Medarex Cheering for Its Partner

On Friday baby biopharma Medarex (NASDAQ:MEDX) announced that partner AstraZeneca (NYSE:AZN) had advanced one of its compounds to later stage development following a successful initial phase 1 study.

The drug candidate MEDI-545 has been under development by MedImmune, which was recently acquired by AstraZeneca. MEDI-545 is being tested as a potential treatment for lupus. It was part of a two-drug research and development deal signed with Medarex in 2004 and which brought $15 million in upfront payments into Medarex's coffers.

AstraZeneca will be paying for all development costs associated with the drug but Medarex still stands to receive royalties and milestone payments should the drug make it to market. Medarex can also elect to co-develop MEDI-545 prior to the pivotal phase 3 studies of the compound. While that would increase Medarex's expenses, it also could mean more lucrative revenues in the future.

For a drug developer with less than a $2 billion market cap, Medarex has a huge amount of novel molecules in development. Over 30 compounds using its technology are in clinical stage testing between its own pipeline and the pipelines of its partners.

This is a relatively more risky path than drugmakers like Flamel Technologies (NASDAQ:FLML) are taking by developing compounds that are incremental improvements of existing therapies. But it also means potentially more upside if Medarex's differentiated compounds perform well in the clinic.

Medarex has development deals in place with several big name pharmas like Amgen (NASDAQ:AMGN), Bristol-Myers Squibb (NYSE:BMY), and Novartis (NYSE:NVS), which help dampen its cash burn rate and lessen its reliance on any one compound in its pipeline. Medarex's lead drug, ipilimumab, is in phase 3 studies with more data on it expected later this year, so investors won't have to wait long to find out if Medarex will have an approvable product in its fully stocked drug pipeline.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Flamel is a Hidden Gems recommendation. The Fool has a disclosure policy.