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Barry Cohen
Barry Cohen
Articles (44) 

Eli Lilly CEO Predicts 2019 Will Be Big Year for Biotech Acquisitions

Latest deals seem to have driven up prices of targets. Some may be good shorts

Eli Lilly and Co. (NYSE:LLY) CEO David Ricks thinks two recent biotechnology acquisitions by big pharma could open the floodgates for more deals in 2019. Speaking at the recent J.P. Morgan Healthcare Conference in San Francisco, Ricks said the stars are aligned for heightened merger and acquisition activity in the field.

Lilly welcomed the new year by announcing it was buying Stamford, Connecticut-based Loxo Oncology (NASDAQ:LOXO) in an $8 billion deal. The $235 a share purchase price represented about a 70% premium and nearly three times the company’s 52-week high. The jewel in the crown for Lilly is the Loxo drug Vitrakvi. Loxo and its partner Bayer (XTER:BAYN) were granted accelerated approval for the drug in late November.

Vitgrakvi is the second Food and Drug Administration-approved drug that displays a particular biomarker—a gene fusion known as NTRK. The other is Merck’s (NYSE:MRK) Keytruda. Loxo is also working with Illumina (NASDAQ:ILMN) to find a test to diagnose NTRK.

"Using tailored medicines to target key tumor dependencies offers an increasingly robust approach to cancer treatment,” Daniel Skovronsky, Lilly’s chief scientific officer, said in a statement. “Loxo Oncology’s portfolio of RET, BTK and TRK inhibitors targeted specifically to patients with mutations or fusions in these genes, in combination with advanced diagnostics that allow us to know exactly which patients may benefit, creates new opportunities to improve the lives of people with advanced cancer.”

Lilly’s acquisition of Loxo came on the heels of a much bigger deal, Bristol-Myers Squibb’s (NYSE:BMY) $74 billion purchase of Celgene (NASDAQ:CELG), the Summit, New Jersey-based biotech specializing in cancer and inflammatory diseases. The combination gives Bristol-Myers a more robust pipeline that is expected to yield six new products in the near term.

Loxo could be just the first of Lilly’s biotech acquisitions. Pointing to the company’s A2 bond rating, Chief Financial Officer Joshua Smiley said in a conference breakout session at the J.P. Morgan conference that Lilly has “plenty of capacity” to do a transaction quarterly, as reported in a Jan. 9 article in MedCity News. However, Ricks cautioned that Lilly won’t be looking for simply expansion. “I think scale probably destroys more value than it creates, particularly in [research and development] functions,” he said in the breakout. “What matters is differentiation of assets.”

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Ricks said the most attractive biotechs are those that see their best option as selling as opposed to commercializing their own products. The recent deals and feverish merger and acquisition talk has not gone unnoticed by investors. In the past several weeks, they have substantially bid up the prices of what are likely to be the most attractive targets. So those thinking of getting into the game now should proceed with caution. In fact, some short players may find a few overpriced companies among the following:

Unsubstantiated rumors have floated around that Biogen (NASDAQ:BIIB) may be interested in Acorda Therapeutic Inc. (ACOR). The shares trade at $17.45, well off its 52-week high of $36.35. However, the stock is up $4.50 in the past three weeks.

Alnylam Pharmaceuticals Inc. (NASDAQ:ALNY) already has a strategic alliance with Sanofi Genzyme, a subsidiary of Sanofi (NASDAQ:SNY), so that company would be a likely acquirer. At more than $89 a share, Alnylam is up more than 45% in the past three weeks.

Others whose shares have been on a steep upward trajectory include:

BioMarin Pharmaceutical Inc. (BMRN), Clovis Oncology Inc. (CLVS), Incyte Corp. (INCY), Intercept Pharmaceuticals Inc. (ICPT), Nektar Therapeutics Inc. (NKTR), Sarepta Therapeutics Inc. (SRPT), Tesaro Inc. (TSRO) and Vertex Pharmaceuticals Inc. (VRTX).

Disclosure: The author has positions in LLY, ILMN and BMY.

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About the author:

Barry Cohen
Barry Cohen has nearly 40 years experience in communications and marketing, the majority in senior positions at large international health care companies, including Abbott Laboratories and Bayer Inc.

He has contributed to a number of financial websites, writing primarily about the stocks of health care companies.

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