Rigel Pharmaceuticals Inc. (NASDAQ: RIGL) and Bristol-Myers Squibb Co. (NYSE: BMY) announced Monday morning that they have entered into a collaboration agreement regarding the development and commercialization of cancer immunotherapies. This agreement is based on Rigel’s portfolio of TGF beta receptor kinase inhibitors and will focus on developing a new class of therapeutics designed to increase the immune system’s activity against various cancers.

Rigel shares have surged upon the news. The question to ask is if they are getting enough from the much larger pharmaceutical company in the deal.

In terms of the agreement, Bristol-Myers Squibb will have exclusive, worldwide rights to develop and commercialize small molecule therapeutics derived from Rigel’s TGF beta library, including, but not limited to, those approved to treat cancer.

Also Bristol-Myers Squibb will pay $30 million upfront and Rigel will be eligible to receive development and regulatory milestones that could total over $309 million for a successful compound approved in multiple indications. Rigel will also be eligible to receive tiered royalties on the net sales of any products from the collaboration.

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Raul Rodriguez, president and CEO of Rigel, commented on the deal saying:

This collaboration places our TGF beta receptor kinase inhibitor program into the hands of Bristol-Myers Squibb, a premier immuno-oncology company. Together, we believe TGF beta inhibition may offer novel therapeutic opportunities in oncology treatments. Rigel has focused on immunology, and oncology via numerous partnerships. This collaboration is Rigel’s first in immuno-oncology and is one of the Company’s several programs in this area. However, the biggest questions to ask are how much each company stands to make by partnering together and how big the market is for this specific therapy.

Bristol-Meyers Squibb jumped roughly 1.6% to $60.52 in premarket trading. The company’s market cap is about $100 billion. The initial $30 million payment and $309 million that Bristol-Meyers Squibb might have to pay for milestone payments is small potatoes compared to what the company stands to make.

At the same time, Rigel shares were up 46% at $3.72. What really stood out was that this had traded a million shares, even with over 30 minutes until the open on Monday morning. Rigel trades on average about 477,000 shares per day.

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Some might argue that this jump is too high for Rigel, or at least question whether the jump is appropriate, but the higher share price is still well below the consensus analyst price target of $6.50. The stock also has a 52-week trading range of $1.56 to $5.00, and its pre-jump market capitalization rate was $224 million.

Rigel is a company that effectively has had very little revenue. For a comparison, Bristol-Myers Squibb has a market cap of $100 billion — and it just paid $1.25 billion to buy a private cancer drug maker named Flexus Biosciences. Is it safe to ask if Bristol-Myers Squibb should have just acquired Rigel?

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