Alexza Pharmaceuticals Inc said it signed a collaboration deal with a unit of Biovail Corp to develop and commercialize AZ-004, its inhaled treatment for agitation, in the United States and Canada.

Under the deal, Alexza will receive an upfront cash payment of $40 million and up to $90 million in potential milestone payments upon achieving certain conditions.

Alexza said the collaboration provides development of AZ-004 for multiple indications and Biovail will lead the marketing activities for AZ-004. Biovail will make tiered, royalty payments of 10 percent to 25 percent on net commercial sales of AZ-004.

Alexza filed for U.S. regulatory approval for AZ-004 in December to treat agitation in patients with schizophrenia or bipolar disorder.

AZ-004 is delivered via Alexza's Staccato system, a hand-held, single-dose inhaler that delivers a drug aerosol to the deep lung.

Alexza said it will continue to manage the ongoing marketing application for AZ-004 and approval process.

Shares of Alexza closed at $2.67 Tuesday on Nasdaq, while those of Biovail closed at C$14.87 on the Toronto Stock Exchange. (Reporting by Jennifer Robin Raj in Bangalore; Editing by Maju Samuel)