After A High-Profile Failure In Melanoma, Nektar Therapeutics' Value Shifts To Its Early-Stage Pipeline

Nektar Therapeutics (NASDAQ:NKTR) is now facing the unenviable challenge of picking up the pieces and rebuilding investor confidence in the company and the stock after the disappointing failure of the company’s pivotal combo study in melanoma. Although there are still additional studies of bempegaldesleukin (or “bempeg”) that have yet to read out, it seems unlikely that there will be winners here, leaving Nektar as a more development-stage biotech with three early-stage lead compounds.

I was completely wrong about the likelihood of bempeg succeeding in melanoma, and that was what I believed to be the program with the highest likelihood of success given the established use of IL-2 as a last-ditch therapy. I can’t completely write-off the remaining bempeg studies, but I think it would be highly surprising if any of them showed efficacy to warrant an NDA submission, and the three remaining lead compounds (NKTR-358, NKTR-255, and NKTR-262) are too early in their development to support a strong share price today.

 

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After A High-Profile Failure In Melanoma, Nektar Therapeutics' Value Shifts To Its Early-Stage Pipeline

Nektar Seeing Modest Covid-19 Delays Ahead Of Key Trial Data

The wait goes on for Nektar (NKTR) shareholders. These shares are still well off the performance trajectory of the major biotech ETFs, though the underperformance on a year-to-date basis hasn’t been so bad. Unfortunately, with key data on its bempeg pushed to next year, investors will have to wait a little longer to see the answer to some crucial questions.

I continue to believe that the first-line melanoma indication of bempeg (in combination with Bristol-Myers’ (BMY) Opdivo) alone can support a fair value above today’s price, but there are still substantial uncertainties about this program, to say nothing of the other clinical bempeg programs. Beyond that, compounds like NKTR-255 and NKTR-358 also have worthwhile potential, but only future data read-outs will tell us how much of that “potential” is real.

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Nektar Seeing Modest Covid-19 Delays Ahead Of Key Trial Data

Nektar Hammered On Multiple Setbacks; Core Efficacy Questions Remain Open

The last three months have been rough for Nektar Therapeutics (NKTR) and its shareholders, as the company announced significant manufacturing issues with its key lead drug, as well as a substantially reduced clinical partnership program with Bristol-Myers (BMY). On top of all that, there are still valid open questions as to whether that lead drug (bempegaldesleukin, or “bempeg”) even has a durable clinical effect.

There are very few sure things in biotech, and Nektar is no exception. I’m guardedly positive on the potential of bempeg in melanoma, but cannot rule out the risk that the ongoing pivotal study results in failure. Likewise with other late-stage clinical programs like renal cell carcinoma. While Nektar does have other products in the pipeline, they’re all early-stage and unproven, with relatively low risk-weighted probabilities of success. I do believe a risk-weighted approach still suggests Nektar is undervalued, but this is a high-risk biotech and a lot is riding on incremental clinical updates between now and the end of the year.

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Nektar Hammered On Multiple Setbacks; Core Efficacy Questions Remain Open

Nektar Therapeutics Building A More Exciting Pipeline

As Nektar (NKTR) has gotten investors more excited about its pipeline, including a somewhat surprising success with its late-stage pain drug NKTR-181, the shares have done all right since the fall of 2016 – rising more than a third since then (in line with the SPDR S&P Biotech (XBI) and ahead of the iShares Nasdaq Biotechnology (IBB)). The shares don’t look so undervalued to me now, but there are still multiple drivers in the queue for key pipeline candidates that could drive meaningful value.

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Nektar Therapeutics Building A More Exciting Pipeline

Synergy Pharmaceuticals Getting Closer To 'Go Time'

Synergy Pharmaceuticals (NASDAQ:SGYP) has inched a little higher since I last reviewed the company, climbing a little less than 10% over a time when biotechs in general have declined (as measured by the iShares Biotechnology Index (NASDAQ:IBB) and SPDR Biotech ETF (NYSEARCA:XBI)). On the other hand, Synergy's closest comp, Ironwood (NASDAQ:IRWD) has risen close to 40%.

Synergy remains an interesting biotech opportunity to me, but I think the company has a lot of work to do to reassure the Street that it can really compete on its own in the market and gain real share once its lead drug plecanatide hits the market. Without a large partner (Ironwood has Allergan (NYSE:AGN) and Nektar (NASDAQ:NKTR) has AstraZeneca (NYSE:AZN) selling its OIC drug Movantik), I think a lot of investors fear that Synergy will never manage to break through and could find it in a situation like XenoPort did with its restless leg drug. I believe there are some key differences between those situations, though, and while I do worry that Synergy's plecanatide sales may ramp more slowly than its bullish analysts' forecast, I think these shares are worth more than $9 on the potential of plecanatide.

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Synergy Pharmaceuticals Getting Closer To 'Go Time'

Incremental Progress At Nektar Therapeutics

With the shares up about 30% from the time of my last article, I can't complain about how Nektar Therapeutics (NASDAQ:NKTR) has been performing. While an improvement in sentiment on biotech stocks in general certainly hasn't hurt, I also think Nektar is benefiting from signs of life in the Movantik business, a clever deal that may revive a cancer drug's commercial potential, and growing optimism about an early-stage pipeline asset in cancer.

Between the passage of time, the deal with Daiichi Sankyo, and a little more optimism about NKTR-214, I've added about $3 to my fair value (with the simple passage of time accounting for about half of that). With that, I'd say these shares still hold some appeal.

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Incremental Progress At Nektar Therapeutics

Seeking Alpha: Nektar Therapeutics Going Into The Decline With A Better Profile

I have no idea how long this downturn in the biotech sector will last, but Nektar Therapeutics (NASDAQ:NKTR) has survived its share in the 20-plus years of the company's existence. I also believe that the company is going into this downturn in the best shape it has been - Nektar can look forward to meaningful royalty streams from two drugs with $1 billion-plus potential, and the company has a more credible and focused pipeline.

My model suggests that the shares should be worth over $18 today, with royalties from approved drugs (AstraZeneca (NYSE:AZN)/Movantik and Baxter's (NYSE:BAX) Adynovate) making up about $9 of the valuation. Nektar's pipeline remains high-risk, but the potential of abuse-resistant painkillers and differentiated immuno-oncology drugs is meaningful, and the company seems to be making better decisions with regard to its R&D capital allocation.

It's certainly important to note that this is an ugly stretch in the biotech space and it could get worse (if not much worse) before getting better. My valuation is predicated in part on what the market has been willing to pay for approved drugs in the past, and the market can certainly undershoot those multiples during pullbacks.

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Nektar Therapeutics Going Into The Decline With A Better Profile

Seeking Alpha: With Nektar Therapeutics, Value Never Comes Easy

Ordinarily you might think that the approval of one billion-dollar drug and the imminent approval of another would be good news for a biotech, but then Nektar Therapeutics (NASDAQ:NKTR) has never been an ordinary biotech. Investors remain rightly concerned about the odds of commercial success with the company's OIC drug Movantik and somewhat less rightly concerned about the prospects of Baxter's (NYSE:BAX) upcoming long-acting PEGylated rFVIII product, and the negative results from the Phase III BEACON study of NKTR-102 surely didn't help.

I've never been a particular fan of Nektar, so it serves me right that the shares would fall about 15% since I last wrote favorably about them. Even despite these concerns and the elevated level of risk, I continue to believe that Nektar shares look undervalued today.

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With Nektar Therapeutics, Value Never Comes Easy

Seeking Alpha: Nektar Therapeutics Has More To Give

This year has seen biotechs on a rockier road, but those companies that have continued to develop broad pipelines have fared a little better. Nektar Therapeutics (NASDAQ:NKTR) belongs on that list, as the company continues to move forward with an array of late-stage assets and a deep pipeline based upon its PEGylation technology (a technology that alters pre-existing drugs to improve efficacy, tolerability, and so on). Not only does Nektar still look undervalued, I believe that the assumptions underlining that valuation are still conservative enough that de-risking events (namely clinical trial results) can add meaningful value.

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Nektar Therapeutics Has More To Give

The Motley Fool: Can Anything Derail Salix Pharmaceuticals?

I promise that I don't have a contract that specifies a minimum number of Salix Pharmaceuticals (NASDAQ: SLXP  ) articles, but sometimes the news flow just seems to run that way. After a vague announcement of positive phase 3 data on Xifaxan in IBS-D on July 1 and the announcement of a tax inversion M&A transaction with Cosmo Tech on July 9, management has now announced a successful appeal to the FDA and the approval of sub-q Relistor for opioid-induced constipation (or OIC) in patients with chronic pain unrelated to cancer.

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Can Anything Derail Salix Pharmaceuticals?

Seeking Alpha: 2014 Looking Like A Big Year For Nektar

Long-term investors in Nektar Therapeutic (NKTR) have had a roller coaster ride over the years, as these shares have traded up and down on for particular products like inhaled insulin and Nektar's PEGylation licensing royalty streams in general. Over the last few years, though, the company has been focusing on not only increasing its share of value in its partnered programs, but using the cash generated by them to support its own proprietary development portfolio.

The next year is looking like a big one for the company, as it should have considerably more clarity about the future of its opioid-induced constipation drug and its metastatic breast cancer drug. Together these drugs encompass about half of the value I see in the shares. While Nektar must deal with the same risks and uncertainties as any biotech, I think the Street may be underpricing these shares. Even with what I think are relatively conservatives estimates for many of the lead programs, I think the shares may be almost 30% undervalued and Nektar does offer a deep pipeline of potential drug candidates.

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2014 Looking Like A Big Year For Nektar

Seeking Alpha: AstraZeneca Taking Its Lumps

If investors wonder why I'm so hard on Big Pharma stocks like Lilly (LLY) and Bristol-Myers (BMY), I would offer up AstraZeneca (AZN) as an example. Due to a mix of poor planning and poor luck in the clinic, AstraZeneca is getting walloped by generic competition to key drugs. The company has most definitely opened up its wallet to restock its pipeline, but the cavalry isn't going to arrive for a while yet.

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AstraZeneca Taking Its Lumps

Seeking Alpha: Nektar Therapeutics - Often Forgotten, But Worth A Look

A few weeks into 2012, it looks like investors are much more eager to take on some risk in their portfolios and biotechs are coming back into favor. With that in mind, it makes sense to check out some of the promising biotechs that languished a bit in 2011. Although Nektar Therapeutics (NASDAQ: NKTR) hasn't had much bad news in a while, in the world of biotech "no news" can be almost just as bad and it seems that the market has perhaps forgotten this name a bit.

Changing Course
Nektar has long been in the business of partnering with larger pharmaceutical companies and licensing its proprietary PEGylation technology. PEGylation basically introduces polyethylene glycol into a compound and alters its performance in the body - most notably by slowing the process of clearing in from the body. Companies including Amgen (NASDAQ: AMGN), Pfizer (NYSE: PFE), and Merck (NYSE: MRK) have licensed this technology for major drugs like Neulasta and PEG-INTRON, but Nektar gets only relatively small royalties for this technology.

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Nektar Therapeutics: Often Forgotten, But Worth A Look

The Curious and Complicated Case of MannKind

Sometimes it is not always best to be first, sometimes it is better to let others go first and play the role on unwitting minesweeper. That is certainly what investors in MannKind (Nasdaq:MNKD) are hoping as this company approaches a critical FDA decision date (December 29) for its inhaled insulin product. While prior attempts at inhaled insulin have gone down in flames, MannKind may be in a position to learn from these mistakes and prosper where others have failed. 

A Different Inhaled Insulin  
There seems to be almost a knee-jerk need to compare MannKind's Afrezza (also spelled AFREZZA) to the failed inhaled insulin product developed and marketed by Pfizer (NYSE:PFE) and Nektar (Nasdaq:NKTR) known as Exubera. Exubera was a high-profile $2 billion failure for Pfizer, and this failure was followed quickly by the abandonment of inhaled insulin programs at Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO).  

Afrezza is a different product, though. Exubera was in most respects just an inhalable alternative to injected rapid-acting insulins like Sanofi-aventis' (NYSE:SNY) Apidra, Lilly's Humalog or Novo's NovoRapid. While these insulins have a peak of activity around 60 minutes after administration, Exubera peaked around 49 minutes. By comparison, Afrezza peaks in just 12-14 minutes, much more closely mimicking natural post-meal insulin secretion from a healthy pancreas.  

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There Is Life After Death, At Least In Biotech

Crushing disappointment is not an uncommon occurrence in the stock market, but it is practically commonplace in the biotech sector. For every Gilead Sciences (Nasdaq: GILD) or Celgene (Nasdaq: CELG), there are many companies whose compounds fail and whose stocks wither away to mere penny prices.


That said, biotech may also be one of the resilient sectors you can find. So long as you still have a few compounds (or a few ideas) and enough cash, you will get a second chance. And if that second chance works out, you will find the market is more than willing to let bygones be bygones.

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ASCO - A Big Deal For Biotechs (Pt 2)

This is the second of three articles previewing the ASCO meetings in Chicago next week.

One of the major biotech events of the year is fast approaching. The annual meeting of the American Society of Clinical Oncology (ASCO) will take place in Chicago June 4-8. This event is like Woodstock for biotechnology - if Woodstock were clean, air-conditioned and had plenty of restrooms. If you invest in biotechs or pharmaceuticals that want to play in the huge and well-reimbursed world of oncology, this is one of the major events of the year.

Ahead of the meeting, ASCO releases a list of abstracts that scientists and companies will present. In some cases, these abstracts give away at least most of the story (efficacy, safety, etc.), while other abstracts are embargoed until the meeting itself. In any case, investors can still look forward to follow-up data (abstracts are submitted well ahead of the meeting), and often the amount of attention garnered by a presentation reflects overall interest in the compound. (For more, see Stocks On Drugs: What It Takes To Get High.)

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