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How Did Investors Respond to the Novartis-Xencor Alliance?

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The Novartis-Xencor alliance

As discussed earlier, Novartis (NVS) entered an agreement with Xencor (XNCR) on June 28, 2016, for the codevelopment and commercialization of two of its bispecific programs. According to the press release, Xencor will receive an upfront payment of $150 million and further milestone payments towards additional development and commercialization of these antibodies. Xencor will also receive royalties on the net sales of the antibodies. Xencor retains the commercialization rights for US markets and will also receive royalties on net sales of the antibodies outside US markets.

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The above graph shows changes in Novartis’s stock price and Xencor’s stock price after the Novartis-Xencor alliance. For Novartis, the stock price increased by over 3.0% to close at $79.59 on June 28, 2016, compared with the previous closing price of $77.24 on June 27, 2016. For Xencor, the stock price increased by over 32.0% to close at $16.56 on June 28, 2016, compared with the previous closing price of $12.54 on June 27, 2016.

Investors’ response to Novartis

Novartis received a positive response from investors following the announcement of the Novartis-Xencor alliance. The alliance will strengthen the immuno-oncology pipeline for Novartis. As of June 29, 2016, Novartis’s stock had decreased by around 1.6% year-to-date. However, the stock price has increased by over 5.1% in the last two trading sessions.

Investors’ response to Xencor

Xencor also received a positive response from investors following the announcement of the Novartis-Xencor alliance. The stock price has increased by over 47.5% in the last two trading sessions. The year-to-date return for Xencor’s stock was around 36.9% as of June 29, 2016.

Xencor has entered into collaborative agreements with other competitors, including Amgen (AMGN), Novo Nordisk, Johnson & Johnson (JNJ), Merck (MRK), Alexion Pharmaceuticals, CSL Group, MorphoSys, and Boehringer Ingelheim.

To divest risk, investors could consider ETFs such as the SPDR S&P Biotech ETF (XBI), which has a ~1% exposure to Xencor, or the VanEck Vectors Pharmaceutical ETF (PPH), which has a 7% exposure to Novartis.

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