Morgan Stanley Upgrades Loxo On The Potential Of A Targeted Cancer Therapy

Loxo Oncology Inc LOXO holds an opportunity to differentiate itself among RET inhibitors while developing medicines for patients with genetically defined cancers, according to Morgan Stanley. 

RET, or rearranged during transfection, is a certain type of mutation in protein that occurs in a subset of lung cancer patients and fuses the RET gene with other nearby genes, making it hyperactive, according to Cancercommons.

The Analyst 

Morgan Stanley analyst Matthew Harrison upgraded shares of Loxo from Equal-weight to Overweight and increased the price target from $130 to $170.

The Thesis

Rival Blueprint Medicines Corp BPMC's initial data on its RET inhibitor BLU-667 was presented at the American Association for Cancer Research on Sunday, Harrison said. (See the analyst's track record here.)

Although the data was good, it was at the lower end of Loxo investors' expectations, offering the latter scope for differentiation, the analyst said. 

Morgan Stanley projects opportunity for LOXO-292 to demonstrate differentiation on both efficacy and safety versus BLU-667 when updated data are presented at the American Society of Clinical Oncology in June.

"We see the most opportunity on a better [adverse event] profile, where we believe LOXO-292 may not have the Gr3 hypertension and neutropenia that, while at limited rates, was noted with BLU667." 

Based on the news, Morgan Stanley increased its market share estimate for LOXO-292 from 50 percent to 60 percent, with the probability of success raised from 50 percent to 60 percent.

Relative to BLU, the firm believes LOXO-292 is likely to demonstrate a cleaner adverse event profile, and potentially even a higher overall response rate, leading to increased market share.

The Price Action

Loxo shares have gained about 46 percent year-to-date. At the time of publication, the stock was rallying 3.9 percent at $127.79. 

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