Staff Writer

A combination of monoclonal antibodies co-developed by Medarex Inc. and Massachusetts Biologic Laboratories has been licensed to drug giant Merck & Co. Inc. in a deal worth up to $225M.

Princeton, N.J.-based Medarex and Massachusetts Biologic, part of the University of Massachusetts Medical School, will split equally a $60 million up-front payment and an additional $165 million in cash based on milestones associated with the development and approval of a drug candidate covered under the agreement.

Under the deal, Merck gains worldwide rights to develop and commercialize CDA-1 and CDB-1, designed to target and neutralize the effects of toxin A and toxin B, respectively, the toxins produced by the bacterium Clostridium difficile (CDI).

The monoclonal antibody combo showed positive results in a Phase II Medarex trial, the top-line results of which were published in November.

In the study of 200 patients, the CDA-1/CDB-1 combo showed a 70 percent reduction in the recurrent rate of CDI compared to placebo.

With those kinds of results - the p-value was .0004 - the company believed it had cleared a hurdle by demonstrating proof of concept, explained Christian S. Schade, senior vice president of finance and administration and chief financial officer at Medarex.

An oral presentation of the Phase II data is scheduled for the Digestive Disease Week meeting in Chicago on June 2.

But Medarex's goal all along, Schade said, was to out-license CDA-1/CDB-1, reasoning they would be better off in the hands of a company with infectious disease assets. Merck sells vaccines as well as medications for HIV and other infections, while Medarex generally develops compounds for oncology and inflammatory diseases.

In addition to its infectious disease portfolio, Whitehouse Station, N.J.-based Merck also has significant development and commercialization capabilities, he said.

The money from the Merck deal will "go a long way to allow us to continue investment in what we think is a pretty rich pipeline," Schade said.

The company has several other compounds in development, including Phase III ipilimumab which is partnered with New York-based Bristol-Myers Squibb Co.

Joe Pantginis, an analyst with Merriman Curhan Ford, wrote in a research note that "ipilimumab remains the core driver for the stock, in our view."

He noted that the company plans to release data from a Phase III melanoma study in the fourth quarter.

But Pantginis is bracing for some bad news. "[W]hile we could see a positive survival update from the Phase II ipilimumab studies at ASCO [American Society of Clinical Oncology] 2009, we maintain our negative stance on the outcome of the Phase III study. We believe this could lead to significant weakness in the share price late in 2009."

Schade described Medarex as being in a "comfortable position" to execute on its business strategy. The company ended 2008 with about $350 million in cash and cash equivalents.

In addition, he said that Medarex has roughly $120 million of investments in the other companies in which it holds equity, Genmab A/S of Copenhagen, Denmark, and Celldex Therapeutics Inc., of Needham, Mass.

Medarex also has a partnership with Centocor Ortho Biotech Inc. that could yield further milestone payments and royalty revenues.

That deal covers antibodies Simponi and Stelara, which are approved in Canada and Europe and are awaiting a U.S. approval decision.

Under the Merck deal, Medarex and Massachusetts Biologic also will be eligible to receive double-digit royalties on product sales and milestones if certain sales targets are met.

The incidence of CDI in the U.S. is rapidly increasing, with rates doubling from 2000 to 2005. The Centers for Disease Control and Prevention has projected that there will be as many as 750,000 cases of CDI per year by 2010. It is a primary cause of infectious diarrhea in hospitalized elderly patients.

The toxins produced by the infection cause damage to the GI tract lining in the colon, resulting in severe diarrhea, and may lead to perforation of the colon and/or death.

Treatment of severe disease requires administration of additional antibiotics to kill the C. difficile bacteria, but relapse/recurrence of CDI is common, and is estimated to occur in 20 percent of cases, with post-therapy recurrence rates as high as 60 percent, according to Medarex.

However, nonantibiotic-based approaches to neutralize C. difficile toxins may be important options to facilitate recovery of the GI flora, the company said.

Shares in Medarex (NASDAQ:MEDX) were up 20 cents, closing at $5.72.