Shares of NewLink Genetics (NLNK), a developer of immunotherapeutic products to enhance treatment options for patients with cancer, are exploding to the upside after peer Incyte (INCY) announced a collaboration with Merck (MRK).

INCYTE-MERCK COLLABORATION: Incyte and Merck announced that they are advancing their clinical development program to investigate the combination of epacadostat, Incyte's investigational oral selective IDO1 inhibitor, with Keytruda or pembrolizumab, Merck's anti-PD-1 therapy. With the expansion of the clinical development program, the companies plan to initiate pivotal studies of epacadostat in combination with Keytruda in four additional tumors: non-small cell lung cancer, renal cell carcinoma, bladder cancer and squamous cell carcinoma of the head and neck. Presentations of data from the ongoing studies of epacadostat in combination with Keytruda, which support this decision, are expected at upcoming medical meetings, the companies said in a statement.

NEWLINK'S PACT WITH GENENTECH: In October of 2014, Genentech, a Roche (RHHBY) subsidiary, and New Link, which has its own IDO1 inhibitor NLG919, announced a collaboration to explore the efficacy of cancer treatments with combinations using NLG919. At the time, Genentech agreed to pay NewLink $150M upfront, plus more than than $1B in payments dependendt on undisclosed milestones. "This alliance enables us to accelerate and expand development of NLG919 while we continue to advance our other promising clinical and preclinical development programs," stated NewLink CEO Charles Link Jr. at the time of the deal. In early November, along with its third quarter earnings report, the CEO of the company updated the company's efforts with IDO pathway inhibitors, "We continue to focus our clinical developmental efforts targeting the IDO pathway. We have two distinct IDO pathway inhibitors advancing in the clinic, GDC-0919 with our partner Genentech and indoximod, our proprietary IDO pathway inhibitor. We are also encouraged by recent clinical data that increasingly validate the IDO pathway as an important target in immuno-oncology."

PRICE ACTION: Shares of NewLink are up over 19% to $13.20 per share in afternoon trading, while Incyte shares are gaining 9% to $118.06 per share.