Quietly on Jan. 13, Nextcure (NXTC 2.04%) filed a terse 8-K with the SEC stating that Eli Lilly (LLY 0.31%) was terminating a research and development pact forged in November 2018. Nextcure's stock righted itself after a brief sell-off the morning after the filing.
Here's why investors shouldn't worry.
Investors shouldn't be surprised
While Eli Lilly provided a degree of validation to Nextcure's scientific approach, the programs focused on immuno-oncology were still in the early stages with few public details. Some investors may interpret the termination as a sign that the technology doesn't work. I suggest those investors look closer at the changes at Eli Lilly.
On Dec. 5, Eli Lilly announced a new leadership team and strategy for its oncology R&D. The team taking control hailed from Loxo Oncology, a biotech Eli Lilly bought in January 2019 for $8 billion. The restructured cancer R&D group changed its name to Loxo Oncology at Lilly. Loxo and the team focused on targeted small-molecule drugs for cancer and will continue with that approach. Nextcure's FIND-IO platform seeks to find novel antibody therapies, not small molecules.
Astute investors may have even foreseen this approach based on the following sentence from Lilly's Dec. 5 press release: "In connection with these changes, development of several early clinical-stage programs will be wound down and terminated." To be fair, the Nextcure R&D efforts had not yet entered clinical trials, but the writing on the wall suggested that early, non-core programs would be cut.
Nextcure's path forward
Nextcure controls the destiny of two promising immuno-oncology drug candidates: NC318 and NC410. Most savvy investors probably attribute the bulk of the company's valuation to these programs, and Lilly never had rights to them.
NC318, an antibody targeting siglec-15 or simply S15, inhibits cancer cell survival while promoting the proliferation of cancer-fighting T-cells. Intriguingly, S15 expression does not generally overlap with expression of the targets PD-1 or PD-L1; thus, NC318 can target cancer patients who don't respond to PD-1/PD-L1 inhibitors.
Why is this big news? Drugs focused on those targets have become part of the new treatment paradigm for cancer, generating billions in revenue along the way. Sales of Merck's Keytruda hit $3.1 billion for the third quarter alone last year. Collectively, several other drugs in the same class, including Opdivo from Bristol-Myers Squibb, Tecentriq from Roche, and Pfizer's Bavencio, generated billions more. Even as good as these drugs are in certain cancers, a cohort of patients, sometimes quite large, fails to respond. Those patients may ultimately derive benefit from Nextcure's NC318.
Nextcure began a phase 2 clinical trial last October and expects initial data by the end of 2020. Beyond that trial, the company plans to file its Investigational New Drug submission with the Food and Drug Administration this quarter to start human trials of its second drug candidate, NC410. Initially targeting advanced or metastatic solid tumors, NC410 offers a unique mechanism that promotes the function of T-cells, a component of the immune system that defends the body and fights cancer.
Nextcure strengthened its balance sheet
Following its IPO in spring of last year, Nextcure raised approximately $150 million in November. Adjusting the Sept. 30 cash balance to account for the new capital, Nextcure boasted $324 million in cash. That should be sufficient to run the current and planned clinical trials for NC318 and NC410 and continue its earlier-stage research. The initial phase 2 results at year's end remain the biggest catalyst for movement in the stock, unless another big pharma decides it wants to collaborate or take over one of Nextcure's programs.