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— Eli Lilly & Co.'s winning bid of more than $6 billion for cancer drugmaker 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 drugmaker prepare for looming patent expirations and builds "a true oncology powerhouse," Lilly CEO John Lechleiter said.
The deal also brings to an end one of the more dramatic buyout sagas in recent history.
Lilly's bid topped two previous 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 already own and later raised that bid to $62 per share.
But Bristol-Myers said in a statement 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 about $1 billion for its 14 million ImClone shares, while still sharing in the revenue from Erbitux. The drug maker gets 61 percent of the North American revenue from Erbitux and splits sales three ways 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, who he wouldn't name. On Monday, he said in another statement 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 for ways 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 is 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 figure 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 that ImClone stockholders tender their shares.
Lilly plans to pay for the deal with a combination of 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, however, may not share that comfort. Lilly shares dropped $2.89, or 7 percent, to $38.42 during trading Monday as the sector tumbled along with the broader market. ImClone shares, meanwhile, rose nearly 3 percent to $66.89.
Analysts peppered Rice and others with questions during the conference call about what sort of financing Lilly expects to find in a shaky credit market.
Congress late last week approved a $700 billion bailout plan to stabilize lending institutions and loosen credit markets that have seized up.
"The credit markets are really uncertain right now, that's just a fact," said Les Funtleyder, an analyst for Miller, Tabak and Co. "Now, they could change, but I'm not sure anybody's in a position to say with certainty what kind of terms you can get in the debt markets."
Moody's Investor Service also placed Lilly's long-term rating of Aa3, which is investment grade, under review for a possible downgrade. Moody's analysts worry about the increase in Lilly's debt and "risks related to execution of Lilly's pipeline." Fellow agency Fitch Ratings also put several of its ratings for Lilly on Ratings Watch Negative.
Other analysts expressed concern over Lilly's expectations for a promising ImClone molecule labeled IMC-11F8 that is in human testing. Bristol-Myers claims long-term marketing rights to it.
BMO Capital Markets analyst Robert Hazlett said Lilly is paying "a high price" for ImClone, making the deal riskier.
"Did they overpay? We'll find out as we find out how the pipeline progresses," he said.
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AP Business Writer Marley Seaman contributed to this report.
