Strange Lilly Deal

Strange Lilly Deal

Late this afternoon after the markets closed Lilly (NYSE:LLY) announced they had entered into a collaboration agreement with Transition Therapeutics (NASDAQ: TTHI). According to Lilly’s press release:

“Eli Lilly and Company (NYSE: LLY) and Transition Therapeutics Inc. (TSX: TTH; Nasdaq: TTHI) today announced that the two companies have entered into a licensing and collaboration agreement granting Lilly exclusive worldwide rights to develop and commercialize Transition’s gastrin based therapies, including the lead compound TT-223, which is currently in early Phase II testing. Gastrin based therapies are an emerging class of potential disease-modifying therapies for patients with diabetes, and have been shown to provide sustained improvement in glycemic control in preclinical models and early clinical studies.”

“Under the terms of the agreement, Transition will receive a $7 million upfront payment, and may also receive up to $130 million in potential development and sales milestones, as well as royalties on sales of gastrin based therapies if any product is successfully commercialized. Transition and Lilly will both participate in the currently planned phase II clinical trial with lead compound TT-223 in type 2 diabetes. Thereafter, Lilly will be responsible for further development activities and the commercialization of all gastrin based therapeutic products worldwide. Other terms of the deal were not disclosed.”

Although Diabetic Investor does not see this collaboration as negative for Lilly’s other partner Amylin (NASDAQ:AMLN), expect shares of Amylin to take a hit tomorrow. More than likely the Street will view this deal as a sign there is something wrong with the long-acting once-a-week version of Byetta. As it stands today Diabetic Investor is not aware of any issues with LAR and remains confident that Amylin will submit the drug to the FDA late in 2008 or early in 2009.

Diabetic Investor is somewhat confused by this deal as it appeared Lilly was clearing the way for LAR when they terminated their inhaled insulin project with Alkermes (NASDAQ:ALKS) last week. Alkermes is also partnered with Lilly and Amylin on the development of LAR. At the time Diabetic Investor believed that with inhaled insulin a thing of the past, Alkermes could concentrate on finishing the commercial facility for LAR currently under construction in Ohio.

The timing of the announcement is also strange, just as shares of Amylin appear to have stabilized, their partner throws them a curve ball. If we didn’t know better it would appear that Lilly is deliberately trying to drive down Amylin’s share price so they can buy the company on the cheap. Diabetic Investor really shouldn’t be surprised with how Lilly handled this situation as it’s not the first time they appeared to be losing faith in Amylin. The company created an uproar last year when they announced they had their own GLP-1 in early trials, a product that it turns out has since disappeared from their pipeline. Today’s news is just another log to throw on the fire of an already volatile relationship between Amylin and Lilly.

Perhaps Amylin shareholders will be saved from further Lilly shenanigans with Pfizer (NYSE:PFE) taking a portion of their $26 billion in cash and buying up Amylin. Honestly Diabetic Investor is dumbfounded as to why Lilly would even take the chance of losing Amylin. LAR is game changing technology with multi-billion sales potential. It’s seems we’ve been saying it a lot lately but stranger things have happened in the diabetes market

David Kliff
Diabetic Investor
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224-715-3761 mobile