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What happened

Shares of rare-cancer specialist Loxo Oncology (NASDAQ:LOXO) were shot out of a cannon Monday morning after the company provided a clinical update on three of its product candidates. The stock hit an intraday -- and all-time -- high representing a jump of as much as 36% before cooling off to a 25.8% gain at market close.

So what

What update could possibly be worth 25% gains? Well, Loxo Oncology currently has four product candidates in its pipeline aimed at selectively treating genetically defined cancers, but only one is in clinical trials of any kind. That distinction belongs to larotrectinib, which is currently being investigated in two phase 2 trials and two phase 1 trials. 

Today, management announced that it believes the two mid-stage trials may be enough to gain market approval for specific indications. Better yet, with enrollment at 85% of the company's goal, it expects to report top-line data in the second half of 2017. That could pave the way for the submission of a New Drug Application later next year or in early 2018 in the United States, as well as the European equivalent sometime in 2018.

Loxo Oncology didn't stop there. It announced that two other product candidates, LOXO-195 and LOXO-292, will enter phase 1 clinical trials in the first half of 2017 with the potential to announce data by the end of the year. The former targets the same biological pathway as larotrectinib, but in cancers that may acquire resistance. In other words, the company is hoping to use larotrectinib as a first-line treatment in specific types of genetically defined cancers, and have LOXO-195 as a second-line treatment should patients fail to respond to larotrectinib. LOXO-292 targets a different type of genetic mutation altogether.

Only one pre-clinical program was left out of today's pipeline updates. That means Loxo Oncology has the potential for more firepower PR in the coming quarters, is still working out a path to the clinic and market, or will have some bad news about the program's cancellation for investors soon. Investors will have to wait to find out. 

Now what

Loxo Oncology is a young biopharma stock with plenty of potential -- and plenty of risks. It certainly needed the boost provided to shares today, especially considering that with just $155 million in cash on hand at the end of September and (soon to be) three early stage drug candidates, it will likely need to find additional funding in 2017. What better time to sell stock for cash than when shares are trading at highs?