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Eli Lilly Makes an $8B Cancer Genetics Bet with Loxo Acquisition

Xconomy Indiana — 

[Updated 1/7/19, 11 a.m. ET. See below.] Eli Lilly is set to acquire Loxo Oncology for approximately $8 billion—a deal that brings to the Indianapolis pharmaceutical giant a class of drugs that treat cancers with particular genetic signatures.

Under the agreement announced Monday, Lilly (NYSE: LLY) will pay $235 cash per share of Loxo (NASDAQ: LOXO), which is a 68 percent premium to the Friday closing price of the Stamford, CT, cancer drug developer. Following the news of the deal, shares of Loxo soared more than 65 percent in pre-market trading.

Loxo develops drugs that target cancers that have genetic mutations that can be detected by genomic testing. By targeting the DNA fingerprint of a tumor, researchers aim to treat cancer no matter where in the body tumors are found. The company’s approach has already yielded one FDA-approved drug. In November, the U.S. regulator gave the nod to larotrectinib (Vitrakvi), a drug that treats cancers that have a mutation called a TRK fusion, which occurs in an estimated 1 percent of tumors. In clinical trials, the drug shrank tumors in 78 percent of patients. Bayer holds partial rights to that drug, as well as the experimental drug LOXO-195, under a partnership signed in 2017.

The most advanced drug in Loxo’s pipeline is LOXO-292, which targets mutations in the RET gene. Like the TRK fusion, the RET mutation occurs when the RET gene abnormally fuses to another gene, causing a tumor to grow. At the annual meeting of the American Society of Clinical Oncology last June, Loxo released encouraging data from a Phase 1 study testing the drug in patients who have lung, thyroid, and pancreatic cancers. While the sample size was small—39 patients—77 percent of them saw their tumors shrink after treatment with LOXO-292.

[Paragraph added with analyst comment.] Lilly’s acquisition of Loxo follows other recent high-profile buyouts in the oncology space, notably the $5.1 billion acquisition of Tesaro (NASDAQ: TSRO) by GlaxoSmithKline (NYSE: GSK) announced last month, and the Bristol-Myers Squibb (NYSE: BMY) announcement last week that it will pay $74 billion to buy Celgene (NASDAQ: CELG). In a research note, Leerink Partners analyst Andrew Berens wrote that following those acquisitions, the Loxo deal lends additional validation to targeted cancer drugs. He added that other companies that have similar “precision oncology” drugs in their pipelines could see a boost in their stock prices.

For Lilly, the Loxo acquisition is the latest in a string of deals intended to bolster its cancer drug pipeline. Last May, Lilly acquired Armo Biosciences and its lead cancer immunotherapy, a cytokine drug being tested in pancreatic cancer. That deal was followed by Lilly’s $110 million acquisition of AurKa Pharma, a startup developing drugs that target enzymes called Aurora kinases that play a role in cell division of cancer cells.

Lilly and Loxo expect to close the transaction by the end of the first quarter of this year.

Lung cancer metastasis image by the National Cancer Institute