MALVERN, Pa. -- Centocor Inc. officials said they've found thesolution to the company's problems in a $125 million infusionlinked to a marketing collaboration with Eli Lilly & Co. that wasannounced Thursday.

As part of the agreement, Lilly will pour $50 million intoCentocor, primarily to pay for additional clinical trials andother costs related to seeking marketing approval for HA-IA/Centoxin. Centocor's lead compound is a monoclonalantibody-based treatment for gram-negative sepsis that theFDA last April said would require more Phase III clinical study.

Lilly also agreed to pay $25 million for an option to set up asimilar joint marketing deal involving Centocor's CentoRx, acardiovascular agent that's still in development. The final pieceof the $125 million infusion has Lilly investing $50 million toacquire slightly less than 5 percent of Centocor's nearly 40million shares outstanding.

The stock purchase held appeal for Centocor, whose co-founderand chairman said last May that the company was prepared torelinquish its independence in a merger or buy-out that wouldensure Centocor's survival. A few investment analysts thenpredicted that the company would be sold off in pieces,doubting that any buyer would find the whole companyattractive.

So Lilly's willingness to pay $25 a share for stock that has attimes since April closed below $12 could provide at leastlukewarm comfort to some Centocor investors.

The company's stock (NASDAQ:CNTO), which plummeted from$31.25 a share to $11.25 in the week following the FDA'sdecision, on Thursday rose $1.75 a share to close at $16.25. Ithas topped $60 a share during the past 52 weeks. At least oneanalyst on Thursday suggested that the Lilly deal should propup Centocor's stock price, which recently has been under heavypressure from short-sellers, who had figured Centocor had stillfurther to fall.

Lilly's shares (NYSE:LLY) closed Thursday at $66.50 a share,down 13 cents.

"This is a wonderful deal," said Michael Wall, a Centocor co-founder, former chairman and now member of its executivecommittee. "We've made a very attractive deal with a leader inthe anti-infective market." It was seen as an ideal match byCentocor, bringing together Lilly's strength in antibiotics withCentocor's complementary efforts to develop gram-negativesepsis products.

"Lilly's proven global strengths in marketing and sales will be atremendous asset in bringing HA-1A to market," Hubert J.P.Schoemaker, Centocor's chairman and chief executive officer,said in a release.

Some investment analysts concur with that view.

"I can't think of a better way out for Centocor," said Jeffrey W.Casdin, an analyst with Oppenheimer & Co. in New York. "Bothhere and in Europe, Centoxin has become somewhat of atarnished product in the medical world," he said. "It required awhite knight like Lilly to polish its image."

Casdin said the $25-per-share price that Lilly agreed to pay forCentocor stock was not unreasonably high. Casdin estimatesCentocor's high-end value at within $5 to either side of $20 pershare.

Under the agreement, Lilly and Centocor are to share exclusive,worldwide sales and marketing rights for Centoxin. "Lilly willbe our only sales and marketing partner anywhere exceptJapan and Spain, where we already have arrangements inplace," Wall said.

Some of the finer details of the deal have yet to be worked out,but Wall said that Centocor is expected to remain in charge ofclinical development and manufacturing of Centoxin, while Lillyfocuses on the marketing. Under a cooperative agreement, bothcompanies will be responsible for product sales in Europe and,ultimately, in the United States, Wall said.

Jay B. Silverman, an analyst with Wertheim Schroder & Co. ofNew York, is pleased that the Lilly deal does appear to assureCentocor a future by delivering a lot of needed cash fast.

However, the most likely person "to like this deal is a nay-sayer about Centocor's products," or at least the two specificproducts, Centoxin and CentoRx, Silverman said. WhileSilverman has doubts about Centoxin, especially given its longexpected delay before the FDA, he ranks CentoRx as the topcontender on Centocor's proposed product lineup.

Although Centocor stays in charge of development andmanufacturing for Centoxin and possibly CentoRx, if Lilly takesits option, "the way you make money in the drug business is tosell drugs," he said.

However, Silverman believes that Centocor needed the cash.The company reported holding slightly more than $150 millionin cash on March 31 at the close of the first quarter, in which itposted a $45.8 million loss. It wrote off about $9 millioninventory connected to its stockpiling of raw materials foranticipated Centoxin production last spring.

However, Wall disputed the contention that Centocor wasdesperate for cash.

Centocor's sharp cost-cutting following the FDA's decision,coupled with expected rise in European product sales hasalready improved the company's financial outlook. "We expectto see a positive impact by the fourth quarter due to the cost-cutting we've done and the increased sales that we can lookforward to," he told BioWorld.

Wall declined to give an estimated completion date forCentoxin's second round of Phase III trials, but said thatfinding sufficient patients to treat in trials presents a problem.

About 5,500 patients will probably be needed for those trials,Silverman said.

Overall, Wall credits Centocor's return to company strategies ofearly days for putting the company back on track. "Becoming afully integrated pharmaceutical company ... meant having a lotof resources. Back in the 1980s, our strategy was to have a lotof collaborative partners, and that's our strategy now," Wallsaid.

-- Michelle Slade Associate Editor

(c) 1997 American Health Consultants. All rights reserved.

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