No bidding war for Loxo, so did Lilly overpay? Don’t rush to judgment, analysts say

When Eli Lilly announced during the recent J.P. Morgan Healthcare Conference that it would buy Loxo Oncology for $8 billion—a 68% premium—some analysts assumed there must have been a bidding war for the developer of targeted cancer drugs. But SEC documents reveal that's not the case. Instead, Lilly was determined to get the deal done in time to announce it at the high-profile J.P. Morgan event.

So does the lack of competing bids signify waning interest in targeted oncology assets—and, more specifically, could Lilly have won over Loxo without offering such a rich premium?

Not necessarily, analysts say.

According to Lilly’s filing to the SEC (PDF), the company offered to buy Loxo for $230 a share in December, was rebuffed, and then upped the price 10 days later to $235. In the interim, Loxo CEO Joshua Bilenker, M.D., spoke at length with Darren Carroll, Lilly’s development chief, focusing largely on Loxo’s pipeline and the "need for an increase in Lilly’s proposed acquisition price," the document says.

Even though Loxo couldn’t point to competing bids to justify its request for a higher premium, it was engaged in licensing discussions around LOXO-292, its RET inhibitor that FDA designated as a breakthrough therapy to treat some patients with thyroid cancer and non-small cell lung cancer. In April 2018, after Loxo unveiled positive data from a phase 1 trial, the company contacted more than 15 potential licensing partners, according the SEC filing.

Those meetings led to discussions with four potential partners that went well into December, but Loxo wasn’t pleased with the terms those prospects were offering. Then came Lilly’s buyout proposal.

That revelation led Leerink analysts to issue a note to investors on Thursday urging them not to read too much into the description of how the Lilly-Loxo deal was consummated. "While some investors may be disappointed that there was not an outright bidding war, the documents suggest that Lilly proactively met Loxo's threshold, even devoid of emerging competitive bids," he wrote. "In our view, this indicates broad industry interest in late clinical/early commercial targeted oncology stories."

Indeed, this was the third acquisition in targeted oncology since December, Leerink pointed out. Among those was GlaxoSmithKline’s much-ballyhooed purchase of PARP inhibitor maker Tesaro for $5.1 billion—a 62% premium over its trading price. Then there was Bristol-Myers Squibb’s planned $74 billion megamerger with Celgene. That deal gave BMS six near-term product candidates, including several cancer treatments.

If anything, Lilly’s proactive effort to make a quick deal with Loxo signifies that there could be many more deals in targeted oncology to come, Leerink analysts said. One prime target, they added, is Blueprint Medicines, which is also developing a RET inhibitor, BLU-667. Last year, Blueprint presented early data showing promising results of a combination of BLU-667 in some patients with lung or thyroid cancer.

And Clovis Oncology emerged as a prime takeover target when GSK bought Tesaro. Clovis also markets a PARP inhibitor, Rubraca, which competes directly with Tesaro’s Zejula. And Clovis CEO Patrick Mahaffy has made it quite clear he’s ready to start deal talks with any company that might be interested.

"Everybody knows where to find me and every company in this industry is for sale," he said during J.P. Morgan.

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