Wednesday, December 16, 2020

Eli Lilly Buys Gene Therapy Player for $1 Billion

Tags

News shaping
the markets today

     

What’s happening: Eli Lilly announced plans to acquire Prevail Therapeutics in a deal valued at $1.04 billion.

What happened: Eli Lilly’s big-ticket acquisition will help the company acquire a gene therapy player that is developing therapies for neurodegenerative diseases.

In addition to the acquisition announcement, Eli Lilly also said it is looking to deliver an upbeat performance in 2021, driven by volume-based sales growth, pipeline advancements and other factors.

Why it matters: Prevail Therapeutics develops gene therapies for patients suffering from neurodegenerative diseases. The company's lead therapies in clinical trials are for Parkinson's disease and dementia.

Eli Lilly’s recent move marks the revival of interest from big drug makers for rare disease treatments. Earlier this week, AstraZeneca announced plans to buy Alexion Pharmaceuticals in a $39 billion deal. Alexion Pharma is known for its development of Soliris, a drug for the treatment of rare disorders atypical hemolytic uremic syndrome and paroxysmal nocturnal hemoglobinuria.

“The acquisition of Prevail will bring critical technology and highly skilled teams to complement our existing expertise at Lilly, as we build a new gene therapy program anchored by well-researched assets,” Mark Mintun, Lilly’s Vice President of Pain and Neurodegeneration Research said in a statement.

As a part of the agreement, Lilly has agreed to pay $22.50 per share in cash, representing a premium of more than 80% to Prevail’s closing share price on Monday.

The company’s shareholders will also be eligible for receiving one CVR (contingent value right) worth up to $4 a share, to be paid after Prevail’s drug receives the first regulatory approval. The full CVR becomes due only if Prevail wins the approval latest by December 31, 2024. Following this, the pay-out will be reduced by around 8.3 cents per month until December 1, 2028. After this, the CVR expires.

Lilly said it expects the acquisition to close in the first quarter of next year. Last month, the multinational pharma giant received an EUA (emergency use authorisation) from the FDA for its monoclonal antibody therapy for the treatment of covid-19.

Lilly raised its 2020 revenue forecast to between $24.2 billion and $24.7 billion, from its earlier projection of $23.7 billion and $24.2 billion. The company now projects adjusted earnings between $7.45 and $7.65 per share, versus its prior guidance of $7.20 and $7.40 per share.

Management also expressed optimism around the company’s performance next year, projecting revenues between $26.5 billion and $28 billion, higher than the consensus estimate of $26.47 billion. The guidance for adjusted earnings came between $7.75 and $8.40 per share, versus Wall Street expectations of $8.07 per share.

How shares responded: Eli Lilly’s shares spiked 6% to close at $167.43 on Tuesday, while Prevail’s shares jumped 82% to $22.75. Prevail’s stock has added around 44% year to date.

What to watch: Encouraging covid-19 vaccine news from pharma majors is expected to lift overall market sentiment and enable the drug market to return to normalcy. Investors will keep an eye on the approvals that the Lilly-Prevail acquisition needs to close on time.

The Markets Today

     

Crude oil will be in focus today ahead of the EIA’s report on crude inventories.

Context: Oil futures climbed on Tuesday to record their strongest close in over nine months, driven by the rollout of a covid-19 vaccine. Investors also monitored progress in the US government’s new stimulus package.

Details: The gains in oil prices came despite the OPEC (Organization of the Petroleum Exporting Countries) and IEA (International Energy Agency) lowering their oil demand projections. The IEA warned of a slow economic recovery in some markets and lowered its 2021 demand projections by 170,000 bpd (barrels per day) to 5.7 million bpd.

Investor sentiment was boosted by news of Pfizer and BioNTech beginning the rollout of their covid-19 vaccine in the US, after being approved for mass vaccination in the UK. Traders were also encouraged by the ongoing negotiations around a fresh covid-19 relief package in the US, as a revival in economic activity bodes well for a rebound in oil demand.

WTI (West Texas Intermediate) crude for January delivery added 1.3% to close at $47.62 per barrel on the NYMEX (New York Mercantile Exchange), notching the highest settlement since February 26. February Brent crude gained 0.9% to close at $50.76 a barrel, recording its highest close since March 4.

What to watch: Late Tuesday, the API (American Petroleum Institute) reported an increase of 1.97 million barrels in crude stockpiles in the week ending December 11, versus a 1.14 million gain in the prior week. Traders await EIA’s data on crude stockpiles, with analysts expecting a decline of 1.9 million barrels in domestic inventories for the week ending December 11. Gasoline supplies are expected to rise 2.6 million, while distillate supplies might increase 1.1 million.

Markets will also monitor the rising covid-19 cases worldwide, which has crossed 73.4 million.

Other Markets: US indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.13%, 1.29% and 1.25%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

UK’s annual inflation rate, retail price index, producer prices, manufacturing PMI, services PMI and composite PMI, France’s manufacturing PMI, services PMI and composite PMI, Germany’s manufacturing PMI, services PMI and composite PMI, Eurozone’s manufacturing PMI, services PMI, composite PMI, balance of trade, construction output, labour costs and wage growth, Italy’s industrial sales and industrial goods new orders, Canada’s annual inflation rate and wholesale sales, Russia’s producer prices as well as the US MBA mortgage applications, retail sales, business inventories, NAHB housing market index, manufacturing PMI, services PMI and composite PMI.