Kyorin Holdings Inc. and aTyr Pharma Inc. signed an agreement to develop aTyr's lung disease drug in Japan.

Under the agreement, Tokyo-based Kyorin Holdings will have exclusive right to develop and commercialize ATYR1923 in Japan.

San Diego-based aTyr, which is developing ATYR1923 to treat interstitial lung diseases, will receive an up-front payment of $8 million.

ATyr may receive up to an additional $167 million if it reaches certain development, regulatory and sales milestones. The company may also receive tiered royalties on net sales in Japan.

Kyorin will fund all research, development, regulatory, marketing and commercialization activities for ATYR1923 in Japan while aTyr will supply the drug.

Interstitial lung diseases cause scarring in lung tissue which may affect a patient's ability to breathe.