SGX Surges After Novartis Deal

SGX Pharmaceuticals (SGXP Quote - Cramer on SGXP - Stock Picks) signed an agreement with Swiss drugmaker Novartis (NVS Quote - Cramer on NVS - Stock Picks) that will see the companies collaborate on developing treatments for chronic myelogenous leukemia, a malignant cancer of the bone marrow.

Shares of SGX jumped on the news, gaining $1.93, or 24.5%, to $9.80 on volume that was much heavier than normal. The advance lifted SGX above its 52-week closing high of $8.30. The shares went as high as $11.38 following the Novartis deal.

Under the terms of the agreement, Novartis will make $25 million in upfront payments and buy some of the San Diego biotech's common stock. Along with milestone payments, but excluding royalties, SGX could receive more than $515 million, including at least two years of research funding.

The companies plan to try to ultimately bring to the market what are called BCR-ABL inhibitors for treating drug-resistant chronic myelogenous leukemia, or CML. Novartis' Gleevec, itself a BCR-ABL inhibitor, has already been successfully used in treating CML, but some patients develops a resistance to the drug or aren't able to tolerate the therapy.

Gleevec works directly on leukemic cells by suppressing the action of BCR-ABL tyrosine kinase, the enzyme responsible for the uncontrolled growth of the cells. If patients stop responding to the drug, the only currently approved treatment is a bone marrow transplant preceded by high-dose chemotherapy and radiation, for which many CML patients aren't eligible, SGX says.

SGX, citing data from the National Institutes of Health, says about 4,600 new cases are diagnosed each year.

"Novartis is the leader in developing novel targeted therapies to treat CML," Mike Grey, president and chief executive of SGX, said in a press release. "With their extensive experience developing and commercializing Gleevec as well as development of the novel investigational compound, nilotinib/AMN107, we believe they are the ideal partner with whom to develop our series of next-generation BCR-ABL inhibitors."

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