Eli Lilly Is Acquiring Merdia Biosciences for Up to $2.88 Billion. Here's What That Means for Investors.

Eli Lilly (NYSE:LLY) announced yet another acquisition on Monday. The American pharmaceutical giant has signed a deal to acquire privately held, clinical-stage biotech Merida for nearly $3 billion.

That's a lot of scratch, even for a powerhouse operator like Lilly. Here's what shareholders and other Lilly watchers need to know about the company's new asset-to-be.

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The latest multi-billion-dollar buy

That morning, Lilly announced it was acquiring Merida in an all-cash transaction that could see it pay nearly $2.88 billion. This comprises an upfront payment plus milestone payments that kick in if certain operational and regulatory goals are met. Lilly did not specify these milestones, nor did it place a number on that upfront payment.

Merida has developed a novel approach to treating autoimmune and allergic disorders. In contrast to medicines that use methods such as immunosuppression, Merida's are highly targeted medications that identify and eliminate pathogenic (i.e., disease-causing) autoantibodies.

Currently, the company is developing a trio of drugs targeting three distinct autoantibodies. Two of the three are in pre-clinical stages of development, while the other, MER511, is currently in an ongoing Phase 1 clinical trial for the treatment of Graves' disease (a thyroid affliction) and thyroid eye disease.

Lilly quoted its senior vice president of immunology research and early clinical development, Francisco Ramírez-Valle, as saying, "We're building our pipeline around therapies that meaningfully change the course of disease, not just its downstream effects."

"We see potential to apply this precision approach across a broad range of antibody-driven diseases, and we look forward to advancing this novel technology working with the Merida team," he added.

More capital for acquisitions

Lilly said it expects the Merida deal to close in the fourth quarter of this year. It is subject to approval from the relevant regulatory bodies. Lilly wrote in its press release trumpeting the acquisition that Merida will be incorporated into its financial results and guidance after it officially becomes part of the pharmaceutical giant.

Lilly has been on quite a tear recently to bulk up with acquisitions, and Merida isn't the first multi-billion-dollar item on this spree. These buys have spanned a wide range of therapeutic areas, such as oncology and immunology, demonstrating a "make hay while the sun shines" approach.

The company wasn't the first to market with Food and Drug Administration (FDA)-approved weight loss drugs, but it became the monster in the segment very quickly. In the second quarter, its two tirzepatide-based drugs -- Mounjaro, indicated for type 2 diabetes, and the more recently approved Zepbound, indicated for obesity -- saw combined revenue growth of 73% year over year to almost $14.9 billion.

Foundayo, another weight-loss treatment administered as a once-a-day pill and using a different molecule (orforglipron), racked up sales of $98 million in the quarter. That sounds comparatively modest until we consider that sales of the recently FDA-approved Foundayo only began during the quarter.

Despite those impressive growth figures for the tirzepatide twins, it's telling that they weren't the be-all and end-all of Lilly's business. Together, they contributed under 65% to the company's total revenue of $23 billion for the period. Other drugs in far different therapeutic areas, such as cancer treatment Jaypirca and the eczema-indicated Ebglyss, also posted significant sales gains.

1 trillion reasons to consider the stock

With that kind of performance, combined with increasing prominence even among the public (thanks largely to Zepbound), Lilly recently became the first pharmaceutical company to hit $1 trillion -- yes, that's trillion with a "t" -- in market cap. So it's not exactly an undiscovered sleeper stock.

Yet I'd share the outlook that many analysts have about the company. Like them, I think its stock has much more room to run. The white-hot popularity of obesity drugs alone should keep driving revenue and profitability higher, and the company is buttressed by a wide, deep portfolio with an impressive range. We can say the same for its pipeline program, which has numerous medications in late-stage development.

Collectively, those analysts are modeling more than 35% revenue growth this year over 2025, a remarkably high figure for such a massive and well-established pharmaceutical company. Better, their consensus estimate for annual per-share profitability is $36.71, which, if achieved, would be 51% higher than last year's result.

To be sure, Lilly looks expensive on valuations. Its forward P/E tips the scales at over 32, so there's not much room here for the company to make a mistake that drains investor sentiment. Yet I think it can easily recover from a misstep or several, given the great strength in weight loss, combined with the impressively varied portfolio and muscular development program, the latter two of which are constantly being bolstered by those acquisitions.

I think this stock remains not only a buy, but a top pick in the broader healthcare sector.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool has a disclosure policy.