Novartis AG (NYSE:NVS) Betting On Xencor’s Two Drug Candidates With $2.4 Billion

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Novartis AG (NYSE:NVS) has agreed to back Xencor Inc (NASDAQ:XNCR) with $2.4 billion. The funds will go into the development of two drug candidates targeting the blood cancer market. If the drugs are successful, Novartis will own the rights to commercialize them outside the U.S. but will pay royalties to Xencor. On its part, Xencor will retain the U.S. rights to the two drugs.

The two candidates in the pipeline of Xencor that Novartis is backing are XmAb14045 and XmAb13676. The candidates are specifically designed to treat acute myeloid leukemia as well as cell malignancies. The two blood cancer drug candidates are slated to enter clinical development this year.

$150 million upfront

Out of the $2.4 billion support that Novartis has agreed to give Xencor, $150 million will be provided upfront. The balance will be released gradually upon the attainment of certain predetermined milestones. Those milestone payments revolve around clinical test results, regulatory approvals and sales targets.

The deal with Novartis should significantly boost Xencor’s liquidity position. The company’s balance sheet reflected a cash balance of $178.7 million at the end of 1Q2016.

Besides Novartis, Xencor counts Novo Nordisk (NYSE:NVO) and Amgen, Inc. (NASDAQ:AMGN) among its other drug development partners.

Additional candidates

Xencor has 9 drug candidates based on its bispecific antibody technology known as XmAb. Although Novartis is only initially supporting the development and commercialization of two candidates, the company has secured rights to select four more candidates in Xencor’s pipeline for development. Additionally, Novartis has obtained the rights to use Xencor’s XmAb drug technology to use it for the development of up to 10 more drugs of its own.

What’s the expected return?

It is not clear at this juncture how much the partners are expecting from the sales of the two candidates if they are successfully launched in the market. However, the blood cancer market has good prospects.

According to analysts at Leerink, the favorable terms of the deal between Novartis and Xencor confirms the high premium the industry is placing on bispecific antibody technology to combat various forms of cancer.

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