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Biotech Stock Mailbag: YM Bio, Infinity, Delcath and Galena

Judge the conviction and interest of a partner by the skin they place in the game. A partner that invests $100 million upfront to license a cancer drug, for example, is signaling strong interest and a substantial commitment. An upfront fee of $2 million for the same cancer drug, however, says something far different.

Teva is paying nothing (or nearly nothing) for rights to Galena's breast cancer immunotherapy NeuVax. This is a marketing deal that gives Teva rights to sell NeuVax in Israel only, if the immunotherapy is approved. Teva is a global firm, so if it were seriously interested in NeuVax, a deal with expanded geographical rights involving a significant upfront cash payment could have been struck easily.

Notice, too, no Teva executive was mentioned or quoted in Galena's press release. That's a red flag. Also, Galena played up the Teva name in its press release but in the ensuing 8-K filing, the company admits the NeuVax partnership was actually struck with ABIC Marketing, a subsidiary of Teva.

Perhaps that's a semantics quibble, but Galena is clearly trying to hype itself to retail investors using Teva's imprimatur. ABIC Marketing doesn't have quite the same cache, even if it's more truthful.

Judging the merits of a partner deal by the amount of cash invested is a good starting point, but it's not a perfect measure. Be wary of companies that hype deals using "bio-bucks" dollars. For example, a partner may acquire marketing rights to a drug for $5 million in upfront cash -- real cash -- but then offer $500 million in future milestone payments tied to drug approvals or meeting certain sales goals.

You'll often see the value of a partner deal like this described as being $550 million, but that's mostly bio-bucks that may never materialize if the drug fails clinical trials or isn't approved.

Even large upfront payments don't guarantee success. Big Pharma has plunked down serious cash to license drugs that end up in the trash. Think Pfizer (PFE) paying $225 million in cash upfront to Medivation (MDVN) for rights to the Alzheimer's drug Dimebon. Colossal fail.

-- Reported by Adam Feuerstein in Boston.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.
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