Eli Lilly to Buy Skin Treatment Firm Dermira for $1.1bln

Eli Lilly to Buy Skin Treatment Firm Dermira for $1.1bln
January 13, 2020


Eli Lilly and Co (LLY: NYSE) is acquiring biopharmaceutical company Dermira (NASDAQ: DERM) in a deal valued at $1.10 billion. The sale will give Eli Lilly access to late-phase competitor Regeneron and Sanofi’s blockbuster drug Dupixent, an atopic dermatitis drug. The acquisition news has come up months after the medical dermatology company published phase 2b data. The shares of Lilly have appreciated by more than 235% in the past three months. Likewise, shares of Dermira have doubled in the past one month. The stock closed at $138.00, up $2.08 or 1.53% from the prior close.

Dermira made the market perceive Lebrikizumab as a genuine challenger to Dupixent when it reported phase 2b data connecting the “anti-IL-13 antibody to symptom improvements comparable to those achieved by Dupixent.” The phase 2b data caused a surge in Dermira’s share price and encouraged the phase 3 trial of Lebrikizumab.

On seeing the phase 2b data, Lilly decided to acquire Dermira by paying $1.10 billion. In return, Lilly will receive control over Lebrikizumab and an authorized medicated cloth sold under the prescription name Qbrexza.

Under the acquisition terms, Lilly will hand over $18.75 in cash for each outstanding share of Dermira.  Subject to any funding terms, the deal is anticipated to close in the first quarter of this year. Interestingly, the acquisition price reflects an 86% premium on the 60-day volume-weighted average trading price of Dermira’s stock at the end of January 9th, the final day before the deal was announced.

Some of the Dermira shareholders, possessing roughly 13% stake in Dermira, have accepted to offer their shares in the tender offer.

Eli Lilly issued a statement acknowledging that the takeover of Dermira would widen its immunology product pipeline with the inclusion of dermatitis treatment lebrikizumab, which is being validated in a Phase 3 clinical development plan in adult and adolescent patients.

Patrik Jonsson, an Eli Lilly senior vice president and president of Lilly Bio-Medicines, explained how Lebrikizumab would benefit patients: “People suffering from moderate-to-severe atopic dermatitis have significant unmet treatment needs, and we are excited about the potential that lebrikizumab has to help these patients.”

Tom Wiggans, chairman and chief executive at Dermira, explained the mission of the company: “Since Dermira’s inception, we have been focused on applying strong science to medical dermatology with the goal of finding new ways to treat some of the most common skin conditions that affect millions of people every year.”

Wiggans opined that the acquisition benefits both the company and shareholders. “We also believe this proposed transaction is in the best interests of and our stockholders and affirms the dedication and important groundwork established by talented employees since the founding of the company nearly 10 years ago.”

Currently, Dermira markets only one product, namely Qbrexza (glycopyrronium) cloth for treating primary axillary hyperhidrosis (extreme underarm sweating). The product generated revenue of $10.20 million last quarter. The company’s primary drug candidate is Lebrikizumab for atopic dermatitis, which is in the Phase 3-stage.

Drug manufacturer Eli Lilly develops, manufactures, and markets drugs in two categories: animal health and human pharmaceutical products.

The company is concentrating on the development of drugs to treat skin related problems such as hyperhidrosis, acne, and psoriasis. Eli Lilly’s portfolio includes three late-stage drug candidates, namely Cimzia (certolizumab pegol), glycopyrronium tosylate, and olumacostat glasaretil.

While reporting fourth-quarter results on January 30th, Lilly intends to issue an update to its 2020 outlook, including the anticipated impact from the takeover of Dermira.

For the takeover deal, Evercore was the sole financial advisor, while SVB Leerink and Citi were the lead advisors for Dermira. It can be remembered that Dermira’s stock plunged in 2018 after its top drug failed a phase 3 acne test. However, Dermira had already paid $80 million as an advance to Roche for Lebrikizumab. If the drug succeeds, Roche could receive more than $1 billion.

Lilly will incur the responsibility of using its expertise in immunology to take Lebrikizumab to market and grab market share from Dupixent. However, it is not going to be an easy task as Dupixent is a time tested drug and several other pharmaceutical companies, including Pfizer, aims to enter the fray.

Still, the acquisition is considered to be positive for Eli Lilly, and so the stock is expected to remain bullish in the short-term.

The historical price chart indicates that the stock has started rallying after consolidating between 110 and 120 in the past year. The stock is also trading above its 50-day moving average. Furthermore, the MACD indicator is making new highs. Therefore, we are anticipating the stock to appreciate further in the days to come.

lill - technical analysis - 13th Jan 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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