Valentine’s Day deal is true love for Nektar and Bristol-Myers

A new deal between Bristol-Myers Squibb Co. and Nektar Therapeutics came up candy hearts and roses for investors, sending Nektar shares up 12.5% and Bristol-Myers shares up 2.8% in heavy Wednesday trade.

The deal is structured in a relatively complex way, effectively serving to limit Bristol-Myers’ BMY, +2.69% upfront payments while giving the drugmaker a cut of net profits and losses for Nektar’s NKTR, +10.31%  promising immuno-oncology drug NKTR-214, which the two companies will jointly develop and commercialize.

Under the agreement, Bristol-Myers will pay $1 billion in cash plus $850 million in Nektar stock upfront and get a 35% cut of net profits and losses for NKTR-214. Nektar will also be eligible for up to $1.78 billion in various milestone payments.

Bristol-Myers “got a very good deal structure on this [immuno-oncology] program,” said EvercoreISI analyst Umer Raffat. “BMY was able to get 35% economics, and yet not bet $16B upfront.”

Related: Nektar Therapeutics’ stock rockets toward near 17-year high after upbeat trial data and Eli Lilly will co-develop autoimmune disease therapy under $150 million deal with Nektar

The deal, which is expected to close in the second quarter, aims to test NKTR-214 in trials in more than 20 indications in nine tumor types.

The companies will split costs for combination regimens depending on product ownership, giving as examples NKTR-214 in combination with Bristol-Myers’ Opdivo and NKTR-214 in combination with Bristol-Myers’ Opdivo and Yervoy.

Both Opdivo and Yervoy are immuno-oncology therapies, a new category of drugs which harness a patient’s immune system to fight cancer,

Pairing immuno-oncology drugs has become an important but still relatively unproven trend for drugmakers, with hundreds of ongoing and completed trials.

Read: Cancer drug prices could double or triple thanks to this popular but unproven drug trend

Bristol-Myers and Nektar’s latest deal follows that pattern, and “enables BMY to remain the company with most IO-IO combinations in Ph 3,” Raffat said, adding, “I like this addition to BMY portfolio.”

Bristol-Myers expects the deal will negatively affect 2018 adjusted earnings-per-share by about 2 cents and adjusted 2019 EPS by 10 cents.

Nektar shares initially declined nearly 5% in Wednesday morning trade before turning upward. Shares have surged 115.8% over the last three months, compared with a 7.3% rise in Bristol-Myers shares and a 4.5% rise in the S&P 500 SPX, +1.32%

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