Company will pay $44M upfront for late-stage diabetes drug plus $1.05 billion in milestones.

Eli Lilly and MacroGenics are partnering to further anti-CD3 mAbs including MacroGenics lead candidate, teplizumab, for the treatment of diabetes. Lilly will acquire the exclusive rights to this drug for $44 million with the potential to pay $1.05 billion in milestone fees. Lilly may also make an equity investment of up to $10 million in the company’s next private financing round or initial public offering.

Teplizumab is currently being studied in a global, pivotal Phase II/III trial for individuals with recent-onset type 1 diabetes. MacroGenics will continue to oversee this study.

Under the terms of the agreement, MacroGenics will receive an initial payment of $41 million and $3 million in other committed funds. The company may also receive up to $200 million in development milestones for the type 1 diabetes indication. If teplizumab is successfully commercialized, Lilly could pay up to $250 million in sales milestones and would receive escalating royalties.

Lilly may also decide to pursue several additional autoimmune-related indications for teplizumab or other next-generation anti-CD3 molecules developed with MacroGenics. If Lilly pursues each one of those indications, and they all ultimately gain approval, additional milestone payments to MacroGenics could exceed $600 million. MacroGenics holds the option to copromote teplizumab for certain indications in the U.S.

The transaction should become effective in the fourth quarter of 2007. At closing, Lilly expects a charge to earnings for acquired in-process R&D. The amount of the charge has not yet been determined, but is estimated to be $0.03 per share, according to the company.

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