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Wider-than-Expected Q1 Loss at Nektar

Zacks Equity Research

Nektar Therapeutics (NKTR) reported a loss of 37 cents per share in the first quarter of 2014, wider than the Zacks Consensus Estimate of a loss of 35 cents. First quarter loss was, however, narrower than the year-ago loss of 48 cents. The narrower year-over-year loss was primarily due to lower expenses.

Total revenues in the reported quarter fell 14.1% to $19.8 million. The decrease in quarterly revenues was primarily due to lower product sales. Revenues were also well below the Zacks Consensus Estimate of $36 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 51.2% 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 31.4% to $5.8 million in the reported quarter.

License, collaboration and other revenues increased 27.8% to $8.1 million. Nektar has a partnership with AstraZeneca (AZN) for naloxegol, which is being developed for the treatment of opioid-induced constipation (:OIC). AstraZeneca intends to launch naloxegol in the U.S. and the EU in the first quarter of 2015, which will trigger another $100 million and $40 million respectively. Nektar will also receive another $35 million in 2014 from AstraZeneca if no significant preapproval cardio vascular safety study is required on naloxegol.

Research and development (R&D) expenses were down 16% to $38.3 million in the first quarter of 2014. R&D expenses during the quarter decreased primarily due to lower clinical expenses as the phase III study on etirinotecan pegol (breast cancer) completed in the third quarter of last year. Nektar’s general and administrative (G&A) expenses decreased 8.3% to $9.9 million during the quarter.

Maintains 2014 Guidance

Nektar reaffirmed its 2014 revenue guidance in the range of $190–$195 million. The Zacks Consensus Estimate of $186 million is below the company’s guidance range.

The company’s revenue guidance includes the recognition of $35 million of milestone payments from AstraZeneca related to naloxegol in the third quarter of 2014. Nektar also expects to recognize $12 million to $17 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.

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. The study is expected to start in the third quarter.

Our Take

The company’s first-quarter results were disappointing. However, Nektar’s 2014 guidance looks good. The company’s progress with naloxegol is also encouraging. 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 Spectrum Pharmaceuticals, Inc. (SPPI) and Ariad Pharmaceuticals Inc. (ARIA). While Spectrum Pharma carries a Zacks Rank #1 (Strong Buy), Ariad holds a Zacks Rank #2 (Buy).

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