Transgene deal disappoints but were expectations too high?

Transgene announced today that Novartis has bought an option over its lung cancer vaccine for €10m upfront, terms that unsurprisingly disappointed many observers; a full licensing deal has been heavily trailed for some time helping the company’s shares to advance 69% in the last 12 months. However, viewed in the cold light of day, were expectations around this deal just too high?

Aside from Dendreon - currently boasting a hefty market cap of $4.75bn indicating that investors are convinced its prostate cancer immunotherapy, Provenge, is a dead cert for approval and commercial triumph - the cancer vaccine field remains noticeably bereft of real success stories. Very few big pharma toes have been dipped into the water, particularly in terms of in-licensed products, and knock-out phase III data is hardly commonplace. Transgene might be guilty of over enthusiastically fanning the flames of expectation, but it is debatable whether better terms could have been extracted at this point, without giving away too much of TG 4010’s potential value.

Jam tomorrow

Still, investors expecting a full licensing deal for TG 4010 can be forgiven for their disappointment. Novartis has only bought an option over the product at this stage, which does not vest until 90 days after further phase IIb data becomes available, expected in the first quarter of 2012.

Should full rights be acquired, €700m in milestones then become available. Analysts at Chevreux wrote today that the majority of that sum is due before regulatory filings, suggesting a sizeable upfront on signing the deal.

From a disappointed investor’s point of view this means that the pledged cash remains a long way from Transgene’s bank account, and the company retains all the risk on the product for the next two years.

Additionally, the phase IIb and III trials that are scheduled to start towards the end of this year will be internally funded, with Novartis only re-funding the costs of the phase III portion should it take up its option. The programme is expected to cost €15m.

Long term view

Transgene shares fell 14% today to €19.23, prompted by disappointment over deal terms and lack of other bright spots on the horizon. There is no doubt that Transgene is now a stock for those with a long term view.

However, a couple of factors should be remembered. At the end of September the company had €73m in cash, more than enough to fund further work on TG 4010 and other pipeline candidates for now. Additionally, the company is 53% owned by the Merieux Alliance, an investor in it for the long term and which is likely to be prepared to back attempts to maximise the value of TG 4010 for Transgene.

Other investors now must chose whether to take a long term view on TG 4010. Results from the 150-patient phase IIb study are not due until early 2012, and the 1,000-patient phase III trial will not report until 2013.

The candidate, an “off the shelf” vaccine, works by alerting the body to a tumour-associated antigen called MUC1. A previous study found that patients with normal levels of activated natural killer cells responded much more strongly, and this biomarker will be used to select patients for the pivotal trial. The phase IIb study will seek to replicate this finding and reaffirm the validity of the biomarker, the fact that Novartis’ decision will rest on its outcome highlights how critical this data will be.

Best on the table?

Assumedly, Novartis’ offer was the best on the table in the eyes of Transgene’s chief executive, Philippe Archinard, who had made it clear that retaining value in the long term was a central goal, adding that he was prepared to share some of the costs, and risk, to achieve this (EP Vantage Interview - Transgene targeting cancer vaccine deal by year end, July 20, 2009).

The table below lists deals struck in this space, which are certainly few and far between, and it is premature to draw firm conclusions until a final deal is signed for TG 4010. It should also be remembered that none of these represent successful licensing deals: GVAX has since failed, TroVax has been handed back and Pfizer is re-running phase II studies on CDX-110.

If Transgene can validate its biomarker, a full deal for TG 4010 could easily start to look more lucrative than those below. It is just a shame it will come two years later than many investors were expecting.

 Cancer vaccine deals
 Company  Product  Partner  Indication  Status on Deal Date  Deal Date   Deal Value ($m)   Upfront Payment ($m)  Milestones ($m)
 AVANT Immunotherapeutics   CDX-110  Pfizer  Brain cancer   Phase III    Apr 2008    440    40    390  
 Cell Genesys  GVAX Prostate  Takeda  Prostate cancer   Phase III   Mar 2008    316    49    267  
 Oxford BioMedica  TroVax  Sanofi-Aventis  Kidney cancer   Phase III   Mar 2007    850    45    805  

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