Lawrence-based Deciphera Pharmaceuticals LLC is teaming up with Eli Lilly and Co. to license and develop technology designed to fight cancer, in a partnership announced Friday that ultimately could lead to $520 million in development, regulatory and sales milestones for Deciphera.

To accommodate growth associated with the agreement, Deciphera will be expanding into recently vacated lab space at Kansas University’s Life Sciences Research Laboratory in western Lawrence.

Deciphera plans to add 10 employees to its staff of 40 during the next two years, in what could be the beginning of even more investment, employment, drug-development and discovery in the future.

“What I hope it means for Lawrence is Deciphera can be a champion for saying, ‘You know what? Biotech companies can thrive in this area,’ ” said Daniel Flynn, Deciphera’s president and chief executive officer.

The agreement will apply Deciphera’s protein-oriented technology with Lilly’s expertise in discovery, development and commercialization “to pursue first-in-class and best-in-class drug candidates” for fighting various cancers, the companies said in a joint statement.

The agreement gives Lilly exclusive worldwide rights to any products developed through the partnership. Deciphera gets up-front investment and research funding during the next two years from Lilly.

Flynn said that the “substantial” investments would allow the company both to grow through its own work, and to ramp up efforts with Lilly for getting promising drug candidates into clinical trials and on the way to market as effectively and early as possible.

“In our mind, Lilly is a premier international pharma company, and to be linked with them is very good for us,” Flynn said. “They have a like-minded, Midwest, roll-up-the-sleeves attitude of, ‘Let’s get the job done.’ “

The agreement also stipulates that Deciphera would be entitled to royalties from sales of any product successfully commercialized from the collaboration.

The collaboration covers four different areas involving selective or multi-kinase targeted B-Raf inhibitors. The collaborative work will target the kinase “switches” that control signals within cells, with the intent of preventing the growth and spread of cancer.

Such switches, when functioning properly, allow cells to grow or otherwise change in a normal fashion. But in some forms of cancer, the switches malfunction and allow cancerous cells to grow and spread.

Deciphera’s technology is designed to keep the switches functioning properly. Drugs ultimately developed with the technology would be expected to effectively hold cancer in remission, Flynn said.

According to the agreement, Deciphera could receive up to $130 million for reaching certain development, regulatory and sales milestones in each of the four project areas, meaning Deciphera could reap up to $520 million should the four projects all reach their envisioned goals.

“This is a very important relationship for Deciphera,” Flynn said.

Dr. William W. Chin, vice president of discovery research and clinical investigation for Lilly, described the partnership as further evidence of the Indianapolis-based company’s ongoing commitment to oncology research.

“We look forward to working with Deciphera to leverage their B-Raf kinase inhibitor program, with the ultimate goal of developing promising drug candidates for cancer patients,” Chin said in a statement.

To accommodate the collaborative work, Deciphera will be expanding its operations at 4950 Research Park Way by adding lab space nearby.

Deciphera will lease 7,700 square feet in Building D at KU’s Life Sciences Research Laboratory, at the southwest corner of Wakarusa Drive and Bob Billings Parkway. The space had been occupied by KU’s High-Throughput Screening Laboratory and Center of Excellence in Chemical Methodologies and Library Design, both of which have relocated to the Structural Biology Center on KU’s West Campus.

The 18-month lease takes effect Nov. 1.

“This is a great opportunity for KU to help a new and expanding company stay and prosper in Kansas,” Steve Warren, KU vice provost for research and graduate studies, said in a statement. “Deciphera is a growing company in need of additional scientific and laboratory space and KU welcomes them. This transaction reflects KU’s commitment to helping the state develop a strong and growing bioscience industry. We are hopeful this arrangement will also lead to future research collaborations with Deciphera.”

LaVerne Epp, chair of the Lawrence-Douglas County Bioscience Authority, applauded the decision to lease space to Deciphera.

“Deciphera has excellent prospects, and it’s on a growth curve,” Epp said in a statement. “It’s the kind of company we want to attract to Douglas County and keep in Douglas County. KU is helping us achieve that objective and it will benefit the whole community.”

Flynn received a bachelor’s degree in pharmacy from KU in 1977, and a doctorate in medicinal chemistry from KU in 1981. He went on to a career in the pharmaceutical industry and, while in Cambridge, Mass., in 2002, teamed up with Peter Petillo to form Deciphera.

The two men came to Lawrence in 2003, set up operations in space once occupied by Oread Laboratories Inc., and went about conducting research, attracting investors and hiring employees. Today the company is moving forward, with Petillo as chief scientific officer and other dedicated scientists and professionals continuing to work on the Lilly-connected projects and others still being developed by Deciphera.

“Growing to 40 people in roughly four and a half years, starting from two people, is not bad,” Flynn said. “We’re grown, perhaps, slowly but surely. And now that’s starting to pay off.”

Flynn lauded KU officials for putting together a lease arrangement that will allow Deciphera to grow in place. In all, the company will have about 16,000 square feet of space in Lawrence.

“That will do us well, certainly for the next 18 months,” Flynn said. “Then we take it from there.”

Deciphera previously had plans to occupy a building in Lawrence’s East Hills Business Park – part of a package that included more than $1 million worth of incentives designed to keep the company in Lawrence. The package had been put together by representatives from the city of Lawrence, Douglas County, the Lawrence Chamber of Commerce and state economic-development leaders.

The deal fell through after it met with public opposition after it was learned that the Lawrence City Commission had not discussed many details of the package in an open meeting and instead were outlined in a closed-door executive session. That session later was found to have been a violation of the state’s open meetings law.

Flynn said Friday that it was his hope and intention that Deciphera would be needing to expand even more in the coming years, and that options in the Lawrence area would be in the mix.

“We’re delighted to be in Lawrence,” he said.

Lilly is a global powerhouse in pharmaceuticals, with 2007 revenue of $18.6 billion and employing more than 40,000 workers. Several media outlets are reporting that Lilly is in talks to acquire ImClone Systems Inc., maker of the Erbitux cancer drug and other products; the Wall Street Journal has reported that Lilly is offering $6.1 billion.