Lilly Looks At Partner Options For PCS

Eli Lilly is considering the possibility of bringing in one or more partners to take a stake in PCS Health Systems, which it is acquiring from McKesson (Marketletter July 18). Company chairman Randall Tobias told a meeting of US analysts that it will consider the option of bringing in more stakeholders. This comes as concerns have been raised since Lilly revealed its intention to acquire PCS over the amount of debt Lilly will take on by doing so.

Should Lilly take in partners, it would offload some of the goodwill and reduce some of Lilly's investment, thereby reducing the company's dilution. It would also allow Lilly to take in some cash to pay down debts, reducing dilution further, Bob Hodgson of US broker Cowen & Co told the Marketletter last week.

Mr Hodgson is remaining neutral on Lilly after the analysts' meeting, having already downgraded the stock from buy to neutral at the time of the PCS announcement. He said that Lilly certainly made a compelling long-term case for the benefits of disease management and the way that PCS could assist Lilly in that strategy, and noted that the company presented figures that seemed to indicate that they could overcome the dilution by the end of 1996. He said that, long-term, the deal makes sense but the key is execution. He added that if there is evidence that Lilly products are stepping up sales through PCS or if Lilly takes in an equity partner, he would take another look at the figures, although he doubts that there will be any step-up immediately.