The Nasdaq Biotechnology Index is down in 2018, but it's been a banner year for the biotech industry. The FDA's broken its own record for total new drugs approved in a single year, and one of the latest is a revolutionary new cancer treatment from Loxo Oncology (NASDAQ:LOXO)

Unfortunately for Loxo, earning an approval for Vitrakvi could be easier than marketing it. Here's what's going to work for and against this important new drug's commercial launch.

Gloved hands checking in a blood sample.

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1. Vitrakvi's an important first for cancer patients

The FDA recently approved Loxo Oncology's first new drug application, making Vitrakvi the first cancer treatment the agency's approved to treat a tumor-agnostic indication right off the bat. Keytruda from Merck earned a tissue-agnostic approval last year, but only after several approvals for cancer that starts in specific tissues.

You'll probably see a lot more of the term "tumor-agnostic" in the future, which is unfortunate because it's somewhat misleading. Vitrakvi aims for very specific types of tumors; it just doesn't matter where they began in the body. 

About 20 years ago, Herceptin became the first cancer treatment aimed at tumors with a specific genetic profile, but it's still limited to patients with breast or stomach cancer. Oncologists can prescribe Herceptin to treat HER2-overexpressing tumors that originate somewhere else, but insurers are rarely willing to pay for off-label prescriptions.

Vitrakvi's first approval is for anyone whose biopsy turns up positive for an NTRK gene fusion regardless of where, which is a big reason an investment bank analyst at Oppenheimer expects annual Vitrakvi sales to exceed $1 billion by 2024.

A patient in a hospital bed with a blue bandanna on her head looks at a chart a doctor is showing her.

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2. Vitrakvi's addressable population could be extremely limited

If Vitrakvi's going to meet lofty sales estimates, it's going to have to pull lots of unforeseen patients out of the woodwork. Loxo Oncology thinks the number of advanced cancer patients who become eligible for treatment with Viktravy is between 2,500 and 3,000 per year in the United States.

Don't be surprised if we find out the drug's addressable patient population is larger than expected. During clinical trials supporting its application, Vitrakvi shrank tumors for 75% of patients who took it, and the easy-to-swallow capsules are far more tolerable than most other cancer treatments. Now that there's a treatment that looks as if it really wipes out tumors harboring this mutation, screening for it will become a priority.

3. Bayer means business

Launching new cancer therapies without the backing of a bigger company that's experienced sales reps in the field is an uphill battle that many upstarts are currently losing. Loxo Oncology investors can rest easy while its big pharma partner, Bayer (NASDAQOTH:BAYRY), does the heavy lifting.

The German pharma giant is eager to bolster its presence in the oncology arena and made a big splash with a $32,800-per-month list price for Vitrakvi. The pair will co-promote the treatment in the U.S., where they'll split the profits. A similar approval is expected soon in the EU, where Bayer will pay for commercialization expenses and a send Loxo a double-digit royalty percentage of net sales.

A calculator and a stethoscope on a pile of cash.

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4. Look out for reimbursement issues

Bottles of capsules that cost more than an average sports car are going to be hard for insurers to swallow. As a result, payers could force patients to jump through a lot of hoops. The FDA gave the treatment a generous label that makes Vitrakvi a first treatment option, but only if you can prove that you don't have any satisfactory alternatives. 

Patients will also need to present proof of an NTRK gene fusion without any known resistance mutations. It's probably just a matter of time, but the FDA still hasn't gotten around to approving a specific test. Once it does, patients with results in hand may have to go in for another biopsy and screening at their own expense.

5. Vitrakvi has a younger sidekick

Bayer also licensed LOXO-195, which is intended to be a follow-on drug for patients with tumors that develop resistance to Vitrakvi, or other TRK inhibitors such as entrectinib. Roche (NASDAQOTH:RHHBY) spent $1.7 billion last year to get its hands on this experimental therapy, and mid-stage results suggest Loxo doesn't have a lot to worry about.

Entrectinib doesn't bind TRK specifically as Vitrakvi does, which seems to make a difference in terms of efficacy. That said, Roche's candidate has performed well enough during clinical trials to expect a commercial launch in the years ahead.

A lot to look forward to

By the time we know if Vitrakvi's launch is a success, Loxo Oncology could have another application in front of the FDA. LOXO-292 is aimed at patients with tumors that harbor RET mutations, and the initial results have been more than encouraging.

Loxo Oncology still owns LOXO-292 outright, and it looks as if it picked a good program to fund on its own. According to Loxo, the FDA is willing to review an application based on results from an ongoing phase 1/2 trial instead of running a larger study. We'll probably never know what the FDA said exactly, but it sure looks as if this biotech's shareholders have plenty to be excited about.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.