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Here’s why Bionomics Ltd shares soared today

Biotech stock Bionomics Ltd (ASX: BNO) has seen its shares soar more than 17% today, after the company announced a major partnership with giant pharmaceuticals company Merck & Co that could be worth up to US$506 million.

That’s big bikkies for the junior biotech, and a major step toward developing its BNC375 program that is targeting cognitive dysfunction associated with Alzheimer’s disease, Parkinson’s and other central nervous system disorders.

Under the new deal, Merck will fund all research and development, including clinical trials, and will be responsible for commercialising any products from the collaboration. Bionomics will receive an upfront payment of US$20 million and is eligible to receive US$506 million to achieve certain milestones, and royalties on any product sales.

Alzheimer’s is the most common type of dementia and affects 1 in 9 Americans older than 65 years. It’s also the 6th most common cause of death in the United States, with Bionomics estimating the direct cost of the disease in the US this year at $214 billion.

Bionomics shares have been on a rollercoaster this year, plunging 37.5% to 51.5 cents in March this year, after research results for its anti-cancer agent BMC105 were poorly received.

Volatility is common amongst smaller biotech stocks, with Acrux Limited (ASX: ACR) losing 67% in the past 12 months, while QRxPharma Limited (ASX: QRX) has slumped 93% over the same period and Pharmaxis Ltd (ASX: PXS) is down 55%.

Much of the falls can be attributed to decisions made by the US Food & Drug Administration (FDA). With the US perhaps the most important market for new drugs, approval by the FDA is a key requirement for any drug to achieve commercial sales. Bionomics has some way to go, but has certainly improved its chances of success.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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