What happened

Shares of Nektar Therapeutics (NKTR 5.70%) fell over 11% today after the company was downgraded by a major investment bank. Goldman Sachs analyst Paul Choi played the role of heartbreaker by downgrading multiple pharmaceutical stocks, including Puma Biotechnology and Nektar Therapeutics. 

Choi cut his price target for Nektar Therapeutics from $54 to just $16 per share after bluntly stating that recent manufacturing discrepancies for bempegaldesleukin (bempeg) have overshadowed mostly positive clinical results released since the beginning of the year. Considering shares have plummeted 68% in the past year, investors can't really argue with that.

As of 12:36 p.m. EDT, the stock had settled to a 11.4% loss.

A finger tracing a declining stock chart on a display.

Image source: Getty Images.

So what

In August, Nektar Therapeutics disclosed that it had found manufacturing problems in two batches of bempeg that were used in early-stage clinical trials for the drug candidate. None of the manufactured product is being used in ongoing clinical trials, but the discovery of issues did delay development for a combination therapy with Opdivo from Bristol-Myers Squibb. It appears that the two batches of bempeg in question were not as potent as they should have been, although no differences in safety were observed.

Investors were originally worried that Bristol-Myers Squibb could walk away from the collaboration, but the pharma giant paid a significant sum of money to study bempeg. A decision on whether to commit to additional studies using the bempeg-Opdivo combination is expected this month.

That said, Choi's note hinged more on souring investor sentiment and updating his position from December 2018 than pessimism over pipeline programs.

Now what

Analyst upgrades and downgrades can be helpful in terms of providing individual investors with a glimpse of how Wall Street thinks about a particular company or stock, but they mean relatively little at the end of the day. 

The direction of the stock will ultimately be determined by clinical outcomes. Nektar Therapeutics exited June 2019 with $1.5 billion in cash, which means it should have adequate funding to develop its lead drug candidates. But the company also burned $134 million in cash in the first six months of the year, so the pressure is on to deliver.