Is This the Buying Opportunity Nektar Shareholders Have Been Waiting For?

While many of us are doing our "thank goodness it's Friday" dance, shareholders of Nektar Therapeutics (NASDAQ: NKTR  ) are looking to rewind the clock because it lost about 25% of its value in the after-hours yesterday evening following disappointing preliminary top-line results for a mid-stage study on its chronic pain drug, NKTR-181.

Nektar's no good, very bad day
According to Nektar's press release, NKTR-181, which is designed to treat chronic pain associated with osteoarthritis of the knee, allowed 213 of the 295 patients to achieve an average of 40% reduction in pain. Only 3% of participants were unable to achieve meaningful pain relief while an additional 18% dropped out of the study due to adverse events. It wasn't the number of AEs that disappointed investors, but instead the lack of differentiation in pain reduction between NKTR-181 and placebo, which also reduced pain when many had suspected that pain levels would rise. That lack of a statistically significant result clouds NKTR-181's future despite what appear to be solid results of pain reduction .

With Nektar shares diving, you might be thinking that this is your opportunity to hit the exit doors as well. I actually feel it couldn't be further from the truth. If there were a decent buying opportunity in Nektar, this classic overreaction could be it.

Take a drink of this Nektar
Why does Nektar intrigue me?

First, Nektar relies on its own proprietary drug discovery platform to discover and develop its pipeline. The company's PEGylation and advanced polymer conjugation technology platform allows for a diverse pipeline of targeted therapeutics catering to numerous disease types while also positioning the company for future royalty should a larger pharmaceutical company wish to use its technology.

The second key point builds off of the first: partnerships. Nektar Therapeutics has about a dozen partnerships between FDA-approved and clinical-stage therapies because of its unique technology platform.

Perhaps none is more important for its future than its ongoing collaboration with AstraZeneca (NYSE: AZN  ) . The most promising drug in the pipeline between the duo is naloxegol for the treatment of opioid-induced constipation, or OIC. In May, the two companies reported positive data from two late-stage trials where naloxegol met both the primary and secondary endpoints. With AstraZeneca filing for a new drug application in the U.S., Nektar could be in line for a $70 million milestone payment should the FDA accept the NDA. Although the OIC market is extremely competitive and filled with plenty of generic competition, AstraZeneca believes it could hit a target audience in excess of 11 million afflicted people.

But, Nektar is even more than just its partnership with AstraZeneca. It has nine FDA-approved drugs that it receives royalties on ranging from oncology to immunology. Nektar's technology, for instance, helped bring Amgen's (NASDAQ: AMGN  ) lead product Neulasta, which encourages the production of white blood cells in cancer patients, to market. Global Neulasta sales grew by 10% in the second quarter to $1.12 billion. 

Nektar also has the opportunity to sell its stake in future royalties if needed to raise cash for additional research or to reward shareholders. In 2012, Nektar forged an agreement to sell its future royalty rights to Cimzia (which it partnered with UCB Pharma to bring to market) and Roche's (NASDAQOTH: RHHBY  ) Mircera for $124 million to Royalty Pharma. The deal allowed Nektar to pay off $215 million in convertible debt and further boost its balance sheet.

A long road
If you recall, two of the investing methods I've suggested in the past to be a successful investor in the biotech sector is to seek out well-diversified or established pipelines. In the case of Nektar, even though we have ongoing losses due to growing clinical research, we have a nice mix of both. In addition to its nine FDA-approved drugs, there are also 19 ongoing trials ranging from the preclinical stage to the new drug application stage.

One to keep your eye on is Allergan's (NYSE: AGN  ) Levadex, which has unfortunately been rejected twice now by the FDA but still has an excellent shot of being approved as an inhalable migraine medication. Levadex's efficacy has never been in question; it's just been a matter of getting its manufacturing processes up to FDA specifications. Although we're only talking a mid-single-digit royalty here, these royalties do add up over time.

If sharing isn't your thing, then don't worry; Nektar has you covered there as well. Its experimental cancer-fighting therapy NKTR-102 is the company's first in-house oncology drug that's been developed using its releasable polymer technology platform. In mid-stage metastatic breast cancer trials, NKTR-102 delivered a combined confirmed and unconfirmed response rate of 21% while demonstrating similar efficacy of 21%-22% confirmed and unconfirmed response rates in treating platinum-resistant ovarian cancer in a mid-stage study. 

It's definitely not a great day to be a Nektar Therapeutics shareholder. But buck up because it's a long road and Nektar has a potential gold mine for its existing FDA-approved royalties and growing royalty and in-house pipeline. If you do anything today, make sure it's to add Nektar to your watchlist because I'm fairly certain we haven't seen all of what Nektar has to offer.

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