By Ben Hirschler and Sudip Kar-Gupta

LONDON/PARIS (Reuters) – AstraZeneca is plowing deeper into cancer immunotherapy through a wide-ranging deal with Innate Pharma, which includes the British group buying a 9.8 percent stake in the French biotech company.

Tuesday’s agreement is a coup for Innate – run by former AstraZeneca executive Mondher Mahjoubi – which gains rights to sell AstraZeneca’s newly approved rare blood cancer drug Lumoxiti as its first commercial product.

AstraZeneca’s purchase of 6.26 million new shares in Innate at a price of 10 euros each, or double the market rate, marks a vote of confidence in the cancer immunotherapy specialist and Innate shares jumped 29 percent on the deal news.

For AstraZeneca, the tie-up is an opportunity to expand into new areas within the fiercely competitive immuno-oncology field, particularly in colorectal cancer, where the approach of boosting the immune system has so far had limited success.

AstraZeneca’s move marks the latest example of premium-priced investment in biotech by big pharma, after Novartis this month announced its acquisition of cancer drugmaker Endocyte for $2.1 billion.

A key focus for AstraZeneca is Innate’s experimental immunotherapy drug monalizumab, where the British company is exercising its option to obtain full oncology rights, following an earlier 2015 collaboration.

Monalizumab is currently in mid-stage clinical trials for colorectal cancer, as well as tumors of the head and neck.

“If immuno-oncology compounds can make it into colorectal cancer, it is a big opportunity – and we believe monalizumab has the potential to get us there,” AstraZeneca Chief Executive Pascal Soriot told Reuters.

In addition to the 62.6 million euro ($72 million) equity stake, AstraZeneca will also make payments totaling $170 million for rights to several experimental Innate drugs, while Innate will pay up to $75 million to AstraZeneca for Lumoxiti.

Soriot is banking on new drugs, especially in cancer, to drive a sales recovery as AstraZeneca grapples with falling sales of cholesterol-fighter Crestor due to generic competition.

To date, the only immuno-oncology drug for treating colorectal cancer is Merck & Co’s Keytruda and it is only cleared for around 10 percent of cases.

AstraZeneca will also gain access to Innate’s anti-CD39 monoclonal antibody, IPH5201, plus four additional immuno-oncology molecules.

It will pay Innate $100 million in the first quarter of 2019 for the expansion of the collaboration on monalizumab, plus $50 million for IPH5201 and $20 million for the other four molecules.

Innate will pay AstraZeneca $50 million upfront and $25 million for future commercial and regulatory milestones for rights to Lumoxiti, which won U.S. approval last month for hairy cell leukemia, a rare slow-growing type of blood cancer.

“This is a defining moment for us,” said Innate CEO Mahjoubi. “It really means the dream has become true and the company now is a fully integrated biotech with an opportunity to commercialize a major innovative treatment.”

(Reporting by Ben Hirschler and Sudip Kar-Gupta; Editing by Stephen Coates and Susan Fenton)

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