Eli Lilly (NYSE:LLY) announced today that it entered a definitive agreement to acquire biopharmaceutical company Sigilon.

Cambridge, Massachusetts-based Sigilon seeks to develop functional cures for patients with a range of acute and chronic diseases. The two companies have collaborated since 2018 to develop encapsulated cell therapies, including SIG-002. These therapies aim to treat type 1 diabetes.

Under the terms of the agreement, Lilly intends to commence a tender offer to acquire all outstanding Sigilon shares for $14.92 apiece. It totals an aggregate of approximately $34.6 million, payable at closing.

Lilly said the companies want to free patients from constant disease management. The therapies could sense blood glucose levels, restore insulin production and release over the long term.

Sigilon CEO Dr. Rogerio Vivaldi said the agreement “represents the culmination” of the work to advance SIG-002 at Lilly. He said Lilly, “the preeminent leader in the treatment of diabetes,” has the expertise to harness the full potential of the therapy.

“Despite significant advancement in treatment for people living with type 1 diabetes, many continue to live with a high disease burden every day,” said Ruth Gimeno, group VP, diabetes, obesity and cardiometabolic research at Lilly. “By combining Sigilon’s talent and expertise in cell therapy with the knowledge and skills of Lilly’s research and development teams, we will enhance opportunities to create innovative islet cell therapy solutions to improve the care of people living with diabetes.”

Further terms of the acquisition agreement

The deal also includes a non-tradeable contingent value right (CVR) per share. This entitles the holder to receive up to an additional $111.64 per share in cash. It reaches a total potential consideration of $126.56 per share in cash without interest. Lilly said that amounts to an aggregate of up to approximately $309.6 million, excluding shares it holds.

CVR holders remain entitled to receive a number of contingent payments:

• $4.06 per share in cash, upon first dosing of a specified product in the first human clinical trial.
• $26.39 per share in cash, upon first dosing of a specified product in the first human clinical trial for registration purposes.
• $81.19 per share in cash, upon receipt of the first regulatory approval of a specified product. There can be no assurance that any payments will be made with respect to the CVRs.

Lilly said the transaction is not subject to any financing condition. The company expects it to close in the third quarter of 2023, subject to customary closing conditions. Those conditions include Lilly owning a majority of the outstanding shares of Sigilon’s common stock following the tender offer.

After the tender offer successfully closes, Lilly plans to acquire any shares of Sigilon it does not already own. This comes through a second-step merger at the same consideration as paid in the tender offer. Sigilon’s board of directors unanimously recommends that Sigilon’s stockholders tender their shares in the tender offer.

Lilly intends to determine the accounting treatment of this transaction as a business combination or an asset acquisition. This transaction will thereafter be reflected in Lilly’s financial results and financial guidance.