I often hear investors complain about the difficulty finding undiscovered and undervalued biotech stocks. With the year we've just had, many companies with compelling drugs in development also have valuations bid up, but hidden gems remain to be discovered in 2014.
At the top of my list is Innate Pharmaceuticals, a Marseille, France-based developer of immunotherapies with a lead cancer drug in a phase II study and partnered with Bristol-Myers Squibb (BMY). A second Innate pipeline drug is partnered with Novo Nordisk (NVO). Innate recently completed a financing which gave it cash sufficient to last until 2017.
Innate has a lot going for it, and with a market cap of under $400 million, is still relatively inexpensive. [The stock trades primarily under the ticker "IPH" on the Paris stock exchange and secondarily as "IPHYF" on the OTC bulletin boards.]
Innate's discovery platform creates antibodies that target the innate, as opposed to the adaptive, immune system. These antibodies can be developed as therapies to treat cancer and inflammatory-related diseases, but Innate, for now, is focusing on cancer.
The company's lead drug is lirilumab. For the science geeks out there, lirilumab is an anti-KIR monoclonal antibody and a first-in-class NK cell modulator. For everyone else, lirimulab blocks KIR -- one of the many checkpoints, or brakes, which meters the body's immune system so that it attacks the bad stuff like diseased cells but leaves healthy cells alone.
Unfortunately, cancer cells use these checkpoints or brakes to evade detection by the immune system and grow. Lirilumab is a "checkpoint inhibitor," meaning it overcomes the evasion mechanism of cancer cells, thereby allowing the immune system to do its job.
If you've been following cancer drug development in the past couple of years, you've heard about the really exciting clinical trial results from a slew of checkpoint inhibitor drugs like Bristol-Myers Squibb's nivolumab (a PD-1 inhibitor), Merck's (MRK) lambrolizumab (another PD-1 inhibitor) and Roche's (ROG) MPDL3280A (an anti-PDLI.)
Innate's lirilumab is in the same class of drugs. The company is conducting a phase II study of lirilumab in 150 patients with acute myeloid leukemia (AML). This study compares the difference in efficacy between intermittent and continuous KIR inhibition, or releasing the immune system brake a little or a lot.
Patients in this phase II study are to be dosed with lirimulab for two years so results won't be ready until 2016.
Bristol-Myers has licensed lirimulab and is testing the drug in two phase I trials which combine it with ipilimumab (Yervoy) and nivolumab, respectively, in patients with various solid tumor cancers. Data are expected in 2015.
Innate owns outright two other immuno-oncology drug candidates, both in preclinical development. Innate does expect to apply to the FDA for permission to start human testing of one of these drugs, KIR3DL2, in 2014.
While the company is focusing on immuno-oncology, it also has inflammation compounds in development. The lead inflammation drug is IPH2201/NN8765 (targeting NKG2A), which has been licensed to Novo Nordisk. In addition, a second asset (IPH 33, an anti-TLR3 mAb) is ready for preclinical development with the company actively looking at partnerships.
Why is Innate's market cap just $400 million if the company is focused on a therapeutic area -- cancer immunotherapy -- which is really hot with investors right now? I think it boils down to awareness and trading. Innate is based in France, where it receives little attention from U.S. investors or media. The company will gain visibility here, particularly as the Bristol-Myers partnership for lirimulab progresses and new deals (hopefully) are signed.
It's also more difficult for U.S. investors to trade Innate shares since the company is listed on the Paris stock exchange. Innate shares can be traded over the counter here but liquidity is very low, making it difficult to get into or out of the stock. This lack of liquidity might be one of the larger risks to owning Innate today. Small changes in the demand to buy or sell the stock have dramatic effects on the price. Longer term, liquidity will increase and buyers at these levels will ultimately be rewarded, but there is certainly a caveat emptor in terms of the current liquidity and volatility.
Sobek is long Innate Pharma.