Lilly has entered into a research and licensing collaboration with Lycia Therapeutics to discover, develop and commercialise novel targeted therapeutics using the latter’s protein degradation technology.

Lycia Therapeutics is a biotechnology firm that offers a lysosomal targeting chimeras (LYTACs) platform for the degradation of extracellular and membrane-bound proteins.

LYTACs can be used for the development of various therapeutic modalities including antibodies and small molecules, to inhibit targets previously considered intractable.

Under the terms of the agreement, Lycia will receive an upfront payment of $35m, along with an additional payment of more than $1.6bn in potential milestone payments.

Also, the company is entitled to receive tiered royalties ranging from mid-single to low double-digits, based on sales of the products from the collaboration.

Lycia president and CEO Aetna Wun Trombley said: “We are extremely pleased to establish this strategic collaboration with Lilly, a global leader in therapeutic innovation.

“With our differentiated LYTAC platform for targeted extracellular protein degradation, we look forward to collaborating with Lilly to advance novel therapies against challenging targets in underserved disease areas while we simultaneously advance our in-house pipeline of first-in-class LYTAC-based therapeutics.”

The collaboration will leverage Lycia’s LYTAC platform to discover and develop novel degraders for up to five targets in Lilly’s therapeutic areas of focus, including immunology and pain.

Lilly has agreed to conduct preclinical and clinical development of candidates.

Also, the company obtains an exclusive global license to commercialise potential medicines resulting from the collaboration.

Lilly said that the transaction is not expected to be reflected in its reported results and financial guidance according to Generally Accepted Accounting Principles (GAAP).

Lilly immunology vice president Ajay Nirula said: “This collaboration with Lycia furthers Lilly’s strategy to utilize innovative new technology to treat challenging disease areas, such as immunology and pain.

“We believe Lycia’s technology may allow us to develop targeted therapeutics that were not previously feasible and make advances for patients in areas of high unmet need.”

Last month, Lilly through its company Loxo Oncology has entered into an exclusive collaboration with Kumquat Biosciences to focus on novel small molecule therapies.