This is a boost for Wetherby-based Avacta as it endorses the group's technology ahead of a major deal with a big pharmaceutical firm to help cure cancer.
The group said it is close to signing a licensing deal which could transform the group's fortunes.
Analyst Mark Brewer at FinnCap said: "A royalty-bearing licence with New England Biolabs to commercialise a product incorporating the Affimer technology for diagnostic tests, provides the much needed external endorsement that the market is craving, but also evidence that the licensing business model for the non-therapeutic applications of Affimers has merit.
"Whilst the financial terms of the agreement are not disclosed, we estimate royalties to be around 10 per cent. Our target price of 120p is unchanged."
Avacta said it is on target to come up with a possible cure for lung, breast and bowel cancer within the next 10 years.
Avacta will start human trials in 2020 to help cure people with cancer using its ground breaking technology.
The group's CEO Dr Alastair Smith said this is a world changing technology that is being developed in the UK, right in the heart of Yorkshire.
The group believes that if it has the resources to make the drugs, it could completely change medicine.
Dr Smith said he is very confident that the group will deliver a least one substantial licensing deal in the near future.
The firm is keen to sign multiple deals with big pharma firms. Each deal will narrow down the area of exclusivity to a particular disease or target so it can sign a number of agreements.
Avacta's technology is based around Affimers - the firm's high-tech alternative to antibodies.
Antibodies help fight vicious viruses or bacteria in the body by binding to them and targeting them for destruction. The problem with current cancer therapies such as chemotherapy is that they kill off all the cells in their path, not just the cancer cells.
In contrast, Affimers zone in on the cancer cells and bypass the body's healthy cells.
Avacta said the new deal with New England Biolabs is significant because it is a royalty-bearing license agreement to commercialise a product incorporating the Affimer technology.
It said the agreement is an important milestone as it validates Affimer technology and a licensing business model to commercialise Affimer-based products.
New England Biolabs and Avacta expect to continue the collaboration to generate Affimer tools and inhibitors to other enzymes, enabling further product developments.