Werewolf Therapeutics: In The Hunt For Success In The Cytokine Space

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Werewolf Therapeutics, Inc. develops modified cytokines for cancer treatment, including WTX-124, a modified IL-2, and WTX-330, a modified IL-12.Xilio Therapeutics out-licensed their modified IL-12 to ...

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(NASDAQ:HOWL) develops modified cytokines, called Indukines, with potential to treat cancer. I rated HOWL a strong buy back in December 2023, based on encouraging data seen with their modified interleukin-2 (IL-2), WTX-124, the potential of the rest of the pipeline and their cash-efficient operation. There is a near-term readout from a major competitor, Medicenna Therapeutics Corp. (OTCQB:MDNAF, I'm long), and there has been business development in the cytokine space too, with Gilead Sciences, Inc. (GILD) in-licensing Xilio Therapeutics, Inc. (XLO), modified interleukin-12 (IL-12). The competition is thus ever present, a major competitor readout is near, HOWL trades further over cash giving it more room to fall, and so I now rate HOWL a Buy, instead of a Strong Buy. Figure 1: HOWL's pipeline. (Corporate Presentation, March 2024.) A look at some IL-2s HOWL's WTX-124  Before looking at HOWL's modified IL-12, WTX-330, it is worth examining HOWL's modified IL-2, WTX-124, as both are produced using the Predator platform, but WTX-124 already has some clinical data. Figure 2: HOWL modifies native cytokines using its Predator platform to produce drugs like WTX-124 and WTX-330. (Corporate Presentation, March 2024.) The WTX-124 data, presented in November 2023, come from 16 patients and include two unconfirmed partial responses (uPR). One uPR was seen in a melanoma patient, and one uPR was seen in a cutaneous squamous cell carcinoma patient. Notably, this work was still dose escalation work, with patients dosed every two weeks (Q2W) intravenously at doses of; 1 mg (n=3), 3 mg (n=4), 6 mg (n=4) and 12 mg (n=5). The 1 mg Q2W dose and the 3 mg Q2W dose didn't seem to have much of an impact on gene expression according to biopsy data (slide 18). As such out of 16 patients, seven weren't really treated with particularly active doses, and yet in the remaining nine patients there were two uPRs (both at 12 mg Q2W). At the time of that update, HOWL was enrolling patients at the 18 mg Q2W dose, and so the potential for the apparent activity of the drug to increase further is certainly in play. Also while there did seem to be more adverse events at the 12 mg Q2W dose than the 6 mg Q2W dose, there was still no grade 3 or 4 adverse events seen. Figure 3: Overview of adverse events seen at each dose of WTX-124 in the phase 1 study. (Corporate Presentation, March 2024.) HOWL expects to report additional data from this monotherapy trial in H1'24, and report initial data from a combination trial (WTX-124 plus pembrolizumab) in H1'24. MDNAF's MDNA11 Away from HOWL, MDNAF also has a modified IL-2 called MDNA11. MDNAF has seen three partial responses, two in melanoma and one in pancreatic ductal adenocarcinoma, from 30 patients treated with MDNA11 (slide 13, slide 16). MDNAF is reporting updated data from its phase 1/2 trial of MDNA11 at the upcoming American Association for Cancer Research (AACR) conference. It is possible that MDNAF impresses there, and while I think there could be room for multiple IL-2s on the market, such as HOWL's WTX-124 and MDNAF's MDNA11, the market might not agree. XLO's XTX202 By comparison, XLO's tumor-activated, beta-gamma biased IL-2, XTX202, recently failed to produce any responses in a phase 2 study. This result came despite enrolling melanoma and renal cell carcinoma patients, where IL-2 is known to be active.  In 26 patients evaluable for anti-tumor activity at both dose levels, stable disease (SD) continued to be the best response. Investigators reported SD of at least nine weeks duration in 7 RCC patients (70% disease control rate) and in 9 melanoma patients (56% disease control rate). XLO press release, March 28.  Further, the phase 2 data from XTX202 come at doses of 1.4 mg/kg Q3W and 4 mg/kg Q3W, which were doses XLO chose based on phase 1 data. As such, there are 26 patients of data there, at doses known to be active yet no responses. Further, when XLO presents data from all the patients in phases 1 and 2, there are even more than 26 patients evaluable, and yet XLO still reports the best response is a stable disease (slide 39). XLO has unsurprisingly discontinued development of XTX202 as a monotherapy. Of course, XLO could still develop XTX202 in combination with other agents, since prolonged stable disease could still indicate there is some activity there with XTX202, and is planning to explore options to do so. Nonetheless, I think the other players like HOWL and MDNAF have produced more striking data with their IL-2 based drugs. With regards to the IL-12s While I'm long MDNAF predominantly because of their modified IL-2, MDNA11, MDNAF doesn't have a modified IL-12 listed in their pipeline slide. HOWL does have an IL-12, WTX330, however, so a long in HOWL is an option for those looking to get exposure to an IL-12 developer. Of course, XLO has already seen interest for their IL-12 drug with the recent GILD deal, but I think HOWL's IL-12 could be even more impressive, given what we saw comparing HOWL and XLO's IL-2 products. I think the Predator platform that HOWL uses is validated somewhat by HOWL's success with WTX-124, and that increases my confidence that WTX-330 might show some promise. Figure 4: HOWL's modified IL-12, WTX-330. (Corporate Presentation, March 2024.) In any case, HOWL is planning to report the first data from its phase 1 trial of WTX-330, so we won't have to wait too long to see what HOWL has to offer. Perhaps GILD chose to in-license HOWL's XTX301 when searching for a modified IL-12, because HOWL already had some phase 1 data. XLO hasn't reported much, however, since the phase 1 data currently amounts to nine patients of data at three doses. A positive is that XTX301 has produced no dose-limiting toxicities up to dose level 3, but higher doses might be needed to produce any efficacy. Figure 5: XLO's phase 1 study of XTX301, a modified IL-12. (XLO Presentation, April 2024.) XLO is planning to report more data in Q4 '24 from its trial of XTX301, so for now the ball is in HOWL's court, and it has a chance to impress with data from WTX-330 this quarter. Financial Overview HOWL finished 2023 with $134.3M in cash and cash equivalents, and a further $21.2M in restricted cash and cash equivalents. The company also raised gross proceeds of $17.7M using its at-the-market facility between January 1 and March 1, 2024. The company reported collaboration revenue of $1.5M from the Jazz Pharmaceuticals plc (JAZZ) agreement in Q4 '23. R&D expenses were $9.6M in Q4 '23, and G&A expenses were $4.8M in the same quarter. Net loss was $12M for Q4 '23. Net cash used in operating activities was $32.6M in 2023. As of December 31, 2023, HOWL had $39.3M worth of notes payable on its balance sheet, $6.7M of which was current. Notably, the interest-only period is set to end on August 31, 2024, at which point HOWL has to pay down the principal in equal amounts each month until maturity on August 31, 2026. In addition to taking $20M from its restricted cash to repay the loan, HOWL will need another $20M from its cash and cash equivalents, which would leave it with net cash of $114.3M. However, we can then add in $17.7M from the ATM, albeit not accounting for fees, and HOWL would have about $132M in cash. HOWL could thus continue at the 2023 rate of burn for almost four quarters. Indeed, HOWL believes its cash will last it to Q2 '25, but this number likely does not account for paying down the loan entirely, since it will not have matured by mid-2025. Nonetheless, HOWL can certainly make it to data readouts from its trials of WTX-124 and WTX-330 this quarter. That being said, I think the company is likely to raise more funds using the ATM or by doing a private placement, especially if it stimulates a rally in its share price with updated clinical data. As of March 1, 2024, there were 42,737,191 shares of HOWL's common stock outstanding, giving it a market cap of $257.3M. As of December 31, 2023, there were 5.7M stock options outstanding (weighted-average exercise price $6.89), 58.9K warrants, 361.5K unvested restricted stock units, and 22.6K shares worth of common stock to be issued under the Employee Stock Purchase Plan. Conclusions, ratings, and risks While I'm long MDNAF because I like their IL-2 drug the most of all, HOWL's WTX-124 has also shown promise with the November 2023 update, and upcoming data (expected H1'24) could generate a further rally. Further a long in HOWL offers exposure to an IL-12 drug, WTX-330, that is close to reporting data (expected Q2'24). Given WTX-330 is another product of HOWL's Predator platform, which produced WTX-124, it certainly can be viewed as having a chance of success. Indeed I found HOWL's WTX-124 to look better than XLO's XTX202, when comparing the two modified IL-2 drugs. As a result, when looking for a modified IL-12, I'd be more likely to bet on HOWL's WTX330 over XLO's XTX301, even if GILD ended up in-licensing the latter. HOWL is trading well above cash now and there is room to fall if data don't impress or is overshadowed by competitors. Indeed, HOWL is up ~44% since I rated it a strong buy in December 2023, and 150%+ since I rated it a strong buy in April 2023. As a result, I rate HOWL a Buy now, because while I'm a long-term believer and I think the company has good technology, in the short term there is a risk of a pullback. The risks of holding a long in HOWL are severalfold, a few of which I'll discuss here. Firstly, MDNAF or other IL-2 competitors reporting strong data, such as at the upcoming AACR conference, could cause HOWL to fall on fears of competition. My current thesis is that there may be room for more than one modified IL-2. It's possible that each may show promise in different tumor types, and thus HOWL and MDNA will pursue further clinical studies in different indications. Secondly, if WTX-330 shows no hints of activity when we see data this quarter, then the stock could fall, especially since XLO's IL-12 has the backing of GILD. The perception could be that HOWL has an inferior IL-12 product. Lastly, HOWL could do a private placement with terms the market doesn't like. Management could play the long game, raising funds to make sure the company has the cash it needs for years to come, at the expense of short-term stock performance.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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