This deal could be Exhibit A in the boomerang hall of fame.
Step one: Discover a promising oncology compound.
Step two: Sell the compound to an outside investment group.
Step three: Buy back the very same compound—and the start-up company set up to develop it—two years later in a transaction costing up to $575 million.
That’s the essence of a deal announced Monday by Eli Lilly and Co., which has agreed to acquire Montreal-based AurKa Pharma Inc. and its lead oncology compound, AK-01.
Indianapolis-based Lilly touted the deal as a way to expand its oncology pipeline. The drugmaker is aggressively buying assets to beef up its pipeline in a strategy announced earlier this year by CEO David Ricks.
Just last week, Lilly announced another big oncology deal: $1.6 billion in cash to buy a publicly traded California company, ARMO BioSciences Inc., which has a compound in in late-stage clinical trials to treat pancreatic cancer.
Now, with the acquisition of AurKa Pharma, Lilly is showing it is serious about pushing hard into the oncology M&A arena.
The compound in question, AK-01, was discovered at Lilly, but the Indianapolis-based drugmaker sold it for an undisclosed amount “after a review of its clinical pipeline priorities” to TVM Capital Life Sciences in 2016. TVM then established AurKa Pharma Inc. to develop the compound.
AK-01 works by inhibiting an enzyme known as Aurora kinase, which play a crucial role in cellular division, and are thus popular cancer targets. AurKa Pharma is studying the compound in early-stage clinical trials for multiple types of solid tumors.
Under the terms of the agreement, Lilly will acquire all shares of AurKa Pharma for an upfront payment of $110 million. Lilly will also pay up to $465 million in regulatory and sales milestones should AK-01 gain approval in the U.S. and other markets, and achieve certain sales levels.
Even though Lilly might pay more than a half-billion dollars to reacquire a compound it discovered in-house, the company struck a positive note in announcing the deal.
“We are excited with the value TVM created for this compound through its early-phase studies, and we look forward to more opportunities in the future,” said Darren Carroll, senior vice president of corporate business development at Lilly.
Lilly Oncology’s senior vice president for medical affairs, Dr. Levi Garraway, sounded a cautionary note, pointing out the compound still needs much more testing.
“The work done by AurKa will allow Lilly to leverage emerging data about cancers in which this molecule might be effective,” Dr. Garraway said, “and determine if it can be beneficial to people living with various forms of cancer.”
TVM Capital Life Science is a group of independent investment advisers and fund managers for venture capital funds, with teams in Germany and Canada. Since 1984, it has invested in more than 140 life science companies, currently managing more than $1 billion from more than 50 investors.
Lilly said the transaction will not cause any changes to its 2018 non-GAAP earnings-per-share guidance.