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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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October 30, 2008

Lilly And Imclone: Not Expensive Enough!

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Posted by Derek

I honestly didn’t think I’d ever get the chance to write about Imclone again. But never say never! It turns out that a pension fund, the State-Boston Retirement System of Massachusetts, is suing to block the Lilly acquisition – because, hold on to your hot beverages, they think that $70/share is just too cheap an offer. Not in the best interest of shareholders, the deal is. Clearly needs to be bumped up.

We have, in other words, found the only chordates who think that Imclone is worth even more than Carl Icahn thinks it is. I’ll be very interested to hear their reasoning. Surely this is just one of those “worth-a-try” ploys – the investment fund figures that they’ll spend a little on legal fees, and who knows, they might get a bit more money out of it. A lot of mergers attract these sorts of lawsuits, and if you’ve ever wondered how securities lawyers manage to enrich themselves, look no further. But you do have to advance serious arguments if you expect to win these things. And just what are those going to be?

And the problem is, after the acquisition goes through, it’ll be tricky to figure out if Lilly got their money’s worth or not. The Imclone stuff will disappear into Lilly’s accounting system, and odds are we’ll never see it broken out again. There are quite a few deals that never pay for themselves, but you sure don’t see the numbers laid out to show it. The main measures will be Erbitux sales, and whether Bristol Myers-Squibb gets a share of the follow-up antibody – beyond that, Lilly can always argue that they added value to the earlier-stage Imclone projects, making the accounting impossible to clear up.

At least in this case it’s something being added to Lilly’s pipeline – they’re not stopping work on other things, so you don’t have to factor in opportunity cost. That’s a real consideration when a company says “OK, we’re not going to do our own XYZ work – we’ll do a deal for it”. If that deal doesn’t work out, you always wonder how things would have been if they’d just kept the money at home. I’ve seen a couple of major examples of this in my own experience – one of them, at least, worked out OK on paper, since various stock transactions got a lot of the money back. But the time, the time spent working on things that didn’t ever deliver? We never got that back. Once the deal wound down, we went back to working on (to a good approximation) what we would have been doing if it had never happened. No, if the scientific (and clinical) output of the deal is underwhelming, those involved will always wonder What Might Have Been.

Comments (4) + TrackBacks (0) | Category: Business and Markets


1. Hap on October 30, 2008 10:08 AM writes...

Alzheimer's? Senility? Untreated schizophrenia? Rampant stupidity? That's four good reasons there.

A serious possibility (well, sort of), is that MASRS's inverstments have lost enough value that they have problems, and the Lilly/Imclone merger is an opportunity either to recoup other investment losses, or to distract their investors/employees from the fact that their retirements will involve either change cups or repeated plasma donations.

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2. emjeff on October 30, 2008 12:07 PM writes...

One thing I learned from the DuPont/BMS buyout of 2001-2002 is that the reasons for these things often have absolutely nothing to do with bringing drugs to market? Why would BMS buy little Dupont Pharma (formerly DuPont/Merck) for 6.5 billion and then lay off virtually everyone? For the pipeline? No.

The real reason was that BMS, flush with cash from the sale of Clarol hair products, was afraid they'd be the target of a hostile takeover by Pfizer 9who at the time, was golden). So, they dumped some cash, messed up a lot of people's lives for awhile, and strode briskly away. That was the only reason. (I got this from a financial guy at BMS).

So, don't look for reasons that make sense; there probably isn't one...


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3. Hap on October 30, 2008 6:36 PM writes...

I meant the above as reasons why the pension people were going after the merger. I lacked the vision to see that the reasons (other than the last one) could apply to Lilly as well. Oops.

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4. Anonymous BMS Researcher on October 30, 2008 10:36 PM writes...

The Dupont Pharma thing was a mess operationally -- some discovery programs got bounced from BMS sites in CT/NJ to the former Dupont Pharma site in Wilmington, then BACK to CT/NJ after Wilmington was closed. And don't get me started on the IT train wreck: I personally got the job of reverse-engineering one Dupont Pharma database after we'd sacked everybody who was even remotely familiar with it. A fun month that was.

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