Eli Lilly (NYSE:LLY) is acquiring Imclone (NYSE:IMCL), the maker of head and neck cancer treatment drug Erbitux, for $6.5 billion or $70 a share the company announced on October 6. Imclone stock has managed to recover from an insider trading scandal in 2001, rejection from the FDA for its Erbitux product in the same year, and a corporate raid from billionaire investor Carl Icahn in 2006.

Imclone is a company dedicated to the field of oncology that investors should get to know even as it is undergoing its own transformation.

Lilly's Stable
Eli Lilly brings to the table its lineup of drugs including schizophrenia drug Zyprexa, its depression drug Cymbalta and its cancer fighter Gemzar. Lilly's top three selling drugs previously mentioned made up 45% of its $9.9 billion in revenue for the first half of 2008. Lilly, in conjunction with ICOS Corporation, is also the maker of erectile dysfunction drug Cialis, one of the company's fastest growing drugs in terms of sales from the previous year.

Imclone Second Quarter 2008
Imclone was able to increase revenue 12.75% for the first half of the year to $329 million over the same period a year ago. Merck (NYSE:MRK) and Bristol-Myers Squibb (NYSE:BMY) are the primary contributors to Imclone's revenue from royalties, licensing and milestone fees from the worldwide sales of Erbitux. While the numbers appear promising, Imclone revenue could not exceed the pace of its expenses. Higher costs related to a patent dispute with Abbott Labs (NYSE:ABT), SG&A and R&D sent expenses up 27.66% which caused operating income to drop 21.71% to $69 million. Despite the growth of expenses investors have rewarded Imclone by pushing its stock price up 51.49% this year.

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Final Thoughts
On the day of the announcement Eli Lilly's stock traded down more than 7% intraday on news of the premium it will be paying to acquire Imclone. This continued Eli Lilly's downward trajectory over the past year. Although the Imclone will be a part of the much larger Lilly, the new combination of drugs treatments available benefits investors by diversifying marketable products of the underlying investment. Investors should consider a dollar cost averaging approach to buy into Lilly as a way to stay close to Imclone.

For more on this strategy, read Dollar-Cost Averaging Pays.