A standout stock in the healthcare sector last year, Novo Nordisk (NYSE: NVO) isn’t doing too badly so far in the embryonic days of 2024. On Thursday — yet another gloomy day for the market when the S&P 500 index dipped by 0.3% — the drugmaker’s share price closed nearly 4% higher. Sparking that upbeat investor interest was news of a pair of research collaboration deals.

A pair of research collaboration deals

On Thursday morning, Novo Nordisk divulged that it had inked new arrangements with two U.S. biotechs: Omega Therapeutics (NASDAQ: OMGA) and privately held Cellarity. The deals fall under a framework agreement with healthcare-focused investment firm Flagship Pioneering, which has stakes in both Omega and Cellarity.

Under the terms of the arrangements, Novo Nordisk will collaborate with Omega and Cellarity on pre-clinical drug development. If their development activities are successful, the Denmark-based company could elect to conduct clinical trials on the candidate medications that come out of the collaborations.

Novo Nordisk is obligated to reimburse its partners for their research and development costs. Each can earn as much as $532 million in payments under the terms of the deals. They will also be eligible for royalty payments, should a co-developed drug receive marketing approval from regulators.

Bulking up by going external

While Novo Nordisk has been highly successful lately thanks to its hotly popular medications Wegovy and Ozempic, it still lacks the scale of a major pharmaceutical operation — hence the need for such research tie-ups. If the collaborations with Omega and Clarity are managed well, the benefits to all three companies could be enormous.

“It is essential that we complement our internal research with external innovation and work with partners who are bringing forward cutting-edge technology,” said Novo Nordisk Chief Scientific Officer Marcus Schindler in the press release about the arrangements.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

Why Novo Nordisk Stock Crushed the Market Today was originally published by The Motley Fool