Eli Lilly grabs spotlight at J.P. Morgan with $8B Loxo Oncology buyout

January 7, 2019

On the first day of biopharma’s largest confab, the J.P. Morgan Healthcare Conference, Eli Lilly confirmed that big-ticket M&A is back in fashion in the industry.

Lilly said it will acquire targeted cancer drug maker Loxo Oncology for $8 billion in a deal that gives the Indianapolis Big Pharma the TRK inhibitor Vitrakvi, the first drug approved by the FDA to target tumors according to a genetic abnormality rather than the location of the cancer. The $235-per-share offer is a 68% premium over Loxo’s most recent closing price.

It’s the second big buyout of the year—and the second with oncology at the center. It comes just four days after Bristol-Myers Squibb kicked off the long-predicted pharma M&A boom with its $74 billion acquisition of Celgene. Loxo shares soared 65% to $231 in premarket trading on Monday.

In addition to Vitrakvi, which Loxo sells in collaboration with Bayer, the deal will bring Lilly three targeted cancer drugs, including a follow-up TRK inhibitor, an oral BTK inhibitor and an RET inhibitor, LOXO-292, which has received breakthrough therapy designation from the FDA in some patients with RET thyroid cancer and non-small cell lung cancer. That could speed up LOXO-292’s approval for a potential 2020 launch, Lilly said.

During a conference call with analysts after the announcement, Anne White, president of Lilly Oncology, said Loxo brings a much-valued mix of marketed, late-stage and midstage assets to the company’s cancer portfolio, including first-in-class approaches to treating the disease. “This is clearly part of our oncology strategy that we set forward a year ago,” she said. “We said that the clear focus for Lilly Oncology is targeting tumor dependencies and genetically defined cancers.”

Lilly has now scooped up an oncology asset that was launched into the spotlight last November, when Bayer shelled out $400 million for the rights to Vitrakvi and its follow-up TRK inhibitor, LOXO-195. Loxo investors initially questioned the company for giving up the rights to the drug, but tiny Loxo needed access to an established sales organization, its executives said at the time. Investors eventually warmed up to the deal.

When Loxo and Bayer secured FDA approval for Vitrakvi this past November, they rolled it out at an eye-popping price of $400,000 per year. But along with it came a money-back guarantee: a full refund to payers when patients don’t respond within 90 days. That approach won kudos from one of the biggest critics of high drug prices, Express Scripts Chief Medical Officer Steve Miller, M.D.

Lilly’s bid for Loxo comes just a couple of weeks after it thrilled Wall Street with a better-than-expected revenue and profit forecast for 2019. Much of the company’s optimism was driven by its oncology portfolio, most notably its breast cancer treatment Verzenio. The drug, which targets the CDK 4/6 pathway, is in a fight for market share with Pfizer’s Ibrance and Novartis’ Kisqali. But Verzenio nabbed two add-on FDA approvals last year that helped boost its profile in the market.

Lilly said it expected 2019 revenues between $25.3 billion and $25.8 billion and adjusted earnings per share of $5.90 to $6—surpassing the $25 billion in sales and EPS of $5.80 analysts had been expecting. But that didn’t include Loxo, of course, nor did it take into account its stake in Elanco Animal Health, which it spun off last year. Lilly said it will update its financial guidance when it releases its 2018 earnings on Feb.13.

Much of the value Lilly placed on Loxo came from expectations for LOXO-292, its executives said during the conference call. Some analysts questioned that valuation, though, in light of potential competition. The company pointed to data from clinical trials, which so far show a 68% response rate in lung cancer and a 59% to 78% response rate in thyroid cancer.

“On 292, there are competitors out there,” White said. “It’s going to be first-in-class, ahead of the competition. It’s got a very strong efficacy profile and then also a very robust safety profile—one that we think will be well tolerated by patients.”

As the second deal of the year that hinges on oncology, the Lilly-Loxo tie-up follows a theme many industry analysts predicted would drive M&A this year. When BMS announced the Celgene acquisition last week, CEO Giovanni Caforio, M.D., said much of its value rested on six near-term product launches, two of which are CAR-T cancer treatments.

Lucrative cancer treatments also help acquirers deal with patent cliffs—an issue that Lilly knows all too well. Its $1.4 billion-a-year erectile dysfunction drug Cialis fell off that cliff last year and is expected to drop to $55 million in sales by 2020. No doubt the company will be counting on Loxo to help fill the gap.

When asked during the call whether Lilly would consider other oncology deals of this size going forward, CEO Dave Ricks didn’t rule out the possibility. “In this case, you have four either clinical or recently approved medicines in one package, which is a bit unique for us,” he said. “This is something that I would say going forward isn’t out of range to do again. At the same time we’re not focused on scale. We’re focused on value-creating pipeline additions.”

By Arlene Weintraub

Source: Fierce Pharma