AstraZeneca has signed an agreement to develop a diabetes drug with the UK’s Biocompatibles which could change the face of the Farnham, Surrey-based firm, which is best known for its devices.

The latter’s shares have leapt on the news that it has entered into a product development and option-to-license deal with the Anglo-Swedish drug major for a glucagon-like peptide-1 (GLP-1) analogue invented and developed by Biocompatibles subsidiary, CellMed, The GLP-1 class is currently led by Amylin’s Byetta (exenatide) and Novo Nordisk’s investigational compound liraglutide and is widely regarded as a promising area for diabetes and obesity treatments.

Under the terms of the deal, CellMed will manage preclinical, Phase I and Phase IIa activities, while AstraZeneca will pay option fees up to 8.8 million euros which should cover those costs. If the latter exercises an exclusive option to license the relevant patents for diabetes and obesity, it will pay out a further 25 million euros, and assume responsibility for the programme.

A further milestone payment of 37.5 million euros would then be payable prior to first sale of product. After launch, royalties in the "single to mid-teens digit range" would apply, and there would also be an additional provision for sales-related milestones up to a maximum value of 256 million euros.

Gunnar Olsson, head of the cardiovascular and gastrointestinal therapy area at AstraZeneca, said this “innovative molecule with differentiated properties has the potential to become an important therapy in both diabetes and obesity”. He added that the Biocompatibles compound appears to have “potential advantages to other GLP-1 medicines, a clear patent position and some very interesting properties”.

Biocompatibles chief executive Crispin Simon said the deal is “a significant event” for the company. He added that it represents “further evidence of the value being created by CellMed” and this programme “is now a high strategic and operational priority”. His enthusiasm was shared by Michael King, an analyst at Nomura Code who issued an investor note saying: "We believe that this is an important step for Biocomaptibles as it represents a potentially transformational deal, and starts to quantify the potential for this technology".