Nektar Therapeutics (NKTR 1.05%) is a small-cap biotech that has garnered plenty of attention this year. The company's shares have soared, increasing by 285% since January. Yet, some analysts continue to think the stock is undervalued. The company boasts a significant upside of about 53% from its current levels, going by its average price target of $104.50, according to Yahoo! Finance.
This could be an excellent opportunity for investors, provided the stock does rise that much in the next year. Is it worth it to invest in Nektar Therapeutics?
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Nektar could disrupt a crowded market
Nektar Therapeutics, a clinical-stage biotech company, has seen its stock price skyrocket this year because of clinical progress with its leading pipeline candidate, rezpegaldesleukin. This investigational medicine with an impossible-to-pronounce name could make waves in a large and highly competitive therapeutic area: immunology, and more specifically, the market for eczema treatments.
Some of the largest drugmakers have therapies that treat this autoimmune disorder, including Sanofi and Regeneron with Dupixent -- perhaps the current leader -- AbbVie's Rinvoq, and Eli Lilly's recently approved Ebglyss.
However, rezpegaldesleukin could still make a dent in the field. It boasts a novel mechanism of action that could set it apart from competitors. The U.S. Food and Drug Administration (FDA) has awarded the Fast Track Designation to rezpegaldesleukin for the treatment of eczema. This grants Nektar several advantages that could help expedite the approval of the medicine.
Importantly, the FDA only gives this designation to medicines that treat diseases with few therapy options -- or when the drug in question could confer a significant clinical benefit over existing options. That's important for a clinical-stage biotech.
Nektar has released interim data for an ongoing phase 2b study of rezpegaldesleukin in eczema, showing statistically significant improvements in the Eczema Area and Severity Index, a measure of the disease's severity. The biotech plans to release complete data from this 52-week clinical trial early next year and will likely launch late-stage clinical trials within the next 12 months.
The biotech is also developing rezpegaldesleukin as a potential treatment for type 1 diabetes and alopecia areata, with upcoming mid-stage data readouts due for alopecia areata by year-end. Lastly, the company's NKTR-255 is a potential cancer medicine in development.
What's your risk tolerance?
On the one hand, Nektar Therapeutics looks incredibly promising. It's not every day that we encounter a biotech with a market cap of just $1.1 billion that could launch a product challenging two of the world's best-selling medicines -- Rinvoq and Dupixent -- in an important therapeutic area. If rezpegaldesleukin gets that far, the stock should skyrocket from its current levels and reward those investors who initiate positions today.
Even in the coming months, there could be important catalysts for the company. The upcoming mid-stage results in alopecia areata and the 52-week data readout for rezpegaldesleukin in eczema could be catalysts, and investors will be waiting for Nektar Therapeutics to move on to the next steps. These developments could lead to even more substantial gains than Wall Street predicts over the next year -- such is the exciting, volatile biotech industry.
Nektar ended the second quarter with $175.9 million in cash and subsequently raised $107.5 million in a secondary offering. The biotech thinks that will be enough to keep the lights on until the first quarter of 2027. While that's not very long, clinical progress with its leading candidate should provide the company with plenty of opportunities to raise additional funds. So, provided all goes well with rezpegaldesleukin, funding shouldn't be an issue.
However, Nektar Therapeutics carries considerable risk. Even with strong mid-stage results, there is still the very real possibility that rezpegaldesleukin will fail in late-stage studies. Biotech investors were reminded of how significant this risk can be with aTyr Pharma. The company produced excellent phase 2 results for its leading candidate, but it recently flopped in late-stage studies, causing aTyr Pharma to lose most of its market value overnight.
That may or may not happen to Nektar Therapeutics, but the risk involved seems too high for many investors. Even if Nektar's shares can match Wall Street's estimates in the next 12 months, it's probably best to watch things unfold from the sidelines for now.
