Eli Lilly

(LLY) - Get Report

said Wednesday that it had acquired an experimental insomnia compound, currently in early stage clinical testing, from the German drug and chemical company

Merck

.

Under the terms of the agreement, the German company will receive an upfront payment of $29 million during the fourth quarter as well as milestone and royalty payments based on the drug's development and commercialization. Lilly will report the upfront payment as an acquired in-process research and development charge worth 2 cents a share during the fourth quarter.

The transaction is expected to close next month. Lilly receives exclusive rights to develop and market the drug worldwide. Merck retains rights for potential co-promotion of the product in certain countries.

The drug, called EMD 281014, is currently in phase I clinical trials, the earliest stage of testing on humans. Lilly said insomnia affects more than 164 million people worldwide, including more than 49 million with chronic insomnia.

"EMD 281014 represents a novel approach to treating insomnia and potentially other central nervous system disorders," said Dr. Steve Paul, executive vice president for science and technology at Lilly.

Lilly's stock rose $1.49, or 2.8%, to $53.94.