Web Date: October 8, 2008
Lilly To Pay Big For ImClone
Eli Lilly & Co. has agreed to acquire the biotech drug firm ImClone Systems for $70.00 per share, or $6.5 billion, trumping a $62.00-per-share offer from Bristol-Myers Squibb (BMS), which owns more than 16% of ImClone and codeveloped its monoclonal antibody cancer drug, Erbitux. The deal brings to a close a round of deal-making brinkmanship and will mark the end of a biotech drug company that has delivered more than its share of drama.
It is also a win for Carl Icahn, the storied corporate raider and chairman of ImClone's board who fended off the BMS bid, contending that a better offer would be forthcoming from an unnamed buyer.
According to Lilly, the acquisition will add Erbitux to its small-molecule cancer drugs, Alimta and Gemzar, and enhance its pipeline in advance of significant patent expirations, notably that of the schizophrenia drug Zyprexa in 2011. "This strategic combination will create one of the leading oncology franchises in the biopharmaceutical industry," Lilly CEO John C. Lechleiter told analysts on a conference call last week.
In a response to Lilly's announcement, BMS said it would exercise "discipline" by not increasing its offer. BMS figures it will receive about $1 billion for its ImClone stake, better positioning it to pursue other acquisitions. CEO James M. Cornelius said BMS will continue its marketing relationship with Lilly for Erbitux and other compounds, including the Erbitux follow-on compound IMC-11FB8, which is under development by ImClone and to which Bristol-Myers Squibb holds long-term marketing rights.
Icahn has stated that he disagrees with Cornelius over which firm has rights to IMC-11FB8. Lilly executives would not comment on the company's position during the conference call, but Derica W. Rice, Lilly's chief financial officer, said the firm has looked at a "range of outcomes" and that, given the products in ImClone's pipeline, the deal will create value for shareholders whether or not BMS comarkets IMC-11FB8. The drug is currently in Phase II clinical trials for metastatic colorectal cancer.
Responding to questions about paying for ImClone given the current volatility of capital markets, Rice said the company has $5 billion in "backstop" financing.
David Moskowitz, a drug stock analyst with Caris & Co., said the intellectual property claims around Erbitux and IMC-11FB8 seem to overlap. "BMS may have a case in claiming rights to sales in the U.S. and Canada," he said. "There are several similarities that could relate to the binding site of the antibody, which is a significant component of the characterization of an antibody."
According to Moskowitz, most industry watchers were surprised to see Lilly come to the table, "but it is no surprise that drug companies are looking to enhance their pipelines, especially in oncology," he said. "And Carl Icahn took advantage of the prevailing situation."
The deal, expected to close early next year, will be the end of the line for a company that first made headlines in 2001, when a probe by the Securities & Exchange Commission into the trading of company shares led to a criminal case that resulted in prison terms for Samuel D. Waksal, ImClone's CEO at the time, and celebrity businesswoman Martha Stewart.
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