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The Zacks Analyst Blog Highlights: Bristol-Myers, Celgene, Lilly and Glaxo

Zacks Equity Research



For Immediate Release





Chicago, IL – January 9, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Bristol-Myers BMY, Celgene CELG, Lilly LLY and Glaxo GSK.

Here are highlights from Tuesday’s Analyst Blog:

Crowded Cancer Space Triggers Big M&A Deals: More in Store?

The announcement of the mega-merger deal between Bristol-Myers and Celgene at the beginning of 2019 has set the stage for M&A activity in the pharma and biotech sector. Pharma giant, Bristol-Myers has offered $74 billion in cash and stock to acquire large biotech, Celgene.

Speculations are rife about increasing consolidation in the cancer space following the merger. Competition in one of the biggest pharmaceutical domains, the lucrative cancer segment, is on the rise. The cancer segment is crowded with the presence of legacy drugs and novel drugs making their way. In fact, this rising competition could be deemed as one of the reasons for this mega merger.

In another big move, Lilly has offered to take over Loxo Oncology for $8 billion to expand its oncology portfolio into precision medicines or targeted therapies. In December 2018, Glaxo offered to acquire TESARO for almost $5.1 billion. The acquisition will add TESARO’s PARP inhibitor, Zejula, which is approved for ovarian cancer, to Glaxo’s pipeline. Lilly and Glaxo’s acquisitions are expected to bring several smaller biotechs with targeted therapies in focus and make them potential buyout targets.

Merger and acquisitions are also expected to increase as pharma companies have excess cash at their disposal owing to the tax overhaul in 2017. The companies also repatriated huge cash stashed in other countries during the low tax repatriation window. The rich premiums in the above deals also suggest the same. Moreover, the pullback in biotech stocks toward the end of 2018 pulled down valuation of these companies, making investment attractive.

Although there were a few billion dollar deal announcements in this space early in 2018, including the $64 billion merger deal between Takeda and Shire, there was not much activity in the M&A space in the latter part of the year.

However, the announcement of three blockbuster deals within a span of a few weeks has put the pharma space back in focus. The deals reflect the fact that the companies are looking to expand their commercial portfolio as well pipeline of oncology therapies to gain a larger share of the lucrative cancer market, which is estimated to be more than $120 billion. With billions of dollars in cash available at large companies, the possibility of further consolidation in the segment is high.

Target Area/Companies

Immuno-oncology has been the key focus area in the past couple of years. The basic concept of cancer immunotherapy or immuno-oncology is to utilize certain parts of the immune system to fight the disease.The therapies either stimulate the immune system to attack cancer cells, inhibit the system which helps cancerous growth or programmed immune system components are introduced in the body.

The different types of immuno-therapies include monoclonal antibodies/mAbs that attack a very specific part of a cancer cell, immune checkpoint inhibitors and others that boost the overall immune system.

Please note that stocks of several small cancer biotechs have rallied following the Lilly/Loxo acquisition announcement. These include Clovis Oncology, Epizyme, Array BioPharma and Blueprint Medicines. A few of the novel drugs approved in 2018 for treating cancer are from smaller biotechs. Verastem’s Copiktra for lymphocytic leukemia, Agios Pharma’s Tibsovo for acute myeloid leukemia and Array BioPharma’s Braftovi for metastatic melanoma are noteworthy. These innovative cancer drugs have made smaller biotechs good acquisition targets.

Following the acquisition of TESARO, the possibility of the acquisition of Clovis Oncology, another maker of PARP inhibitor for ovarian cancer, is high. Meanwhile, Incyte’s strong oncology portfolio makes it a lucrative target. Other companies with attractive immuno-oncology pipelines include Alkermes, Syndax Pharmaceuticals, Immune Design, Tocagen, Galectin Therapeutics and others.

Apart from companies focused on immuno-oncology, companies with rare disease drugs in their pipeline will also be acquisition targets.

Potential Bidders

Per a Bloomberg report, Gilead Sciences, Biogen, AbbVie and AstraZeneca can be potential bidders. The report also states that Lilly might be open to more deals this year. AbbVie is likely to expand its pipeline as its top-grossing drug, Humira, is nearing generic competition. Biogen is focused on multiple sclerosis and has no cancer candidate in its pipeline. Thus, it can look to expand in the space through an acquisition. Gilead has failed to make any acquisitions in 2018. Thus, we expect the company to be on the lookout for prospective targets. Pfizer stated at the J.P. Morgan Healthcare Conference that it would like to invest in new pipelines through acquisitions.

Thus, we expect several consolidations in the space in 2019. We also expect these consolidations to bring good returns for investors as well as biotech/pharma companies going forward.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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