Dive Insight:

While big pharmas like Novartis, Roche, Pfizer and Johnson & Johnson struck deals in recent years to kickstart their gene therapy research, Lilly largely stayed on the sidelines.

That appears to be changing, however. Lilly executives told investors the comapny was interested in more gene therapy acquisitions — perhaps hoping to fulfill its early 2020 promise to make several deals in the $1 billion to $5 billion range this year. And now, following a small licensing deal focused on gene editing, the drugmaker has made its biggest gene therapy gamble to date by acquiring Prevail.

“It looks like a good entry point,” Lilly CEO David Ricks said in a call with analysts today. “I wouldn’t expect this to be our last effort in gene therapy, rather our first.”

Prevail launched in 2017 after in-licensing gene therapy technology from Regenxbio. It’s helmed by Columbia University professor Asa Abeliovich, a researcher specializing in the molecular mechanisms of Parkinson’s. The company has launched clinical trials of two gene therapies, PR001 and PR006, for genetically driven Parkinson’s and frontotemporal dementia, respectively.

Lilly’s neurology pipeline is almost exclusively devoted to Alzheimer’s disease and dementia, so PR006 fits well with mid-stage assets like donanemab and zagotenemab, biologic drugs that bind to proteins implicated in Alzheimer’s related neurodegeneration.

PR006 seeks to correct a mutation that reduces levels of a protein called progranulin, which has a role in protecting and promoting growth in nerve cells. PR001, meawhile, is aimed at a mutation that may spur buildup of a protein that impedes nervous system functions in Parkinson’s disease. Both programs are in early-stage testing.

The $160 million payout in the deal comes in the form of a non-tradeable contingent value right worth up to $4 a share if a product achieves regulatory approval in the U.S., Japan or several European countries by Dec. 31, 2024. The value of the CVR will decline by 8 cents a share per month until it expires Dec. 1, 2028.

Wall Street analysts viewed the acquistion positively. “The Prevail deal checks the boxes for what Lilly was looking for, and we believe makes strategic sense at a reasonable price,” Mizuho analyst Vamil Divan wrote in a Dec. 15 note to clients.

Piper analyst Christopher Raymond noted the deal indicates that interest in gene therapy “hasn’t waned” despite the surprise rejection of BioMarin’s hemophilia treatment and a spate of manufacturing-related delays.

Lilly also updated its financial guidance Tuesday, lifting its 2020 revenue estimate from a range of $23.7 to $24.2 billion to a range of $24.2 to $24.7 billion. The U.S. government has spent $1.2 billion to buy a supply of the COVID-19 antibody drug bamlanivimab, boosting its revenue estimate, Lilly said.

The pharma now expects reported per-share earnings to come in 8 cents higher.

For 2021, Lilly forecast revenue of between $26.5 to $28 billion, and reported per-share earnings of $7.25 to $7.90.

Prevail shares, meanwhile, closed at $12.50 apiece before the deal was announced. They traded at $22.85 early Tuesday.