Lod, Israel -- TransPharma Medical Ltd., an Israeli specialty pharmaceutical company, has signed a co-development deal with Eli Lilly & Co. that will result in an up-front payment of $35 million.

The deal sees Lilly obtain worldwide exclusive rights to ViaDerm-hTPH (1-34), an osteoporosis treatment, and non-exclusive access to TransPharma's delivery system. Both companies will share the development of the drug, which is currently in Phase II trials. In addition to the up-front payment, Lilly will pay TransPharma undisclosed possible milestone and royalty payments.

Daphna Heffetz, chief executive of TransPharma, said Lilly did not acquire an equity stake in her company.

Based in Lod, Israel, TransPharma was founded in 2000 and is developing drug products around its proprietary transdermal delivery system. 1-34 is the company's lead product, Heffetz said. TransPharma has a second clinical-stage product: ViaDerm-hGH, for human growth hormone-deficient patients, which recently completed a Phase Ib trial.

With Lilly now holding the rights to 1-34, Heffetz declined to give a schedule for current or future trials for the drug.

TransPharma most recently raised an $18 million Series C round in mid-2006 led by Argonaut Private Equity and joined by existing investors Biomedical Investments, Evergreen Partners, Pitango Venture Capital, Teva Pharmaceutical Industries Ltd., TIF Ventures, T2C2/Bio and Vitalife.

In addition to the new Lilly deal, TransPharma has a collaboration deal with Teva for the development of up to five molecules. TransPharma has been receiving an undisclosed amount of milestone payments under that deal.

Heffetz said TransPharma is currently not profitable, but with money coming in from its corporate partnerships, the company is not hurting for cash. "Currently, we are not actively looking for additional funding," she said.

TransPharma has 55 employees.

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