Eli Lilly and Company (LLY) recently entered into a definitive merger agreement whereby it intends to acquire privately-held company, Avid Radiopharmaceuticals, Inc. With this deal, Eli Lilly will gain access to Avid’s lead candidate, florbetapir F 18 (18F-AV-45), which is currently under US Food and Drug Administration (FDA) review.
Terms of the Deal
Per the terms of the deal, Eli Lilly will make an upfront payment of $300 million (subject to adjustment of Avid’s cash balance at the time of closing of the deal) for all outstanding shares of Avid. 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 florbetapir. The acquisition is subject to customary closing conditions including the approval of Avid’s stockholders.
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 is currently under FDA review and its 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 and Eli Lilly currently has a phase III Alzheimer’s disease candidate, solanezumab, in its pipeline. Solanezumab is a novel Alzheimer’s disease candidate in that it 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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