As a general rule we avoid individual cancer drugs, particularly those in the early stages of development. One of reasons is that they are often new drugs to be “in combination” with existing very expensive therapies. The benefits are often limited and apply to small subset of the cancer patient population. Although these have value, it’s not the kind of broad and sweeping advance we like to cover.

NKarta (NKTX) caught our eye because they are focused on a cancer therapy around NK cells which MD Anderson notes “kills cancer quickly with few side effects.” In order to make them effective at targeting specific individual cancers the addition of “CAR” or chimeric antigen receptor treatment is added to the NK cells.

That’s the first part of the NKarta story. But the second is perhaps even more important – being able to manufacture and delivery the therapy cheaply – possibly for amounts closer to $10,000 than $1M. Current methods of treating cancer tend to be very, very expensive. Having something effective that is orders of magnitude cheaper (let alone less taxing on the patient) would be a real breakthrough.

NK stands for “natural killer” and NK cells are generic in that they release cytotoxic molecules that are destructive. They are closely related to B and T cells but are different because they can kill cells more rapidly in cases of viral infection and tumor formation. There’s plenty of science here but the bottom line is that it’s been validated at least in terms of the potential.

In order to harness the power of NK cells one needs to be able to direct and control their action. These “engineered CAR-NK cells” are what NKarta provides. The table below from the roadshow lays out how CAR-NK cells compare to other therapeutic methods, at least potentially.

Non-engineered NK cells have very limited shelf life and also lose their effectiveness rapidly once inside the body. NKarta has done two things to change these dynamics. The first is induce some additional activity in the NK cells that improves their ability to last inside the body. The second is to cryo-preserve the final cell product so that it can be thawed for off-the-shelf administration to patients.

As shown in the graph below the engineered and cryo-perserved samples performed well and much better than non-engineered NK cells.


There is plenty more to this story but this company offers investors something a bit different in this space. When we added Moderna (MRNA) to our model portfolio it wasn’t for COVID-19 which didn’t exist yet but rather their platform of possibility around mRNA which is a very promising avenue of drug development with many “shots on goal” that can reward investors over time.

Stock Considerations

There are few reliable metrics when “valuing” biotechnology stocks like NKTX but for the record there will be about 28M shares outstanding post IPO for a market value of $420M at the mid-point of the current range. It’s a B-team of bankers comprised by Cowen, Evercore, Stifel and Mizuho so might come quietly.

Similarly the management team has a great deal of experience but mostly with non-household name biotechnology companies. It’s not a name with a ton of “star power” from the industry. We’ve seen plenty of examples where the best and brightest end up not taking off – Coherus Biosciences (CHRS) comes to mind which has been flat for the last 6 years.

The company also lacks an array of partners and deals with larger pharma companies that would presumably be very interest in a new and potent cancer therapy. But maybe they don’t like the idea of this being a $2000/dose kind of cost?

Finally the shares are overwhelmingly owned by the VC firms. Post IPO those eight funds will hold 14.76M shares or over half of the total shares. That will translate into quite a bit of supply when the share lock up agreements expire.

Even though we don’t make biotechnology companies a priority we do go through them all and look for names that seem unique. This doesn’t have the home run feel that Schrodinger (SDGR) had but there seems like there might be something special here. At a $420M market value it could be viewed as an inexpensive option.


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