What happened

As of 10:30 a.m EST, shares of the clinical-stage biotech Agenus (NASDAQ:AGEN) were up by more than 15%. This double-digit move northward was triggered by the news that Incyte (NASDAQ:INCY) and Agenus have amended their immuno-oncology licensing deal from a co-funded development and profit-sharing arrangement to a royalty-bearing program. 

So what

Breaking this news down, Agenus' shares are really shooting higher for three main reasons:

  • Incyte is now responsible for funding the clinical development of the ongoing GITR and OX40 antibody programs, which should help to lower Agenus' cash burn going forward.
  • Per the terms of the amended agreement, Agenus will also receive a $20 million milestone payment from Incyte.
  • Finally, Incyte agreed to buy yet another 10 million shares of Agenus' common stock at $6 per share, making it by far the biotech's largest stakeholder.  
Generic stock graph going up and to the right

Image source: Getty Images.

Now what

From an outsider's vantage point, this amended agreement seems to be a prelude to a full-on buyout later on down the line. After all, Incyte has now agreed to up in its stake in Agenus to roughly 20% based on the latest available share count. 

So perhaps the key takeaway from today's news is that Incyte is now firmly in the catbird seat as a potential buyer of Agenus if the biotech's checkpoint antibody platform hits pay dirt in the clinic. That's a critical development because other potential suitors may soon come calling based on the strong and growing interest in checkpoint inhibitors within the industry. 

Although a buyout scenario isn't necessarily a smart reason to buy any stock, Agenus appears to be deeply undervalued in light of the stellar clinical track record of checkpoint inhibitors in general, as well as their enormous commercial potential that flat out dwarfs the company's $400 million market cap. As such, this speculative biotech is certainly worth a deeper dive by any risk-tolerant investor on the hunt for unusual growth opportunities.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.