NKTX - Nkarta: Going Down Despite Solid Data Due To Fate's Debacle

2023-03-26 06:37:55 ET

Summary

• NKTX has consistently produced solid data from its NK cell programs.
• Despite that, the stock is going down.
• It could be a result of Fate's recent debacle, or because, as Oppenheimer says, the ship has already sailed.

Nkarta ( NKTX ) had a slight bounce in early January as fellow NK cell therapy developer Fate (FATE) met with a major obstacle and trashed its entire NK cell program. However, NKTX has continued to fall after that, and it remains speculative whether the fall was due to the market seeing NK cell programs in a poor light after Fate’s disaster, or something else. I covered NKTX in November, where I was generally bullish, but it needs further coverage after Fate's problems .

However, comparisons end here - Nkarta, with just 8 years in existence, has produced much better data than Fate, which has been around for over 15 years. I discussed some of that data when I last covered it in November. There I said that phase 1 data from NKX101 is at least as good as Fate’s FT596. One difference is that FT596 uses induced pluripotent stem cells while NKX101 uses stem cells from healthy donors. Another major difference: FT596 is now no more, while NKX101 is progressing in fits and bounds - to mix up a couple of English idioms.

Now, if you look at some of FT596 data :

In the second and third single-dose cohorts of the Monotherapy and Combination Arms comprising a total of 14 patients, 10 of 14 patients (71%) achieved an objective response, including seven patients (50%) that achieved a complete response ((CR)), as assessed by PET-CT scan per Lugano 2014 criteria on Day 29 following FT596 dosing. Eight of 10 patients (80%) that had not previously received CD19-targeted CAR T-cell therapy achieved an objective response, including five patients (50%) that achieved CR. Two of four patients (50%) that had previously received CD19-targeted CAR T-cell therapy, both of whom were treated in the Combination Arm, achieved a CR. In the first single-dose cohorts of the Monotherapy and Combination Arms comprising a total of six patients, only one patient achieved an objective response, suggesting dose-response treatment effects for FT596.

A difference is that this data is from a larger number of patients. However, 3 out of five achieving complete remissions in the highest dose is impressive. Note, though, that this is from 1 billion cell dose cohort , the highest for Nkarta, while for Fate, the data is from 300 million, and the 900 million cohort data produced 4 out of 6 complete remissions, as we saw a few months later. So, Fate’s data was also quite impressive, and this indicates that maybe the market is worrying that if Fate, with such good data, was forced to shelve its NK program, maybe Nkarta will have a similar problem, as well.

A dose escalation cohort of NKX101 was enrolling last year, and the company plans to announce data in the first half of 2023.

The other program is NKX109, where we saw last time that there was an 83% ORR among NHL or non-Hodgkin's lymphoma patients with the higher dose, while ALL or acute lymphoblastic leukemia patients saw no drug activity. In December, the company presented updated data from this trial. Key highlights :

• 7 of 10 patients treated with NKX019 monotherapy at 1 billion and 1.5 billion CAR NK cells per dose achieved complete response (70% CR rate)

• 5 CRs achieved across all dose levels after a single cycle (3 weekly doses) of NKX019 monotherapy; 3 partial responses deepened to CR with additional cycles

• Patients with CR observed across multiple NHL histologies, including LBCL

• Consolidation dosing administered to 7 patients with CRs with aim to eradicate residual tumor cells and prolong response

• Durable responses of greater than 6 months achieved in multiple patients

• Early safety profile supports outpatient administration and shows no neurotoxicity / ICANS, graft versus host disease (GvHD), or >Gr3 cytokine release syndrome (CRS')

Thus, although the dose was high, it was well-tolerated by patients with no dose-limiting serious adverse events. This lack of troubling adverse events is the key USP of Nkarta. As CEO Paul Hastings said , “the emerging safety profile of NKX019 is potentially game-changing.”

Another key difference on which Nkarta focuses is that NKX109 targets the same patient population as the first approved CARTs Yescarta and Kymriah, with the difference that while those were autologous, this is allogeneic. That means these are off-the-shelf, not needing patients to wait for months for treatment while their disease rages on. Moreover, while those autologous therapies were, of necessity, only given once, NKX109 can be - and was actually given - multiple times. This was very useful because in at least 3 patients with PRs, a second infusion converted that PR to a CR.

Durability was another major positive. Patients maintained responses for over 6 months, with one patient with LBCL having a CR lasting 9 months. The company is giving consolidation doses to seven patients with CRs. The idea is to completely remove residual tumor cells and prolong responses.

The company plans to release further data this year.

Financials

NKTX has a market cap of $164mn and a cash balance of $354mn. Research and development (R&D) expenses were $90.9 million for the full year 2022 and $26.8 million for the fourth quarter of 2022. General and administrative (G&A) expenses were $28.1 million for the full year 2022 and $8.1 million for the fourth quarter of 2022. At that rate, the company maintains that it has a cash runway to 2025.

Bottomline

Clearly, there’s a dichotomy between what the company says is outstanding data - and it certainly looks so - and the market perception here. One hint comes from Oppenheimer, who recently downgraded to Perform from Outperform, telling investors that given the progress of bispecific antibodies and commercial CAR-Ts in treating lymphoma and myeloma, NK-cell therapies "are rapidly being left behind.” While this may indeed be the reason for the poor market performance of the stock, I am surprised that a treatment producing this level of remission is being sidelined in order to make way for treatments that may be more cutting edge, but are still less proven. I think the current lows make for an excellent opportunity to buy into a potentially profit making but somewhat risky stock.

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