In Light of Prasugrel Delay, Lilly-ImClone Deal Suddenly Makes Sense

(MoneyWatch)  For those of you wondering why Eli Lilly would volunteer to have its stock crushed by the loss of cash and added debt required to buy ImClone, here's one idea: The deal makes more sense if Lilly believes that prasugrel -- a potential blockbuster blood thinner with the brand name Effient -- won't make it through the FDA.

Lilly responded to "speculation" (i.e. news) in the "media" (in this case, The Pink Sheet) last night that the prasugrel delay could extend well into 2009.

A "serious internal disagreement in FDA has developed over whether to approve the drug," the Sheet writes (via In Vivo). Apparently, there's an increase in minor and major bleeding and concerns of related deaths in the prasugrel arm of a key clinical trial, and more cancers discovered in the prasugrel group compared to Plavix.

The FDA was supposed to have made a decision in June, and then again in December, but it has yet to appear on an FDA meeting agenda.

Put yourself in the position of drama-loving Lilly CEO John Lechleiter. Prasugrel/Effient is predicted to bring your company $850 million to $1 billion a year in revenue. But the FDA keeps balking; and those pesky cancer and bleeding cases keep making the news (like here, in September). Assuming the concerns are real, from Lilly's point of view there are four possible scenarios:

1. Assume that the drug won't be approved.
2. Assume that it will be approved but its use is restricted by various safety warnings (thus crippling its prospects).
3. Assume that even if it is approved without reservation your company may be besieged with lawsuits from patients who got cancer instead of Plavix, the industry standard.
4. Assume that it is approved and the bleeding/cancer issue turns out to be nothing.

Scenario number four isn't as good a bet as spreading your money on scenarios one-through-three combined. Suddenly, bolstering your pipeline by acquiring another company, even if the market thinks you overpaid, looks a whole lot more palatable. If you did that and scenario four came true anyway, then you've just gotten an unexpected bonus.

One last note: Two days ago the Indianapolis Star printed an interview with Lechleiter, and the CEO did not mention -- or at least wasn't quoted on -- prasugrel. He did, however, say, "I've learned in 29 years here that we at Lilly and in the industry are sometimes not very good at guessing." Hmmm.