What happened
Shares of Arcus Biosciences (RCUS) jumped by as much as 21% in premarket trading Thursday morning. The biotech's stock is heating up in early morning action today on the news that Gilead Sciences (GILD -1.15%) has decided to exercise its options for Arcus' two anti-TIGIT molecules, domvanalimab and AB308, as well as for the adenosine receptor antagonist etrumadenant and the small molecule CD73 inhibitor quemliclustat.
Arcus will pocket a healthy $725 million as a result of this option exercise on the part of Gilead. Additionally, the two companies announced that they will co-develop and share the global costs associated with these oncology programs.
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So what
This updated partnership agreement will give Gilead the flexibility to explore a variety of novel anti-cancer combination therapies in the clinic. In its press release, for example, the biotech noted that it plans on assessing potential combo therapies consisting of Arcus' various pipeline candidates and its potent antibody–drug conjugate sacituzumab govitecan-hziy (brand name: Trodelvy).
What's important to understand from an investing perspective is that this deal could prove to be a significant milestone in the biotech giant's quest to move beyond infectious diseases as its main value driver. Gilead has long wanted to pivot toward oncology due to the long-lived nature of these therapies in the marketplace.
Now what
Why didn't Gilead simply buy Acrus? With a market cap of $2.6 billion at Wednesday's close, Gilead easily could have bought Arcus lock, stock, and barrel. By going the licensing route, the biotech seems to be signaling to shareholders that it no longer has an appetite for risky business development deals. That's not surprising after its pricy Kite Pharma acquisition a few years back. Gilead, in effect, is clearly taking a far more cautious approach to pipeline development these days, which is a great sign for shareholders. That being said, Gilead could still pull the trigger on an Arcus buyout if one or more of these combo therapies bears fruit in the clinic.
