IPO Preview: Loxo Oncology

Aug. 1.14 | About: Loxo Oncology (LOXO)

Summary

Develops targeted small molecule therapeutics for the treatment of cancer in genetically defined patient populations.

Stockholders and funds have indicated an interest in purchasing up to $23.5 million of the IPO, or 41%.

Price-to-book is 1.8.

Based in Stamford, CT, Loxo Oncology (NASDAQ:LOXO) scheduled a $57 million IPO on the Nasdaq with a market capitalization of $196 million at a price range midpoint of $13 for Friday, August 1, 2014.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Co-Managers: Cowen and Company, Stifel

Joint Managers: Oppenheimer, JMP Securities

End of lockup (180 days): Wednesday, January 28, 2015

End of 25-day quiet period: Tuesday, August 26, 2014

Summary

LOXO develops targeted small molecule therapeutics for the treatment of cancer in genetically defined patient populations.

Stockholders and funds have indicated an interest in purchasing up to $23.5 million of the IPO, or 41%.

Valuation

Glossary

Valuation Ratios

Mrkt Cap ($mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q1 '14

Loxo Oncology

$195

n/a

-16.8

1.8

1.8

29%

Click to enlarge

Conclusion

  • The rating is neutral
  • Low price-to-book of 1.8, a positive
  • 41% of the IPO is spoken for

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

LOXO develops targeted small molecule therapeutics for the treatment of cancer in genetically defined patient populations. LOXO's development approach translates key scientific insights relating to the oncogenic drivers of cancer into drugs that are potent and highly selective for their intended targets.

Such drugs typically achieve high target engagement, which has been correlated with improved tumor response. LOXO believes its approach will allows it to develop drugs with a high probability of clinical success while reducing the time, costs and risks of drug development.

Pre-clinical research indicates that LOXO's lead product candidate, LOXO-101, is a potent and selective inhibitor of tropomyosin receptor kinase, or TRK, a family of signaling molecules that appear to play an important role in the development and perpetuation of many cancers.

LOXO is evaluating LOXO-101 in a Phase 1 dose escalation trial for patients with advanced solid tumors, and LOXO anticipates reporting data by early 2015.

LOXO is also building a pipeline of additional product candidates targeting cancers driven by genetic alterations. LOXO's investors include affiliates of Aisling Capital, OrbiMed, New Enterprise Associates, Access Industries and Deerfield Management Company.

Background on Cancer and Oncogene Addiction

As genetic testing in cancer becomes more routine, LOXO is learning that cancers arising in diverse sites in the body may share the same type of genetic alterations.

Increasingly, tumors may be identified and treated according to their distinguishing genetic alterations, while in the past, the organ of 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 activated kinase 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. The oncogene addiction paradigm appears to be especially important in understanding the pathogenesis of lung cancer.

Robust response rates in lung cancer patients with tumors displaying oncogene addiction have supported regulatory approvals for many drugs, including crizotinib (Xalkori) and afatinib (Gilotrif).

Researchers and clinical oncologists now often incorporate genetic assessments into clinical trials and routine care with the hope of directing patients to medicines which may have a greater chance of treating their cancers effectively.

LOXO believes that increased focus on oncogene addiction will lead to more efficient drug development and more robust clinical responses in genetically defined patient populations.

Dividend Policy

No dividends are planned.

Intellectual Property

For its product candidates, LOXO generally strives for patent protection covering both composition of matter and methods of use.

LOXO has an exclusive license from Array to issued composition of matter patents covering LOXO-101 that expire in 2029, without taking into account any applicable extensions.

LOXO intends to work with Array to patent joint inventions in the United States and internationally.

In addition, during the development of its product candidates, LOXO may seek additional means of obtaining patent protection to potentially enhance commercial success, such as method of use claims.

LOXO also relies on trade secrets relating to its discovery programs and product candidates, and seek to protect and maintain the confidentiality of proprietary information to protect aspects of its business that are not amenable to, or that LOXO does not consider appropriate for, patent protection.

Competition

While there are currently no approved drugs targeting TRK, LOXO is aware of a number of compounds that are in clinical development and enrolling in patients with TRK receptor activating alterations, including Daiichi Sankyo and its subsidiary Plexxikon's PLX-7486, Tesaro's TSR-011, Ignyta's RXDX-101 and Novartis AG's dovitinib.

In addition, LOXO's collaboration partner, Array, has retained rights to development of compounds that target only one of the TRKA, TRKB or TRKC kinases, which if developed by Array or a licensee could be competitively significant, and it is likely that other companies are also engaged in preclinical development of compounds targeting one or multiple TRK kinases.

However, if LOXO-101 or LOXO's future product candidates do not offer sustainable advantages over competing products, LOXO may otherwise not be able to successfully compete against current and future competitors.

5% stockholders

  • Aisling Capital III, LP 28.9%
  • rbiMed Private Investments V, LP 18.1%
  • Array BioPharma Inc. 15.3%
  • AI Loxo Holdings LLC 13.0%
  • Entities affiliated with New Enterprise Associates 14, L.P. 14.9%
  • Joshua H. Bilenker, M.D. 6.0%
  • Dov A. Goldstein, M.D. 29.3%

Use of proceeds

LOXO intends to use the $51 million in proceeds from its IPO as follows:

  • $10 to $15 million associated with its currently planned Phase 1 dose escalation and expansion trial for LOXO-101;
  • $20 to $25 million to fund research and development and to advance its pipeline of preclinical product candidates; and
  • For working capital and general corporate purposes

Disclaimer: This LOXO IPO report is based on a reading and analysis of LOXO's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.