Gilead Sciences (NASDAQ:GILD) and Arcus Biosciences (NYSE:RCUS) have signed a 10-year agreement to co-develop and co-commercialize the next-generation cancer therapeutics in Arcus' pipeline. The agreement also gives Gilead an equity position in the small-cap, clinical-stage biotech company. Shares of Gilead inched up 0.7% Wednesday on the news, but investors apparently thought Arcus didn't drive a hard enough bargain -- its stock fell 13% to $29. Notably, at Tuesday's close Arcus shares were up 232% year to date in part due to rumors of the deal.

Arcus is developing both small-molecule and monoclonal antibody drugs that target mechanisms that tumors use to evade the immune system, as well as pathways important for cancer growth and metastasis. The company has six preclinical compounds under study and four molecules being evaluated in 10 clinical trials, including a phase 2 study of a combination of three of its molecules as a first-line treatment for non-small-cell lung cancer. Other clinical trials are underway for its drugs as treatments for colorectal cancer and tumors of the prostate, pancreas, kidney, and breast.

Pills and a dollar bill.

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Gilead, which is strengthening its oncology portfolio under new CEO Daniel O'Day, will pay Arcus $175 million in cash up front and make a $200 million equity investment in the company at a price of $33.54 per share. Gilead gets immediate rights to zimberelimab, an anti-PD-1 monoclonal antibody, and the right to opt into the other Arcus clinical candidates for fees between $200 million and $275 million and milestone payments of as much as $500 million.

The biotech giant also has the right to opt into all other programs that emerge from Arcus research over the next 10 years, and can purchase up to 35% of Arcus' outstanding shares at $33.54, or 120% of the share price when the option is exercised, whichever is higher.