There are two recent items about Eli Lilly that I'm going to cover this week. They're both Big Corporation Throws Weight Around headlines but, they reflect different underlying behavior. Today we'll do the more defensible one, and tackle the harder stuff in the next installment.
The first one, then, is Lilly's purchase of their Cialis partner ICOS. They came in offering $32/share, but one of the big ICOS shareholders objected, saying the company should go for $40. I see that Lilly is out today with what they say is a final offer of $34, so we'll see if the big shareholders find that insulting or not. If the whole process reminds you of someone pretending to walk out of a stall in the bazaar while bargaining over a carpet, you've got the right idea about how M&A deals work.
The thing is, Lilly has made it clear that if the deal goes through, all the employees at ICOS will be laid off. There are various efforts up in Washington state to alter this decision, but I don't think that they're going to get anywhere. Lilly wants all the rights to Cialis, and to the intellectual property ICOS might have, but they don't need several hundred more employees two time zones away from Indianapolis.
My feelings about this are mixed. For obvious reasons, the phrase "laid off" is not a favorite around here these days. But on the other hand, Lilly has every right to do what they're doing, and no doubt it makes sense from the business end to do it. When you work for a small company (and especially a small company that's done a lucrative deal with a big one), you know that being bought out is one of the things that can happen to you, with results that can't be predicted.
Still, I'm not a fan of the buy-'em-and-fire-'em style, which I associate with Pfizer more than with Lilly. There's more value in a small reseach company than its patent portfolio shows, or at least there should be. The more I've thought about it, the more I think that startups and small pharma/biotech are going to be a bigger and bigger part of the research environment here in the US in the years to come. (For the details, you'll have to read my next Contract Pharma column). And although I think that Schumpeter's creative destruction is necessary, there's always room to try to make it a bit more creative and a bit less destructive. Wiping out a possible biotech cluster by razing the largest local firm isn't an outcome that I'm happy with.
The only alternative I can come up with, though, is to have some mechanism where a portion of such buyout money is available for employees of the smaller firm to try to start another one (or more). That's tricky, though, since you'd figure that most of the IP that you could start a new company with is being purchased already. Any other ideas?