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Starpharma Holdings Limited shares soar on breakthrough deal

Melbourne-based junior biotechnology business Starpharma Holdings Limited (ASX: SPL) this morning announced it has signed a significant licensing agreement with market-leading pharmaceutical giant AstraZeneca Inc.

The deal means AstraZeneca will use Starpharma’s DEP drug delivery platform in the development and commercialisation of AstraZeneca produced cancer treating drugs.

The DEP or dendrimer-based science patented by Starpharma essentially uses nanotechnology or the manipulation of molecules to modify targeted drugs to make them superior in terms of the beneficial effects they have on cancer patients for example.

Under the agreement Starpharma will receive an upfront payment of US$2 million and is also eligible to receive further development, launch and sales milestones totaling up to USD$124 million, or around $177 million Australian dollars for the first AstraZeneca DEP product if successful.

This deal looks exciting for Starpharma investors for multiple reasons:

First, it suggests that Starpharma’s dendrimer-based molecular technology has serious commercial potential in achieving its endpoints of improving the effectiveness of specific pharmaceutical drugs.

Second, AstraZeneca is a global market leader in drug development and distribution and Starpharma could not ask for a better partner in its attempts to develop and commercialise the technology on a significant scale.

Third, the deal is structured so that it allows for additional products to be developed, with Starpharma estimating that each additional product commercialised could be worth up to US$450 million or more to the business over each drug’s life cycle.

Fourth, the deep-pocketed AstraZeneca will fund all development costs under the terms of the deal which is significant as junior biotechs often have serious cash burn problems, with little in the way of revenue and a lot in the way of development costs. This is reflected by Starpharma’s loss-making status and last year’s capital raising.

Other biotech businesses on the ASX looking at pioneering significant new drugs for the treatment of cancer and other common medical conditions include Sirtex Medical Limited (ASX: SRX) and Prana Biotechnology Limited (ASX: PBT).

Starpharma stock has lifted 23% to 74 cents in morning trade and the company has multiple other medical products either in development stage or in commercial use.

Overall, today’s news is encouraging with Starpharma seemingly accepting a smallish upfront fee in return for AstraZeneca funding all development costs and agreeing to some potentially game-changing milestone payments if the products prove a success. It looks a business deserving of a spot on the watch list for speculative investors.

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Motley Fool contributor Tom Richardson owns shares in Sirtex Medical Limited. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.