Nektar Can't Squeeze Nectar From This Drug

Nothing kills a marginal drug faster than new safety issues popping up. Yesterday, Nektar Therapeutics (Nasdaq: NKTR) announced that it was putting its inhaled insulin drug, Exubera, to rest (at least temporarily) after former partner Pfizer (NYSE: PFE) announced negative results of an ongoing long-term safety analysis.

Shares of Nektar have been feeling the pain ever since Pfizer returned Exubera's marketing rights to Nektar last year, following dismal sales of the drug after its FDA approval in early 2006. However, Nektar had remained hopeful about finding a new partner to help generate at least some revenue from Exubera, even with Exubera bringing in only $12 million in sales in the first nine months of 2007, and other drugmakers such as Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) shelving their inhaled insulin compounds in development.  

Nektar's idea was put on hold indefinitely yesterday after Pfizer reported a higher incidence of lung cancer in Exubera-treated patients versus the control group in a long-term safety analysis of the drug. The number of new cases of lung cancer in Exubera patients wasn't significantly higher than the number of cases occurring in the control group of patients, and it wasn't enough to show that Exubera was causing the cancer, but the correlation was enough to kill the drug.

The problem is that many noticeable, serious adverse events -- like cancer and often many cardiovascular ailments -- pop up only in large studies of thousands of patients, so seeing these safety signals is often quite difficult. Considering that the benefits of Exubera versus traditional insulin injections was always marginal at best, any new partner would have a tough time selling it to doctors and patients if it had a new serious adverse event added to the label.

Earlier in the year, Nektar revealed that keeping its Exubera-related operations active while looking for a marketing partner was costing it around $2 million a month. It also guided that its cash burn rate would be around $50 million to $75 million for the year, and no additional charges are expected related to the drug's termination.

With its Exubera-related costs likely stopping, I'm expecting Nektar's cash burn for the year to fall on the low end of its guidance. Nektar still has plenty of cash on its balance sheet with more than $480 million in cash and equivalents (as well as a load of debt). Now that Exubera is dead, it can focus on its other compounds in development.