Shares of Xencor, Inc. XNCR rallied 32.06% after the company announced that it has entered into a collaboration and license agreement with Swiss major, Novartis AG NVS.
Terms of the Agreement
As per the agreement terms, the companies will collaborate to develop and commercialize two pipeline candidates – XmAb14045 (expected to enter clinical development for acute myeloid leukemia in 2016) and XmAb13676 (to enter clinical development for B-cell malignancies in 2016). The companies will share the cost of the development of the candidates. While Xencor will retain commercialization rights in the U.S., Novartis will own the marketing rights in the rest of the world.
Additionally, Novartis will receive worldwide rights to Xencor's bispecific technology to develop and commercialize four targets. These targets will be selected by Novartis and Xencor may elect to co-detail one of these targets in the U.S. Novartis will also receive a worldwide non-exclusive license to use Xencor's XmAb Fc technologies in up to 10 molecules.
Financial Details of the Transaction
Novartis will pay an upfront fee of $150 million to Xencor along with potential milestone payments totalling up to $2.41 billion (as and when milestones are achieved). Xencor is also entitled to low double-digit royalties on potential sales of XmAb14045 and XmAb13676 outside the U.S, mid single-digit tiered royalties on global sales of the four proprietary Novartis bi-specific molecules (subject to conditions) and low single-digit royalties on Novartis molecules incorporating Xencor's XmAb Fc technology.
Our Take
The deal is a major positive for the clinical-stage biopharmaceutical company Xencor both strategically and financially. Not only the agreement provides Xencor with the much needed funds through the upfront fee along with potential milestone payments, the company also gets to own the commercialization rights for the drugs upon approval in the U.S.
Moreover, Novartis’ expertise in drug development will significantly boost the growth prospects of the candidates. We note that Xencor currently has nine candidates developed through its XmAb technology and collaborations with leading companies like Amgen, Inc. AMGN among others.
On the other hand, the agreement provides Novartis with rights to Xencor’s bispecific technology to develop four additional targets thereby strengthening its pipeline which has a few leukemia candidates in its pipeline.
Both Xencor and Novartis currently carry a Zacks Rank #3 (Hold). A better ranked stock in the healthcare stock is Pfizer, Inc. PFE which currently sports a Zacks Rank #1 (Strong Buy).
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