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Biotechnology has produced more 100% 52-week gains than any industry in the market. One of the reasons is because of the amount of data that has been presented in the last year from important late-stage studies. This has caused both a bull-run on biotechs, but has also left investors seeking the next big jump. As you look throughout the industry, many feel confident that NewLink Genetics Corp (NASDAQ:NLNK) could be the next to present good data, hence leading to large gains. Therefore, I am assessing its outlook as data for its lead product approaches.

If we just look at the last year alone, there have been countless valuation-changing moves in biotechnology. Keryx Biopharmaceuticals (NASDAQ:KERX) saw a two-day period where its stock more than doubled after reporting Phase 3 data. Sarepta Therapeutics (NASDAQ:SRPT) saw a one-day gain where its stock went from $15.00 to $45.00, and just recently Vertex Pharmaceuticals (NASDAQ:VRTX) saw $7.2 billion added to its market capitalization following positive data. Each of these companies among many more saw these gains as the market adjusted each company's worth to data that suggests fundamental upside. In theory, good data for each of these companies reassured the market of future revenue, meaning that each stock became based on that sales potential. If NewLink's current Phase 3 HyperAcute treatment for pancreatic cancer is successful, then it could very likely see the same upside with its stock having a very attractive market cap to peak sales ratio, relative to the other large gainers that came before it.

What Does NewLink Genetics Do?

NewLink Genetics Corp is a $300 million clinical stage biotechnology company that develops products for the treatment of cancer. Its HyperAcute cancer immunotherapies are being tested on various cancers by incorporating different drugs/technologies with the platform; its HyperAcute Pancreas trial is its most advanced study. HyperAcute Pancreas is being tested in a Phase 3 trial of more than 700 patients to treat pancreatic cancer. This particular cancer is one of the most deadly in the U.S., with most patients living less than a year after diagnosed. Current treatments include radiation, chemotherapy, and Genentech's Erlitinib. There are also a couple drugs in development with one being Celgene's (NASDAQ:CELG) Abraxane showing promise in testing, extending life by two months for patients with advanced pancreatic cancer. Unfortunately, there isn't anything that drastically increases life, and the drugs used to treat the disease were developed to treat other forms of cancer. Hence HyperAcute Pancreas could see great commercial success, if successful, for its exclusivity to pancreatic cancer.

The theory to NewLink's HyperAcute platform is that alpha-Gal will produce a natural immune response, and then attacks genetically modified cells. In Phase 2 studies it proved highly effective, with a 42% overall survival at three years. Though, it was tested on just seven patients, and if we look at the HyperAcute Melanoma study (also good results), it was tested on just 25 patients. Hence the HyperAcute platform has produced very good results, but the trial sizes have been small and leave many questions for the investor.

The problem with Phase 2 data, aside from being a small trial, is that it was not randomized and that it was compared to historical data. As most know, a study in oncology can drastically change when randomized and positioned against a control group that is being compared to standard-of-care. With that said, the process of NewLink's platform sounds inviting, and one can't ignore early results based on small subsets.

While you can look at both the good and bad for NewLink, the FDA appears optimistic, having issued a special protocol assessment (NYSE:SPA), with the trial being labeled "fast-track", and with an Orphan Status designation. Today, investors have to wait-and-see, as 222 events will trigger interim analysis, which could occur any day.

The Upside Potential (Pending Good Results)

The upside potential for NewLink pending a successful interim study would most likely be very high for investors who currently own the stock. The company ended 2012 with $21.7 million in cash, and in February it finished a public offering where it raised $49 million. Hence the company does not need cash, meaning the fear of financing prior to data is near eliminated, which is rare in biotechnology.

The fact that financing threats currently don't exist means that many investors may be drawn to NewLink Genetics during the next few weeks. The progress that was shown in the Phase 2 study and the peak sales potential of $850 million is very attractive, presenting a favorable risk/reward ratio. Also, if results are successful, the data will open investors to a whole new level of speculation, as HyperAcute is being tested with a variety of cancers such as lung, breast, prostate, and melanoma. When you combine the peak sales potential of these products, we're looking at a blockbuster platform (if successful), one in which investors will anticipate success following good interim results in pancreatic cancer.

If you look at companies such as Repros Therapeutics, Sarepta Therapeutics, and Celldex Therapeutics, all are trading at a one times peak sales following positive data during the last year. Hence, NewLink could possibly see a similar valuation on successful interim results. We can assume that data from 700 patients compared to 7 patients is a large difference in terms of weight on the value of a stock. In fact, a company such as Sarepta Therapeutics made its large move on less than 20 patients for its Phase 2 trial. This suggests that NewLink Genetics could very well move considerably higher following positive interim analysis, although it must have positive results.

Conclusion

If you choose to invest in NewLink Genetics, then you are accepting a great deal of risk. The company has promising technology, large market potential, and what looks like support from the FDA. It also has a product that's never been tested in a randomized study, has only been tested on a small study, and has not been compared to a control group. In many ways, NewLink Genetics and investors face the same risks associated with other large moving biotech stocks of the last year, and each of those stocks saw massive gains following good trial results. While we can predict with near certainty that NewLink would see a large rally with good interim results, the question remains of whether or not it will join the elite with the same strong data.

Source: NewLink Genetics: Looking To Join The Industry's Largest Movers