Why OncoMed Pharmaceuticals Inc. Shares More Than Doubled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of OncoMed Pharmaceuticals (NASDAQ: OMED  ) , a clinical-stage biopharmaceutical company focused on developing therapies to target cancer stem cells, rallied as much as 126% (yes, 126%!) after announcing a strategic collaboration to develop multiple anti-cancer stem cell therapeutics with Celgene (NASDAQ: CELG  ) before the opening bell.

So what: According to OncoMed's press release, the two companies will collaborate to develop up to six anti-cancer stem cell therapeutic compounds. OncoMed will be entitled to receive an upfront payment of $177.25 million, which includes a $155 million cash payment and a $22.25 million equity investment in OncoMed's common stock. The deal also factors in milestone payments for its lead drug, demcizumab, which could total -- get this -- up to $790 million! The additional studies include an anti-DLL4/VEGF bispecific antibody which could add up to $505 million in payments, while the four remaining studies could be worth as much as $440 million, each.

Now what: "Why the meteoric rise," you ask? If you're a clinical-stage cancer development company and you need cash to conduct your research, this deal pretty much eliminates your cash worries for a long time. As much as I suspect OncoMed may retrace a bit after today's historic rise, I wouldn't count on a large dip given just how much it could potentially earn from this collaboration just in simple advancements through clinical trials. For Celgene, it gives the company a chance to potentially dip its toes into the unchartered territory of targeting cancer stem cells rather than just existing cancer cells themselves. Given Celgene's impressive year, it certainly has the cash flow to make such a deal.

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