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