Bayer has just reclaimed some rights to two drugs from Loxo Oncology, which means it’s going to take more work for Loxo’s buyer, Eli Lilly, to justify the $8 billion it is paying for the company.
Lilly (NYSE: LLY) this morning closed its buyout of Loxo, a developer of cancer drugs that target specific genetic abnormalities on tumors. That buyout, in turn, triggered a “change of control” clause baked into a 2017 partnership between Loxo and Bayer, the German pharmaceutical giant.
Under the 2017 deal, Bayer paid Loxo $400 million for European rights and partial U.S. rights to two drugs—the now-approved larotrectinib (Vitrakvi), and the experimental LOXO-195—with the option to claim full rights to both if Loxo were bought. Minutes after Lilly announced it closed on Loxo, Bayer exercised that option and claimed full control of both drugs. Bayer will now pay royalties to Lilly (NYSE: LLY) on sales of larotrectinib, and LOXO-195, too, if the latter makes it to market.
Loxo gained notoriety for becoming just the second company, after Merck, to win a tissue-agnostic cancer drug approval; that is, clearance to use a drug to target a tumor’s DNA fingerprint, no matter where in the body it is found. That approval went to Loxo’s larotrectinib, which targets tumors in which a gene called TRK is abnormally fused to another gene. TRK fusions are rare, but present in up to 1 percent of all solid tumor types, including cancers of the kidney, bladder, stomach, and lung. Loxo took an unusual and streamlined path to approval, too, winning an FDA nod just four years after clinical testing began and relying on “basket” trials that enrolled patients with a variety of cancer types.
Significant questions remain regarding the commercial viability of tissue-agnostic cancer drugs—how payers, for instance, will handle these medicines as well as the tests needed to identify patients who can benefit from them. But Lilly—which has been aggressively buying cancer assets over the past year—gambled on their upside nonetheless, agreeing in early January to pay $8 billion for Loxo and its suite of targeted cancer medicines.
With Bayer’s decision, Lilly will now have to rely on royalty payments from Bayer and the success of other Loxo drugs for its bet to pay off. Aside from larotrectinib and LOXO-195, Loxo’s pipeline includes two drugs in human testing: LOXO-292, a drug that targets cancers with alterations to RET gene that are found lung, thyroid, and other cancers; and LOXO-305, which aims at cancers with mutations to an enzyme called Bruton’s tyrosine kinase. Last year, Loxo released positive data from Phase 1 studies of LOXO-292. LOXO-305, being developed for patients whose tumors develop resistance to currently available BTK inhibitor drugs—like the big-selling blood cancer drug ibrutinib (Imbruvica)—is also in early human trials.
Loxo’s pipeline also includes other cancer drugs in preclinical development.
Lung cancer metastasis image by the National Cancer Institute