HOWL - Werewolf Therapeutics: This Dog Could Still Hunt

Summary

• Shares of immuno-oncology concern Werewolf Therapeutics are down 80% from their April 2021 IPO pricing as a lack of clinical data has negatively impacted results.
• That dynamic will start to change as two of its assets enter the clinic, with a readout expected for Interleukin-2 candidate WTX-124 expected in 4Q23.
• Trading at cash value with a novel approach to increasing therapy effectiveness while limiting off-target toxicities, the recent beneficial owner buying merited a deeper dive.
• A full investment analysis follows in the paragraphs below.

"A man might befriend a wolf, even break a wolf, but no man could truly tame a wolf. "? George R.R. Martin, A Dance with Dragons

Today, we take our first look at a small biotech name with a memorable ticker symbol. The stock currently trades at cash value and has an intriguing development approach that could have long term potential. An analysis follows below

Company Overview:

Werewolf Therapeutics, Inc. ( HOWL ) is a Watertown, Massachusetts based early-stage biopharmaceutical concern focused on the development of conditionally activated immunotherapies for the treatment of cancer. The company currently has two programs beginning Phase 1 trials and another preclinical asset out-licensed to Jazz Pharmaceuticals ( JAZZ ) . Werewolf was formed in 2017 and went public in April 2021, raising net proceeds of $109.2 million at $16 a share. Its stock trades just under $3.50 a share, translating to a market cap of approximately $115 million.

Predator Platform

Although immunotherapies have positively impacted many patients' lives, their systemic delivery can result in not enough cytokine delivered to cancer cells and too much to off-target organs, resulting in both treatment inefficacy and healthy tissue degradation via attack from the body's own immune system. The company's solution to these issues is its Predator platform, which generates 'Indukine' molecules that target the tumor microenvironment [TME]. Each therapy is comprised of four components: a cytokine - to date, either interleukin or interferon; an inactivation domain, which is designed to limit off-target toxicity by blocking the cytokine from binding outside the TME; a half-life extension domain that overcomes the short half-lives of cytokines in vivo and detaches once the cytokine is in the TME; and a protease-cleavable linker that is designed to sever only when inside the TME, enabling conditional activation. To date, Predator has spawned two clinical assets and a third that has resulted in an out-licensing deal.

Pipeline:

WTX-124 . Werewolf's lead program is WTX-124, a systemically delivered, conditionally activated Indukine version of Interleukin-2 (IL-2) that is undergoing evaluation in a Phase 1/1b trial as both a monotherapy and in combination with Merck's ( MRK ) anti-PD-1 therapy Keytruda (pembrolizumab) in patients with advanced or metastatic solid tumors. After demonstrating conditional activation and tumor elimination in murine models in the preclinic, Werewolf dosed its first human patient in 3Q22. The dose escalation study will enroll ~150 patients with renal cell carcinoma, advanced or metastatic cutaneous malignant melanoma, or other solid tumors and have exhausted all standard of care ((SOC)) options or for which no SOC exists. WTX-124 will be assessed for safety, pharmacokinetics, efficacy, and recommended dose for expansion, as well as a biomarker analyses to determine proof of mechanism and conditional activation. Initial data are anticipated in 4Q23.

WTX-124 is intended to improve on Proleukin (aldesleukin), a recombinant IL-2-like protein that was approved nearly 30 years ago for the treatment of renal cell carcinoma and melanoma that is bedeviled by adverse events such as immunosuppression and vascular leak, which manifests in the aforementioned off-site toxicity.

Werewolf is not the only biotech attempting to engineer an improved IL-2 cytokine for cancer treatment. In fact, it is one of approximately one dozen concerns with clinical or preclinical programs attempting to solve the off-site toxicity issue for this particular cytokine. That said, enhanced IL-2 has been a graveyard for the industry recently, with notable failures from Nektar Therapeutics ( NKTR ) , Moderna ( MRNA ) , and Sanofi ( SNY ) .

WTX-330 . The company's other clinically cleared program is WTX-330, which is a systemically delivered, conditionally activated Indukine version on Interleukin-12 (IL-12). After its compound demonstrated success against checkpoint inhibitor refractory tumors in mice, Werewolf is currently in the process of activating sites for a Phase 1 study that will assess the safety and tolerability of WTX-330 monotherapy in ~75 patients with advanced or metastatic tumors who are either immunotherapy resistant or unresponsive.

There are no approved IL-12 therapies; however, there are nine other IL-12 cytokine preclinical or clinical programs in process.

WTX-613 . Although devoid of any human trial data regarding its novel bioengineering approach to treating cancer, Werewolf has already inked a potentially meaningful out-licensing deal with Jazz. In return for the worldwide development and commercial rights to Indukine interferon alpha asset WTX-613 (now known as JZP898), Jazz shelled out $15 million upfront and agreed to pay for its preclinical development. Once through preclinical evaluation, Jazz will take over from there, responsible for the IND filing and all clinical development henceforth. In addition to the upfront payment and reimbursement of preclinical expenses, Werewolf is eligible to receive $520 million in developmental and regulatory milestones, $740 million in commercial milestones, and mid-single digit royalties.

Share Price Performance

That said, Werewolf is another example of a biotech with a sexy yet untested (in humans) approach to treating disease that flounders after it goes public - not due to any failings of its therapies, but rather because there are no near-term clinical catalysts over which the market can get excited. As such, with its lead asset just entering the clinic 16 months after going public, shares of HOWL have fallen sharply from their IPO pricing. That said, they have rallied strongly off their all-time low of $1.39 set on December 7th, 2022.

Balance Sheet & Analyst Commentary:

To fund its clinical endeavors, the company held cash of $140.5 million, that when combined with access to an undrawn $40 million term loan, should provide it a cash runway into 2Q24. This operational funding projection does not consider either additional milestone payments from Jazz or Werewolf's $50 million ATM facility, under which it has $35.6 million remaining.

Despite Werewolf stock's dismal performance, Street analysts are unanimously bullish on its prospects, featuring one outperform and five buy ratings, although four of the prognosticators haven't provided any commentary in over a year - unsurprising, considering the dearth of events on which to comment. EF Hutton did initiate coverage with a buy rating and an $8.30 price objective in December 2022, while HC Wainwright reassumed coverage in June 2022 with a buy rating and a $20 price target. EF Hutton reissued that rating last week.

Also bullish is RA Capital Management. Represented on the board by Derek DiRocco, the beneficial owner added 1,853,000 shares at $2.21 on January 6, 2023, raising its ownership interest to 18%.

Verdict:

Save an IND filing by Jazz for JZP898 - the FDA acceptance of which would likely trigger a small regulatory milestone payment - there is nothing for Werewolf to offer would-be investors in terms of catalysts until its 4Q23 data readout for WTX-124. However, trading at current cash value, there is limited downside risk until the data release. For those patient enough to negotiate the illiquidity in its options, Werewolf offers a solid covered call opportunity. It is also a name that seems worthy of small ' watch item ' holding that should accumulating during dips in the market for aggressive investors within a well-diversified biotech portfolio.

"Throw me to the wolves and I'll return leading the pack "? -Unknown

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