NewLink Genetics Corporation (NASDAQ:NLNK)

CAPS Rating: 2 out of 5


Player Avatar zzlangerhans (99.85) Submitted: 2/19/2013 4:27:11 PM : Underperform Start Price: $12.42 NLNK Score: +11.11

NewLink's most advanced clinical program is HyperAcute Pancreas, but virtually their entire clinical pipeline is dependent on the principle of HyperAcute Immunotherapy. The therapeutic is a cancer cell line expressing the foreign antigen alpha-gal, which induces a rapid form of rejection due to the presence of preformed antibodies. In other words, the immune system is primed to reject tissue bearing the antigen despite having never encountered the antigen before. A similar effect occurs with ABO incompatibility. The principle of HyperAcute Immunotherapy is that the rapid and overwhelming immune response induced by the alpha-gal antigen will lead to a similar response to cancer antigens expressed on the same cells. This immune response will then be generalized to the cancer in the patient's body.

Needless to say, the immune system is very complicated and unpredictable. A mechanism can be created to support just about any hypothesis. Unfortunately, many immune system hypotheses turn out to be false, and even result in effects diametrically opposite from those predicted. While I'm sure NewLink can back up their hypothesis with benchtop research and findings in animal models, I believe it is likely the ongoing IMPRESS phase III trial of HyperAcute Pancreas will fail, possibly as soon as with the first interim analysis scheduled to take place by the end of this quarter.

1. The progression to a phase III trial of HyperAcute Pancreas followed flawed phase I and phase II trials that were controlled and failed to adequately establish dose optimization. Further details about this argument can be found at this link: . This, by the way, is a rare example of a good Seeking Alpha article on biopharma. The arguments are objective and well-founded and come from an individual with significant personal experience in the industry. If you'd like to see an example of a typical bad Seeking Alpha article on the same company, look here: . This article hypes widely available background information on the company while providing no new perspective on fundamentals, and comes from an anonymous author who claims only benchtop lab experience and has a horrendous track record of promoting scam biopharmas such as Hemispherx before they implode.

2. NewLink raised 49M in a dilutive financing earlier this month three weeks ago. While it is not uncommon for a developmental biopharma to dilute in advance of phase III trial results, it is unusual for one to do so to such a marked degree just a month before an interim futility analysis.

3. Feuerstein-Ratain rule. I can already hear the shrieks. The rule is not applicable! The market cap has to be less than 300M four months before the topline data, not interim data! Once again, the point isn't the rule itself but the foundation of the rule. There is no large pharmaceutical partner for HyperAcute Immunotherapy and institutional ownership is only 16%. That demonstrates a lack of interest from the true experts who depend on their ability to evaluate phase III candidates to maintain employment. No sell side analyst ever got fired because a stock didn't reach their price target. Publicizing silly, unrealistic price targets is part of their job.

4. HyperAcute Immunotherapy is facile. This is the hardest plank to defend, but it is what made me skeptical of NewLink even before I looked at the early trials and they diluted. The idea of a generalization of a hyperacute response is immediately appealing and seems intuitive. NewLink is tossing out red meat for wolves to attack without noticing the coil spring trap underneath. But when I see a cancer cell population expressing alpha-gal infused into the bloodstream, I see cells immediately destroyed by preformed antibodies and complement without the time to activate cellular immunity. Scientists have been struggling with cancer immunotherapies for at least thirty years and aside from rare and limited successes there hasn't been much of an impact.

When the recent dilutive financing is accounted for, NewLink will have about 24M shares in the common and cash of about 70M. If the interim futility analysis of IMPRESS results in termination of the trial, that will virtually destroy the HyperAcute ImmunoTherapy platform and leave NewLink with one compound in early clinical trials. Give them an enterprise value of 30M for a total value of 100M in the company. That's a share price of a little over 4. For margin of safety, say the price only drops to 6 after the trial is terminated. The ask for the April 10 puts is 0.55 and the bid is 0.3, and there doesn't seem to be a market in the April 7.5 puts. But even at the ask, the reward of at least 4 for a risk of 0.55 seems a little enticing, doesn't it?

Member Avatar zzlangerhans (99.85) Submitted: 2/19/2013 5:58:28 PM
Recs: 0

Hold the presses, I've been advised by the Twitterati that the timing of the interim futility analysis for IMPRESS has been revised to mid 2013. Link here (page 3):

Very wack for NewLink not to PR the delay and bury it in an SEC filing given that they PR'd the original Q1 estimate. Doesn't exactly make me less negative about IMPRESS prospects, but scrap the part about the April options. I can see from the open interest that a lot of people got screwed.

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