Lilly rules out big merger, makes new deal-WEB ONLY

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CEO John Lechleiter is ruling out Eli Lilly and Co.’s participation in the drug industry’s recent round of mega-mergers, the Financial Times reported today.

At the same time, the Indianapolis-based company isn’t stepping back from collaborations. It announced its most recent today: a heart-drug development deal with Mumbai, India-based Cadila Healthcare Ltd.

Lechleiter specifically ruled out a combination between Lilly and fellow pharmaceutical behemoth New York-based Bristol-Myers Squibb Co. – a deal many financial publications have mentioned as a possibility. Bristol-Myers is run by former Lilly executive Jim Cornelius.

“I think we are seeing deals that are really driven more by weakness than what I would describe as strong strategic combinations,” Lechleiter told the Financial Times. He added, “That will improve short-term problems, but fail to answer the long-term question of research productivity.”

Facing a drop-off in revenue and profits when their blockbusters lose patent protection in a couple years, such companies as Pfizer Inc. and Wyeth have announced mergers recently, as have Merck & Co. Inc. and Schering-Plough Corp. Also, Switzerland-based Roche Group agreed to buy the minority stake of biotech giant Genentech Inc. it doesn’t already own.

Pharmaceutical companies, including Lilly, have suffered numerous setbacks in innovation as they have tried to develop a new generation of drugs. But Lechleiter has been focused on making research and development work, in spite of some critics who say he’s doubling down on a failed strategy.

“Most of what I have read about large mergers is that they are very disruptive to research and development,” Lechleiter told the Financial Times.

Nevertheless, Lilly continues to invest more in its pipeline. Its development deal with Cadila Healthcare calls for the companies to collaborate on heart drugs, with Lilly paying as much as $300 million as Cadila reaches certain development milestones. Cadila could also earn royalties on any drugs that reach market.

Lilly has signed similar deals with four other Indian companies, including one with Jubilant Organosys last year.

“We wonder how [Lilly] regains its R&D momentum,” wrote health care analyst Les Funtleyder in a note to investors. “This morning’s deal with Cadila, which is very similar to the deal [it] signed with Jubilant suggests one possible path.”

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