Eli Lilly Energizes BioMS. Why Not Just Buy It?

Eli Lilly (LLY) has acquired the exclusive rights to compound MBP8298 from BioMS (TSX.MS) Press releases and media articles indicate that "BioMS Medical will receive an upfront payment of $87 million, as well as potential development and sales milestones up to $410 million and escalating royalties on sales commensurate with the current stage of development of the product if MBP8298 is successfully commercialized. BioMS Medical will continue to oversee the current clinical trials. Other terms of the deal were not disclosed."

Eli Lilly has a market cap of say $61 Billion, with cash and short term of approximately $3.6 Billion. So we figure the cheque is going to clear. BioMS has a market cap of $367 million (approximately)

Given the recent good news from regulators there seems to be promise with the compound MBP8298. So who is really winning with the financial conditions and why where other terms of the deal not disclosed?

At this price point Eli Lilly can just buy up the company. They now have a lock on the key product. From Eli's point of view just acquiring the company may be cheaper in the long run. The question is when do we bite? If there are any hiccups in the approvals Eli may step in and readjust the deal and cut themselves a bigger slice of the pie. Then BioMS shareholders are the poorer.

Time will only tell but small cap shareholders need to be wary of mega cap deals. The small cap side of the table just played their best card and everyone is still not safely home.