What: Shares of Xencor (NASDAQ:XNCR), a clinical-stage biopharmaceutical focused primarily on autoimmune diseases and cancer, are up more than 35% as of 3:20 p.m. EDT after news broke that the company has signed a lucrative collaboration agreement with Swiss pharma giant Novartis (NYSE:NVS).
So what: Novartis has agreed to pay a $150 million upfront fee to get its hands on two of Xencor's pipeline candidates. These two drugs -- XmAb14045 and XmAb13676 -- are being developed as potential treatments for acute myeloid leukemia and B-cell malignancies. Both drugs are expected to enter clinical development later in the year.
Importantly, this deal only grants Novartis the rights to these two drugs outside of the U.S., so Xencor is still free to commercialize these drugs on its own, or with another partner in the states if it chooses to do so. Assuming the two drugs find their way to market overseas, then Xencor is also entitled to receive tiered, double-digit royalties on any future sales.
The two companies have also agreed to share future development costs related to XmAb14045 and XmAb13676. In total, if all clinical, regulatory, and sales milestones are reached, this deal is valued at more than $2.4 billion.
Novartis gains a lot of future optionality from this deal as well. Xencor has granted Novartis the right to develop and commercialize four additional targets based on the company's biospecific technology platform. In addition, Novartis is eligible to receive a worldwide non-exclusive license to use Xencor's XmAb Fc technologies in up to 10 molecules of its choosing.
Now what: Even including today's pop, Xencor's market is only about $650 million, so this deal holds massive potential compared to the company's current size. What's even more important for long-term investors is that this agreement represents a huge vote of confidence from a deep-pocketed industry veteran. That lends a large amount of creditability to the company's innovative drug development platform.
This deal also should put Xencor in a fantastic financial position. Prior to this announcement, the company believed it had enough capital on hand to keep its doors open until 2019. Including this $150 million cash injection, the company's runway is likely to be extended by at least a few more years. That should give investors confidence that Xencor won't be picking their pockets for funding anytime soon.
All in all, this looks like a home-run deal for Xencor, so it's easy to see why the markets are bidding up shares so sharply today.