Shares of Kodiak Sciences ( KOD -1.92% ) were skyrocketing 85.8% higher as of 10:41 a.m. EST on Monday after rising as much as 146.5% earlier in the day. This huge jump was spurred by Kodiak's announcement that it was selling a capped 4.5% royalty right on potential global net sales of experimental eye-disease drug KSI-301 to Baker Bros. Advisors (BBA) for $225 million.
There are several reasons investors really liked Kodiak's deal with BBA. First, it puts Kodiak in a solid financial position to continue advancing its clinical programs. At the end of September, the company's cash stockpile was enough to fund operations through the first half of 2020 but not much beyond then.
Even better, Kodiak's agreement with BBA didn't require the company to take actions that would dilute the value of existing shares. This is a common problem associated with investing in clinical-stage biotech stocks. The small biotechs need additional capital and sell shares to raise the needed money, causing the stock price to drop in the process. Kodiak's approach avoids this issue.
The deal also underscores just how promising Kodiak's lead candidate KSI-301 is. CEO Victor Perlroth provided a hint at what might happen with his comments in the company's third-quarter conference call a few weeks ago, saying, "I think we're very pleased with the growing interest in the company and definitely feel that the capital needed to run the plan in 2020, 2021, and 2022 right through approval can be there for the company based on the interest that we're seeing."
BBA apparently wasn't the only party interested in buying royalty rights for KSI-301. Kodiak stated that the royalty financing deal "was the result of a competitive process overseen by independent and disinterested directors of Kodiak with the assistance of outside counsel."
Kodiak won't get the full $225 million from BBA right out of the gate. It will pay $100 million up front at the closing of the transaction, which is expected to take place on Jan. 10, 2020. The rest of the money will be based on the achievement of certain milestones, including Kodiak reaching 50% enrollment in its two planned late-stage clinical studies of KSI-301 in treating retinal vein occlusion.