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Morningstar | Nektar Shares Fairly Valued as Investors Await More NKTR-214 Data in 2019

Nektar helped pioneer the use of PEGylation in drug development, primarily using the technology for half-life extension in biologics. It has since evolved into an emerging immuno-oncology biotech with several wholly owned immuno-oncology candidates in its pipeline in addition to its leading immuno-oncology candidate, NKTR-214, which is being codeveloped with Bristol-Myers Squibb. NKTR-214 exploits PEGylation technology beyond half-life extension for selective receptor binding, resulting in a unique CD122-biased agonist that strengthens the immune response against tumors and has shown promising efficacy in combination with anti-PD-1 drugs like Bristol's Opdivo, with a more attractive side effect profile than therapies like anti-PD-1 plus chemotherapy. However, Nektar's studies have been in small subsets of patients, and results from the latest readout were slightly less positive than the first data readout. Our estimated probability of approval for the entirety of Nektar's immuno-oncology opportunities is less than 20%, and any positive readouts would provide upside to our fair value estimate.Outside of NKTR-214, we see some promise in Nektar's pipeline, especially with NKTR-181, a mu-opioid receptor that relieves chronic pain with limited abuse potential, but its success will be highly dependent on the Food and Drug Administration's decision whether to grant the drug abuse-deterrent labeling. We believe Onzeald, a late-stage pipeline drug for advanced breast cancer in patients with breast metastases, is less promising given that in 2017, the European Medicines Agency adopted a negative opinion, claiming the efficacy had not been sufficiently demonstrated.We believe Nektar's shift in strategy in the past decade has strengthened its competitive position. The firm no longer solely relies on licensing its PEGylation technology; instead, the company is building out a portfolio of wholly owned molecules in high-potential indications such as immuno-oncology. While NKTR-214's approval is highly uncertain, Nektar has demonstrated the ability to creatively utilize PEGylation, and we believe the firm will continue to leverage this expertise and build out its pipeline.