What happened

After NewLink Genetics Corporation (NASDAQ:NLNK) updated data from its ongoing phase 2 trial of IDO inhibitor indoximod in advanced melanoma, shares in the immuno-oncology specialist shot higher yesterday. The news prompted a wave of positive comments from industry watchers, and as a result, on Friday shares are up an additional 37.5% at noon EDT.

So what

NewLink Genetics' rally over the past two days has made up all the ground shares had lost earlier this summer when indoximod failed in a mid-stage breast cancer trial and former collaborator Roche Holdings jumped ship on GDC-0919, a second-generation IDO inhibitor that put up lackluster efficacy in trials.

NLNK Chart

NLNK data by YCharts.

The rally in NewLink Genetics shares was sparked by updated data from a trial evaluating indoximod plus the popular PD-1 inhibitor Keytruda in patients with advanced melanoma. 

The new data shows an improvement in the percentage of patients receiving the two-drug combination who had a complete response versus what was reported in April. Specifically, the complete response rate increased to 20% from 12% previously. The overall response rate also improved to 61% from 59%.

The news, and the upgrades following it, appears to have caught short-sellers flat-footed. The number of shares sold short had increased from fewer than than 2 million in March to over 5.5 million recently.

NLNK Short Interest Chart

NLNK Short Interest data by YCharts.

Now what

The data reassures investors that while indoximod may not work as well in other cancers, it appears to be quite effective in tough-to-treat melanoma. In 2017, roughly 87,000 new cases of invasive melanoma will be diagnosed in the U.S., and sadly, over 9,700 people will die from the disease.

The news may also be increasing investors' confidence that data expected in Q4 2017 or Q1 2018 from a trial evaluating indoximod in pancreatic cancer will be good. 

Undeniably, the need for new treatment approaches in these indications is big, but there's still more work to do before we know for sure indoximod is effective and safe. A phase 3 confirmatory trial in advanced melanoma patients is planned, and management hopes it will be fully enrolled by the end of 2018. 

That timeline, however, could give NewLink Genetics' competitor Incyte Corp. a head start. Incyte is also developing an IDO-inhibitor for use in advanced melanoma, and results from its pivotal trial -- Echo 301 -- are expected in the first half of 2018.

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.