Eli Lilly (NYSE: LLY) announced their acquisition of Scorpion Therapeutics for $2.5bn on the 13th of January 2025. Under the terms of the agreement, $2.5bn will be paid in cash and is comprised of an upfront payment as well as subsequent payments dependent on Scorpion Therapeutics meeting performance targets. This contractual provision is known as an earnout clause and is usually aimed at bridging valuation gaps between the two parties in a deal. With this clause in place, Eli Lilly’s upfront risk is reduced as part of the total payment is deferred. Morgan Stanley and Centerview Partners are serving Scorpion Therapeutics as financial advisors while Citigroup are advising Eli Lilly on this deal.
Scorpion Therapeutics is a private biotechnology company which specialises in the development of small molecule precision oncology therapies. Their in-house expertise in cancer treatment will deepen Eli Lilly’s offerings in the oncology space post-closing of the acquisition. Specifically, it was the development of STX-478, an oral molecule which selectively targets kinase-domain tumors, that generated interest from Eli Lilly. Despite still being in its clinical trial phases, STX-478 could revolutionise the PI3K drug class as the oral molecule can selectively target cancerous cell pathways while avoiding healthy ones, eliminating a major shortfall in current drugs that target the PI3K pathway. Jacob Van Naarden, the Executive Vice President and President of Lilly Oncology, has stated that “the selectivity profile of STX-478 has led to a differentiated clinical profile” and when used in combination with standard-of-care therapies, will lead to “[improved] outcomes for patients.” Given Eli Lilly’s exceptional capabilities, the global company aims to leverage its resources to accelerate Scorpion Therapeutics’ development of STX-478.
The market for PI3K inhibitors is poised for steady growth, with an estimated CAGR of 6.06% between 2024 and 2032. These drugs play a crucial role in cancer treatment, particularly for hematological malignancies, by targeting the PI3K signaling pathway to disrupt cancer cell growth. However, the class is associated with significant side effects, including infections, diarrhea, liver toxicity, skin complications, and lung inflammation. Market growth is driven by rising cancer rates, advancements in R&D, and strong industry partnerships accelerating drug development. However, drug resistance and the lack of validated biomarkers remain key hurdles. The industry is actively exploring combination therapies, novel drug designs, and biomarker-driven precision medicine to improve efficacy and minimize side effects.
While the deal at hand represents Eli Lilly expanding their presence in the PI3K market, it is actually not their first attempt at doing so. In 2019, Eli Lilly acquired Loxo Oncology for $8bn and worked on a PI3K class drug classed LOXO-783. However, development was discontinued after determining that it would not be competitive against rivals. Interestingly, Loxo was co-founded by Keith Flaherty, who set up Scorpion Therapeutics.
Upon closing of the acquisition, a new entity will also be spun out for employees not involved in the PI3K pipeline. This independent company will be owned by Scorpion Shareholders while Eli Lilly will have a minority stake. This strategic move allows Eli Lilly to integrate PI3K assets while enabling Scorpion Therapeutics’ remaining team to continue working on other oncology areas. As the demand for targeted cancer therapies rises, this acquisition reinforces Eli Lilly’s commitment to expanding its oncology portfolio and maintaining a competitive edge in precision medicine.
Written by: Ethan Lok
Sources: MergerLinks, Eli Lilly, Econ Market Research, Pharma Phorum
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