US pharma companies Eli Lilly and Nektar Therapeutics have signed an agreement to jointly develop the latter’s novel immunotherapy, NKTR-358, which could potentially treat a number of autoimmune and other chronic inflammatory conditions. The collaboration would be worth as much as $400 million for Nektar.

Currently in Phase I development, NKTR-358 is a potential first-in-class resolution therapeutic that might address an underlying immune system imbalance in patients with many autoimmune conditions. The drug targets the body’s interleukin (IL-2) receptor complex to stimulate proliferation of regulatory T cells, which Nektar said could rebalance the immune system, leading to a profound clinical impact and healthy organ function in autoimmune conditions.

Under the terms of the deal, Nektar will receive an initial payment of $150 million and is also eligible for up to $250 million in additional development and regulatory milestones, as well as double-digit royalties on future sales. Nektar will complete Phase 1 clinical development while the two partners will share the costs of Phase 2 development with Eli Lilly paying 75% and Nektar 25%. Nektar will also have the option to participate in Phase 3 development on an indication-by-indication basis.

Eli Lilly will be responsible for all costs relating to global commercialization. Nektar will have an option to co-promote in the US under certain condition.

The transaction remains subject to antitrust clearance and other customary closing conditions.

As well as auto-immune disease, Nektar’s pipeline of investigational medicines also includes treatments for cancer and chronic pain. In May, Nektar formed a collaboration with Millennium Pharmaceuticals, a wholly owned subsidiary of Japan’s Takeda Pharmaceutical, to explore the combination of Nektar’s lead immuno-oncology candidate NKTR-214, with five of Takeda’s oncology compounds.

The partners will look at the anti-cancer activity of NKTR-214 with five different targeted mechanisms in pre-clinical tumor models of lymphoma, melanoma and colorectal cancer.