Looking to enhance its product portfolio for immune-related diseases, an area where it has lagged behind the competition, Eli Lilly & Co. (LLY, Financial) announced on Tuesday it is acquiring Dice Therapeutics Inc. (DICE, Financial) in a deal valued at $2.4 billion.
According to the terms of the all-cash agreement, the pharmaceutical company headquartered in Indianapolis will pay $48 per share for Dice, which is a 40% premium to the San Francisco-based biotech company’s closing price on Friday, June 16.
The market had a positive reaction to the deal, which is expected to close during the third quarter pending regulatory approval. Shares of Eli Lilly gained 1.35% to around $453.76 on Tuesday morning, while Dice’s stock soared 37.58% to $46.57.
Pipelines and benefits
Dice specializes in developing oral therapeutic drugs for autoimmune and inflammatory diseases using its proprietary DELSCAPE platform. Its lead drug candidates, called IL-17 inhibitors, are currently in a mid-stage trial for psoriasis. It also has treatments in various stages of development for inflammatory bowel disease, fibrosis and immuno-oncology.
In comparison, Eli Lilly, which has a history dating back to 1876, only has two immunology-focused drugs, Taltz and Olumiant. As such, it will greatly benefit from the addition of new drugs to this area as its current treatments contribute a small portion of its overall revenue. For instance, Taltz raked in $2.5 billion in sales in 2022, accounting for only 8.7% of the company’s overall revenue. Further, CNBC reported that sales of Olumiant were $830.50 million last year.
In a statement, Patrik Jonsson, executive vice president, president of Lilly Immunology and Lilly USA and chief customer officer, acknowledged the acquisition will help it “tackle the challenges ahead in finding new treatments for patients with significant unmet medical needs.”
"In combination with its novel technology and expertise in drug discovery, Dice's talented workforce and passion for innovation will enhance our efforts to make life better for people living with devastating autoimmune diseases," he said.
As a much more established company, however, Eli Lilly will help Dice Therapeutics, which was founded in 2013, from a financial standpoint. While the company generated $1.1 million in revenue in 2021, it has struggled to turn a profit, recording an $84 million net loss last year.
Dice Therapeutics CEO Kevin Judice, Ph.D. expressed optimism for the deal.
“We're eager to see our pipeline, including our oral IL-17 inhibitors, DC-806 and DC-853, benefit from Lilly's resources and global reach and I'm excited by the prospect of watching these two talented teams in a united quest for scientific innovation,” he said. “Our novel approach to discovering and advancing oral, small molecules against validated protein-protein interaction targets has even greater potential with Lilly's industry-leading clinical development capabilities to get these medicines to patients suffering from autoimmune diseases."
Valuation
Yielding a $430.74 billion market cap, shares of Eli Lilly were trading with a price-earnings ratio of 73.32, a price-book ratio of 38.49 and a price-sales ratio of 14.79 on Tuesday.
The GF Value Line suggests the stock is significantly overvalued currently based on its historical ratios, past financial performance and analysts’ future earnings estimates.
At 75 out of 100, the GF Score indicates the company is likely to have average performance going forward. While it received high ratings for profitability and growth, financial strength was more moderate and the value and momentum ranks were low.
Generating a market cap of $2.22 billion, Dice Therapeutics’ shares traded with a price-book ratio of 4.06.
As a result of not having a long financial history, the company does not have a GF Value yet. However, its shares have climbed 48.39% year to date.
The weak GF Score of 19 also does not provide a full picture of the company’s performance potential since it only received a rating for financial strength.
Guru interest
Based on 13F filings for the first quarter, a number of gurus are set to benefit from the combination in the coming months.
Of the 20 gurus invested in Eli Lilly, PRIMECAP Management (Trades, Portfolio) has the largest stake with 2.67% of its outstanding shares. The Vanguard Health Care Fund (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and the Harbor Capital Appreciation Fund (Trades, Portfolio) also have notable positions.
With 0.23% of outstanding shares, Jim Simons (Trades, Portfolio)’ Renaissance Technologies is the largest guru shareholder of Dice. Paul Tudor Jones (Trades, Portfolio) also owns the stock.
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
