What happened

Shares of Endocyte (NASDAQ: ECYT), a clinical-stage biotech focused on cancer, rose as much as 13% in early-morning trading on Tuesday on heavy volume. As of 11:35 p.m. EDT, the stock was up about 9%. While there doesn't appear to be any obvious news that can justify the big move, Endocyte has been on fire lately, thanks to a key announcement earlier this month.

So what

A few weeks back, Endocyte announced that it had purchased exclusive worldwide licensing rights from the German company ABX GmbH for its experimental prostate cancer drug PSMA-617. The deal cost Endocyte $12 million up front plus 2 million shares of common stock. It also provided ABX with a warrant that will allow the purchase of up to 4 million additional shares. What's more, ABX is also eligible to receive up to $160 million in milestone payments and tiered royalties on any sales.

Colorful drugs on top of $100 bills

Image source: Getty Images.

Why would Endocyte be willing to make such a generous offer? The reason is that management believes that PSMA-617 holds the potential to be a first-in-class treatment for metastatic castration-resistant prostate cancer. Their confidence stems from the drug's very high prostate-specific antigen (PSA) response rate observed in clinical studies.

Endocyte plans on initiating a phase 3 trial of the drug in early 2018. If all goes well, the trial will be completed around 2020. Since the prostate cancer market is huge (and growing), Endocyte believes that PSMA-617 could turn into a blockbuster drug.

The move didn't go unnoticed by the markets. The company's stock skyrocketed soon after the deal was announced. An analyst at Wedbush also upgraded Endocyte's stock to outperform based on the news and raised his price target to $7. That only added fuel to the fire, and shares have been volatile ever since. 

Now what

Will Endocyte ever be able to prove that PSMA-617 is the real deal? I'm certainly hopeful that is the case, but we won't be sure until data is available from the upcoming phase 3 trial. However, given Endocyte's spotty history, I'm content to watch this story play out from the sidelines.