Nektar Therapeutics: The Gift That Keeps On Giving

Summary

• Nektar reported robust Q4 earnings that beat the Wall Street estimate by a sizable margin.
• Despite the vast number of catalysts, we’ll feature NKTR-214.
• The recent partnership with Bristol-Myers Squibb to co-develop NKTR-214 in 20 different cancer indications will procure many blockbusters.

If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never. - The Father of Growth Investing (Philip Fisher)

On March 2, 2018, Nektar Therapeutics (NASDAQ:NASDAQ:NKTR) - a bioscience that focuses on the innovation and launch of novel medicines to service cancer, autoimmune disease, and chronic pain - catapulted to its new 52-week high. As follows, the stock traded $18.32 higher at $102.87% for the 21% profits in response to a robust earnings report. Much of the aforementioned share price appreciation is due to multiple powerful catalysts. In this research, we’ll go over Fiscal 2017 earnings highlight (as well as the key catalysts to power further upsides).

Figure 1: Nektar stock chart. (Source: StockCharts).

Fundamentals Analysis

Based in San Francisco, CA, Nektar leverages on its proven chemistry platform to design novel medicines (as depicted figure 2). Notably, the “honeycomb” of Nektar is its global leadership in polymer chemistry that, in and of itself, is a powerful therapeutic designing tool. In exploiting the structural adeptness of polymers, Nektar can customize the behavior of drugs (to a great extent). And, the targeting of well-characterized pathways enabled its innovation efforts to have the best chances of yielding meaningful clinical benefits.

Figure 2: Therapeutic pipeline. (Source: Dr. Tran BioSci).

Earnings Highlight

For 4Q2017, Nektar procured $95.5M in revenues, which is 153% higher than the $37.5M for the same period a year prior. The said figure beat Wall Street’s expectation of $31.5M by far, thereby causing the stock to rally as elucidated. For Fiscal 2017, total revenues came in at $307.7M compared to $165.4M for 2016, thus representing the whopping 186% improvement year-over-year. Interestingly, the $130.1M (out of $150M) in total upfront payment realized from Eli Lilly & Company (NYSE:LLY) for the co-development and commercialization of NKTR-358 contributed to that earnings improvement. In terms of net profits, there were $33.8M ($0.21 per share) net losses in Q4 compared to $42.2M ($0.28 per share) net losses for the similar period of comparison. In addition, there were $96.7M ($0.62 per share) and $153M ($1.10 per share) declines for Fiscal 2017 and 2016, respectively.

As evident in the figures above, the financial strengths and earnings for Nektar are improving more rapidly than Wall Street’s expectation. Still, the company has yet to generate a net income. Be that as it may, it’s the norm for a developing bioscience company to incur substantial net losses prior to delivering a profit for many years. This is due to the high costs (roughly $1B) for innovating a molecule from bench research to commercialization.

A company like Nektar (one that is brewing a highly robust pipeline) is expected to incur increasing capital on research and development (“R&D”) as the pipeline is advancing. Just as the substantial cash is needed for innovation, the future net profits for Nektar will be gargantuan. How large such profits will depend on the various brewing catalysts. While most molecules are likely to deliver superb outcomes, we’ll focus our analysis on NKTR-214 as mentioned.

NKTR-214

Back on Feb. 14, 2018, Nektar announced the collaborative deal with Bristol-Myers Squibb (NYSE:BMY) for the co-development and commercialization of NKTR-214 (a highly promising CD-122 agonist). The partnership infused substantial cash into Nektar to fund further pipeline innovation. Our research showed that the vast cancer indications have quite favorable chances of delivering robust outcomes: this will enable Nektar to enjoy substantial earnings in the foreseeable future. We stated in the prior research,

To realize its promising prospects, the partnership to develop NKTR-214 in combinations with nivolumab (Opdivo) and Opdivo plus ipilimumab (Yervoy) in 20 cancer indications for nine different tumors - melanoma, renal cell carcinoma (“RCC”), non-small cell lung cancer, bladder, and triple negative breast cancer. The anticipated timeframe for the commencement of the pivotal studies in RCC and melanoma is in the middle of this year. Re the deal specificities, BMY will have the exclusive rights to the aforesaid conditions for an undisclosed specified period of time. Nektar to book revenues for the worldwide sales of NKTR-214 and reserved the rights to develop NKTR-214 with other anticancer agents (as shown in figure 2 above). Nektar and BMY to receive 65% and 35% of sales, respectively. And, BMY to pay Nektar $1.85B in upfront payment - $1B in cash and the $850M from the purchasing of Nektar’s stock (roughly 8.28M shares at $106 per share). The development costs will be split 78% and 22% for BMY and Nektar, correspondingly.

Final Remarks

Despite many power catalysts fueling this company, we’ve only focused on NKTR-214 in this research. NKTR-214 holds substantial unlocked value, as Nektar recently signed the highly favorable deal with Bristol-Myers Squibb. The upfront payment of $1.85B alone speaks volume to the underlying prospects of this molecule. And, the future gargantuan revenues of NKTR-214 to catapult Nektar into a mid-cap bioscience. As the final note, we’ll come back to Fisher. Accordingly, the proper due diligence was conducted for Nektar (the gift that keeps on giving). Hence, we’ll hold the company so long as the fundamentals remain robust.

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