NewLink Genetics (NASDAQ:NLNK) lost 40% of its value in a single day, as it surprisingly announced that Roche ([[OTCQX:RHHBY]], [[OTCQX:RHHBF]])/Genentech would return the rights on Navoximod, an IDO inhibitor, to the company. In this article, I will discuss what the reasons for this decision were and importantly why I believe that NewLink Genetics is highly undervalued at the current, all-time low, share price of $6.46 (Figure 1).

Figure 1. Common stock chart for NLNK. Source: Yahoo Finance

NewLink Genetics pipeline concentrates on the development of IDO (indoleamine-2, 3-dioxygenase) pathway inhibitors. IDO inhibitors, in general, are expected to boost the body's immune system to fight against cancer, similar to PD-1 and CTLA-4 pathway inhibitors.

NewLink was focused on two distinct IDO pathway inhibitors:

One is the already mentioned Navoximod, a direct inhibitor of IDO, which works very similar to Incyte's (NASDAQ: INCY) Epacadostat and Bristol-Myers Squibb's (NYSE: BMY) BMS-986205. Their most advanced drug is Indoximod, which is no direct blocker of IDO but rather mimics the effect of IDO inhibition.

Navoximod

In 2016 Roche/Genentech licensed all worldwide commercialization rights for Navoximod and paid NewLink Genetics $150 million upfront, with eligibility to $1 billion more if certain milestones are met.

Navoximod is currently tested in phase 1 trials in several solid cancers including non-small-cell lung cancer ("NSCLC"), renal cell cancer ("RCC"), urothelial bladder cancer ("UBC"), triple-negative breast cancer ("TNBC") in combination with Atezolizumab (the PD-L1 inhibitor from Genentech/Roche). In all these cohorts combined (separated data is not available yet) Navoximod + Atezolizumab showed a partial response in only 9% (4/45) of patients [1].

Epacadostat is tested in many different solid cancers in partnership with Merck's (NYSE: MRK) Keytruda. If the same patient cohorts of Epacadostat and Keytruda are pooled they achieve 27% (40/146 pooled; stratified in cancer types: 14/40 NSLC, 13/37 UBC, 9/30 RCC, 4/39 TNBC) [2][3]. Based on this data Roche/Genentech decided to return the rights for Navoximod to NewLink Genetics.

I think one of the reasons why Navoximod doesn't perform as well as Epacadostat could be rooted in their differential efficacies to inhibit IDO. This is read out by measuring the kynurenine levels in the blood (kynurenine is the product of an active IDO enzyme, so the greater the drop in kynurenine levels the better inhibited is IDO). Navoximod brings down blood kynurenine to 70% of the pre-treatment level. In comparison to that, Epacadostat achieves a 50% reduction and even better is BMS-986205, which manages to drop the kynurenine level to about 40% of pre-treatment levels [4][5]. This indicates that Navoximod is not such a potent IDO inhibitor than the ones of the competitors and thus might explain why Navoximod has less efficacy than Epacadostat.

Based on the disappointing preliminary results and especially with a competitor that is, first, much further in the development (multiple clinical phase 3 trials of Epacadostat + Keytruda will be started in 2017) and second, shows better efficacy, it is understandable that Roche/Genentech decided to not further develop Navoximod. I personally think it is unlikely that NewLink will continue to develop Navoximod unless they see potential in any of the single cancer types. My feeling is that in neither of the single cancer types Navoximod performed comparable to Epacadostat, otherwise Roche/Genentech wouldn't have returned the rights to the drug.

Indoximod

Indoximod is tested in combination with several different agents in phase 2 studies in melanoma, pancreatic cancer, breast cancer, metastatic castration-resistant prostate cancer (mCRPC) and glioblastoma.

Melanoma

Beginning of April 2017, NLNK released preliminary results of Indoximod in combination with Keytruda in advanced melanoma. The combination achieved a 59% objective response rate and 80% disease control rate (Table 1) [6]. Including patients with ocular melanoma, a very hard to treat patient population, the ORR is 52% and the DCR is 73%.

Treatment

Objective response rate

Disease control rate

Grade 3 adverse events

Epacadostat / Keytruda

n = 19

58%

74%

19%

Indoximod / Keytruda

n = 51

59%

80%

Nivolumab / Ipilimumab

n = 314

58%

71%

55%

Table 1. Objective response rates and adverse events in melanoma. For Indoximod/Keytruda only data from non-ocular patients are included. *Only incomplete data available

This news was followed by a 33% drop in NLNK's stock price, due to disappointment that the Indoximod/Keytruda combination was not much better than the 58% ORR and 74% DCR achieved with Epacadostat/Keytruda in treatment-naive advanced melanoma [7]. Another reason for the disappointment is the complete response rate of 26% for Epacadostat/Keytruda, compared to only 12% for Indoximod/Keytruda. Here it should be taken into account, however, that the presented data for Epacadostat consist of only 19 patients, whereas the data for Indoximod include 51 patients. So it is possible that the complete response rates of Epacadostat will drop once more patients are added.

I was positively surprised by how similar the two drugs performed, given that the mechanism of action differ quite significantly between Indoximod and Epacadostat and would rate it as a good sign that in melanoma Indoximod is able to perform similarly than Epacadostat.

The current, best-in-class, treatment option for metastatic melanoma is the combination of Nivolumab with Ipilimumab (PD-1 and CTLA-4 inhibitors from BMY), which achieves 58% ORR and 71% DCR (Table 1) [8].

The phase 3 trials of Indoximod and Epacadostat in melanoma will likely be benchmarked against this combination. The IDO inhibitor combinations seem to be unable to surpass anti-PD-1/CTLA-4 inhibition in terms of ORR or DCR. But then the rate of serious adverse events will come into play. Epacadostat/Keytruda has 19% of Grade 3 adverse events and although no concrete numbers are available for Indoximod/Keytruda, they are not higher than with Keytruda alone.

This means that both IDO inhibitors are exceptionally well tolerated and well below the 55% of Grade 3 adverse events observed with the anti-PD-1/CTLA-4 treatment. Therefore, there is a good chance that the IDO inhibitors will be approved based on the more manageable safety profile.

Acute myeloid leukemia

In acute myeloid leukemia, Indoximod is tested in combination with 7+3 chemotherapy. This combination leads to a complete remission in 83% of tumors (5 of 6 patients) with no evidence of minimal residual disease [9]. With 7+3 chemotherapy alone in young adults, complete remission can also be achieved in up to 75% of patients [10]. The big problem rather is that the relapse rate is very high and thus it will be critical for Indoximod to show prolonged relapse-free survival and overall survival.

Pancreatic cancer

In pancreatic cancer, the combination of Indoximod with chemotherapy achieved an ORR of 45% (14/31) vs. 23% for chemotherapy alone [11]. Pancreatic cancer is a notoriously hard to treat cancer type and many drugs failed to get approved. NewLink, for instance, also tried to get a drug approved for pancreatic cancer, called Algenpantucel-L. After promising objective response rates in a phase 2 study, the drug failed to enhance overall survival in a phase 3 trial. So I think that also for Indoximod it is important to remain patient and to wait whether the convincing ORR in pancreatic cancer can be transformed into a survival benefit.

Metastatic castration-resistant prostate cancer

Indoximod is combined with PROVENGE (a vaccine already approved for prostate cancer) for patients with mCRPC. The combination was able to enhance radiographic progression-free survival (rPFS) from 4.1 months in the placebo arm to 10.3 months in the treatment arm [12]. This compares to the rPFS of Enzalutamide, an androgen receptor inhibitor, which is 8.3 months [13]. In general, rPFS is highly associated with overall survival in mCRPC and so it is likely that Indoximod/PROVENGE will also enhance overall survival [14].

Glioblastoma

In addition to these trials, Indoximod is also tested in glioblastoma also in combination with chemotherapy and a 6-month progression free survival in 25% of patients compared to a historical rate of 15% [15].

Breast cancer

Recently a statement was released, that Indoximod plus chemotherapy failed to meet the primary end points of statistically different progression-free survival and overall survival in metastatic breast cancer [16].

The use of IDO inhibitors in breast cancer thus continues to disappoint, as also the combination of Epacadostat and Keytruda only achieved a 10% objective response rate in triple negative breast cancer [17].

Valuation and Conclusion

NewLink Genetics has a current market capitalization of $ 189 million. If cash of $ 75 million, expected at the end of 2017 and debt plus royalty obligations of $ 6.5 million are taking into account, the whole company is currently valued at $ 120.5 million.

Their most promising and also furthest developed indication for Indoximod is in melanoma. I think it was very important for NewLink to show comparable objective response rates, which, since they have a different mechanism of action, was far from certain. As estimated by Bhavneesh Sharma in his article, the current, risk-adjusted, peak revenue of Indoximod in melanoma alone is $ 106 million in 2024. This means the company is currently valued at little above the peak revenue of a single indication. They furthermore have promising first results in other indications as well, importantly in cancer types that Incyte is currently not pursuing or lagging behind.

Given the general high valuation of companies developing novel immunotherapies, NewLink Genetics market capitalization is extremely low. This was majorly caused by disappointment that Indoximod didn't surpass Epacadostat's objective response and complete response rates in melanoma and of course by Roche/Genentech returning their rights on Navoximod to the company.

At this price, NewLink Genetics to me seems to be an attractive takeover candidate for companies who want to quickly spice up their immune-oncology portfolio but are not willing to pay a high premium for it. Bristol-Myers Squibb, for instance, paid $ 800 million upfront (total deal volume is $ 1.25 billion) for Flexus Therapeutics, which developed a preclinical IDO inhibitor of in 2015 [18].

If NewLink Genetics is not bought up or they continue to develop Indoximod unpartnered, they will need to raise additional capital at some point until the end of 2018. Other risks include the failure of clinical trials or that their drugs do not get approved by the regulatory agencies.

Summing this up, I believe the current valuation of NewLink Genetics is very cheap and I fully expect their stock price to rise again, once investors have digested the disappointments of the last months and regain their faith in the company again.

Disclosure: I am/we are long NLNK.

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.

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NewLink Genetics Is Still Undervalued, Despite The Disappointment From Navoximod - Seeking Alpha