NewLink Genetics Shares Plummet to Over Five-Year Lows Today, and Here’s What You Need to Know

NewLink Genetics Corp (NASDAQ:NLNK) shares closed down over 40% today, and NLNK hit levels it hasn’t seen in over five years, following the company’s business update conference call during the pre-market. The primary catalyst was due to the company’s announcement that indicated Genentech, which is a member of the Roche Group, intends to return the rights to GDC-0919, an IDO inhibitor, under a license agreement from October 2015.

Genentech Returning Rights to NewLink Genetics GDC-0919

After the news hit the tape, shares of NLNK sold off significantly. Since Genentech intends to return the rights to NewLink Genetics, which it licensed to Genentech with respect to GDC-0919, the rights would revert to NewLink Genetics, if and when, the termination becomes effective.

According to NewLink Genetics CEO Charles Link, “We are obviously disappointed in this decision… We remain committed to advancing our IDO pathway inhibitor indoximod, which continues to generate exciting data in combination with anti-PD-1 agents, cancer vaccines, and chemotherapy in multiple cancer types including melanoma, prostate cancer, acute myeloid leukemia, and pancreatic cancer.”

In its business update conference call, NewLink added that it would look to reevaluate its allocation of resources, after Genentech’s decision to return the rights of GDC-0919. Keep in mind that the company noted that Roche’s decision to return the rights would not impact idoximod.

That in mind, let’s take a look at some key statistics.

What You Should Know About NewLink Genetics

  • Shares of NLNK ended the day down over 40%, and plummeted to levels it hasn’t seen in over five years.
  • The primary reason for this drop was due to Genentech, a member of the Roche Group, returning its rights to NLNK.
  • This wasn’t the only bad news NLNK had recently.  Last week, NLNK announced Phase II data of its IDO-inhibitors, indoximod, in combination with Taxane. The company noted that its top line data from the Phase II study indicated the trial did not meet its pre-specified endpoints of a statistically significant difference between the two treatment groups as to progression-free survival, overall survival or objective response rate.
  • The company had floating shares of 21.66M and 3.88M shares short. Therefore, it had a short percentage of float of 17.92%, as of May 15, 2017.
  • As of June 7, 2017, NLNK shares were down 45.95% over the past three months.

 

Here’s a look at NLNK on the daily chart:

NewLink Genetics

Source: TradingView

Bull Case

Now, some traders may look to get long NLNK due to the stock’s extended selloff. That in mind, this would be considered a contrarian trade. Moreover, if you look at the daily chart on NLNK, you’ll notice it closed below the lower Bollinger Band, and it could be thought of as a mean reversion trade. Moreover, SunTrust analyst Peter Lawson noted that GDC-0919 only represents about 20%, or $6, of the analyst’s $30 price target for NLNK. Lawson doesn’t believe this news would have any read through for indoximod. Lawson currently has a Buy rating on NLNK.

Bear Case

On the other hand, some traders may be bearish on NLNk due to this negative catalyst, as well as its Phase II data report last week. Moreover, they might see this as a momentum play due to its short interest, which could be an indication that there may be bearish sentiment on the stock.

The Bottom Line

NLNK plummeted over 40% today and closed at a price it hasn’t seen in over five years. This was attributed to the company’s announcement that Roche intends to return its rights to GDC-0919. That in mind, there are still traders who might want to get long, as well as traders who may want to get short the stock.

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