On Thursday after the closing bell, Fate Therapeutics (FATE 1.16%) announced that it had gotten the backing of Johnson & Johnson's (JNJ 0.87%) Janssen Biotech division in a drug development deal that could be worth more than $3 billion ... if everything goes perfectly.

News of the agreement sent Fate's shares higher Friday. The stock was trading about 9% higher as of 2 p.m. EDT, while the broader market was down by more than 2%.

For now, Fate Therapeutics will get $50 million upfront and a $50 million investment from Johnson & Johnson. Its new partner will cover all the research and development costs on products targeting up to four different proteins expressed on cancerous cells, up to the filing of investigational new drug applications with the Food and Drug Administration. At that point, Johnson & Johnson can choose to license the therapies and take them through clinical development and commercialization. Fate will be responsible for producing the products, the cost of which will be covered by Johnson & Johnson.

Scientists working in a lab

Image source: Getty Images.

Fate will use its induced pluripotent stem cell (iPSC) technology to develop iPSC-derived chimeric antigen receptor (CAR) NK and CAR T-cell products for the treatment of blood cancers and solid tumors. The deal covers the development of products targeting up to four different proteins expressed on cancerous cells.

Fate is eligible for up to $1.8 billion in development and regulatory milestone payments and up to $1.2 billion in commercial milestone payments, as well as double-digit royalties on sales of products from the collaboration. Fate can choose to co-promote any of the drugs in the U.S. and share equally in profits and losses in the U.S., but if Fate chooses that route, the biotech will have to pay for some of the clinical development costs and will get lower milestone and royalty payments on those drugs.