Transgene's Licencing Deal With Novartis Disappoints

French biotech firm Transgene SA (TNG.FR) Wednesday said it has entered a licensing deal with Swiss pharmaceutical giant Novartis AG (NVS) for its experimental lung cancer vaccine.

But the terms of the deal fell short of elevated market expectations and raised concerns over the vaccine's prospects, sending Transgene's stock nearly 20% lower at the Paris stock exchange.

Transgene said that as part of the deal Novartis will pay the French firm $10 million and could pay up to EUR700 million should the vaccine prove successful.

Transgene said it "will fund and retain control" of the next clinical development phase of the therapeutic vaccine that is known under the name TG4010 and is indicated to treat people who have lung cancer.

Transgene said it will start global phase IIb and phase III clinical trials by the end of 2010, involving around 1,000 patients. It expects phase IIb results in 2012 and final results by the end of 2013.

"The deal is a disappointment as Transgene will retain most of the costs and risks for developing the drug at the beginning," said Nomura analyst Gary Waanders.

"The market had expected a conventional licensing deal amid which Novartis would have taken up most of the risk and paid a higher upfront fee," he said.

Due to these concerns, shares of Transgene, which have gained about 37% over the past twelve months, fell 17.5%, or EUR3.98, to EUR18.35.

The market also worried about the fact that Transgene will have to make another phase II trial after the vaccine last year showed positive results from a mid-stage trial, analysts said.

The positive outcome, which showed the vaccine to be potentially effective to treat other cancers too, had raised hopes Transgene's product could reach up to EUR1.3 billion in peak sales once on the market.

Despite these concerns, Transgene remained confident about its prospects and hailed the deal with Novartis as a major milestone.

"We are delighted to have reached this agreement with Novartis," said Philippe Archinard, Chief Executive Officer of Transgene.

"We believe this agreement represents the best way to accelerate development and create long term value for our shareholders," he said, adding that the terms of the deal are "consistent with the company's goal of becoming a fully integrated biopharmaceutical company, as under this agreement Transgene will maintain certain commercialization and manufacturing rights".

Company Web Site: www.transgene.com

-By Goran Mijuk, Dow Jones Newswires, +41 43 443 80 47; goran.mijuk@dowjones.com

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