US biotech sees five of its assets pushed through trials while freeing up funds to spend elsewhere; the company hands a lot of free cash back to shareholders via buybacks and a dividend. It might not be the transformative move that many believe both companies, particularly Astra, need to make to replace aging franchises, but the transaction still serves a purpose for both parties.

Broad deal

The deal is costing Astra $50m upfront and a share of costs and profits, which gives it various promotion rights in various territories, not all of which have been agreed upon for all molecules yet.

The pharma company will lead the development of AMG 139, AMG 181 and AMG 157, phase I products being investigated in Crohn's, ulcerative colitis and asthma, respectively. Amgen will lead on AMG 557, a B7RP-1 antibody that is being investigated in lupus, and brodalumab.

This last agent is likely to be the main source of costs for both parties for some time - phase III studies in psoriasis are ready to start - analysts reckon the deal could cost Astra around $200m a year for the next few years.

But for both Astra and Amgen, cash is not a problem. Both are reaping the rewards of long established franchises reaching the end of the branded lives, but at the same time struggling to find products to fill future gaps.

Relief on restraint

AstraZeneca shares climbed 15p to £28.41 in London Tuesday, bucking broader market declines. The rise could well reflect relief that a much bigger deal, speculation about which has been growing in recent weeks, did not emerge.

Since the widely criticised takeover of MedImmune in 2007 for $15.6bn Astra has been very quiet on the M&A front and so far resisted calls to plug revenue gaps with a big deal.

It bought antibiotics firm Novexel in 2009 for $350m, a move that contained a risk sharing element in a side deal struck with Forest Labs (FRX) at the same time. The two firms collaborated on development and commercialisation of two late-stage programmes (Astra steps back on M&A path with Novexel deal, December 24, 2009).

Astra also entered a diabetes collaboration with Bristol-Myers Squibb (BMY) back in 2007, which incorporated a number of agents including Onglyza and the novel SGLT dapaglifozin. What could be a terminal delay in getting the latter agent to market highlighted exactly why the company has sought these kind of arrangements (Dapa doubts validate Bristol-Myers decision to share the risk, July 20, 2011).

Critics of both companies will argue this deal does nothing to answer more immediate problems, which is correct to a certain point. Brodalumab certainly holds potential but even this most advanced candidate is unlikely to reach the market before 2014. But clinical failures also get criticised; it is highly unlikely that all of these antibodies will reach the market. Sharing the costs and risks of clinical development is not an unreasonable approach to the increasingly expensive drug development process.

And of course these sorts of deals - with minimal upfront cash outlay - certainly do not rule out making a larger and more transformative move in the future.

Source: AstraZeneca Spreads The Load With Amgen Development Deal