Quick Take

Nkarta (NKTX) intends to raise $150 million in an IPO of its common stock, according to an amended registration statement.

The company is advancing a pipeline of drug candidates for the treatment of blood and other cancer indications.

NKTX is still at preclinical stage of development for its pipeline, so the IPO is likely more relevant to institutional investors with a long-term hold time frame.

Company & Technology

South San Francisco, California-based Nkarta was founded to engineer what it calls natural killer [NK] cell therapies to treat blood and other cancers.

Management is headed by president and Chief Executive Officer Mr. Paul Hastings, who has been with the firm since 2018 and was previously president, CEO and Chairman of OncoMed Pharmaceuticals (OMED) and held similar positions at QLT.

Below is a brief overview video of acute myeloid leukemia:

Source: Osmosis

The firm’s two co-lead candidates, NKX101 and NKX109, are being developed to treat acute myeloid leukemia [AML] and myelodysplastic syndrome [MDS].

Below is the current status of the company’s drug development pipeline:

Source: Company S-1 Filing

Investors in the firm have invested at least $60 million and include RA Capital, New Enterprise Associates, Novo Holdings, S.R. One, Samsara BioCapital, Deerfield Management, LSP and others.

Market & Competition

According to a 2019 market research report by MarketsandMarkets, the market for leukemia therapeutics was $12.3 billion in 2019 and is expected to reach $17.1 billion by 2024.

This represents a forecast CAGR (Compound Annual Growth Rate) of CAGR of 6.8% from 2019 to 2024.

Key elements driving this expected growth are increasing incidence of disease among an aging global population, wider set of treatment options and growing awareness of treatments.Below is a chart showing the historical activity and forecast growth by year and region:

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Major competitive vendors that provide or are developing treatments include:

  • Fate Therapeutics (FATE)

  • CRISPR Therapeutics (CRSP)

  • Allogene (ALLO)

  • Cellectis (CLLS)

  • Celularity

  • Celyad (CYAD)

  • Takeda Pharmaceutical (TAK)

  • Celgene (CELG)

Below is a company-supplied competitive landscape for allogeneic cell therapies:

Financial Status

Nkarta’s recent financial results are typical in recent periods for a biopharma firm in development and trial stages in that they feature little or no revenue and significant R&D and G&A expenses.

Below are the company’s financial results for the past two and ¼ years (Audited PCAOB for full years):

Source: Company registration statement

As of March 31, 2020, the company had $90.4 million in cash and $15.0 million in total liabilities. (Unaudited, interim)

IPO Details

NKTX intends to sell 10 million shares of common stock at a midpoint price of $15.00 per share for gross proceeds of approximately $150.0 million, not including the sale of customary underwriter options.

No existing shareholders have indicated an interest to purchase shares at the IPO price, a common feature for life science IPOs.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $396.4 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 37.84%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

Approximately $65 million to fund our internal discovery research, process development, manufacturing and clinical activities during this time;

Approximately $15 million to fund the external costs for the development of NKX101 through the completion of dose finding for NKX101 in hematological malignancies;

Approximately $10 million to fund the external costs for the development of NKX019 through the completion of dose finding for NKX019 in B-cell malignancies;

Approximately $5 million to fund the external costs for the development of Program 3 to the filing of an IND with the FDA;

Approximately $10 million to fund the initial buildout and qualification of our commercial cGMP facility; and

The remainder for our other pipeline candidates and general corporate purposes.

Management’s presentation of the company roadshow is not available.

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Listed underwriters of the IPO are Cowen, Evercore ISI, Stifel and Mizuho Securities.

Commentary

Nkarta is seeking an above-average IPO transaction size for a life science firm, although recently biopharma companies have been taking advantage of stronger than usual shareholder demand by completing larger transactions.

For its lead candidate, the firm expects to begin dosing the first patient in Phase 1 safety trials by Q4 2020.

So, the company is still an extremely early stage biopharma and thus a high risk investment opportunity.

The market size for hematological malignancy treatments is large and expected to grow at a moderate rate in the years ahead as populations age and develop these types of cancer conditions at a higher rate due to lower immune system function.

The company has no current collaborations; its previous collaboration with GlaxoSmithKline concluded in December 2018.

As to valuation, the IPO is valued within a typical range for most life science firms.

However, NKTX is still at pre-clinical stage, so the IPO is more of a venture capital funding round more suited to institutional investors with long hold time frames rather than individual investors.

Expected IPO Pricing Date: Week of July 6, 2020.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

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