UPDATE 2-Novartis takes option on Transgene cancer vaccine

* Transgene gets non-refundable $10 mln option fee

* Milestones could reach 700 mln euros

* Deal depends on midstage Phase IIb trial outcome in 2012

* Shares drop 12 pct as investors had hoped for better deal

(Adds CEO, analyst comments, shares)

By Caroline Jacobs

PARIS, March 10 (BestGrowthStock) – Novartis (NOVN.VX: ) has taken an
exclusive option to develop Transgene’s (TRNG.PA: ) cancer vaccine
TG4010, but the deal fell short of investors’ hopes, pulling the
shares in the French biotechnology company down 12 percent.

If all goes well, Transgene could be in line for milestones
payments of up to 700 million euros ($950 million), in addition
to a non-refundable $10 million option fee.

However, the optional nature of the deal, announced on
Wednesday, means there are two more years of uncertainty during
which Transgene will continue to foot the bill for developing
the product.

The Novartis deal comes after Transgene told Reuters in
December it was nearing a partnership for the vaccine that could
also target other cancer types and turn into a blockbuster.
[ID:nGEE5B60AF]

“We view today’s option announcement as slightly
underwhelming, given that the ongoing burden of funding remains
with Transgene for another two years,” said Nomura Code analyst
Gary Waanders.

Novartis wants to see the outcome of a mid-stage Phase IIb
clinical trial, due sometime in 2012, before exercising its
option.

As a result, Waanders said he was reviewing his “neutral”
rating and fair value estimate of 21.80 euros a share. The stock
fell 2.59 euros to 19.70 by 1130 GMT.

ACCESS TO NOVARTIS KNOW-HOW

While the deal underlines interest in therapeutic cancer
vaccines — which work by stimulating the body’s own immune
system to attack cancer cells — it also shows big drug
companies are wary of the risks.

The field has seen a number of setbacks in the last several
years. But the first product could soon be on the market, with
the U.S. Food and Drug Administration set to decide by May 1
whether to approve Dendreon’s (DNDN.O: ) Provenge for advanced
prostate cancer.

Transgene’s product is several years further behind and also
faces more advanced rivals in its initial target treatment area
of lung cancer. Britain’s GlaxoSmithKline (GSK.L: ) and Germany’s
Merck KGaA (MRCG.DE: ) have lung cancer vaccines, known as MAGE-A3
and Stimuvax, respectively, in final testing.

Transgene will first fund and keep control over the Phase
IIb/III development phases — expected to begin at the end of
this year and for which results should be available end 2013 —
but will get the costs back from Novartis if the deal goes
ahead.

Chief Executive Philippe Archinard defended the nature of
the deal, saying it meant Transgene kept control over its drug
candidate, while also gaining access to Novartis’s know-how in a
number of fields through the creation of a joint working group.

“This deal brings us more than cash alone,” he said, as
Transgene expected to benefit from Novartis’ experience in drug
development, dealing with regulatory procedures and marketing.

“The agreement is coherent … and transformational for our
group, which in five years aims to become an integrated
biopharma company with access to markets for our products,”
Archinard said, adding China was part of Transgene’s expansion
plans.

If TG4010 makes it to market, Transgene will receive
royalties on global sales. It will retain co-promotion rights in
countries such as France and China as well as primary
manufacturing rights to supply Novartis’ clinical and commercial
needs.

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(Additional reporting by Ben Hirschler, editing by Will
Waterman)
($1=.7369 Euro)

UPDATE 2-Novartis takes option on Transgene cancer vaccine