Monday, Eli Lilly and Co. (LLY: News ) said it agreed to acquire cancer-drug developer ImClone Systems Inc. (IMCL: News ) for about $6.5 billion in cash in a bid to boost its oncology pipeline. Following the news, Lilly stock was down more than 4%, while Imclone rose above 4% in the intra-day trading.
The deal is expected to broaden Lilly’s portfolio of marketed cancer therapies and boost Lilly’s oncology pipeline with up to three promising targeted therapies in Phase III in 2009.
Further, the acquisition provides an important source of growth for Lilly amid patent expirations of various drugs. The acquisition of ImClone will help Lilly meet the challenge posed by patent expirations on several currently marketed products in the middle of the next decade.
The purchase would also boost Lilly’s biotech business as the biotech drugs, which comes at a hefty price tag and don’t face generic competition, are expected to offset slowing revenues from traditional drugs.
As per the terms of the deal, Lilly would acquire ImClone through an all cash tender offer of $70.00 per share, a premium of 51% to ImClone’s closing stock price on July 30, the day before Bristol-Myers Squibb’s (BMY: News ) offer for ImClone was made public. The price also represents an 8% premium to Imclone’s October 3 closing price of $64.96.
Lilly had been touted as the secret suitor for the New York-based ImClone. When ImClone rebuffed a revised offer of $62/share from Bristol-Myers last month, it referred again to the unnamed “large pharma company” willing to buy it for $70/share. However, Lilly had not commented on the reports.
On October 2, ImClone issued a statement saying that its unnamed suitor has completed due diligence and made a proposal that is not subject to financing or further due diligence.
Lilly’s interest in ImClone mainly stems from Erbitux, which is approved as a treatment for colon and head and neck cancers. The drug, which fetched $1.3 billion in 2007 sales, would be a significant addition to Lilly’s shaky portfolio, which is facing intense generic competition. One of Lilly’s key cancer drugs – Gemzar – will run off patent in 2010. The drug fetched sales of $1.6 billion in 2007. Lilly’s top-selling schizophrenia treatment — Zyprexa, loses patent protection in 2011. Zyprexa represented about $4.76 billion or more than 25% of the company’s $18.6 billion in sales last year.
