Lilly chief at JPM: conditions ‘ripe’ for M&A uptick in 2019

CEO David Ricks advocates careful approach focused on differentiation of assets in breakout session, while CFO says company has capacity for one transaction per quarter.

Having kicked off the J.P. Morgan Healthcare Conference with the second major biopharma acquisition of the year, Eli Lilly & Co. executives touted the deal further at the conference Tuesday as they fielded questions from investors while offering their thoughts on the M&A environment this year.

The Indianapolis-based drugmaker’s CEO, David Ricks, took part in an interview-style presentation at the conference, currently underway in San Francisco, followed by a breakout session that featured him, CFO Joshua Smiley and Chief Scientific Officer Daniel Skovronsky. On Monday, the company announced that it would acquire Loxo Oncology for $8 billion.

Alluding to an even bigger deal last week, Bristol-Myers Squibb’s $74 billion acquisition of Celgene, Ricks said in the breakout session that conditions in 2019 were “ripe” for an uptick in mergers and acquisitions. Smiley added that the company, whose bonds still carry an A2 rating after the Loxo transaction, has “plenty of capacity” to do a transaction on a quarterly basis.

Nevertheless, Ricks expressed support for a conservative approach for Lilly, as opposed to buying for the sake of expansion alone. “I think scale probably destroys more value than it creates, particularly in [research and development] functions,” he said in the breakout. “What matters is differentiation of assets.”

Part of what makes smaller biotechnology companies attractive as targets, Ricks said in the breakout, is that the track record for smaller public companies commercializing their own products is not very good. Given the choice to either invest and build up commercial capabilities or sell, selling looks like a better option, he said. Furthermore, biotech companies’ valuations came down in the second quarter of 2018, which also makes transactions look attractive.

In his presentation, Ricks pointed to Stamford, Connecticut-based Loxo’s pipeline as making it an attractive buy for Lilly. In late November, the Food and Drug Administration approved the company’s first drug, Vitrakvi (larotrectinib), for solid tumors that express NTRK fusions, regardless of where the tumors occur in the body, which the company markets under a partnership with Bayer. The company’s second-in-line drug is LOXO-292, which targets RET fusions in a manner similar to the way Vitrakvi targets NTRK fusions. Other drugs in the pipeline include LOXO-195, an NTRK inhibitor designed to be taken when patients’ tumors become resistant to Vitrakvi, and an unnamed second-generation RET inhibitor designed for the same purpose. LOXO-305 is a BTK inhibitor designed to address acquired resistance to commercially available BTK inhibitors like AbbVie and Janssen’s Imbruvica (ibrutinib) and AstraZeneca’s Calquence (acalabrutinib).

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