What happened

Shares of Loxo Oncology (NASDAQ:LOXO), a commercial-stage biopharma focused on cancer, jumped 66% as of 10:37 a.m. EST on Monday. The huge move is a response to the news that Loxo has agreed to be acquired by Eli Lilly and Company (NYSE:LLY) for a huge premium.

So what

Here are the key details of the proposed takeover offer:

  • Lilly has agreed to commence a tender offer to acquire all outstanding shares of Loxo Oncology for approximately $8 billion. That translates into a share price of $235, which is a 68% premium to Loxo's closing price on Friday, Jan. 4.
  • The deal will be paid for with cash. 
  • Lilly will acquire any shares of Loxo Oncology that are not tendered by way of a second-step merger at the tender offer price. 
  • The transaction is not subject to any financing condition.
  • The acquisition is expected to close by the end of the first quarter of 2019. 

Lilly's management team stated that this deal makes sense because it will deepen the company's push into oncology.

Big fish eating small fish.

Image source: Getty Images.

The deal will immediately add Vitrakvi to the company's portfolio. Vitrakvi is a recently approved TRK inhibitor that targets tumors with specific genetic abnormalities and holds a lot of financial promise.

Loxo also has a number of other drugs in its pipeline that could be used to treat a range of cancers in time.

Commenting on the deal, here's what Lilly's Chief Scientific Officer Dr. Daniel Skovronsky had to say:

Using tailored medicines to target key tumor dependencies offers an increasingly robust approach to cancer treatment. Loxo Oncology's portfolio of RET, BTK and TRK inhibitors targeted specifically to patients with mutations or fusions in these genes, in combination with advanced diagnostics that allow us to know exactly which patients may benefit, creates new opportunities to improve the lives of people with advanced cancer.

Now what

This looks like a done deal, since Lilly has deep enough pockets to fund the transaction. Loxo's board has also recommended to investors that they should tender their shares. A Loxo Oncology shareholder that owns a 6.6% position in the company has already agreed to tender its shares in the tender offer.

Lilly did not offer any commentary on how this deal would impact the company's financial guidance for 2019, but a spokesperson did state that they will provide investors with more information during the earnings call in February.

Loxo's stock is currently trading within a few dollars of the offer price, so shareholders need to decide for themselves if they want to sell today or wait until the deal closes to get the full $235.

Either way, it is time for them to take a victory lap and start scanning the market for other great stocks to buy.

Check out the latest Eli Lilly & Co. earnings call transcript.