How does Cell Genesys Spell Relief? T-A-K-E-D-A

These days an ailing biotech can't do better than look to Takeda for a cure (er, partnership). In February, Amgen announced its monster two part deal--worth well north of $1 billion--with the Japanese pharma. On late Monday afternoon, Cell Genesys announced its own $320 million agreement with the company.

While not in the biobucks stratosphere, this deal ain't chump change either. Especially considering it centers around a promising, but unproven technology: Cell Genesys' Phase III GVAX immunotherapy for prostate cancer. It's a "truly validating deal," noted Joe Pantganis, an analyst with Canaccord Adams, on the company's March 31 conference call discussing the news. (If there is such a thing as a validating deal anymore, we suppose.)

As part of the deal, Takeda agreed to fork over $50 million in up-front payments, plus additional regulatory and commercialization milestones worth up to $270 million for exclusive world-wide rights to the product. In addition, Takeda will pay Cell Genesys tiered, double-digit royalties based on net sales of the GVAX immunotherapy in the US; in all other regions, Cell Genesys will receive flat double-digit royalties. Not quite a profit split, but again, by no means stingy.

Just as important, going forward Takeda will pay for all external development costs associated with the the immunotherapy's clinical development and will also pick up the tab for all additional development and commercialization costs. Cell Genesys even managed to wrangle a co-promote option--US only--out of the Japanse firm. Finally, the deal only includes the prostate cancer immunotherapy. Cell Genesys is free to develop its GVAX technology to treat other cancers.

"It's the best possible deal and the best possible partner," said Dr. Stephen Sherwin, Cell Genesys's chairman and CEO.

There's no doubt the deal makes financial sense for Cell Genesys. On its fourth quarter earnings call in late February, the company's CFO, Sharon Tetlow, reported it had just $147 million in cash. Not bad for a biotech, but not good considering the $100 to $105 million burn the company forecasted for 2008, thanks largely to the significant costs associated with its prostate cancer immunotherapy trials, VITAL-1 and VITAL-2. With one partnership, the company has managed to off-load the lion's share of these costs, giving it some much needed breathing room, while still enjoying upsides in terms of development and generous royalties.

Still, just $50 million for a Phase III product? (Recall that GSK paid, up-front, more than $100 million in cash and $350 million in equity at a 36% premium for Genmab's Phase III Hu-Max CD20 antibody for CLL, NHL and RA, though that deal was certainly an outlier.) Isn't prostate cancer a blockbuster indication--especially if Cell Genesys can get it approved for use earlier in the treatment cycle? Yes, and no. Cell Genesys and Takeda must travel a long road together before they can claim their GVAX immunotherapy is a true blockbuster. And the relatively low up-front for a late-stage product reflects the risks associated with a cellular therapy of this kind.

You see, Cell Genesys's GVAX Prostate is supposed to work like the traditional vaccines given for influenza or measles. It's comprised of cancerous cells from two different cell lines taken from very advanced--and very malignant--prostate tumors. (These cells have been irradiated so they can't multiply after injection into the patient.) In theory the cells display many of the common antigens found in refractory prostate cancer.

The hope is these antigens will trigger the patient's immune system to start recognizing these cells as a threat, clearing the cancer from the body. But to be effective, the immune system needs a little help. As a result, Cell Genesys has also engineered its GVAX Prostate cell mixture to spit out an important immune stimulatory molecule called GM-CSF. It's this combination of GM-CSF plus the antigens that leads to the supposedly greater efficacy of GVAX Prostate compared with other cancer immunotherapies. (Remember the fuss about Dendreon's Provenge?)

At least in theory. As Adam Feuerstein of TheStreet.com noted in a post Tuesday, the clinical data associated with Cell Genesys' prostate immunotherapy come from Phase II trials that were small in number and non-randomized. In other words, there's a high probability that GVAX Prostate could fail to achieve its Phase III endpoints. (Results from the VITAL-1 trial aren't expected until the second half of 2009 at the earliest.)

Thus, Sherwin and his team deserve kudos for inking such a rich deal for such a risky product. (It's more than competitor Dendreon has managed. That biotech's Provenge is still unpartnered despite the completion of two Phase III clinical trials and a third underway.)

But perhaps Takeda deserves accolades as well. True, the company is desperate to extend its reach beyond Japan given that country's sluggish growth and harsh price cuts. And, like other pharmas, Takeda certainly faces its own patent cliff. But the Japanese pharma is taking bold steps to play in the large molecule arena; according to Windhover's Strategic Transactions Database, Takeda has signed 9 large molecule alliances since 2006. While most of the deals have focused on antibody technology--a la the Amgen partnership--the company is no stranger to risky ventures. Last summer, Takeda became one of the first pharmas to collaborate with aptamer pioneer, Archemix (more on Archemix, and aptamers, in the next IN VIVO).

Given the controversy swirling around cancer immunotherapies, it seems likely many other pharmas would have steered clear of Cell Genesys's GVAX Prostate. But perhaps Takeda sees something those other companies are missing. Takeda is, after all, the company that brought the leading prostate cancer therapy, Lupron, to market.

What's that saying linking risk and reward?

Library of Congress photo (via Flickr) used under a creative commons license.