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Lilly's $1.1B Dermira deal helps fill gaps left by patent expirations

Eli Lilly and Co.'s $1.1 billion cash deal to acquire dermatological medicines developer Dermira Inc. aligns with the pharmaceutical giant's strategy of acquiring clinical phase assets to supplement existing development expertise and commercial infrastructure, Cantor Fitzgerald analyst Louise Chen said in a Jan. 10 note.

Expected to close in the first quarter of this year, the deal will expand Lilly's pipeline in the dermatology space with the addition of U.S. Food and Drug Administration-approved Qbrexza, a treatment for excessive underarm sweating.

Menlo Park, Calif.-based Demira's lebrikizumab — which has been granted a fast-track designation by the FDA — is undergoing a phase 3 study to treat atopic dermatitis, commonly known as eczema. In a phase 2 clinical trial, lebrikizumab improved patients' skin with low rates of side effects.

Lebrikizumab is an antibody designed to bind to interleukin-13, or IL-13, a protein that drives multiple aspects of eczema.

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"We think lebrikizumab is a potentially best-in-class drug to treat atopic dermatitis and can be expanded into other therapeutics areas as well," Chen said in the research note.

Indianapolis-based Lilly previously reported positive results of a late-stage study for IL therapy Olumiant, or baricitinib, which reduced symptoms in patients with eczema.

Patent pressures

Lilly has been leaning on new drugs due to pressure from generic competition and loss of exclusivity. Other pressures for Lilly include the April 2019 failure of a clinical trial for cancer drug Lartruvo, which was already being used and had to be taken off the market.

For non-biologic products, losing exclusivity means one or more generics entering the market and severely effecting revenues, especially in the U.S. market, Chen said.

The company recently lost best-selling status for erectile dysfunction drug Cialis due to patent expiration, and Chen expects the company to similarly lose patent protection for many other pharmaceutical products in the coming years.

Outside the U.S., generics historically have a lesser impact. However, Chen noted that the generic market penetration in Japan, Europe and many countries in the emerging markets is gradually increasing.

With biologic products, generic competition takes time to enter due to factors such as regulatory pathways, manufacturing challenges and development timelines, according to Chen.

Lilly previously bet on cancer medicines by acquiring three oncology-focused companies including Loxo Oncology Inc., ARMO BioSciences Inc. and AurKa Pharma Inc. The Dermira acquisition will be Lilly's most recent deal since Loxo in the first quarter of 2019.

A large number of multinational pharmaceutical companies, biotechnological companies and generic pharmaceutical companies are direct competitors for Lilly, which is why the company has to "continue to deliver to the market innovative, cost-effective products that meet important medical needs," Chen said.

Chen noted only a few remaining IL assets in eczema. Pfizer Inc. remains the only major company with significant large capital that has not yet picked up such an asset. Pfizer's own eczema treatment abrocitinib is in a late-stage study and has been shown to help clear patients' skin.

Lilly plans to begin a tender offer to acquire all of Dermira's outstanding common shares for $18.75 apiece. With Dermira's stock trading through the deal price, Chen said questions have been raised as to whether another bidder could step in with a competing offer.

Lilly's stock was up by 1.32% to $137.71, while Dermira's shares rose by 4.88% to $19.24 as of 3:15 p.m. ET on Jan. 10.