A Painless Drug Deal

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This drug deal won't be painful for either side -- as long as the drug works, of course.

Yesterday, Bristol-Myers Squibb (NYSE: BMY  ) licensed from Allergan (NYSE: AGN  ) the pain drug AGN-209323 and just-in-case backup compounds as well. Bristol will pay $40 million up front, but a majority of the payments, $373 million, are tied to the drug's working in clinical trials and getting on the market. Once there, Allergan is also due undisclosed royalty payments.

The drug is ready to enter phase 2 testing for neuropathic pain, which occurs when nerves are damaged. Like many pain drugs, AGN-209323 can presumably be used in other indications, and Bristol has grabbed them all except eye pain. Allergan, an eye-care specialist, kept rights to develop the compound as a treatment directly for the eye.

Neuropathic pain seems to be a hotbed for partners right now. GlaxoSmithKline (NYSE: GSK  ) and XenoPort (Nasdaq: XNPT  ) were testing their restless leg syndrome drug in neuropathic pain -- at least until the drug was rejected by the Food and Drug Administration -- and Adolor (Nasdaq: ADLR  ) and Pfizer (NYSE: PFE  ) are also partnered on a drug being tested for neuropathic pain.

The reason for all the activity is because there's still a high need for treatments for neuropathic pain. Eli Lilly's (NYSE: LLY  ) Cymbalta and Pfizer's Lyrica are approved for certain nerve pain indications and NeurogesX has a patch called Qutenza, which treats nerve pain associated with shingles. But in general, nerve pain remains a hard-to-treat indication with the door wide open for anyone who can develop a drug to treat it.

We're still years away from seeing AGN-209323 on the market -- hopefully with a catchier name -- but overall, the deal seems good for both sides. Allergan gets some upfront cash for developing the drug this far, and Bristol-Myers gets to hold on to its well-earned pot of gold until the drug shows a little progress.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a Motley Fool Inside Value pick. The Fool owns shares of GlaxoSmithKline. The Fool has a disclosure policy.

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