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Transition Therapeutics Inc. (TTHI) recently licensed exclusive development and commercialization rights to TT-601, from Eli Lilly and Company (LLY - Analyst Report). TT-601 has been evaluated in preclinical trials. Transition Therapeutics plans to initiate clinical trials on the candidate in the first half of 2014. The company will evaluate TT-601 in patients suffering from osteoarthritis pain, who experienced insufficient response to non-steroidal anti-inflammatory drugs (NSAIDs).

As per the terms of the agreement, Transition Therapeutics will be obligated to pay a low single-digit royalty to Eli Lilly on net sales of TT-601. However, post review of proof-of-concept study data, Eli Lilly has an option to reacquire TT-601 rights. In case Eli Lilly exercises this option, Transition Therapeutics will be eligible to receive approximately $130 million in milestone payments and high single-digit royalty on net sales of products containing TT-601.

We note that Transition Therapeutics and Eli Lilly are not strangers to each other. Last month, Transition Therapeutics announced that Eli Lilly has exercised its option and acquired all rights related to type II diabetes candidate, TT-401 from Transition Therapeutics. This triggered a milestone payment of approximately $7 million from Eli Lilly to Transition Therapeutics.

In Mar 2010, Transition Therapeutics had inked a deal with Eli Lilly and Company, wherein it acquired the rights to several pre-clinical compounds from Eli Lilly, including TT-401.

Transition Therapeutics, a biopharmaceutical company, carries a Zacks Rank #3 (Hold). Biopharma stocks that currently look attractive include companies like Cadence Pharmaceuticals Inc. and Jazz Pharmaceuticals Public Limited Company (JAZZ - Analyst Report). Both the companies carry a Zacks Rank #1 (Strong Buy).

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