Eli Lilly & Co.'s winning bid of more than $6 billion for cancer drug maker ImClone Systems means a billion-dollar payday for former rival bidder Bristol-Myers and vindication for corporate raider and ImClone Chairman Carl Icahn.
Lilly said Monday it would pay $70 per share for New York-based ImClone. The acquisition, Lilly's largest ever, helps the Indianapolis drug maker prepare for looming patent expirations and builds “a true oncology powerhouse,” Lilly CEO John Lechleiter said.
The deal also ends one of the more dramatic buyout sagas in recent history.
Lilly's bid topped two offers from Bristol-Myers Squibb Co., which partnered with ImClone to develop and market the blockbuster drug Erbitux. In July, New York-based Bristol offered $60 per share for the 83 percent of ImClone it doesn't own and later raised that bid to $62 per share.
But Bristol-Myers said Monday it would stop the bidding there. CEO James Cornelius, a former Lilly executive and board member, said his company was pleased to have started a process that led to a “substantial increase” in ImClone's value.
Bristol-Myers stands to pocket $1 billion for its 14 million ImClone shares, while still sharing in revenue from Erbitux. The drug maker gets 61 percent of the North American revenue from Erbitux and splits sales with ImClone and Merck & Co. in Japan.
Icahn, who became ImClone chairman two years ago, had called Bristol's $62 offer “absurd” last month and said the biotech company had another suitor, whom he wouldn't name. On Monday, he said Lilly's price “vindicated” his opposition to a 2006 buyout offer worth $36 per share.
Lilly will lose patent protection for its two top-selling drugs, the antipsychotic Zyprexa and the antidepressant Cymbalta, in 2011 and 2013, respectively. The company has been looking to replace that revenue.
It was drawn to ImClone by Erbitux, which treats colorectal and head and neck cancers and could be approved for expanded uses, as well as by other drugs in development. ImClone has several drugs in either mid- or late-stage clinical testing.
Lilly officials said the deal will be a financial success if income from Erbitux and any new uses of it are combined with one additional drug emerging from ImClone's pipeline.
“ImClone's pipeline is poised to mature in the years most critical for Lilly,” Lechleiter said.
Lilly spokesman Mark Taylor said $6.5 billion is the estimated gross cost of the transaction. That assumes a fully diluted share base, including stock options that vest. It does not include ImClone debt or cash on hand.
Both boards have approved the deal and recommended ImClone stockholders tender their shares.
Lilly plans to pay for the deal with cash and up to $3 billion in debt. Chief Financial Officer Derica Rice told analysts Lilly secured an additional $4 billion in financing to backstop the deal, and commercial paper will initially be turned out for it.
“We feel very comfortable at this stage with our ability to finance this transaction,” he said.
Wall Street may not share that comfort. Lilly shares fell $2.89, or 7 percent, to $38.42 in trading Monday. ImClone, meanwhile, rose over 3 percent to $66.89.