NKTX - Nkarta: Under The Radar Company With Brilliant Results

Summary

• NKTX came out with strong data in heavily pretreated AML patients in April.
• Data was at least as good as Fate's data, which is valued nearly 4x higher.
• Lack of near-term catalysts and a secondary is keeping the stock down.

Nkarta ( NKTX ) is a company that allogeneically harnesses the power of natural killer cells or NK cells against cancer. The company is in early stages, with two phase 1 programs, and a collaboration with CRISPR Therapeutics ( CRSP ). Lead program NKX101 is designed to target NKG2D ligands. The asset is in a phase 1 trial targeting AML and MDS through systemic IV. Second program NKX019 targeting CD19 is in a phase 1 trial in B-cell malignancies. These are dose-finding studies looking at safety and tolerability. Surprisingly, the first study is now 2 years old. That’s a little too long for a phase 1 study, especially since that is the lead study for Nkarta. The original enrollment figure was just 27 subjects, which has now gone up to 90. These are details about this study that need to be understood.

Earlier this year, both studies - and especially the first one - produced some outstanding data in their respective indications. These results are at least as good as what we saw from Fate Therapeutics’ ( FATE ) FT596, another NK cell anti-CD19 project, although using induced pluripotent stem cells instead of healthy donors like Nkarta does. NKX101 data from five subjects with median fourth-line acute myeloid leukemia was superlatively good, with 3 out of five achieving complete remissions. What is more important for these autologous therapies, though, is that there was no cytokine release syndrome and no graft versus host disease.

Below is the swimmer plot which shows the treatment effect of NKX101 over time:

Source - Company Presentation

The chart shows 3 complete remissions, with two of them showing no residual disease (MRD negative), while the third patient was eligible for HSCT transplant within a month, and was without disease. 3 other patients showed MLFS or Morphologic leukemia-free state in AML, which is also a good outcome because it makes such patients eligible for successful HSCT. In this set of patients who have no or limited options, such a set of data is truly outstanding.

In the NKX019 study, as well, data was very good. There was a 83% ORR among NHL or non-Hodgkin's lymphoma patients with the higher dose. ALL or acute lymphoblastic leukemia patients saw no drug activity.

One small but crucial difference between Fate and Nkarta is that while Fate saw treatment effect at 300 million cells, Nkarta had to go up to 1 billion cells before it saw the therapy work. On one hand, this is good, from the point of view of safety and tolerability, because clearly, patients were able to withstand very high doses without adverse reactions. On the flipside, this could increase costs. However as CEO Paul Hastings said last year:

Mr Hastings reckons cost of manufacturing can be limited to $2,000 per vial of a billion NK cells; and, as each dosing cycle comprises three lots of 100 million cells, each vial could give up to three cycles.

Nkarta’s nearest competitor in this space is Fate Therapeutics, which I have discussed in multiple articles already. Fate is the first to publish, and its data is also outstanding. However, at the time it published data last year, the stock was trading at $120+ and the company was being valued at $9bn - without any sort of clinical validation. So even good data could not help the company, and today it has fallen to a $2bn valuation. Nkarta, on the other hand, is a relatively under-the-radar company and is conservatively valued at less than $600mn even after such data. You can guess which way the wind will blow.

Among other details, Nkarta and CRISPR signed a deal early last year to collaborate on multiple programs using the latter’s Crispr/Cas9 gene editing tool. The two companies will develop and commercialize two CAR NK cell product candidates: one targeting CD70 tumor antigen, and another comprising NK plus T cells, target undisclosed. Other key elements of the deal:

• Nkarta also receives a license to CRISPR's gene editing technology to edit five gene targets in an unlimited number of its own NK cell therapy products.

• The companies will share in all R&D costs, as well as profits, in products developed under the collaboration.

• For non-collaboration products utilizing a gene editing target licensed from CRISPR, Nkarta will keep worldwide rights and pay CRISPR milestones and royalties on sales.

Also last year, the company established an 88K square foot manufacturing facility in South San Francisco - an ex-Amgen plant - which will go online next year and support the company’s activities and manufacturing, besides becoming the company’s headquarters.

Financials

NKTX has a market cap of $585mn and a cash reserve of $415mn as of August. In April, after positive data, the company raised $200mn in a secondary offering. Research and development (R&D) expenses were $21.0 million for the second quarter of 2022, while general and administrative (G&A) expenses were $6.6 million. These will eventually increase as they proceed towards later stages of trials, however, at the current rate, the company has a cash runway extending well into 10+ quarters.

The company licenses some IP from the National University of Singapore and the St. Jude’s Children Hospital. The IP covers their lead candidates and their technology.

Risks

NKTX is a little under-the-radar so the trading volume is a bit on the lower side, at around 300,000. That could pose a problem for people wanting in and out quickly - although with stocks like these, a middle order volume like this should not be a problem.

Fate Therapeutics is the major competitor, as I discussed here and in earlier articles. However, like I pointed out here, there are reasons Fate and NKTX could both sell in the market. It appears from these earlier studies that NKTX data is somewhat better in terms of safety. Anyhow, Fate is a major competitor, and NKTX investors should keep that in mind.

Bottomline

I like what I see here; an under-the-radar company coming out with brilliant results, yet the stock is subdued after that initial spurt because of the secondary, which now gives them a long cash runway and a low price. They do not have major near-term catalysts, which is another reason the stock may be subdued. All in all, a stock to buy and hold for a few years.

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