IPO Preview: NewLink Genetics

Nov. 8.11 | About: NewLink Genetics (NLNK)

Based in Ames, Iowa, NewLink Genetics (NASDAQ:NLNK) scheduled a $61 million IPO with a market capitalization of $198 million at a price range mid-point of $11 for Thursday, November 10, 2011. The full IPO calendar for the week of November 7 includes five scheduled IPOs.

SUMMARY

Focused on cancer treatments, NLNK is a biopharma company with products in clinical trials.

Of note, $5 million in revenue-to-date has been generated from contracts and grants with the Department of Defense, or DOD, and the National Institutes of Health.

VALUATION AND CONCLUSION

Companies similar to NLNK often IPO at about 3x book value, which is where NLNK is priced.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing June 6 mos

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

in IPO

NewLink Gentcs (NLNK)

$198

90.0

-12

3.2

3.3

31%

Click to enlarge

See NLNK metrics here.

As products continue through clinical trials (and some products misfire in the process), biopharma valuations often increase.

The clinical trial process is long and drawn out. With clinical trial progress it is possible that NLNK can attract a large corporate partner or partners, which could increase the market capitalization.

In the meantime, it seems prudent to watch NLNK from the sidelines.

BUSINESS

NLNK is a biopharmaceutical company focused on discovering, developing and commercializing novel immunotherapeutic products to improve cancer treatment options for patients. The portfolio includes biologic and small-molecule immunotherapy product candidates to treat a wide range of oncology indications.

REVENUE SOURCES

NLNK has not generated any revenue from product sales.

NLNK has generated $5.0 million in grant revenue from inception through June 30, 2011, primarily attributable to research and development being performed by a subsidiary, BioProtection Systems Corporation, under contracts and grants with the Department of Defense, or DOD, and the National Institutes of Health.

LEAD PRODUCT CANDIDATE

NLNK’s lead product candidate, HyperAcute Pancreas, is being studied in a Phase 3 clinical trial in surgically-resected pancreatic cancer patients that is being performed under a Special Protocol Assessment, or SPA, with the United States Food and Drug Administration, or FDA. NLNK initiated this trial based on encouraging Phase 2 data that suggests improvement in both disease-free and overall survival.

OTHER PRODUCT CANDIDATES

NLNK has three additional product candidates in clinical development, including HyperAcute Lung, which is being studied in a Phase 1/2 clinical trial conducted at the National Cancer Institute, or NCI, and HyperAcute Melanoma, which is being studied in an investigator-initiated Phase 2 clinical trial.

To date, NLNK’s HyperAcute product candidates have been dosed in more than 200 cancer patients, either as a monotherapy or in combination with other therapies, and have demonstrated a favorable safety profile.

NLNK’s HyperAcute product candidates are based on proprietary HyperAcute immunotherapy technology, which is designed to stimulate the human immune system. Product candidates are designed with an objective to harness multiple components of the innate immune system to combat cancer, either as a monotherapy or in combination with current treatment regimens without incremental toxicity.

IDO PATHWAY

NLNK is also conducting small-molecule based research and development with an aim to produce new drugs capable of breaking the immune system's tolerance to cancer through inhibition of the indoleamine-(2,3)-dioxygenase, or IDO, pathway.

NLNK is currently studying its lead IDO pathway inhibitor product candidate, d-1-methyltryptophan, or D-1MT, in collaboration with the National Cancer Institute, or NCI, in multiple Phase 1B/2 clinical trials.

NLNK believes that its immunotherapeutic technologies will enable NLNK to discover, develop and commercialize multiple product candidates that can be used either alone or in combination to enhance or potentially replace current therapies to treat cancer with underserved patient populations and significant market potential.

COMPETITION

Immunotherapy Products for Cancer

NLNK estimates that there are over 100 cancer immunotherapy products in clinical development by approximately 70 public and private biotechnology and pharmaceutical companies. Altogether, trials of these product candidates target at least 23 different cancer types. Of this universe, several large public biopharmaceutical companies have approved or are developing cancer immunotherapy products, including Dendreon (NASDAQ:DNDN), Bristol-Myers Squibb (NYSE:BMY), GlaxoSmithKline (NYSE:GSK), Merck (NYSE:MRK) and Sanofi-Aventis (NYSE:SNY).

HyperAcute Pancreas

There are several marketed products indicated for pancreatic cancer including Eli Lilly's (NYSE:LLY) Gemzar, Astellas Pharma Inc.'s Tarceva, Teva Pharmaceutical Industries Limited's streptozocin, and fluorouracil, or 5-FU, and mitomycin which are marketed by several generic pharmaceutical firms. In addition, there are a number of companies with active clinical trials ongoing in pancreatic cancer including AB Science SA, Amgen Inc., Astellas Pharma (OTCPK:ALPMF) , BioSante Pharmaceuticals (BPA), Celgene (NASDAQ:CELG), Immunomedics (NASDAQ:IMMU), Lorus Therapeutics (LRUSF.PK), Sanofi-Aventis, and Threshold Pharmaceuticals (NASDAQ:THLD) among other companies.

HyperAcute Lung

There are numerous marketed therapeutics indicated for NSCLC including Roche Holding AG's Avastin, Eli Lilly's Alimta and Gemzar, Astellas Pharma's Tarceva, AstraZeneca PLC's Iressa, Sanofi-Aventis' Taxotere and Eloxatin, as well as generically available platinum-based chemotherapeutics (cisplatin and carboplatin) and mitotic inhibitors (paclitaxel and venorelbine) which are marketed by several generic pharmaceutical firms. In addition, there are a number of companies with active clinical trials ongoing in lung cancer including Abbott Laboratories (NYSE:ABT), Amgen (NASDAQ:AMGN), Bristol-Myers Squibb, Boehringer Ingelheim GmbH, BioNumerik Pharmaceuticals, Inc., Celgene, GlaxoSmithKline, NovaRx Corporation, Onyx Pharmaceuticals (NASDAQ:ONXX), Pfizer (NYSE:PFE), and Regeneron Pharmaceuticals (NASDAQ:REGN) among other companies.

HyperAcute Melanoma

Excision is the preferred treatment for early stage localized melanoma, and there are several marketed therapeutics indicated for advanced melanoma including Merck's Intron A, Novartis AG / Prometheus Laboratories Inc.'s Proleukin as well as cisplatin and dacarbazine, which are available through several generic pharmaceuticals firms. Bristol-Myers Squibb's immunotherapy ipilimumab was recently approved by the FDA as was Roche/Daiichi Sankyo's drug, vemurafenid. In addition, there are a number of companies with active clinical trials ongoing in advanced melanoma including Amgen, Astellas Pharma, Eli Lilly, Onyx, Roche, Synta Pharmaceuticals (SNTA), and Vical (NASDAQ:VICL), among other companies.

INTELLECTUAL PROPERTY

NLNK has established and continues to build proprietary positions for its HyperAcute Technology and its IDO pathway inhibitor technology in the United States and abroad.

As of September 30, 2010, NLNK’s patent portfolio included six patent families relating to its HyperAcute Technology and 19 patent families relating to IDO pathway inhibitor technology.

HyperAcute product candidates

There are two principal families of patents and patent applications:

The first patent family is exclusively licensed from Central Iowa Health System and includes five pending patent applications and 20 registered U.S. and foreign patents related to the HyperAcute Technology. This patent family is expected to provide basic composition of matter patent protection extending until 2023 and has already resulted in a granted patent in Europe (EP 1549353 B1), in Mexico (278681) and Canada (2501744), all covering pharmaceutical compositions for inhibiting pre-established tumor growth comprising attenuated allogeneic tumor cells modified with a-Gal. Similar composition claims as well as methods of use for treating pre-established tumors are currently being pursued in the U.S., China, Japan and Canada. One patent recently issued from this family in the U.S. and contains claims to methods of making master cell banks of HyperAcute allogeneic cells (US 7,763,461) and HyperAcute Technology.

The second principal family of patents is exclusively licensed from Drexel University and includes two U.S. patents (US 6,361,775 and US 5,879,675) relating to the use of a-Gal in viral and cancer vaccines. These patents expire in 2014 and 2016, respectively in the United States. Related patents in this family have also been granted in Canada and Europe and expire in 2015. NLNK exclusively licenses from Central Iowa Health System or owns several other patents relating to a-Gal technology, which NLNK believes provides additional barriers to entry in the space occupied by NLNK’s HyperAcute Technology. Additional coverage includes issued patents relating to gene therapy technology and the use of xenogeneic cells having a-Gal expiring in 2016; and an application issued in the United States (US Patent No. 7,998,486) and pending in Europe covering isolated tumor antigens comprising a-Gal residues and projected to expire in 2027.

IDO Pathway Inhibitor Technology

NLNK’s IDO pathway inhibitor technology patent portfolio contains several key U.S. patent families exclusively licensed from the Medical College of Georgia.

The first patent family contains three issued U.S. patents and two pending applications, all expiring in 2018. This family contains patents having claims to methods of increasing T cell activation (US 6,451,840) and methods of augmenting rejection of tumor cells (US 6,482,416) by administering an IDO inhibitor. The second patent family contains four pending applications and an issued U.S. patent (US 7,598,287) to methods of using D-1MT to treat cancer and provides exclusivity for this use until 2027.

NLNK is also actively pursuing pharmaceutical composition claims to D-1MT in the U.S. in a pending application from this family, and also claims to the use of D-1MT to activate T cells in Europe out of another Medical College of Georgia patent family that if granted, will provide exclusivity for this use in validated European countries until 2022. Related applications are allowed in Australia and are pending in Canada.

NLNK believes additional barriers to entry in the IDO space are provided through exclusive licenses with Lankenau Institute for Medical Research and various NewLink-owned inventions, in which NLNK is pursuing patent protection for specific combination therapies targeting the IDO pathway, as well as protection for novel inhibitor compounds and potential second generation products.

USE OF PROCEEDS

NLNK intends to use the net IPO proceeds of $53 million to fund the completion of the following ongoing studies.

  • $12.0 million to fund to completion Phase 3 clinical trial and related development activities for HyperAcute Pancreas.
  • $18.0 million to fund clinical and related development activities for NLNK’s other HyperAcute immunotherapy product candidates.
  • $5.0 million to fund clinical and related development activities for NLNK’s IDO pathway inhibitor product candidates and the remainder for working capital and other general corporate purposes.
  • NLNK’s other HyperAcute immunotherapy product candidates have either started or completed Phase 1 clinical trials or completed the patient enrollment portion of Phase 2 clinical studies.NLNK’s IDO pathway inhibitor product candidates are in Phase 1 clinical trials and in multiple Phase 1/2 clinical trials.

Although it is difficult to predict future liquidity requirements, NLNK believes that the net proceeds from this offering, together with existing cash and cash equivalents and marketable securities, will allow NLNK to fund its operations through at least the end of 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.