Description

NextCure (NXTC) Long Thesis

Overview

NextCure (NXTC) is clinical stage immuno-oncology company irrationally trading at a sizable negative enterprise value (EV) (negative -$48M EV with $220M mkt cap and $268M of cash). NextCure was a high-flying biotech founded by prominent scientists until it showed mixed data in their lead clinical program.  The stock is currently ignored by the market, but we think a dramatic shift in sentiment is forthcoming.  Owing to a newly developed biomarker assay for improved patient selection, NextCure’s lead asset NC318, a mAb targeting Siglec-15 checkpoint inhibitor therapy, remains promising.  There are now 2 additional fully owned novel programs in the clinic, bringing the total to 3 in human novel oncology programs.  

NextCure is one of the better set ups we have come across in a long time.  Investors are being paid to hold 3 distinct, internally developed oncology programs, a discovery platform to create additional targets and in-house manufacturing supporting development. 

Program overview/Clinical pipeline 

Brief Historical Background/Siglec-15

The scientific founder of NXTC is Lieping Chen, the Yale immuno-oncologist credited with discovering the PD-L1 checkpoint inhibitor pathway.  PD-L1s generate over $25B in annual sales across Keytruda/Tecentriq/Opdivo/others and continues to grow.  Chen’s follow-up to PD-L1 is a new novel checkpoint inhibitor, Siglec-15 (S15).  Initial optimistic expectations were met with mixed P1 clinical results upon which investors demolished NXTC from a $3B valuation into SITC 2019 to negative $48M today.  The company believes the initial thesis on patient selection was the problem rather than an inactive drug.  NextCure is on the cusp of enrolling additional patients into its Phase 2 using its newly developed CLIA validated biomarker assay for Siglec-15 with the goal of treating likely responders. Should the company prove correct, a return to a billion-dollar valuation is possible.

Additional Highlights

• NextCure also developed the first-in-human LAIR-1 targeted therapy with initial clinical data coming in the second half of 2021.  LAIR-1 has since been validated by a competing Merk/NGM Bio program.

• NextCure introduced a third program at their R&D day in March 2021 targeting B7-H4. The B7 family is an up-and-coming target in immuno-oncology with a handful companies chasing B7-H3 and B7-H4. Note that PD-L1 is in the B7 family (B7-H1). 

• Management bench is deep and heavily science driven. Each of the company’s programs were developed in-house.  NextCure developed its FIND-IO platform to identify additional targets.

• NextCure has already built significant internal manufacturing capabilities.  NXTC has 50K sq ft with 25K sq ft dedicated to manufacturing space to generate its clinical material with a 2,000 liter capacity.  NextCure even maintains its own vivarium for animal testing.

Program overview

NC318 (Siglec-15) 

NC318 is a first-in-class monoclonal antibody targeting Siglec-15 (S15). Dr. Chen was the first to discover the immunosuppressive properties of S15. Early research demonstrated that S15 promotes T-Cell suppression.  T-cells are a primary part the body’s adaptive immune system; in layman’s terms they are cancer killers.  Blocking S15 takes the brakes off the immune systems allowing the T-cells to proliferate and do their cancer cell killing work.  This mirrors the method of action of PD-L1, CTLA4 and LAG-3 checkpoint inhibitors.  Since S15 is over expressed in a variety of tumor types, NXTC thinks NC318 could work in numerous solid tumor settings.  For now, there are no other companies going after Siglec-15 in oncology.

Sounds great…what happened?

NXTC IPO’d in May of 2019 for $15 per share.  The clinical data started off strong in non small cell lung cancer (NSCLC) with early responses, however the data weakened over time and led to terminating the Phase 2 in NSCLC.  The first clinical data came in the form of SITC 2019 abstracts on 11/5/19 which showed a clinical benefit rate (CBR) of 71% in PD-1 refractory NSCLC (2/7 ORR 3/7 SD) sending the stock to $109 per share. (Endpoints Article) The actual SITC presentation a week later (11/9/19) had an updated N=13 and less clear cut results with 1 complete response (CR), 1 partial response (PR), 4 stable disease (SD) resulting in a 46% CBR. (SITC 2019 PR)   At ASCO in 5/29/2020, the NSCLC held mostly consistent though a SD patient converted to a progressive disease (PD) (ASCO 2020). 

Disaster struck on July 13 when NXTC announced it would not progress NC318 in NSCLC nor Ovarian cancer into the Phase 2 portion of the Simon 2 stage trial design. It did continue development in Head and Neck Squamous Cell Carcinoma (HNSCC) and Triple Negative Breast Cancer (TNBC) (NSCLC Fails). The CMO simultaneously resigned. The data for NSCLC failing was a major surprise and the stock traded down to its current $8 handle where it continues to languish.  

On June 25th 2021, NXTC was deleted from the Russell 2000 and 3000 indexes creating additional selling pressure as index funds were forced to liquidate in the index rebalance.

Redemption song

After a period of biomarker analysis which had been ongoing prior to the NSCLC failure, the company discovered that it was not accurately selecting for S15 expressing patients.  Since there was no assay to directly measure S15, they had relied on their original hypothesis that low PD-L1 expression inversely meant high S15 expression. Subsequent analysis proved this relationship to be false.  

In December 2020 NXTC completed a retrospective analysis of biopsies from their trial and found only 13% of the enrolled patients had S15 positive tumors.  It has taken a bit of time, but with the help of world-renowned Yale pathologist Dr. David Rimm, the company now has developed a CLIA validated assay to assess S15 levels as an enrollment screening tool (companion diagnostic).  

Yale university continues to believe in NC318 and has started its own investigator sponsored trial (IST) in NSCLC run by Dr. Roy Herbst which will use the newly developed companion diagnostic to select S15 high patients.  It should be noted that Dr. Herbst is also a world-renowned expert in Non Small Cell Lung Cancer and has been the primary investigator and is responsible for several drugs which have been approved in lung cancer. 

The Yale trial will have both monotherapy and PD-L1 checkpoint combo arms.   In addition to the investigator sponsored trial at Yale in NSCLC, NXTC will also be using the S15 companion diagnostic in company sponsored Phase 2 trials in HNSCC and TNBC.

Why we think there is a reasonable probably the S15 assay will yield better results:

• Only 13% of the original selected patients were S15 positive, the target population

• We had a durable CR and PR in NSCLC in monotherapy. This is unlikely a spontaneous outcome, particularly in the heavily pretreated population of their Phase 1.  It signals an active drug.

• The Yale team has top scientific acumen with Lieping Chen, Pat LaRusso, David Rimm and Roy Herbst working with NextCure to resolve the issue

• Biomarker driven strategies/companion diagnostics are likely to yield better results

• The Nature Magazine publication authored by Lieping Chen in 2019 and concludes that genetic ablation or antibody blockade of Siglec-15 enhances immune response against some tumors looks solid

With respect to timing of data we expect an update on the HNSCC and TNBC patients with new data from S15 selected patients by the end of 2021 and initial data from the Yale IST trial in NSCLC will come in the first half of 2022. 

NC410 (LAIR-1)

NC410 is a fusion protein suppressor of LAIR-1 (Leukocyte-Associated Immunoglobulin-like Receptor 1).  LAIR-1 are expressed on T-Cells and dendritic cells and suppress T-Cell activation. Like other checkpoints, NC410 is designed halt the suppression of T-cells and let them do their cancer cell killing job.  NC410 is initially focused on ovarian, NSCLC and pancreatic cancer.  

NXTC announced the trial initiation of NC410 days prior to announcing the failure of NSCLC in NC318, and in our opinion ensuring the market would ignore the trial launch of this new drug.  We expect first in human data in the back half of 2021 in the monotherapy dose escalation trial.  Any efficacy signal coupled with a tolerable safety profile should be a win.  Finding the recommended phase 2 dose (RP2D) by year end would be an excellent outcome.

Merck/NGM bio are also progressing a LAIR-1 (NGM438) into the clinic and expect a P1 initiation by year end.  NextCure developed NC410 in house and was the only company (we knew of) pursuing LAIR-1. We view the Merck/NGM program as validation of the LAIR-1 target.  NGM announced their program at their investor day last December.  Slides 70-80 (NGM R&D Day LAIR-1) walk through their thesis on LAIR-1 blockade.  

In mid June 2021, NXTC published additional pre-clinical data in a well cited medical journal e-life.  The publication titled, "Cancer immunotherapy by NC410, a LAIR-2 Fc protein blocking LAIR-collagen interaction," details the preclinical development and characterization of NC410. It also highlights preclinical data from a series of murine xenograft efficacy studies demonstrating anti-tumor activity and the promotion of T cell expansion and infiltration in the TME by NC410.  

NC762 (B7-H4)

NextCure announced its internally developed NC762 in March 2021 at an R&D day.  Rather than tease a discovery or preclinical candidate year(s) in advance like many biotechs, NXTC introduced NC762 as an already filed IND ready to go into the clinic.  

NC762 is a mAb targeting  B7-H4 checkpoint, the same family as PD-L1 (B7-H1).  NXTC expects to initiate its Phase 1/2 human dosing trial in several cancer targets, ovarian, lung and HER+ breast cancer, imminently. 

While B7-H4 isn’t a crowded space, there are a few competitors interrogating the target:

• Five Prime (acquired by AMGN) has a monoclonal antibody of B7-H4 (FPA150) which completed enrollment in a P1b combo with pembrolizumab (PD-L1 Keytruda) in ovarian cancer.  Amgen acquired Five Prime in April making the go forward data disclosures unknown to us. 

• Mersana has a preclinical (XMT-1660) expected to enter the clinic in 2022 in breast/ovarian/endometrial

As well as B7-H3 targeting:

• Y-Mabs Ombertamab is a pivotal stage B7-H3 radio (iodine) monoclonal antibody

• Macrogenics/I-mab - Enoblituzimab (mAb) and MGC018 (an ADC)

FIND I-O

FIND I-O is beefed up version of the TCAA platform Lieping Chen developed. At its core, is a deep library of expanded gene sequences, commensurate biological pathways and functional assay readouts designed to apply a screening approach to identify new protein pathways. NextCure aims to leverage FIND-IO to discover new product candidates.  We like platform approaches and internal science development.

Intellectual property

Since all of NXTC’s programs were developed in house, we have strong intellectual property.  For NC318, patent applications were filed in 2016 (Chen discovered oncology application in 2015).  Currently NXTC has 2 two pending U.S. patent application relating to NC318, one pending U.S. patent application relating to NC410, and two pending U.S. patent applications relating to NC762, and additional pending patent applications for other discovery and research programs. Patents resulting from patent applications for NC318 and NC410, if issued, are expected to expire beginning in 2037 and for NC762, if issued, are expected to expire beginning in 2039.  

Management and manufacturing

NextCure has a deep bench beyond its science royalty founder Lieping Chen.  Prior to NXTC, CEO Michael Richman was CEO of Amplimmune which was acquired by MedImmune/AstraZeneca and was the COO of MacroGenics. COO Tim Mayer is an immunologist who focused on IP at Macrogenics.  At the NXTC R&D day in March the company also introduced new CMO Han Myint an hematological oncologist who spent a seven years as a VP of Myeloid Disease at Celgene/BMY.  NextCure has a strong relationship with Yale and works closely with noted research oncologist Roy Herbst in running his investigator sponsored NSCLC trial as well as pathologist David Rimm.  

There are 90 full time employees with the majority in R&D. NextCure has built out 2,000 liter cGMP production capacity.  This is a significant advantage as we have witnessed countless biotechs pausing/slowing trials because their third-party manufacturer shut down or was delayed during Covid 19.

Recap

NextCure  has no reason be valued below the cash on balance sheet.  With years of runway and utilizing a biomarker approach for NC318 we have more conviction that S15 blockade will yield responses.  NXTC has two additional, fully-owned, internally developed, clinical stage novel immuno-oncology programs between NC410 (LAIR-1) and NC762 (B7-H4).  Data from all three programs will be coming over the next 12 months.  We see asymmetric upside and renewed investor attention as well as selling pressure abating due to index rebalance.

Milestones

• NC318 (Siglec-15) patient enrollment based on NXTC’s validated S15 biomarker assay

• 4Q 21 Clinical data update on Phase 1/2 NC318 in HNSCC and TNBC

• 1H 22 NC318 clinical data from the Yale run trial in NSLC

• 2H 21 First in human NC410 (LAIR-1) clinical data

• NC762 (B7-H4) start enrolling Phase 1 trial in the near with data in 2022

Catalyst

Clinical Milestones

• NC318 (Siglec-15) patient enrollment based on NXTC’s validated S15 biomarker assay

• 4Q 21 Clinical data update on Phase 1/2 NC318 in HNSCC and TNBC

• 1H 22 NC318 clinical data from the Yale run trial in NSLC

• 2H 21 First in human NC410 (LAIR-1) clinical data

• NC762 (B7-H4) start enrolling Phase 1 trial in the near with data in 2022