Loxo Oncology Inc. (NASDAQ: LOXO) saw its shares dip on Tuesday after the company announced that it will be partnering with Bayer to develop and commercialize larotrectinib and LOXO-195. Even though this deal looks good on the surface, investors seem to believe that Loxo would have been better on its own. At least that’s how they’re voting with their shares.
Loxo shares have beat the broad markets this year so far, with the stock more than doubling in this time. While Loxo can afford to give a little back, it makes sense that some shareholders might think that the ride is over and are happy to take profits now.
Under the terms of the agreement, Loxo Oncology will receive a $400 million upfront payment and be eligible for $450 million in milestone payments upon regulatory approvals for larotrectinib and first commercial sale events in certain major markets. There would also be additional $200 million in milestone payments upon LOXO-195 regulatory approvals and first commercial sale events in certain major markets.
This deal could be worth well over $1 billion, and keep in mind that Loxo only has a market cap of roughly $2.2 billion.
Jacob Van Naarden, chief business officer of Loxo, commented:
This is a transformational collaboration for the company as we prepare for commercialization. Bayer has a history of successful co-promotion efforts with emerging biopharmaceutical companies and we are confident that their oncology team has the global reach and expertise, including an existing field force dedicated to cancer, to complement our existing commercial plans. We look forward to working with Bayer and believe that together we can bring our TRK inhibitors to more patients more quickly.
Shares of Loxo were last seen down about 6% at $77.71, with a consensus analyst price target of $103.45 and a 52-week range of $25.25 to $95.92.