UPDATE 2-OncoGenex, Teva in deal for cancer therapy

* Teva to make initial payment of $60 mln

* Teva to invest $10 mln in OncoGenex

* To buy OncoGenex shares at $37.38/shr

* OncoGenex to get up to $370 mln in milestones

* OncoGenex shares down 32 pct (Recasts; Adds conference call details, analyst comments, updates share movement)

By Anuradha Ramanathan

BANGALORE, Dec 21 (Reuters) - OncoGenex Pharmaceuticals Inc (OGXI.O) signed a licensing agreement with Israel's Teva Pharmaceutical Industries Ltd (TEVA.O) for its cancer therapy for an upfront payment of $60 million, but OncoGenex shares got hammered as investors expected a better deal.

Teva will give OncoGenex an initial payment of $60 million for OGX-011 -- co-developed with Isis Pharmaceuticals (ISIS.O) -- which includes a $10 million equity investment in OncoGenex at $37.38 a share.

"I think investors were disappointed because they are focusing on the relatively low upfront payment," Rodman & Renshaw analyst Simos Simeonidis said, and added that some investors were expecting the company to get acquired.

Simeonidis cited another prostate cancer drug deal between Japanese drugmaker Astellas Pharma Inc (4503.T) and U.S. biotech Medivation Inc (MDVN.O) in October, in which Medivation would get an upfront payment of $110 million. [ID:nN27232593]

However, this deal was different in that Teva will pay for all the development costs related to the drug, whereas Medivation will split costs with Astellas, the analyst said.

"The market reacted negatively and that is a mistake because this is a well thought-out deal for OncoGenex as it preserves value for (OGX-011), for both prostate and lung cancer in the long term," Simeonidis said.

The company's experimental candidate OGX-011, in combination with first-line chemotherapy, is being studied as a treatment for prostate cancer and treatment for lung and breast cancer.

OncoGenex is also set to receive tiered royalties on sales of the product with the royalty percentage ranging from the mid-teens to the mid-twenties, and retains an option to co-promote OGX-011 in the United States and Canada.

"Trying to capture the value, should the product succeed, is really difficult to do in milestones. Whereas, if you capture them in royalties you benefit from the various indications and that's the best way to transact," the company said on a conference call.

OncoGenex will be eligible to receive up to $370 million in additional cash payments upon achievement of various regulatory and sales targets milestones.

"The agreement provides us with capital resources for the development of OGX-011 through completion of the Phase III clinical trials and into product commercialization," OncoGenex Chief Executive Scott Cormack said in a statement.

Shares of OncoGenex fell as much as 32 percent to $20.10 Monday morning on Nasdaq, but pared some losses and were trading down 24 percent at $22.40. (Reporting by Anuradha Ramanathan in Bangalore; Editing by Unnikrishnan Nair) ((anuradha.ramanathan@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800: Reuters Messaging: anuradha.ramanathan.reuters.com@reuters.net))