Pharma has figured it out. Big drug companies are looking at the prices of stocks that have been shelled and deciding "let's take advantage of all the chaos that comes from the ETFs and the worries about inflation and the downward push that comes from the macro funds and the machines, and lets do some buying."
Monday morning's announcement of Eli Lilly's (LLY) purchase of Loxo Oncology (LOXO) for $8 billion, or $235 a share, comes after this gene therapy company's stock has fallen from $191 down to the $130s since July of last year. No, LOXO isn't cheap, but yes, it got pushed down with the rest of the high-risk cohort as part of an overall market downturn -- giving the very conservative Lilly a chance to own a premier first in class -- and best in class -- therapy company.
This deal comes on the heels of the incredible game changer, Bristol-Myers Squibb (BMY) buying Celgene (CELG) . When you consider what happened with Celgene's stock, you know things have gotten a little nutty from ETF pressure. At the time of BMY's bid, Celgene was trading at 6X earnings. Celgene's stock stood in the $90s in the summer. It got down to the $50s in the great bear market of 2018.
I swear if Celgene weren't just another part of a big basket, it would never have gotten down there -- even if you are concerned about the patent protection for its biggest drug, Revlimid.
It is price that brought Bristol to the table. It is that hammering that allowed Bristol to buy Celgene at very little premium to where the stock was, paying $102.43 for the company -- one share of BMY and $50 plus a contingent right option.
Here's what's happening as I see it: The companies that have cash are looking at what has happened to this stock market and saying that it is cheaper to buy the science of another company, trim the cost and run it through their own company.
I know that Lilly has wanted to advance its cancer franchise. I know that these kinds of targeted companies are usually too expensive. LOXO's stock traded in the $20s two years ago, then $82 a year ago before heading to $192 when it crested. It's not cheap. It never will be now. But my point is that maybe it wouldn't even be for sale if it weren't for how awful the stock market really is, when it comes to valuing individual companies.
When I spoke with Dave Ricks, the CEO of Lilly, not that long ago, we talked about how Lilly's not going to spend a fortune to buy companies when things are going so well. But then the crash -- and it was a crash -- occurred.
That's a game changer for Lilly and other big companies with huge borrowing abilities and a ton of cash.
The stock baskets are being broken up. The Lillys and the Bristols know there are misvaluations. I think there will be many others on the way.