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Dermira’s Stock Price Keeps Rising Despite Eli Lilly Deal - Barron's

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Eli Lilly says the price is fair. Photograph by Daniel Acker/Bloomberg

Hours after the pharmaceutical giant Eli Lilly announced a $1.1 billion all-cash deal to buy the small biotech Dermira, investors seem to be counting on something better coming along. But a Lilly executive says that their offer was fair.

Dermira (ticker: DERM) closed at $19.16 on Friday afternoon, 2.1% above the $18.75 per share that Lilly said in the morning it had agreed to pay for the company.

“I think they believe this was too low of a price,” Cantor Fitzgerald analyst Louise Chen said of investors she had been in touch with over the course of the day. “I think they’re trying to hold for something a little bit more than what it is.”

Chen said that the investors she was speaking with were looking for a price of between $1.5 billion and $2 billion for Dermira. Yet Lilly stood by the offer.

In an interview on Friday afternoon, Lilly senior vice president Patrik Jonsson, president of Lilly Bio-Medicines, said that the price was fair.

“We have done a very thorough assessment of Dermira, and we really believe that the price is really representing both a fair and full value of Dermira,” he said. “If you look at the 60 day volume-weighted average stock price, our price represents almost a 90% premium.”

The interest in Dermira is driven by the company’s prize asset, a promising drug called lebrikizumab, which is in a Phase 3 clinical trials for atopic dermatitis, a kind of eczema. The drug is part of a hot class of monoclonal antibody drugs called interleukin inhibitors. A similar drug, Regeneron (REGN) and Sanofi’s (SNY) Dupixent, is on its way to mega-blockbuster status. Sanofi CEO Paul Hudson has said annual sales could hit more than $11.1 billion.

Chen said that, for big pharma companies looking to buy a drug like Dermira’s, there aren’t many options in late-stage clinical development. And Dermira’s lebrikizumab has a chance to be the best of the bunch.

“You’ve seen their competitors put out data,” Chen said. “There’s enough to show that Dermira’s product could be best in class, and I think that was really important here.”

Lilly’s Jonsson said that his company sees significant unmet need in atopic dermatitis. “If we can find an asset that really could improve the experience people have in terms of itching, we could have a significant impact on sleep disturbance” and quality of life, he said.

Jonsson said that he thinks lebrikizumab could beat out its competitors. “The driver of this has been lebrikizumab,” he said of the deal. “We believe it has the potential to be a best in class medicine.”

Jonsson declined to comment on whether Dermira had had other bidders. He wouldn’t speculate on whether other suitors might still show up.

Chen said that one logical potential buyer of Dermira could be Pfizer (PFE). In a note Friday, she wrote that among the large-cap companies she covers, Pfizer is the only one that hasn’t bought an interleukin inhibitor in atopic dermatitis, or could be interested in such a drug. Chen said that investors had been discussing other theoretical bidders, but that they are outside of her coverage universe.

Chen herself says that the price Lilly agreed to pay for Dermira didn’t seem unreasonably low to her. “I didn’t think, ‘Oh my gosh, this is so cheap,’ when I saw the deal,” Chen said. “I thought this was a good deal… Did I think this was a grossly undervalued deal? No.”

Write to Josh Nathan-Kazis at [email protected]


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