Nektar Therapeutics (NKTR 2.08%) has a lot on its plate. The company's advancing its lead drug candidate, NKTR-181, to the FDA for use in chronic pain and its pipeline crisscrosses immuno-oncology and immunology. Shares of Nektar Therapeutics have been on a roll lately, but can its winning streak continue rewarding investors?
In this clip from The Motley Fool's Industry Focus: Healthcare, analyst Kristine Harjes and Todd Campbell explain why investors are flocking to include this biotech stock in portfolios.
A full transcript follows the video.
This video was recorded on Nov. 15, 2017.
Kristine Harjes: You might remember this next stock from our April 12th episode on non-opioid pain medications that different companies are developing. Again, same offer, I'll send you the link if you want. I'm sure this one is well more than 100 episodes old since it's from April. This company is called Nektar Therapeutics. They announced in their earnings report that they plan to file for NKTR-181 in April of next year. That, again, was the drug we were talking about on that non-opioid pain medication episode. It's a μ-opioid receptor drug that crosses the blood-brain barrier more slowly than traditional opioids do so that you reduce the feeling of euphoria. Hopefully, that could decrease the abuse of opioids -- which, by the way, Americans spend $12 billion annually on for pain relief. As exciting as that is, it turns out that there's a whole lot more going on at this company than just NKTR-181. The stock has climbed 70% so far just this month, just in November, including a 14% jump on Tuesday of this week. The company now has a market cap of $6.3 billion. Todd, what has investors so excited?
Todd Campbell: Crazy, right? $24 a share the $40 a share in a heartbeat. This could be the $6 billion company that no one is really talking about.
Harjes: It's pretty under the radar.
Campbell: Yeah, it doesn't catch a lot of news flow. They have so many different irons in the fire, maybe it's hard for people to figure out exactly what this company does and is all about. It seems like, over the course of the last couple of years, investors have gotten most excited about companies that are specifically working in one area of research. But that's not the case at Nektar. Nektar is working on pain treatments, it's working on immuno-oncology, it even has a relationship with Eli Lilly (LLY 0.42%) on an autoimmune disease drug or immunology drug. So, it has a lot of different things going on, and that doesn't even include the fact that it's already collecting royalties from AstraZeneca and some others for the work that it's done on drugs that have already won approval. So, it has so many different pieces to this story that investors are going to want to know about. What got everybody so excited this past week and a half, though, was that news on NKTR-181, the ability to go out to the market as soon as, depending, if they get an accelerated review, they could theoretically have this on the market by the end of next year. It's a wholly owned drug, they're not sharing it, they're not partnered with anybody on it. That's a $12.6 billion market for opioids that they'll be targeting with this drug. And the FDA has shown and said time and time again over the last year-and-a-half because of the opioid epidemic they're willing to consider these unique approaches. So, I think that's a really big reason for excitement. But more recently, the excitement stems from NKTR-214, which is another wholly owned drug, but it's in immuno-oncology drug, so it's used for cancer.
Harjes: Yes. They reported on Monday some data for this drug for solid tumors in combination with a drug called Opdivo, which we've talked about on the show plenty, this is from Bristol-Myers Squibb (BMY +0.37%). The Nektar drug activates cancer-fighting cells, while Opdivo, which is being studied in combination with, unmasks the cancer cells by hijacking the PD-1 protein, it's a PD-1 drug. This protein is what usually helps cancer cells hide from the immune system. Opdivo uncovers them while NKTR-214 activates these cancer-fighting cells. Together, they've shown pretty stunning efficacy across a bunch of different cancers. There was 91% disease control rate in melanoma, 85% in kidney cancer. In lung cancer, three out of four of the patients studied responded, with one complete response. And the safety looks good so far, which is pretty awesome. You look at the way this trial is being done, they're splitting the costs of the combo therapy with Bristol-Myers Squibb, but it retains the full rights to its own drug.
Campbell: Yes. And what's really intriguing about this is, not only does NKTR-214 boost the T-cells and the natural killer cells in the tumor microenvironment to help destroy it, it also increases PD-1 expression, which helps make Opdivo work better. So, this is a drug now that, theoretically, if used in combination with Opdivo, would allow for its use in patients that don't have very high expressions of PD-1. And, interestingly enough, that was born out in the data. You had very high response rates across both PD-1 positive and PD-1 negative patients. That's pretty cool and pretty game-changing, if you will, when you think about how to treat these. The other thing that's interesting were, these were Stage IV cancers. They weren't easy to treat. They're treatment naive, they hadn't gone through other treatments yet, but they're Stage IV cancers. So, there's a big need there for therapies that work better and can help these patients. So, I think people are looking at this and saying, wow, if NKTR-214, if their Phase II study goes as well as what we seen so far, and we won't know that for a while, so we have to temper down some of this enthusiasm, because we really don't know how that's going to pan out over time -- but that could be a really important and intriguing drug for this company. Then, they have two other immuno-oncology drugs that they're developing, NKTR-255 and NKTR-262, which are really interesting. Then, of course, they have this other relationship with Eli Lilly, where in July, Eli Lilly gave them $150 million up front to get the rights to NKTR-358, which is an immunology drug. And if that drug ends up panning out, they could collect double-digit royalties in the low 20s, plus another $0.25 billion worth of milestones. So, there's a lot going on for Nektar that makes it intriguing. I think 100%, what was it, 70%, a big move like that, you probably want to let that digest a little bit before you consider going out and buying it. But I think this is an intriguing stock, and it's worth having on people's radar.
Harjes: And it's still fairly tiny even after that 70%. I kind of wish it had been on my radar before just this month. But it hasn't been one that I've personally given a lot of attention to, except for the small bit that we did about the 181 drug earlier this year. But, I'll definitely be following along a little bit more closely now. I'm sure you will too, Todd. They have 12 different clinical programs, and eight of them have partners, and they're big-name partners. We talked about, they have a partnership with Lily, they're working with Bristol. That always gets me intrigued, when a smaller player has relationships with some of the pharma giants. This is a company that is not yet profitable, but even as their research and development spend is ramping up, it seems like they're fairly well-financed because of these partnerships, and they are bringing in some money through these royalty programs and some of the upfront and milestone payments that they're receiving.
Campbell: Right. The royalties are kind of a rounding error. We don't expect that to be a tremendous amount of money. But over the course of the next five years or so, maybe that starts to turn into tens of millions of dollars. It's obviously not going to pay the R&D budget. The company will finish the year with about $350 million in cash. Like you said, it's pretty well financed. At some point, you could probably expect it'll go out and tap investors by issuing more shares. After this big move up today, that wouldn't shock me.
Harjes: It'd be great timing.
Campbell: Yeah, it would probably be a pretty good time to do that. So, maybe that gives you an opportunity to start thinking about being able to buy, if shares sell off on that. So, yeah, this is an intriguing company. It's definitely one that's worth watching.
