Hybritech Rise Fails to Reach Level for Bonus
Hybritech’s gross profits rose 6% to $1.7 million and revenue rose 36% to a record $45.7 million for the year ended Dec. 31, but the biotechnology company failed to hit levels that would have triggered bonus payments to former Hybritech shareholders, Eli Lilly & Co. said Thursday.
The payments were not made because Hybritech’s gross profit was “negatively affected by increased manufacturing costs resulting from decreased production yields.”
The company’s manufacturing costs also “remain unsatisfactory,” according to a Lilly spokesman.
Lilly agreed to make bonus payments in 1986 when it acquired the San Diego-based manufacturer of genetically engineered products. The so-called “contingent payment units,” which are driven by Hybritech’s sales and gross profits, could generate a peak return of $22 per unit during their 10-year lifetime.
Lilly and Hybritech officials would not discuss the payments but one biotechnology industry observer who is familiar with the CPUs said former shareholders won’t receive payments until “therapeutic products that are now under development actually come on stream and kick in revenues.”
The CPUs are “really a long-term vehicle that will give Hybritech shareholders a piece of (Hybritech’s) upside potential,” said the source, who played down the significance of Thursday’s announcement. “Knowledgeable investors will be looking for the long-term potential of Hybritech’s as-yet undeveloped therapeutic drugs.”
The Indianapolis-based drug company has invested “significant resources to improve the manufacturing process and to increase manufacturing capacity to keep pace with sales growth,” according to Lilly.
Hybritech, now a wholly owned Lilly subsidiary, reported that gross profits increased 32% to $11.8 million and sales rose 18% to $11.8 million for the fourth quarter.
The CPUs, which are traded on the American Stock Exchange, reacted to Thursday’s announcement by finishing up a quarter of a point at 2 3/8. The units have traded at a high of 4 1/2 and a low of 1 7/8 during the past year.