HOWL - Werewolf Therapeutics: Still In The Race To Develop Next Generation Cytokines

2023-12-28 19:09:27 ET

Summary

• HOWL reported interim data in November from its phase 1/1b trial of WTX-124 in solid tumors.
• There are signs of antitumor activity at the 12 mg dose of WTX-124, with two unconfirmed partial responses seen.
• HOWL has room to impress further, with additional data expected in H1'24. With the company testing a higher 18 mg dose, the potential for improvement on existing activity exists.

In November, Werewolf Therapeutics ( HOWL ) reported data from a phase 1/1b trial of WTX-124, an interleukin-2 (IL-2) based therapeutic, in patients with advanced or metastatic solid tumors. I haven't looked at the company since April , when I rated it a strong buy based on the strength of the pipeline, its cash runway and the fact it was trading below cash. This article takes a look at where HOWL stands now in late 2023.

The WTX-124 data

On November 3, 2023, HOWL announced data from its phase 1/1b trial of WTX-124, a protein therapeutic which when cleaved in the tumor microenvironment releases native IL-2, in patients with advanced or metastatic solid tumors. HOWL reported data from 16 patients (data cutoff October 18, 2023), five of whom were treated with the highest dose thus far of 12 mg. One of these five patients had achieved an unconfirmed partial response and another had a scan that was consistent with a partial response as of November 1.

While HOWL has tested doses of 1, 3, 6 and 12 mg WTX-124, it is now set to test 18 mg. Since the responses were seen at the highest dose so far, and the company has the ability to move higher again in dosing, I find the WTX-124 data to be encouraging. This is especially true since at the doses used so far, there have only been grade 1 and grade 2 treatment-emergent adverse events.

HOWL expects to report additional data, and select a dose for expansion from the phase 1/1b trial of WTX-124 in H1'24, which adds a catalyst to the calendar.

Financial Overview

HOWL had cash and cash equivalents of $130.1M as of September 30, 2023. HOWL also had restricted cash and cash equivalents of $21.2M. HOWL brought in collaboration revenue of $5.9M in Q3'23 from Jazz Pharmaceuticals ( JAZZ ), who are developing a modified interferon-alpha, WTX-613, originally developed by HOWL. R&D expenses were $10.8M in Q3'23 and G&A expenses were $4.3M in Q3'23. HOWL reported a net loss of $8.3M in Q3'23 and net cash used in operating activities was $28.0M in the first nine months of 2023. HOWL also has $39.2M worth of notes payable on its balance sheet, subsequent to its loan agreement with Pacific Western Bank, as of September 30, 2023, with $1.7M of that current, $37.6M non-current. The interest only period on the loan ends on August 31, 2024, and the loan matures on August 31, 2026. A $20M portion of HOWL's restricted cash balance relates to the PWB loan agreement.

Considering HOWL's approximately $40M debt, taking $20M worth from HOWL's restricted cash, and a further $20M from HOWL's cash and cash equivalents of $130.1M, leaves us with a net cash balance of $110M to calculate HOWL's runway. With net cash used in operating activities averaging $9.3M/quarter in the first nine months of 2023, HOWL could continue operating for a further 11+ quarters. That being said, expenses could increase when a dose for expansion is selected from the WTX-124 trial, and similarly with the trial of WTX-330. Perhaps this is why HOWL is a little more conservative with its guidance, simply stating that cash will last through at least Q4'24.

There were 36,192,248 shares of HOWL's common stock outstanding as of November 10, 2023, giving HOWL a market cap of $127.8M ($3.53 per share). There were also a further 6.48M options outstanding as of September 30, with a weighted-average exercise price of $6.56, 317K unvested restricted stock units and 59K warrants.

Conclusions, rating and risks

HOWL is now trading at cash, or slightly above when the note payable is considered. The market then has recognized HOWL's pipeline has some value as the name was trading below cash at the time of my last article.

The encouraging data from WTX-124, which could get better with higher doses, and the potential of the rest of the pipeline (which helps it compete with other cytokine developers), are certainly positives. HOWL's cash, efficient operation and time to pay off its loan are the positives on the financial side. All of these factors have me rating HOWL a strong buy.

There are several risks of a long in HOWL, a few of which I'll note here.

Firstly, competitors, especially in the IL-2 space, have also reported data in 2023, with Medicenna Therapeutics ( MDNAF ), which I'm long, Xilio Therapeutics ( XLO ), Ascendis ( ASND ) and Mural Oncology ( MURA ) all announcing results. These competitors will also continue to produce data in 2024. While there is still time for each IL-2 to show its value, and they can go after different indications (different tumor types), these competitors are going to be compared by investors. HOWL's pipeline including an IL-12-based therapeutic, WTX-330, which MDNAF doesn't seem to have or talk about, is an example of how HOWL can be prepared to battle the other cytokine players long-term. The same reasoning applies for HOWL's preclinical IL-18- and IL-21-based drugs. In the short-term however, if it seems like MDNAF's MDNA11, or XLO's XTX202, for example, looks better than WTX-124, then HOWL could fall. This hasn't happened so far and so I think HOWL is still in the race, but it is worth monitoring the competition.

Beyond the competition, a clinical hold impacting any of HOWL's trials could cause the stock to fall. Right now the safety data doesn't concern me, but this is technically a possibility, especially with higher doses being tested.

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