Drugmaker Bristol Myers Squibb will pay biotech firm Agenus Inc up to $1.38 billion to exclusively develop and commercialize its experimental cancer drug, AGEN1777, the companies said on Tuesday.

The drug candidate, primarily being tested to improve anti-tumor activity, will also be studied and developed by Bristol Myers for immuno-oncology treatments including non-small cell lung cancer, which accounts for about 85% of lung cancer cases globally.

Bristol Myers has been betting on sales of its Opdivo drug to treat such cancers, but that market is currently dominated by Merck & Co's MRK.N rival treatment Keytruda.

Agenus will receive up to $1.36 billion in development, regulatory and commercial milestones in addition to double-digit royalties on net product sales. It will receive an upfront payment of $200 million. 

The biotech company will retain options to conduct clinical studies under the development plan, and to test it in combination with certain other pipeline assets, and will co-promote AGEN1777 in the United States after commercialization.

Agenus plans to file application to begin human trials for the therapy with the U.S. Food and Drug Administration in the second quarter of this year, the company said.

(Reporting by Trisha Roy in Bengaluru; Editing by Ramakrishnan M.) ((Trisha.Roy@thomsonreuters.com; within U.S. +1 646 223 8780, outside U.S. +91 80 6182 3635;))