MediGene moving into crucial partnership phase

Analysis

Positive final phase II results released today for MediGene’s most valuable pipeline candidate, EndoTAG-1 in the treatment of pancreatic cancer, should help accelerate partnering discussions for the drug which the German company confirmed are ongoing. In the short term the news has provided a much-needed boost to MediGene’s shares, rising 8% to €4.77 today.

Whilst MediGene’s ongoing divestment of non-core assets suggests the company is attempting to make itself more attractive as a takeover target, which at currently depressed market values remains a possibility, the more likely outcome appears to be a partnership for EndoTAG-1. Some analysts expect a deal to be signed within the next few months, with Eli Lilly a prime candidate partner, just ahead of Pfizer and Novartis.

Imminent deal

Marcel Wijma, senior equity analyst at SNS Securities, expects that “given the current financial turmoil, a deal will be signed by the end of this year, or in the first quarter of next year at the latest”. Mr Wijma believes MediGene is keen to secure a partner on the strength of the phase II data in pancreatic cancer, without having to wait for results of another phase II trial of EndoTAG-1 to treat breast cancer, due some time next year.

As to whether partnering talks will evolve into a full-blown takeover deal, Andrew Weiss, analyst at Vontobel Securities, confirmed this remains a real possibility: “Regarding partnering options, I wonder if somebody might just step in and buy the whole company.”

MediGene’s strategy to focus on oncology and immunology settings has led to the company selling the European rights to its dermatological product Oracea to Galderma and also seeking a buyer for another skin product Veregen, with current US partner Nycomed, the most obvious candidate to buy out MediGene’s rights in Europe.

These moves would certainly help to make MediGene more palatable to a large pharma company, although Mr Wijma believes that the traditionally conservative approach of big pharma to these types of company who lack an approved drug, or at least positive phase III data, suggests a product or technology specific partnership is more likely.

Lilly at the front of the usual suspects queue

MediGene’s clear and open desire to secure a partner before starting costly and lengthy phase III trials has led to rumours in the market that a number of big pharma companies are considering an approach, including Eli Lilly, Pfizer and Novartis.

Although questions have been raised over Lilly’s ability to raise the whopping $6.5bn it requires to buy ImClone Systems, the US pharma giant’s move for ImClone is a loud and clear signal that Lilly is committed to enhancing its portfolio of cancer drugs.

Considering the trials of EndoTAG-1 in pancreatic cancer were conducted in combination with Lilly’s Gemzar, a blockbuster pancreatic cancer drug which itself will lose patent protection in 2010, the rationale for a partnership with Lilly is clear.

Pfizer, the perennially rumoured partner whenever a potential blockbuster drug is seeking a collaborator, has already been strongly linked to MediGene - MediGene goes through the Pfizer target rumour mill, May 14, 2008. A potential takeover deal of around $500m for MediGene could be just the kind of relatively small-scale acquisition that Pfizer’s management is seeking.

Novartis is also keen to increase its oncology portfolio and its $890m deal with Antisoma last year for a phase II cancer drug, including a $75m upfront fee, could provide a natural benchmark for a potential EndoTAG-1 partnership.

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