A market meltdown at the end of 2018 brought back another round of biotech buyouts, and the latest from Eli Lilly (NYSE:LLY) was a whopper. Lilly agreed to purchase Loxo Oncology (NASDAQ:LOXO) for $8 billion, a 68% premium over its recent price.

The team at Loxo deserves high praise for launching a new cancer therapy around five years after it entered proof-of-concept studies. It's so impressive that many investors don't realize that Array BioPharma (NASDAQ:ARRY) discovered Loxo's drugs and quite a few others.

A man handing cash to a doctor behind a desk.

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Is the prolific drug discovery engine a buy at recent prices? To find out, let's start by looking at what Eli Lilly sees in the drugs Array discovered.

A big improvement on a popular theme

Your cells rely on hundreds of different enzymes, called kinases, to turn on proteins that do important jobs. In healthy cells, kinases work like fine-tuning knobs, but in tumor cells, certain kinases have been known to party all night long without any consideration for the neighbors.

Kinase inhibitors have been used to treat cancer for decades, but getting them to avoid kinases not implicated in cancer is a real challenge. Eli Lilly jumped at a chance to buy Loxo Oncology because its recently approved kinase inhibitor is ultra-targeted. Vitrakvi inhibits just three kinases, unlike similar drugs from peers that are far less discriminate.

Where Array BioPharma fits in

In 2013, Aisling Capital created Loxo Oncology, which immediately agreed to pay for pre-clinical development of Vitrakvi, which Array BioPharma had already discovered. At Loxo's direction, Array also discovered LOXO-292, which is in a pivotal study after producing impressive mid-stage trial data last year.

Array also discovered LOXO-305, a Bruton's tyrosine kinase (BTK) inhibitor that entered phase 1 trials recently. It's too early for serious expectations, but Loxo and Array are on a hot streak and a better BTK inhibitor could be worth billions. A popular drug from this class that launched in 2013, called Imbruvica, will generate at least $5 billion in sales this year for AbbVie and another $3 billion for AbbVie's market partner, Johnson & Johnson.  

Array's entitled to a mid-single-digit percentage of sales on all the drugs that Eli Lilly will acquire from Loxo, along with up to $635 million in commercial milestone payments if they continue to succeed.

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Beyond Loxo and Lilly

At recent prices, Array's a $3.6 billion company that only collected $201 million in top-line revenue over the past year. That means Eli Lilly's future contributions aren't the only source of revenue Array investors are looking forward to.  

Array launched a combination treatment for BRAF-mutant melanoma in early July, and by the end of September, sales of Braftovi plus Mektovi reached $14 million. The combo owes its popularity to pivotal trial results that show it reduced patients' risk of death by 39% compared with standard care. 

Array's melanoma combo has been approved in the EU, and an application in Japan is under review. Analyst expectations vary, but a large share of the available patient population could drive U.S. sales of Braftovi plus Mektovi up near $1 billion annually.

Further ahead, an approval to treat patients with relapsed colorectal cancer (CRC) could be in the cards. Relapsed CRC patients with BRAF-mutated tumors aren't expected to survive longer than six months following standard care, and oncologists are clamoring for better treatment options.

Array's Braftovi plus Mektovi is in a triple combination study with Erbitux, and an early look at the first 30 patients was extremely encouraging. A majority of patients didn't show signs of disease progression for at least eight months after treatment with the experimental triplet. 

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A successful expansion to treat CRC with Array's wholly owned treatments could drive another $1 billion in annual sales in the years ahead. Historical comparisons can be dangerous, but we'll have top-line data that includes control group results before the end of the first half.

The FDA promised the triplet a speedy review based on results from the first 30 patients. Array plans to file for accelerated approval if an interim look at the trial data will support one. The company plans on reading out the top-line results before the end of the first half, and the stock will soar if they fall in line with earlier observations.

Here come the royalty checks

Array BioPharma will market its melanoma combo in the U.S., but it's leaving the EU and Japan to marketing partners with more resources in the right places. The company's entitled to a double-digit percentage of European sales from Pierre Fabre, and a tiered percentage between 22% and 25% from Ono Pharmaceutical.

Braftovi plus Mektovi on their own make Array attractive. With Eli Lilly's gigantic sales force marketing the treatments it's picking up from Loxo, the mid-single-digit royalty percentage to which Array is entitled could become a significant revenue stream down the line. Add it up, and Array looks like a top biotech stock to buy right now.

Check out the latest Array Biopharma earnings call transcript.