Eli Lilly and Company (LLY) recently announced the completion of the acquisition of privately-held company, Avid Radiopharmaceuticals, Inc. for an upfront payment of $300 million. In addition to this upfront payment, Eli Lilly may have to pay up to $500 million on the achievement of certain regulatory and commercial milestones related to Avid’s lead candidate, florbetapir.
The acquisition has provided Eli Lilly the access to florbetapir F 18 (18F-AV-45), which is currently under US Food and Drug Administration (FDA) review. The FDA has assigned priority review status to the candidate, which will be reviewed by the agency’s Peripheral and Central Nervous System Drugs Advisory Committee on Jan 20, 2011. A final response from the agency could be out in the first half of 2011.
Focus on Alzheimer’s
Florbetapir is a molecular imaging agent that has been designed to help detect amyloid plaque in the brain, which is associated with Alzheimer’s disease. The candidate’s approval would provide Eli Lilly with a near-term revenue source. Moreover, it should fit well in Eli Lilly’s product portfolio as the company itself has been pursuing the development of treatments for Alzheimer’s disease.
The worldwide Alzheimer’s disease market represents huge commercial potential with companies like Pfizer (PFE) and Johnson & Johnson (JNJ) working on developing treatments for the disease. Eli Lilly currently has a phase III Alzheimer’s disease candidate, solanezumab, in its pipeline.
Solanezumab is a novel Alzheimer’s disease candidate that is being developed to attack amyloid-beta, protein fragments that form the plaque that builds up on the brains of Alzheimer’s disease sufferers. Florbetapir, which has been designed to help detect amyloid plaque in the brain, could help in the early detection and treatment of Alzheimer’s disease.
Besides florbetapir, Avid has a diagnostics development platform that covers several diseases including Parkinson’s and diabetes.
Neutral on Eli Lilly
We currently have a ‘Neutral’ recommendation on Eli Lilly, which is supported by a Zacks #3 Rank (short-term “Hold” rating). The company is facing a major patent cliff in late 2011 when it is slated to lose exclusivity on key product, Zyprexa. We expect the top-and bottom-line to remain under pressure from late 2011 as the contraction in Zyprexa sales more than offsets growth in Cymbalta, diabetes and new product sales. Barring significant cost-cutting efforts or additional revenue catalysts, 2013 will be the beginning of a very challenging period with Cymbalta losing US patent protection during the year.
On the flip side, strong performance of the diabetes business should offer some downside support. The ramp of Effient and upside from the ImClone deal could also result in a short-term boost to revenue. We are also pleased to see Lilly pursuing small acquisitions and in-licensing deals to boost its pipeline.
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