Glaxo, Astex Call Off Agreement

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GlaxoSmithKline (NYSE:GSK - News) and Astex Pharmaceuticals, Inc. (NasdaqGS:ASTX - News) announced recently that they are discontinuing a collaboration agreement entered into in October 2009 for the discovery and development of cancer therapeutics based on epigenetic targets.

Following the termination of the agreement, Glaxo will receive full rights to the existing research work and assets related to CLIMB technology, while Astex will be eligible to receive potential milestones and royalties. The decision to end the agreement was taken by Astex after a review of its pipeline and discussions with Glaxo.

Astex and Glaxo will continue with the collaboration agreement entered in November 2009, which relates to the discovery of molecules using the Pyramid fragment platform.

Background

The 5-year agreement for the discovery and development of cancer therapeutics based on epigenetic targets was signed by Glaxo and Astex in October 2009. The companies intended to use Astex’s proprietary process called CLIMB, which aids in modeling difficult or previously unknown cancer targets for computerized creation and development of a drug. Glaxo retained an option to license any products resulting from the collaboration.

As per the terms of the agreement, Glaxo made an upfront payment of $2 million to Astex. Additionally, Astex became eligible to receive milestone payments of more than $375 million and double digit royalties, subject to the achievement of certain development, regulatory and commercialization targets.

Our Recommendation

We currently have a Neutral recommendation on both Glaxo and Astex. Both the stocks carry a Zacks #3 Rank (hold rating) in the short run.

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