Bristol-Myers Squibb and AstraZeneca announced on Jan. 11th that they would partner on development of two new diabetes drugs discovered by Bristol.

One of the drugs, Saxagliptin, a dipeptidyl peptidase-4 (DPP-4) inhibitor, is currently in Phase III clinical trials and the companies hope to file for approval by the U.S. Food and Drug Administration in the first half of next year.

Saxagliptin is one of a new class of diabetes medicines that work by increasing and prolonging the action of natural hormones in the body called incretins. These decrease blood sugar by increasing consumption of sugar by the body, mainly through increasing insulin production in the pancreas, and by reducing production of sugar by the liver.

The second drug, Dapagliflozin, a sodium-glucose cotransporter-2 (SGLT2) inhibitor, is currently in Phase IIb clinical development. Dapagliflozin has a novel mechanism of action that blocks re-absorption of glucose from urine in patients with Type 2 diabetes.

Under the terms of the deal, AstraZeneca will make a $100 million upfront payment to Bristol-Myers, and stands to receive additional payments of up to $1.25 billion if all milestones in development and marketing are met.

AstraZeneca will fund the majority of continued development costs of the drugs for the next three years, and any additional development costs beyond 2009 will be shared equally.