BOTHELL – ICOS Corp., which grew into Washington’s largest biotechnology company after creating the impotence drug Cialis, will be bought by Eli Lilly &Co. for $2.1 billion.
The acquisition will result in “significant” layoffs at ICOS, which employs 700 people – the majority at the company’s Snohomish County headquarters in Bothell.
Paul Clark, ICOS chairman and chief executive officer, said the offer by the company’s longtime pharmaceutical partner was the right one to accept.
Investors will receive $32 a share in the deal, more than 30 percent above the stock’s average price during the past three months.
The company’s shares rose 16 percent, or $4.38, to close at $31.50 Tuesday.
“It was too good a deal to pass up,” said Clark, who added that he couldn’t speculate on how many people or ICOS assets Lilly will retain locally.
“We do not know today what their employment decisions are going to be. Any employees that are affected will get very fair compensation and severance,” he said.
If the takeover follows the usual pattern, most positions in marketing and administration would be eliminated because Lilly already has people performing those jobs.
The purchase of ICOS by Indianapolis-based Lilly is the “surprise that everyone expected,” said Paul Latta, a biotech analyst at Seattle’s McAdams Wright Ragen. It made sense because the two companies shared drug development and marketing expenses for Cialis and, later, the revenue from a 50-50 joint venture.
Latta said the company’s purchase price wasn’t bad for ICOS, but “we thought it was worth a little bit more.” He had a target price of $36 for the stock.
In recent years, as the share price for ICOS languished for long stretches, rumors of an impending buyout by Lilly circulated over and over again.
“There was only ever going to be one buyer for ICOS,” said David Miller, president of Biotech Stock Research in Seattle. “One could say they could have waited longer and done better, but shareholders will get out with a decent price.”
Clark said Lilly approached ICOS about a deal, and serious negotiations began in late May, when ICOS’ stock traded below $20 a share.
In a conference call with investors, Lilly’s chief executive made clear that the deal was about Cialis’ share in the erectile dysfunction drug market.
“This acquisition will bring the full value of Cialis to Lilly at an attractive price for Lilly shareholders,” Sydney Taurel said.
“We expect a significant number of jobs will be eliminated at ICOS,” he later added. He said decisions about job cuts could come in a matter of weeks, not months, as the acquisition could be completed by the year’s end, pending shareholder and regulatory approvals.
ICOS began in 1990 with three biotech pioneers – Robert Nowinski, Christopher Henney and George Rathmann – who attracted $33 million in private financing, which at the time was the largest start-up financing given to a biotech firm. Microsoft’s Bill Gates was the largest shareholder. The next year, the company went public at $8 per share.
“When we joined the company, we all felt we’d retire there,” said Johnny Stine, who worked at ICOS between 1994 and 2001 and is a co-founder of Seattle biotech firm Spaltudaq. “I had a great time there.”
The company initially focused on developing and selling treatments for inflammation and other serious diseases. ICOS’ history took a crucial turn when its researchers focused on a compound that could treat erectile dysfunction. That led to the partnership with Lilly, which was established just as Pfizer Inc.’s Viagra hit the market.
Since going on sale in the U.S. in late 2003, Cialis has turned into a near-blockbuster for Lilly and ICOS.
It accounts for about 25 percent of erectile dysfunction drug sales, far less than Viagra in the United States. But that still translated into sales of nearly $747 million last year. The drug is expected to exceed $1 billion in annual sales next year.
Thanks in large part to Cialis’ building success, ICOS was expected to end this year with a full-year profit for the first time.
In the early part of the decade, as Cialis moved toward final approval, ICOS also boasted an impressive pipeline of other drugs it was developing. But like many other potential drugs, they failed, one by one, to produce impressive results in clinical trials.
As of this year, the only drug ICOS had in the human-trial stage was tadalafil, the active ingredient in Cialis. It’s being looked at as a treatment for a common prostate ailment and a potentially fatal lung condition. ICOS and Lilly also are working on a once-a-day version of Cialis for men with erectile dysfunction.
Lilly will go forward with the new once-a-day version of Cialis and the potential new uses for tadalafil, Taurel said.
Since Seattle’s Immunex Corp. was purchased for $16 billion by Amgen in 2001, ICOS has become the largest in-state biotech firm and one of the county’s two largest public companies. Clark emphasized those signs of accomplishment to employees Tuesday.
“We’ve built a top-tier biotechnology company in market capitalization, we’ve built a billion-dollar drug, and we’ve built a biotech company that’s profitable,” the 59-year-old said.
Stine agreed it probably was the right time for ICOS to be bought, though he feels bad for what could be a large number of laid-off employees there.
“A lot of us old-timers felt they could have done a lot more, but with a successful drug like Cialis, it was just a matter of time.”
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
ICOS Corp.
Headquarters: Bothell
Employees: About 700
Stock: Closed at $31.50 a share Tuesday on the Nasdaq market.
Web site: www.icos.com
1990: ICOS is founded in Seattle by George Rathmann, Christopher Henney and Robert Nowinski. One early investor is Microsoft Chairman Bill Gates.
1993: ICOS researchers begin studying IC351. The drug, first considered as a potential treatment for heart problems, turns out to be effective against erectile dysfunction.
1997: ICOS conducts its first study of its experimental erectile dysfunction drug on patients.
1998: Eli Lilly Co. and ICOS enter a partnership for the development and eventual marketing of Cialis worldwide.
2001: ICOS and Eli Lilly apply to the Food and Drug Administration for approval to sell Cialis.
2002: The European Commission approves the drug in the 15 nations of the European Union. The drug becomes available for sale to patients there in early 2003.
2003: The FDA grants final U.S. approval to sell Cialis.
2006: ICOS board agrees to acquisition by Eli Lilly.
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