Milestone fees covering Prochymal and Chrondogen could reach $1.25 billion.

Genzyme is paying $130 million upfront to Osiris Therapeutics for rights to two late-stage adult stem cell treatments excluding the U.S. and Canada. Osiris stands to earn $1.25 billion in milestones based on current and future development programs involving Prochymal and Chondrogen.

Prochymal is currently being evaluated in two Phase III trials for graft vs. host disease (GvHD) and one Phase III study for Crohn’s disease. Data from all three trials is expected in 2009. It is also in Phase II for type 1 diabetes and chronic obstructive pulmonary disease. Evaluations of Prochymal for acute myocardial infarction and Chondrogen for osteoarthritis of the knee are expected to begin soon.

The initial $130 million fee will come in two installments: $75 million at first and $55 million on July 1, 2009. Osiris is responsible for the clinical development costs for all ongoing trials as well as future trials for additional indications through completion of Phase II development. Osiris and Genzyme will split the cost of future Phase III and IV trials, with Osiris paying 60%.

The $1.25 billion milestone payments include $500 million related to development and regulatory activities for Prochymal in GvHD, Crohn’s disease, and other potential additional indications developed jointly. Prochymal annual sales of $500 million will trigger a $100 million fee. If annual sales reach $1 billion, Genzyme will pay $150 million.

Success-based fees for Chrondogen could total $500 million if Genzyme opts in on development after Phase II/III data come out. Development and regulatory milestones could total $100 million, and sales-related achievements could trigger up to $400 million. If Genzymes elects to not develop Chrondogen, all rights will revert to Osiris with no further obligation by either company.

Osiris is also eligible to receive significant escalating royalties on sales of Prochymal and Chondrogen within Genzyme territories.

Genzyme is considered one of the lead players in biopharmaceuticals, particularly in niche markets. It has three cell therapy based products. Additionally, Prochymal for GvHD is a good fit with Genzyme’s existing global transplant franchise, which includes Thymoglobulin® used in the prevention and treatment of acute rejection in kidney transplant patients. Chondrogen, on the other hand, would complement Genzyme’s existing orthopaedics franchise.

Genzyme and Osiris last year entered into a collaboration to develop Prochymal for acute radiation syndrome. In January, the companies were awarded a $224.7 million contract from the DoD to support this program.

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