Aveo set to earn more than $1.3 billion in licensing deal with Astellas for cancer drug tivozanib

In another licensing deal that confirms the trend of smallish upfront payments but mega potential rewards, Japanese drug major Astellas (TSE: 4503) has acquired global rights (excluding Asia) to USA-based Aveo Pharmaceuticals (Nasdaq: AVEO) lead cancer product candidate tivozanib, in an accord that could earn a potential $1.3 billion or more for the US firm.

Aveo’s share leapt 22% to $16.99 on the news in extended trading yesterday, having already ramped up some 54% since its March 2010 initial public offering, and Astellas gained 1.5% to 3,315 yen by close of trading in Tokyo. The Aveo drug appears to be the best of that class,” based on data released last year, said George Farmer, an analyst with Canaccord Genuity quoted by Bloomberg. He added that he expects it is probable tivozanib will compete with drug behemoth Pfizer’s treatment for cancer including renal cancer Sutent (sunitinib) which generated sales of $1.1 billion last year. The kidney cancer drug market is currently estimated at around $2 billion a year.

Under the terms of the deal, Aveo will receive an initial cash payment of $125 million, composed of a $75 million license fee and $50 million in R&D funding. Aveo is also eligible to get around $1.3 billion in potential milestones comprised of $575 million in clinical and regulatory milestones, including $90 million in connection with the regulatory filings and market approval of tivozanib in renal cell cancer (RCC), as well as more than $780 million in commercial milestones. This will be a hefty boost for Aveo, which yesterday also posted 2010 financial results, showing that it made a loss of $58.8 million, or $2.30 a share, for the year, on collaboration revenues of $44.7 million. The company ended 2010 with cash, cash equivalents and marketable securities of $140.2 million.