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It is a common practice of small pharma companies to enter into agreements with larger pharma companies for the development and commercialization of products. Such deals fetch milestone payments and royalties for the smaller pharma companies.

Earlier this week, Adamas Pharmaceuticals, Inc. (ADMS - Snapshot Report) received a milestone payment of $25 million from Forest Laboratories related to MDX-8704.

The amount was paid following the acceptance of the New Drug Application (NDA) for MDX-8704 by the FDA. MDX-8704 is a fixed-dosed combination of Forest Labs’ Namenda XR (memantine HCl) and Pfizer Inc.’s (PFE - Analyst Report) Aricept (donepezil HCl). Forest Labs is looking to get MDX-8704 approved as a once-daily treatment of moderate-to-severe dementia of the Alzheimer's type.

Forest Labs and Adamas collaboration deal for MDX-8704 dates back to Nov 2012. While Forest Labs enjoys exclusive U.S. commercialization rights to the candidate, Adamas will market it exclusively outside the U.S.

Adamas had received $65 million as an upfront payment from Forest Labs. Adamas also received a $40 million payment related to the development of MDX-8704 in the fourth quarter of 2013. Further, Adamas is eligible to receive up to $30 million on the FDA approval of the candidate.

The 2012 agreement also includes Forest Labs’ Namenda XR (moderate-to-severe dementia related to Alzheimer’s disease). Adamas will be receiving royalties on U.S. net sales of Namenda XR and MDX-8704 (if approved) after five years from the date of their launch.

We note that Adamas currently has no approved products. The company’s lead wholly-owned candidate is ADS-5102. The company expects to initiate a phase III study on the candidate for the treatment of levodopa-induced dyskinesia. ADS-5102 is also being developed for the treatment of chronic behavioral symptoms associated with traumatic brain injury. We believe the successful development of ADS-5102 is crucial for the company.

Adamas currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthcare sector include Mallinckrodt (MNK - Analyst Report), carrying a Zacks Rank #1 (Strong Buy).

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