Eli Lilly today said it is acquiring biotechnology company ImClone Systems, for about $6.5 billion, beating the revised offer by Bristol Myers.

The bid by Eli Lilly confirms earlier reports that it was the mystery company that Carl Icahan, chairman, ImClone, had said had rivalled the bid by Bristol Myers (See: Mystery buyer Eli Lilly reported to outbid Bristol-Myers with $6.1 billion for ImClone) 

Eli Lilly's offer, worth $70 a share values the biotech company at 6.5 billion, beating the sweetened $62 a share or $4.7 billion that Bristol-Myers Squibb had offered, threatening to go directly to the shareholders with a hostile bid.

Beristol Myers jointly markets ImClone's cancer drug Erbitux in the US and owns 17 per cent had ofered to acquire the remaining shares of ImClone for $4.3 billion at  $60 per share on 31 July, which the biotech firm turned down 10 days later (See: ImClone rejects Bristol-Myers Squibb's $4.3 billion bid; cites $6.1 billion fresh offer).

Eli Lilly and and ImClone Systems today said that the boards of directors of both companies had approved a definitive merger agreement under which Lilly would acquire ImClone through an all-cash offer, which represents a premium of 51 per cent to ImClone's closing stock price on July 30, 2008, the day before Bristol Mysers fiorst unveiled its acquisition offer.

ImClone's board has recommended eli Lilly's offer and Icahn, who holds approximately 14 per cent of ImClone's outstanding common stock through some entities, would tender the shares in the Eli Lilly offer.

Lilly said in a statement that its strategic combination with ImClone would create one of the leading oncology franchises in the biopharmaceutical industry, offering both targeted therapies and oncolytic agents along with a pipeline spanning all phases of clinical development.

"The combined oncology portfolio will target a broader array of solid tumor types including lung, breast, ovarian, colorectal, head and neck, and pancreatic, positioning Lilly to pursue treatments of multiple cancers," Eli Lilly said.

The combination also expands Lilly's biotechnology capabilities through ImClone's development and commercial manufacturing facility that will provide Eli Lilly significant flexibility to develop and manufacture complex biomolecules.

"We think very highly of ImClone's ground-breaking work in oncology, particularly its success with Erbitux, a blockbuster targeted cancer therapy, and its ability to advance promising biotech molecules in its pipeline," said John C. Lechleiter, Ph.D., Lilly's president and chief executive officer. "This transaction will broaden our portfolio of marketed cancer therapies and boost Lilly's oncology pipeline with up to three promising targeted therapies in Phase III in 2009.

"By bringing together ImClone's and Lilly's marketed oncology products, pipelines, and biotech capabilities, we are taking a very important step forward in addressing the challenges of patent expirations we will face early in the next decade," Lilly added.

John H. Johnson, ImClone's chief executive officer, said "We believe this is an important step forward in ImClone's and Lilly's shared goal of addressing the medical needs of cancer patients around the world. The significant progress ImClone has made over the last few years is a direct result of the important contributions of our employees, and joining forces at this stage of our growth will allow us to leverage Lilly's global capabilities and make even greater advancements in our proprietary pipeline."

Erbitux is marketed by  Merck KGaA and Bristol- Myers. ImClone co-promotes the drug in North America jointly with Bristol Myers. The worldwide sales of Erbitux grew by 18 per cent in 2007 to approximately $1.3 billion.

A key strategic priority for Lilly is increasing the flow of high-quality, innovative new therapies. Lilly has approximately 50 molecules in clinical development and the strongest mid-stage pipeline in its history. It also supports the company's strategy to further increase its focus on biotechnology by increasing the proportion of its pipeline represented by biologics.

Under the terms of the agreement, Lilly will acquire ImClone through a wholly-owned subsidiary and merge it with ImClone. The transaction is not subject to any financing condition and is expected to close in either the fourth quarter of 2008 or the first quarter of 2009.

Upon the closing of the transaction, Lilly will incur a one-time charge to earnings for acquired in-process research and development, but says  is premature to estimate what that charge will be. The company expects the transaction to be accretive to earnings on a cash basis in 2012 and on a GAAP basis in 2013.

The transaction is conditional to at least a majority of the outstanding ImClone shares being tendered, as well as clearance under the Hart-Scott-Rodino Antitrust Improvements Act, similar requirements outside the US, and other customary closing conditions.

UBS Investment Bank is acting as lead financial advisor to Lilly and Deutsche Bank is also serving as financial advisor. Latham & Watkins LLP is acting as legal counsel to Lilly. J.P. Morgan is acting as financial advisor to ImClone and Katten Muchin Rosenman LLP is acting as ImClone's legal counsel.