Morgan Stanley: Newly Public Neon Therapeutics Has Outperformance Potential

Neon Therapeutics Inc NTGN develops vaccine based on neoantigens — markers unique to each individual tumor — to improve tumor response in checkpoint inhibitors such as Merck & Co., Inc. MRK's Keytruda and Bristol-Myers Squibb Co BMY's Opdivo, according to Morgan Stanley.

The Analyst

Morgan Stanley analyst Matthew Harrison initiated coverage of Neon Therapeutics with an Overweight rating and $23 price target.

The Thesis

Neoantigens are a relevant target that could improve the efficacy of current checkpoint inhibitors, and Neon is well-positioned to capitalize on this therapeutic option, Harrison said in a Monday note. (See the analyst's track record here.) 

"We believe this is a unique way of driving a patient-specific immune response with initial data suggestive of a complementary approach to other immune therapies," the analyst said.

Neon has two ongoing clinical trials, Harrison said: 

• One in combination with Opdivo in refractory melanoma, lung and bladder cancer.
• A second in combination with Keytruda and chemotherapy in lung cancer. 

Initial data from the Opdivo study has demonstrated an immune response, the analyst said. Despite the very early nature of the data, Harrison said the study demonstrated a vaccine-specific immune response that's suggestive of a benefit.

Since durability of response is a key factor, the analyst said 52-week data due in the first half of 2019 is important.

In the near-term, Harrison said he expects Neon shares to trade in-line with the market as the company executes on the initial trials.

If the long-term follow up for Opdivo and Keytruda supports a significant increase in durability relative to PD-1 monotherapy and the vaccine's tumor-shrinking ability is established, Morgan Stanley expects Neon shares to signficantly outperform. 

Price Action

Neon Therapeutics shares have lost about 28 percent since they began trading June 27. 

The stock was up 3.97 percent at $11.25 at the time of publication Monday afternoon. 

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