(Bloomberg) — Eli Lilly & Co. will spend nearly $400 million to partner with Foghorn Therapeutics Inc., a biotechnology company focused on genetic treatments for cancer.
Under the terms of the pact, Indianapolis-based Lilly will pay $300 million in cash up front and invest $80 million in Cambridge, Massachusetts-based Foghorn, according to a statement from the companies.
Lilly’s investment values Foghorn at $20 a share, a 67% premium relative to Friday’s close. The shares gained as much as 59% in trading Monday, the best intraday gain since their October 2020 initial public offering.
Shares of Lilly rose as much as 2.7% Monday and have gained 48% this year.
The pandemic hasn’t diminished big drugmakers’ appetite for potentially lucrative new cancer treatments. A number of industry giants are under pressure to replace aging blockbusters with innovative therapies that can compete in a crowded marketplace.
Lilly has made a targeted push to build out its portfolio of lucrative cancer products. In 2019, the company acquired Loxo Oncology for $8 billion — its biggest takeover ever. The company’s oncology unit accounts for more than one-fifth of its revenue, and it is continuing to grow.
Traffic Control
Foghorn, which doesn’t have any approved drugs, aims to make medicines that target the chromatin regulatory system that controls gene expression. Foghorn pitches its approach as gene traffic control, comparing the body’s chromatin regulatory system to coordinating where airplanes go and when.
Its shares had dropped 41% this year before the agreement with Lilly was announced.
Lilly will gain access to Foghorn’s program to attack an estimated 30 cancers with brahma-related gene 1 mutations and another undisclosed target. The companies also plan to work together on three discovery programs.
Lilly scoured the industry BRM inhibitors that block cancer-linked BRG1 mutations, said Lilly’s president of oncology Jacob Van Naarden. The company was convinced that selective inhibitors, which would avoid closely related gene family members, could provide effective treatment.
“Building one of these is incredibly hard,” Van Naarden said. “We looked all around and there’s a lot of people that purport to have these things and we were just really impressed by what we saw with the Foghorn team.”
Early Stage
The deal is the largest of the year for a program that isn’t yet in human trials, based on upfront payment, according to data from DealForma provided by Foghorn. Lilly can influence the molecule that moves forward, which was attractive to the drugmaker, Van Naarden said.
Lilly saw the clearest path to market with Foghorn’s selective BRM program but didn’t want to stop there, he said, resulting in the deal to collaborate on five programs.
Foghorn and Lilly’s partnership reflects a meeting of the minds on the science, Foghorn Chief Executive Officer Adrian Gottschalk said in an interview. Lilly brings expertise selling prescription drugs that Foghorn can tap into, he said.
“We’re just really excited to be partnering with them,” Gottschalk said.
It’s premature for Foghorn to entertain selling itself outright, he said. The company is running three early-stage trials for different types of cancer. Lilly decided partnering was the best approach to reap the benefits while letting Foghorn grow independently, Van Naarden said.
Lilly said the deal won’t result in a change to its 2021 earnings outlook.
(Updates with stock prices in second paragraph and comment from Lilly executive)
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