Stifel Cuts NewLink Valuation Estimate In Half On Regulatory, Development Risks

Despite exceeding bottom-line expectations, NewLink Genetics Corp NLNK plummeted Wednesday on second-quarter sales that were nearly 50 percent below projections. 

Stifel Nicolaus sees little visibility for NewLink going forward. 

The Rating

Stifel Nicolaus analyst Stephen Willey downgraded NewLink Genetics from Buy to Hold and halved the price target from $8 to $4.

The Thesis

NewLink's updated clinical development strategy for indoximod and cost-saving organizational restructuring were not enough to allay Willey’s concerns, the analyst said in the downgrade note. (See Willey's track record here.)

“While the limited amount of indoximod data generated to date in indications management now intends to pursue ... has been (in our opinion) directionally interesting, we believe the visibility (and longer-term optionality) we now have going forward is increasingly limited." 

Willey sees development, regulatory and commercial risks in NewLink’s approach to address acute myeloid leukemia, the firm’s primary indication. At the same time, the program for pediatric brain tumors, while having posted “directionally positive” early results, is expected to suffer development challenges, he said. 

“We’re generally not fans of downgrading stocks trading at cash — particularly ones with decent visibility into the potential monetization of a fiscal 2019 Ebola-related PRV — but struggle to see how this story resonates with investors over the near-term." 

Price Action

NewLink shares were trading down 16.4 percent to $3.16 at the time of publication Wednesday. 

Related Links:

Cantor Fitzgerald Double Downgrades NewLink Genetics After Incyte's Disappointing Trial

Bank Of America Sees NewLink Genetics As 'Undervalued'