Eli Lilly and Loxo Oncology have entered into a definitive agreement for Lilly to acquire Loxo Oncology for USD235.00 per share in cash, or approximately USD8.0bn. We also noted, in 2018, that Lilly would undertake small to mid-size acquisitions, and this is likely the just the first of Lilly’s 2019 deals, whilst expected to be the biggest.
The transaction is not subject to any financing condition and is expected to close by the end of Q119, subject to customary closing conditions, including receipt of required regulatory approvals and the tender of a majority of the outstanding shares of Loxo’s common stock. Following the successful closing of the tender offer, Lilly will acquire any shares of Loxo that are not tendered into the tender offer through a second-step merger at the tender offer price. The tender offer represents a premium of approximately 68% to Loxo’s closing stock price on January 4 2019, the last trading day before the announcement of the transaction. Additionally, a Loxo shareholder, beneficially owning approximately 6.6% of Loxo’s outstanding common stock, has agreed to tender its shares in the tender offer.
Lilly’s interest in Loxo reflects the growing interest in pan-cancer treatment. The oncology landscape is shifting to focus on molecular signatures rather than tumour location. Loxo’s portfolio includes a range of medicines that target site agnostic cancers. Its only approved drug, Vitrkvi, is partnered with Bayer, as is LOXO-195. Despite two key products out-licensed, Loxo has a well-stocked pipeline, and the most prominent feature is LOXO-292, a first-in-class oral RET inhibitor that has been granted breakthrough therapy designation by the FDA for three indications, with an initial potential launch in 2020.
Lilly is actively bolstering its oncology pipeline after streamlining. The company is replacing assets it has cut with compounds that have potential to be first-in-class and utilising external innovation to augment internal research and development efforts. Lilly’s increased M&A activity is part of an effort to prepare for a forthcoming patent cliff. The acquisition of Loxo will be the largest and latest in a series of transactions Lilly has conducted to broaden its cancer treatment efforts. In 2018, Lilly acquired ARMO Biosciences for USD1.6bn and AurKa Pharma in a deal worth up to USD575mn.
Lilly is facing pressures in multiple segments, such as diabetes, neuroscience and immunology. Its oncology business is set for growth however, and has become a growth pillar for the company, with numerous approvals and agreements to secure growth in this area. The Loxo acquisition brings a number of near market targets that will help offset looming patent expirations if approved. Lilly is still investing in its other therapeutic areas, but we will see oncology become a more significant part of its revenue generating portfolio.