AstraZeneca: Nektar Deal to Add Value

• By Zacks Equity Research
• On 1:45 pm EDT, Friday October 2, 2009

Recently, AstraZeneca (NYSE: AZN - News) entered into a licensing deal with Nektar Therapeutics (NasdaqGS: NKTR - News) for two of its pipeline candidates, NKTR-118 and NKTR-119. With the former having completed a phase II trial for the treatment of opioid-induced constipation, the latter, in early stage of development, is intended to treat pain without constipation side effects.

Nektar will receive an upfront payment of $125 million for both the candidates. In addition, for NKTR-118, Nektar has the potential to receive $235 million of milestone payments on achieving certain regulatory milestones, as well as additional tiered sales milestone payments of up to $375 million if the drug succeeds in recording strong sales.

The company will also receive double-digit royalty payments on global sales of the drug. For NKTR-119, Nektar is also supposed to receive milestone and royalty payments.

Per the deal, AstraZeneca will carry on the development of both the drugs and expects to file a New Drug Application (NDA) for NKTR-118 in 2013. It is estimated that 40-90% of patients taking opiates for pain management will develop constipation. According to IMS Health, about 230 million prescriptions were written for opioids in 2007 in the US alone, representing about 65-75% of the total global market. Both NKTR-118 and NKTR-119 can garner a significant market on approval due to the absence of any approved oral drug to treat opioid-induced constipation.

The gastrointestinal franchise of AstraZeneca accounted for 20% of its sales in 2008. The company’s highest-selling drug, Nexium, a second-generation proton pump inhibitor (PPI) for ulcers and acid-reflux disease, recorded sales of $1.2 billion in the second quarter of 2009, down 6%.

We believe sales of Nexium have now peaked and will experience an accelerated decline due to generic and OTC competition in the US from older-generation PPI drugs such as Prilosec, Wyeth’s (NYSE: WYE - News) Protonix and Abbott’s (NYSE: ABT - News) Prevacid. We believe that the recent deal with Nektar is an indication that the company intends to strengthen further this segment to reduce the effect of declining Nexium sales.

ASTRAZENECA PLC (AZN): Read the Full Research Report

ABBOTT LABS (ABT): Read the Full Research Report

WYETH (WYE): Read the Full Research Report

Zacks Investment Research

Buzz up!