What happened

Shares of Nektar Therapeutics (NKTR 4.41%), a biopharmaceutical company, fell 45% in 2018, according to data from S&P Global Market Intelligence. Despite the company signing a lucrative collaboration deal, less-than-thrilling immuno-oncology data weighed heavily on the stock last year.

Check out the latest Nektar Therapeutics earnings call transcript.

So what 

In February, Bristol-Myers Squibb (BMY -0.30%) handed Nektar $1.85 billion up front for rights to co-develop and co-commercialize NKTR-214. Nektar stock shot up because, on top of the huge up-front payment, Nektar remains entitled to 65% of NKTR-214 profits, and Bristol has to pay for at least 67.5% of development costs. 

Group of businesspeople looking down at a fallen colleague.

Image source: Getty Images.

Opdivo's an effective PD-1 checkpoint inhibitor that helps the immune system continue attacking tumors, but only for some patients. Bristol splurged for NKTR-214 because it looked like it could help Opdivo sales rise significantly. Early data from a combination study showed that Opdivo plus NKTR-214 shrank tumors for 26 out of 36 patients, which is a lot better than Opdivo performed on its own in the past. 

Unfortunately, we don't have comparison data to measure NKTR-214's contribution, and investors have begun assuming this program isn't going anywhere. That's partly because those impressive response rates became less impressive with time and also due to fierce competition from another PD-1 inhibitor.

Now what

Nektar's fallen 60% from a peak in April, but the stock still isn't cheap, with a market cap of $7.1 billion. Although the company has products for sale, they generated just $46.3 million in top-line revenue during the first nine months of the year. Research-and-development expenses alone reached $290 million during the same period.

Thanks to Bristol, Nektar finished the year with $1.92 billion in cash and investments, but a slew of big, expensive, registrational trials with Opdivo and NKTR-214 slated to begin this year will begin chewing through that cash cushion with gusto.

In May, the FDA's expected to make an approval decision regarding Nektar's opioid candidate, NKTR-181, as a pain reliever for chronic low back pain. The first-in-class opioid offers pain relief without causing the euphoric feelings that make most opioids so addictive.

There are a lot of people with chronic back pain who could use an effective pain reliever but don't want to become saddled with an opioid addiction. A successful launch is far from certain, but there's a chance NKTR-181 could add $1 billion annually to Nektar's top line in a few years.