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Why Foghorn Therapeutics Blasted 55% Higher Today

By Eric Volkman – Dec 13, 2021 at 12:36PM

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The clinical-stage biotech could reap as much as $1.3. billion from a new research and development pact with a heavy-hitting partner.

What happened

Now this is an upward share price move.

On Monday, Foghorn Therapeutics (FHTX 0.86%) stock roared 26% higher in pre-market trading, on its way to a nearly 55% gain on the day. That was due to an agreement the clinical-stage biotech signed with one of the world's top pharmaceutical companies.

A medical professional using a microscope.

Image source: Getty Images.

So what

Early Monday morning, Foghorn announced that it had launched a strategic collaboration with Lexo Oncology at Lilly, a specialty unit of U.S. pharmaceutical powerhouse Eli Lilly (LLY 0.51%). The pair will combine their talents with the aim of developing oncology drugs based on Foghorn's Gene Traffic Control platform, under which the chromatin regulatory system can be monitored and modulated.

Chromatin is the material within a chromosome that consists of DNA and protein. According to Foghorn, "Breakdowns in the chromatin regulatory system lead to a wide range of diseases, including cancer."

Under the new pact, Foghorn will lead discovery and early research activities. The Eli Lilly unit will be responsible for heading development and commercialization of treatments. Foghorn will also provide operational support, and share certain costs. 

The biotech will receive an upfront payment of $300 million in cash. It stands to gain up to $1.3 billion if certain development and commercialization milestones are reached. Eli Lilly will also become an investor in Foghorn, spending $80 million for 4 million shares of common stock at a price of $20 apiece.

Now what

This partnership with the well-funded and resource-rich Eli Lilly is a potentially huge victory for the small biotech. Foghorn CEO Adrian Gottschalk somewhat understated the case when he was quoted as saying that it "enables an acceleration and expansion of our pipeline and significantly strengthens our balance sheet as we strive to bring new medicines to patients and their families."

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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