Shares of Nektar Therapeutics (NASDAQ:NKTR) have risen by 132% since my January 2017 article stated my expectations of near-term upside and noted that we'd get an initial glimpse of data for NKTR-214 (CD122-preferential IL-2 pathway agonist designed to stimulate the patient's own immune system to fight cancer). On the other hand, shares have lost nearly 60% since my January 2018 update called for continued upside.
One black eye for the company was the disclosure of an analysis of the PIVOT-02 study that found differences in early batches of NKTR-214, now known as bempegaldesleukin. These suboptimal production lots led several analysts to (rightly) downgrade the stock, as this unfortunate mishap led to poor responses in patients that were unlucky enough to get treated with the subpar drug product. To be fair, this appeared to be an easily fixed issue and partner Bristol-Myers Squibb (BMY) remained quite committed to the program.
My interest in this name has returned due to recent strength in the stock as well as ROTY member Persimmon Tree Investments adding it to Idea Lab (high conviction picks). A snapshot of Persimmon's thesis can be observed below.
Persimmon also highlighted Sanofi's (SNY) buyout of Synthorx for $2.5 billion in cash, quite a surprising sum for an early-stage asset and preclinical pipeline. Lead immuno-oncology product candidate, THOR-707, is a variant of interleukin-2 (IL-2) in clinical development in multiple solid tumor types as a single agent and in combination with immune checkpoint inhibitors. It appeared attractive to Sanofi due to best-in-class profile demonstrated in pharmacology data and the need for less frequent dosing. Persimmon noted that this deal shined a positive light on the value of Nektar, considering it is much later stage with initiation of registrational studies and Bristol-Myers Squibb partnership pursuing a myriad of indications.
Let's take a look to determine how our thesis has evolved and what we can expect in terms of upside this year.
When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the above chart (daily advanced), we can see shares gap down in early August after the company disclosed its quality control issue with manufacturing which led to poorer responses in patients treated with these drug batches. Recently, January's gap up is due to the revised collaboration agreement with Bristol-Myers Squibb (expands beyond three original pivotal studies to include additional registrational studies in adjuvant melanoma and muscle-invasive bladder cancer). Additionally, it was considered a good sign that they decided to go after first line renal cell carcinoma utilizing the combo with Inlyta to support a future pivotal study. Perhaps in memory of past mishaps, Bristol-Myers Squibb is independently running a phase 1/2 dose optimization and expansion study assessing the combination in first-line non-small cell lung cancer as well. While the stock has run up 33% since Persimmon's submission to Idea Lab, I'm inclined to believe there's significantly more upside left on the table.
Since my last update was quite dated, I suggest readers tune in to management's presentation at Jefferies Global Healthcare Conference from this past November. Chief R&D Officer Jonathan Zalevsky starts by highlighting the company's expertise in polymer chemistry applied to three separate areas as observed below.
Figure 2: Nektar Pipeline Focus (Source: corporate presentation)
Starting with their novel opioid candidate NKTR-181 for treatment of chronic low back pain, they've managed to separate pain control from the mechanisms behind euphoria (should lead to decreased potential for abuse). 15 studies were conducted in over 2,200 subjects including multiple phase 3 trials and human abuse studies. This drug is in late-stage FDA review. A fully owned subsidiary, Inheris, was formed to launch the molecule, and while not core to our thesis here, this program does have interesting potential in addressing the opioid epidemic.
Moving onto the core immuno-oncology franchise, the company hopes to target robust steps in the immunity cycle by targeting cytokines and major agonist agents. Flagship program bempegaldesleukin or "bempeg" is a CD122 preferential IL-2 pathway agonist. Readers might recall that IL-2 has been an approved drug for some time but had significant limitations at high doses. With bempeg they created a conjugated version of the IL-2 cytokine that has a pro-drug design, allowing for safe administration without overactivating the patient's immune system. They were able to change some of the signaling properties of the IL-2 cytokine, in this case creating preferential signaling to the dimeric form of the receptor and has limited interaction with the trimeric receptor that includes alpha component. Essentially, this difference is quite large as they now have a cytokine they give on a once every 3 weeks schedule as contrasted to high dose IL-2 which is given 3x daily. Also, it's given on a long outpatient regimen as opposed to high-dose IL-2 in intensive care regimen.
At the last SITC meeting, an update was provided of the PIVOT-02 cohort in patients with first line metastatic melanoma where patients were treated with Opdivo + bempeg (18.6 months follow up). Complete response rate at the previous SITC meeting (median follow up of 7.2 months) was 24% versus 34% here (deepening of responses was quite encouraging).
Figure 3: Promising combo results in first line IO-naive melanoma cohort at recommended phase 2 dose (Source: corporate presentation)
Durability was quite high, as 85% of patients that achieved good response maintained that response at the 18.6 month follow up. Also, a number of patients with elevated LDH and those with liver metastases had 50% response rates despite these negative prognostic factors. All the patients with liver mets who had response achieved complete response. Quality of responses was important as well, as 90% of patients who responded had 75%+ tumor shrinkage. Median PFS for this cohort had not yet been reached. Breakthrough therapy designation was granted for this indication by the FDA, giving the company closer interaction with the agency and the opportunity for receiving Priority Review. Based on these results, the phase 3 PIVOT IO 001 study is being run by BMS to treat previously untreated metastatic melanoma patients (764 patients randomized 1:1 to receive the combination or nivolumab alone). Primary endpoints to be assessed include ORR, PFS and OS. The earliest readout from this trial would be interim analysis of ORR that could come by Q4 this year, with PFS to read out mid-2021.
The PIVOT-10 study is a single-arm phase 2 trial with accelerated approval potential, recruiting 205 patients with 1st line metastatic Cisplatin-ineligible bladder cancer to receive bempeg + nivolumab. This is an all-comers population, but they will be looking for the accelerated approval opportunity in PD-L1 negative patient population (70% of these patients). The basis of this study is promising data in this population including 20% CR rate along with good durability. Results are expected in the first half of 2021.
As for the ongoing phase 3 study in 1L advanced renal cell carcinoma patients, 600 patients are being randomized to receive bempeg + nivolumab or investigator's choice (sunitinib or cabozantinib). Rationale here is to provide physicians a TKI-sparing regimen for GU docs to have to treat the disease alongside TKI-inclusive regimens.
In addition to these 3 ongoing trials, they expect 5 to 6 studies to be running overall across multiple indications (this update was recently given in January). Various collaborations are being tested including with Pfizer (PFE) in SCHHN and mCRPC (combination with avelumab, talazoparib and enzalutamide). Another collaboration of interest is in 2nd line pancreatic cancer in combination with BioXcel's (BTAI) BXCL701 (DPP 8/9, FAP and checkpoint inhibitor).
Moving onto other parts of the immuno-oncology pipeline, TLR 7/8 agonist NKTR-262 meant for intratumoral administration. Reaction of the TLR is retained locally at the injection site, with the idea being to inject the tumor to generate an innate immune reaction. This will lead to a cascade of immunological events that includes enhanced antigen presentation and T cell priming (used in combination with bempeg to then expand circulatory antitumor CD8 T cells and tumor infiltration). The REVEAL phase 1/2 study is testing this doublet (dose escalating in a logical manner, monotherapy for first cycle of 21 days followed by adding bempeg from cycle 2 onwards). Early data showed responses in patients with metastatic relapsed/refractory melanoma and the goal is to find the recommended phase 2 dose (good sign is that they haven't reached it yet, proof that activity is maintained locally). From there, expansion arms will test the doublet (and triplet including nivolumab) in the relapsed/refractory melanoma population as well as others to be unveiled in the future.
As for the most early stage of the I-O candidates, IL-15 receptor agonist NKTR-255 has the goal of boosting NK cell numbers (and function) as well as increasing duration of response for CAR-T and cellular therapies. The potential of this drug candidate is quite intriguing as it could be combined with ADCC antibodies (daratumumab, anti-BCMA) as well as CAR-T therapies. The ongoing phase 1 study is testing single agent dose escalation in multiple myelom and NHL, from there moving into expansion expansion cohorts (relapsed/refractory salvage therapy). In the ongoing research collaboration with Janssen, preclinical research studies are ongoing with NKTR-155 combined with Janssen's oncology candidates (no commercial rights involved). NKTR-155 is also the subject of preclinical studies in combination Gilead's antiviral therapies.
Moving onto the setting of autoimmune disease with NKTR-358 (partnered with Lilly), this drug candidate selectively stimulates regulatory T-cells. Phase 1 single ascending dose study showed a linear PK profile (half life of 8 to 11 days versus IL-2 half life of 5 to 7 minutes). Change in regulatory T cells after administration was reflected in a dose, dependent manner (Tregs elevated for almost 3 weeks and highest dose showed 17 fold increase, the highest reported in any in-human study).
Figure 4: PDose dependent increases in CD25bright Tregs after administration of NKTR-358 (Source: corporate presentation)
Specificity as observed in Treg to Tcon ratio showed 15 to 20 fold increase in dose dependent manner. Phase 1b study (multiple ascending dose) in lupus study is being finished up with data planned for submission to medical meeting this year. Eli Lilly (LLY) added two new phase 1b studies in psoriasis and atopic dermatitis, and first of four phase 2 studies will begin this year (in lupus as well).
On December 3rd, the company announced appointment of John Northcott as Senior Vice President and Chief Commercial Officer (served prior as Chief Commercial Officer of Pharmacyclics leading all commercial functions for Imbruvica).
On January 10th, the company announced a new joint development plan with partner BMY to advance bempeg plus nivolumab into multiple new registrational trials (mentioned above).
For the third quarter of 2019, the company reported cash and equivalents of $1.7 billion as compared to net loss of $98.8 million. G&A expense rose to $24 million, while research and development expense came in a bit flat at $99 million.
It should be noted that there is a history of insider selling in Q4 2019. As for institutional holders, BlackRock owns around 10% of the company and Invesco owns close to 20%. Primecap also owned around 11% or so.
As for competition, I must confess this is an area I feel I have less of an edge or advantage in. The price tag for Sanofi's buyout of Synthorx reflects their belief that THOR-707 could have the optimal profile as compared to NKTR-358 and other contenders. On the other hand, NKTR-358 is clearly much further ahead in the clinic with registrational studies already underway. Also, considering how much ground Merck's (MRK) Keytruda has gained against Opdivo, it's clear Bristol-Myers Squibb is doubling down on its efforts with bempeg in hopes that it regains its competitive footing. As for other next-generation IL-2 candidates to keep an eye on, Alkermes' (ALKS) selective IL-2 fusion protein ALK 4230 is in early to midstage studies in combination with pembrolizumab (renal cell carcinoma and melanoma indications). Roche's (OTCQX:RHHBY) (OTCQX:RHHBF) RG7461 combines an engineered IL2v with antibody against fibroblast activation protein (FAP) and is the subject of several phase 2 studies.
To conclude, it appears that over the next two to three years, there is significant upside here as multiple high value assets progress in the clinic, backed by the substantial resources of their big pharma partners Bristol-Myers Squibb and Eli Lilly. Given the catalysts we discussed above (especially for bempeg), I would expect upside to be gradual with progressive updates given at the usual medical conferences (ASCO, SITC, etc). Q4 interim analysis of the phase 3 PIVOT IO 001 study is one event to look forward to, from there moving onto PFS in mid-2021 (results of PIVOT-10 trial in bladder cancer in 1H 2021 as well).
For readers who are interested in the story and have done their due diligence, Nektar Therapeutics is a Buy. I feel it is most appropriate for readers with a medium- to long-term time frame.
Risks include significant competition in certain spaces targeted (immuno-oncology arena is getting increasingly crowded), setbacks in the clinic (possibility of additional manufacturing problems), disappointing data readouts, negative regulatory decisions, and ultimately commercialization is no small hurdle either.
As for elements of derisking, cash position accounts for around one-third of the market capitalization and promising data for bempeg (and other candidates) to date provides a significant layer of cushion.
For our purposes in ROTY, with the market capitalization already at nearly $5 billion, I feel there are other more compelling near-term candidates (for me personally). The company's early stage assets are very intriguing (combination potential with CAR-T and cellular therapies for NKTR-255 for example), so I look forward to revisiting when we receive early to midstage data in intended settings (at recommended phase 2 dose). As I track performance for all public articles, I will be keeping an eye on this one in case of a significant dip or for when we potentially add it to ROTY later on when data catalysts are closer.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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