Medarex (NASDAQ:MEDX) is best known for being a leader in antibody technology with its capabilities for generating human antibodies in mice. This morning, the company announced a major partnership with Bristol-Myers Squibb (NYSE:BMY) in which the two companies will collaborate on the development of MDX-010. Aside from the great financial terms, this deal is an important step in Medarex's transition from a research company to a company with commercial operations.

This partnership is for Medarex's drug MDX-010, which is in the final stages of clinical testing for the treatment of metastatic melanoma. Medarex received $50 million up front and could receive up to another $480 million depending upon product approval and reaching sales milestones. In my article last week, Biotech's 5-Baggers: Part 3, I talked about how cancer drugs are very hot commodities, and the size of this deal is a great example of that argument.

In addition to the hefty milestone payments, Medarex has an option to co-promote the drug in the U.S. If that option is exercised Medarex will receive 45% of profits from sales of MDX-010 in the U.S. Medarex will also receive a royalty on international sales of the drug. The royalty rate was not disclosed, but it is likely in the double-digit range. Despite partnering the drug, with the structure of the deal Medarex has retained significant value for its shareholders.

Choosing Bristol-Myers as a partner was not just good financially for Medarex; it also bodes well for the future development of the drug. Bristol-Myers is one of the world's top drug companies in the oncology field with important drugs such as Erbitux, which was developed by ImClone Systems (NASDAQ:IMCL), Taxol, and carboplatin in its portfolio. With such extensive expertise with cancer drugs, Bristol-Myers' interest in MDX-010 is a very good omen for the future prospects of the drug. Of course, until the phase 3 trial is completed we won't know for sure whether MDX-010 is effective.

Drug development is a long process, so knowing the timeline until the drug could hit the market is important. MDX-010 is in the final stage of clinical testing, and the FDA has already indicated with a Special Protocol Assessment that if the results of the trial are positive that the drug would be approved. Medarex's management has disclosed that this trial will complete in the first half of 2006. I expect that the company would file for approval in the second half of 2006 with the drug getting FDA approval in 2007.

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Fool contributor Charly Travers owns shares of Medarex but none of the other companies mentioned.