Roche Holdings (NASDAQOTH:RHHBY)surprisingly cut ties with NewLink Genetics (NASDAQ:NLNK) on GDC-0919 last week, and that decision puts NewLink Genetics further back behind Incyte Corporation in the race to develop a new class of cancer-fighting drugs called IDO inhibitors. 

Roche Holdings' decision is particularly disappointing because industry watchers had thought GDC-0919 would be NewLink Genetics most competitive IDO-ihibitor. Now that GDC-0919's future is in flux, investors are right to wonder what's up next for NewLink Genetics. 

First, a little background

Indoleamine 2,3-dioxygenase (IDO) is a protein that has immunosuppressive effects, and because cancer cells can hijack it to evade detection by the immune system, drug developers think inhibiting its activity could help other cancer medications work better.

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At the forefront of this research are NewLink Genetics and Incyte. Until now, NewLink Genetics has been developing indoximod and GDC-0919, while Incyte Corporation has been developing epacadostat. 

In April, NewLink Genetics reported that the objective response rate in a 60-person phase 2 study evaluating indoximod alongside Merck & Co.'s (NYSE:MRK) Keytruda in advanced melanoma was 52%. If you include patients with stable disease, the rate increases to 72%. 

Similarly, Incyte Corporation reported data from its own melanoma trial earlier this year showing patient's objective response rate to epacadostat plus Keytruda was 58%. A total of 74% had a complete response, partial response, or stable disease.

In both cases, the findings suggest each of these drugs could win FDA approval someday. Especially since the FDA approved Keytruda for use as a monotherapy in advanced melanoma patients after it delivered a 33% objective response rate. 

However, it's Incyte's drug that's closer to FDA review, and that first-mover advantage, plus the similarity in results from these trials, could make it difficult for indoximod to win away market share.

Because of Incyte's lead over indoximod, industry watchers' had hoped trials evaluating GDC-0919 would show it works better than epacadostat in cancers other than melanoma. Unfortunately, that doesn't appear to be the case. Last week, Roche presented data on GDC-0919 at the American Society of Clinical Oncology (ASCO) conference that was lackluster, and it appears those results were a big reason why Roche has decided to walk away from developing it any further.

Specifically, adding GDC-0919 to Roche's Tecentriq (a drug that works similarly to Keytruda) resulted in an objective response rate of just 9% across a variety of cancers. For comparison, adding epacadostat to Keytruda resulted in objective response rates of between 30% to 35% in a variety of cancers, including non-small cell lung cancer.

What's next for NewLink Genetics?

NewLink Genetics hasn't licensed indoximod to anyone yet, and now that it's getting the rights to GDC-0919 back, it's got a decision to make. Developing both of these drugs concurrently would be costly, and the company probably can't afford it.

As of March 31, it has $118 million in cash on its books, but it's burning through that cash at a rate of $12 million per quarter. Cash burn is likely to increase from here given plans to start a registration ready trial of indoximod in melanoma this year. Currently, management expects it will finish 2017 with $75 million in cash, and that suggests to me that a cash crunch could be coming in 2018.

Ideally, NewLink Genetics probably wants to convince another company to share in development costs by out-licensing GDC-0919 again. However, that seems less likely given Roche's data at ASCO. 

It's also possible that NewLink Genetics would consider selling itself lock, stock, and barrel. However, finding a buyer could be unlikely too. The most logical suitors would be companies marketing PD-1 checkpoint inhibitors that they could pair up with NewLink Genetics drugs, but the two leaders in this class are Bristol-Myers Squibb and Merck & Co., and they're already working with Incyte.

If licensing and M&A is off the table, then NewLink Genetics next option could be tapping equity investors for more money. However, that's not going to be easy given its crumbling share price. 

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In the end, NewLink Genetics might have to focus on indoximod trials and hold-off on developing GDC-0919 -- at least until new data emerges that reignites its share price.

Potentially, trials evaluating indoximod plus Abraxane and gemcitabine in pancreatic cancer could make that happen. Data from a phase 1/2 trial evaluating indoximod alongside these treatments are expected soon. Fortunately, the bar for success is set pretty low. The ojective response rate for Abraxane plus gemcitabine alone is only 23% in trials, and an interim look at adding indoximod to these drugs produced an objective response rate of 45%. 

Having said that, investors might want to keep their optimism in check. Pancreatic cancer is notoriously hard to treat, and there's no guarantee that interim trial results will be confirmed.

Overall, the risks facing NewLink Genetics are big, and the stakes for its survival are higher now than they were before Roche's decision. Therefore, investors should approach this company with a big dose of caution, at least until we know for sure if indoximod's pancreatic cancer trial is a success.