Eli Lilly and Co (NYSE:LLY) just announced that it is set to acquire junior biotech CoLucid Pharmaceuticals Inc (NASDAQ:CLCD) in a deal worth up to $960 million. The transaction is a pretty interesting one, given that the primary asset that Eli is set to acquire was initially discovered in the healthcare giant’s own labs. The company out licensed it to CoLucid a little over 10 years ago, back in 2005, and the latter has spent this time pushing the drug through the clinical development pathway, in the hope that – by the time it reached the stage it is currently at – it would draw big-name attention and pick up a partner. Instead of a partner, the company got a buyer, and has come full circle with the buyer being Eli.

CoLucid shareholders will likely be amicable to the transaction, with Eli set to cough up a more than 33% premium on the company’s pre-announcement close (although there are some shareholders that might be slightly aggrieved, with the upside on an approval for this drug likely far higher than this 30%). Whatever the opinion of shareholders, however, it looks as though the deal is going to go through, and the focus now shifts to what the drug might mean for Eli.

Let’s take a look.

It is a migraine candidate, and it is called Lasmiditan. There are approximately 36 million Americans that suffer from migraines, and as things stand, the current standard of care treatments are not that great. Traditional painkillers can’t be used to treat the condition as things like aspirin and ibuprofen cause vasodilation (and in doing so, reduce blood pressure in and around the brain, to ease pain). Migraines, on the other hand, are caused by vasodilation, and need a vasoconstriction treatment if they are going to be treated in this way. However, vasoconstriction is not suitable in a certain group as – specifically, those with potential heart problems. Lasmiditan is what’s called a serotonin receptor agonist, and it binds to a receptor called the 5-HT1F receptor. The current standard of care in thus indication, what are called triptans, also act on this receptor, but not before they have caused the vasoconstriction that defines their mechanism of action. Lasmiditan is designed to do the former, but without the latter. In doing so, Eli hopes it will reduce some of the side effects associated with triptans, and also remove the cardiac risk.

So that’s the science, where is the drug in trials?

Lasmiditan is currently under investigation as part of two phase 3 trials, one of which initially completed back in September 2016. Data from the first study was positive, and this readout was likely the primary driver behind Eli’s decision to get its hands on the asset before the secondary readout. The second trial should readout during the second half of this year, and assuming the data mirrors that which has already been demonstrated across a number of mid-stage (and the aforementioned pivotal) studies, then we expect a new drug application (NDA) to be submitted with the FDA before the close of this year. Eli is known for its rapid action in this sort of thing, and – especially with this asset – it needs to be quick. Why? Because a number of other companies are working on very similar treatments, including Alder Biopharmaceuticals Inc (NASDAQ:ALDR), Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Amgen, Inc. (NASDAQ:AMGN), and the first to market is going to be able to pick up a decent market share ahead of its competitors. Eli looks as though it is most likely to cross the finish line first right now, but anything can happen in this second ongoing phase 3, and that injects a certain amount of risk into the proposal.

So what’s next?

Well, the deal is yet to close, and there are a number of lawsuits circling both companies surrounding the fairness of the numbers involved to CoLucid shareholders. We don’t expect these have any degree of material impact on the outcome of the arrangement, but they may delay things slightly. As and when the deal closes, we’re looking to the secondary readout (as mentioned, later this year) followed by the registration submission as major upside catalysts for Eli going forward.