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Amgen (AMGN - Free Report) recently entered into a collaboration agreement with AstraZeneca (AZN - Free Report) for the joint development and commercialization of five monoclonal antibodies in Amgen’s pipeline.

The Candidates

The candidates to be developed under this agreement include brodalumab (psoriasis - phase III to commence, psoriatic arthritis and asthma - phase II), AMG 139 (Crohn's disease - phase Ib), AMG 181 (ulcerative colitis - phase Ia and Crohn's disease - phase Ib), AMG 557 (autoimmune diseases such as systemic lupus erythematosus - phase Ib) and AMG 157 (asthma - phase Ib).

Terms of the Agreement

While the development and commercialization of AMG 139, AMG 157 and AMG 181 will be led by AstraZeneca, Amgen will lead the development and commercialization of brodalumab and AMG 557. Joint governing bodies will be set up to oversee the development of the candidates.

Where commercialization is concerned, Amgen will promote brodalumab for dermatology indications in the US and Canada, and for rheumatology indications in the US, Canada and Europe. Meanwhile, AstraZeneca will promote brodalumab for respiratory and, initially, dermatology indications in all territories excluding the US, Canada and other markets where Amgen already has partners. The companies will decide on the allocation of promotional rights for other territories, indications and molecules later.

Per the terms of the deal, Amgen will receive a one-time upfront payment of $50 million. While AstraZeneca will fund about 65% of costs during 2012-2014, the companies will fund costs equally after 2014. Worldwide sales will be booked by Amgen which will retain a low single-digit royalty for brodalumab. A mid-single digit royalty will be applicable for the rest of the portfolio after which profits will be split equally.

Our Take

This deal makes sense for Amgen – it allows the company to cut its R&D spend and share the risks associated with product development. AstraZeneca should be a suitable partner given its presence in the global respiratory and gastrointestinal disease markets. Meanwhile, we are not surprised to see AstraZeneca seek partnering deals to boost its pipeline. With the company facing generic competition for several products, its pipeline needs to deliver.

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