Cheers for Protein Design

Wall Street was giddy Wednesday as word spread that Protein Design Labs (PDLI) signed a pact with Biogen Idec (BIIB) to develop, manufacture and commercialize three new drugs.

The agreement covers daclizumab in multiple sclerosis, as well as indications other than transplant and respiratory diseases, along with M200, or volociximab, and HuZAF, or fontolizumab, in all indications.

"We believe this deal adds great value to PDL," Prudential Equity Group's Jason Zhang wrote in a research note. "PDL found an ideal company, Biogen Idec, to partner on daclizumab for MS. Biogen Idec has deep knowledge of MS from its success with Avonex and its ongoing struggle with Tysabri."

Under the terms of the agreement with Biogen Idec, Protein Design will receive an upfront payment of $40 million, and Biogen will purchase $100 million worth of common stock from the company.

Shares of Protein Design, a biopharmaceutical company based in Fremont, Calif., were up $3.10, or 13.3%, to $26.40. Biogen, of Cambridge, Mass., slipped 32 cents to $40.52.

If multiple products were developed successfully in multiple indications and all milestones were achieved, Protein Design could receive payments totaling up to $660 million.

Of those, $560 million are related to drug development and $100 million are for the commercialization of collaboration products.

According to preliminary data from a study of daclizumab in multiple sclerosis, patients using the drug plus another MS treatment, Chiron's (CHIR) betaseron, saw a 75% reduction in MRI lesions. The study was sponsored by the National Institutes of Health.

"Alone, PDL would not be able to fund multiple clinical trials for these products," Zhang wrote. He rates the stock overweight, and he raised his target price on the shares to $32 from $27. Prudential makes a market in Protein Design and Biogen Idec.

Volociximab is currently in trials for kidney, skin and pancreatic cancer. Initial data are expected at the American Society of Clinical Oncology's annual meeting in 2006, according to Phil Nadeau of SG Cowen.

A study of volociximab with Tarceva in nonsmall-cell lung cancer is expected to begin this month. Tarceva is marketed by OSI Pharmaceuticals (OSIP) and Genentech (DNA). This quarter, Protein Design plans to begin an additional volociximab study in lung cancer.

After failing Crohn's disease trials comparing fontolizumab with a placebo, Protein Design is designing a pilot study of the drug in rheumatoid arthritis, Nadeau says. Cowen does and seeks to do business with the companies it covers.

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