No point in hoping that Nektar Therapeutics (NKTR) will match this year’s gain of 364% as of the close on December 18. But I think the stock could easily climb another 30% or more in 2018 as the company de-risks its very promising drug candidates in the opioid and oncology sectors. (And while biotech stocks are risky and therefore volatile, they aren’t linked to growth in the economy as a whole.)
What’s de-risking? It’s the process where a potentially valuable drug adds goes from “maybe” to “certainly.” With every clinical trial, with every research presentation, with every partnership payment, and then finally with approval by the U.S. Food & Drug administration (and other national drug regulators) the uncertainties about a drug’s actual value decline. And at the end of the process we know, with a fair degree of certainty, whether we’re looking at a bust, a modest success, or a blockbuster.
For de-risking to add big value to a drug stock, and especially for a bio tech stock, you have to start with a drug with a high potential value.
Nektar has several candidates that fill that bill–from its new opioid pain killer (as effective in trials so far as existing opioids but, unlike existing opioids, not significantly addictive) to immuno-oncology drugs. All are moving down the track toward likely FDA approval with the company likely to submit its opioid to the FDA in the first quarter of 2018. At that point, investors have the potential for significant de-risking news on whether the FDA decides to fat-track the drug for approval.
But in the second half of 2017 and into 2018, the big de-risking news from Nektar has been in its oncology pipeline. In trials reported in November 2017 two of Nektar’s cancer drugs went from promising to potential blockbuster status. And it’s that news that has driven the last stage of the explosion in Nektar’s stock.
Let me explain what’s been happening with one of Nektar’s cancer drugs.
In November Nektar presented the first data for its drug candidate NKTR-214 in combination with OPDIVO, a big, proven, already brought to market by Bristol-Myers Squibb (BMY) cancer drug. OPDIVO is itself one of the new generation of cancer drugs that uses newly discovered knowledge to reverse a cancer’s ability to turn off the body’s own defenses against the disease. OPDIVO is one of a class of drugs that targets a genetic marker PD-L1 to increase the production of the body’s own cancer fighting cells. OPDIVO has shown good results in attacking cancers such as melanoma, non-small cell lung cancers and renal cell carcinoma in patients with the PD-L1 genetic market. But only about 30% of cancer patients are PD-L1 positive, which means that the goal is to find other drugs to add to a combination treatment with OPDIVO that will fight cancer in the other 70% of patients without this genetic marker. It’s success in combination with OPDIVO that Nectar reported in November. The data indicates that NKTR-214 revs up the entire immune system, thus increasing the effectiveness in treatment for cancer patients with and without the PD-L1 marker.
Those results were a major step forward for Nektar (and its partnership with OPDIVO maker Bristol-Myers) because they indicate that NKTR-214 works in combination with OPDIVO well enough to become a major drug. In some cancers, advanced melanoma, for example, the control rate from using the drug combination was better than 90%. Also the trials did not show any significant adverse effects from NKTR-214. Flu-like systems seemed to disappear as patients became accustomed to the drug. (It doesn’t hurt the stock’s performance that NKTR-214 is still wholly owned by Nektar.) On the news Bioinvest’s Medical Technology Stock Letter, a newsletter that I follow to help figure out the biotech sector, raised its target price for Nektar to $60 from $45.
I would also point out that NKTR has a second very promising cancer drug candidate, NKTR-181, in trials. (And that NKTR-181 is also 100% owned by Nektar.)
All this, plus the strong possibility of approval for Nektar’s opioid makes this stock one of my 12 Days of Christmas picks for 2018.
Nektar Therapeutics stock is a member of my Jubak Picks Portfolio. The options are a member of my Volatility Portfolio.
Full disclosure: I own Nektar shares and options in my personal portfolios.
My first 12 days of Christmas Pick for 2018 was Amazon (AMZN). (And just for the record the actual 12 days of Christmas start on Christmas day.)