Pfizer Inc. (NYSE:PFE) and Clovis Oncology Inc (NASDAQ:CLVS) have amended the drug licensing agreement they signed in 2011 concerning a cancer candidate called rucaparib.
The amended agreement says that Clovis will pay Pfizer milestone payments and royalties relating to the sale of rucaparib at a later date than earlier agreed upon. Because of that Clovis has agreed to pay Pfizer a higher milestone amount than the two companies negotiated for deferring the payments.
Though Pfizer and Clovis seem to have agreed on the terms of the amended payment schedule, Clovis didn’t reveal how much more it will pay Pfizer above that which it would have if it stuck with the earlier agreement.
$255 million in milestone payments
Pfizer was supposed to receive up to about $255 million in milestone payments together with royalties from the sale of rucaparib. Those payment agreements still stand, except that Pfizer will get the money late. Clovis is talking about paying Pfizer 18 months behind the approval of rucaparib. The drug is being developed as a treatment for ovarian cancer.
Building cash reserve
Clovis expects the FDA to clear rucaparib for commercialization in 2017. As such, the decision by Clovis to push back payments to Pfizer is seen as a tactical one to allow the company to build a cash reserve ahead of the crucial FDA decision on its candidate.
Clovis’ rucaparib has FDA breakthrough designation for treatment of advanced ovarian cancer.
Clovis licensed rucaparib from Pfizer in 2011. As part of an upfront payment for licensing of the candidate, Pfizer took an equity stake in Clovis. Pfizer is eligible for more payments from Clovis based on milestones and royalties.
Pfizer in $14 billion buyout
Meanwhile, Pfizer is in the process of swallowing prostate cancer drug maker Medivation for $14 billion. That suggests paying $81.50 per share of Medivation, which implies a 21% premium to the stock’s closing price immediately before the deal was made public.
Medivation’s lead product Xtandi, generates about $2 billion in annual sales. If Pfizer fails to secure regulatory clearance to close the acquisition, Medivation will have to pay it $510 million.