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Bayer AG (ADR) (BAYRY) just announced that it has picked up the rights to an asset in one of the most promising new classes of oncology therapies. The company has picked up a percentage point or two on the back of the news which, at first glance, doesn’t look like an awful lot. When you consider that Bayer is a $105 billion healthcare behemoth, however, a percentage point appreciation turns into something quite substantial.
With this in mind, then, here’s a look at why markets are excited about the latest Bayer news and what it means for both the company and the oncology space going forward.
So, as mentioned, the rights that Bayer has picked up on the back of the recent deal relate to an oncology treatment and – specifically – it’s a drug called larotrectinib. There’s also a compound called LOXO-195 tied into the arrangement but, for now at least, the vast majority of the near term benefit for both companies involved (Bayer and the original developer of the drug, Loxo Oncology Inc (LOXO)) is rooted in larotrectinib.
The drug is part of a family of drugs called tropomyosin receptor kinase (TRK) inhibitors. The idea behind these drugs is pretty elegant so it’s worth taking a look at the mechanism of action (MOA) in a bit of detail before looking at the larotrectinib asset specifically.
TRKs are a family of signaling proteins that play an important role in cellular communication and tumor growth. Research conducted over the last decade or so suggested that the NTRK genes, which encode for TRKs, can become abnormally fused to other genes and – in doing so – can start coding for faulty or overactive TRKs. Overactive TRKs lead to the unchecked proliferation and replication that’s commonly associated with cancer.
The idea behind this sort of treatment, then, is that by inhibiting the TRKs that the body produces as a result of the faulty NRTKs (the ones that have become faulty having fused to another gene), the drug can stop excessive signaling and – in turn – can halt the unchecked proliferation that makes cancer so aggressive and, in most cases, so deadly.
That was the theory, at least, and Loxo set about trying to support it with some quantitative data a couple of years ago.
And it managed to do just that.
The company put out data in June this year that it collected on the back of three separate trials – a phase I, a phase 2 basket trial and a phase I/II pediatric trial. As per the data, the drug demonstrated a 76% confirmed objective response rate (ORR) across a variety of tumor types with no discernible difference in safety profiles between that and the current standard of care immunotherapy assets in these solid tumor cancer categories.
Subsequent to this data hitting press, Loxo picked up a flurry of big pharma interest and – after three or four months of negotiation – picked Bayer to carry the asset into commercialization.
So what are the terms?
Bayer has paid $400 million upfront and will pay a further $450 million in milestones once larotrectinib is approved and achieves its first sales in certain major markets. In addition, there’s a further $475 million in milestones, plus tiered double-digit royalties, rooted in outside of the US sales of the drug post-approval.
That means there’s a potential $1.5 billion in the deal for Loxo, underscoring the drug’s potential and, by proxy, Bayer’s confidence that it can be a winner for the company and the oncology space as a whole.
What’s next?
There’s a good chance Bayer will have to conduct a pivotal before submitting for approval, so that’s the next major catalyst for this drug in this indication.
Disclosure: the author has no positions in any of the stocks discussed in this piece.
