Steve Elms Source: Aisling Capital

Steve Elms has been going to the J.P. Morgan Healthcare Conference for so long that he was there before it was even J.P. Morgan’s.

Back in 1995, he was a young banker at Hambrecht & Quist, the San Francisco-based boutique firm that hosted a clubby, annual gathering for a burgeoning biotechnology industry.

More than 20 years later, Elms was back at the event after making one of the bigger deals of his career. On Monday, Eli Lilly & Co. said it would buy Loxo Oncology Inc. for $8 billion in cash.

Elms, 55, is the chairman of Loxo’s board and his investment firm, Aisling Capital, is one of its largest shareholders. Aisling’s stake is worth about $480 million at the $235 per share deal price. Considering many of those shares were purchased for a fraction of that price in the company’s earliest funding rounds, suffice to say Elms and Aisling have done well.

“We’re very pleased with the outcome,” Elms said. “It really demonstrates that being a patient-focused company like Loxo can lead to very attractive shareholder benefits.”

Room Frenzy
It’s the kind of deal that keeps hundreds of small drug companies coming back to San Francisco year after year for a meeting that has grown from intimate gathering to epic frenzy. Entire hotels book up months in advance. A single room, which might typically rent for $200 a night, can cost as much as $1,000.


Fueling the frenzy is the impressive speed at which the science and innovation of biotech is evolving, making amazing medical strides from effective cancer drugs to restoring sight to the blind. And then there’s the money. Some treatments already bring in hundreds of thousands of dollars a year per patient. And it’s not too far off before miracle therapies currently in development will likely cost upward of millions of dollars.

Little wonder that large pharmaceutical companies are willing to buy smaller biotech firms for ever-steeper premiums. Eli Lilly’s 68 percent markup for Loxo looks conservative compared with the big deal that transpired in the wake of last year’s J.P. Morgan conference, when Celgene Corp. bought Juno Therapeutics for a near-record 91 percent premium.

That deal was partially motivated by a desire to please investors at a time when Celgene shares were sliding. Despite spending $9 billion on the company, the slide continued, hitting multi year lows by the end of 2018. The news that the serial biotech-acquirer would be acquired itself for $74 billion on the eve of this year’s conference provided a clear message to other large drugmakers: No company is too big to be a target.

Elms said he hopes the Loxo news will spur more mergers, but that doesn’t mean every biotech company should expect a billion dollar payday. He worries that the many companies that tapped the public markets in recent years are about to run low on capital and will have to raise more funds soon. That signals, he said, a big shakeout on the horizon.

“Biotech is still a very treacherous investment,” Elms said. “When you listen to the science, everything sounds fantastic. You really have to do a lot of work to try to divine at the end of the day which drugs are going to get approved.”

Bloomberg