Eli Lilly, Loxo Oncology: about $8 billion in cash or $235 per share

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Eli Lilly, Loxo Oncology: about $8 billion in cash or $235 per share.

This acquisition is consistent with the message LLY had been conveying to investors to broaden its cancer portfolio. Loxo Oncology represents a solid acquisition given its first-in-class small molecule opportunities in oncologic indications, which . . . complements Lilly’s existing cancer treatments

But analysts played down comparisons with Bristol-Myers Squibb’s $70bn-plus deal last week to buy Celgene, which was widely seen as a rescue rather than a strategic capture.

While our enthusiasm around the overall pace of biotech M&A still remains relatively muted, we’ve maintained Loxo was at the top of the M&A candidate list given the de-risked nature of the assets, strategic alignment with various potential suitors, and pharma’s historical proclivity for paying large sums of money for long-duration oncology assets. We expect the deal to close in the first quarter of 2019 and, while somewhat surprised to see Lilly emerge as the winner here, believe this process was probably well vetted and wouldn’t expect a higher competitive bid to emerge here

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“We see material downside risk to 2019-20 earnings, borderline credit metrics and limited mark-to-market benefits of higher commodity prices in the medium term. With this, we see a timely disposal of Centrica’s 20 per cent nuclear stake as critical to protect its balance sheet against another potential hit.”

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Jefferies estimated that Centrica’s 2019 earnings per share would fall 8 per cent on operational problems, volatile commodity prices and the suspension in November of UK capacity market trading. Operating cash flow may therefore be below Centrica’s target range, stretching credit metrics and leaving the 12p dividend “hanging by a thread”, the broker said.

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If UK power prices fell by a further 20 per cent, Centrica’s dividend would no longer be covered by cash and it would likely face a one-notch credit rating downgrade, said Jefferies. It estimated that to reinforce its balance sheet, Centrica would need to raise around £1bn from a nuclear sale.

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