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Nektar (NKTR) Down 17.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Aaron's (AAN) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

A month has gone by since the last earnings report for Nektar Therapeutics (NKTR). Shares have lost about 17.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nektar due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Nektar Q4 Earnings and Revenues Beat Estimates

Nektar Therapeutics incurred a loss of 57 cents per share for the fourth quarter of 2018, narrower than the Zacks Consensus Estimate of a loss of 70 cents. The company had recorded a loss of 21 cents per share in the year-ago period.

Quarterly revenues were $39.8 million compared with the year-ago figure of $95.5 million. The significant decrease in revenues was attributable to $60.0 million of non-recurring revenues recorded in the fourth quarter of 2017 related to a new sublicense agreement, a contract settlement agreement and the recognition of deferred revenues. The top line, however, beat the Zacks Consensus Estimate of $25.97 million.

Quarter in Detail

Nektar’s top line comprises product sales, royalty revenues, non-cash royalty revenues besides license, collaboration and other revenues.

In the fourth quarter, product sales declined 44% to $4.4 million from the year-ago period.  Non-cash royalty revenues also decreased 2.1% to $9 million.

Nektar reported royalty revenues of $12.1 million in the quarter, registering an improvement of 26.2% from $9.2 million a year ago.

License, collaboration and other revenues came in at $14.4 million compared with $68.9 million in the prior year.

Research and development (R&D) expenses escalated 33.8% to $108.9 million, primarily due to investments in pipeline. It also included costs related to filing of a new drug application (“NDA”) for NKTR-181 and pre-commercial manufacturing.

The company announced on its earnings call that the FDA has extended the review period for NKTR-181 by three months. A decision is now expected by Aug 29, 2019. The FDA extended the review period due to submission of additional preclinical abuse liability data, which it had requested earlier.

General and administrative (G&A) expenses were up 93.5% to $23.8 million in the reported quarter primarily due to higher stock-based compensation expenses.

Full-Year Results

Nektar reported total revenues of $1.2 billion in 2018 compared with $307.8 million in the year-ago period. The significant increase was due to an upfront payment from Bristol-Myers related to a collaboration agreement. The company reported earnings of $3.78 per share in 2018 against a loss of 62 cents in 2017.

2019 Guidance

Nektar provided revenue and operating expenses guidance for 2019. The company expects full-year revenues to be $100-$110 million, which will include $40-$45 million from royalties related to Takeda’s Adynovate and AstraZeneca’s Movantik and $32 million in non-cash royalty revenues related to UCB’s Cimzia and Roche’s Mircera.

Although the company shares research and marketing costs for its pipeline candidates with its partners, operating expenses are expected to surge in 2019 due several ongoing clinical studies, especially for NKTR-214, and commercial initiatives for NKTR-181. Research and development costs are expected to be between $500 million and $525 million while G&A costs are expected to be in the range of $110-$120 million.

The company expects to end 2019 with $1.5 billion in cash and investments, which include reimbursement of development cost from Bristol-Myers. The significant cash amount boosts the prospect of Nektar as it will be able to continue developing its pipeline candidates for several years.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -15.3% due to these changes.

VGM Scores

Currently, Nektar has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Nektar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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