Eli Lilly Agrees to Buy Cancer-Drug Company for $1.6 Billion

(Bloomberg) -- Eli Lilly & Co. agreed to acquire ARMO BioSciences Inc. for about $1.6 billion in cash, in a deal that would add some promising cancer therapies to the pharmaceutical giant’s pipeline.

Under the terms of the proposed transaction, Lilly will commence a tender offer to buy all shares of ARMO for $50 a share, according to a news release announcing the deal, a 68 percent premium relative to the $29.80 that the Redwood City, California-based company’s stock closed at in New York trading on Wednesday.

ARMO is developing a number of cancer treatments that harness the body’s immune system to fight tumors. The biotechnology company went public on Jan. 25 for $17 a share and has since seen its stock ascend more than 75 percent.

Lilly has expressed interest in expanding its focus on cancer drugs but might have more flexibility on the back of windfalls from U.S. tax overhaul and spending cuts in research and development. The drugmaker is also looking into options for its animal-health business, including a possible sale.

During the company’s most recent earnings call with analysts, Susan Mahony, president of Lilly’s oncology unit, said that the company was anticipating it would bet on more immuno-oncology therapies in the future.

ARMO’s main experimental drug, AM0010, is being investigated in a pivotal trial for pancreatic cancer patients. The therapy has shown clinical benefit on its own, the company says, but can also be combined with chemotherapy and checkpoint inhibitor therapies across several tumor types. Analysts including Matthew Luchini at BMO Capital Markets, who sees the stock surging to $75 in the next 12 months, consider the therapy to have blockbuster potential.

Eli Lilly expects the deal, which must be approved by regulators, to close by the end of the second quarter.

Shares of ARMO surged to $49.81 in premarket trading in New York, while Eli Lilly shares were little changed at about $78.

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