Canadian biopharmaceutical company Transition Therapeutics said it acquired development and marketing rights for Eli Lilly's experimental drug for arthritis pain.
U.S.-listed shares of Transition rose 21 percent after the bell on Tuesday.
Transition said the experimental drug, TT-601, has completed preclinical development and it expects to start human trials in the first half of 2014.
Osteoarthritis is a common form of arthritis characterized by the breakdown of the cartilage in joints.
Lilly retains the option to reacquire all rights to the drug after a review of clinical proof-of-concept study results. In such a scenario, Transition is eligible for milestone payments of about $130 million and a high single-digit percentage royalty on sales of products containing TT-601.
Transition said if Lilly does not exercise this option, the U.S. company would be eligible for a low single-digit percentage royalty.
An estimated 27 million Americans live with osteoarthritis, with almost one third of people over the age of 65 affected, the company said.
Transition's Alzheimer's drug was granted a fast-track status by the U.S. Food and Drug Administration last week.
(Reporting by Krithika Krishnamurthy in Bangalore; Editing by Sriraj Kalluvila)