Teva Pharmaceutical Industries has upped its stake in fellow Israeli firm Andromeda Biotech as the latter starts late-stage trials of a new diabetes drug.

The world's largest generics drugmaker has exercised an option to invest $11.9 million and increase its stake in Andromeda to 16%. The rest of the company is held by investment group Clal Biotechnology Industries, which is itself 15% owned by Teva and will invest $5.6 million, though its stake has fallen from 89% to $84%.

The $17.5 million raised will help Andromeda fund a Phase III trial of its investigational type 1 diabetes treatment DiaPep277, which the Yavne-based firm initiated a fortnight ago. Some 450 newly-diagnosed patients aged 20-45 will be enrolled in the two-year study, the main goal of which is to maintain the ability of the pancreas to secrete insulin in patients who receive treatment with DiaPep277 compared to placebo.

DiaPep277 is a unique peptide derived from the human protein, HSP60, Andromeda says, which immunomodulates the immune system, prevents the destruction of pancreatic cells that secrete insulin and preserves their natural function. To date, there is no therapy capable of preventing the destruction of insulin-secreting beta cells.

Teva clearly likes the look of the product as a year ago, the company exercised an option to complete a $13.5 million investment in Andromeda, upping its stake at that time from 3% to 10%, while acquiring worldwide marketing rights for DiaPep277. If the drug is approved for marketing in Europe, Teva has an option to invest $44 million at a company valuation of $480 million and if it is gets the green light in the USA, Teva can invest $52 million at a company valuation of $555 million.

All this would leave Clal owning 65% of Andromeda and Teva would have a 35% stake.