Eli Lilly has taken back from Transition Therapeutics' an experimental diabetes drug for further development following the completion of proof-of-concept trials.

The drugmakers signed a pact back in 2010 under which Transition snapped up the rights to a series of preclinical compounds from Lilly, including TT-401, a dual agonist of the GLP-1 and glucagon receptors which is being developed for type II diabetes and accompanying obesity.  

Lilly has now exercised its option under the deal to take back all development and commercialisation rights to the drug, which has triggered a milestone payment to Transition of $7 million.

Under the terms of the deal, Transition will contribute $14 million to Lilly in three separate instalments during the planned Phase II clinical study, but it stands to receive around $240 million in additional milestone payments if the product eventually makes it to market.

The Canadian group is also eligible for double-digit royalties on sales of TT-401 products, and a low single digit royalty on related compounds, it said.