Novacea Inc. found a partner for its late-stage prostate cancer drug, Asentar, licensing product rights to Schering-Plough Corp. in exchange for $60 million up front and the potential for $380 million in milestones down the road.

News of the worldwide development and commercialization agreement sent Novacea's shares (NASDAQ:NOVC) shooting up more than 100 percent at one point in morning trading, going as high as $17.25, before closing at $15, up by $6.94, or 86 percent. That's the highest Novacea's shares have traded since the company went public with the May 2006 offering at $6.50 per share.

"We're thrilled to team up with Schering-Plough," said Paul Laland, Novacea's vice president of corporate communications. Terms of the deal, the largest transaction to date for the South San Francisco-based biotech, provide for "very nice cash up front," he added, though "it's really a means for us to become more self-sufficient."

The up-front payment includes $35 million designated as reimbursement for Novacea's past research and development expenses on Asentar, which is in an ongoing 900-patient Phase III study, as well as $25 million in licensing fees and $12 million in stock to be purchased by Schering-Plough at $8.05 per share.

Beyond that, Novacea would be eligible for pre-commercial milestone payments of up to $380 million, based on regulatory events relating to the development and approval of Asentar in multiple indications, such as the initial androgen-independent prostate cancer (AIPC) indication, along with androgen-dependent prostate cancer, adjunctive prostate cancer therapy, pancreatic cancers and other potential tumor types.

Upon approval, Novacea would be entitled to tiered royalty "in the range of the high teens to the mid-20s, depending on annual product sales levels," the company's Chairman and interim CEO John Walker said during a conference call. While he later declined to disclose specific projections for Asentar market penetration, he said the company believes "that we will move into the 20s very nicely."

Novacea also holds a co-commercialization option for Asentar in the U.S., where prostate cancer is the second leading cause of death in men. About 232,000 new cases are diagnosed each year, and there are about 30,000 deaths annually. AIPC is an advanced stage of the disease, and overall the AIPC market is expected to exceed $1 billion, Laland said.

For Kenilworth, N.J.-based Schering-Plough, the deal with Novacea provides a late-stage compound and "extends our presence in oncology," said Mary-Francis Faraji, Schering-Plough spokeswoman.

The pharma firm has not disclosed a timeline for regulatory filing, though Novacea reported that the ongoing Phase III trial is on track and is expected to complete enrollment by the end of the year. That study - ASCENT (AIPC Study of Calcitriol Enhancing Taxotere)-2 - is designed to evaluate Asentar, an oral, intermittent, high-dose formulation of calcitriol, in combination with Taxotere (docetaxel, Sanofi-Aventis) compared to Taxotere alone. Overall survival is the primary endpoint.

Aside from the obvious financial upside for Novacea, it was the idea of expanding "the promise of Asentar" into other indications that prompted the company to seek a larger partner, Laland told BioWorld Today.

To date, Novacea had shouldered the costs of developing Asentar, and as a small firm, its resources had been funneled primarily to testing in AIPC patients. But after the deal closes, Schering-Plough will fund further work, with Novacea retaining representation on a joint development committee. Walker told investors during the call that a Phase II study of Asentar in patients with advanced pancreatic cancer will begin as planned in the third quarter, and there are opportunities "for development [of Asentar] in earlier stages of prostate cancer" and possibly in solid tumors.

In the meantime, Novacea expects the initial cash infusion from its partnership with Schering-Plough to support its other pipeline activities, namely AQ4N, an anticancer prodrug that is in a Phase I/II trial in glioblastoma multiforme. A separate Phase II study is expected to start later this year in hematological malignancies.

Following the closing of that deal, Novacea's projected cash balance for the end of 2007 is expected to be in the mid-$900 million range, Walker said. The company also projects a $20-million burn rate for 2008 and 2009, a stark reduction to the $50 million cash burn estimated for 2007, due mostly to the development of Asentar. That means Novacea "will not be dependent on the capital market to fund our planned programs and operations for the foreseeable future," he said.

The company, which reported a net loss of $10.6 million for the first three months of 2007, ended the quarter with a cash position of $56.8 million.