Cell Therapeutics Inc's (CTIC.O) shares rose as much as 24 percent after Baxter International Inc (BAX.N) threw its financial and marketing heft behind the smaller company's bone marrow disorder drug.
The two companies agreed to jointly develop and market the drug, which is being tested in a late-stage trial, in a deal that could fetch Cell Therapeutics' up to $362 million, including an equity investment by Baxter.
The companies will jointly market the drug, pacritinib, in the United States, while Baxter will get the right to market the drug outside the country, they said in a statement on Friday.
"We think a global partner is better for them, partly because of the cost of running global trials and the cost associated with developing and running a commercial team in the United States," HC Wainwright & Co analyst Reni Benjamin said.
Cell Therapeutics' Chief Executive James Bianco said the company had originally set out to find a partner that was not based in the United States, but that Baxter made the best "strategic sense."
Pacritinib is being tested in a late-stage trial to treat myelofibrosis, a disorder which disrupts the body's production of blood cells.
The deal will enable Cell Therapeutics' to develop the drug more quickly for other blood cancers, including acute myeloid leukemia, analysts said.
Cell Therapeutics' shares were up about 17 percent at $2.05 in morning trade on the Nasdaq. They hit a 52-week high of $2.17 earlier. Baxter's shares were up about 1 percent at $68.24.
LONG TERM COMMITMENT
Baxter will pay 75 percent of the development costs if they exceed $96 million and will bear all costs related to development in its own territories.
Baxter will pay $60 million up front. This includes $30 million to buy Cell Therapeutics' convertible preferred stock that will give it the right to about 15.7 million of the company's shares. (link.reuters.com/qaf74v)
Cell Therapeutics has about 130 million shares outstanding, according to Thomson Reuters data, and has a market value of about $227 million as of Thursday's close.
"An equity investment indicates a longer term commitment beyond the asset for which they're doing a deal," analyst Benjamin said.
"Clearly, Baxter views Cell Therapeutics as more than just an asset they can use, but potentially as a close partner going forward."
Cell Therapeutics would be eligible to get up to $112 million in milestone payments, $40 million of which it may get next year. The company expects $27 million in milestone payments in 2015.
The company will also be eligible for additional sales milestone payments of up to $190 million.
The upfront and milestone payments over the next two years would help Cell Therapeutics file for marketing approval for the drug in the U.S. and Europe without requiring additional equity financing, CEO Bianco said.
Cell Therapeutics will also get royalties from Baxter on drug sales outside the United States, and will split the profits from sales in the country.
Baxter will record a special pre-tax in-process research and development charge of about $30 million in the fourth quarter.
(Editing by Savio D'Souza)