Why Shares of Nektar Therapeutics Are Buzzing Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Nektar Therapeutics (NKTR -2.82%) have leapt more than 13% higher today after the biotech company reported a surprise quarterly profit following Thursday's closing bell.

So what: Nektar's first-quarter revenue  came in at $108.8 million, which produced earnings of $0.25 per share. Wall Street had expected  only $20.2 million in revenue and a loss of $0.41 per share, but Nektar's licensing agreement with AstraZeneca (AZN 0.49%) paid off when the pharmaceutical giant launched Movantik, a treatment for opioid-induced constipation, in the United States on the very last day of the first quarter. AstraZeneca thus paid out $100 million in milestone payments to Nektar, of which $90 million was recognized as first-quarter revenue.

Now what: Today's pop doesn't quite erase the loss Nektar shares have suffered over the past year, nor does it imply that the company will produce similar results over the remainder of 2015. Its agreement  with AstraZeneca also promises a $40 million milestone payment for European commercialization and up to $375 million in royalty payments, but the royalty payments are likely to arrive over a multi-year  period. Even if Nektar's total Movantik-related earnings double for the 2015 fiscal year, it would probably generate perhaps $60 million in Movantik-related revenue during any other quarter this year, and that would be due in large part to the $40 million European milestone payment.

Nonetheless, cash position is very important for a development-stage biotech, and Nektar's Movantik-related revenues will give it a significant tailwind as it seeks to commercialize other treatments. Movantik alone won't justify Nektar's billion-dollar market cap, but savvy biotech investors should take this opportunity to examine Nektar's other drugs in development to determine whether they offer enough upside to merit buying in.