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Lilly to acquire Loxo for $8B
February 2019
by Jeffrey Bouley  |  Email the author
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INDIANAPOLIS & STAMFORD, Conn.—It may not be the number-busting level of the recently announced M&A plans between Bristol-Myers Squibb and Celgene, but news in January that Eli Lilly and Co. and Loxo Oncology Inc. have inked a definitive agreement for Lilly to acquire Loxo Oncology for $235 per share in cash—a total of about $8 billion—is nothing to sneeze at.
 
Loxo’s pipeline includes LOXO-292, an oral RET inhibitor being studied across multiple tumor types, which recently was granted Breakthrough Therapy designation by the U.S. Food and Drug Administration (FDA). Overall, Lilly says that the combination of the two companies will broaden the scope of its oncology portfolio into precision medicines through the addition of a marketed therapy and a pipeline of highly selective potential medicines for patients with genomically defined cancers.
 
The acquisition would be the largest and latest in a series of transactions Lilly has conducted to broaden its cancer treatment efforts with, as the company puts it, “externally sourced opportunities for first-in-class and best-in-class therapies.” Lilly also notes that Loxo Oncology is developing a pipeline of targeted medicines focused on cancers that are uniquely dependent on single gene abnormalities that can be detected by genomic testing, noting: “For patients with cancers that harbor these genomic alterations, a targeted medicine could have the potential to treat the cancer with dramatic effect.”
 
Looking at the highlights of Loxo’s portfolio, we have:
  • LOXO-292, as noted above, which has an initial potential launch in 2020. LOXO-292 targets cancers with alterations to the rearranged during transfection (RET) kinase. RET fusions and mutations occur across multiple tumor types, including certain lung and thyroid cancers as well as a subset of other cancers.
  • LOXO-305, an oral BTK inhibitor currently in Phase 1/2. LOXO-305 targets cancers with alterations to the Bruton’s tyrosine kinase (BTK), and is designed to address acquired resistance to currently available BTK inhibitors. BTK is a validated molecular target found across numerous B-cell leukemias and lymphomas.
  • Vitrakvi, a first-in-class oral TRK inhibitor developed and commercialized in collaboration with Bayer that was recently approved by the FDA. Vitrakvi is the first treatment that targets a specific genetic abnormality to receive a tumor-agnostic indication at the time of initial FDA approval.
  • LOXO-195, a follow-on TRK inhibitor also being studied by Loxo Oncology and Bayer for acquired resistance to TRK inhibition, with a potential launch in 2022.
“Using tailored medicines to target key tumor dependencies offers an increasingly robust approach to cancer treatment,” said Dr. Daniel Skovronsky, Lilly’s chief scientific officer and president of Lilly Research Laboratories. “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.”
 
“We are gratified that Lilly has recognized our contributions to the field of precision medicine and are excited to see our pipeline benefit from the resources and global reach of the Lilly organization,” commented Dr. Josh Bilenker, CEO of Loxo Oncology. “Tumor genomic profiling is becoming standard of care, and it will be critical to continue innovating against new targets while anticipating mechanisms of resistance to available therapies, so that patients with advanced cancer have the chance to live longer and better lives.”
 
The transaction is not subject to any financing condition and is expected to close by the end of the first quarter of 2019, subject to customary closing conditions, including receipt of required regulatory approvals and the tender of a majority of the outstanding shares of Loxo Oncology’s common stock. Following the successful closing of the tender offer, Lilly will acquire any shares of Loxo Oncology that are not tendered into the tender offer through a second-step merger at the tender offer price. The companies noted on Feb. 1 in a separate announcement about their deal that the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), in connection with the announced tender offer had ended.
 
“Lilly Oncology is committed to developing innovative, breakthrough medicines that will make a meaningful difference for people with cancer and help them live longer, healthier lives,” said Anne White, president of Lilly Oncology. “The acquisition of Loxo Oncology represents an exciting and immediate opportunity to expand the breadth of our portfolio into precision medicines and target cancers that are caused by specific gene abnormalities. The ability to target tumor dependencies in these populations is a key part of our Lilly Oncology strategy. We look forward to continuing to advance the pioneering scientific innovation begun by Loxo Oncology.”
 
Added Jacob Van Naarden, chief operating officer of Loxo Oncology: “We are confident that the work we have started, which includes an FDA-approved drug, and a pipeline spanning from Phase 2 to discovery, will continue to thrive in Lilly’s hands.”
 
The tender offer represents a premium of approximately 68 percent to Loxo Oncology’s closing stock price on Jan. 4, the last trading day before the announcement of the transaction. Loxo Oncology’s board recommends that Loxo Oncology’s shareholders tender their shares in the tender offer. Additionally, a Loxo Oncology shareholder, beneficially owning approximately 6.6 percent of Loxo Oncology’s outstanding common stock, has agreed to tender its shares in the tender offer.
 
Dr. Volkan Gunduz, a senior oncology and hematology analyst at GlobalData, was positive on the news of the proposed merger, saying, “Eli Lilly’s choice of Loxo is highly strategic due to Loxo’s unique oncology portfolio as well as its potential for quick return of investment. To this end, Lilly will immediately collect sales revenues from Loxo’s recently branded first-in-class tropomyosin receptor kinase (TRK) inhibitor Vitrakvi (larotrectinib).”
 
Gunduz further states that Vitrakvi’s strength comes from its first-to-market advantage and also the fact that it is approved based on the presence of the biomarker, neurotropic receptor tyrosine kinase (NTRK) fusion in tumors rather than location of the tumor. He said, “This means that the drug can be readily used in more than 17 different types of advanced cancers that are driven by NTRK fusions.
 
“Loxo’s follow-up second-generation TRK inhibitor, LOXO-195, is designed to address the potential acquired resistance that could emerge in patients receiving Vitrakvi. The two agents will therefore allow Lilly to dominate the treatment paradigm in NTRK fusion driven cancers.”
 
Additionally, Gunduz remarked that “A second gem in Loxo’s clinical pipeline is LOXO-292, an inhibitor of rearranged during transfection (RET) kinase. Already granted a breakthrough therapy designation in RET-fusion positive NSCLC and RET–mutation positive medullary thyroid cancer, LOXO-292 will soon be Lilly’s second brand inherited from Loxo. Similar to Vitrakvi, LOXO-292 is first in its class and is expected to become the first branded RET inhibitor.”
 
“Ultimately,” Gunduz concluded, “the deal will help Lilly replenish and diversify its oncology portfolio, which is losing ground due to the impending patent expiration and increasing market competition facing its leading oncology brands Alimta, Cyramza and Verzenio.”
 
Mentioning the Bristol-Myers Squibb/Celgene deal and an agreement for GlaxoSmithKline to acquire Tesaro in conjunction with the Lilly/Loxo news, Cantor Fitzgerald analyst Louise Chen said the Eli Lilly and Loxo agreement “underscores enthusiasm on the part of large-cap pharma companies to do deals,” and noted, “[T]his could lift valuations of small- to mid-cap names in our space, given potential bids for some companies long thought to be takeout candidates.”
 
 
Code: E021928

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