What happened

Shares of Nektar Therapeutics (NASDAQ:NKTR) dropped 38% in August, according to data provided by S&P Global Market Intelligence, after the biotech disclosed manufacturing issues with two batches of bempegaldesleukin (bempeg), a cancer treatment that it's developing with Bristol-Myers Squibb (NYSE:BMY).

So what

While manufacturing issues are a serious problem, the disclosure could end up being a minor issue for the company:

  • The batches that had problems had lower clinical benefit; that's to be expected if they're inferior product, but it also means the actual average efficacy from the potent drug is higher than previously reported.

  • The batches with issues aren't being used in pivotal trials, the ones the Food and Drug Administration (FDA) reviews as a basis for approval.

  • Surely the FDA won't be happy about the manufacturing issues, but Nektar Therapeutics has "developed a comprehensive control strategy" to prevent manufacturing issues in the future, and it has submitted it to the agency in collaboration with Bristol-Myers Squibb.

The biggest unknown issue comes from its partnership with Bristol-Myers Squibb and whether the pharma company will commit to additional studies combining bempeg with Bristol's Opdivo, a decision that might not come until October.

Doctor talking to a patient in an exam room

Image source: Getty Images.

Now what

Given the plethora of biotech companies available to invest in, it's understandable that investors might be a little tepid about Nektar Therapeutics' missteps. But the issues don't seem to have compromised the integrity of the data to be used for approval, and the biotech appears to have a handle on the situation.

The future of the collaboration with Bristol-Myers is certainly an unknown, but Bristol-Myers paid so much for the rights to bempeg that it seems unlikely it would give them up. And even if it did, Opdivo, which targets PD-1, is in a class of drugs with plenty of competition, so Nektar could likely find another partner to team up with.

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