What happened

Shares of Stealth BioTherapeutics (NASDAQ:MITO) are up 9.8% at 1:11 p.m. EDT, having been up as much as 35%, following the announcement that the biotech gave Alexion Pharmaceuticals (NASDAQ:ALXN) an option to license elamipretide, Stealth's late-stage drug candidate for mitochondrial diseases.

So what

Stealth BioTherapeutics will get $30 million from Alexion Pharmaceuticals, which includes an equity investment, option fee, and development funding. Alexion has the option to enact the license after seeing the results from an ongoing phase 3 clinical trial testing elamipretide in patients with a genetic mitochondrial disease called primary mitochondrial myopathy (PMM).

If Alexion chooses to license the drug, Stealth is eligible for an undisclosed option exercise fee, additional equity investment, development funding, and regulatory and commercial milestone payments. The companies will co-develop the drug for PMM, Barth syndrome, and Leber's hereditary optic neuropathy and share equal responsibilities for marketing the drug in the U.S. Outside the U.S., Alexion will take the lead.

Arms in business suits are shaking hands

Image source: Getty Images.

Now what

A partnership with Alexion is certainly good news; it's an endorsement in elamipretide's potential and provides much needed cash to Stealth for the launch of elamipretide and the development of the rest of its pipeline. But keep in mind, it's an option deal, so Alexion hasn't quite gone all-in on elamipretide yet.

Unfortunately, it's a little hard for biotech investors to really value this deal because Stealth didn't provide any details on the deal terms other than the $30 million upfront payment, which is certainly a small amount to accept for giving up half of the rights to a drug. There's potential for more, of course; yet without knowing how much Stealth will get if Alexion exercises its option, it's impossible to say if Stealth has gotten a good deal and probably explains the reason for today's pullback in the stock price after the initial jubilation wore off.