NantKwest: Continues To Sell Off Despite The Clinical Progress

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About: NantKwest, Inc. (NK), Includes: CELG, NH
by: Biologics
Summary

NantKwest has recently reported positive results and progress in its NK cell pipeline programs, but the shares have continued to sell off.

I review the recent developments and why investors should be encouraged despite the stock’s performance.

I discuss my views on why the market is ignoring NantKwest and why retail investors should take advantage of the discount.

My plan for my investment in NantKwest (NK) was to build a conservative position in anticipation that the market will start to identify the prospective upside in the stock. Indeed, NantKwest still has a couple of years from a potential product launch. Still, I expect CEO and founder Dr. Soon-Shiong will continue to validate NK-92's safety and efficacy in some the worst oncology indications, which should force the market to recognize the company's pivotal role in the Nant Cancer Vaccine. Regrettably, a few months have passed since I started a position in NK, and the share price is slowly bleeding out as it approaches $1 per share. NantKwest has reported several pipeline updates and positive data readouts, yet the market continues to disregard the progress and potential of NK. How can this be?

I intend to review recent pipeline updates and why they are positive developments for the company and shareholders. In addition, I discuss my views on why the market is discounting NK. Finally, I lay out my plans for my NK position for the second half of 2019.

T-haNK in Lymphoma

Back on June 3rd, NantKwest announced the FDA approved NK’s trial employing its first-in-class CD19 t-haNK for the management of refractory diffuse large B-Cell lymphoma, and the company is ready to launch a Phase I trial. The CD19 t-haNK includes a CD19-based Chimeric Antigen Receptor (“CAR”) that has been attached to produce an NK cell that contains the high-affinity CD16, which improves an NK cell’s talent to bind and heighten monoclonal antibody activity.

This is a major milestone for NantKwest, because it involves the company's off-the-shelf t-haNK-based therapy targeting hematological cancer that is using a multi-targeted approach.

aNK and haNK in Solid Tumors

On June 4th, Patrick Soon-Shiong, MD, presented at the Jefferies Healthcare Conference and revealed updated data on off-the-shelf aNK and/or haNK being used in combination with immuno-oncology products in advanced solid tumors. The data revealed that 5 out of 35 patients experienced durable complete responses (“CR”) in highly refractory late-stage cancer through several tumor types. NK’s aNK/haNK cells were implemented with or without ImmunityBio’s (previously NantCell) N-803, an IL-15 fusion superagonist. These combinations improve T-cell and NK activity and proliferation in high refractory patients. What is more, Soon-Shiong reported that not all aNK and haNK infusions required hospitalizations or resulted in cytokine release syndrome.

Obviously, the durable complete responses seen in patients with highly refractory disease safely treated with off-the-shelf haNK or aNK cells should be seen as a major win for both patients and NK investors. However, the data has delivered the information needed to construct a pathway to registration trials in triple-negative breast cancer and Merkel cell carcinoma. Let me point out that these results were achieved in high refractory, late-stage patients, which means they have essentially failed earlier lines of therapy. This tells us that aNK and haNK treatments could be a viable tool in later lines of therapy.

PD-L1 t-haNK in Solid Tumors

Recently, the company announced that its PD-L1 t-haNK IND has been okayed by the FDA and is now in the clinic for advanced or metastatic solid cancers. This PD-L1 t-haNK cell therapy comprises a PD-L1-constructed CAR into the company’s haNK cell, which has a high attraction to the CD16 receptor to facilitate antibody-dependent cellular cytotoxicity. The goal of PD-L1 t-haNK therapy is to pave the way for other immunomodulatory agent combinations and possibly being added to the NANT Cancer Memory Vaccine.

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Figure 1: Nant Cancer Memory Vaccine (Source: NK)

This is a major development for the company because it marks NantKwest's first human trial that combines an immunotherapy molecule with its off-the-shelf NK cell therapy, and will lead to other combinations in the future. Starting with PD-L1 t-haNK will reveal NK’s t-haNK ability to be effective in solid tumors, which has been inconsistent in many cell therapies.

What’s My Point?

None of these updates created a significant spike in the share price. The company is moving forward into human trials in both solid and hematological cancer using cutting-edge cell technology. These are major steps towards Dr. Patrick Soon-Shiong amassing enough evidence to implement his Nant Cancer Vaccine, which his NK cells are considered a fundamental component. Does the market fail to see or understand these developments? I am scratching my head, because I think the company’s pipeline progress is exceptional, yet, NK’s market cap is only ~$108 million.

The Nant Cancer Vaccine has shown amazing results in triple-negative breast cancer with a disease control rate of 89% and 2 out of 9 patients experiencing a complete response. Whereas, Merck’s (MRK) juggernaut oncology product, Keytruda, failed to a triple-negative breast cancer study with a disease control rate of 7% and no complete responses. Although Keytruda did show some efficacy, it was only in a small subset of patients. On the other hand, the Nant Cancer Vaccine had a vast majority of its subjects experience some level of response. It is notable that the Nant Cancer Vaccine could outperform the blockbuster Keytruda in triple-negative breast cancer. Yet, the stock continues to sell off, and most Street analysts won’t cover the company.

Why does the market have a repulsion for NK?

Perhaps it is a lack of trust in Dr. Soon-Shiong that is the main issue. In my previous NK article, I pointed out Dr. Soon-Shiong's history of legal battles, and the recent one with Sorrento Therapeutics (SRNE) does have me wondering what he is going to do with NantKwest. Soon-Shiong has created a confusing web that he calls NantWorks, with about half of the entities being involved in his Nant Cancer Vaccine. Of these companies, NantKwest and NantHealth (NH) are the only publicly traded companies, yet their investors don’t have any rights to N-803, or the adenovirus, or the yeast of the Nant Cancer Vaccine. Those three components fall under ImmunityBio, while NantKwest only has the NK cells.

In a NantCell press release, Soon-Shiong stated:

“With the clinical advances of the technology platforms across multiple tumor types at NantCell, the company is now poised to integrate the technologies developed at the two early stage immunotherapy public companies, NantHealth and NantKwest. The adenovirus and yeast vector delivery systems in NantCell compliments the tumor-associated antigen and neoepitope discovery engine (GPS CancerTM) developed by NantHealth, enabling the subcutaneous delivery of the neoepitopes to enable the recruitment of T cells that target only expressed cancer mutations. The bispecific fusion cytokine proteins of NantCell stimulates the patient’s autologous primary NK and T cells, thereby supplementing the off-the-shelf, cryopreserved haNK cells developed by NantKwest. Collectively the immunotherapy platforms in NantCell, NantHealth and NantKwest serve as a comprehensive path to the development of a cancer vaccine.”

This statement reveals that the majority of the components in the Nant Cancer Vaccine are under ImmunityBio. Although haNK cells are demonstrating efficacy with and without N-803, I get this feeling that Soon-Shiong is keeping his best players in ImmunityBio for a reason. Celgene (CELG) has invested about $105 million into ImmunityBio since its inception, but NantKwest gets nothing. This makes me believe Celgene either knows ImmunityBio is the endgame for the Nant Cancer Vaccine, or it believes in the prospects of N-803. Do the NK cells in the vaccine have to be haNK cells? Why isn’t ImmunityBio a publicly traded company? Why does the Street disregard NK, even though the company could have an approved product in a couple of years? I ask myself these questions because the overall structure of NantWorks has me wondering if NantKwest is dispensable and the Street doesn’t trust Soon-Shiong to make the company a top priority. Perhaps the Street is simply punishing Soon-Shiong for keeping the majority of his vaccine in a privately held company. Whatever the reason for the disdain, NK shareholders are at the mercy of the Street.

https://static.seekingalpha.com/uploads/2019/4/9/48523746-15548611221264472.jpg

Figure 2: Company structure (Source: NantWorks)

Conclusion

Is NK still a Buy? In my previous article, I deemed the stock as Buy due to its market cap heavily discounted compared to other cell therapy company valuations. Considering the market cap is now lower and the pipeline has progressed, I still believe NK is a Buy at these current prices.

What is my plan? Although I am bullish on NK and the long-term outlook for the company, I am going to hold off on a buy at the moment. The stock has been stuck in a trading range for the past seven months, and I don’t want to lock up additional funding in a dormant stock.

Figure 3: NK Daily (Source: Trendspider)

Looking at the daily chart (Figure 3), we can see how NK has been bouncing around $1 and $1.50 since January 2019. I will use the two support and resistance lines as a trigger for my next buy. If the share price breaks above the resistance line and is able to hold for several days, I will look to add in anticipation of a change in momentum. If the share price breaks below the support line, I will wait for a new trading level to be established before pressing the Buy button. I am still planning to hold my NK shares for at least 5 years and in anticipation of a substantial return.

Disclosure: I am/we are long NK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.