Compugen and Bayer Healthcare have agreed to work together to mobilize the immune system to fight cancer in a deal that could be worth as much as $540 million to Israeli biotech.

The strategic collaboration and licensing agreement is focused on two undisclosed immune checkpoint regulators discovered by Compugen that potentially play key roles in immunosuppression. The biotech is developing therapeutic antibodies that will block the immunosuppressive function of these targets and reactivate a patient’s anti-tumor immune response in order to fight cancer.

The deal expands Bayer’s cancer immunotherapy portfolio through the preclinical development of the two targets. Bayer will have full control over further development and worldwide commercialization rights for potential cancer therapeutics. Compugen will receive $10 million upfront and milestone payments of up to $30 million associated with preclinical activities. It is also eligible to receive more than $500 million in further milestone payments for both programs, plus royalties on global sales of any resulting products under the deal.

Compugen uses computational biology tools and predictive algorithms to develop therapeutic proteins and antibodies in silico that are then advanced through various partnering programs. The deal comes one year after the biotech established a presence in the San Francisco Bay Area for the development of oncology and immunology monoclonal antibody therapeutic candidates against its computer generated drug targets. Bayer Healthcare also has major research facilities in the area.

Bristol-Myers Squibb’s Yervoy broke ground as the first cancer immunotherapeutic that modulates T-cell activity instead of boosting immunity to receive U.S. Food and Drug Administration approval in 2011 as a treatment for advanced melanoma. The next generation of such experimental compounds stole the limelight at the recent meeting of the American Society of Clinical Oncologists where major drugmakers, including Bristol-Myers Squibb, Roche, and Merck, presented promising data on their experimental immunotherapy programs in a variety of cancers. This included results showing clinical benefit for end-stage patients with difficult-to-treat tumors, such as metastatic melanoma and non-small cell lung cancer.

Bayer’s tie up with Compugen is the latest in a growing list of strategic collaborations focused on discovering and developing novel immune modulators, not only to fight cancer, but also to fight immune-mediated diseases, such as multiple sclerosis and rheumatoid arthritis. Recently announced deals include separate research collaborations struck by U.K. biotech Immunocore with Genentech and GlaxoSmithKline. Shares of Compugen soared 50 percent on the news.