Nektar Therapeutics Is a Short

My real concern is that Nektar and AstraZeneca have not planned for the diminishing effect of NKTR118 (and an improved placebo response) over the course of the 12-week phase III studies. It's hard to design phase III studies when you haven't done proper phase II work. Nektar and AstraZeneca have already made changes to the phase III studies mid-stream, which tells me neither company has a real handle on how patients will perform or how the prospective statistical plan will hold up. Therefore, I won't be surprised to see one or both of these NKTR-118 phase III studies fail.

NKTR-118 is an OIC drug with subpar characteristics being evaluated in uncertain clinical trials and with iffy commercial prospects. I can't see how this asset is worth a lot more than $100 million, if that. This leaves a whole lot of market cap for Nektar and its shareholders to justify.

The Rest of Nektar

Nektar's current net cash is $262 million and the company has been burning about $75 million per year. If you include the interest payments Nektar must make on its senior secured debt, another $75 million of future interest payments must be removed from calculation, leaving $187 million net cash. I value Nektar's cash at $100 million, roughly including one year of burn and waste that is endemic to the company as well as subtracting future guaranteed interest payments.

Nektar receives a royalty on Omontys, the new anemia medicine from Takeda and Affymax(AFFY) which must take market share from entrenched competitors. If Omontys can generate $200 million in sales, the royalty to Nektar is worth $50 million. However, Omontys was only just launched and seems to be on a $30 million run rate.

NKTR-061 is an inhaled antibiotic in development by Bayer. The market for inhaled antibiotics is tiny and I suspect the difficulties already seen with this program will result in its termination. I put in a generous placeholder valuation of $25 million.

NKTR-102 is a controversial cancer drug that has seen better days. Once the star in Nektar's portfolio, expectations on Wall Street have dropped for this product. NKTR-102 is a long-acting version of irinotecan, a cheap generic chemotherapy in a phase III trial for breast cancer.

I have zero expectation that NKTR-102 is any better than irinotecan. Nektar appears to agree with me because the phase III study compares NKTR-102 to physician's choice. Even if this study works, who cares? Perhaps NKTR-102 is worth $50 million (I wouldn't pay that) but someone might.