Micromet (MITI), a biopharmaceutical company, is dependent on many of its collaborating partners for its product portfolio. In this respect, the company received good news with Bayer exercising its option to develop a new bispecific T-cell engager (BiTE) antibody for the treatment of solid tumors. Bayer has exercised its option under the terms of the collaboration and license agreement entered in January 2009.

Following this move by Bayer, both companies will be developing the drug under a formal collaboration. Micromet will be primarily responsible for the preclinical development of the BiTE antibody through the completion of phase 1 clinical trials. Thereafter, responsibility of the drug lies with Bayer, which will assume full control regarding its further development and commercialization.

As per the deal, Micromet will receive an option exercise fee of €5 million (approx. $7.5 million). In addition, the company is eligible to receive milestone payments of up to €285 million (approximately $426 million) and double-digit royalties on net sales of the BiTE antibody. Micromet will be reimbursed for its R&D expenses.

Although this is good news for the company, currently investor focus should remain on the forthcoming American Society of Hematology (ASH) meeting where the company will be presenting data on its lead candidate, blinatumomab. We are hopeful to see encouraging data especially after positive results were presented at the European Hematological Association (EHA) in June 2009.

Blinatumomab (MT103) is currently in a phase II clinical trial for the treatment of acute lymphoblastic leukemia (ALL). Earlier, the drug was being developed under a 2003 collaboration and license agreement with MedImmune, a wholly owned subsidiary of AstraZeneca (AZN), under which MedImmune was granted a license to develop and commercialize the drug in North America. However, in March 2009, MedImmune returned the North American rights to Micromet.

We believe Micromet’s reacquisition of the rights from MedImmune is a significant value creation event for the company, which will be enable re-licensing of blinatumomab at more favorable terms, provided the clinical results continue to be encouraging. We have a Neutral recommendation on the stock at this time.

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