Lilly to Buy Cialis Partner Icos

The $2.1 billion deal will give Lilly full ownership of the erectile-dysfunction drug.
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Updated from 8:33 a.m. EDT

Eli Lilly

(LLY) - Get Report

said Tuesday that it will take control of making and marketing the impotence drug Cialis by paying $2.1 billion for the Bothell, Wash., biotech company

Icos

(ICOS)

.

Lilly's takeover price of $32 a share represents an 18% premium over Icos' closing price Monday. After the announcement, Icos' stock jumped $4.53, or 16.7%, to $31.66, while Lilly slipped 30 cents to $57.36.

Cialis is the No. 2-selling impotence drug behind Viagra from

Pfizer

(PFE) - Get Report

. For the first six months of this year, Cialis produced worldwide sales of $456 million, up 34% from the same period last year. First-half sales for Viagra were $784 million, down 5% from a year ago.

Lilly and Icos have been partners since 1998 in a joint venture to make and sell Cialis.

"With full ownership of Cialis, we will be able to realize operational efficiencies in the further development, marketing and selling of this important product," said Sidney Taurel, chairman and CEO of Lilly. "We expect this acquisition will increase the company's earnings and earnings growth rate beginning in 2008 and, after a significant addition to sales in 2007, will modestly accelerate the company's sales growth rate thereafter."

The board of Icos approved the deal unanimously. Lilly, based in Indianapolis, expects to close the transaction later this year or early next year, subject to a vote by Icos shareholders and clearance by federal regulators.

When the deal closes, Lilly will take a one-time charge, but the company said "it is premature to estimate what that charge will be." Lilly expects the acquisition to be "modestly dilutive" to next year's earnings.

Aside from its treatment for erectile dysfunction, Cialis is being studied as a treatment for benign prostatic hyperplasia -- an enlargement of the prostate gland -- and pulmonary arterial hypertension, a rare and dangerous condition that causes high blood pressure in blood vessels leading from the heart to the lungs.

There are several PAH drugs on the market or in development. Pfizer's Revatio, which includes the same main ingredient in Viagra, is sold for PAH. Testing for Cialis as a PAH drug is now in final-stage clinical trials.

For benign prostatic hyperplasia, or BPH, testing is in the second stage of clinical trials. BPH, which often results in urination problems, is a common condition that affects men as they age. A number of BPH drugs are on the market, including offerings from Pfizer,

Merck

(MRK) - Get Report

,

GlaxoSmithKline

(GSK) - Get Report

and

Sanofi-Aventis

(SNY) - Get Report

. BPH also can be treated by surgery or less invasive treatments.