Adelaide-based biotech Bionomics (ASX: BNO) has signed a significant development and licensing agreement with Merck Serono, which will see the German pharmaceutical manufacturer develop new treatments for multiple sclerosis and other autoimmune conditions based on Bionomics compounds.

The agreement may be worth up to US$47 million if successful. The company will also be eligible to received undisclosed royalties on the net sales of licensed products.

Bionomics' proprietary Kv1.3 compounds inhibit the production of cells which cause nerve damage in patients suffering from MS and related nerve disorders.

Under the terms of the agreement, Bionomics will receive an upfront payment of $2 million for continued research funding, and Merck Serono will pay clinical development costs.

Bionomics' Kvl.3 compounds target the potassium ion channel Kvl.3, a key modulator of the immune system. The company also has a vascular disruption agent in clinical trials for cancer and is researching GABA-A agonists for epilepsy.