After agreeing to be bought out by development partner Eli Lilly (NYSE:LLY) back in October, last Thursday's earnings release from ICOS (NASDAQ:ICOS) was little more than a formality before its merger goes through in three days. Nonetheless, it's worth perusing the financial results for Lilly's soon-to-be fully acquired business.

ICOS and Lilly have been marketing partners on the erectile-dysfunction drug Cialis since it was first approved for sale back 2003. In 2006, sales of Cialis jumped 30% to $970 million, compared to 2005. Even though the drug's sales-growth trajectory has been slowing, sales in the EU and the U.S. are still growing, even after several years on the market, against strong competition from Pfizer's (NYSE:PFE) Viagra and GlaxoSmithKline (NYSE:GSK) and Bayer's (NYSE:BAY) Levitra.

Worldwide Cialis Sales*

Year-Over-Year Growth

Q4 2006

$269 million

27%

Q3 2006

$246 million

26%

Q2 2006

$233 million

22%

Q1 2006

$223 million

48%

Q4 2005

$211 million

38%


The outlook for Cialis this year calls for sales of at least $1.1 billion, and growth in the 12%-18% range compared to 2006. ICOS has proven to be conservative in its projections for the drug, having surpassed its 2006 sales estimates, so investors should have confidence in its guidance. Also, with numerous label-expansion opportunities into diseases like pulmonary arterial hypertension, Cialis sales have room for renewed growth in the coming years.

ICOS shareholders got a nice Christmas gift last month, when Lilly raised its purchase price for the company more than 6%, from $32 to $34 per share. When the deal closes in three days, this higher purchase price will represent a gain of 25% compared to ICOS shares' trading price the day before the deal was announced.

Considering that there is still some legal risk over Cialis, and that ICOS was just starting to be become profitable, with 2006 net income in the $21 to $25 million range -- $0.33 to $0.38 per share -- the deal offered a nice premium to ICOS shareholders. At the same time, it was a good deal for Lilly; the larger firm will now be able to eliminate redundancies in ICOS' operations, reaping much better margins than the 5% or 6% net margins ICOS expected for 2007. This deal just might be the rare win-win situation for acquirer and acquiree alike.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Pfizer is an Inside Value selection. The Fool has a disclosure policy.