What happened

Shares of Voyager Therapeutics (VYGR -2.46%) rocketed nearly 63% higher today after the company announced it formed a lucrative strategic development and commercialization collaboration with Neurocrine Biosciences (NBIX -0.52%). The deal will license four development-stage drug programs -- two named, and two to be named later -- for an up-front payment of $165 million. There's also the potential to receive up to $1.7 billion in development, regulatory, and commercial milestone payments. 

Investors are cheering the news for the small-cap biotech, which exited September 2018 with just $42 million in cash, having racked up an operating loss of $68 million through the first nine months of 2018. The strategic development and commercialization collaboration immediately de-risks the company's portfolio, which is now mostly licensed out to other companies. 

As of 12:52 p.m. EST, the stock had settled to a 34.3% gain.

A man sitting with his laptop as cash falls around him.

Image source: Getty Images.

So what

The $165 million up-front payment will be split between a $115 million cash payment and a $50 million equity investment at $11.96 per share of Voyager Therapeutics. In return, the small-cap biotech handed Neurocrine Biosciences the development and commercialization rights to two gene therapy programs -- VY-AADC for Parkinson's disease and VY-FXN01 for Friedreich's ataxia -- and two additional programs to be determined later.

Neurocrine Biosciences will fund the clinical development of VY-AADC through phase 2 and phase 3 clinical trials. However, Voyager Therapeutics has the option to co-develop the gene therapy with a 50-50 share of costs and profits after phase 2 data is released.

Similarly, Neurocrine Biosciences will take the reins on a phase 1 trial for VY-FXN01 for Friedreich's ataxia, although Voyager Therapeutics can elect to share in the drug candidate's development after that data is released. Sanofi's Genzyme unit also retains an option for the drug candidate outside of the U.S. market. 

Now what

While investors are understandably excited about the deal for Voyager Therapeutics, it's important to remain grounded. After all, today's news is similar to a deal with AbbVie that was announced in February 2018. The small-cap biotech earned an up-front payment of $69 million and could receive up to $155 million in preclinical and phase 1 milestone payments, plus $895 million in future milestone payments for each drug developed under the the licensing deal.

Despite the lucrative potential of that collaboration deal, Mr. Market has since lost enthusiasm, perhaps because drugs targeting Alzheimer's and other neurodegenerative diseases have a notoriously poor development track record. In other words, today's news is a step in the right direction for Voyager Therapeutics, but its fate will ultimately be determined by results in the clinic.

Check out the latest Voyager Therapeutics and Neurocrine Biosciences earnings call transcripts.