They have been together since 2002 but Amylin Pharmaceuticals and Eli Lilly are now dissolving their pact for the diabetes drugs Byetta and Bydureon in an agreement that could cost the former firm well over $1 billion.

In return for getting all the rights to Byetta (exenatide) as well as Bydureon, the once-weekly form of the drug, Amylin will pay a one-time, upfront fee of $250 million. It has also agreed to make future revenue-sharing payments to Lilly equal to 15% of global net sales of exenatide products until those payments reach $1.2 billion, plus interest.

If Bydureon, which is already approved in Europe, does not get the green light from the US Food and Drug Administration before June 30, 2014, Amylin's revenue-sharing obligations will terminate, and it will pay Lilly 8% on sales of exenatide products. The company will also cough up a $150 million milestone to Lilly contingent upon FDA approval of a once-monthly suspension version of exenatide that is currently in Phase II and the firms have also agreed that the maturity date for the $165 million line of credit that Amylin drew from Lilly earlier in the year will be extended from the second quarter of 2014  to 2016.

'Amicable' termination

Lilly and Amylin say they decided "it was in the best interest of all constituents to amicably terminate the collaboration". However things had not been so friendly between the two firms of late, since Lilly signed a diabetes agreement with Boehringer Ingelheim, including a marketing link-up for the German firm's oral dipeptidyl peptidase-4 inhibitor Tradjenta (linagliptin).

Amylin was non-plussed, went to court and secured a temporary restraining order against Lilly, preventing it from using the same sales force to sell both Byetta and Tradjenta, a competitor. However that decision was reversed in June.

Amylin shares sink but future looks rosy

News of the break-up sent Amylin shares down 11% to $9.73 as investors worried about the slowing-down of Byetta sales of late, due to safety concerns, and the fact that the FDA has turned Bydureon down twice. The latest decision to approve or not is due by the end of January.

However analysts do not seem too pessimistic. Analysts at JPMorgan issued a research note saying that "the lack of profit-sharing will help Amylin's bottom line". However, they also warned that the firm "is also taking on significant risk without a larger, more experienced partner".

Other analysts believe Amylin could be mobbed with potential partners and indeed it has now become a serious takeover target. Leerink Swann's Joshua Schimmer issued a note saying that "the number of suitable potential acquirers who could recognise massive synergies with Amylin has just grown…to almost any large pharma with a primary care salesforce and endocrine interest, including Sanofi, GlaxoSmithKline and Novo Nordisk".