Why Ophthotech Corp. Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ophthotech (NASDAQ: OPHT  ) , a clinical-stage biopharmaceutical company focused on developing therapies to treat diseases of the back of the eye, roared higher by as much as 24% after announcing a licensing deal for lead experimental compound Fovista with Novartis (NYSE: NVS  ) .

So what: Under the terms of the deal Ophthotech will retain all rights to Fovista within the United States with Novartis licensing the rights to the wet age-related macular degeneration drug hopeful in all other countries. The deal itself could be worth more than $1 billion in milestone and royalty payments for Ophthotech, with the company expected to receive a $200 million upfront free, as well as an additional $130 million in near-term enrollment milestone payments. The remaining milestones are comprised of $300 million in ex-U.S. approval milestones, and $400 million in ex.-U.S. sales milestones. Initial top-line data from its trial involving fovista is expected to be available sometime in 2016.

Now what: Clearly Novartis must've liked what it saw, otherwise they wouldn't have dropped a whopping $200 million upfront on Ophthotech. The wet-AMD market is expected to be a huge growth driver around the world as life expectancies continue to increase, giving wet-AMD drugs and drug hopefuls plenty of opportunity to improve patient quality of life, and make a pretty penny along the way. While this deal certainly alleviates any concerns about its funding for a long time, I'd remind investors that the company also mentioned It's two years away from even reporting its top-line phase 3 data. This means two years with very few catalysts for a clinical-stage company already valued at $1.3 billion. With that being said, it might be wise to stick to the sidelines here until we get a sizable pullback.

Ophthotech shares may have soared today, but it'll likely be hard-pressed to keep pace with this top stock over the long run
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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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9/1/2015 4:01 PM
NVS $94.68 Down -2.54 -2.61%
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