Lilly rules out big merger, makes new deal-WEB ONLY

CEO John Lechleiter is ruling out Eli Lilly and Co.’s participation in
the drug industry’s recent round of mega-mergers, the Financial Times
reported today.

At the same time, the Indianapolis-based company isn’t stepping back
from collaborations. It announced its most recent today: a heart-drug
development deal with Mumbai, India-based Cadila Healthcare Ltd.

Lechleiter specifically ruled out a combination between Lilly and
fellow pharmaceutical behemoth New York-based Bristol-Myers Squibb Co.
– a deal many financial publications have mentioned as a possibility.
Bristol-Myers is run by former Lilly executive Jim Cornelius.

“I think we are seeing deals that are really driven more by weakness
than what I would describe as strong strategic combinations,”
Lechleiter told the Financial Times. He added, “That will improve
short-term problems, but fail to answer the long-term question of
research productivity.”

Facing a drop-off in revenue and profits when their blockbusters lose
patent protection in a couple years, such companies as Pfizer Inc. and
Wyeth have announced mergers recently, as have Merck & Co. Inc. and
Schering-Plough Corp. Also, Switzerland-based Roche Group agreed to buy
the minority stake of biotech giant Genentech Inc. it doesn’t already
own.

Pharmaceutical companies, including Lilly, have suffered numerous
setbacks in innovation as they have tried to develop a new generation
of drugs. But Lechleiter has been focused on making research and
development work, in spite of some critics who say he’s doubling down
on a failed strategy.

“Most of what I have read about large mergers is that they are very
disruptive to research and development,” Lechleiter told the Financial
Times.

Nevertheless, Lilly continues to invest more in its pipeline. Its
development deal with Cadila Healthcare calls for the companies to
collaborate on heart drugs, with Lilly paying as much as $300 million
as Cadila reaches certain development milestones. Cadila could also
earn royalties on any drugs that reach market.

Lilly has signed similar deals with four other Indian companies, including one with Jubilant Organosys last year.

“We wonder how [Lilly] regains its R&D momentum,” wrote health care
analyst Les Funtleyder in a note to investors. “This morning’s deal
with Cadila, which is very similar to the deal [it] signed with
Jubilant suggests one possible path.”