This Tiny Cancer Drug Upstart Just Got Even More Interesting

Loxo Oncology (NASDAQ: LOXO) was already an investors' darling thanks to impressive efficacy for larotrectinib in a range of cancers, and after yesterday's release of an abstract to be presented at the influential American Society of Clinical Oncology (ASCO), investors are even more optimistic about the company's future. Will this company become the next big cancer-drug maker?

A new approach to fighting cancer

As we're learning more about the role that genes play in disease, we're discovering that many cancers may be caused by the same genetic mutations, regardless of where the cancer began.

Last year at ASCO, Loxo Oncology presented trial data for larotrectinib that showed a 76% response rate in 55 patients with a TRK fusion gene mutation. Those responses came across 12 different cancer types, suggesting that targeting TRK could provide a new way to battle cancer based on a person's genetic makeup.

Based on the company's results, Bayer AG (NASDAQOTH: BAYRY) licensed the rights to larotrectinib in a nine-figure deal that included $400 million up front and up to $450 million in regulatory and first-sale milestones. The two companies will split profit in the United States. Outside the U.S., Loxo Oncology will get tiered double-digit royalties based on sales levels, as well as up to $475 million in sales-based milestones.

The two companies completed filing their rolling FDA application for larotrectinib's approval in March, so this drug could make its way to the market soon.

If all goes Loxo Oncology's way, it could end up with a second commercial drug based upon data that will be reported on LOXO-292, the company's highly selective RET inhibitor.

The abstract released yesterday shows that patients with cancers that harbor a genetic mutation in the RET gene responded well to LOXO-292. In phase 1 trials made up of RET mutation-positive patients with non-small cell lung cancer (NSCLC), papillary thyroid cancer (PTC), and medullary thyroid cancer (MTC), there was a 52% overall response rate to LOXO-292. The response rate was 69% in NSCLC, which is particularly interesting given the size of the overall market.

The National Cancer Institute estimates 234,000 people are diagnosed with lung and bronchus cancer every year, and while only about 2% of those patients are likely have the RET mutation LOXO-292 addresses, that still represents an addressable patient population of about 4,600 people.

Only two of 14 MTC patients had at least a partial response, but MTC is a much smaller indication than NSCLC. Overall, it only accounts for 3% of the estimated 54,000 thyroid cancer cases diagnosed in the U.S. annually.

Is the best yet to come?

Investors were disappointed that Bayer didn't buy Loxo Oncology outright last year, but that doesn't mean that it won't acquire it in the future, or that another company won't come knocking on Loxo Oncology's door.

Cancer treatment is quickly moving away from treating patients based on the location of origin of their cancer, and companies with precision cancer drugs could end up capturing significant revenue, especially because these targeted therapies are likely to come to market with six-figure price tags.

Overall, Loxo Oncology estimates that larotrectinib can address between 1,500 and 5,000 late-stage eligible patients in the U.S. alone, and since TRK fusions occur in similar proportions outside the U.S., eventual approval in the EU or Japan would be a win, too.

Securing an approval for LOXO-292 could be icing on the cake for investors, but we'll still need to get more trial data before we know for sure that this drug is effective and safe enough to win over regulators.

Investors should also keep their enthusiasm in check because Loxo Oncology isn't alone in targeting TRK fusion and RET mutations: Roche Holdings (NASDAQOTH: RHHBY) could challenge it in TRK fusions and Blueprint Medicines (NASDAQ: BPMC) could compete with it in RET mutations.

In December 2017, Roche Holdings spent $1.7 billion to buy Ingynta so that it could develop Ingynta's lead drug, entrectinib, a selective TRK inhibitor that may help patients harboring NTRK fusions and ROS1 fusions. The deal followed word last October of a 69% overall response rate to entrectinib in ROS1 fusion-positive NSCLC in a midstage study.

In RET mutations, Blueprint Medicines presented proof-of-concept phase 1 data at the American Association for Cancer Research meeting in April for BLU-667. The preliminary overall response rate in that study was 50% for NSCLC and 40% for MTC. It's bad science to compare separate trials against one another, but clearly, it appears that BLU-667 could compete against Loxo Oncology's LOXO-292.

Nevertheless, Loxo Oncology's in the lead thanks to larotrectinib, and a deep-pocketed partnership makes it one emerging biotech company that growth investors ought to be considering for their portfolio.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.