Lilly kicks off 2020's predicted biopharma M&A boom with $1.1B Dermira deal

Eli Lilly
With its planned purchase of Dermira, Eli Lilly will pick up Qbrexza, a medicated cloth to treat excessive underarm sweating and the phase 3 atopic dermatitis drug lebrikizumab. (Lilly)

Eli Lilly made a splash last year at the start of the J.P. Morgan Healthcare Conference with its $8 billion purchase of Loxo Oncology, which set the tone for an M&A frenzy in biopharma that continued all year. The Loxo deal also sparked speculation that Lilly itself would continue to snap up oncology assets.

Well, with the 2020 J.P. Morgan confab around the corner, Lilly is back in the M&A game—but this time it’s making a play in dermatology.

Lilly said Friday it would buy Dermira for $1.1 billion, or $18.75 a share, a 2% premium to the target’s closing price on Thursday but more than double the value at which it was trading a month ago. Dermira has one marketed product, Qbrexza, a medicated cloth to treat excessive underarm sweating, and a pipeline that includes the phase 3 atopic dermatitis drug lebrikizumab.

The combination of the phase 3 program and Dermira’s approved product make the acquisition “a smart strategic deal,” Cantor Fitzgerald analysts said in a note to investors Friday morning. The acquisition jives with Lilly’s overarching strategy “to augment its own internal research by acquiring clinical phase assets to its core therapeutic areas and leveraging its development expertise and commercial infrastructure,” they added.

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Picking up Dermira may have been a no-brainer, but it’s not exactly where analysts predicted Lilly would focus its M&A efforts this year. Earlier this week, SVB Leerink analysts predicted oncology would be a prevailing theme in M&A this year and that Lilly could be among the most active acquirers in biopharma.

That analysis came just a few months after SVB Leerink pointed out in a note to clients that Lilly’s back-to-back cancer deals—its $1.6 billion Armo Biosciences purchase and $575 million tie-up with Aurka Pharma, followed by Loxo—were all applauded by investors.

Perhaps, but the Armo purchase hasn’t been so smooth for Lilly so far: It pulled plans to develop the lead asset from the deal, pegilodecakin, in pancreatic cancer after a phase 3 disappointment.

Plus, Lilly’s executives have been hinting to analysts that the company is looking for outside innovation to bolster its efforts across all of its therapeutic focus areas, not just cancer.

During the company’s third-quarter earnings conference call in October, CEO Dave Ricks said Lilly remains “open-minded” when it comes to picking acquisition targets. In 2019, “we did our largest acquisition ever with Loxo Oncology on the one end, on the other end you saw a nice tuck into our pain portfolio,” a reference to its nearly $1 billion licensing deal with Centrexion for rights to its non-opioid pain drug.

RELATED: The top 10 largest biopharma M&A deals in 2019 - Eli Lilly/Loxo Oncology

SVB Leerink noted in a December report that Lilly had nearly $9 billion in available capital to pour into dealmaking, and there will still be plenty of that left after the Dermira purchase closes. Cantor Fitzgerald predicted in a note that Lilly would focus its deal efforts on "bolt-ons and opportunities to enhance the pipeline vs. larger acquisitions."

No doubt the Dermira addition will strengthen Lilly’s already optimistic projections for 2020. In December, the company said it expects 2020 revenues to come in between $23.6 billion and $24.1 billion, surpassing the consensus estimate of $23.5 billion. Generic competition to its $1-billion-a-year osteoporosis drug Forteo is a risk, but the company is counting on new revenue sources from potential launches—including that of the cancer drug it picked up from Loxo last year.

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