What happened

Shares of Prevail Therapeutics (NASDAQ:PRVL) were skyrocketing 83.6% higher as of 11:05 a.m. EST on Tuesday. The huge jump came after Eli Lilly (NYSE:LLY) announced plans to acquire Prevail in a deal totaling $1.04 billion. 

So what

Lilly offered $22.50 per share in cash to buy Prevail. The big drugmaker also threw in a non-tradable contingent value right (CVR) that's worth up to $4 per share. This CVR will be paid in full if Prevail wins regulatory approval for a product in either the U.S., Japan, U.K., Germany, France, Italy, or Spain by Dec. 31, 2024. After that date, the CVR's value will be reduced by around $0.083 per month through Dec. 1, 2028, when the CVR will expire.

Woman standing in front of a drawing on a wall of a big fish about to eat a small fish

Image source: Getty Images.

The proposed acquisition price reflects a premium of around 117% over Prevail's 60-day volume-weighted average trading price. It's also 112% higher than the closing price of the biotech stock on Monday, Dec. 14, 2020.

Why did Lilly opt to pay up so much for Prevail? The big drugmaker really liked Prevail's gene therapy program. Prevail's lead gene therapy candidates target neurological disorders Parkinson's disease, neuronopathic Gaucher disease (nGD), and dementia.

Mark Mintun, Lilly's vice president of pain and neurodegeneration research, said, "The acquisition of Prevail will bring critical technology and highly skilled teams to complement our existing expertise at Lilly, as we build a new gene therapy program anchored by well-researched assets."

Now what

The next step is for Prevail shareholders to agree to tender their shares in Lilly's tender offer to be extended in the near future. Some Prevail shareholders that combined own around 51% of Prevail's outstanding shares have already agreed to tender their shares.

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