UPDATE 2-GenVec, Novartis ink deal on hearing loss treatment

* GenVec to get $5 mln upfront payment

* Novartis buys $2 mln GenVec shares

* GenVec shares up 24 pct (Adds GenVec CEO comments, details, updates share movement)

By Anand Basu

BANGALORE, Jan 19 (Reuters) - Clinical-stage biopharmaceutical company GenVec Inc (GNVC.O) signed a deal to license its treatments for hearing loss and balance disorders to Novartis (NOVN.VX), sending GenVec shares up 24 percent to a two-year high.

GenVec is developing a technology to restore hearing or balance function through regeneration of sensory hair cells, specialized cells of the inner ear that help in hearing and balance.

"It (the deal) validates our core technology, provides a new product pipeline and can generate substantial money through development and sales milestones," Chief Executive Paul Fischer said by phone.

Preclinical results suggest that delivery of the atonal gene, which induces the generation of these critical cells, using GenVec's adenovector technology may restore hearing and balance function, the company said.

GenVec is also developing TNFerade, a drug to treat locally advanced pancreatic cancer by stimulating the production of TNF-alpha -- an immune system protein with anti-cancer effects.

Fischer said GenVec is in discussions with "numerous companies" for ex-U.S. partnership for the late-stage pancreatic cancer drug.

DEAL TERMS

Under the terms, GenVec will receive a $5 million upfront payment. Novartis has already purchased $2 million of GenVec shares.

Novartis gained worldwide rights to develop and commercialize GenVec's preclinical hearing loss and balance disorders program.

GenVec may receive payments of up to $213.6 million, including upfront and milestone payments.

Also GenVec will receive funding from Novartis to develop additional adenovectors, which are used to deliver genes into cells, for hearing loss.

Shares of GenVec were up 11 percent at $1.93 in morning trade Tuesday on Nasdaq. They touched a high of $2.16 earlier in the session. (Reporting by Anand Basu in Bangalore; Editing by Ratul Ray Chaudhuri)