Eli Lilly to Acquire Small Biotech

Eli Lilly

(LLY) - Get Report

on Friday said it will acquire

Applied Molecular Evolution

(AMEV)

for $400 million, or $18 a share, in cash and stock.

Lilly is paying a 53% premium, based on Applied Molecular Evolution's closing share price Thursday. Applied Molecular shares surged $5.93, or 50%, to $17.69 on the news. Lilly shares fell $1.31, or 1.8%, to $70.23, off their recent 52-week high.

"We are confident that the synergies this merger creates will accelerate our ability to discover and optimize biotherapeutic drugs for cancer, inflammatory diseases, and critical care, as well as diabetes and obesity," Lilly said in a statement.

Applied Molecular Evolution is an unprofitable biotech firm based in San Diego. It lost $17.4 million, or 82 cents a share, on revenue of $7.9 million in 2002. In the first half of 2003, it lost $14 million, or 62 cents a share, on sales of $6.1 million. The Thomson First Call census is for a loss of 22 cents a share in the current quarter, ending in December.

Lilly's profits have dropped in the past two years and are expected to fall again in 2003.

Indianapolis-based Lilly said the deal will close sometime in the first quarter of 2004 and result in a "significant one-time charge."