What happened

Shares of Loxo Oncology (NASDAQ:LOXO) soared more than 66% in 2018, according to data from S&P Global Market Intelligence. That rise was earned following impressive data from an early-stage asset named LOXO-292 and scoring marketing approval from the U.S. Food and Drug Administration for lead drug candidate larotrectinib (Vitrakvi). The drug is approved to treat tumors with a specific genetic mutation, but it doesn't matter where they are in the body. It's the first "tumor-agnostic" drug approved in the history of the FDA.

Of course, that was only the beginning. Loxo Oncology leveraged all of that progress to land an $8 billion acquisition bid from Eli Lilly (NYSE:LLY) in the first few days of the year. That's why the stock has gained another 66% since the beginning of 2019, or 176% since the beginning of 2018.

Check out the latest Eli Lilly earnings call transcript.

An arrow jumping up shelves on a wall.

Image source: Getty Images.

So what

Loxo Oncology employs an approach that's becoming increasingly common in oncology: Treat cancers based on their genetic profile, not just where the tissues originate in the body. That's great news for patients, as it appears to be a much more effective approach than other standard treatments currently on the market.

For example, LOXO-292 delivered an overall response rate of 77% in a phase 1 trial evaluating it as a treatment for solid tumor cancers with a genetic mutation called RET. It didn't matter what type of RET mutation was present, where the tumor was found in the body, or whether patients had previously failed to respond to another treatment that can typically lead to genetic resistance in the cancer.

The data looked similar to the early days of Vitrakvi, which is approved to solid tumor cancers with a genetic profile called an NTRK gene fusion. The drug is expected to become a blockbuster by 2024.

Now what

Some have questioned whether Eli Lilly overpaid for Loxo Oncology. The young company may have a blockbuster drug or two stuff in its pipeline, but it will take a decade or so to make the $8 billion acquisition price worth it. That's not a concern that can be dismissed entirely, but this deal shouldn't end up on any "worst acquisitions ever" list.