Eli Lilly is returning its development and commercialization rights to Transition Therapeutics’ TT401 after opting not to advance the diabetes candidate into Phase III development.

Transition, which disclosed the end of the companies’ 3-year collaboration today, said it can pursue development of TT401 alone or with another partner.

Lilly’s decision to end development of TT401 came more than 2 months after Transition reported positive Phase II results in a trial carried out by Eli Lilly.

The study of 420 patients with type 2 diabetes showed that those taking the highest dose of TT401 (50 mg) enjoyed significantly superior weight loss to AstraZeneca’s marketed extended-release Bydureon (exenatide) and placebo after 12 and 24 weeks of treatment. However, TT401 provided only similar HbA1c reduction to exenatide alone at weeks 12 and 24, though TT401 had an acceptable safety and tolerability profile.

Also at the 50-mg dose, TT401 resulted in statistically significant weight loss of up to 3.3 kg compared with both placebo and exenatide at weeks 12 and 24. Detailed data was to be presented at an unspecified future scientific meeting, Transition said at the time.

Despite the favorable results, the price of Transition’s stock fell 26% over 2 days, to 96 cents per share as of February 2, based on investor fears—which proved correct—that Lilly would end development of TT401.

In trading this morning as of 10:03 am, shares of Transition fell 26% again, to 99 cents per share

TT401 is a once-weekly administered oxyntomodulin analog, with dual agonist activity on the glucagon-like peptide 1 (GLP1) and glucagon receptors. According to Transition, TT401 is the most clinically advanced drug candidate among the new class of GLP1-glucagon receptor dual agonists—which are designed to provide people with type 2 diabetes greater blood glucose control and weight loss than GLP1 single agonists.

“TT401 offers the unique opportunity of being a first-to-market product with a differentiated mechanism and activity from currently approved diabetes therapeutics”, Transition Chairman and CEO Tony Cruz, Ph.D., said in a statement.

The end of Lilly’s co-development of TT401 will not affect the royalty that Transition is eligible to receive on sales of related Lilly compounds. Lilly will continue to be eligible to receive a royalty on future TT401 sales and a royalty on TT401 non-royalty income, Transition said.

Lilly—which had renamed the candidate LY2944876—assumed development and commercialization rights to TT401 in 2013, earning Transition a $7 million milestone payment from the pharma giant.

Transition also agreed to pay Lilly $14 million in three separate installments during the Phase II clinical study—but stood to gain up to approximately $240 million in additional milestone payments, plus a double-digit royalty on sales of TT401 products and a low, single-digit royalty on related compounds, had TT401 been successfully commercialized.

Transition acquired rights to TT401 and other preclinical compounds from Eli Lilly through a licensing and collaboration agreement inked in March 2010.

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