The Novartis investment is the latest example of big pharma's growing interest in vaccines, a business previously thought of as low-growth and low-margin but which is being transformed by recent hi-tech innovations.
Switzerland's Novartis, Europe's third-largest drugmaker by sales, will buy 4.8 million new Intercell shares from a capital increase for 150 million euros, or 31.25 euros each. Its stake in Intercell will rise to 16 percent from 6 percent.
The drugmaker will also pay 120 million euros in upfront fees for using Intercell's IC31 technology to develop flu vaccines and for the option to buy other licenses. It also agreed milestone payments and royalties over the next few years for other vaccines.
The total future milestone and royalty payments under the partnership could result in multi-billion (euro) revenues, Intercell Chief Financial Officer Werner Lanthaler told Reuters in an interview.
Intercell stock, which started trading at 0830 GMT after the opening was suspended, rose as much as 21 percent to an all-time high of 29.15 euros in the first minutes of trading. The shares were sold in an initial public offering in 2005 for 5.50 euros.
On top of a previous Novartis deal to market and distribute a vaccine against Japanese encephalitis, Intercell also has license and development agreements with drugmakers Merck & Co., Sanofi, Kirin and Wyeth.
Novartis will use Intercell's IC31 adjuvant -- a substance which induces the creation of antibodies to fight diseases -- exclusively to create new influenza vaccines under the agreement and non-exclusively for other vaccines.
Competition on the market for influenza vaccines is one of the fiercest, Lanthaler said, saying the market potential was 2 billion to 4 billion euros. With our IC31 technology..., Novartis can develop a whole new generation of influenza vaccines.
Novartis will pay Intercell up to 100 million euros in milestone payments during the development phase and royalty payments tied to sales performance, Intercell said.
For other vaccines Novartis wants to develop using the IC31 technology, milestone payments will be 30 million to 60 million euros and lower royalties. Intercell can continue to partner with other drugmakers on other IC31-based vaccines.
This is a very good deal, said Huub Verschueren of Durch brokerage SNS Securities. It underlines the value of Intercell's IC31 technology. It's worth more than the 20 percent upside on the stock we see today.
Novartis also acquired the option for development, manufacturing and commercialization of novel vaccines arising from Intercell's Antigen Identification Program, it said.
Intercell can choose either to enter profit-sharing agreements or receive milestone payments and royalties on each of those vaccines after they pass phase II clinical trials.
The two companies will also combine their programs under a profit-sharing agreement to create therapeutic vaccines against hepatitis C.
(Additional reporting by Boris Groendahl, Sam Cage in Zurich and Ben Hirschler in London)