Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A Puny Drug Deal for Blockbuster Indications

Drug licensing deals come in all kinds of sizes and flavors. The one that Theravance (Nasdaq: THRX  ) and Merck (NYSE: MRK  ) announced is more of a maraschino cherry than a giant three-scoop ice cream sundae.

In exchange for giving up rights to its cardiovascular program, Theravance will receive a $5 million upfront payment and get funding for research. The biotech is eligible for milestone payments up to $148 million for the first indication, and royalties on worldwide net sales of any products derived from the program.

Compare that to some other recent deals Merck has done:


Upfront Payment (in millions)

Milestone Payments (in millions)







Endocyte (Nasdaq: ECYT  )



Source: Company releases.

It appears the reason why Theravance wasn't able to get very much in its deal was because it hasn't done that much work on the program. The cardiovascular program must be really early in development since it's not even listed on Theravance's website. The companies continue to be secretive about the program; they didn't even reveal the number of drugs, let alone their mechanism of action. We do know they'll treat high blood pressure and heart failure -- two very large markets.

By contrast, AiCuris' letermovir is ready to go into phase 3 trials; Merck also got earlier-stage backup compounds in the deal. And vintafolide, the drug Endocyte licensed to Merck, was already in phase 3 trials when the deal went down.

There's no doubt Merck is a good partner for a cardiovascular program. It sells Vytorin and Zetia, and has a substantial pipeline of cardiovascular drugs of its own. But you have to wonder whether developing the drugs further would have been a better move. We don't know the royalty rate, but Theravance is presumably giving up a lot of upside if the drugs are blockbusters years from now.

In the short term, shipping out the program will likely increase the company's value though. Theravance has multiple programs in the clinic, including a chronic obstructive pulmonary disease drug combination that Theravance's longtime partner, GlaxoSmithKline (NYSE: GSK  ) , submitted to the Food and Drug Administration in July. Booking profits, rather than spending the royalty income on early stage programs, will make investors much happier.

Looking for more high-tech stock ideas like those in the biotech arena? Check out the Fool's free report, "The Next Trillion-Dollar Revolution" where you'll find a company quietly cashing in on the booming smartphone market. Click here to get your free copy.

Fool contributor Brian Orelli has no positions in the stocks mentioned above. The Motley Fool owns shares of GlaxoSmithKline. Motley Fool newsletter services recommend GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2060130, ~/Articles/ArticleHandler.aspx, 10/21/2016 4:44:15 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
ECYT $2.99 Up +0.04 +1.36%
Endocyte CAPS Rating: ****
GSK $41.13 Down -0.30 -0.72%
GlaxoSmithKline CAPS Rating: ***
MRK $61.20 Down -0.72 -1.16%
Merck and Co. CAPS Rating: ****
THRX.DL $0.00 Down +0.00 +0.00%
Theravance CAPS Rating: **