You might say that Eli Lilly and Co. (LLY 1.19%) is rolling the dice. The big drugmaker announced on Tuesday that it plans to acquire Dice Therapeutics (DICE) in an all-cash transaction valued at around $2.4 billion. Here's what investors need to know about the deal.
Why is Lilly buying Dice?
Lilly will be able to expand its immunology pipeline by acquiring Dice. Patrik Jonsson, who serves as president of Lilly Immunology and Lilly USA, said in the press release announcing the deal that bringing Dice into the fold "will enhance our efforts to make life better for people living with devastating autoimmune diseases."
Dice's lead candidate is DC-806. The small biopharmaceutical company is evaluating the experimental oral IL-17 inhibitor in a phase 2b clinical study targeting moderate-to-severe psoriasis.
In addition, Dice's pipeline includes another clinical-stage program, DC-853. The company calls the IL-17 inhibitor a "fast-follower" to DC-806. DC-853 could offer improved effectiveness compared to DC-806. Dice expects to report results from a phase 1 study of the experimental drug in the second half of 2023.
Both programs appear to be great fits with Lilly's current lineup and pipeline. These prospects could provide another edge in the global psoriasis market that is expected to grow to almost $50 billion by 2030. The big pharma company already markets autoimmune-disease drugs Olumiant and Taltz, which collectively generated nearly $800 million in Q1 2023 alone. It awaits U.S. Food and Drug Administration (FDA) approval for lebrikizumab in treating atopic dermatitis.
Lilly also still hopes to win approval for mirikizumab in treating ulcerative colitis. The FDA refused to approve the drug earlier this year because of manufacturing issues.
Is the price tag reasonable?
Lilly's $2.4 billion offer reflects a premium of around 40% to Dice Therapeutics' 30-day volume-weighted average trading price. Such a premium isn't unusual for acquisitions in the biopharmaceutical industry.
Analysts at Canaccord Genuity think that Dice's DC-806 could generate peak annual sales of $1.4 billion if it's approved. Assuming that estimate isn't too far off, the price tag for Lilly's buyout of Dice appears to be reasonable.
Perhaps the best indication that investors think Lilly isn't paying too much is the movement of the big pharma stock. Lilly's shares rose more than 1% after the announcement of the acquisition of Dice on a day when the major market indexes declined slightly.
Could regulators try to block the deal?
The Federal Trade Commission (FTC) is attempting to block Amgen's acquisition of Horizon Therapeutics. Could regulators try to derail Lilly's purchase of Dice as well? Maybe, but probably not.
The circumstances of these two deals are much different. The FTC is concerned that Amgen could try to thwart competition to Horizon's thyroid eye disease drug Tepezza and gout medication Krystexxa. Both drugs enjoy monopolies in their respective markets. Lilly will still have significant competition in the immunology market even if it picks up Dice's programs.
When is the transaction expected to close?
Lilly's acquisition of Dice must still obtain the blessing of antitrust regulators. Lilly also plans to tender an offer for the majority of Dice's outstanding shares. After the presumed successful closing of this tender offer, Lilly stated that it plans to buy any remaining shares "through a second-step merger at the same consideration as paid in the tender offer."
However, both companies' boards of directors have already approved the deal. Also, Lilly doesn't have any extra steps to take with financing the acquisition (as of March 31, it held $20 billion in current assets). Assuming there are no hiccups with regulatory clearance and the tender offer, Lilly expects to finalize the transaction in the third quarter of 2023.
