November 14, 2017 / 12:49 PM / a year ago

UPDATE 2-Loxo, Bayer to co-develop cancer drugs in up to $1.55 bln deal

(Adds details on drugs, background on Bayer, share price)

Nov 14 (Reuters) - Loxo Oncology will collaborate with Germany’s Bayer to develop and commercialize two of its cancer therapies, the companies said, in a deal that could bring the U.S. drug developer up to $1.55 billion over the next few years.

But shares of Stamford, Connecticut-based Loxo, which have risen 159 percent so far this year, fell 6.5 percent to $77.80 in premarket trading on Tuesday.

Loxo will receive $400 million upfront from Bayer and the two companies will split development costs and U.S. profits equally. Loxo is also eligible to receive $450 million and $200 million for each of the drugs in milestone payments once the treatments are approved and sold.

The drugs, larotrectinib and follow-on compound LOXO-195, belong to a class of medicines called TRK inhibitors, which directly target acquired genetic defects in cancer patients rather than inherited defects.

With the deal, Bayer is betting on a new field of oncology in which different cancers originating from different organs are screened for common genetic mechanisms that cause cancer cells to grow and offer a single point of attack for treatment.

Data from earlier this year showed larotrectinib to be a particularly safe drug, positioning it as a breakthrough in the field of precision medicine, which tailors treatment to a patient’s genetic profile by targeting biological markers on tumors.

The deal also comes as Bayer, which is buying U.S. seeds giant Monsanto, struggles to develop new drugs that could offset an expected slump in sales when its bestselling anti-clotting drug Xarelto loses patent protection in 2024.

Merck & Co’s immuno-therapy Keytruda in May became the first cancer drug ever approved in the U.S. based on a patient’s specific genetic traits, regardless of where in the body the disease originated.

Loxo will lead development of the drugs and file for their U.S. approvals, while Bayer will file for regulatory approvals and lead commercialization outside the United States.

Loxo said it expects to apply for U.S. marketing approval of larotrectinib later this year or early next year. (Reporting by Tamara Mathias in Bengaluru; additional reporting by Ludwig Burger in Frankfurt; editing by Sai Sachin Ravikumar)

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