Incyte Corporation Update Target Price $79

INCY : NASDAQ : US$62.42
BUY 
Target: US$79.00

COMPANY DESCRIPTION:
Incyte is a drug development company focused on
discovering and developing novel, small-molecule drugs
for the treatment of cancer and inflammatory diseases.
INCY’s lead product is Jakafi, a JAK1/2 inhibitor
partnered with NVS, which is approved for the treatment
of myelofibrosis in the U.S., and is being developed for
the treatment polycythemia vera (in P3) and other
indications. Incyte is headquartered in Wilmington, DE

Life Sciences — Biotechnology
INCY’S ROBUST PIPELINE EMERGING IN 2014; RAISING PT TO $79
The new
CEO Hervé Hoppenot, who stated his decision to join the company was
driven by his passion for the discovery-driven treatment approach and
multiple pipeline angles – aided by his unique vantage point as a partner
(NVS for Jakafi). Investor focus was on the MF landscape (competitors are >3
years behind), expectations for Jakafi for PV (we expect positive P3 data in
mid-H1) and data at ASCO (May 30 – June 3), specifically P1/2 INCB24360
(IDO) for melanoma and full P2 Jakafi for pancreatic cancer (biomarkerdefined
subset may be announced earlier). We view INCY as a top pick for
2014 on positive data/pipeline progress – and are now attributing $1.5B
($9/share) to the remainder of the pipeline (IDO (360), JAK1s (110 and 986),
c-MET (060) and PI3K-delta (093)).
 We would own INCY into ASCO: A key focus was on the IDO 360,
particularly P1/2 data at ASCO in combination with Yervoy for melanoma.
Three cohorts (~20 patients) will be evaluable, with a fourth in progress.
While they see anti-PD-1/PD-L1s as natural partners for combination with
360 (discussions ongoing, although no patients have been dosed in
combination to date), competition with Yervoy is possible given a better
efficacy/safety profile. The focus of P2 Jakafi data in pancreatic cancer will
be on the identity of the pre-specified subgroup (related to inflammation;
between 30-70% of cancers fall into the category).
 2019 from 87K patients at launch. Given recent sales force hires, no
additional expansion for PV is expected.

 

Newlink Genetics Target$35

 

NLNK : NASDAQ : US$26.94
BUY 
Target: US$35.00

COMPANY DESCRIPTION:
NewLink Genetics is a biotechnology company devoted to
the development of cell-based cancer vaccines and other
cancer therapeutics.
All amounts in US$ unless otherwise noted.
Life Sciences — Biotechnology
NICE ODDS FOR IMPRESS, IDO IN THE MIX; RAISING PRICE Target to $35

We are more optimistic

that -the P3
IMPRESS trial of HyperAcute Pancreas (HAP) in resected pancreatic cancer
could meet its primary endpoint of an improvement in overall survival vs.
placebo based on the delay in the first interim analysis suggesting a
beneficial effect on survival (median OS >25 months) and per the P2 data.
Yet, we view the likelihood that the trial will be stopped on the first interim
look in Q1+ as small given the high bar (45% improvement in OS) – but note
considerable upside potential and the lack of a futility analysis as reasons to
be involved in the story. In addition, the IDO inhibitors, indoximod and
NLG919 (possible partnerships) provide another leg to valuation, with P1/2
data in Q4-Q1/15.
 Why we like the Phase 3 HAP trial: Although the first interim analysis

(triggered by the 222nd death) was initially projected to occur in H1/13, it is
now projected in Q1/14+, with management noting in Nov. that the pooled
OS was >25 months (vs. 21 months initially projected). They noted several
factors that were hypothesized to cause the delay in events: 1) healthier
population (unlikely given prognostic factors are in line with prior trials:
e.g. 70% nodal status N1 and 9% elevated CA19-9, vs. 68% and 9% in
comparator RTOG-9704); 2) new salvage treatments (Abraxane
demonstrates 1.8mo OS benefit in first-line pancreatic cancer treatment –
cannot explain delta to 21 months particularly given smaller benefit
expected in resected patients); 3) enrollment issues (trial completed
enrollment in Sep.); 4) improvements in surgical techniques and
neoadjuvent therapy (allows more advanced/severe patients to be resected,
which decreases overall OS); and 5) issues with reporting patient deaths
(NLNK has hired investigators to determine patient status).

Net-net, we agree with management that the best explanation for the delay in the
222nd event is a treatment effect and we look to the first analysis in Q1+,
with a potential subsequent analysis ~9 months post.

Incyte Corporation Update

INCY : NASDAQ : US$51.99
BUY 
Target: US$65.00

COMPANY DESCRIPTION:
Incyte is a drug development company focused on discovering
and developing novel, small-molecule drugs for the treatment of
cancer and inflammatory diseases. INCY’s lead product is Jakafi,
a JAK1/2 inhibitor partnered with NVS, which is approved for the
treatment of myelofibrosis in the U.S., and is being developed for
the treatment polycythemia vera (in P3) and other indications.
Incyte is headquartered in Wilmington, DE.

Life Sciences — Biotechnology
NICE PIPELINE OUTLOOK FOR 2014;RAISING PT TO $65
We like INCY for 2014 given expectations for positive data, specifically P3
Jakafi for polycythemia vera (PV) in mid-H1 and two data sets at ASCO (May
30 – Jun 4, Chicago): P2 Jakafi in pancreatic cancer (biomarker-defined subset
may be announced earlier) and P1/2 IDO inhibitor (upside). Per physician
diligence, we also have increased confidence in the Jakafi revenue trajectory
in myelofibrosis (MF), with the key takeaways: 1) Jakafi MF data at ASH was
an incremental positive (long-term COMFORT-I maintained efficacy; no safety
signal emerged); 2) Jakafi competitive position in MF remains strong (SNY is
dropping fedratinib; GERN’s imetelstat data is early and needs to be repeated
in multi-center trials with larger patient populations). Physicians are also
optimistic on P3 Jakafi data in PV, for which they expect a nice commercial
outlook in patients not well-controlled on existing therapies and with more
severe symptoms. We expect three positive data catalysts (PV, pancreatic
cancer, IDO) to drive shares higher in 2014 supported by continued Jakafi
sales execution in MF and P3 baricitinib data in rheumatoid arthritis
(partnered with LLY) as a key 2015 catalyst. We are raising our PT to $65
from $55.
 Jakafi in PV represents a nice opportunity: Physicians we spoke to expect
the P3 RESPONSE trial to meet the primary endpoint of improvements in
phlebotomy eligibility and spleen volume vs. BAT (mid-H1), with the P3
RELIEF trial (symptomatic improvements; data expected in H2) also
demonstrating superiority vs. placebo. Although many patients are
satisfactorily treated with HU/aspirin/phlebotomy, physicians anticipate
25% -40% of PV patients will be eligible for Jakafi, providing upside to our
estimate (we model for peak WW sales of $711M in 2019 on 25% eligibility).
 Jakafi in pancreatic cancer and IDOs lead the pipeline: We expect shares to
trade higher into ASCO on expectations for two key data sets: P2 Jakafi in
metastatic pancreatic cancer, with the focus on the biomarker-defined
subset (may be disclosed prior to ASCO); and P1/2 ‘360 (IDO) + Yervoy in
melanoma, where we expect data on response rate and duration of therapy

Incyte Corporation

INCY : NASDAQ : US$46.15
BUY
Target: US$55.00

COMPANY DESCRIPTION:
Incyte is a drug development company focused on
discovering and developing novel, small-molecule drugs
for the treatment of cancer and inflammatory diseases.
INCY’s lead product is Jakafi, a JAK1/2 inhibitor
partnered with NVS, which is approved for the treatment
of myelofibrosis in the U.S., and is being developed for
the treatment polycythemia vera (in P3) and other
indications. Incyte is headquartered in Wilmington, DE.

Life Sciences — Biotechnology
ASH: MF COMPETITORS TRYING TO TAKE AIM, BUT EARLY; RAISING PRICE
TARGET TO $55
The ASH meeting in New Orleans, where data was presented :

INCY’s Jakafi and 110 (JAK1) along with MF competitors. With incremental
positive updates (3-year COMFORT-I data is in-line with 2-year data; pooled
COMFORT-I and -II data demonstrate a survival benefit due to multiple treatment
effects), the focus for INCY is on the competitive landscape in MF. Given
competitor safety concerns (SNY’s fedratinib) or early stage of development (BMY
in P1/2; LLY’s LY2784544 in P2; GERN’s imetelstat has only been evaluated in an
IIT; GILD’s momelotinib has yet to start accruing P3) and the continuation of
benefit observed with Jakafi, we remain encouraged by INCY’s position in the MF
treatment landscape and would be buyers ahead of Jakafi P3 data in PV in mid-
H1 and P1/2 IDO and P2 Jakafi in pancreatic cancer data at ASCO. We are raising
our PT to $55 from $47.
Nice maintenance of efficacy for Jakafi: Dr. Ruben Mesa of the Mayo Clinic
presented 3-year COMFORT-I data that is in-line with the 2-year update.
Specifically, 50% (77 of 155) of patients initially randomized to Jakafi remained
on therapy (vs. 65% at 2 years) with 59% demonstrating a >=35% spleen size
reduction at 3 years (vs. 64% at 2-yr). The p-value for OS of 0.067 was attributed
to cross-over confounding, and two statistical analyses indicated the Jakafi arm
would have a benefit against a true placebo arm.
GERN’s imetelstat has buzz, but is early: Dr. Ayalew Tefferi of the Mayo Clinic
presented efficacy data on 22 pretreated MF patients on two dosing schedules of
the telomerase inhibitor imetelstat. The drug demonstrated activity per spleen
reductions (36% of patients had a spleen response, vs. 42% and 28% in
COMFORT-I and –II, respectively, although measurements/baseline
characteristics were not identical between trials) and bone marrow/molecular
markers (5/33 = 23% of patients had a CR/PR – which have not been lost to date –
4 of whom had bone marrow reversal). On safety, one patient died of intracranial
bleeding, attributed to myelosuppression due to the higher dosing schedule.

NewLink Genetics

NLNK : NASDAQ : US$16.94
BUY 
Target: US$23.00

COMPANY DESCRIPTION:
NewLink Genetics is a biotechnology company devoted to the development of cell-based cancer vaccines and other
cancer therapeutics.

Life Sciences — Biotechnology
HAP FIRST INTERIM LOOK IN Q4/Q1
NLNK reported Q3 GAAP EPS of $(0.32), above consensus of $(0.33) and CGe of $(0.35). The focus for NLNK is on the first interim analysis (222 events) of the Phase 3 IMPRESS trial of HyperAcute Pancreas (HAP) in resected
pancreatic cancer, which we expect to occur in Q4-Q1.

We note that the P3 IMPRESS trial initiated in April 2010 (43 months) and the median survival in comparator trials is 13.5 months (Hidalgo) to 18.5 months (RTOG-9704).

Given the high bar to stop the IMPRESS trial at the first interim look (45% improvement in overall survival versus control) and lack of futility analysis, we view it as upside and view the second and third analyses (at 333 and 444
events, respectively; 30% and 20% OS improvement required) as more likely points for the trial to be halted for success.
 P3 patient characteristics bode well for success: Management  reaffirmed that the 222nd event may not occur by YE13, but they do not expect substantial variation in survival times given the relatively poor prognosis for pancreatic cancer. In September, NLNK provided baseline patient characteristics from the P3 HAP trial, which are in-line with prior resected pancreatic cancer trials (e.g. 70% nodal status N1 and 9% elevated CA19-9, vs. 68% and 9% in comparator RTOG-9704), indicating prolonged survival in this trial is not due to a healthier patient population.
NLNK will initiate a P1 NLG919 (IDO inhibitor) trial for solid tumors in Q4,
with a P1 HyperAcute Renal trial for renal cell cancer and a P1 NLG919
(IDO inhibitor) trial for solid tumors on tap.
 Q3 financials: Q3 revenue of $265K was below consensus of $305K and bove CGe of $228K. The bottom-line beat was primarily due to lower SG&A expense ($2.3M vs. CGe of $3.3M). NLNK ended Q3 with $52.0M in cash and equivalents and expects to exit 2013 with >$40M in cash and equivalents (from ~$40M previously)

Oncolytics Biotech Inc. Risk/Reward

ONC: TSX : C$2.55
ONCY : NASDAQ
BUY 
Target: C$8.00

COMPANY DESCRIPTION:
Oncolytics Biotech is a biotechnology company with a biologic therapy in late stage development for the treatment of various cancers. The company’s lead product, Reolysin, is a live virus that has the ability to replicate in certain cancers, thus destroying the cancer cell. Oncolytics is now conducting several randomized studies for Reolysin (including head & neck and pancreatic cancers), which should read out over the next several months.
All amounts in C$ unless otherwise noted.

Life Sciences — Biotechnology
STILL WAITING FOR DATA…
Investment recommendation
Oncolytics reported third quarter results. Net loss for the quarter was $6.1 million or ($0.07) per share, greater than our estimate of $5.3 million or ($0.06) per share. The variance is primarily related to higher than expected R&D expenditures of $5.0 million, compared to our estimate of $4.0 million. The upcoming data read-outs should be major catalysts for the stock, representing a first look at key randomized efficacy endpoints for Reolysin. With important results expected on the horizon, we continue to recommend risk-tolerant investors accumulate the stock ahead of these anticipated milestones.
Investment highlights
 Adequate cash on hand. Oncolytics ended the quarter with cash and cash equivalents of $31.5 million, which represents approximately 15 months of cash at projected burn. We note that the company is conducting a number of randomized trials in collaboration with the National Cancer Institute of Canada’s Clinical Trial Group, limiting the capital requirements for these studies.
 Randomized data on the horizon. The next major potential catalysts are randomized data in both head & neck cancer and pancreatic cancer. While we had anticipated the head & neck results in October, we do not believe that there is any read-through to the delayed timing of this data.
Valuation
on this analysis, we arrive at a 12-month target price of C$8.00, which supports our BUY recommendation.

NewLink Genetics A Double Target $ 23

Micrographs of normal pancreas, pancreatic intraepithelial neoplasia (precursors to pancreatic carcinoma) and pancreatic carcinoma. H&E stain. (Photo credit: Wikipedia)

NewLink Genetics

June 1 , 2012

 NLNK : NASDAQ : US$12.76 | | Buy , Target US$23.00

More upside remaining

The key value driver is HyperAcute Pancreas (HAP) – a novel immunotherapy in P3 clinical trial for surgically-resected pancreatic cancer. A positive P2 (we recognize it was a single-arm study) in addition to the novel cancer vaccine platform are encouraging as we look toward P3 data (first interim analysis in late- 2012/early-2013E). We model for peak worldwide HAP sales of $850M in 2020, of which $635M is recognized by NLNK. We view the remainder of the pipeline as a free-call option.

While NLNK shares are up ~81% YTD, we believe long-term P2 overall survival data at ASCO (June 4) could serve as a near-term catalyst.

HAP P2 data is encouraging: HAP + standard-of-care (SOC; Gemzar + 5- FU/radiation) demonstrated 1-year overall survival (OS) of 86% (96% in the high-dose subset) versus 69% for Gemzar + 5-FU/ radiation in the RTOG 97- 04 study (best comparator) with a relatively clean adverse event profile.

Physicians are optimistic on HAP: They believe the theoretical basis behind the vaccines make sense (making human pancreatic cells look foreign so that they get destroyed). In terms of efficacy, they are encouraged when comparing  the HAP P2 to SOC in the RTOG 97-04 study (see above). In addition, the MSKCC prognostic model suggested a 63% survival at 12 months (53% under a different model) in a similar patient population versus the 86% demonstrated by HAP. Looking at the P3 trial design, they like that the primary endpoint is OS, that patients now initiate HAP 10 weeks post-surgery (providing more recovery time), and given SOC can now be determined by the patients and oncologists versus the P2.