Protagonist Therapeutics Inc (NASDAQ:PTGX) is one of the week’s early runners. The company just reported that it has struck a collaboration deal with privately held big biotech player Janssen Pharmaceuticals and – as things stand – it’s up close to 45% on the news. For a company the size of Protagonist, this sort of deal can be a game-changer, and it’s this potential that’s driving the loading up we’re seeing at the moment.

So, in light of the news, and with the run well underway, here’s a look at what both companies are getting on each side of the deal and what it means for each, but primarily Protagonist, going forward.

For those not familiar with Protagonist, the company is a development stage biotechnology company based out of California and focusing on the bringing to market of drugs designed to treat various unmet needs in healthcare. It’s development assets (of which the asset that forms the basis of the just announced collaboration is one) are oral peptide entities, which makes for a pretty wide potential base of target indications.

In this instance, the one we’re looking at is called PTG-200.

It’s a very early stage asset right now, but the collaboration itself is not new. Well, in its latest iteration it’s new, but the arrangement is an extension of a financing round that took place back in 2013, by way of which the venture capital arm of Johnson & Johnson (NYSE:JNJ), called Johnson & Johnson Innovation (for reference, J&J owns Janssen) injected capital into Protagonist in support of the discovery and development of the company’s pipeline of oral peptide therapeutics.

The situation now, then, is that one such peptide therapeutic has been borne out of the J&J-funded discovery stage and that therapeutic is PTG-200. The drug is what’s called an oral peptide IL-23 receptor antagonist. This receptor plays a key role in the body’s inflammatory response and – in patients in which it’s overactive – can be at the root of a range of conditions. Initially, the program will target an indication of inflammatory bowel disease (IBD), Crohn’s disease and ulcerative colitis. Janssen is a strong force in the chronic inflammatory and immunomodulatory diseases space, so if the drug carries through to commercialization, it’s a pretty nice fit for the company and its existing portfolio.

So, looking at the deal specifically, Protagonist will receive an upfront payment of $50 million from Janssen, and also will be eligible to receive up to an additional $940 million in development, regulatory and sales milestones. That’s a large sum for a company wit ha market capitalization of that of Protagonist and the degree to which this capital eases dilutive pressure on the stock is one of the primary reasons for the run we have seen this week.

Basically, the arrangement calls for milestones paid by Janssen to Protagonist as dictated by trial progress. If the drug reaches and successfully completes a phase IIa/b n Crohn’s, Janssen can elect to take over development and run with the drug, while Protagonist will receive double-digit tiered royalties on net product sales. Not a bad deal for the young biotech stock.

So, what’s next?

Well, now the ball is in Protagonist’s court. The company is going to use the initial capital injection not just for PTG-200 (in fact, not even primarily for PTG-200) but also for its lead, in-house development asset – a drug called PGT-100. This one’s in development as a potential therapy for ulcerative colitis, and the company is currently attempting to establish efficacy as part of a phase IIb in the target population.

Next, then, the completion of this study and the initiation of a phase I in the Crohn’s indication that Protagonist is targeting with Janssen becomes a co-priority drive.

Bottom line here is that while the arrangement suits Janssen in the sense that the asset fits nicely into its portfolio, it’s a great deal for Protagonist. That’s why we’re seeing the strength and that’s why we expect the company to continue to appreciate as the week matures.

One to keep an eye on.