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Bristol-Myers Squibb (NYSE:BMY) partnered with fellow big pharma AstraZeneca (NYSE:AZN) to develop two type 2 diabetes compounds that BMS discovered.

Saxagliptin, a dipeptidyl peptidase-4 (DPP-4) inhibitor, is in the middle of a Phase III trial, with BMS hoping to submit the drug for approval in the first half of 2008. Dapagliflozin, a sodium-glucose cotransporter-2 (SGLT2) inhibitor, is undergoing Phase IIb tests. AstraZeneca will pay $100 million upfront to be part of the program, and it will fund most of the development costs for 2007-2009. BMS is also eligible to receive up to $640 million in development/regulatory milestones and $300 million in sales milestones. Both drugs will be co-developed and co-promoted.

The deal confounds the usual pattern in which a small pharma partners a promising drug with a much bigger firm. Both companies are large: Bristol-Myers Squibb has a market cap of $52 billion while AstraZeneca is worth $86 billion. But BMS has been moving toward drugs that are dispensed by specialist physicians, such as cancer therapies, and AstraZeneca markets products that target the general physician market. In addition, AstraZeneca has also been under pressure to build its pipeline after several promising drugs failed to make it to market, and older drugs have gone off patent.

In the DPP-4 market, Saxagliptin would be the third to win approval, if it gets that far, after Januvia from Merck (NYSE:MRK) and Galvus from Novartis (NYSE:NVS). Januvia is already being sold and Galvus is awaiting FDA approval. Dapagliflozon, the drug in Phase II trials, is currently on track to be a first-in-class drug.

In another diabetes story, though one with quite a different tone, Lilly (NYSE:LLY) announced it would stop building an insulin manufacturing facility in Virginia, and source its insulin products from existing facilities in Italy and Indiana. The new plant was scheduled to produce Humalog MirioPen, a pre-filled insulin device. The plant was stopped when Lilly realized that growth in its insulin franchise would not be as high as predicted when construction plans began in 2003. Lilly will take a writeoff totaling between $155 million and $185 million, split between Q4 of 2006 and Q1 of 2007.

Wyeth (WYE) and Solvay Pharmaceutical B.V. entered into a new neuroscience agreement, a follow-up to a collaboration begun in 2004. In October 2006, the two companies submitted bifeprunox for FDA approval as a schizophrenia treatment. Two other compounds from the earlier partnership remain in development. The new drug discovery alliance will seek to discover anti-psychotic medications.

Neuralstem (NRLS.OB) licensed compounds to Biomedical Research Models that treat cognitive and neurological side-effects of diabetes. Neuralstem will receive up to $38 million in milestones for each approved product, plus royalties. The license includes a library of Neuralstem patented human neural stem cell products. In mice, the products have caused the formation of new neurons in the brain.

Ark Therapeutics (OTC:ARKTF) will begin a Phase III test of Trinam, a gene therapy that prevents blood vessels blocking in kidney dialysis patients who have had vascular access graft surgery. Following a positive Phase II trial, Ark reached an agreement for a single Phase III trial of the drug, which is covered by an SPA. In the Phase II trial, the access grafts of Trinam-receiving patients remained functional for dialysis over five times longer (17.8 months) than placebo (3.3 months).

Entelos [London:ENTL.L] acquired an option on a Phase I selective progesterone-receptor modulator from Johnson & Johnson Pharmaceutical Research & Development, for a range of indications. Entelos uses its biosimulation technology to enable proprietary drug development, and it is exchanging use of its technology for the option.

Shire (SHPGY) received European approval for Elaprase, an enzyme replacement therapy for Hunter syndrome that was launched in the US in July 2006.

GenVec (NASDAQ:GNVC) received FDA approval to use endoscopic ultrasound administration in clinical trials of TNFerade, its pancreatic cancer drug. TNFerade is an adenovector, or DNA carrier, containing the gene for tumor necrosis factor-alpha (TNF(alpha)). TNF(alpha) is an immune system protein that is injected directly into tumors. It is intended for use in combination with radiation and/or chemotherapy.

Biotech had a huge increase yesterday, riding the coattails of a very strong Q4 report from Genentech Wednesday after the close. Genentech (DNA) gained 4% and Amgen (NASDAQ:AMGN) was up over 1%. The Centient Biotech 200™ rose 66 points to 4054, a jump of 1.66%. At this point, the CBT 200™ is less than 20 points away from an all-time record high. The gains in the broad market were much more subdued: the S&P 500 moved .63% higher and Nasdaq was up by 1.04%.

Disclosure: Centient management holds a position in Genentech shares and does consulting work for Genentech.

Source: Bristol-Myers Squibb Partners with AstraZeneca in $1.2 Billion Pact