Longview

What: Shares of the clinical-stage biopharma Applied Genetic Technologies Corporation (NASDAQ:AGTC) rose by 23% today on a huge surge in volume after the company inked a broad research collaboration with biotech giant Biogen (NASDAQ:BIIB) to develop multiple gene therapy treatments for rare diseases of the eye. Per the terms of the agreement, Biogen will pay $124 million upfront, which includes a $30 million investment in Applied Genetic shares . If any products make it to the commercial stage, Applied Genetic would also be eligible to receive royalty payments in the range of single-digits to the mid-teens percentage-wise on annual net sales. 

So what: This agreement is obviously a much bigger deal for Applied Genetic than Biogen, but it does signal that Biogen is deeply interested in diversifying its clinical pipeline. Specifically, this collaboration gives Biogen a foot in the door in terms of rare diseases of the eye, as well as gene therapy. Regarding Applied Genetic, this tiny biopharma could receive milestone payments in excess of $1 billion, if its gene therapy platform bears fruit. 

Now what: The two companies agreed to a rather fluid deal that allows Applied Genetic to opt-in in terms of sharing development costs and profits after the initial clinical data are a known entity. Applied Genetic will also be responsible for shepherding these experimental products through the clinical trial process, with Biogen playing a supportive role during this process.

This relatively unknown gene therapy company is thus gaining big time partner that's willing to help build out its clinical pipeline, but it's also retaining a fairly substantial level of autonomy over the conduct of its clinical program at the same time. All told, Applied Genetic is definitely worth a deeper look following this licensing agreement with a top dog in biotech, but you may not want to buy shares until its therapeutic platform matures a bit further. 

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.