Eli Lilly and Co.'s $8 billion purchase of Loxo Oncology Inc. is a move that furthers Lilly's investment in cancer innovation, a wave started years ago at smaller biotechs with cutting-edge technologies now about to come to market, executives said.
As those innovations begin to show real promise, companies like Lilly with the capacity to make large acquisitions are jumping on the opportunity. The Loxo acquisition is Lilly's third deal in 10 months aimed at growing the company's foothold in oncology, including acquisitions of Armo Biosciences and AurKa Pharma in 2018.
Lilly is not alone in setting its sights on cancer technology; the Loxo deal followed on the heels of Bristol-Myers Squibb Co.'s industry-shaking acquisition announcement for cancer specialist Celgene Corp., a deal valued at $74 billion — one of the largest pharma deals in history.
Lilly's senior vice president of business development, Darren Carroll, discussed with S&P Global Market Intelligence at the J.P. Morgan Healthcare Conference in San Francisco the strategy behind the company's newest deal — its biggest ever by value — and where it goes from here.
Betting on oncology
"We have pursued pretty vigorously a really transformative expansion of our oncology business unit with the acquisition of Loxo," Carroll said. "That's an acquisition that in some ways hearkens back to a position we've had for a long time in precision medicine."
Carroll explained that Lilly's chemotherapy Erbitux, which inhibits a tumor growth factor, was part of a first wave of medicines targeted toward a patient's individual genetic makeup. The addition of Stamford, Conn.-based Loxo will bring in cancer drugs targeting specific mutations that complicate the disease.
Loxo's Vitrakvi was approved by the U.S. Food and Drug Administration in November 2018 through an accelerated review, notching clinical trial results that showed tumor reduction in 75% of patients with multiple cancer types. Also in the pipeline for Loxo, and with an expected launch in 2020, is LOXO-292, a targeted treatment for multiple cancers. The drug, which has shown promise in early- to mid-stage trials, targets a different mutation called RET.
"When we looked across the industry, we did not see another small- to mid-cap biotech that had two late-stage assets that were first in class and best in class, so this is truly extraordinary," Carroll said.
Lilly CEO David Ricks also illustrated during the company's Jan. 8 presentation at the J.P. Morgan conference the unique opportunity presented by Loxo.
"What a great company that builds around this idea of precision medicine, multiple assets in a biotech framework — that's rare," Ricks said. "They have a little engine of scientists that continue to work on these precision medicine strategies and we'd be excited to have them keep doing that."
Small, important cancer focus
Because Loxo's stable of drugs target cancer mutations that affect only a small percentage of patients, as low as 3%, part of the strategy going forward will be to help physicians and pathologists understand that these less common conditions now have a treatment pathway.
"One of the challenges before was that prior to actually having medicines that could make a difference, you wouldn't administer these kinds of diagnostic tests for your patients; it adds expense, and while it gives you information, it's information you can't act on," Carroll said. "Now, thanks to Vitrakvi and LOXO-292, at least for those two genetic abnormalities, you actually have information you can act on."
Moreover, while precision medicine addresses small populations, it has the benefit of being clinically effective to a degree that other cancer medications fall short.
"Precision medicine is something we've been talking about for a really long time, and we were involved in the first promise of that," Carroll said. "It took longer to get to this second generation of precision medicine, but we're really excited that it actually seems to be fulfilling the promise that the whole industry saw 10 or even 20 years ago."
The year of pharma M&A
With two big cancer deals already underway in 2019, due in part to tax reform and biotech innovation of the last five years, 2019 is looking like a big year for acquisitions in the industry. Beyond the Loxo deal, Lilly is not planning to sit still on that front.
"We are still looking for new external innovation opportunities, we're looking at every single stage of development from preclinical collaborations and target-based research deals all the way through to phase one, phase two, phase three," Carroll said.
But while Lilly is looking to diversify by acquiring new therapies, Carroll said the company must retain a focus on its five stated core areas: oncology, diabetes, neurodegeneration, pain and the autoimmune space.
"We continue doing deals in each one of those, and in every case we're looking to complement what we already have," Carroll said. "We're also looking to raise the value of the medicines we have, so with each opportunity we look at, we ask ourselves, is this first in class or best in class? Is this something that's going to materially change the outcomes for patients or have the potential to do that? We ask ourselves, are we the rightful owner?"
Balancing internal and external innovation
Lilly has also sought to balance internal and external innovation.
"One of the things we've found back in our own history and in other companies is that by failing to invest in innovation, people find themselves with their backs against a wall where they don't have great alternatives. So they'll run out and buy technologies and you'll wonder why," Carroll said. "We understand that phenomenon, and one of the things we've recommitted ourselves to over the last 10 years is we continue to invest internally, but also keep our eyes open and try very hard not to suffer from that not-invented-here syndrome."
One of the company's most promising internal candidates is tirzepatide, a dual GIP/GLP-1 inhibitor that combines the action of two different diabetes drugs. The compound has been shown in a mid-stage study to help patients with type 2 diabetes control both blood sugar and weight. The therapy was designed in-house by Lilly and the company is bringing it to phase 3.
"The reason you get to be 143 years old is not that you remain the same," Carroll said, referring to Lilly's history. "Your values remain the same, but there's no guarantee you get to exist, and you have to continually reinvent yourself."
The annual J.P. Morgan Healthcare Conference in San Francisco brings together more than 9,000 investors, analysts and executives from more than 450 public and private companies.