In one of the highest-value acquisitions of a private, venture-backed healthcare company this year, Eli Lilly & Co. announced on Nov. 8 that it had acquired Avid Radiopharmaceuticals, a Philadelphia, PA-based company with a Phase 3 imaging agent that can reliably detect amyloid plaque in even early Alzheimer’s Disease (AD) patients. Lilly paid $300 million upfront with an additional $500 million due upon FDA approval and commercial launch of florbetapir F 18. There is a pipeline of other diagnostics, with a Phase 2 Parkinson’s test being the most advanced, but by far the most value must have been assigned to the lead product, which already has passed its Phase 3 study with flying colors.
Amyloid plaques (rat)
What caught our attention about this transaction was not only the (hefty) price Lilly paid to Avid’s investors* but also the identity of the buyer, the structure of the deal and especially the timing.
Our observations:
1) Who bought: Lilly is a pharmaceutical company, not a diagnostics company.
2) How much they paid: That means they probably had to pay more to get this product, since they will have to create a sales force around it. We suspect that their bid was preemptive – even with the multibillion dollar revenue stream that investors in our network believe is possible from florbetapir, the diagnostics industry is just not used to paying so much for an entire portfolio of products let alone a single product. For comparison, in early 2006, Fisher Scientific (now Thermo Fisher) paid $283M for Athena Diagnostics and its “advanced neurological diagnostic assays.” Athena’s annual revenues were $55M at the time. Avid’s revenues are zero. That comparable makes it look like Lilly went not for GARP (Growth at A Reasonable Price) but for GAAP (Growth At Any Price).
3) How they structured it: Lilly generously acknowledged the present value of the company. The last post-money was reported by our sources to be in the $105M range. But most of the returns – a whopping $500M – will come in the form of (what else?) an earnout with the usual regulatory and commercial milestones.
4) The timing: The deal got done before any mechanistic treatment for the disease has made it to the market and semagacestat, Lilly’s late, great hope for AD, failed in Phase 3 just this past August when patients did worse than controls.
This is where we believe the synergy resides: not in the ability for florbetapir to be able to guide patients into any current AD therapy but for it to be able to serve as a gateway for Lilly when some future AD therapy comes along. This tells us three things:
- Lilly is convinced that there will be such a therapy.
- Selling such a therapy successfully will require positive identification of AD status – no more “one size fits all,” no more “let’s hope it works but if it doesn’t we make the money anyway.” Is this an $800M acknowledgement that it is a win/win/win (pharma/patient/payer) to have the right patient – and just the right patient – get the right drug?
- Meantime, Lilly is probably convinced that the diagnostic alone will be accretive, probably strongly so, even at this (high) price.
Now back to who bought and for how much: we surmise that Lilly had competition for florbetapir, especially once the investment banks put the word out that the product – indeed, the whole company – was for sale. But their bid, especially the back-end payments, show that Lilly sees synergies that others will not be able to realize. The company’s big-time shift towards “open innovation” — and its sharing of its CHORUS development expertise in exchange for access to more molecules – probably make Lilly’s drug developers even more confident that if there is any synergistic product under development anywhere, Lilly has a better chance than ever to be able to access it and to test it effectively. That is what this deal is ultimately about: Lilly will presumably now be in a better position (than Pfizer, say) to bargain for and then test a “companion therapeutic” because they already own the diagnostic.
Nice to see pharma embracing the new thinking on Dx-Rx combinations and “personalizing” therapy. Welcome on board, guys!
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*Avid investors include AllianceBernstein, Alta Partners, BioAdvance, Lilly Ventures and Safeguard Scientifics.
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