Bristol-Myers Squibb yesterday revealed it has exercised a pre-existing option and will take Exelixis’ XL139 into the fold. The compound is a small molecule inhibitor of the so-called hedgehog pathway, which is thought to play a critical role in a variety of disease processes, including cancer.

The hedgehog pathyway is also important in embryo development and, in knockout mice lacking components of the pathway, the brain, skeleton, musculature, gastrointestinal tract and lungs fail to develop correctly. However, it is understood that XL139’s primary indications will be as a cancer therapeutic.

Exelixis looks set to be $20 million richer as a result of the deal, and has also retained co-development and co-marketing rights in the USA. The firms will be entitled to an equal share in any profits from the world’s largest pharmaceutical market, but the news failed to trigger even a small jump in the US biotechnology firm’s share price, as it was announced on a day that witnessed widespread falls across global stock exchanges amid fear of a recession. However, Exelixis is also set to receive double-digit royalties on any sales outside of the USA, reflecting the high-value the biotech sector is currently able to take out of pharma as it looks to bolster its product pipelines.

The deal was originally struck in December 2006, under which BMS is entitled to select three early-stage compounds that will trigger $20 million milestones apiece on top of the initial $60 million that was added to Exelixis’ coffers upon penning the deal. BMS will lead global activities, though there are co-development and co-commercialisation rights for the biotech firm.

It is good news for a company that yesterday reeled after GlaxoSmithKline decided not to exercise its option for the diabetic nephropathy drug XL784. In a recent Phase II clinical trial in patients with diabetic nephropathy the drug failed to meet its primary goal, although there were “encouraging data” from the study, Exelixis said.