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Regeneron Pharmaceuticals, Inc. (REGN - Free Report) and Ocular Therapeutix, Inc. (OCUL - Free Report) announced a strategic collaboration, and option and license agreement for the development of a sustained release formulation of Regeneron’s Eylea (aflibercept) for the treatment of wet age-related macular degeneration (wet AMD) and other serious retinal diseases, including diabetic macular edema and retinal vein occlusion. Currently, the formulation is in preclinical development.

Ocular’s shares jumped 14.4% on the news.

Terms of the Deal

The deal gives Regeneron the option to gain an exclusive license to utilize Ocular’s hydrogel-based technology for the development and commercialization of a sustained release formulation of Eylea and other biologics targeting vascular endothelial growth factor (VEGF) for ophthalmic indications. Ocular will however retain all rights for the development of its sustained-release hydrogel-based drug delivery platform with all other non-VEGF targeting compounds, along with small molecule pharmaceuticals, including tyrosine kinase inhibitors, for other retinal diseases.

Regeneron has agreed to make milestone payments of $305 million to Ocular for a sustained release version of Eylea containing Ocular’s sustained release hydrogel depot. The payments would comprise up to $155 million in development and regulatory milestone, $100 million for the first commercial sale and up to $50 million in commercial milestone payments. Additionally, Ocular is eligible to receive tiered high single-digit to low-to-mid teen-digit royalties on future net sales.

While Ocular has agreed to fund development through phase I, Regeneron will bear subsequent development and commercialization costs.

If successfully developed, the sustained release formulation of Eylea is expected to significantly lower the injection frequency in patients suffering from wet AMD and other retinal diseases. It could also reduce the possibility of certain side effects associated with frequent intravitreal injections.

REGENERON PHARM Price

We are positive on the deal. Eylea, which is approved for several eye disorders including wet AMD, is the key growth driver at Regeneron. Eylea has brought in $1.6 billion in sales in the U.S. in the first half of 2016. Regeneron is working on driving Eylea’s sales further through label expansion.

Late last month, however, Regeneron reported disappointing top-line data from the phase II CAPELLA study, evaluating Eylea in combination with rinucumab (an anti-PDGFR-beta antibody), for the treatment of patients with wet AMD. Meanwhile, combination studies on Eylea and nesvacumab (an anti-angiopoietin 2 antibody) are currently underway.

Ocular too has faced quite a few setbacks for its pipeline candidates earlier. The Regeneron deal provides the company with a strong partner as well as funds.

OCULAR THERAPTX Price

Zacks Rank and Stocks to Consider

Both Regeneron and Ocular carry a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the health care sector are Incyte Corporation (INCY - Free Report) and Geron Corporation (GERN - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Incyte’s earnings estimates for 2016 and 2017 were up a respective 29.4% and 9.8% over the last 60 days. The company has beaten earnings estimates thrice in the last four quarters with an average surprise of 335.16%.

Geron has delivered a positive earnings surprise in each of four trailing quarters, bringing the average beat to 20.78%.

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