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"Significant" job cuts will follow sale of Icos, region's biggest biotech
Seattle Times business reporter
Icos, the largest biotech company based in Washington and the creator of the blockbuster impotence drug Cialis, agreed today to be taken over by its longtime partner, Eli Lilly, for $2.1 billion.
The end of independence for Icos, founded with great fanfare in 1990, is expected to officially come later this year or early 2007, after clearance from regulators and Icos shareholders.
"We expect a significant number of jobs to be eliminated at Icos," Eli Lilly chief executive Sidney Taurel said in a conference call with analysts Tuesday morning, adding that the cuts will be made quickly in order to boost Lilly's profits by 2008.
Taurel would not say how deep the cuts will go at 700-employee Icos, but he made clear that his company is buying Icos to get its 50 percent stake in Cialis, and little else. "The main value at Icos is the value of the (Cialis) joint venture," Taurel said.
Icos shareholders, who saw their stock go as high as $65 a share five years ago, have suffered in recent years because of failures of product candidates other than Cialis, and slower-than-expected growth in the market for erectile dysfunction drugs. Icos shareholders will get $32 a share in cash from Lilly, an 18 percent premium over Monday's close.
Since 1998, Icos and Lilly have worked together in a 50-50 joint venture to develop and market Cialis. The drug was first approved in Europe in November 2002, and in the United States in November 2003.
Cialis reached $747 million in worldwide sales in 2005, and is expected to record $920 million to $950 million in sales this year. It has captured about 26 percent market share in the U.S. but is still a distant second to the original impotence drug, Viagra, according to IMS Health.
The buyout of Icos represents another body blow to a regional biotech industry that has struggled in recent years. The region's pioneering biotech company, Immunex, developed a successful rheumatoid arthritis drug in Enbrel, but in 2001 it agreed to be taken over by Amgen. Other Seattle biotech companies that developed successful products – including PathoGenesis and Rosetta – also ended up getting bought by larger companies and becoming branch operations.
Since the takeover of Immunex, other companies with big ambitions – Icos, Dendreon, Corixa and Cell Therapeutics – have been unable to fill the void.
With the elimination of Icos, the region now has just one biotech company with a market capitalization of more than $1 billion – ZymoGenetics.
In 2002, before Cialis was approved, Icos claimed it had one of the industry's strongest pipelines of drug molecules in development. All of those drugs either failed or were transferred to partners. Icos currently is testing Cialis for other potential uses, like enlarged prostate and pulmonary arterial hypertension, but it has no other drugs in human testing.
"This could have put Seattle on the map," said Charles Hill, a University of Washington business professor, and former Icos shareholder. "If Icos had made it, it would have made us a center for the industry. It's a huge loss for the region, and a huge missed opportunity."
Icos chief executive Paul Clark, a former Abbott Labs exec hired in 1999 to help the company become more commercially focused, countered in an interview that the company was a success. He said the company still beat the industry odds of success.
He pointed to the $2 billion price tag Lilly is paying as proof that Icos was able to create a "top-tier" biotech company. That price puts Icos among the top 15 most valuable biotech companies in the world, according to Bloomberg data.
For the region, Clark said, he understands the sale of Icos is a setback. But he said the fact that it grew up to be sold for $2 billion proves to investors that the region is a fertile place to build a company, and should encourage more startups. "This is a good success story," Clark said.
Clark would not give specifics about Lilly's plans for job cuts and cost savings, saying he doesn't know details yet.
The company, founded by biotech pioneers George Rathmann, Christopher Henney and Robert Nowinski, received $33 million in venture capital when it started in 1990 – the largest sum ever for a biotech startup at the time. Bill Gates was one of the original investors, and served on the board of directors until 2005. His investment firm is still one of the company's largest shareholders.
Luke Timmerman: 206-515-5644 or firstname.lastname@example.org
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