Shares of

Amylin Pharmaceuticals

(AMLN)

opened higher Friday after the biotech firm announced a partnership with

Eli Lilly

(LLY) - Get Report

to codevelop and market an experimental drug to treat type 2 diabetes.

Amylin's drug, known as AC2993, is currently in late-stage, or phase III, testing, and the company expects a submission to the Food and Drug Administration in 2004. Terms of the partnership call for Lilly to pay Amylin $80 million and purchase $30 million in Amylin stock at $18.69 per share, which represents a 51% premium to Amylin's Thursday price of $12.40.

If AC2993 is approved, the companies will copromote the drug in the U.S. and split profits equally; Lilly will sell the drug in the rest of the world and take 80% of the profits.

Shares of Amylin are up $1.44, or 11.6%, to $13.84 in recent trading Friday. Lilly shares are up 0.4%.

AC2993 is being developed as an injectable drug to help people with type 2 diabetes, the most common form of the disease, control their blood sugar levels.

Further terms of the partnership call for Lilly to pay Amylin another $85 million tied to certain milestones in the drug's development, including the creation of a long-acting version of the drug. The two companies will also share development costs for the drug.