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Nektar's Loss Narrows in Q2, Beats Revenues, Retains View

Zacks Equity Research

Nektar Therapeutics (NKTR) reported a loss of 26 cents per share in the second quarter of 2014, narrower than the Zacks Consensus Estimate of a loss of 38 cents and the year-ago loss of 37 cents.

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Total revenues in the reported quarter fell 15.8% year over year to $28.5 million. The decrease in quarterly revenues was primarily due to decreased manufacturing activity. However, revenues beat the Zacks Consensus Estimate of $21 million.

Quarter in Detail

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

Nektar’s net product and royalty revenues of approximately $5.9 million were down 44.8% during the reported quarter. Non-cash royalty revenues related to the sale of future royalties increased 26.3% year over year to $4.8 million in the reported quarter.

License, collaboration and other revenues decreased 8.1% year over year to $17.8 million. Nektar has a partnership with AstraZeneca (AZN) for Movantik (naloxegol), which is being developed for the treatment of opioid-induced constipation (:OIC). Movantik is under review in the U.S. A final decision from the FDA on the approval of Movantik is expected by Sep 16, 2014.

In Jun 2014, most of the members of the FDA’s Anesthetic and Analgesic Drug Products Advisory Committee (:AADPAC) recommended that no cardiovascular outcomes study is required for the peripherally-acting mu-opioid receptor antagonist (:PAMORA) class of drugs, which includes Movantik. We note that although the FDA is not bound to follow the advisory committee’s opinion, it generally does so. Movantik is also under review in the EU and Canada for the same indication.

Research and development (R&D) expenses were down 29.7% year over year to $36.7 million in the second quarter of 2014. R&D expenses during the quarter decreased primarily due to lower clinical expenses as the phase III study on pipeline candidate etirinotecan pegol (breast cancer) completed enrollment in the third quarter of last year. Nektar’s general and administrative (G&A) expenses increased 4.2% year over year to $9.6 million during the quarter.

2014 Guidance Reiterated

Nektar reaffirmed its 2014 revenue guidance in the range of $190–$195 million. The Zacks Consensus Estimate of $199 million is ahead of the company’s guidance range.

The company’s revenue guidance includes the recognition of $35 million of milestone payments from AstraZeneca related to Movantik in the third quarter of 2014. Nektar also expects to recognize $70 million of additional milestones from its other collaborations. The guidance also includes $20 million of non-cash royalty revenues in relation to Cimzia and Mircera.

Nektar expects 2014 R&D expenses between $165–$175 million and G&A expenses within $40–$42 million.

AstraZeneca expects a potential EU approval as well for Movantik before 2014 end. It intends to launch Movantik in the U.S. and the EU in the first quarter of 2015/early second quarter of 2015 and second quarter of 2015 respectively. The launch will trigger another $100 million and $40 million respectively.

Pipeline Update

Nektar has progressed well with its pipeline in the last few quarters and is awaiting several pipeline related events in the coming quarters. Nektar expects to report phase III data on etirinotecan pegol in the first quarter of 2015. The company is in discussion with the FDA regarding the design of a phase III study on NKTR-181 in chronic pain patients.

Our Take

The company’s second-quarter results did not surprise us. Nektar’s 2014 guidance looks good. Its lead pipeline candidate, Movantik, holds immense potential. In addition, the company has a series of pipeline related events in the coming quarters and we expect investor focus to remain on Nektar’s pipeline.

Nektar currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Salix Pharmaceuticals (SLXP) and Allergan (AGN). look well placed in the healthcare sector. Both carry a Zacks Rank #1 (Strong Buy).

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