What happened

After Incyte (INCY -0.24%) announced today that its phase 3 melanoma trial failed to pan out as planned, investors rushed away from immuno-oncology players with programs that had similarly high expectations. Alongside a broader market sell-off, Nektar Therapeutics (NKTR -1.21%) stock dropped 10.9% as of 3 p.m. EDT.

So what

Nektar Therapeutics is the poster child of a high-flying biotech success story. After reporting impressive results for NKTR-214 in solid tumor cancers, Bristol-Myers Squibb (BMY -0.72%) came knocking with a blockbuster offer that helped Nektar Therapeutics shares catapult higher this year.

Falling stock chart superimposed over numbers

Image source: Getty Images.

Specifically, in exchange for 35% of the potential profit associated with NKTR-214, Bristol-Myers Squibb paid Nektar Therapeutics $1 billion up front. It also agreed to pay Nektar Therapeutics up to $1.78 billion in milestones, and for good measure, it plunked down $850 million more to acquire an 8.3 million share equity stake in the company. 

Optimism stemming from the Bristol-Myers Squibb deal and enthusiasm ahead of Nektar Therapeutics' FDA filing for NKTR-181 in chronic back pain soon arguably has priced Nektar Therapeutics for perfection, and perhaps, set it up for today's Incyte-inspired pullback.

Similar to NKTR-214, industry watchers had high hopes for Incyte's lead cancer drug, epacadostat, an IDO-inhibitor that -- like NKTR-214 -- is being evaluated for use alongside PD-1 checkpoint inhibitors in solid tumor cancers.

Unfortunately, Incyte reported earlier today that epacadostat missed the mark in a phase 3 melanoma trial evaluating its use alongside the PD-1 drug Keytruda. In the trial, combining the drugs didn't improve progression-free survival compared to Keytruda monotherapy, and based on an independent review, it was determined it was likely to fail to improve overall survival. The news led Incyte to announce it will discontinue developing epacadostat in melanoma and it sent shock waves throughout the clinical-stage biotech community. 

Now what

Trial failure is common, but it's less common for highly anticipated drugs, and perhaps that's what made Incyte's news today so shocking to investors. Nevertheless, there's plenty of reason to like Nektar Therapeutics stock. NKTR-214 works differently than epacadostat and its results so far in melanoma are arguably more impressive than any past results associated with epacadostat. 

For instance, NKTR-214's previous results include a 91% disease control rate in 11 treatment-naive stage 4 melanoma patients, a 79% disease control rate in 13 first-line stage 4 kidney cancer patients, and 75% disease control rate in four stage 4 non-small cell lung cancer patients. 

Sure, Nektar Therapeutics' confirmatory trial could also wind up a dud, but it has other late-stage drug candidates, including NKTR-181, that help insulate it. Overall, I think Nektar Therapeutics stock could be offering investors one of the first good opportunities in a while to buy it on sale.