In a statement published Thursday, U.K.-based AstraZeneca said it would make an upfront payment of $2.7 billion for the venture -- formed by the two companies in 2007 to research, develop and commercialize drugs for type 2 diabetes -- followed by additional payments of up to $1.4 billion. It has also agreed to pay various sales-related royalty payments until 2025. AstraZeneca said it would finance the deal using its existing cash resources and short-term credit facilities.
Shares in AstraZeneca hit an 11-year high in early trading in London Thursday following the announcement, before falling back to trade around 1.5 percent higher at £36.14.
Savvas Neophytou, an analyst at stockbroker Panmure Gordon described the deal as "sensible."
"The price would appear to be good business particularly as it also includes full rights to (drugs) Onglyza and dapagliflozin," he said.
(Read more: Valeant, AstraZeneca in Two Big Pharma M&A Deals)
The sale will enable both companies to focus on their core strategies. U.S.-based Bristol-Myers Squibb's move away from research will seeit become a more specialized drug maker, while AstraZeneca has identified diabetes as a key area for growth.
Pascal Soriot, CEO of AstraZeneca, said that consolidating ownership of the diabetes portfolio would allow it to serve the needs of diabetic patients better.
"Diabetes is rapidly becoming a global challenge of epidemic proportions that is expected to affect more than 550 million people by 2030," he said in a statement.
"Today's announcement reinforces AstraZeneca's long-term commitment to diabetes, a core strategic area for us and an important platform for returning AstraZeneca to growth."
While Bristol-Myers' CEO Lamberto Andreotti said the deal would enable the company to move to a more simplified operating model.
"This agreement will allow us to further evolve our business model as a leading specialty BioPharma company and increase resources behind the opportunities that drive the greatest long-term value for patients, our company and our shareholders," he said.
Follow us on Twitter: @CNBCWorld