Merck & Co., Inc. (NYSE: MRK) and Pfizer Inc (NYSE:PFE) signed a collaborative agreement to develop of a new medicine for type 2 diabetes.

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The two pharmaceutical companies agreed to develop Pfizer Inc (NYSE:PFE)’s ertugliflon, an investigational oral sodium glucose cotransporter inhibitor. The drug is already in Phase III evaluation with trials expected to start in the latter part of 2013.

Under the terms of the agreement, Merck & Co., Inc (NYSE:MRK) through its subsidiary will work together with Pfizer Inc (NYSE:PFE) in the clinical development and commercialization of ertugliflozin and ertugliflozin-containing fixed-dose combinations with metformin and Januvia (sitagliptin) tablets.

Pfizer Inc (NYSE:PFE) received a payment of $60 million and milestones. It has the right to receive additional payments related to the achievement of pre-specified future clinical, regulatory, and commercial milestones for the medicine.

Merck & Co., Inc (NYSE:MRK) will retain its rights to its current portfolio of sitagliptin-containing products.

The two pharmaceutical companies will share certain expenses and potential profit on a 60/40 percent basis wherein Merck will pay and receive the bigger share of costs and revenue.

In a statement, John Young, president and general manager of Primary Care for Pfizer Inc (NYSE:PFE) said, “We are pleased to join forces with Merck in the battle against type 2 diabetes and the burden that it poses on global health. Through this collaboration, we believe we can build on Merck’s leadership position in diabetes care with the introduction of ertugliflozin, an innovative SGLT2 inhibitor discovered by Pfizer scientists.”

On the other hand, Nancy Thornberry, senior vice president and franchise head of Diabetes and Endocrinology of Merck Research Laboratories said, “Merck continues to build upon our leadership position in the oral treatment of type 2 diabetes through our own research and business development.”

Thornberry added that Merck & Co., Inc (NYSE:MRK) believe that ertugliflozin has the potential to complement its strong portfolio of innovative and marketed drugs.

Merck and Pfizer agreed to develop and commercialize the new medicine for type 2 diabetes worldwide except in Japan.

Merck is a global leader in the healthcare industry. It has business operations in 140 countries worldwide. The company is known as MSD outside United States and Canada.

The stock price of Merck & Co. Inc (NYSE:MRK) is up by 0.31% to $48.02 per share and the stock value of Pfizer Inc (NYSE:PFE) 1.53% to $30.55 a share on Monday around 2:24 PM in New York.