A Little Up Front and a Lot Later for Cell Genesys

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After the markets closed yesterday, small development-stage drugmaker Cell Genesys (Nasdaq: CEGE) announced that it has inked a partnership deal for its lead drug with pharmaceutical giant Takeda.

Cell Genesys' lead drug candidate is its immunotherapy GVAX, which is in two phase 3 clinical studies as a potential treatment for late-stage prostate cancer. The deal with Takeda gives Cell Genesys $50 million in up-front cash and an additional possibility for up to $270 million in regulatory and commercialization milestone payments. In return for this cash and a double-digit royalty on GVAX sales if approved, Takeda is getting worldwide marketing rights to the late-stage prostate cancer treatment.

Final results of the first of the phase 3 studies for GVAX aren't expected until the second half of 2009, with interim results from the other phase 3 study expected in the first half of next year, so Takeda won't have much of a wait to see if its partnership deal with Cell Genesys pays off. Either way, though, the deal didn't require it to put much skin in the game outside of helping to fund the phase 3 program, considering that most of its cash outlay in the deal consists of back-ended milestone payments contingent upon GVAX performing successfully in the clinic.

While the cash portion of the deal doesn't sound particularly exciting for Cell Genesys, it's hard to argue that it didn't pick up a good partner for GVAX. Takeda has experience in the prostate-cancer space with its hormone therapy Lupron, which it just gave to Abbott Laboratories (NYSE: ABT) as part of the companies' divorce. With only $147 million in cash and investments on its balance sheet and expenditure guidance around the $100 million range this year, Cell Genesys was also mightily in need of cash.

At its new market cap of $230 million, investors think Cell Genesys' value is about $50 million more today than it was yesterday. That seems a little understated, since the increase is the same as the up-front cash it will be getting from Takeda, and the deal should add value to the GVAX program beyond its intrinsic up-front cash. Such is the developmental-stage drugmaker market we're in right now.

One other thought worth pondering: If Cell Genesys' GVAX prostate cancer immunotherapy could convince Takeda to fork over more than $300 million in up-front and potential milestone payments after the kind of clinical study results it has produced, don't you wonder how much Dendreon (Nasdaq: DNDN) could get if it partnered out its prostate cancer immunotherapy, Provenge?