ICOS Corp., which through a successful joint venture with Eli Lilly and Co. commercialized the erectile dysfunction product Cialis, agreed to be acquired by Lilly in a deal valued at about $2.1 billion.

Shareholders stand to receive $32 cash for each share of ICOS stock, an 18 percent premium over Monday's closing price. In return, Lilly will hold all rights to PDE5 inhibitor Cialis (tadalafil), which pulled in worldwide sales of $233.2 million in the second quarter, as well as rights to tadalafil in pulmonary arterial hypertension and benign prostatic hyperplasia.

The deal, which is expected to close around year-end pending approval by ICOS stockholders, is one that "was so obvious that people doubted whether it would happen," said analyst Christopher Raymond, of Chicago-based Robert Baird & Co., who likened the transaction to Amgen Inc.'s buyout of Fremont, Calif.-based Abgenix Inc. for about $2.2 billion earlier this year.

That acquisition, which closed in April, provided Amgen, of Thousand Oaks, Calif., full rights to panitumumab, now Vectibix, which the companies developed together. Vectibix recently gained approval in colorectal cancer. (See BioWorld Today, Dec. 15, 2005.)

"It makes perfect sense," Raymond said of the ICOS and Lilly agreement, especially since Lilly already is "doing much of the heavy lifting in terms of the commercial management" of Cialis.

News of the deal got the attention of Wall Street. ICOS' stock (NASDAQ:ICOS) was trading at 17 times the usual volume Monday. Shares gained $4.38, or 16.2 percent, to close at $31.50.

The companies first signed the Lilly ICOS LLC joint venture in October 1998 to develop and market ICOS' drug candidate in a 50-50 cost and profit arrangement. Cialis, which gained FDA approval in 2003, posted second-quarter worldwide sales of $233.2 million, which translated into a net income of $75.8 million for the joint venture.

According to IMS Health, Cialis has about 26 percent of the U.S. market for erectile dysfunction, and about 36 percent of the aggregate market in Europe, Canada and Mexico. Worldwide sales are expected to exceed $1 billion in 2007.

With that in mind, Lilly's 18 percent premium offer seems pretty low. But outside of Cialis, no other successful candidates have emerged from ICOS' pipeline.

"One of the big knocks on ICOS is that it's been spending at a rate of close to $100 million a year in R&D with absolutely nothing to show for it," Raymond said, citing "several fairly high-profile clinical failures."

Over the years, ICOS has dropped work on several products. In 2000, it ended the LeukArrest program, which failed in hemorrhagic shock and myocardial infarction, and in 2002, ICOS stopped work on Pafase, a sepsis drug it had been developing in a joint venture with Japan-based Suntory Ltd. And Cambridge, Mass.-based Biogen Idec Inc. returned rights to ICOS' leukocyte function-associated antigen-1 antagonist in 2003 following disappointing data in a Phase IIa trial in psoriasis.

Tadalafil, the active ingredient in Cialis, is in development in PAH and BPH, but could face serious competition in those indications, particularly in PAH, for which New York-based Pfizer Inc.'s Revatio is approved. Revatio is a PDE5 inhibitor based on the same active ingredient as Viagra (sildenafil).

In the BPH space, tadalafil's biggest potential competitor was Redwood City, Calif.-based Threshold Pharmaceuticals Inc.'s TH-070, but that drug was dropped following misses in Phase II and Phase III. (See BioWorld Today, July 18, 2006.)

Beyond tadalafil, the rest of ICOS' pipeline is in the preclinical stage and is "measurably behind schedule," Raymond said, despite promises over the last two years to enter the clinic with two candidates: a compound targeting the cell-cycle checkpoint in cancer and a compound targeting the cell-adhesion molecule LFA-1 in psoriasis.

ICOS reported a net income of $6.1 million, or 9 cents per share, for the second quarter. As of June 30, it had a cash position of $179.8 million.