Amylin Pharmaceuticals, a San Diego biotechnology company focused on diabetes, said Friday that Eli Lilly & Co. would pay up to $325 million to co-market one of its leading drug candidates.
The deal is vindication for Amylin, which came within weeks of having to close its doors in 1998 after Johnson & Johnson backed out of a partnership deal.
The drug, AC2993, a synthetic version of a peptide found in the saliva of Gila monsters, helps diabetics better use the limited amount of insulin their bodies produce.
Amylin and Lilly will share profit from the drug, which could reach market by 2004.
The deal gives Amylin, a small company with no marketed products, a strong partner in Lilly, the world's largest supplier of insulin. Lilly gets a potential blockbuster drug to help solidify its franchise in diabetes, an obesity-linked condition that affects 17 million Americans.
The deal rewards Amylin's faith in the experimental drug, one of two the firm staked its future on after J&J; pulled the plug. The company slashed its payroll and fought its way back without support from the industry's giants, upon which small companies often depend.
"Everyone had written us off," said Chairman and Chief Executive Joseph Cook Jr., a former Lilly executive whose duties once included overseeing insulin production.
All that changed in September 2001, when Amylin presented promising data on AC2993 at a medical conference in Glasgow, Scotland. Ten large pharmaceutical firms expressed interest in the drug, leading to lengthy negotiations that culminated in Friday's deal.
Lilly approached Amylin because a similar compound it had been developing failed in a study, a validation of the smaller company's science.
The drug is being developed for Type 2 diabetes patients who are not yet on insulin but not doing well on oral medications, such as Bristol-Myers Squibb Co.'s Glucophage. The Amylin drug appears effective at lowering blood sugar in diabetics, which can spike upward, but does not contribute to weight gain. The drug must be injected daily, like insulin, which could limit its use.
However, Amylin is developing a longer-acting formulation that would be taken monthly. The slow-release formulation would have a clearer advantage over insulin and could better compete with oral medications that regulate blood sugar, analysts said.
Initially, Lilly will make a nonrefundable $80-million payment to Amylin and buy $30 million in Amylin stock at $18.69 a share, a 51% premium over Amylin's closing price Thursday of $12.40. The purchase will give Lilly a 2% stake in Amylin.
Lilly will begin funding development of AC2993 after Amylin successfully completes the final stage of clinical trials, probably in the second half of 2003. Amylin said it expected to spend $100 million to complete late-stage trials.
Once the studies are finished, Lilly will provide Amylin with a $110-million convertible loan. Amylin also will get up to $215 million as it completes certain milestones, such as development of the long-acting formula of AC2993.
The companies will share development costs and operating profit in the United States. Outside the U.S., Lilly will bear 80% of the costs and receive 80% of the profit.
Amylin's outlook is significantly brighter than it was four years ago, when Johnson & Johnson pulled out of a deal to co-promote another diabetes drug, Symlin.
The action pushed Amylin's stock to its lowest levels. At one point, Cook said, the company had only 90 days of cash.
Amylin continued to develop Symlin on its own. It says the drug could receive final approval in the second half of next year, depending on the results of a not-yet-completed clinical trial.
Amylin's shares soared $1.50, or 12%, closing at $13.90 on Nasdaq, while Lilly shares rose $1.01, or 2%, to $56.33 on the New York Stock Exchange.