How Can This $2.5 Billion Deal Transform Xencor Inc. (NASDAQ: XNCR)?

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Xencor Inc. (NASDAQ: XNCR) has inked a $2.5 billion deal with Novartis AG (ADR) (NYSE: NVS) for the development of two cancer drug candidates currently in early-stage. Novartis will release $150 million of the deal amount upfront and the rest will be released as certain predetermined milestones are met.

The two candidates covered by the $2.5 billion deal are XmAb14045 and XmAb13676. The candidates are targeted at the blood cancer treatment market with their specific areas being treatment of acute myeloid leukemia and B-cell malignancies. Xencor Inc. (NASDAQ: XNCR) is expected to launch clinical programs for the candidates later this year.

The candidates are based on Xencor’s bispecific antibody technology called XmAb. Xencor has 9 drug candidates at various stages of development based on the same technology.

Cash for clinical programs

The financial backing from Novartis gives Xencor additionally balance sheet flexibility as it goes about the development of its lead candidates. The funding from Novartis specifically covers the costs of clinical development programs of the two candidates. Xencor had about $179 million in cash balance at the end of the last quarter.

If Xencor Inc. (NASDAQ: XNCR) succeeds in bringing the two drugs to market, it will retain the rights to market them in the U.S. while NVS will market them in the rest of the world but share revenues with Xencor.

There are currently no estimates about the revenue potential of the drug candidates. But the fact that Novartis is willing to throw $2.5 billion at them suggests its belief that they have massive sales potential when successful. Some analysts have also noted that the favorable deal that Novartis has had with Xencor is a stamp of approval for the potential of bispecific antibody technology in developing cancer treatments.

Additional candidates for backing

As part of the arrangement with Xencor Inc. (NASDAQ: XNCR), Novartis has room to select additional four candidates from the pool of 9 for development. Additionally, the company has also negotiated the rights to use Xencor’s XmAb drug technology.

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