Transition Therapeutics this week said Eli Lilly and Company has exercised its option to assume all development and commercialization rights related to type 2 diabetes candidate TT-401, earning the biopharma a $7 million milestone payment from the drug giant.

TT-401 is a dual agonist of the Glucagon-Like Peptide-1 (GLP-1) and glucagon receptors being developed to treat type 2 diabetes and accompanying obesity. Transition and Lilly entered into a licensing and collaboration agreement related to the candidate in March 2010, through which the former firm acquired the rights to a series of pre-clinical compounds from the latter, TT-401 included.

As a result of this most recent deal, Lilly will assume all costs and perform all future development and commercialization activities for TT-401. Transition, meanwhile, will pay Lilly $14 million in three separate installments during Phase II clinical study.

Should TT-401 be successfully commercialized, Transition will be eligible to receive approximately $240 million in additional milestone payments, it said. The firm would also be eligible to receive a double-digit royalty on sales of TT-401 products and a low, single-digit royalty on related compounds.

“We are encouraged by the early data seen to date with TT-401, and are pleased by the efficient and thorough process by which Transition Therapeutics conducted the Phase I studies,” Lilly’s David Moller, vp, endocrine and cardiovascular research and clinical investigation, said in a statement. “We look forward to continuing the development of TT-401, as it supports our strategy of offering a broad portfolio of therapies for people with diabetes.”

Transition chairman and chief executive Tony Cruz, Ph.D., added: “We are very pleased with Lilly’s commitment to the development of TT-401. …Our additional financial contribution secures a greater vested interest for Transition, and we welcome the opportunity to invest in this drug candidate that has shown encouraging data in the recently announced human proof-of-concept study.”

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