Image source: Five Prime Therapeutics.

What: Inking of a development deal valued at up to $1.7 billion with Bristol-Myers Squibb (NYSE:BMY) sent shares in Five Prime Therapeutics (NASDAQ:FPRX) soaring by 109% in October.

So what: On Oct. 15, Bristol-Myers Squibb and Five Prime Therapeutics announced a collaboration deal to develop Five Prime Therapeutics colony stimulating factor 1 receptor (CSF1R) antibody program for use alongside Bristol-Myers PD-1 inhibitor Opdivo and other Bristol-Myers therapies.

Bristol-Myers is paying Five Prime Therapeutics $350 million up front and could pay up to an additional $1.05 billion in various development and regulatory milestones for cancer indications and up to another $340 million in milestones for non-cancer indications.

At the heart of this collaboration is Five Prime Therapeutics' FP008, an antibody that inhibits activity of CSF1R by targeting overactive immune cells that secrete proteins that can suppress a T-cell's ability to kill cancer cells and that can lead to an immune system response that can destroy bone tissue.

Now what:  Bristol-Myers is knee-deep in developing immunotherapies for cancer, including Opdivo, a drug that is already FDA approved to treat melanoma and lung cancer.

By inking this deal with Five Prime Therapeutics, Bristol-Myers adds another immunotherapy target that it can use to build next generation combination therapies involving Opdivo and Five Prime Therapeutics offloads some R&D expenses and nets a proven leader in cancer drug development and commercialization.

If the collaboration succeeds, then Five Prime Therapeutics will not only receive milestones, but it will also receive double-digit royalties on sales. Five Prime Therapeutics also has the right to exercise a co-promotion option in the U.S. that could boost its potential payout.

Overall, investors may not want to ignore Bristol-Myers big vote of confidence in Five Prime Therapeutics, but they should also recognize that many of the industry's cancer drug collaborations have failed in the past and since Five Prime Therapeutics research is in the early stages of development, a lot could still go wrong and derail Five Prime Therapeutics' shares.

Regardless, immuno-oncology is an incredibly exciting and potentially game-changing approach to tackling cancer and, as such, risk-tolerant investors might want to keep an eye on Five Prime Therapeutics and Bristol-Myers' progress.  

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.