By Zack Fink and Jake King

Innate Pharma SA (EPA:IPH) presented data from the phase I dose-escalation study of lirilumab in patients with hematologic and solid malignancies this weekend. Frankly, the data were unremarkable if not concerning due to apparent off-target effects.

Notably, patients receiving lirilumab had a rather high rate of treatment emergent AEs (Grade 3&4 AEs across all doses tested), and no apparent responses. This is certainly not encouraging. Note that these data are for lirilumab, not IPH2101, which seems to be more toxic than the latter, a new piece of information for investors.

Additionally, clinical events are quite a ways out. We won’t know Bristol-Myers’ combination plans until later this year, and the lirilumab AML data has been pushed out to 2Q16. Understanding this, and in light of this latest data, our suspicion is that the stock may be under pressure in the near-term. The recent AstraZeneca deal, while offering validation, may have presented us with a great opportunity to exit the stock at a profit (~60% from our suggestion last year) while we wait for clarity on the role of lirilumab as a potential treatment (monotherapy or combination) in the immunotherapy space.

  • Sell IPH at >€14, from ~€9 entrance last year. We may look for an opportunistic re-entrance later this year, but these data have us concerned. Note that European trading begins at 4:00 AM ET!

Interestingly, Innate’s poster includes the comment “the blockade of KIR by LIRI fosters the activation of NK cells, selectively enhancing the cytotoxicity of NK cells against tumor cells without affecting healthy tissues.” We find this slightly disingenuous given the latest tolerability issues.

Oncothyreon Inc (USA) (NASDAQ:ONTY) continues to be the biggest benefactor of ASCO this year, now up over 200% since investors had a first glimpse at abstracts from the conference. On Saturday, Oncothyreon presented updated data from the conference, sending the stock even higher on Monday.

In the ongoing phase 1b study of ONT-380 in combination with capecitabine and/or trastuzumab, data were presented for 32 patients (seven in the ONT-380 plus capecitabine cohort, 13 in the ONT-380 plus trastuzumab cohort, and 12 in the three-drug cohort). Out of the 27 patients evaluable under RECIST criteria, ONTY reported 2 Complete Responses (CR), 12 Partial Responses (PR) and 9 patients with Stable Disease (SD), for an Objective Response rate of 52%. Four patients had progressive disease.
In the second study, testing ONT-380 plus Kadcyla in patients who had been previously treated with trastuzumab and a taxane for metastatic breast cancer with CNS metastases, Oncothyreon reported 1 CR, 4 PRs, and 9 SD out of 14 evaluable patients (ORR of 35%).

Most importantly, the drug has shown no signs of the Grade 3 toxicity overshadowing Puma’s neratinib.

Recall that our suggestion was to take some profit around $3.00 prior to the medical meeting, or to sell June $3 or $4 calls against part of the position. This will be called away with the stock over $4.00. Given the valuation disparity between Oncothyreon ($500 million on a fully diluted basis) and PBYI ($5.5 billion) based on similar drugs, we think it makes sense to continue to own some ONTY from below $2.00.

Oncothyreon plans to begin a blinded, randomized and placebo-controlled phase 2 trial of ONT-380 in combination with trastuzumab (Herceptin) and capecitabine (Xeloda) in HER2-positive metastatic breast cancer patients who have failed both pertuzumab (Perjeta) and Kadcyla (ado-trastuzumab emtansine). The company plans to initiate this trial yet this year. The company has said publicly that this trial will include endpoints related to CNS metastases, where ONT-380 appears to be performing well.

  • Continue to own remaining ONTY. Our earlier suggestion to write June $3 or $4 calls means the stock will be called away at June expiration, but at a handy profit from our $1.85 entrance in May.
  • Long ONTY and short PBYI is an attractive pair trade. The focus on neratinib’s tolerability profile in light of a marginal benefit for breast cancer patients – including from some outspoken physicians at ASCO – is likely to pressure the stock further, in our view. Note that PBYI is testing recent support at $169. A break tomorrow likely means another leg down.

Affimed NV (NASDAQ:AFMD) has risen 45% since we first profiled the name as a buy at $7-8 in April. The stock has moved significantly despite little news out of the company and a lack of clinical data until the end of 2015. This can be attributed to a number of things.

First, investors are beginning to recognize the role of multivalent antibodies in the immunotherapy space along with the valuation gap between Affimed and other bispecific players like Macrogenics and Xencor. Second, recent buzz (See Innate Pharma & AstraZeneca collaboration) around leveraging NK cells in immunotherapy. And, Affimed’s partner Amphivena has selected their CD33-targeted TandAb lead candidate – AMV-564 – for development in AML.

We continue to like the name and look forward to the first data from AFM11 and initial data from the phase 2 AFM13 trial in Hodgkin’s Lymphoma towards the end of 2015, most likely at the ASH annual meeting in December. We also look forward to potentially hearing about Affimed’s ongoing discussions with companies developing anti-PD-1s to facilitate a combination trial with AFM13. If a combination is tested, key is whether a study is funded in-house (including purchase or provision of study drug) or sponsored by a partner (ideal). Of note, preclinical data presented this weekend at ASCO, which combined AFM13 with an anti-PD-1, support the rational for combining these agents in the clinic.

  • Continue to own AFMD. We like that the stock’s gain has afforded us some cushion into the first key binary event later this year.