NantKwest: The Market And The Government Are Missing Out On This Blockbuster – Seeking Alpha

Posted: June 30, 2020 at 2:46 pm

NantKwest (NASDAQ:NK) has been one of my best investments over the past year and looks to be ready to move higher following another positive data for cancer and development of a COVID-19 vaccine. Recently, the company's CEO, Dr. Patrick Soon-Shiong "PSS", has been on some news segments discussing some of their fresh cancer readouts and the company's potential to develop a premier COVID-19 vaccine. It looks as if their activated NK cell platform is able to be implemented in multiple disciplines of medicine and could be a vital component in future therapeutics. With the share price rising roughly 1000% since my first buy, I have to make some decisions about how I intend to manage my NK position in the coming days, weeks, months, and years. One wrong move and I could miss the chance to bank some profits or possibly sell too early and miss out on future growth.

First, I will take a look at the recent pipeline updates and data. Second, I will discuss why I am so bullish after the recent offering. Finally, I intend to discuss my course of action that will alleviate both of my concerns.

Out of all of NantKwest's clinical-stage engineered natural killer cell programs, I have been waiting to see some data from their first-in-class PD-L1 t-haNK candidate. The company's PD-L1 t-haNK is created using a haNK cell that has PD-L1 CAR, which will provide an innovative method for targeting PD-L1 tumors. NantKwest recently revealed some positive data for in-vivo models of 15 solid tumors in treatment-refractory cancer types and demonstrated activity in the hypoxic environment.

This is significant because healthy donor NK cells are typically impaired in hypoxic environments, so NantKwest's proprietary off-the-shelf NK cells have an advantage over our own NK cells and potentially other NK therapies. Essentially, NantKwest's NK cells are able to work in a tumor environment that typically disables or nullifies our own NK cells' ability to attack the tumor. In addition, the PD-L1 t-haNK cells were able to show some efficacy in infamously treatment-refractory cancers such as triple-negative breast cancer, lung, and urogenital cancer. PSS believes that their highly targeted NK cell therapies have the potential to take on these highly resistant tumors that have "stem-like" cells, which can be impervious to chemotherapy and checkpoint therapies. In fact, the company reported their first patient with advanced metastatic pancreatic cancer treated with PD-L1 t-haNK has revealed a durable complete response.

Not only am I impressed with the company's ability to create one of these Checkpoint CAR-NK-like cells, but the fact the therapy was able to produce a durable complete response in an advanced metastatic pancreatic cancer patient has turned me into a perma-bull. It looks as if PSS has essentially fused the immunotherapy and cell therapy to create a cutting-edge cancer therapeutic. Once again, PSS and NantKwest have revealed a candidate that could define the next generation of oncology therapeutics.

NantKwest and ImmunityBio are working in collaboration on vaccines and therapeutics to fight COVID-19. ImmunityBio will be working on the development of a vaccine and natural killer cell activation, with their immunomodulators. NantKwest will be focusing on their off-the-shelf, cell-based therapeutics to develop therapeutics for COVID-19. It appears that the goal is to develop a broad array of products to prevent and treat various stages of infection or tissue damage.

So far, ImmunityBio and NantKwest have developed "immunomodulator regimens" for COVID-19 for mild, moderate, severe, and critically ill state (Figure 1). In the early-moderate stage of the disease, the two companies are planning on a clinical trial of ImmunityBio's Il-15 'superagonist' N-803. In addition, they are planning another trial using NantKwest's haNK cell, or haNK in combination with convalescent plasma. In the severely ill, the company is looking to employ bone marrow-derived allogeneic mesenchymal stem cells "BM-Allo-MSC" to diminish the "cytokine storm". These cells can be grown in ImmunityBio's automated GMP-in-a-Box in roughly 7-9 days, which could allow providers to create these therapeutics in-house and essentially on-demand. NantKwest has filed an IND and anticipates beginning trials in the near future.

Figure 1: NantWorks COVID-19 Programs (Source: NantKwest)

In terms of a vaccine, ImmunityBio has a second-generation Ad5 platform that will produce a vector that is immunologically "quiet" and could allow patients who were previously vaccinated with an Ad5 vaccine. In addition, ImmunityBio's vaccine goes after both the spike "S" protein and the nucleocapsid "N" protein in order to induce antigen-specific T-cell immunity. This is significant because it is the only known COVID-19 vaccine that is targeting both, which could allow an extended immunity to the virus compared to vaccines which are only targeting the spike proteins. What is more, this Ad5 platform has demonstrated humoral and cell-mediated immunity for several other deadly viruses such as H1N1, HIV, Chikungunya, and Zika. Therefore, we should expect ImmunityBio's vaccine to show some efficacy against COVID-19 and perhaps be the premier vaccine.

Once COVID-19 hit the United States and the healthcare industry started pumping out vaccines and therapeutics, I almost instantly thought "when is Patrick Soon-Shiong going to unveil his COVID-19 solution?" NantWorks has repeatedly produced some extremely impressive product candidates for just about every major issue in healthcare. The minute the company released their press release revealing their candidates, I was looking for the market to have an immediate response both in share price and an increase in chatter. Unfortunately, it appears as if the NantWorks structure has once again caused some confusion, and the response was quite mute compared to other COVID-19 plays. It is possible that NantKwest has a therapy that can target the virus with minimal safety concerns. Is the market missing NantKwest again? Once again, it looks as if ImmunityBio has some of the primary cogwheels that are required for their COVID-19 programs, and NantKwest is just a minor player with very little to claim in the end.

Indeed, NantKwest and their NK cells appear to have a critical role in many of the NantWorks programs. However, I didn't feel reassured in the recent COVID-19 press releases. In fact, I felt as if PSS was using NantKwest's IR as a vehicle to get ImmunityBio's (a private NantWorks company) pipeline some public exposure. As a result, I would like to see some more details about NantKwest's involvement in these collaboration programs.

Back on June 24th, NantKwest announced that they intended to execute a public offering with Piper Sandler & Co., for 7.41M shares of common stock at $9.50 per share, with Piper Sandler & Co. purchasing 3.7M at $8.93 per share. What is more, PSS agreed to purchase 3.71M shares at $12.12 per share. The net proceeds are anticipated to be around $76.4M, which will be added to roughly $17M in cash and cash equivalents the company had at the end of Q1.

Typically, I am not incredibly excited about a public offering due to a negative reaction in the share price and shareholder dilution. However, I am now very bullish following the recent offering as a result of PSS willing to purchase shares at market value. It is often quite bullish to see insiders buying common stock, but it isn't common to see insiders looking buy at 52-week highs. Now, I am looking to join PSS and average up in the coming days or weeks once the technical analysis gives me the green light, and the recent volatility in the market subsides.

Admittedly, I decided to reduce my position during the January spike, but I was willing to reapply those profits once the stock was able to break out of its downtrend and cross above 200-day EMA (Green Circle on Figure 22). Now, I am waiting to see where the market is going to NK in the coming days before adding to the position. I am keeping an eye on several indicators and trend line to give me the signal to click the buy button.

Figure 2: NK Daily (Source: Trendspider)

Looking at the daily chart, we can see the stock had no problem busting through its previous 52-week high. However, the chart shows a double-top with two inside bars and an abrupt sell-off coming after the offering news. The combination of a strong bullish move followed by a negative news event will make this addition a bit tricky. I am going to wait and see if the share price is able to bounce off the red uptrend line and bust through the recent green downtrend line. Once the stock makes a decision, I am going to turn to the RSI to see if the share price remains above the green trend line and is still trading above $8.40 per share. If these conditions line up, I will make a small addition to my NK position in anticipation the stock will make another leg higher. If the share price breaks down and the RSI trend is broken, I will sell roughly half of my position and wait to see if the stock wants to retest the 200-day EMA before considering an addition.

I expect to make a few more small additions to my NK position over the course of 2020 and will leave the year with a respectable position. However, I am not going to "go-all-in" until I figure out how NantKwest will ultimately land in the NantWorks hierarchy.

Disclosure: I am/we are long NK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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NantKwest: The Market And The Government Are Missing Out On This Blockbuster - Seeking Alpha

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