Eli Lilly will buy a genetic engineering startup. What signal does this send to investors?

Pharma giant Eli Lilly has agreed to buy biotech startup Verve Therapeutics for $1.3 billion - at a premium of about 67%. The deal will give Eli Lilly control of the gene therapy program for cardiovascular disease that it has been working on with Verve. The US maker of popular weight loss and diabetes drugs Zepbound and Mounjaro is looking to reduce its dependence on them and diversify its product portfolio. In addition, the deal could have a positive effect on the entire genetic engineering sector, analysts said.  

Eli Lilly, the world's largest pharmaceutical company by market value, announced the purchase of biotech startup Verve Therapeutics, which develops gene technologies to fight cardiovascular disease.

The deal could reach $1.3 billion. Eli Lilly will buy all outstanding Verve shares at $10.5 apiece (67.5% above their closing price on June 16) - that's about $1 billion. The remaining $300 million ($3 per share) will be paid if Verve achieves certain results during clinical trials of its drugs. The deal is expected to close in the third quarter of this year.

The purchase will give Eli Lilly full control of a program it already partially funded under a partnership agreement with Verve, notes Bloomberg. The companies are working together to develop an experimental gene therapy aimed at lowering levels of lipoprotein(a), a key risk factor for atherosclerotic plaque formation, starting in 2023. The therapy could be the world's first in vivo gene-editing method intended for mass-scale use, said Lilly's vice president of research and development for diabetes and metabolism, Ruth Himeno. 

Eli Lilly's core revenue comes from its flagship overweight product Zepbound, a competitor to Wegovy from Danish company Novo Nordisk, Bloomberg notes. Eli Lilly's patent on Zepbound expires in 10 years, but the company is already diversifying its portfolio and taking advantage of the time to invest in promising but still far from commercial launch, Bloomberg added. For example, in January, Eli Lilly agreed to pay up to $2.5 billion in cash for an oncology drug being developed by Scorpion Therapeutics, and in May agreed to pay up to $1 billion for acquiring SiteOne Therapeutics, a biotech company developing painkillers.

The acquisition of Verve Therapeutics looks logical given the companies' existing collaboration in a number of programs, as well as recent encouraging clinical results, accounts BMO Capital Markets analyst Kostas Biliouris. The deal could also have a positive effect on the entire gene editing sector, he said.

«The purchase of Verve could send a strong signal to investors that the pharmaceutical sector is ready to enter the gene editing market not only through partnerships but also through direct acquisitions - and that gene therapy is becoming commercially viable,» said Biliouris, who was quoted by Barron's.

On news of the purchase, Verve shares soared by 77% to $11.1 apiece in trading on June 17.

The value of Eli Lilly securities at trading on Tuesday was almost unchanged. Since the beginning of the year, the market value of the company has grown by 4.6%. By comparison, the main U.S. stock index S&P 500 for the same period added about 2.6%.

According to data from MarketWatch, the vast majority of analysts - 25 out of 31 - advise investors to buy Eli Lilly securities (Buy Overweight estimates). Another three are neutral and advise holding (Hold), and only two suggest selling (Underweight and Sell). The Wall Street consensus price target is $987.2 per share, up 20% from the closing price on June 16.