Why Concert Pharmaceuticals Stock Is Soaring Today

By George Budwell Markets Fool.com

What happened

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Shares ofConcert 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) drugCTP-656. As of 11:45 a.m. EST, the stock has settled to a 72% gain.

Per the terms of the deal, Vertex will payConcert $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-approvedKalydeco,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.

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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 takeKalydeco 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 moreconvenient 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.