Why Array Biopharma Inc's Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Array Biopharma have leapt more than 36% higher today after the small biotech company announced that it had acquired the global rights to encorafenib from Novartis .

So what: Encorafenib is a BRAF (an important protein kinase in signaling pathways) inhibitor currently undergoing Phase 3 trials. Mutations in BRAF are found in many cancers, and as such, encorafenib is designed to treat cancers by inhibiting these mutated proteins. The drug has already undergone trials for colorectal cancer and is currently being tested as a melanoma treatment in conjunction with binimetinib, which Array already owns due to an agreement with Novartis early last year. All told, encorafenib is undergoing 11 active clinical trials at the moment.

According to the terms of the deal, Array has acquired global rights to encorafenib and will not owe Novartis any further milestone or royalty payments. Novartis will help Array with the necessary clinical transition, including funding a high-profile trial currently under way, and will also help manufacture encorafenib for up to 30 months after the deal closes, but Array must find an experienced partner -- which seems likely to be Novartis at any rate -- for global development and commercialization in Europe. Novartis has also agreed to provide some of its pipeline drugs to Array for trials in combination with encorafenib.

The financial terms of the deal were not disclosed in the company's press release.

Now what: Cancer drugs are in high demand, and Array is still so small (its market cap is under $1 billion even after today's pop) that this deal could quickly spike its financials if or when encorafenib is approved by the FDA and by European regulators. However, investors should also wonder why Novartis seemed so willing to give up the rights to not one, but two potential cancer treatments to a tiny development-stage biotech company like Array. There are currently several drugs in Phase 3 trials for treating melanoma, and now that Novartis has given up both binimetinib and encorafenib, Array is now competing exclusively against the world's largest pharmaceutical companies. A situation like this demands more research into the competitive landscape (unless you're already an expert on cancer treatments) before diving in on big news.

The article Why Array Biopharma Inc's Shares Skyrocketed originally appeared on Fool.com.

Alex Planes has no position in any stocks 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.