Eli Lilly has become the latest pharmaceutical company to pull out of developing an inhaled insulin treatment after the firm informed partner Alkermes it is terminating their diabetes programme.

Indianopolis-based Lilly said it is ending the Phase III AIR Insulin programme for type 1 and type 2 diabetes, noting that the decision is not a result of any observations during studies relating to the safety of the product, but of “increasing uncertainties in the regulatory environment”. The termination of the project is also due to “a thorough evaluation of the evolving commercial and clinical potential of the product compared to existing medical therapies”.

Lilly chief executive John Lechleiter said the decision had been difficult but “is the right one to make at this time". He added that “without the prospect of a New Drug Application…it would not be consistent with our medical principles to continue the clinical trials”.

The drugs major added that it will provide current clinical trial patients in the USA with appropriate financial support to fund their medications and diagnostic supplies through the end of 2008. As a result of the termination of the AIR Insulin programme, it expects to take a charge of $90-$120 million in its first- quarter figures.

The news is a major disappointment for Alkermes, whose shares fell 9.2% on Friday to close at $11.26. The firm said it is evaluating the impact of the termination of programme on its business and will provide further details “following a comprehensive business analysis”.

Earlier, Alkermes had said that it feared such an announcement from Lilly which over the past seven years, Lilly has recruited thousands of diabetes patients to participate in AIR Insulin trials. “Encouraging efficacy and safety results have been seen to date,” said Alkermes, noting that the Phase III programme began in 2006 and is scheduled to complete this year. The firm believes that the trials should be completed as it will provide “long-awaited and important data for the evaluation of new diabetes medications”.

Lilly's pulling-out of the programme comes just a few months after Pfizer returned to rights to Nektar Therapeutics for Exubera, an inhaled insulin product failed to make any impact in the diabetes market. It had been thought that Exubera would be a blockbuster but Pfizer finally lost patience, taking a $2.8 billion charge into the bargain. That was followed by Novo Nordisk’s announcement that is halting development of its AERx inhaled insulin product and the Danish firm took a $260 million charge.