Updating Nektar Ahead Of A Dangerous Earnings Season–And Looking To Add To Positions On Any Plunge

On April 4 I made Nektar Therapeutics (NKTR) #8 in my list of the 10 most dangerous stocks for earnings season and #4 on my list of 5 stock to buy on any plunge in my Special Report on my JubakAm.com subscription site. Here’s what I wrote in that Special Rerport.

“Nektar Therapeutics (NKTR) won’t miss Wall Street earnings projections when it reports its first quarter financial results on May 9–because the company won’t report any earnings. The consensus projection now has the company reporting a loss of 76 cents a share on revenue of $26.2 million.

But that doesn’t mean biotech Nektar isn’t in danger of a big earnings season plunge. That $26.2 million in projected revenue for the first quarter would be a big drop from the $39.83 million in revenue reported for the fourth quarter. Which was itself a year over year drop in revenue of 58.3%. In the quarter before that, the third quarter of 2018, the company reported revenue of $27.8 million (so the first quarter 2019 revenue will be below the third quarter revenue for 2018), which was itself a year over year drop of 81.8%.

I think the first quarter revenue number of $26.2 million will be enough to spook some investors and traders. If you don’t know much about the company, Nektar sure looks like it’s nearing death.

And if you know just a little about the company, you see that the U.S. Food & Drug Administration approval for its first drug candidate, a new non-addictive opioid, has been postponed from May to August 29. That kind of regulatory delay is often the result of problems with a drug candidate.

But I’d argue that appearances are deceptive in this case. Nektar is a development stage biotech company that has yet to take a drug candidate to market. All that revenue comes from milestone payments from partners, and a $1.85 billion investment by Bristol Myers Squib (BMY) back in April 2018. Rather than being in any danger of running out of cash before it gets drugs to market, Nektar was sitting on total cash of $1.34 billion as of the end of 2018.

And the postponement on NKTR-181, Nektar’s candidate for chronic pain, seems to be the result of a combination of delays at the FDA caused by the government shutdown and the resignation of the agency’s head, and as request from the FDA for additional preclinical data to support the abuse liability package in the filing. You might guess that the FDA, in the midst of an epidemic of opioid addiction, is being very careful to evaluate claims that NKTR-282 isn’t addictive. Which despite the frustrations from the delay is, as far as I’m concerned, a good thing since the agency’s ruling on the drug’s addiction profile will be a key factor in its success. The clearer the FDA label is on NKTR’s non-addictive nature, the more marketshare the drug will be able to garner.

In addition Nektar has other drugs in its pipeline. Nektar recently reported results from an ongoing Phase 1/2 trial of NKTR-214 in urothelial cancer. The drug promises to benefit PD-L1 negative cancer patients, who currently therefore don’t get much if any benefit from drugs such as Keytruda and Opdivo that target positive PD-L1 patients, when used in combination with such PD-L1 positive therapies. Nektar-214 could be a big deal since 70% of urothelial cancer patients are PD-L1 negative. (The recently published research indicates that NKTR-214 converted 7 of 10 metastatic urothelial cancers from PD-L1 negative to PD-L1 positive.) Nektar is also engaged in Phase III trials for NKTR-214 in muscle-invasive bladder cancer.On March 1, Nektar hosted a conference call discussion of data from a Phase 1/II trial on a combination of NKTR-262 and NKTR-214 in patients with locally advance or metastatic solid tumors. According to the Medical Technology Stock Letter, “NKTR-262 is a toll-like receptor (TLR) agonist and NKTR-214 (bempegaldesleukin) is a CD122-preferential interleukin-2 (IL-2) agonist. The former stimulates the innate immune system to fight cancer. The latter selectively grows cancer-fighting immune cells (CD8+ T cells and NK cells) aimed at making cancer immunotherapies more effective.”

Here’s my suggested strategy. If you own a position in Nektar shares, as I do in my Jubak Picks Portfolio, I would probably hold onto it here because timing a plunge is difficult in the midst of biotech conference news that can pop the stock overnight. Nektar recently rallied better than 4% in a day on such news. I’d look to add to positions after any plunge. One leveraged way to do that would be to pick up longer-dated call options with a strike price north of the current $35.16 price. I will be looking to do that in my Volatility Portfolio. In my personal portfolio I currently own October 18, 2019 call options with a strike price of $45. I will be looking to add to that position on any Nektar earnings report plunge.”