Any questions lingering over Bristol-Myers Squibb Co.’s zeal for Five Prime Therapeutics Inc.’s lead colony-stimulating factor 1 receptor (CSF1R) antibody, FPA008, fell away as the pharma exercised its option to exclusively license the drug and other candidates in the CSF1R program, positioning Five Prime to earn up to $1.74 billion for FPA008, inclusive of a $350 million up-front payment, should a series of future events go its way.

Lewis “Rusty” Williams, founder, president and CEO of Five Prime, called the deal “transformational for Five Prime in many positive ways,” giving his company the best partner with which “to broaden and accelerate the development of FPA008 in this fast-moving and competitive landscape.”

Five Prime shares climbed (NASDAQ:FPRX) $11.02, or 65.2 percent to close at $27.93 on Thursday, while BMS shares (NYSE:BMY) rose $1.55 to close at $63.63.

“We and BMS felt that we really needed an intense effort in this combination trial,” Williams said during a company conference call Thursday. Five Prime had certain criteria for judging a potential deal with BMS or anyone else, he said, including not just optimal financial terms and confidence in the potential of the partnership, but also the ability to be able to continue to pursue its own development programs. “Having achieved those criteria, we felt it was a good time to do the deal and get this program moving even faster.”

Beyond the clear up-front win, the particulars of the deal get a little complex.

South San Francisco-based Five Prime is eligible to receive up to $1.05 billion in development and regulatory milestone payments per anti-CSF1R product for oncology indications, including combinations with BMS’s PD-1 immune checkpoint inhibitor, Opdivo (nivolumab), and any other agent.

For oncology-focused combinations including both a Five Prime CSF1R asset and a BMS asset that’s not Opdivo, it could earn $542.5 million in developmental and regulatory milestone payments.

Five Prime also stands to gain up to $340 million in development and regulatory milestone payments per anti-CSF1R product for non-oncology indications, as well as double-digit royalties on those products, a rate that could rise somewhat should Five Prime exercise a right to co-promote any approved products in that category.

BMS is on the hook for most of the costs and expenses relating to the phase Ia/Ib trial Five Prime is running to test the combination of Opdivo and FPA008 in six tumor types, an arrangement announced as part of the companies’ initial clinical collaboration in November 2014. Williams said Five Prime expects to complete part Ia of that trial and move into part Ib in early 2016 in the six tumor types: non-small-cell lung cancer, melanoma, head and neck cancer, pancreatic cancer, colon cancer and malignant glioma. (See BioWorld Today, Nov. 25, 2014.)

Under terms of the deal, BMS is also responsible for development and manufacturing of FPA008 and any other product it licenses for all indications, subject to a few exceptions. One of those exceptions involves the ongoing phase I/II trial of FPA008 in pigmented villonodular synovitis (PVNS), for which a dose-escalation phase is expected to be completed in early 2016. Testing FPA008 as a potential treatment for PVNS and testing the drug in combination with Five Prime’s own immuno-oncology assets is Five Prime’s responsibility, unless BMS decides to jump in to take part. If it does, terms change, and how they change depends on when BMS acts. If BMS enters the picture prior to Five Prime starting its PVNS or immuno-oncology trials, it would pick up both the development costs and the milestone payments. If it acts later, but before reviewing any data from the first pivotal trial for the program it opts into and that program is approved in a major market, BMS would owe Five Prime 125 percent of the development expenses.

CHASING IMMUNO-ONCOLOGY MARKET SHARE

In tandem with the deal announcement, Five Prime also said it’s wrapping up a phase I trial of FPA008 in rheumatoid arthritis (RA) patients. Williams said the company doesn’t intend to proceed with a randomized cohort and isn’t planning any additional RA trials at this point so that it can focus on development in immuno-oncology and PVNS.

Following receipt of the $350 million up-front, Five Prime expects to have in excess of $500 million in cash.

Leerink Partners analyst Michael Schmidt said his team sees significant upside for Five Prime’s current valuation “with the stock trading just above cash, driven by advancement of FPA008 in immuno-oncology combinations, ‘precision oncology’ products FPA144 (anti-FGFR2b) and FP1039 (licensed to GSK) as well as its new immune checkpoint modulators.”

Given the intense competition among big pharma companies chasing immuno-oncology market share, “and little intrinsic differentiation among anti-PD-1/PD-L1 agents (at least in terms of basic activity), we continue to see small/mid cap biotechs owning IO assets that are complementary to PD-1 inhibition and combine-able as well positioned,” he said.

The logic of the combination of FPA008 and anti-PD1 agents turns on the finding that inhibition of CSF1R in preclinical models of several cancers reduces the number of immunosuppressive tumor-associated macrophages in the tumor microenvironment. That facilitates immune response against tumors, potentially holding the key to getting around resistance problems encountered by checkpoint inhibitors such as Opdivo.

“By blocking a key mediator of immunosuppression in the tumor microenvironment, CSF1R inhibition with FPA008 represents a potentially important complementary immuno-oncology mechanism of action to the T-cell-directed antibodies and co-stimulatory molecules in our pipeline,” said Francis Cuss, executive vice president and chief scientific officer of BMS. The company did not respond to a request for further comment.

The agreement remains subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act.

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