Why Concert Pharmaceuticals Stock Is Soaring Today

What happened

Shares of Concert Pharmaceuticals (NASDAQ: CNCE)  surged as much as 91.5% in morning trading on Monday as the result of a deal with Vertex Pharmaceuticals (NASDAQ: VRTX) for the experimental cystic fibrosis (CF) drug CTP-656. As of 11:45 a.m. EST, the stock has settled to a 72% gain.

Per the terms of the deal, Vertex will pay Concert $ 160 million in cash for all worldwide development and commercialization rights to the drug. And if CTP-656 is approved as a part of a CF therapy, Concert would then be eligible for an additional $ 90 million in milestone payments.

Concert shares skyrocketed today. Image source: Getty Images.

So what

As CTP-656 is basically a long-acting version of Vertex’s FDA-approved Kalydeco, Concert’s ability to successfully commercialize this drug wasn’t altogether clear. Vertex, after all, probably could have claimed patent infringement and blocked its launch altogether, or forced Concert to pay a hefty royalty stream. So this deal gives Concert a much-needed windfall of up to $ 250 million in total, and removes the significant risk of a costly legal battle.

The downside, though, is that Concert is conceding any future royalties on a drug that could generate hundreds of millions — if not billions — in peak sales down the road.

Now what

Vertex, for its part, is adding another key asset to its core CF franchise with this deal and it only paid a meager $ 250 million to do so. The key issue at play is that Vertex now has another viable route toward creating a once-daily combination therapy after acquiring CTP-656 from Concert.

At present, CF patients have to take Kalydeco twice a day at 12 hour intervals, increasing the chance for missed doses, especially at night. So, Vertex has been working on developing a once-daily formulation for its flagship CF product line to make it more convenient for patients, and presumably to increase compliance.

All things considered, this is arguably a win-win deal for Vertex and Concert, especially since it removes the specter of a costly legal battle between the two companies moving forward.

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George Budwell has no position in any stocks mentioned. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy .