NewLink Genetics Corporation (NLNK) is a late-stage, biopharma focused on discovering, developing, and commercializing novel cancer immunotherapies. The company's most advanced drug candidates are based on their HyperAcute® platform, which are live, irradiated, allogeneic (non-self) human cancer cells that have been genetically modified to include α(1,3)-Galactosyl (αGal) residues to their cell-surface lipids and proteins. Unlike animal cells, human cells are unable to biosynthesize alpha-Gal on their surface, and in fact, all humans have natural circulating anti-bodies against alpha-Gal. This natural immune response to alpha-Gal is a major reason why xenotransplants are largely unsuccessful, and has even been recently indicated in a growing number of meat allergies.
NewLink Genetics' Hyperacute platform takes advantage of this natural immune response to alpha-Gal by directing a targeted attack against the genetically modified cells containing this animal glycoprotein. Presently, NewLink Genetics has three Hyperacute therapies undergoing clinical trials, including treatments for pancreatic cancer (Phase III), non-small cell carcinoma (Phase ½), and melanoma (Phase 2).
Of these potential drug candidates, the short-term value driver for investors will undoubtedly be HyperAcute Pancreas (algenpantucel-L), currently undergoing a randomized, Phase III trial for surgically-resected pancreatic cancer. Algenpantucel-L is composed of two equal doses of separate allogeneic pancreatic cancer cell lines engineered to express alpha-Gal. Although the exact mechanism is unknown, the idea is that algenpantucel-L activates a portion of the innate immune system called "complement", which directs a more specific immune response against tumor cells.
More generally, the foremost problem with cancer is that the immune system fails to recognize cancerous tumors as pathogens due to the tumor's ability to produce a wide range of immunosuppressive factors such as IL-10, TGF-β, and VEGF. The primary objective of any immunotherapy therefore must be to "de-cloak" the tumor, whereby allowing the immune response to destroy cancerous cells. Indeed, this problem is the very reason why most first generation immunotherapies have crashed and burned in clinical trials (but see Dendreon's (DNDN) Provenge as a counterexample), making the sector inherently risky for biotech investors.
Nonetheless, second generation immunotherapies, such as algenpantucel-L, are specifically designed to modify the tumor microenvironment, whereby de-cloaking the tumor from immune attack. Until a randomized, Phase III study is completed in this field, however, it remains to be seen if this approach will bear fruit or not. And this problem is likely the reason why most publicly traded, developmental stage immunotherapy companies (some examples include: Galena Biopharma (GALE), Inovio Pharmaceuticals (INO), Immunocellular (IMUC)) have such low market caps, despite their promising clinical candidates.
In terms of algenpantucel-L's Phase III trial, the study is being performed under a Special Protocol Assessment ((SPA)) with the U.S. Food and Drug Administration (FDA), and NewLink Genetics has received Fast Track and Orphan Drug designations for algenpantucel-L. The primary outcome measure of the study is long-term survival (41 and 48 months). For investors new to this disease and stock, the median long-term survival rates for patients with surgically resected pancreatic tumors have historically been dismal at around 14%. Secondary outcomes of the trial are an assessment of disease free survival ((DFS)), and an understanding of the mechanism underlying any observed anti-tumor effect.
Whilst the study is projected to be completed in January 2014, the company is expected to release interim results sometime in the 1st Quarter of 2013, which should act as a near term catalyst if the data are impressive. Looking ahead, analysts are projecting that peak worldwide annual sales for algenpantucel-L could be as high as $850 million if the drug is approved. Positive Phase III results for algenpantucel-L could thus move NLNK 50-60% higher from current levels according to analyst estimates, making NLNK an intriguing speculative buy in the biopharma space.
Fundamental and Technical Analysis
NewLink Genetics recently completed an offering of approximately 4,600,000 shares of common stock, netting the company $49 M after deducting costs associated with the offering. Based on the company's 3rd Quarter 10-Q, I estimate NewLink Genetics to now have approximately $73M in cash, cash equivalents, and short-term investments. With a burn rate of around $4.7M per Quarter, NewLink has sufficient cash to complete the Phase III trial for algenpancutel-L , and the New Drug Application (NDA) process, if warranted.
Most importantly, the company shouldn't need to resort to dilutive financing for at least another three years, which is always a concern with developmental biopharmas. On the technical side, NLNK is currently flat in terms of its Relative Strength Index (54), but is trading well below its 200 day moving average (-7.29%) due to investors selling on the public offering news. Given that the interim results can come at any time, I believe now is a good time to begin to establish a long-term (minimum 3 years) position in NLNK. It's important to remember that a positive Phase III for Hyperacute Pancreas essentially validates their entire Hyperacute Platform, which should be valued in the multi-billions.
The cancer immunotherapy field is coming of age, with a diverse array interesting drugs under development. However, the vast majority of these drug candidates are still in their early stages of development, meaning that the companies will likely have to resort to dilutive financing at some point. Indeed, public offerings of common stock are the hallmark of developmental biotech investing in general. NewLink Genetics, by contrast, offers investors the opportunity to jump on a late stage developmental immunotherapy that should be finished with dilutive financing for the foreseeable future.
I personally believe that the results for Hyperacute Pancreas will be strong enough to push the drug into the NDA stage in early 2014, and by this time, NewLink should be close to initiating another Phase III trial on its Hyperacute Platform. The main risk associated with the Hyperacute Platform is that the company does not fully understand the biochemical and immunological pathway(s) the drugs activate. An understanding of the putative therapeutic mechanism is a secondary endpoint of the current Phase III trial, and will be an interesting component of the study to keep a close eye on. Even so, this issue is not unique to NewLink Genetics, with Advaxis (ADXS) being one of the few companies to have a good handle on the underlying mechanism of their proposed immunotherapy. In conclusion, I believe that NewLink Genetics is probably the best candidate for a speculative buy in the cancer immunotherapy sector right now, and is currently undervalued at $12.23 a share.