Lilly to Buy Hybritech in a $300-Million Deal
Eli Lilly & Co., a worldwide manufacturer of pharmaceuticals, said Wednesday that it was acquiring Hybritech, a leader in the rapidly growing field of genetically engineered products, in a deal valued at more than $300 million.
The two companies said their “definitive agreement” on the purchase will be presented to Hybritech shareholders during an as-yet unscheduled meeting, according to David Hale, president of San Diego-based Hybritech. Hale said that, if shareholders approve, the transaction should be completed by early 1986.
The proposal calls for Hybritech to be operated as a wholly owned subsidiary of Lilly, which in 1984 reported net income of $490 million.
Lilly’s offer would pay $22 in cash or convertible notes for each of Hybritech’s 10.2 million shares of common stock, plus warrants that Lilly valued at $4 a share. Additionally, Lilly said it would pay Hybritech shareholders up to $22 more a share, depending on Hybritech’s operating results through 1995.
About 30% of Hybritech’s shareholders already have granted Lilly options to purchase their stock.
Hybritech’s board of directors, which has approved the acquisition, also granted Lilly an option to purchase 13 million unissued shares of Hybritech’s stock, which would give Lilly control of the company in the event that Hybritech’s remaining shareholders reject the purchase.
When trading in the two companies’ stock was halted in mid-morning, pending the announcement, Lilly’s stock was up 50 cents to $84.375 and Hybritech’s stock had risen $2 to $27.
Lilly’s acquisition of Hybritech gives the Indianapolis-based health-products company an opportunity to move into the medical diagnostics field--"where they haven’t been a direct competitor"--with a proven product, said Irving Katz, an analyst with San Diego Securities. Hybritech already has on the market 17 monoclonal antibody products used by hospitals and laboratories to diagnose pregnancy, colon and prostrate cancer, infertility and allergies.
The purchase also reflects the ongoing consolidation in the biotechnology industry. The smaller entreprenuerial companies are forming ventures with major drug manufacturers or are being acquired by them. The process links the biotech firms’ research and development of genetically engineered substances with established marketing and distribution channels. Hybritech itself already generates 50% of its revenue from research contracts with other pharmaceutical companies.
The planned acquisition would bolster Lilly’s research into the “emerging technology of monoclonal antibodies for the therapeutic treatment of certain types of cancers,” said Richard D. Wood, chairman of Eli Lilly. Wood added that Hybritech’s diagnostic products complement “our own experience with therapeutic products in these same markets,.”
Hybritech, founded in San Diego in 1978, will benefit from Lilly’s “financial, marketing, scientific and technical resources,” Hybritech Chairman Howard E. Greene Jr said.
Hybritech, which is a leader in the laboratory diagnostic-testing market that analysts say could grow to $9 billion by 1990, will remain in San Diego, Hale said. Hale will continue to serve as president of the company after the acquisition is complete, he said, and Greene will remain chairman and chief executive.
‘Healthy for Both Sides’
The acquisition is “healthy for both sides,” said Munro Pitt, an analyst with Chicago-based Duff & Phelps. “What’s amazing is that (Hybritech has) been so successful in competing with (diagnostics market leader) Abbott Laboratories.”
“About a year and a half ago, Hybritech decided to go head-to- head with Abbot, and they’ve been remarkably successful,” Pitt said, adding that Hybritech’s management has always indicated a desire to compete with Abbott and other larger companies.
Hybritech, one of a small number of emerging biotechnology companies that have successfully made the move from research activities to actual production, reported that net income rose 300% to $1.2 million for the first half of 1985 while revenue increased 88% to $25.6 million.
The company’s revenue “could reach $55 million in 1985 and $75 million in 1983, compared with $31 million in 1984,” according to a recent First Boston Research report. “Net income may reach $2.5 million in 1985 and $5.5 million in 1986, versus $1.1 million in 1984.”
At its annual meeting in May, Hybritech officials reported that the company would soon start producing a pregnancy test for at-home use. HYBRITECH AT A GLANCE Founded: 1978 Business: Markets monoclonal antibody-based in vitro diagnostic products used for cancer research. Monoclonal antibodies are believed to fight cancerous cells without damaging healthy cells. Work force: As of Dec. 31, 1984, the company employed 507 people, 92 of whom held Ph.D or other advanced degrees.
Financial data: 1984 1983 1982 1981 1980 In millions Revenue $14.6 $ 6.9 $ 1.8 $ .4 $ .1 Net income (loss) $ 1.1 ($ .5) ($ 7.3) ($ 4.4) ($2) Assets $61.1 $48.1 $48.1 $18.4 $9.1