What happened

Shares of Zymeworks (ZYME 4.29%) were soaring 17% higher as of 10:54 a.m. ET on Wednesday. The big jump came after Zymeworks and Jazz Pharmaceuticals (JAZZ -0.38%) announced an exclusive licensing deal for zanidatamab. Jazz will pick up development and marketing rights for Zymeworks' bispecific antibody therapy that targets HER2-expressing cancers in all territories, except in Asia/Pacific, where Zymeworks already has licensed the drug.

So what

Jazz will fork over an up-front payment of $50 million to Zymeworks once the transaction is approved by regulators. After the results from the Herizon-BTC-01 clinical study of zanidatamab are reported, Jazz could pay another $325 million to Zymeworks if it chooses to continue the collaboration.

In addition, Zymeworks will be eligible to receive regulatory milestones of up to $525 million, as well as up to $862.5 million related to commercial milestones. Jazz also agreed to pay tiered royalties to Zymeworks of between 10% and 20% of net sales if zanidatamab is ultimately approved and marketed.

With a deal that could reach up to $1.76 billion, it's not surprising that Zymeworks shares took off today. The positive news was much needed. The biotech stock was down 65% year to date prior to today's announcement.

Now what

Jazz and Zymeworks must now wait for regulatory clearance to finalize the licensing agreement. However, the transaction is expected to close this year.

The main thing for investors to watch going forward, though, is the progress of the clinical studies evaluating zanidatamab. The experimental therapy is currently in pivotal studies as a first-line treatment for HER2-positive gastroesophageal adenocarcinoma and as a second-line treatment for HER2-expressing biliary tract cancer.