Roche Holding AG (ROG.VX) said Thursday its experimental diabetes drug taspoglutide worked better than a rival drug sold by Eli Lilly & Co. (LLY) in lowering blood sugar, according to the results of a late stage study.

The study marks a small step on the way to possible approval of the drug, for which Roche has seven additional trials underway.

Roche, based in Basel, acquired the worldwide marketing rights, excluding Japan and France, to taspoglutide from French drugmaker Ipsen SA (IPN.FR) in 2006, in a deal that allows Ipsen to retain co-marketing rights for France if it so wishes.

Roche will present details of the trial, including how much better taspoglutide worked and details on side effects, at an upcoming international scientific meeting, the company said.

After 24 weeks of treatment, patients who had been given taspoglutide experienced a bigger decline in their blood sugar than those who had been given Byetta, a drug sold jointly by Eli Lilly and Amylin Pharmaceutical Inc. (AMLN), Roche said. The most frequently reported side effect from both drugs were nausea and vomiting.

Both drugs belong to a new type of diabetes treatments called GLP-1 analogues. Byetta so far has had limited success, in part because the drug, which needs to be injected twice a day, is competing with older drugs which can be taken orally.

Roche's drug needs to be injected only once a week. Eli Lilly and Amylin have also developed a version of Byetta that has to be taken only once weekly and are awaiting regulatory approval.

Results from all eight studies on the new Roche drug should become available over the next nine months, leading to a filing for regulatory approval in the second half of 2010, said Karl Heinz Koch, pharmaceutical analyst in Zurich with broker Helvea. He has a buy rating on the stock and expects the drug to eventually generate as much as $3 billion in annual sales.

The study results had little impact on Roche shares, which traded lower in line with the rest of the Swiss market.

At 1155 GMT, they were down CHF1.50, or 0.90%, at CHF162.60. The stock has traded flat year-to-date, underperforming the broader European healthcare sector, which is up 4.2% so far this year.

-By Anita Greil, Dow Jones Newswires; +41 43 443 8044 ; anita.greil@dowjones.com