What happened

Shares of Arcus Biosciences (RCUS -0.98%) jumped nearly 16% today in another day of volatile trading. There have been a lot of moving parts to the development-stage biopharma in recent weeks. In the last week alone, the business has inked a long-term partnership with Gilead Sciences (GILD -0.74%) and announced the pricing of a massive public offering of common stock.

So investors can't be too surprised that the stock has been volatile lately, although there's not much to complain about considering shares have gained over 200% since the beginning of 2020. As of 2:12 p.m. EDT on Friday, the small-cap stock had settled to a 9.5% gain.

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Image source: Getty Images.

So what

Earlier this week, Arcus Biosciences inked a 10-year development deal with Gilead Sciences that includes a $175 million up-front payment for Arcus and an additional $200 million equity investment. Gilead will also provide up to $400 million to offset research and development expenses over the life of the collaboration. Arcus is eligible for up to $1.2 billion in milestone payments (or more if additional programs are tossed into the collaboration), with rights to profit-sharing or royalties on product revenue for each successful asset. 

On Thursday, Arcus announced the pricing of a public offering of common stock that will generate up to $347 million in gross proceeds. The dilution from the offering will sting, but investors are apparently pleased with the fact shares are being offered at a relatively favorable $27.50 each. 

Combine the recent collaboration deal, stock offering, and existing cash position at the end of March, and investors can expect Arcus Biosciences to have roughly $850 million in cash when the dust settles. That's a sizable chunk of the current $1.4 billion market valuation. 

Now what

Arcus Biosciences is developing 12 unique clinical programs involving next-generation oncology drug candidates. Gilead Sciences apparently thinks enough of the young, unproven pipeline to commit a significant amount of cash and bandwidth to co-develop the assets. But investors should also realize that it's a relatively small investment from the perspective of Gilead Sciences, which can walk away with little pain.

Of course, the collaboration deal certainly extends credibility to the development-stage biopharma. The real question for investors has no easy answer: Is a market cap of $1.4 billion too high, too low, or just right relative to the lack of robust results published to date? The market will continue trying to deliver an answer in the coming weeks, which suggests at least one thing is certain: Investors can expect the stock price to remain volatile for the foreseeable future.