What happened

After the company updated investors on its drug pipeline and plans at the influential JP Morgan healthcare conference early last month, Nektar Therapeutics' (NASDAQ:NKTR) shares shot 40% higher in January, according to S&P Global Market Intelligence.

So what

Nektar Therapeutics was one of the top performing stocks in 2017, rallying nearly 400% on the potential associated with its late-stage pain drug candidate, NKTR-181, and its emerging cancer drug pipeline.

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Last fall, management said it plans to file for FDA approval of NKTR-181 for use in chronic back pain in the second quarter, and presented promising early-stage study results for NKTR-214, a solid-tumor cancer treatment that it's evaluating alongside multibillion-dollar checkpoint inhibitors, including Bristol-Myers Squibb's Opdivo.

On Jan. 9, management told investors at the JP Morgan conference that it still expects to file NKTR-181 for FDA approval next quarter. If approved, it could become a top seller because, unlike traditional opioid pain-killers, it's a slow-release medicine that delivers significantly less euphoria, and thus has a lower risk of abuse. The pain treatment market across all indications is worth $20 billion annually, and Nektar Therapeutics plans to find a partner to help it commercialize NKTR-181, if it's approved.

The company also updated its plans for NKTR-214 and the other cancer-fighting drugs in its pipeline. NKTR-214 activates cancer-fighting T cells and natural killer cells directly in tumors, and it boosts PD-L1 expression, which could increase the efficacy of drugs like Opdivo. If trials are successful, NKTR-214 could end up being widely used alongside some of the best-selling cancer treatments on the planet. So far, the data is encouraging. The disease control rate was 91% in 11 treatment-naive stage IV melanoma patients, 79% in 13 first-line stage IV kidney cancer patients, and 75% in four stage IV non-small cell lung cancer patients.

Nektar Therapeutics is also advancing development on NKTR-262, a TLR-agonist that's designed to work with NKTR-214, and NKTR-358, an auto-immune disease drug that's licensed to Eli Lilly.

Now what

There's a huge need for painkillers that can reduce physicians' reliance on opioids, so NKTR-181 could win a sizable chunk of the market if it gets a go-ahead, especially if Nektar inks a co-commercialization deal with a company that already has an established presence in pain.

More data on the company's cancer drugs should give us a better idea of their peak sales potential, and fortunately, we won't have to wait too long for it. Nektar Therapeutics expects results from an expansion trial of NKTR-214 and Opdivo in the first half of 2018, and in the second half, it expects data from a trial evaluating NKTR-214 alongside the second-best selling PD-1 drug, Keytruda. 

Where Nektar Therapeutics goes from here is anyone's guess, but it has a lot of irons in the fire that could reward investors willing to take the risk of adding it to their portfolios.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.