Eli Lilly has agreed to acquire dermatology drug developer Dermira and its late-stage atopic dermatitis drug for $1.1 billion.
Lilly (NYSE: LLY) will pay $18.75 per share, a 2.2 percent premium over Dermira’s closing stock price on Thursday. But the deal price represents an 86 percent premium over the average price of Dermira shares over the past 60 days. And shares of Dermira had more than doubled last March after the Menlo Park, CA, firm released positive Phase 2b data for lebrikizumab, a drug viewed as a potential competitor to an atopic dermatitis drug sold by partners Regeneron Pharmaceuticals (NASDAQ: REGN) and Sanofi (NYSE: SNY) that is on its way to blockbuster status.
Shares of Dermira (NASDAQ: DERM) jumped nearly 4.5 percent in pre-market trading Friday.
Atopic dermatitis is the most common and severe form of eczema, an inflammatory skin condition that causes rashes, redness, and chronic itching. The disease affects an estimated 16.5 million US adults, 40 percent of which have the moderate-to-severe form, according to the Asthma and Allergy Foundation of America. That’s the big market Lilly hopes to address with Dermira’s drug.
Treatment for atopic dermatitis include creams and lotions to treat dryness, and topical steroids to reduce inflammation and itching. Regeneron developed its drug dupilumab (Dupixent) to address the underlying cause of those symptoms. The antibody drug, which was approved in 2017, binds to interleukin-4, a protein that causes inflammation. In 2018, its first full year on the market, the drug accounted for $922 million in revenue.
Dermira’s lebrikizumab drug binds to a different protein called interleukin-13. The drug is currently is currently in Phase 3 testing for moderate-to-severe atopic dermatitis in patients age 12 and older. Dermira acquired the rights to the drug from Roche, just a few months after Regeneron won approval for dupilumab. According to terms of that licensing deal, Dermira must pay Roche milestone payments tied to developmental progress of the drug, plus royalties from sales if it reaches the market.
The Dermira acquisition allows Lilly to expand its scope in immunology. The company’s portfolio includes rheumatoid arthritis drug baricitinib (Olumiant) and ixekizumab, a drug approved for plaque psoriasis and psoriatic arthritis. The deal also brings Lilly a commercialized product for excessive underarm sweating. Glycopyrronium (Qbrexza) won FDA approval in 2018. Applied to the skin, the medicated cloth was developed to inhibit sweat gland activation. Dermira reported $20.7 million in sales for that product in the nine-month period ending Sept. 30, 2019.
Lilly expects to close the Dermira acquisition by the end of the first quarter of this year. Dermira’s board has already approved the deal but if for any reason the company pulls out of the agreement, it would owe Lilly a $40 million termination fee, according to securities filings.