Big Pharma Isn't Boring Any More as Cancer Deals Herald More M&A

(Bloomberg) -- After two major pharma deals in the first week of 2019, more drug takeovers could be in the offing thanks to free cash, new CEOs and booming stock prices for the biggest drug companies.

Bristol-Myers Squibb Co. announced an industry-record deal for Celgene Corp. last week, followed by Lilly’s proposed acquisition of Loxo Oncology Inc. Monday -- the Indianapolis drugmaker’s biggest ever.

The Lilly acquisition “underscores enthusiasm on the part of large-cap pharma companies to do deals,” Louise Chen, an analyst with Cantor Fitzgerald, wrote to clients on Monday.

Buying Power

  • Bristol-Myers and Eli Lilly are both paying rich premiums -- more than 50 percent for Celgene, and 68 percent for Loxo. It’s a sign that big drugmakers have money to spend and are willing to pay highly for targets that have come down in valuation with the recent pullback in biotech stocks.
  • Other big drugmakers have the power to do deals as well, thanks to rising stock prices and cash freed up from a U.S. corporate tax overhaul. Pfizer Inc. and Merck & Co. were the Dow Jones Industrial Average’s top two performers in 2018, have investment-grade credit ratings and are each sitting on more than $10 billion in cash.
  • “Expectations have also grown for more M&A activity in biotech,” wrote Goldman Sachs’s Asad Haider. The analyst suggested Gilead Sciences Inc., Biogen Inc., AbbVie Inc. and AstraZeneca Plc as potential buyers.

What Next?

  • Eli Lilly Chief Executive Officer Dave Ricks said the drugmaker may do more deals. On a call with analysts Monday, he said the company is looking to restock its pipeline and will examine companies in cancer, neuroscience and immunology.
  • The Nasdaq Biotechnology Index, a barometer of investor sentiment about the industry, was up 2 percent at 9:40 a.m. in New York. Cancer drug developers like Blueprint Medicines Corp., Deciphera Pharmaceuticals Inc., Epizyme Inc. and Clovis Oncology Inc. are among those leading the charge.

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