Earlier this month, Nektar Therapeutics (NASDAQ: NKTR) told investors it was preparing for the potential launch of a nonaddictive opioid pain reliever that's currently under review. More recently, Nektar shifted gears and decided to spin off its potential new painkiller into a separate company and investors want to know why.
Is this an effort to separate research-and-development risk from new drug commercialization risk, or is it an attempt to appear more attractive to potential buyers?
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Following Ionis' playbook?
A couple of years ago, Ionis Pharmaceuticals spun off Akcea Therapeutics as a repository for unpartnered commercial-stage assets. Ionis' first drug to earn FDA approval, Kynamro, had gone nowhere several years earlier and Ionis investors were happy to reduce their exposure to more commercial failures down the line.
Nektar is no stranger to disappointing drug launches -- the company's marketed therapies struggled to produce $20.8 million in net product sales last year. Sadly, that's $3.6 million less than it cost Nektar to make the products it sold in 2018.
Nektar's experimental opioid, NKTR-181, is awaiting a decision from the FDA that, by the end of August, could make it a new, nonaddictive solution for people with chronic lower back pain. There's a chance that NKTR-181 will drive blockbuster sales, but that's a long way from guaranteed.
If NKTR-181 earns approval, a new wholly owned subsidiary called Inheris Biopharma will handle commercialization instead of Nektar. So far, Nektar hasn't mentioned a public offering or even a stock market listing for its new subsidiary. If you were hoping that Nektar was following Ionis' lead, you're probably going to be disappointed.
Why do this?
Inheris will handle the commercial launch of NKTR-181 if the FDA gives the thumbs-up. The new subsidiary will also take over the development of preclinical-stage candidates aimed at central nervous system disorders. Nektar will remain in control of its immuno-oncology and immunology pipeline, including bempegaldesleukin, formerly NKTR-214.
You may recall that Bristol-Myers Squibb (NYSE: BMY) paid an enormous sum for limited rights to the pegylated IL-2 drug in early 2018 that it soon came to regret. An early look at a small group of patients given bempegaldesleukin plus Bristol's PD-1 inhibitor Opdivo made Nektar's candidate look like it was delivering on its promise to expand Opdivo's usefulness to more patients. Unfortunately, subsequent results from the combo trial haven't been much better than you would expect from patients treated with Opdivo on its own.
Shuffling candidates that don't fit in an immunology and immuno-oncology pipeline into Inheris will give Nektar more time to focus on bempegaldesleukin and early stage candidates like NKTR-358. Eli Lilly (NYSE: LLY) gave Nektar $150 million for rights to this autoimmune disorder candidate a couple of years ago, and the big pharma will pay for most of the development expenses if an ongoing phase 1 study succeeds.
Other than spreading out risk, an attempt to become more attractive to a potential suitor is the only motive for the spinoff that makes sense. If Bristol-Myers, Eli Lilly, or another company looking to expand its cancer pipeline wants to acquire Nektar outright, they don't have to buy an opioid pain reliever that they might not be interested in. The same is also true of any drugmakers that might be interested in NKTR-181 or the central nervous system candidates Inheris intends to develop.
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Why it probably won't work
A slimmed-down Nektar probably has a better chance to draw acquisitive attention, but that doesn't mean investors should gear up for a serious buyout offer. At recent prices, Nektar's enterprise value is still a whopping $4.7 billion.
We don't know what removing NKTR-181 from the equation would do to encourage an acquisition of Nektar's remaining assets, but it probably won't help enough. Interim results from an ongoing bladder cancer study weren't bad, but they weren't good enough to generate much interest.
During the Pivot-2 study with newly diagnosed bladder cancer patients, 11 out of the first 23 evaluable patients had smaller tumors after treatment with Opdivo plus bempegaldesleukin, and four achieved complete remission.
During bladder cancer studies with another PD-1 inhibitor from Merck & Co. (NYSE: MRK), Keytruda, 47% of patients with PD-L1 positive tumors responded and 15% had a complete response. The response rate that Opdivo plus bempegaldesleukin achieved at the Pivot-2 trial's first follow-up looks a little better than Keytruda's final results, but strong response rates early on have a tendency to fade over time.
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There's a chance that treatment with bempegaldesleukin plus Opdivo works for patients with PD-L1 negative tumors, which Keytruda doesn't. That would be a big advantage to draw in the medium-sized population of first-line metastatic bladder cancer patients. During Pivot-02, 5 out of 10 patients with PD-L1 negative tumors responded, but Nektar doesn't know the PD-L1 status for 4 out of the first 23 patients.
There's a chance that bempegaldesleukin is turning unresponsive tumors into ones that Opdivo can fight. Given Nektar's history of reporting impressive response rates that fade with time, the odds of stoking buyout interest with its new streamlined oncology operations are still pretty thin.
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