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Narrower-than-Expected Q3 Loss at Nektar

Zacks Equity Research

Nektar Therapeutics (NKTR) reported a loss of 14 cents per share in the third quarter of 2013, narrower than the year-ago loss of 38 cents and the Zacks Consensus Estimate of a loss of 19 cents. The narrower loss during the quarter was primarily due to higher revenues.

Total revenues in the reported quarter jumped 230.8% to $60.9 million, well above the Zacks Consensus Estimate of $48 million. The huge increase in quarterly revenues was primarily due to a $25.0 million milestone payment received from AstraZeneca (AZN) relating to naloxegol. Third quarter revenues also benefited from higher product sales.

Quarter in Details

Total revenues comprised net product revenues, royalty revenues, non-cash royalty revenues, license and collaboration revenues and others.

License, collaboration and other revenues increased to $41.4 million from the year-ago figure of $6.1 million primarily due to the milestone received from AstraZeneca. Nektar has a partnership with AstraZeneca for naloxegol, which is being developed for the treatment of opioid-induced constipation (OIC). The $25 million milestone payment during the quarter was related to the acceptance of the marketing authorization application for the candidate in the EU.

We remind investors that naloxegol is also filed in the U.S. The acceptance of the New Drug Application in the U.S. will further trigger a $70 million milestone payment from AstraZeneca. Nektar is eligible to receive another $175 million for naloxegol, related to the U.S. and EU launch of the drug and achievement of other milestones.

Nektar’s net product revenues of approximately $14.7 million were up 75.6% during the reported quarter.

Nektar’s royalty revenues decreased 28.9% to $0.4 million during the quarter. Non-cash royalty revenues related to the sale of future royalties increased 32% to $4.5 million in the reported quarter.

Research and development (R&D) expenses were up 29.1% to $43.9 million in the third quarter of 2013. R&D expenses during the quarter increased primarily due to higher clinical expenses related to its pipeline.

Nektar’s general and administrative (G&A) expenses increased 5.7% to $10.6 million during the quarter.

2013 Outlook Updated

Nektar cut its revenue guidance for 2013 to $135 million – $140 million (previous: $200 million – $210 million). The company pared its revenue guidance as the $70 million milestone payment from AstraZeneca that was expected in Nov 2013 is now scheduled for 2014.

Revenue guidance includes $17 million of non-cash royalty revenues in relation to Cimzia and Mircera.

Nektar also reduced its R&D expense guidance for 2013 to $175 million - $180 million from $200 million - $220 million. The reduced R&D guidance is primarily due to the postponement of a phase III study initiation of NKTR-181. Nektar’s G&A expenses for 2013 are however maintained in the range of $42–$44 million.

Pipeline Update

In Jul 2013, Nektar completed the enrolment process for the phase III BEACON study on its metastatic breast cancer candidate NKTR-102. Nektar plans to conduct an interim futility analysis on the phase III study in early 2014. The company expects top-line survival data from the BEACON study by the end of 2014 or early 2015.

Nektar is currently designing a phase III study on NKTR-181 in chronic pain patients after missing the primary endpoint in the phase II efficacy study earlier this year. The company expects to initiate the study in the middle of next year. We expect investor focus to remain on Nektar’s pipeline.

Nektar currently carries a Zacks Rank #3 (Hold). However stocks like Actelion Ltd. (ALIOF) and AMAG Pharmaceuticals, Inc. (AMAG) currently look better positioned with a Zacks Rank #1 (Strong Buy).

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