Conatus Pharmaceuticals Inc (NASDAQ:CNAT) has finalized a collaboration contract with Novartis AG (ADR)(NYSE:NVS) to bolster lead drug emricasan. The firm has obtained $50 million in advance, and predict for up to $650 million going down the road in form of milestone payments.

The buzz

Conatus conveyed its linkage in the NASH segment with Novartis a couple of days ago. The latter company has bought international rights to drug emricasan as per the agreement. Both the firms have their individual drug contenders in the NASH division. For Novartis, it serves as an ‘FXR agonist’ that functions by lessening lipid accumulation, stellate cell stimulation, and liver cell infection, which predominantly aims NASH fibrosis.

The company main drug, emricasan studies for NASH cirrhosis. Novartis as well as Conatus consider their drugs to work well when combination treatments are given as it reduces the effects as well as prevent liver insult in NASH. If positive, the contract will propose Novartis a regimen alternative for NASH cure, turning it as a leading player in the segment.

Going by the Form 8K, Conatus has been awarded $50 million in advance, that will be compensated with within five days of the contract being reported. This compensation doubles firm’ market capitalization from its stock price of $1.96 indicating around $48 million capitalization before the contract’s announcement. The firm is entitled to get up to $650 million going forward in the form of milestone payments once the contract is closed with Novartis. For now, the trigger for the contract to be consummated is just starting of ENCORE-LF trial into liver fibrosis.

Assuming the agreement closes without an interruption, Conatus will be getting 50% cost repayment for all of its Phase II trials on going, and 50% of cost repayment for the yet to be started Phase IIb ENCORE-LF study. This split financing of expenses with Novartis, together with existing cash on hand, $7 million initiation bonus, $50 million upfront compensation and promissory notes worth $15 million will be adequate to fund all the Conatus’ costs until 2019.