PDL BioPharma's Partnership Makes Sense

Sometimes, it's better to share in the potential rewards from a drug.

On Tuesday, PDL BioPharma (Nasdaq: PDLI  ) and Bristol-Myers Squibb (NYSE: BMY  ) signed a partnership deal for one of PDL's early-stage drug candidates. While it's not the biggest deal in the biotech space, agreements like this can make sense for both partners.

In exchange for giving up control of its phase 1 compound elotuzumab, PDL BioPharma will receive a modest $30 million up front from Bristol-Myers and up to $480 million in milestone payments, depending on how the compound does in clinical testing and whether it's approved to be sold to treat multiple myeloma, or cancer in the bone marrow. Equally as important, Bristol-Myers will cover 80% of any future development costs for the compound, and PDL BioPharma will split any profits from it in the U.S.

Elotuzumab is in two phase 1 studies. Unlike already-approved multiple myeloma treatments from Celgene (Nasdaq: CELG  ) and Takeda, elotuzumab works by targeting a different part of the cancer, so it could be used in combination with these other therapies.

I can't find any other drugmakers developing compounds to attack multiple myeloma through the same pathway as elotuzumab, and there certainly aren't any approved drugs that target this pathway. Because other compounds haven't successfully treated this target, this ratchets up the risk and reward potential with the compound, as we've seen with other novel PDL drug candidates.

The problem for Bristol-Myers and other biotech-hungry big pharmas like Pfizer (NYSE: PFE  ) and AstraZeneca (NYSE: AZN  ) is that there aren't a lot of good biotech assets out there to acquire. Nonetheless, Bristol-Myers has been aggressively trying to expand its biologics drug pipeline, as seen with its recent bid to acquire ImClone Systems (Nasdaq: IMCL  ) . While getting rights to elotuzumab is a far cry from acquiring a drugmaker the size of ImClone, Bristol-Myers still gets to build out its pipeline for a very cheap up-front cost.

The partnership makes sense for PDL BioPharma as well. Considering that elotuzumab is in such early stages and is going after an unproven target, it makes sense for PDL to share the risk of developing it in exchange for giving up some of the rewards if elotuzumab ever makes it to market. These kinds of deals will allow PDL to continue discovering new compounds without rapidly burning through the $375 million in cash it will use to capitalize its development-stage biopharma assets, soon to be spun off.

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Fool contributor Brian Lawler owns shares of PDL but no other company mentioned in this article. Pfizer is an Inside Value and an Income Investor pick. Try any of our Foolish newsletters today, free for 30 days. The Fool has an A+ disclosure policy.


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  • Report this Comment On August 25, 2008, at 5:37 PM, biotechbull wrote:

    This is an unprecedented deal in pharma. Phase 1 for $30mm upfront and 80/20 split--these terms resemble phase 2 or 3 deal comps! If they can get a couple of more of these with their other unlicensed programs--this stock is going to get real hot after the spin-off!

    Go PDLI

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