Eli Lilly and Co. announced Wednesday that it will incur afourth-quarter 1992 special charge to write off expensesrelated to the company's investment in Centocor Inc. and itssepsis product, HA-1A. The charge will reduce the Indianapoliscompany's (NYSE:LLY) after-tax earnings per share by ninecents to 11 cents.
The charge accounts for known costs and losses in connectionwith the suspension of clinical trials of HA-1A in the U.S. andsuspension of sales of the product overseas. It also includes thewrite-down to market value of the company's investment inCentocor common stock (NASDAQ:CNTO).
Last July, Lilly invested $100 million in Centocor, $50 millionworth of equity (2 million shares of Centocor stock at $25 ashare) and $50 million to fund clinical trials of HA-1A.Centocor's stock closed Wednesday at $6.63 a share, up 88cents.
The Lilly-Centocor agreement stipulated that if HA-1A was notapproved in the U.S. by the end of 1993, Lilly would receiverights to Centocor's cardiovascular drug, CentoRx, at no furthercost.
"This write-down is not a big deal for a company that has apretax income of roughly $2.2 billion," said D. Larry Smith,senior pharmaceutical analyst at Hambrecht & Quist Inc. inNew York. "With earnings per share of $4.90, a dime is a smallimpact."
Patricia Padgett Lea, an analyst at Vector SecuritiesInternational in Deerfield, Ill., said Lilly's action demonstratesthat they "are writing HA-1A off the books, putting it behindthem and moving on.
"Lilly has been aggressive in pursuing alliances with thebiotechnology sector. Some have yielded products and somehaven't," she said. "When all is said and done, they'll getCentoRx out of this alliance for far less ($100 million total) thanthey would have paid to develop it themselves. Typically,developing a new drug would cost them $225 to $250 million."
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