Eli Lilly (LLY) bought CoLucid Pharmaceuticals (CLCD) earlier this week for $960 million and will look to bring CoLucid’s lasmiditan migraine medication to market within the next 12-18 months. Lasmiditan is undergoing late-stage data trials later this year and, if successful, will seek approval by 2018. Approximately 12% of the US population suffers from migraines and roughly 13 million people have a severe form of the condition. The most common type of medication comes in the form of triptans, which have vasoconstrictive effects. Accordingly, approximately 35% of all migraine sufferers cannot take triptans due to increased cardiovascular risk. This opens the market for non-triptan based compounds such as lasmiditan. The drug represents the first novel mechanism of action since the introduction of sumatriptan in 1992. Lasmiditan’s market penetration is largely contingent on the willingness of health insurers to work it into their health plans. A one-year prescription for a single patient will cost $1,748. Alternative generic prescriptions are just $150-$400 per year per patient. If lasmiditan can obtain 400,000-500,000 patients per year (3 to 4 percent of the addressable market), this would put it in line for peak revenue of $700 million to $875 million per year. Attaining 5 percent of the addressable market (650,000 patients) would put peak revenue at over $1 billion per year. Effects on SharesIf I put lasmiditan’s revenue in terms of its effects on Eli Lilly’s share price (while including the effects of the deal’s financing), $250 million in peak annual revenue over the duration of its patent would expect to be accretive to share prices by 0.9% from their current price, holding all other baseline assumptions constant. $500 million in peak revenue would be accretive by 2.4%. At $750 million, 3.8%; $1 billion, 5.2%. (Source: author)A breakeven case (where the deal is neither accretive nor dilutive to shares) would expect to come at the point where lasmiditan passes its late-stage trials, comes to market by mid-2018, and generates peak revenue of $100 million per year. If the deal is a flop – it fails its trials, never comes to market, or simply doesn’t catch on in the market for whatever reason, it would be dilutive to shares by anywhere from 0.5%-1.5%, depending on the deal’s financing. (Using the company’s cash balance would be most dilutive, whereas using debt would be least dilutive.)Therefore, this appears to be a deal that can go a little bit wrong, but plenty right, especially for the sub-$1 billion price tag.