What happened
Shares of clinical-stage biotech Dice Therapeutics (DICE) jumped by 37.5% during the first three and a half days of trading this week, according to data provided by S&P Global Market Intelligence. The big gain came after the company announced a $2.4 billion buyout agreement with industry heavyweight Eli Lilly (LLY 1.19%).
Lilly's $2.4 billion tender offer represents a 40% premium relative to Dice's closing price last Friday. Through this buyout, Lilly will add the experimental immunology medicines DC-806 and DC-853 to its pipeline. DC-806 is presently in midstage testing as a treatment for psoriasis. Wall Street expects the drug's ongoing midstage study to yield top-line data in mid-2024.
So what
Immunology has been a hotbed of business development activity lately. Merck, Pfizer, and now Lilly have all cut deals recently to expand their immunology pipelines, and for good reason.
Psoriasis alone represents a commercial opportunity worth multiple billions annually, and several other indications within the field -- such as inflammatory bowel disease -- could yield even bigger financial windfalls for companies with best-in-class assets. As a result, this Dice Therapeutics deal probably won't be the last buyout in immunology in 2023.
Now what
Despite this transaction, Lilly still has plenty of firepower to execute additional value-creating deals in the near term. Speaking to this point, this buyout only represents about four months' worth of free cash flow for the company. That being said, Lilly doesn't have many holes to fill across its diverse pipeline, and it isn't staring down a critical patent expiration, either.
As such, the pharma giant can afford to be extremely selective on the business development front. So Lilly probably won't be one of more active players on the merger and acquisition scene in the second half of the year.
