Drugmakers Eli Lilly and Co. and Amylin Pharmaceuticals Inc. said Tuesday that they will end their long-standing collaboration to develop diabetes drugs, an announcement that sent Amylin shares tumbling.
The companies also said they were resolving a lawsuit Amylin had filed over another agreement Lilly started earlier this year with German drugmaker Boehringer Ingelheim.
Shares of Amylin sank more than 15 percent, or $1.70, to $9.23 in midday trading, while Lilly shares climbed 36 cents to $38.71. The Dow Jones industrial average was flat.
The collaboration meant more to San Diego-based Amylin, which only has two products on the market, than it did to the much larger Indianapolis-based Lilly, said Les Funtleyder, health care portfolio manager for Miller Tabak, which owns Lilly shares.
He noted that the resolution will give Lilly a capital infusion, and he said the company's relationship with Boehringer has more potential to help Lilly, which is facing a loss of revenue from several patent expirations.
Amylin will pay Lilly $250 million and assume full responsibility for sales of the type 2 diabetes treatments Byetta and Bydureon. It will take over U.S. sales of Byetta, also known as exenatide, by the end of this month and in all markets by the end of 2013.
Amylin will look for a partner or partners to help with sales outside the United States.
Bydureon is a once-a-week version of Byetta, which is taken twice a day. Bydureon received European approval earlier this year, but the U.S. Food and Drug Administration declined to approve it last year and asked for more information on the drug. The companies expect another decision from the FDA by late January.
Amylin also will pay Lilly 15 percent of global sales for Byetta and Bydureon up to $1.2 billion plus interest. That agreement ends if Bydureon doesn't receive U.S. approval by July 2014. Amylin will then pay Lilly 8 percent of global sales afterward.
Amylin and Lilly worked with Alkermes Inc. to develop Bydureon. Amylin spokeswoman Anne Erickson said her company's relationship with Alkermes hasn't changed. Alkermes will receive royalties on Bydureon sales.
Lilly received $430.6 million from Byetta last year, a small slice of its $22.44 billion in total product sales.
The drugmaker lost patent protection for its top-selling drug, the antipsychotic Zyprexa, last month. Investors and analysts question whether Lilly can make up revenue lost from that and other patent expirations and still preserve its dividend.
The company has cut costs and said it will depend on its pipeline of drugs under development, its animal health business, and foreign sales to get through the looming revenue slump.
It also announced in January a deal with Boehringer to develop and sell up to five drugs. One of those, the type 2 diabetes treatment linagliptin, received FDA approval in May.
Amylin had sued Lilly over that relationship, contending that the Indianapolis drugmaker was engaging in anticompetitive behavior by working with Boehringer to develop and sell another type 2 diabetes treatment. Lilly has said the lawsuit was without merit.
Type 2 is the most common form of diabetes, and other competitors in the market for treatments include Merck & Co. Inc., Bristol-Myers Squibb Co. and Novo Nordisk.