Oh, the headlines. As the market continues to absorb one potential disaster after another, it has become clear that calling this market resilient may be the understatement of the decade.
Obamacare, the debt ceiling, the fiscal cliff, chemical weapons, the tapering, the non tapering and now Washington going dark have all been substantial reasons for a hard pullback in the markets.
In fact we have seen selling pressure on every issue mentioned above. However, that selling has been met with smart investors buying on the dips, and being rewarded with new highs soon after.
One main theme that has helped fuel this market higher has been the sizzling biotechnology sector. In fact, buying biotech stocks successfully is a lot like buying growth stocks in the market on corrections or pullbacks.
Knee jerk reactions caused by headlines or uncertainty often create huge opportunities for investors who buy when there's blood in the streets. A lesson I learned about 20 years ago still sticks with me today, especially when investing in biotechs... When everyone else is crying, you better be buying, and when everyone is yelling, you best be selling.
The mantra is simple. Buy when others are fearful, and sell when others are greedy. A perfect example of this thesis working beautifully in a real market situation are shares of red hot Halozyme Therapeutics (HALO).
Halozyme saw its shares get rocked in late August on news that a Phase II trial with partner ViroPharma (VPHM) had been stopped due to an unexpected number of antibody titers found in patients. I knew the 28% sell-off was just plain silly, as I suggested in the title of my last article, Silly Selling Creates Huge Opportunity In Halozyme.
Since then, my thesis has proved to be substantially profitable as Halozymes's shares have rocketed up close to 100% since that opportunity.
Today, I'm asserting that the same situation holds true for Nektar Therapeutics (NKTR). Nektar has been around for quite some time. In fact, the company has successfully had a hand in developing 9 already approved drugs with its pegylated polymer technology platform.
On September 26th, 2013, Nektar announced Phase II trial results on their abuse resistant opioid NKTR-181 that did not meet its primary endpoint. Shares plunged as much as 28% on the news. Although the trial failed, it was not because the drug doesn't work. In fact, NKTR-181 works extremely well, showing a 40% reduction in pain scores, which is well above what was expected. Only a mere 3% of patients didn't see a reduction in pain, so these results are very encouraging to say the least.
So why the failure? NKTR is a new kind of opioid that is abuse resistant. It is a time released strategy that slowly releases the drug into the brain and so it also curbs typical side effects seen in regular opioids. It seems that the analgesic benefit of NKTR-181 lasted longer than usual because of the time release nature of the drug.
Patients who were taken off the drug and put on placebo didn't report increasing pain scores as the drug wore off and was replaced by placebo, thus creating no statistical difference between the two groups, rendering the trial a failure. It is the design of the trial, which needs to be slightly tweaked, certainly not the drug's efficacy. Other opioids, such as the dangerous Oxycodone, is highly addictive and is responsible for scary statistics of abuse in the U.S. and Europe.
It is obvious to us that Nektar feels confident enough about NKTR-181 to propel the program to Phase III, and to develop a design trial that is slightly different to accommodate this new type of opioid, which has longer lasting analgesic properties due to its time release strategy. When approved, it should reach blockbuster status quickly.
Nektar also boasts a powerful group of partnerships. Partners include Bayer, Allergan, AstraZeneca, Amgen, Roche, UCB and Baxter. That is an all star lineup if I ever saw one.
Nektar's technology is proven and responsible for the approval of blockbusters such as Amgen's Neulasta for neutropenia, Roche's Pegasys for Hepatitis C, UCB's Cimzia for Crohn's Disease and Rheumatoid Arthritis, to name a few.
They also have truly one of the most robust R&D pipelines in the business, with 5 programs either finished with or still in Phase III trials. One drug that is extremely promising is called NKTR-118 or Nalexegol, for opioid constipation, which is a huge market opportunity.
AstraZeneca and Nektar just filed its NDA with the FDA and an application in Europe with the EMA, which has triggered $95 million in milestone payments to Nektar for the program's successful filings. We should also see a filing soon with the FDA for BAX-855, a Baxter partnered drug, which completed Phase III successfully for the treatment of hemophelia.
Nektar will also be releasing data soon on NKTR-102, a potential blockbuster drug which is in Phase III for metastatic breast cancer. This trial is called BEACON, and we should be hearing results from this trial relatively soon. Positive results of this Phase III program could potentially be a catalyst to double Nektar's share price from current levels.
At just a touch under $10 per share, I believe the biggest challenge to someone buying the stock here is the possibility of being arrested for stealing. That is me being sarcastic of course, but the thesis behind that statement is nonetheless true. I believe Nektar will be one of the hottest stocks in 2014 due to its pipeline and may not even be around much longer as a buyout from one of its partners becomes more of a possibility as that pipeline matures. We will revisit this call soon.