Eli Lilly and Boehringer Ingelheim have signed a multi-million dollar pact to develop innovative treatments for diabetes.

Under the terms of the alliance, Lilly will make an initial payment of 300 million euros and up to 625 million euros to get joint rights to two promising late-stage Boehringer oral diabetes drugs. They are linagliptin, a once-daily dipeptidyl peptidase-4 (DPP-4) inhibitor which is currently under regulatory review in the USA, Europe and Japan, and BI10773, a sodium-dependent glucose co-transporter-2 (SGLT-2) inhibitor, which began enrollment in Phase III clinical trials last year.

In return, the independent German group has agreed to pay up to $650 million for rights to two of Lilly's basal insulin analogue candidates, which are expected to go into Phase III this year. Finally, should Boehringer elect to opt-in to the Phase III development and commercialisation of the anti-TGF-beta monoclonal antibody, currently in Phase II, Lilly would be eligible for up to another $525 million.

Boehringer chairman Andreas Barner said the strategic alliance comes at a time when the firm is "entering another new therapeutic area with innovative compounds out of our own R&D". He hopes to benefit from "Lilly’s expertise in the diabetes market".

However, Lilly's diabetes franchise has suffered a few setbacks of late. In October, the US Food and Drug Administration said Bydureon (extended-release exenatide) a long-acting version of the diabetes drug Byetta being developed with Amylin and Alkermes, is not approvable at the moment and requested more data. Also that month, Lilly's investigational type I diabetes biologic teplizumab failed in a late-stage study.

It is fair to say that Lilly needs this deal more than Boehringer and chief executive John Lechleiter said that it "offers the prospect of near-term revenue opportunities as we address the upcoming loss of patent exclusivity for several of our products". These include the antipsychotic Zyprexa (olanzapine) and the antidepressant/fibromyalgia blockbuster Cymbalta (duloxetine), which incidentally is partnered with Boehringer in certain markets.

As a result of the deal, Lilly expects its 2011 earnings per share to be diluted by $0.45-0.50, including $0.27 as a result of the one-off payment.