Bank Of America Sees NewLink Genetics As 'Undervalued'

Reasoning that NewLink Genetics Corp NLNK shares are undervalued, Bank of America Merrill Lynch initiated coverage at Buy with a $22 price target.

At time of writing, shares were rallying 8.45 percent at $12.20.

The Drug & The Mechanism Of Action

NewLink Genetics is a clinical-stage biotech company, whose lead product candidate is Indoximod, an IDO, or indoleamine-2, 3-dioxygenase, pathway inhibitor for treating cancer. IDO is an enzyme that's upregulated in tumors as a mechanism for escaping the patient's immune system.

Treating with Indoximod helps overcome IDO-induced immunosuppression and re-establishes immune system control of cancer.

Efficacy, In Line With Competing Therapies

Analyst Yin Huang noted that data from mid-stage trial of Indoximod, plus Merck & Co., Inc. MRK's Keytruda in melanoma demonstrated that the treatment is efficacious compared to competitive therapies, such as Incyte Corporation INCY's epacadostat and Bristol-Myers Squibb Co BMY's Opdivo/Yervoy combo.

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A 61 percent overall response rate and 12.9 months of progression-free survival were seen in patients treated with Indoximod-Keytruda combo, the analyst said. The analyst also noted the combo showed 29 percent grade 3+ toxicity compared to Keytruda monotherapy.

"If the efficacy and tolerability can replicate in a larger confirmatory study, we believe indoximod could gain appreciable market share in first-line melanoma," Huang said.

Questions Remain

BofA sees baseline characteristics such as elevated LDH, M1c-stage and PD-L1 expression impacting patient response to treatment. The firm said a lower proportion of patients with elevated LDH and M1c status enrolled in NewLink Genetics' Phase 2 study may skew the patients toward more favorable prognosis, regardless of treatment.

Giving the timeline of the trials, the firm said complete Phase 2 results are likely to be out in 2018, significantly catalyzing the stock. The firm expects the Phase 3 top-line data in 2020.