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Sometimes a Foolish writer goes out on a limb. And sometimes Carl Icahn is waiting with a chain saw.
It looks like Pfizer (NYSE: PFE ) wasn't ImClone Systems' (Nasdaq: IMCL ) mystery bidder, after all. The Wall Street Journal is reporting that Eli Lilly (NYSE: LLY ) is the one behind the mask. The due diligence is done, but Icahn's ImClone is still keeping mum about the secret suitor until the negotiations are complete.
What will Eli Lilly get for its $6.1 billion ($70 per share) bid if it pulls the string? Well, it will get a fraction of sales of ImClone's cancer drug Erbitux. Bristol-Myers Squibb (NYSE: BMY ) sells it in the U.S. and Canada and pays ImClone a 39% royalty rate, and Merck KGaA has the rights elsewhere with a 9.5% royalty rate. Even getting just a fraction of sales, ImClone brought in almost $200 million in royalties during the first six months of the year, and that's likely to increase should it get approval to market Erbitux as a treatment for lung cancer.
Possibly more important, though, is that Eli Lilly will get access to ImClone's five cancer drugs in clinical development. That could help justify the hefty price tag. However, ownership of one of them is not clean, and could determine whether the purchase turns out to be a good investment.
Bristol-Myers claims that it has U.S. marketing rights to IMC-11F8, the follow-up to Erbitux, as part of its Erbitux deal, and reminded Icahn that it would not agree to any modification of the deal. So Eli Lilly could be fighting Bristol-Myers if this heads to court, which I foresee.
Further complicating the issue, ImClone is fighting with its other marketing partner. Merck KGaA doesn't want to contribute to a royalty that ImClone agreed to pay last year in order to end a patent dispute. Yeda Research and Development Co. had sued both ImClone and Sanofi-Aventis (NYSE: SNY ) , claiming infringement. Lilly would inherit a lawsuit recently filed by Merck KGaA seeking $10.4 million in damages over this issue.
Given the intricacies of the deal, it's no wonder that they're still negotiating. Will Eli Lilly -- if that's indeed the mystery bidder -- go through with the deal? I have a hard time believing that ImClone is worth more to Eli Lilly than to Bristol-Myers. Perhaps Bristol-Myers was just low-balling ImClone at $62 per share.
Stay tuned, Fools. This one could get even more interesting.