Lilly's Deal Boosts Its Cancer Arsenal -- WSJ

By Allison Prang and Peter Loftus

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 8, 2019).

Eli Lilly & Co. said it is buying Loxo Oncology Inc. for $8 billion in cash, a deal that expands the biopharmaceutical company's oncology-treatment portfolio and adds to a string of recent deals in the cancer-treatment space.

Lilly, based in Indianapolis, will pay $235 a share, a 68% premium to Loxo's closing price on Friday of $139.87. The $8 billion deal valuation includes the company's shares outstanding as well as stock options.

Loxo, based in Stamford, Conn., is working on developing cancer-treating medicines based on tumors' genetic traits regardless of where they are in the body.

Shares of Loxo rose nearly 67% in midafternoon trading Monday. Shares of Eli Lilly rose 0.4%.

Cancer treatment has been a hot area in deal-making recently, as valuations have declined and companies with ready access to cash have sought to bulk up in the space. Bristol-Myers Squibb Co. said last week that it would buy Celgene Corp. in a deal valued at about $74 billion. The two companies are both big sellers of cancer-treatment drugs.

Last month GlaxoSmithKline PLC agreed to buy Tesaro Inc. and its ovarian-cancer drug for $4.16 billion. And in June, Lilly itself closed a $1.6 billion deal to buy Armo Biosciences Inc., an immunotherapy cancer-treatment company.

The $123 billion world-wide market for cancer drugs is one of the biggest pharmaceutical sectors.

Lilly has been looking to make more acquisitions and drug-license deals over the past year to expand its drug pipeline. "One of the places where we saw the best opportunities was in oncology," Chief Financial Officer Josh Smiley said in an interview Monday. "You should expect to see us do more deals."

For a while, relatively high stock valuations for biotech companies were keeping Lilly and other buyers at bay. But valuations have come down, reflecting "a little bit more realism," Mr. Smiley said. Although Lilly is paying a 68% premium to Loxo's Friday closing price, the premium to Loxo's peak stock price last year is about 25% to 30%, he said.

JPMorgan analyst Christopher Schott said in a research note that the Loxo deal shows Lilly is accelerating its oncology development plans "in response the high levels of competition and innovation across the space."

Eli Lilly said it expects to complete the deal for Loxo, which isn't subject to any financing condition, by the end of the first quarter.

Corrections & Amplifications Eli Lilly & Co. is based in Indianapolis. An earlier version of this article incorrectly said it was based in Stamford, Conn. (Jan. 7, 2019)

Write to Allison Prang at allison.prang@wsj.com and Peter Loftus at peter.loftus@wsj.com

(END) Dow Jones Newswires

January 08, 2019 02:47 ET (07:47 GMT)

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