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Lilly To Acquire Partner ICOS

$2.1 billion deal will yield full ownership of Cialis

by Rick Mullin
October 23, 2006 | APPEARED IN VOLUME 84, ISSUE 43

Eli Lilly & Co. will acquire ICOS, the Bothell, Wash.-based biotech firm with which Lilly has a joint venture to manufacture and sell the erectile dysfunction drug Cialis.

The deal, for about $2.1 billion in cash, will give Lilly full ownership of the number two drug in the category, behind Pfizer's Viagra. Cialis, an oral inhibitor of phosphodiesterase type 5, had sales of $456 million in the first six months of 2006, up 34% over the first half of 2005.

"With full ownership of Cialis, we will be able to realize operational efficiencies in the further development, marketing, and selling of this important product," says Lilly CEO Sidney Taurel. Lilly plans to pursue new indications for tadalafil, Cialis' active ingredient.

In addition to Cialis, ICOS has drugs for cancer and psoriasis in early-stage development. The firm also operates a biologics facility and a contract manufacturing business. Lilly has not determined whether it will continue these activities, a spokesman says. In a conference call last week, Taurel said a "significant" number of jobs will be eliminated at ICOS, which has about 700 employees.

Christopher J. Raymond, an analyst with Baird & Co. in Chicago, says the purchase will not necessarily help Cialis in its competition with Viagra, and he does not anticipate a significant increase in the marketing muscle for the drug. "I do think Cialis is a better drug," Raymond says. "We've seen it chip away almost every week at Viagra's market share, and I would expect that to continue."

Raymond adds that Lilly got a good deal. "I think it's a great price. Typical biotech acquisitions are at a 50% premium or higher [over the price per share]. This was just 18% over the previous day's close," he says.

Lilly and ICOS formed their partnership in 1998 and launched Cialis in 2003. The drug is sold in more than 100 countries and is the leading product in several, including France and Brazil. Taurel says the acquisition, which is expected to close by early 2007, will increase Lilly's earnings beginning in 2008.



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