Cancer drugs are in hot demand. Last week Johnson & Johnson
The deal looks like a good one for Exelixis. The company got $140 million up front and there's potential for $1 billion in milestone payments for meeting regulatory and commercial goals. Sanofi-aventis will take over the remaining clinical development, including footing the bill. The drugs (currently in phase 1 and phase 1b/2 trials) target a pathway commonly activated in human cancer cells that leads to survival and resistance to chemotherapy, so there's a lot of promise. The companies will collaborate on developing other compounds that target the same pathway, which should result in another $21 million for Exelixis.
Compare that to Johnson & Johnson's purchase of Cougar. It got one phase 3 drug and a couple of phase 1 drugs for $970 million. And Johnson & Johnson won't be paying double-digit royalties, so Exelixis is getting a good deal. It's also considerably more risky because the milestone payments and royalties aren't guaranteed. If the drugs don't work, there won't be any additional cash coming in.
Not that Exelixis needs much cash in the near future. Between this deal and the one it did with Bristol-Myers Squibb
However, not every development-stage drugmaker is sitting on this much cash, so don't expect any other deals that may come out of ASCO to be this good.
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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Johnson & Johnson is a selection of the Income Investor newsletter. The Fool owns shares of Exelixis and has a disclosure policy.