Lilly Brings Full Value Of Cialis In-House With Purchase Of Partner ICOS

Lilly will acquire its joint venture partner ICOS for approximately $2.1 bil. to gain the full rights to the erectile dysfunction drug Cialis (tadalafil), which the two companies have partnered on since 1998.

"Bringing the full value of Cialis to Lilly and utilizing the resulting operational efficiencies and benefits are the primary reasons for making this acquisition," CEO Sidney Taurel stated during an Oct. 17 conference call. The acquisition follows a successful pattern of partner acquisitions in the industry. Earlier this year, Amgen bought Abgenix, its partner on the colorectal cancer therapy Vectibix (panitumumab), and Pfizer's last two major mergers have been with partners on blockbuster products - Pharmacia ( Celebrex ) and Warner-Lambert ( Lipitor ).

Under the agreement, Lilly will record all revenue from the growing PDE-5 inhibitor, which generated worldwide sales of $701.8 mil. for the first nine months of 2006. Third quarter growth was up 26% (see ¹ ). ICOS predicts Cialis will reach the $1 bil. threshold in sales in 2007.

Despite being the third entrant in the ED market, Cialis has gained a strong foothold in many countries, including the U.S., where it has captured more than 26% of the ED market since its launch in 2003.

Based on first half sales, Lilly would expect to add about $700 mil. to its top-line in 2007, the company said. Of the roughly $450 mil. in sales for the first half of the year, about $350 mil. were joint venture sales.

In addition, Taurel pointed out that the U.S. ED market has recently rebounded after losing ground in 2005 amid reports linking the drugs to vision loss (² (Also see "Erectile Dysfunction Class Labeling Excludes Causal Link To Vision Loss" - Pink Sheet, 18 Jul, 2005.), p. 8).

Upon closing of the deal, anticipated in the fourth quarter or first quarter 2007, Lilly will take an undisclosed charge related to the acquisition. Lilly said the impact of including ICOS operations in its financial results will be "modestly dilutive to earnings in 2007."

"Lilly expects this acquisition will increase the company's earnings and earnings growth rate beginning in 2008 and, after a significant addition to sales in 2007, will modestly accelerate the company's sales growth rate thereafter," according to Lilly's third quarter earnings release.

By acquiring the Bothell, Wash.-based ICOS, Lilly will benefit from rationalization opportunities in Cialis development, marketing and sales, according to Taurel.

"This transaction will also allow Lilly to capture other benefits, such as the elimination of redundancies inherent in the joint venture structure," the exec said. "We expect to streamline our operations and look at all of these operations and decide what will continue going forward," he said. Lilly expects to eliminate a "significant number" of jobs at ICOS. ICOS currently employs about 700 people, including a sales force of 160, of which about 40 are contract sales reps.

The firm will move forward with clinical programs under way involving tadalafil, including a Phase III study in pulmonary arterial hypertension and a Phase II study in hypertension. Pfizer's ED therapy sildenafil is approved for PAH under the brand name Revatio (³ (Also see "Viagra’s Second Wind: Pfizer Revatio Approved For Pulmonary Hypertension" - Pink Sheet, 13 Jun, 2005.), p. 13).

Patient enrollment in a Phase IIb trial in benign prostatic hyperplasia began in August. The 12-week, 1,000-patient study may serve as a pivotal study for a supplemental tadalafil filing for BPH, Lilly said.

The company is also pursuing a once a day dosing indication for Cialis, for which it expects to file an application in the U.S. by the end of the year. Cialis Once-A-Day has already been submitted to the European Medicines Agency. Lilly ICOS has said that the once-daily product, which is dosed as 2.5 mg and 5 mg strengths, would be priced lower than the as-needed 10 mg and 20 mg strengths.

ICOS does not have any other products in clinical development, or any other marketed products, but does have a stable of preclinical compounds. In oncology, ICOS has platforms of cell cycle checkpoint/DNA repair antagonists, cell adhesion molecule antagonists and monoclonal antibodies. The firm also has lipid and protein kinase inhibitors for cancer and inflammatory diseases. Other inflammatory disease options are G-protein coupled receptor antagonists and the cell adhesion compounds.

ICOS' preclinical pipeline also includes PDE4 inhibitors and other PDE inhibitors for multiple diseases, as well as LFA-1 antagonists for psoriasis.

Under the terms of the agreement, Lilly will acquire all the outstanding shares of ICOS common stock for $32 per share, a 32% premium over the average closing price of the stock for the last 90 days. ICOS' board of directors has unanimously approved the agreement.

- Jessica Merrill