By Sarah McGregor

JOHANNESBURG, March 22 (Reuters) - Pharmaceutical firm Eli Lilly <LLY.N> is donating $50 million to help stamp out highly virulent tuberculosis.

The donation is expected to boost the supply of treatments such as capreomycin and cycloserine, which were developed some 40 years ago and shelved for their toxic side effects.

Health experts now argue in favour of the drugs because they may be the best weapon against hard-to-treat TB, which is spreading across the globe.

There were some 400,000 cases of multi-drug resistant tuberculosis (MDR-TB), mostly in India, China and Russia, in 2004. A virtually untreatable strain known as extremely drug resistant or XDR-TB has killed more than 200 people in South Africa since September.

Most of those were AIDS patients unable to fend off another illness.

"The $50 million is welcome and will contribute in terms of technical assistance, better monitoring and surveillance systems," Mario Raviglione, director of the United Nations' Stop TB organisation, said by telephone.

"We need new classes of antibiotics that will be useful in the future. There are now a number of drugs in the pipeline but still three or five years away."

The Eli Lilly initiative builds on a $70 million investment in 2003 when it revealed manufacturing secrets for two powerful TB drugs to generic companies in China, Russia, India, South Africa and transferred technology elsewhere.

TB is an airborne illness spread through coughing and sneezing that is normally treatable. It affects an estimated 2 billion people worldwide.

TB is best controlled and managed through medication but, if a patient fails to comply, the disease can mutate into a drug-resistant strain.

Eli Lilly said it hoped the donation -- the largest amount it has contributed to any single disease -- sets an example.

"We know Lilly and these two drugs alone cannot solve this problem. But hopefully, with our investment, there is a possibility that other private sector donors can get involved," John Lechleiter, president of Eli Lilly told Reuters.

A chunk of the funding will go toward surveillance so that officials in affected nations can get a better view of the problem of virulent TB which is notoriously difficult to track.

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