Eli Lilly to Buy Applied Molecular of San Diego

Eli Lilly & Co. agreed Friday to buy Applied Molecular Evolution of San Diego for $400 million in cash and stock.

Big drug companies have increasingly been turning to small biotechnology firms to stock their product development pipelines.

Applied Molecular, founded in 1989, has no products, but it is working on second-generation versions of popular biotechnology drugs, including Genentech Inc.’s Rituxan for cancer and Johnson & Johnson Inc.’s Remicade for rheumatoid arthritis.

Lilly said that it would pay $18 a share for Applied Molecular and that 80% of the total price would be in Lilly stock. The deal, which requires the approval of Applied Molecular shareholders, should close in the first quarter of 2004, the companies said.

In Nasdaq trading Friday, Applied Molecular’s shares soared $5.99, or 51%, to $17.75. Lilly ended the day at $69.61, down $1.92, or 2.7%, on the New York Stock Exchange.

Lilly, best known as the maker of Prozac, has been an active investor in San Diego-area biotechnology firms.

Last year, it agreed to invest up to $325 million in Amylin Pharmaceuticals for rights to an experimental diabetes drug, a key franchise for Lilly, the world’s leading provider of insulin. The drug giant also has a $200-million deal with Isis Pharmaceuticals Inc. of Carlsbad to develop a cancer drug called Affinitak

Lilly said Friday’s deal sprang from its 2-year-old drug development deal with Applied Molecular involving five undisclosed biotech experimental medications.

The acquisition should accelerate Lilly’s effort to develop new treatments for cancer, inflammatory disease, diabetes and obesity, the company said.

Under the agreement, Applied Molecular, with 110 employees, would operate as a wholly owned subsidiary of Lilly.