Company opted to earn royalties instead of share profits related to sales of anticancer agent in North America.

MethylGene has decided to stop funding development of cancer drug candidate MGCD0103 and convert to a royalty-stream and milestone-fee arrangement with Celgene under the terms of the 2006 agreement. The compound is in multiple clinical trials including six Phase II studies in different types of leukemia and lymphoma.

MethylGene will not be responsible for funding development after a 90-day transition period. Instead Celgene will assume 100% of the program costs for its licensed territories, which include North America, Europe, the Middle East, Turkey, Australia, New Zealand, South Africa, and certain countries in Southeast Asia.

Since MethylGene opted out of development, it is no longer entitled to share in the profits from North American sales. Instead, the company will receive royalties from this region. As per the terms of the January 2006 license and collaboration deal, MethylGene will also earn royalties on sales in all other territories licensed by Celgene.

MethylGene’s royalties in North America will increase from a floor of 13% to a higher rate based on annual net sales reflecting MethylGene’s codevelopment funding and contribution for MGCD0103 to date. The royalty rate in other Celgene territories remains in the 10% to 13% range based on annual net sales.

MethylGene is still entitled to receive up to $141 million in milestone fees. The company already achieved a $4 million milestone with the enrollment of the first patient in a Phase II trial.

MethylGene also maintains its rights under the original transaction to codevelop and copromote subsequent compounds, including second-generation histone deacetylase inhibitors (HDAC) and sirtuin inhibitors for cancer.

An agreement with Taiho Pharmaceutical, which covers MGCD0103 and its second-generation oncology HDAC inhibitors in Japan, Korea, Taiwan, and China is unaffected by the amendments to MethylGene’s deal with Celgene.

“Moving forward while participating in the upside and potential of MGCD0103, we will be focusing on developing the two compounds of which we own 100 percent—MGCD290, which is expected to enter into Phase I clinical trials by the end of this year and, in particular, MGCD265, which is in two Phase I clinical trials,” says Donald F. Corcoran, president and CEO.

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