Targeting smaller "bolt-on" acquisitions in the range of $1 billion to $5 billion, Eli Lilly (LLY 2.66%) plans to expand its research and development pipeline by acquiring a company roughly every quarter. The company's CFO made these comments during the J.P. Morgan Healthcare Conference as he discussed the company's $1.1 billion purchase of Dermira (DERM).
Knowing that the big pharmaceutical company is going shopping, some biotech deal makers and investors looking for exits hope their companies will be snapped up next. Here we will explore a few companies that could be on Lilly's shopping list.
Following its public debut in 2018, Arvinas (ARVN -1.58%) is set to commence its first human clinical trial this year with its protein degraders. This approach aims to eliminate unwanted disease-causing proteins, whereas many other cancer approaches, including Lilly's, try to stop those proteins from being made at all.
What's attractive for Lilly? Two cancer programs, for specific prostate and breast cancers, should enter clinical trials in 2020. The approach complements Lilly's targeted oncology R&D and has further application into neuroscience, another therapeutic area of interest for Lilly. Priced at nearly $2 billion today, Arvinas would not be a cheap acquisition, but it would bring a whole new approach to targeted treatments in multiple disease areas.
To bolster its pipeline aimed at neurodegeneration, Lilly needs to look no further than Alector (ALEC 0.12%). Alector's immunology-driven approach tackles difficult diseases like dementia and Alzheimer's, both of which Lilly targets already. Alector's lead clinical stage programs aim to increase the expression of the protein progranulin, a regulator of immune activity in the brain. Pursuing the same diseases through different, unique mechanisms makes Alector a reasonable target should Lilly wish to expand its portfolio of drugs for neurodegeneration.
Targeted therapies continue to be all the rage in oncology, and with good reason. Drugs are gaining approval from the Food and Drug Administration after relatively small clinical trials. This is the result of personalized medicine where patients receive specific drugs to match the genetic profile of their tumors. SpringWorks Therapeutics (SWTX -4.44%) aims to acquire and develop treatments for genetically defined tumors which dovetails with the revamped oncology strategy Lilly announced in December.
SpringWorks' pipeline boasts three drugs, with two in potential registrational clinical trials for rare types of cancers. As a business model, it focuses on in-licensing promising drugs rather than discovering them in-house. That it has specific drug candidates and not a platform technology may make it more attractive for a potential pharmaceutical buyer. The buyer gets specific compounds and does not have to contend with integrating an early stage research operation. SpringWorks only went public last September, but shareholders and employees may prefer a buyout over the risk of potential clinical trial setbacks.
This one may be less obvious at first, but hear me out. First, Lilly would gain Tavalisse, a drug for adult immune thrombocytopenia purpura (ITP), a disease whereby the body attacks its own blood platelets. Tavalisse's sales continue to grow, but a broader push under the Eli Lilly brand could help it jump in market share. Rigel Pharmaceuticals (RIGL 4.59%) hopes to expand Tavalisse's approval to include warm autoimmune hemolytic anemia, a disease affecting 45,000 Americans in which the body destroys its own blood cells. Rigel believes this could be a $1 billion market.
The remainder of Rigel's pipeline fits Lilly's therapeutic focus. Two early stage immunology drugs use mechanisms different from Lilly's own efforts. Rigel successfully licensed four other drugs, allowing it to sit back and collect milestones and royalties. The two oncology drugs fit the targeted therapy approach pursued by Eli Lilly. Rigel out-licensed two dermatology drugs to Aclaris. One aims to tackle alopecia areata, an autoimmune disorder causing hair loss in around 6.8 million people in the U.S., The other could treat atopic dermatitis, better known as eczema. Lilly has R&D programs for these diseases, including one drug with a similar mechanism to Rigel's atopic dermatitis candidate.
We will have to wait to see what Lilly ultimately buys -- if anything. Don't forget Lilly can easily snap up private companies as it did in the 2018 acquisition of cancer company AurKa Pharma. The risks associated with investing in biotech are many, and trying to invest in companies likely to be acquired at a premium can be exceptionally challenging since big pharma companies often keep their cards close to the vest.