Washington Editor

The latest long-running dispute over the outgrowth of a collaboration agreement has come to an end – with another agreement.

More than a week into a jury trial in a U.S. district court over rights to regorafenib, Bayer Healthcare and Onyx Pharmaceuticals Inc. ended their dispute Tuesday with a new agreement on the late-stage cancer compound that Onyx claimed was an offshoot of the companies' joint development of Nexavar (sorapenib), a blockbuster cancer drug.

The new agreement recognizes regorafenib as a Bayer compound and gives the company, a subsidiary of Bayer AG, of Leverkusen, Germany, the final decision-making authority for global development and commercialization of the multikinase inhibitor. But Onyx didn't come away empty-handed. As part of the agreement filed with the SEC:

• Bayer will pay Onyx 20 percent of future worldwide net sales of regorafenib in oncology;

• Onyx will have no obligation to pay past or future development and commercialization costs for the compound;

• South San Francisco-based Onyx will have the right to co-promote regorafenib in the U.S. and provide related medical science liaisons under a fee-for-service arrangement.

Should Onyx have a change in ownership, Bayer can terminate the co-promotion provision, but the big pharma still would have to pay royalties.

In addition to the regorafenib agreement, the companies amended their April 22, 1994, collaboration for Nexavar. Under that amendment, Onyx is trading its right to royalties on Nexavar in Japan, after Dec. 31, for a lump sum payment of $160 million from Bayer.

Onyx also may be in line for up to $15 million in 2012-13 based on Nexavar's pricing in Japan, according to a Form 8-K Onyx filed with the SEC Wednesday.

Japan is the only country where the companies did not split Nexavar sales revenue 50/50; instead, Onyx received 7 percent royalties on Japanese sales, J.P. Morgan analyst Cory Kasimov said in a report. Subsequently, Onyx received about $10 million from Japanese sales last year and could receive about $11.5 million this year.

Kasimov called the lump sum a prudent move "to monetize this modest royalty stream in exchange for a major near-term boost to the balance sheet."

Another revision in the Nexavar agreement strengthens Onyx's rights to the cancer drug, even if control of the company should change. By affirming that the biotech's rights and obligations would survive such a change, the amendment could make Onyx a more attractive acquisition target, according to Jefferies & Co. analyst Biren Amin, who bumped his price target for Onyx up from $44 to $46.

The agreements are seen as a win for Onyx. However, "given Bayer's comments regarding interest in M&A of [Onyx] in 2009, the choice of settling over acquiring may be an offsetting disappointment," BMO Capital Markets analyst Jim Birchemough said in a report.

The market didn't seem too disappointed as shares of Onyx (NASDAQ:ONXX) were trading Wednesday at more than quadruple the 50-day average daily volume. By the end of the day, more than 4.5 million shares of Onyx had been traded, with shares closing at $34.49, up $2.58, or 8 percent.

As for Onyx itself, the company is happy to put the litigation behind so the two companies can move forward with the development of both Nexavar and regorafenib. "This is really a good step for the partnership," Lori Melancon, director of corporate communications at Onyx, told BioWorld Today.

Nexavar, which has been approved to treat unresectable liver cancer and advanced kidney cancer in more than 100 countries, is in six Phase III trials for four tumor types. (See BioWorld Today, May 5, 2011.)

The FDA granted regorafenib orphan drug status in February and fast-tracked it in May as a treatment for gastrointestinal stromal tumors (GIST). Results are expected early next year from a Phase III trial evaluating regorafenib in patients with metastatic or unresectable GIST patients whose disease has progressed despite prior treatment with at least Gleevec (imatinib, Novartis AG) and Sutent (sunitinib, Pfizer Inc.). The compound also is in Phase III for kidney cancer.

Second-Generation Candidates Center of Spats

The Bayer/Onyx dispute is just the latest partnership spat to heat up over second-generation compounds. The Erbitux (cetuximab) collaboration between Bristol-Myers Squibb Inc. and ImClone Systems Inc. soured a few years ago when BMS claimed rights to IMC-11F8, a follow-on Erbitux compound. ImClone, later acquired by Eli Lilly and Co., insisted the product fell outside the scope of the original deal. (See BioWorld Today, Oct. 7, 2008.)

More recently, Biogen Idec Inc. and Genentech Inc., now part of Roche AG, turned to arbitration to end their dispute over follow-ons to jointly developed arthritis and lymphoma drug, Rituxan (rituximab). Biogen claimed Genentech needed its blessing to develop follow-ons, which could compete with the blockbuster Rituxan.

Genentech countered that Biogen's 2003 merger with Idec Pharmaceuticals Corp. did away with requirements in their 1995 collaboration since it constituted a change of control. (See BioWorld Today, June 18, 2009.)

The secret to avoiding such discord in a partnership is doing due diligence before signing on the dotted line, Veronica Mullally, a partner at Hogan Lovells US LLP, advised earlier this year. Part of due diligence is anticipating everything that could go wrong in a partnership and then addressing those issues in the contract. (See BioWorld Insight, March 28, 2011.)

"It really is all about how your contracts and agreements are written at the beginning," Mullally said, adding that those documents need to clearly define the intellectual property involved and the rights being assigned.

Agreements should define what is considered an improvement or a new drug and address second-generation drugs, especially when biologics are involved, she said.