An Eli Lilly & Co. logo is seen on the cap of a pill bottle in this arranged photograph at a pharmacy in Princeton, Illinois, U.S. (Daniel Acker/Bloomberg)

Eli Lilly to Buy Loxo Oncology for $8 Billion

(Bloomberg) -- Eli Lilly & Co. will acquire Loxo Oncology Inc. for about $8 billion in cash, the second multibillion-dollar cancer deal of the year by a major U.S. pharmaceutical company.

The purchase is Indianapolis-based Lilly’s biggest takeover ever, according to data compiled by Bloomberg. Loxo holders will get $235 per share in cash, the companies said in a statement Monday. The Stamford, Connecticut-based biotechnology company is developing cancer treatments that target a tumor’s genetic markers regardless of where in the body they’re located.

Lilly is offering a rich premium -- 68 percent above Loxo’s closing stock price Friday and far above Loxo’s previous all-time high of $189.96, reached in July 2018. It’s another sign that drugmakers are willing to pay rich prices for assets after Bristol-Myers Squibb Co. and Celgene Corp. announced a $74 billion cash-and-stock deal last week.

Loxo shares rose 66 percent to $232.62 at 9:50 a.m. in New York. Lilly shares fell 1.5 percent to $112.95.

Lilly may do more deals under Chief Executive Officer Dave Ricks, who took over the helm at the drugmaker in 2017.

“Replenishing Lilly’s pipeline is a key focus in upcoming years,” Ricks said on a conference call with analysts Monday. The company will look at targets in cancer, neuroscience and immunology, he said.

Eli Lilly to Buy Loxo Oncology for $8 Billion

Other biotechnology companies studying cancer treatments rallied on the announcement, a sign that investors think there could be more deals to come.

Blueprint Medicines Corp., which also makes therapies that target tumors based on their genetic markers, was up 13 percent in early trading. Clovis Oncology Inc., which also reported preliminary fourth-quarter sales Monday morning, gained 12 percent. In December, Bloomberg reported that activist Armistice Capital LLC was pushing Clovis to sell itself after GlaxoSmithKline Plc said it would buy a similar company, Tesaro Inc., for $5.1 billion.

The hot start to deals in 2019 comes in stark contrast to last year, when there were expectations of a boom in takeovers after a U.S. tax reform bill freed up the billions of cash for drugmakers. Instead, valuations of small biotech companies remained high throughout most of the year, and large pharma companies spent heavily on buybacks. A late-year sell-off in global markets caused the valuations of many smaller drug companies to fall, making them more attractive targets.

The Lilly deal “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, “This could lift valuations of small- to mid-cap names in our space given potential bids for some companies long thought to be takeout candidates.”

Lilly’s CEO

Cancer has become a major area of focus for Lilly. Long a stalwart in diabetes, the company suffered a series of costly setbacks in efforts to develop what would have been the first treatment for Alzheimer’s disease. Under CEO Ricks, the company also spun off its animal-health unit, focusing the company further on human drugs.

Unlike some past high-profile deals in cancer -- like Celgene’s 2018 takeover of Juno Therapeutics and Gilead Sciences Inc.’s 2017 acquisition of Kite Pharma -- Celgene and Loxo have approved products already on the market. While that might sound mundane by the standards of other industries, biotechnology companies can research their therapies for years before their first product begins bringing in sales.

Loxo’s one marketed drug, Vitrakvi, or larotrectinib, is the leader in the field of TRK inhibitors, medicines that aim to shrink tumors by targeting a rare genetic anomaly. Partnered with German drugmaker Bayer AG, it won U.S. Food and Drug Administration approval last year.

Analysts expect Loxo to generate $1.14 billion in sales in 2023, according to estimates compiled by Bloomberg. They expect about $200 million in revenues this year.

The deal is expected to close by the end of March, the companies said in the statement. Deutsche Bank AG served as Lilly’s financial adviser, with Weil, Gotshal & Manges LLP as its legal adviser. Loxo was advised by Goldman Sachs Group Inc. and the law firm Fenwick & West LLP.

©2019 Bloomberg L.P.