OncoGenex Grabs $60M Upfront From Teva for Rights to Cancer Drug, Shares Drop Anyway

Xconomy Seattle — 

[Updated: 12:30 pm Eastern time 12/21/09, with stock reaction.] The Cinderella story of Seattle biotech in 2009 is making more news. Bothell, WA-based OncoGenex Pharmaceuticals (NASDAQ: OGXI) is announcing today it has clinched $60 million in upfront payments from Israel-based Teva Pharmaceutical for the right to co-develop an experimental prostate cancer drug that has been shown to prolong patients’ lives in a small study.

Shares of the company fell 25 percent to $22.10 at 12:14 pm Eastern on the news. While the partnership will certainly help OncoGenex develop its treatment, some investors saw an opportunity to take profits by selling on the news, or they expected better deal terms from a bigger name partner in oncology. It’s possible some didn’t like the fact that Isis Pharmaceuticals will capture some of the potentially valuable royalties on the drug.

More on that later. But today’s deal with Teva, the world’s biggest maker of generic drugs, calls for it to pay $10 million to buy stock in OncoGenex (at a 26 percent premium over Friday’s closing price), provide $20 million in upfront cash, and another $30 million prepayment on development costs for OncoGenex’s drug, OGX-011. OncoGenex is also eligible to receive $370 million in development and sales milestones, plus a percentage royalty on product sales that range from the mid-teens to mid-twenties. Teva will pay all the expenses for development and commercialization. OncoGenex will retain the option to co-promote the product in the U.S. and Canada.

The deal is another step forward in a breakout year for OncoGenex, which I described in an August feature story. OncoGenex was so obscure last year that on one of its early days as a public company, zero shares changed hands. But the company’s share price has boomed this year from a low of $2 to $29.65 on Friday based on some very impressive clinical trial results for its treatment for prostate cancer. The OncoGenex drug is genetically engineered to block RNA that gives rise to a protein called clusterin, which is thought to help tumors resist chemotherapy.

When given in combination with chemotherapy, the OncoGenex drug helped men with terminal prostate cancer live a median of 23.8 months, about 6.9 months longer than they did on chemo alone, according to data from a study of 82 men presented in May at the American Society of Clinical Oncology meeting. Side effects included fever, chills, and reduced kidney function. Teva’s group vice president of branded products, Moshe Manor, called the data “compelling” in a statement today. If the results can be duplicated in a pivotal trial, OncoGenex and Teva could offer a new treatment for a disease that kills an estimated 30,000 men in the U.S. each year.

“This is a really transformative event for us, because it takes our lead asset to the commercialization stage and provides us with financial stability,” OncoGenex CEO Scott Cormack says.

The deal provides enough cash for OncoGenex to operate for another two years without … Next Page »

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