LOXO (LOXO Oncology) - Purchased 410 shares at $19.00

DEC has been closely following LOXO since the beginning of the year. Although an assessment of the company's drug, LOXO-101, can only be preliminary at this stage of development, a growing body of data supports investing in the company. LOXO is a cancer focussed company that has a similar focus to Blueprint Medicines (BPMC) in deciding which drugs to develop in the cancer space. Both companies develop drugs known as kinase inhibitors that are exquisitely selective for blocking the activity of enzymes that are driving tumor growth.

LOXO-101 targets the kinases encoded by the genes NTRK1, NTRK2, and NTRK3, with greater than 100-fold selectivity versus other proteins. This degree of selectivity allows for increasing the dose of the drug while mitigating off target toxicities. NTRK gene fusion events have been found in various types of cancers, and several lines of data have demonstrated that these fusions are most likely cancer driving genetic events. Inhibition of NTRK in in vitro and in vivo mouse models with these cell lines demonstrate potent control of tumor growth.

In the dose escalation stage of a Phase I trial, LOXO-101 was demonstrated to be well tolerated at doses predicted  to achieve almost complete TRK kinase inhibition. The safety profile was acceptable at these doses. Yesterday, the company published data on the first NTRK mutated patient to be treated, and significant tumor regression was observed. More data in NTRK mutated patients will be needed to determine if the drug truly works, but this is a very good start.

Regression of lung metastases in a patient harboring an LMNA-TRKA driven soft tissue sarcoma dosed with LOXO-101.

AKAO (Achaogen) - Purchased 1,180 shares at $6.35

Soon after its initial public offering in March of 2014, Achaogen stock reached a high of almost $19 per share on excitement over its antibiotic Plazomicin entering Phase 3 studies for the treatment of multidrug resistant gram negative bacteria. Referred to as "nightmare bacteria" by the head of the Centers for Disease Control, these "superbugs" are resistant to most drugs currently in the clinic. Infected patients carry an elevated risk of major complications and death, as there are few effective treatment options.

Plazomicin was seen by many as a potentially lifesaving drug of last resort. However, after missteps in the execution of the clinical trial, and the realization that delays in enrollment would require setting up a second Phase 3 trial, the price of the stock dropped significantly to the $5-$6 dollar range, representing a market cap of approximately $120M.

DEC believes that Achaogen is currently significantly undervalued. The probability of Plazomicin gaining approval has not changed, yet the current valuation is significantly below that of comparable companies. Although the timeline for approval is now roughly one year longer, it remains likely that Plazomicin will play a fundamental role in managing life threatening bacterial infections in hospitals around the world.

In an upcoming post, the investment thesis for AKAO will be presented in greater depth.