Shares of Lexicon jumped 37.8% to $2.37 in after hours trading.

Under the terms of the settlement, Sanofi will pay $208 million upfront and the remainder within twelve months to Lexicon, which was eligible to receive up to $1.4 billion in milestone payments under the partnership.

The four-year partnership was terminated by Sanofi in July after the results of three late-stage studies of Zynquista, which is being developed as an add-on to insulin for diabetic patients.

Lexicon will regain global rights for the development and commercialization of Zynquista in both type 1 and type 2 diabetes, the company said in a statement.

The drug has been approved in the European Union for use in type 1 diabetic patients but failed to win U.S. approval in March, months after a panel of experts raised concerns of the risk of diabetic ketoacidosis (DKA).

DKA is a life-threatening condition in which acids called ketones build up when the body starts to use fat instead of glucose as a source of energy.

(Reporting by Saumya Sibi Joseph in Bengaluru; Editing by Shailesh Kuber)