Wall Street Cheers Lilly's $8 Billion Loxo Deal for Cancer Drugs

(Bloomberg) -- Wall Street got another pleasant surprise on Monday morning, with Eli Lilly & Co. agreeing to buy Loxo Oncology Inc. for about $8 billion in cash. Most analysts applauded the deal, saying it boosts Lilly’s growth profile and is consistent with its cancer strategy. The acquisition “makes sense for all,” and the valuation looks right, according to Stifel.

Loxo shares soared as much as 67 percent, while Lilly erased most of an initial 2.3 percent drop.

Wall Street Cheers Lilly's $8 Billion Loxo Deal for Cancer Drugs

Stifel, Stephen D. Willey

Notes that the emergence of Lilly as a winner for Loxo “is a little surprising,” but given the drugmaker’s existing commercial presence in lung cancer and expiring Alimta exclusivity, the acquisition makes sense.

Willey is “quite comfortable” with the proposed purchase price, which represents a 68 percent premium from Loxo’s Friday close. The analyst adds that timing is right, since investors got a better understanding of how the competitive dynamic between Loxo and competitor Blueprint Medicines Corp. is likely to play out.

Rates LOXO a buy, PT $215.

Piper Jaffray, Tyler Van Buren

Entered the year viewing Loxo as “a prime takeout candidate,” given attractive oncology medicines. Van Buren believes the $235/share acquisition price is fair.

Besides Vitrakvi, currently partnered with Bayer, and LOXO-292, Lilly could see upside from LOXO-305, which is likely to produce positive initial results later in the year.

Remains overweight on LOXO, PT $235 from $200.

Guggenheim, Michael Schmidt

Deal is consistent with Lilly’s message on broadening its cancer portfolio. Loxo Oncology is a “solid acquisition” given its first-in-class small molecule opportunities, which complement Lilly’s existing cancer treatments, analyst notes.

Guggenheim rates LOXO neutral and LLY a buy.

Barclays, Geoff Meacham

The Loxo acquisition should help address questions over Lilly’s path forward in oncology. Meacham says Loxo’s strong pipeline should help drive increased top- and bottom-line growth beyond 2020 and will add to Lilly’s growing new product cycle, “which we would
characterize as one of the strongest cycles across biopharma.”

Meacham adds that today’s transaction is not expected to affect 2020 guidance and expects the company to stay committed to dividend growth.

Rates LLY overweight, PT $120

Bloomberg Intelligence, Sam Fazeli and Asthika Goonewardene

The transaction adds at least two best- and first-in-class oncology assets, larotrectinib and LOXO-292, with very strong clinical profiles targeting unmet clinical needs. “These two assets, and their counterparts designed to deal with developing resistance, are sufficient to warrant the $8 billion price that Lilly is paying,” they wrote.

Bloomberg Intelligence sees the drugs having in excess of $2 billion annual sales potential by 2023.

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