What happened

Shares of IGM Biosciences (IGMS -8.86%), a clinical-stage biotechnology company, were trading an astonishing 130% higher as of 11:30 a.m. ET Tuesday as investors responded to news that it had signed a significant collaboration deal with Sanofi (SNY -1.56%).

So what 

IGM Biosciences doesn't have any products generating revenue yet, so some support from a deep-pocketed pharmaceutical like Sanofi could be extremely helpful. The big pharma is interested in IGM Biosciences' IgM antibodies as potential treatments for several types of cancers and a handful of autoimmune disorders. 

The biotech will lead the R&D effort to develop half a dozen IgM antibodies candidates that could, if successful and approved, become new blockbuster drugs. In return, Sanofi will hand over $150 million up front to IGM Biosciences, and the two companies will split the profits from any treatments that result from the partnership. Sanofi has ordered the discovery of IgM antibodies aimed at three cancer targets and three inflammation targets. IGM Biosciences will also be eligible to receive up to $1 billion in milestone payments for each discovered candidate that goes on to become a commercial success.

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Image source: Getty Images.

Now what

Many established biologic drugs use IgG antibodies, but engineered IgM antibodies have more sites that can bind to therapeutic targets than IgG antibodies, so it is theorized that they could prove more effective. It could be a while before we see evidence of that improved efficacy, though. The most advanced new drug candidate in IGM Biosciences' pipeline, IGM-2323, is an experimental lymphoma treatment that only began the phase 2 portion of its first clinical trial in the fourth quarter of 2021.

IGM Biosciences finished 2021 with $230 million in cash on its balance sheet after losing $165 million last year. With that rate of cash burn, the upfront payment from Sanofi won't stretch very far, but it probably won't have to. The biotech also announced a plan on Tuesday for a secondary stock offering that will raise around $230 million. This will dilute the value of existing shares, but could give the company enough time to produce definitive clinical trial results before it needs to raise capital again.