Eli Lilly is to take over ImClone Systems after the companies ended speculation and agreed a definitive merger deal where drug giant Lilly will pay out $6.5 billion for the biopharmaceutical company – some $70 per share.

The offer on the table from Lilly surpassed the $60 per share and the then revised $62 per share takeover bid from Bristol-Myers Squibb last month.

ImClone had been playing cool with rumours of a mystery suitor after rejecting the offer from BMS. Last week, there was speculation the mystery suitor was Lilly but details were kept under wraps while negotiations took place.

Touted as a “strategic combination”, the acquisition will create one of the leading oncology franchises in the biopharmaceutical industry, offering both targeted therapies and oncolytic agents along with a pipeline spanning all phases of clinical development. The portfolio will target a broad array of solid tumour types including lung, breast, ovarian, colorectal, head and neck, and pancreatic.

Lilly’s own portfolio of first-in-class and best-in-class pharmaceutical products will be further strengthened by the deal, as will Lilly’s biotechnology capabilities.

“We think very highly of ImClone’s ground-breaking work in oncology, particularly its success with Erbitux,” Dr John Lechleiter, Lilly’s President and Chief Executive, said in a statement.

“By bringing together ImClone’s and Lilly’s marketed oncology products, pipelines, and biotech capabilities, we are taking a very important step forward in addressing the challenges of patent expirations we will face early in the next decade.”

Lilly’s blockbuster oncology drug Gemzar, approved for lung, pancreatic, ovarian and metastatic breast cancer, had $1.6 billion in sales on 2007, but the patent expires in 2010.

Meanwhile, ImClone’s targeted cancer therapy Erbitux (cetuximab) increased its worldwide sales by 18% to approximately $1.3 billion in 2007.

John Johnson, ImClone’s Chief Executive, said: “We believe this is an important step forward in ImClone’s and Lilly’s shared goal of addressing the medical needs of cancer patients around the world.”

Under the terms of the contract, Lilly will acquire ImClone through an all cash tender offer of $70 per share, followed by a merger of Lilly’s subsidiary with ImClone. The transaction is expected to close in either the fourth quarter of 2008 or the first quarter of 2009.

Despite the advantages of the deal, analysts have reported that the high price offered by Lilly is a risky move.

In response to the acquisition, former hopeful BMS, who markets Erbitux in the US, said it would not raise its offer above the $62 per share and would work closely with Lilly in the future.