What happened

Shares of NewLink Genetics (NASDAQ:NLNK), a small-cap clinical-stage drug developer focused on therapies to treat cancer, skyrocketed by 25% in September, according to data from S&P Global Market Intelligence. The clear reason for the move higher is tied to an early month press release that updated trial data from an ongoing phase 2 study involving its lead drug indoximod.

So what

The updated data, which NewLink presented at the Third International Cancer Immunotherapy Conference in Frankfurt/Mainz, Germany on Sept. 9, yielded encouraging and improved results for the company's IDO inhibitor in combination with Merck's (NYSE:MRK) cancer immunotherapy Keytruda.

A dermatologist examining the arm of a senior patient with the aid of a magnifying glass.

Image source: Getty Images.

The trial, which focused on advanced melanoma patients, produced an updated complete response rate of 20% (10 out of 51 patients), up from 12% during an earlier analysis. Additionally, the overall response rate came in at an impressive 61% (30 out of 51 patients), 80% of patients (40 out of 51) boasted disease control, which includes stable disease patients, and 56% of patients still had a durable response at the 12-month mark. The median response rate observed in the phase 2 NGL2103 study was 12.9 months. Said CEO and Chief Scientific Officer Charles Link, Jr., M.D.

"We are encouraged by the progression-free survival and the improvement in complete responses observed in the trial. The updated data further support our decision to initiate a pivotal trial for patients with advanced melanoma," said CEO and Chief Scientific Officer Charles Link, Jr., M.D.

The next step for indoximod and NewLink Genetics is a 600-patient phase 3 trial that'll pit indoximod and either Merck's Keytruda or Bristol-Myers Squibb's (NYSE:BMY) blockbuster immunotherapy Opdivo, against a single agent PD-1 inhibitor. The co-primary endpoints for this large-scale study are a statistically significant improvement in progression-free survival as measured by RECIST criteria, and median overall survival. 

Now what

In a span of just two days, NewLink Genetics actually wound up surging more than 100% on the news, but not surprisingly cooled off toward the end of the month. While it's looking as if the company could have its first commercial product in the works, there are still two concerns that shareholders should keep in mind.

A hundred dollar bill on fire.

Image source: Getty Images.

First, even though NewLink's and Merck's or Bristol-Myers' therapies target a very specific population of advanced melanoma patients, advanced melanoma has become an exceptionally crowded indication. Unless indoximod and its partner PD-1 inhibitor blow the single agent PD-1 inhibitor out of the water in the phase 3 trial, it could be difficult for yet another combo drug to garner much in the way of market share.

The other concern here is NewLink Genetics' cash runway, which has brightened a bit over the past few days. NewLink announced on Tuesday, Oct. 3, that it was pricing 5 million shares of stock at $10.25 per share, which was a bit higher than previously expected, and therefore implies the excitement surrounding indoximod at the moment. The gross proceeds of $51.25 million, assuming no underwriter option, should boost NewLink's cash balance to between $150 million and $155 million, after fees. The worry is the company could easily burn through $75 million or more annually, meaning its cash probably won't last it much past the first-half of 2019.

At the moment, NewLink Genetics looks to be a total roll of the dice. Investors would therefore be best suited sticking to the sidelines until we have more concrete data to build off of.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.