This Biotech Is Down -65% In The Last 8 Months – Here’s Why It’s A Buy Now

Nektar Therapeutics (NASDAQ: NKTR) has been on a rollercoaster ride. Between March 2017 and March 2018, the stock rose more than 600%. Since then however, it has fallen -65%.

The commercial-stage biotech fell -36.5% in October alone as investors lost faith in the stock.

So what happened?

Earlier this year, Bristol-Myers Squibb (NYSE: BMY) shelled out $1.85 billion for limited rights to Nektar’s NKTR-214 candidate, an experimental cancer drug that looked like it could boost sales and efficacy of Bristol’s Opdivo treatment.

NKTR-214, an interleukin-2 inhibitor, is essentially a longer-lasting version of an existing cancer treatment that earned approval decades ago called Proleukin. That drug never really gained traction as, while it’s effective for about 15% of patients, it’s hard for patients to tolerate. Nektar believes it has solved that issue with pegylation technology.

And it has shown some interesting results. 

In June 2017, a study showed that NKTR-214 in combination with Bristol’s Opdivo led to 72% of patients with advanced-stage cancer showing tumor responses. However by November 2017, the company disclosed that while 71% of 13 kidney cancer patients had shown tumor responses initially, six months later that response rate fell to 54% of 24 patients.

With the latest update, the best overall response rate was just 53% – and 43% for patients with PD-1 negative tumors. These results aren’t all that dissimilar from Opdivo’s success rate on its own, which means there’s next to zero chance for accelerated approval for NKR-214.

But here’s the thing with Nektar, it’s not just its NKTR-214 candidate.

First, its NKTR-181—a new kind of painkiller that looks to work better than opioids at relieving lower back pain—candidate is under review for approval from the FDA. If approved, NKTR-181 would become a first of its kind long-acting, selective mu-opioid agonist that kills pain without the reactions that contribute to abuse and addiction for patients on opioids. 

Second, Nektar already collects royalties from AstraZeneca (NYSE: AZN) on Movantik, which helps ease opiate-related constipation for patients with cancer pain, and from Shire (NASDAQ: SHPG) for Adynovate, an hepatitis A drug. Nektar’s royalty revenue grew to $11.1 million in Q1 2018, up from $7.2 million last year, and its total revenue—including product sales and licensing revenue—jumped to $38 million from $25 million in Q1 2017.

And in addition to its partnership with Bristol on NKTR-214, the company is also working with Eli Lilly (NYSE: LLY) on a possible treatment for autoimmune diseases with its NKTR-358 candidate. Lilly spent $150 million on the partnership last summer, and has agreed to pay as much as $250 million on additional development and regulatory milestones for the drug.

With so many irons in the fire, the market’s reaction to the NKTR-214 results seem overblown, possibly giving investors an interesting buying opportunity.

Analysts rate the stock a Buy with an average price target of $89.75, suggesting possible upside of 135% over the next twelve months.


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