The 2019 biotech M&A year kicks off in grand fashion with take-out bids on two of the fund’s portfolio companies, Celgene and Loxo Oncology. While 2018 did not quite live up to expectations in terms of major buyout deal-making within pharma and biotech, the new year, being only a week old, has certainly not disappointed so far.
First off was the mega-merger between Bristol-Myers Squibb and Celgene, with Bristol bidding for buying the big biotech firm for a deal worth approximately USD 74 billion in a share and cash deal, valuing Celgene to USD 102.4 per share, implying a premium of 54% to the close on Jan 2. Then yesterday, Eli Lilly announced it had agreed to buy Loxo Oncology in a cash deal for around USD 8 billion, corresponding to USD 235 per share, a 68% premium.
CEOs of Celgene and Bristol Myers in a joint presentation opened up the JPM health care conference taking place this week. If the deal is approved by shareholders and regulators, it will be the largest pharmaceutical company acquisition ever, exceeding earlier mega deals. The combined company will be a global leader in oncology with a very strong portfolio of innovative therapies, as well as strong in immunology and cardiovascular disease. Both companies have been out of favor from investors, in the case of CELG due to worries regarding future replacement of lead selling cancer product Revlimid and in the case of BMY question marks regarding the competitiveness of the Immuno-Oncology franchise and the need to broaden the pipe line. From management’s side, this deal is based on the strong belief that only innovation can create profitability and that the combined company now have six near term launches with block buster potential and a strong portfolio as well as pipeline, well positioned for future growth. To us, the combined fit makes sense. The company expects the deal to be more than 40% accretive to BMY’s EPS the first full year and it is guided for USD 2.5 bn. in cost synergies by 2022. Closing of the deal is expected during Q3 2019.
Loxo’s claim to fame has been both rapid and impressive and the company is, based on the scientific results and very innovative pipeline, one of the fund’s convictions among the SMID names. During the summer of 2017 the company presented its major clinical data release in cancer patients on a specific mutation on a protein called TRK. Only a minority of cancer patients harbor these mutations, but Loxo showed that if you could target the protein in a highly specific manner then the clinical benefits were substantial, with response rates in advanced cancer patients that are far beyond any other existing therapies. By the end of last year, that drug was approved and first of its kind in that the drug label supports in use in patients with TRK mutation regardless of tumor site and can be used in wide variety of tumor types such as lung, breast, skin, colon or thyroid cancer as long as the presence of the specific mutation can be confirmed – representing a very modern way of treating cancer.
Then the next summer in 2018, Loxo did the same thing again. At a major scientific cancer conference, the company announced equally impressive data in another cancer-driving mutation, this time for a protein called RET. That drug candidate, which actually targets a larger patient population than those with a TRK mutation, is now undergoing FDA review ahead of drug approval. At this point Loxo has firmly established themselves as prime drug developers within cancer and speculations about a potential buyout intensified. Loxo’s product portfolio and pipeline, fit very well into Lilly’s increasing focus on oncology with a group of recently launched drugs within the disease area and additional ones under development. The transaction is expected to close already by the end of Q1 2019.
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Arctic Aurora LifeScience is an equity fund investing in global biotechnology and pharmaceutical companies. The fund is run by former portfolio manager in the Swedish Governmental Pension Fund AP3, Ulrica Bjerke, as well as Dr. Torbjørn Bjerke, both with 20 years of experience from the market. Arctic Aurora LifeScience was launched in May 2016 with both hedged and un-hedged share classes.
Past performance in Arctic Aurora LifeScience is no guarantee for future returns. Future returns depend on the market, fund manager skill, fund risk level, costs, among others. Performance in the fund may at times be negative and may for this fund vary considerably within periods.