Walgreen and Rite Aid Deal, Eli Lilly and Incyte Fail and NASH Market Heating Up

Originally published in partnership with INO.com



The proposed Walgreens (WBA) and Rite Aid (RAD) deal continues to be drawn out and increasingly tumultuous between the companies involved and federal regulators. Recently, Rite Aid and Fred's (FRED) shares dropped amid talk the Federal Trade Commission is leaning towards filing a lawsuit seeking to block Walgreens' planned acquisition of Rite Aid. In December of 2016, the companies announced an agreement to sell 865 stores to Fred’s for $950 million in cash. Earlier this year, Walgreens and Rite Aid agreed to divest more stores, boosting the number to 1,200 and to reduce their merger price.

Walgreens handed an ultimatum to regulators and gave them 30 days to decide one way or another, finally capping off a process that has dragged for close to 18 months. Given the short timeline and forcing the hands of the FTC, this move could backfire and they could decide against the merger if it believes its antitrust concerns haven’t been addressed. Recently Walgreens and Rite Aid agreed to extend the merger deadline once again to July 31st and stated that the companies are “actively engaged” with the FTC. CVS has reportedly warned the FTC that the sale to Fred’s isn’t sufficient to ensure competition, drawing parallels to when Safeway sold 146 stores to Haggen Holdings in 2015 in order to win antitrust clearance for its merger with Albertsons. Haggen eventually went bankrupt, and sold some stores back to Albertsons in the process. Bloomberg notes that the FTC may be vulnerable to such warnings and is hoping to avoid that kind of situation.


Eli Lilly and Incyte had partnered on a potential treatment for rheumatoid arthritis with barictinib. The Food and Drug Administration rejected barictinib, which was predicted to generate sales of $1 billion by 2020 if it had been approved. Eli Lilly sold off roughly 4% however Lilly’s partner shouldered the majority of the rejection and cratered by 11% on the news. Eli Lilly had another recent setback in November of 2016 when the company reported a disappointing phase III clinical readout on an experimental Alzheimer’s treatment which failed to slow the loss of cognitive ability in patients with mild Alzheimer's disease. This was based on the failure of the more than a 2,100 patient study and Lilly said it won't seek U.S. approval of solanezumab. Some analysts had predicted solanezumab, if approved, would have eventually led to more than $5 billion in annual sales and a boost to Lilly's earnings for years to come. Eli Lilly’s CEO stated that revenues will grow an average of 5 percent between by the end of the decade, and calling for margins to improve without solanezumab.


Over the past two years, there’s been a lot of activity in the potentially lucrative NASH (non-alcoholic steatohepatitis) space. NASH is a progressive fatty liver disease poised to become the leading cause of liver transplants by 2020. Big pharma has identified this liver condition as the next frontier in the liver space and a multi-billion dollar future market, predicted to be $20 billion to $35 billion. There are currently no approved treatments for those that are diagnosed with this disease. Recently, Allergan (AGN) and Novartis (NVS) have teamed up to explore potential therapies to treat this chronic and inevitably lethal disease.

It seems everyone is jumping on the NASH bandwagon, Pfizer (PFE) currently has three early-stage drugs aiming to block or reverse fat accumulation in the liver. Bristol-Myers Squibb (BMY) is looking for additional assets to enhance its internally-developed NASH drugs. Gilead Sciences (GILD) presented data last year from a Phase II trial that demonstrated fibrosis regression. Allergan became a top NASH contender with its acquisition of Tobira Therapeutics and a deal with Akarna Therapeutics last year. Combination therapy may be the best approach over the long term to combat this disease via targeting multiple pathological pathways. There are drugs targeting different modalities of the disease such as the inflammation pathway, fibrosis pathway and metabolic pathway in an effort to prevent or reverse fibrosis. It will be interesting to see how this NASH field matures considering all major players appear to be in the game.

ABOUT THE EDITOR - Noah Kiedrowski

I am biotechnology professional with a diverse scientific background and detailed knowledge in many therapeutic areas such as monoclonal antibodies, immunotherapies and antivirals. I have a personal interest in finance, investing, trading and global markets. My analysis is focused on stocks and exchange traded funds (ETFs) while exploring niche opportunities such as derivative trading via options. This newsletter is intended to provide investors with the latest developments and trends regarding the overall healthcare sector with a biotechnology emphasis. I'll be highlighting sector trends, merger and acquisition activity, noteworthy current events, political developments and drug approvals. My focus will be centered on well-established mid-cap and large-cap companies as well as utilizing appropriate ETFs as proxies for sector trends. This is a bi-monthly newsletter service that reflects my own opinions and analyses. This newsletter is not intended to be a recommendation to buy or sell any stock or ETF mentioned. I am not a professional financial advisor or tax professional, rather an individual investor who analyzes investment strategies and disseminates my analyses. I encourage all investors to conduct their own research and due diligence prior to investing.

This bi-monthly newsletter service reflects the opinions and analyses of INO Contributor, Noah Kiedrowski, founder of www.stockoptionsdad.com. This newsletter is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is not a professional financial advisor or tax professional, rather an individual investor who analyzes investment strategies and disseminates his own analyses. All traders and investors should conduct their own research and due diligence prior to investing.