UPDATE 2-Jubilant may earn $220 mln from AstraZeneca deal

(Wraps, updates share price)

By Bharghavi Nagaraju

MUMBAI May 5 (Reuters) - India's Jubilant JUBO.BO said on Tuesday its unit signed a drug research deal with Anglo-Swedish AstraZeneca, potentially earning the local firm up to $220 million in research and milestone fees and boosting its shares.

Of this, Jubilant Organosys Ltd JUBO.BO will get about $20 million as a definite payment from AstraZeneca (AZN.L), with an annual payment of about $3 million coming in the first two years initially, Executive Director-Finance R Sankaraiah told Reuters.

It could also potentially earn up to $200 million as and when it meets certain targets in developing the drugs under the deal, he added. The two firms will work on neuroscience-related drugs.

"It is a great contract...earlier we were with (Eli) Lilly totally. This will helps us to de-risk our business," Sankaraiah told Reuters over telephone. "It is a validation of our drug discovery concept itself."

Last year, Jubilant formed an equal joint venture with U.S.-based Eli Lilly (LLY.N) for providing drug development services to the companies' partnered molecules, building on an earlier five-year drug discovery tie-up, struck in 2006.

Under the deal announced on Tuesday, AstraZeneca will fund research for the initial five years and will own the drugs, developed in collaboration with Jubilant Biosys Ltd.

AstraZeneca would also get global development and commercialisation rights to these, Jubilant said in a note.

The Indian drug firm will receive milestone payments and royalties from AstraZeneca on successful sale of any drug, it added in the statement.

"This collaboration complements our internal capabilities and increases the capacity of our pre-clinical programs," Jan Lundberg, AstraZeneca's executive vice-president, global discovery, said in a statement.

Jubilant shares, which rose to as much as 135 rupees on the news, closed 13.3 percent higher at 132.95 rupees in an almost flat Mumbai market, while AstraZeneca shares were up 2.1 percent in London at 1106 GMT.

LONG TERM IMPACT

The deal is beneficial in the long-term for Jubilant, when the milestone payments start coming in, said Bino Pathiparampil, pharma analyst with IIFL Capital, adding that in the short-term the revenue addition may not be significant.

"It is a high-end, high tech research deal," Pathiparampil said. "It is a proof of the capabilities of the company, which means they can get more such deals."

Global drug firms, reeling under the onslaught of generic competition and a thin new-drug pipeline, continue to outsource new drug development to low-cost destinations such as India to help reduce the long timeline and high costs of drug development.

Last year, Jubilant also sewed up a drug development deal with Amgen Inc (AMGN.O) for drugs in multiple therapeutic areas.

Noida-based Jubilant last week said robust revenue from drug discovery business and drug launches in the radiopharmaceutical segment would help drive revenue growth, forecast at more than 15 percent in the year to March 2010.

On Monday, Jubilant said it secured the U.S. Food and Drug Administration approval to launch its generic sestamibi drug, used for diagnostic cardiac imaging, in the United States. (Reporting by Bharghavi Nagaraju; Editing by Ramya Venugopal)