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Biotech Is The New Black

Eli Lilly announced its biggest-ever deal

Image source: IB Photography - Shutterstock

What's going on?

American pharmaceutical company Eli Lilly, maker of Prozac and the polio vaccine, announced its biggest-ever takeover on Monday: an $8 billion deal for cancer drug specialist Loxo Oncology.

What does this mean?

Historically, Lilly focused on diabetes and psychiatric treatments (it pioneered the production of human insulin). Now, it’s following rivals by metastasizing into a lucrative sector and dropping the dollars on biotech firm Loxo to acquire two cutting-edge, albeit niche, cancer medications. One, Vitrakvi, is on the market at a tidy $32,800 per month; the other is still in clinical trials.

With cancer patients living longer, and developing resistance to some existing drugs, Lilly’s likely betting that its new treatments pan out to be blockbusters – analysts expect Loxo to generate $1 billion of annual sales by 2023.

Why should I care?

For markets: Cancer’s a growth business.

Lilly’s offer represents a whopping 68% premium to Loxo’s closing share price on Friday (already up 975% since the company went public in 2014). Hefty price tags are a common symptom of such biotech firms. They usually aren’t profitable while researching and trialing drugs, but stumbling on a good’un could mean megabucks. Big Pharma spends a lot of time sniffing out the drugs it thinks could be blockbusters and effectively gambling on them – a few positive trials is no guarantee of success, as Lilly knows all too well.

The bigger picture: Big moves in biotech.

With 2019 only a week old, there have already been two big-ticket cancer deals: last week, pharma giant Bristol-Myers Squibb made a $74 billion bid for rival Celgene. And it was only back in December that Britain’s GlaxoSmithKline (GSK) announced it was dropping $5 billion on a – you guessed it – cancer biotech, Tesaro. That move was swiftly followed by the announcement of another deal that would let GSK double down on digging out the test tubes and developing – or, perhaps, buying – more of those blockbuster treatments.

Originally posted as part of the Finimize daily email.

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