Shares of the cancer specialist Arcus Biosciences (RCUS) jumped by approximately 31% during the month of November, according to data from S&P Global Market Intelligence. The biotech's shares ripped higher last month in response to Gilead Sciences (GILD -0.22%) exercising its options to develop four of the company's clinical-stage cancer compounds.
Specifically, Gilead decided to go forth with the development of two anti-TIGIT antibodies, an A2a/2bR antagonist, as well as a small molecule CD73 inhibitor. Arcus, in turn, received a hefty $725 million upfront payment for the right to develop these four anti-cancer compounds.
Gilead's vote of confidence, and perhaps more importantly, its sizable cash payment, were key reasons why Arcus' shares were among the few winners in biotech last month. Over the course of November, biotech stocks at large took a major step backward due to a plethora of headwinds.
The long and short of it is that investors have seemingly lost their collective appetite for risky growth plays. And clinical-stage biotech companies are arguably the textbook definition of high-risk, high-reward investing vehicles.
Arcus' stock, though, is a lot less risky following this option exercise. After all, Gilead will help foot the bill to develop these four compounds and Arcus' cash runway should now extend well into 2024.
Is Arcus' stock still worth buying after last month's double-digit rally? While developmental-stage cancer companies aren't for the faint of heart, Arcus' shares are only trading at a little over two times the company's estimated cash position following this option exercise. What's more, this cancer drug developer has numerous clinical catalysts coming up over the next year. Several of these forthcoming clinical updates could drive its shares even higher.
Another issue to keep in mind is that this option exercise might turn out to be a prelude to a full-on buyout later on down the road. Gilead has had terrible luck with its business development activities over the past two years. So, if this partnership strikes gold, Gilead would likely take advantage of this change in fortune by buying Arcus lock, stock, and barrel. In a buyout scenario, Arcus' stock ought to fetch a handsome premium due to its high-value clinical pipeline.
All things considered, this high-flying biotech stock still comes across as a strong buy, even after last month's sizable uptick.