Vical Transplants Some Firepower

When transplants are performed, patients have to take drugs to suppress the immune system, keeping it from rejecting the new cells it sees as foreign. Unfortunately, the suppression can also leave patients vulnerable to attacks from routine viruses (such as cytomegalovirus) that the immune system usually handles easily.

To control the cytomegalovirus, Vical (Nasdaq: VICL  ) has developed TransVax, and now it has some big-pharma firepower to push the drug through clinical development. Vical announced yesterday that it had licensed TransVax to Astellas Pharma for $35 million in the near term, and potentially another $95 million if the drug hits development milestones.

Total payments of $130 million aren't really all that much for a phase-3-ready compound; consider that Micromet's (Nasdaq: MITI  ) preclinical deal with Amgen (Nasdaq: AMGN  ) had a price tag of $975 million for two drugs. But it looks like Vical might have traded some milestone payments for a higher royalty rate. Instead of "tiered royalties that can reach double-digits," as is typical for licensing deals, Vical said it's due double-digit royalties -- as in at least 10% from day one of the launch.

While the vaccine will have a much smaller market than vaccines like Pfizer's (NYSE: PFE  ) Prevnar, Merck's (NYSE: MRK  ) Gardasil, or GlaxoSmithKline's (NYSE: GSK  ) Cervarix, it'll likely come with a much higher price tag to make up for the limited patient population. For instance, AstraZeneca's (NYSE: AZN  ) Synagis, which is used to prevent infections of the respiratory syncytial virus in premature babies, is still a blockbuster.

Of course, talk of sales and royalties is a little premature at this point. TransVax needs to prove successful in its yet-to-be-started phase 3 trial before we can transplant those milestone and royalty payments to the revenue line.

Looking for the Vical of the new technology revolution? Grab this free report and find out which company Fool analysts think will win.