What happened

Shares of Arvinas (ARVN -4.33%) rallied nearly 10% during Thursday's trading session, in response to the announcement of a new collaboration with drug giant Pfizer (PFE 0.19%). The two companies will co-develop and then co-market Arvinas' ARV-471, currently in trials as a treatment for certain forms of breast cancer.

In conjunction with the agreement, Pfizer is making an investment in Arvinas stock as well as advancing the smaller biopharma company a sizable sum of cash.

So what

Partnerships among pharmaceutical companies are nothing new, although this one is arguably more significant than others due to its relative scope. In addition to a $350 million equity investment in the $4 billion organization, Pfizer is also awarding Arvinas with an upfront payment of $650 million in exchange for shared rights to assist in the development and eventual marketing of ARV-471.

Rising bar chart, with a rising blue arrow marking the uptrend.

Image source: Getty Images.

The drug in question is currently in phase 2 trials as a therapy for estrogen receptor-positive and human epidermal growth factor receptor 2-negative breast cancers. If approved, the two companies will split the drug's costs and profits evenly.

Now what

Companies the size of Pfizer can afford to take chances on drugs in mid-stage trials that show promise. But Pfizer's upfront payment and purchase of Arvinas -- in addition to $1.4 billion worth of additional milestone awards -- suggests the evidence of efficacy thus far is better than average.

Better still, given that the poorly served $20 billion breast cancer market could be worth twice as much in just a matter of years, at the very least Pfizer's interest makes Arvinas a compelling prospect.