It's official. Eli Lilly
At $6.5 billion ($70 per share), ImClone isn't coming all that cheap, but Eli Lilly really needs ImClone's Erbitux and pipeline and is clearly willing to pay for it.
Eli Lilly Drug |
Patent Expiration |
U.S. Sales, 2007 (in millions) |
---|---|---|
Zyprexa |
2011 |
$2,236 |
Humalog |
2013 |
$888 |
Cymbalta |
2014 |
$1,836 |
Gemzar |
2013 |
$670 |
Evista |
2017 |
$706 |
Total |
$6,336 |
Source: Eli Lilly's 10-K.
That's more than a third of Eli Lilly's sales that are going to vanish by 2017, if not sooner. Some of the patents are being challenged in court. While Eli Lilly has a decent pipeline -- it has 13 oncology drugs in development, not to mention its other fields -- pipeline boosting is needed, since most drugs fail in the clinic.
Biotech is the new black
Biopharma companies are going for a premium -- witness AstraZeneca's
For Lilly, the pickup of Erbitux has the added bonus of potentially complementing its existing oncology drugs, Alimta and Gemzar. The company may be able to push up sales of all franchises if clinical trials testing the combination of Erbitux with Alimta or Gemzar show that the combination improves survival better than the drugs individually.
But Erbitux isn't worth $6.5 billion by itself, given that it only brought in $200 million in royalties during the first six months of the year. Eli Lilly is going to have to get some of ImClone's five monoclonal antibodies through clinical trials and onto the market to justify the hefty price tag.
Eli Lilly claims it needs to get just one drug through the FDA to justify the price, but I wouldn't pay $6.5 billion for an oncology company with one and a half drugs. Unless Eli Lilly is expecting that one new drug to have sales significantly higher than Erbitux's royalties (the "half"), I'd say it’s going to need to get at least two drugs through the clinic before it'll reap the benefits from its purchase.
Thanks for the cash
Bristol-Myers Squibb
Perhaps “run” is the wrong word. Bristol-Myers will still be marketing Erbitux in the U.S. and Canada, and it’s still claiming rights to IMC-11F8, ImClone's follow up to Erbitux and one of those five antibodies in the pipeline. Bristol-Myers isn't going anywhere -- except perhaps to court if Eli Lilly claims full rights to IMC-11F8.
Another company that’s sitting on a lot of cash, like Pfizer
For better or worse, Eli Lilly is likely stuck with ImClone. It is planning on closing the deal by the end of the year, but it will likely be years before its investors know if management's large gamble pays off.
More immediately though, investors should be wondering which company Carl Icahn will try to get sold next. Do you hear footsteps, Amylin Pharmaceuticals and Biogen Idec