Eli Lilly has signed a definitive agreement to buy fellow US drugmaker and partner Icos in a $2.1 billion all-cash transaction that will give the drug major full control over the partnered erectile dysfunction treatment Cialis.

Since 1998, the two companies have been partners in a joint venture that manufactures, markets and sells Cialis (tadalafil), which was launched in 2003 and claims over 25% of the US erectile dysfunction market.

Under the terms of the agreement, Lilly will acquire all outstanding common stock of the Bothell, Washington-based drugmaker at a price of $32 per share. The transaction is expected to close by early 2007 subject to the usual closing conditions.

On a conference call, Lilly’s chief executive Sidney Taurel made it clear that the primary reason for the purchase was to get hold of Icos’ 50% stake in Cialis, which posted sales of a little over $450 million in the first half of the year and has been tipped to make more than $1 billion in 2007 and $1.5 billion by 2010.

Aside from some studies looking at extending the indications of Cialis into some forms of high blood pressure, Icos has little in its R&D pipeline and no other drugs in clinical development, but analysts said Cialis’ growth projections make ownership of the bottom line for Cialis a smart move for Lilly.

As part of the deal, Lilly will incur a one-time charge to earnings for acquired in-process R&D, but said it could not estimate what that will be, adding that the acquisition will be accretive to earnings from 2008.