NEW YORK (CNNMoney.com) -- Eli Lilly & Co. agreed to buy its longtime partner Icos Corp., maker of the sexual dysfunction drug Cialis, for $2.1 billion, the companies said, sparking a 17 percent surge in the Icos stock price.

Lilly (down $0.12 to $57.54, Charts), the seventh-largest U.S. drugmaker, said Tuesday that it had signed an agreement to buy outstanding shares of the smaller company for $32 a share.

Lilly, based in Indianapolis, and Icos (up $4.47 to $31.59, Charts), based in Bothell, Wash., have been partners since 1998 in a joint venture to make, market and sell Cialis. The drug totaled $747 million in 2005 sales, and sales jumped 34 percent in the first six months of 2006 to total another $456 million.

Barbara Ryan, analyst for Deutsche Bank North America, said the merger "makes strategic sense" for Lilly.

"They're already marketing the product, so this allows them to maximize the financial impact by eliminating the redundancies of the joint venture," said Ryan.

Cialis, a treatment for erectile dysfunction that was launched in 2003, has 25 percent of the U.S. market. The drug competes with Viagra from Pfizer (down $0.04 to $27.62, Charts) and Levitra from GlaxoSmithKline (up $0.35 to $54.77, Charts), Bayer (down $0.44 to $49.69, Charts) and Schering-Plough (up $0.10 to $22.60, Charts).

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