LOXO Oncology (LOXO) focuses its research on cancers that are uniquely dependent on single gene abnormalities, so that a single drug has the potential to treat the cancer with dramatic effect, observes Hilary Kramer, editor of GameChangers.

As genetic testing in cancer becomes more routine, scientists are learning that cancers arising in diverse sites in the body may share common genetic alterations. Increasingly, tumors may be identified and treated according to their distinguishing genetic alterations, while in the past, the organ of a cancer’s origin was most important.

Both research and clinical data suggest that some tumors, while having many identifiable genetic alterations, are primarily dependent on a single genetic alteration or a signaling pathway for their proliferation and survival.

This dependency, often referred to as oncogene addiction, renders such tumors highly susceptible to small molecule inhibitors targeting the relevant alteration or pathway.

LOXO’s research process can be called one of identify, build and study. The company seeks to identify genomic vulnerabilities that lead to cancer and chooses targets with the greatest unmet needs.

Once the target is chosen, the company seeks to build medications that rationally inhibit the target, either through in-house research and development or collaborations. The company then studies the medicines in well-designed patient populations, looking to identify early response signals and accelerate development through novel clinical and regulatory strategies.

The company’s current lead potential product is larotrectinib for the treatment of metastasized or advanced local solid tumors which feature fusions of a protein modifying gene called NTRK. Clinical testing showed the drug has a 76% response rate with these tumors.

A New Drug Application with priority review was accepted by the Food and Drug Administration (FDA) in May, and the agency set a target action date of November 26, 2018, at which time the drug likely will be approved for commercial use.

The company is partnering on the drug with German pharma giant Bayer, which will provide marketing and pay 50% of the commercial development costs of the drug once it is approved. LOXO received $400 million in upfront payments and could collect a potential $650 million in milestone payments, along with a percentage of Bayer’s sales of the drug.

The next potential product in the pipeline is LOXO-292, which treats cancers that have an abnormal RET gene. Such a gene produces a protein used in signaling between cells. Patients in a Stage I/II clinical trial showed a 77% response rate, and Stage III trails should begin next year.

Currently in Stage I and II testing is LOXO-195, which is being developed on anticipation of potential resistance to larotrectinib in light of recent literature which discussed resistance to NTRK inhibition. In pre-clinical stages, there is LOXO-305, which will be used to address cancers that have failed to respond to BTK inhibitors currently being used for the treatment of leukemia.

Thanks to the marketing agreement with Bayer, LOXO is in a strong financial position, with cash and investments of $660 million, and no debt. While the agreement means that the company will need to share its larotrectinib revenues with Bayer, it will also eliminate the need for LOXO to raise capital while it continues to develop its pharmaceutical pipeline.

Given the success of its early research efforts, it is not unreasonable to assume that the pipeline will continue to grow, and the long-term outlook for the company is bright. Buy LOXO below $165. My target is $200. Given the fact the company is in its developmental stage with revenues only coming from the Bayer contract, the shares are high risk.

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