Nektar Therapeutics Stock Likely To See Higher Levels

[Updated 2/26/2021] NKTR Update

Last month we talked about how Nektar Therapeutics stock (NASDAQ: NKTR) seems to be a good buying opportunity, and now there have been more positive developments for the company. Last week, Nektar announced that it has entered into a clinical trial collaboration and supply agreement with pharmaceutical giant Merck for a Phase 2/3 study of Bempeg, an experimental drug designed to grow specific cancer-killing T cells and natural killer (NK) cell populations in the body, in combination with Merck’s blockbuster drug – Keytruda. The trial is intended for first-line treatment of patients with a type of head and neck cancer. This development led to a 13% surge in NKTR stock on the day of the announcement, though the stock corrected 10% since then, ahead of its Q4 results that were announced yesterday.

Nektar’s Q4 loss of $0.65 per share was better than street estimates, though revenue of $23.5 million was short of consensus estimates of around $30 million. While the global markets saw a sell-off in yesterday’s session with the S&P 500 down 2.5% after U.S. air strikes in Syria and with interest rates in the U.S. inching higher, NKTR stock outperformed with only a 1.5% drop. Now, NKTR stock has already moved from levels of $18 in early Jan to $23 currently. However, we continue to believe that it can see higher levels going forward, primarily on the back of developments around Bempeg. Curious about the possibility of rising over the next quarter? Check out the NKTR Stock AI Dashboard: Chances Of Rise And Fall for a variety of scenarios on how NKTR stock could move.

[Updated 1/5/2021] 35% Upside For NKTR Stock

We believe that Nektar Therapeutics stock (NASDAQ: NKTR), a biopharmaceutical company focused on discovering and developing medicines in areas that include cancer, autoimmune disease, and chronic pain, is a good buying opportunity at the present time. NKTR stock trades near $18 currently and it is, in fact, down 23% from its pre-Covid high of around $23 in February 2020 – just before the coronavirus pandemic hit the world. NKTR stock has had a volatile ride the past few months. It rallied from levels of under $14 in March 2020, when broader markets made the bottom, to levels north of $24 in early July. Since then the stock has trended downward to levels of $18 currently. The decline can partly be attributed to the lack of activity as the company’s major findings from its studies for the drugs in its pipeline are expected to be out only in the current year, 2021. Results from multiple studies, including Bempeg and Opdivo combination in first-line melanoma and bladder cancer treatment are expected to also be out in 2021. The outcome of these studies will likely define the stock price move for NKTR stock going forward.  While NKTR stock can offer 34% upside if it recovers to pre-Covid levels, the gains will be much higher if the outcome of the clinical trials is positive. In this note we focus on a comparative analysis of Nektar Therapeutics stock performance during the current financial crisis with that during the 2008 recession in our interactive dashboard.

Timeline of 2020 Coronavirus Crisis:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• Since 3/24/2020: S&P 500 recovers 65% from the lows seen on Mar 23 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here is how NKTR stock and the broader market fared during the 2007-08 crisis

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

NKTR and S&P 500 Performance Over 2007-08 Financial Crisis

NKTR stock declined from levels of about $9 in October 2007 (pre-crisis peak) to levels of $4 in March 2009 (as the markets bottomed out), implying NKTR stock lost 50%. It staged a strong recovery post the 2008 crisis, rallying 108% to levels of $9 by January 2010. In comparison, the S&P 500 Index saw a decline of 51% from its peak in October 2007 and to its bottom in March 2009, followed by a sharp recovery of 48% by January 2010.

Not Much To Look For In Nektar’s Fundamentals Over Recent Years As Its Value Is Driven By The Pipeline

Nektar’s revenues increased from $0.2 billion in 2016 to $1.2 billion in 2018, before dropping to $0.1 billion in 2019. The surge in 2018 can be attributed to over $1 billion in revenues recognized from a strategic collaboration with Bristol-Myers Squibb. More recently, Nektar garnered $129 million in total revenue, reflecting a 60% growth y-o-y in the first 3 quarters of 2020, due to higher licensing fees, primarily from a milestone payment received from Bristol-Myers Squibb. For Nektar, the value lies in its pipeline which includes cancer treatments such as Bempeg, that can potentially generate multi-billion dollars in peak sales.

Does Nektar Have Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Nektar doesn’t have any debt currently, while its total cash increased from $0.4 billion in 2016 to around $1.0 billion currently. Nektar spent $0.2 billion in cash for its operations in the first nine months of 2020. The company has enough liquidity to weather the current crisis.

Conclusion

Phases of Covid-19 Crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• July-October 2020: After poor Q2 results, Q3 expectations were lukewarm, but continued improvement in demand, and progress with vaccine development aided stock indices growth.
• Early 2021: Multiple countries approved the vaccines for Covid-19, further buoying market sentiment.

As the global economy opens up and lockdowns are lifted in phases, consumer demand is expected to pick up. This could be reflected in the form of a pick-up in elective surgeries and total revenues in 2021, boding well for NKTR stock in the near term. While we believe that NKTR stock could rally back to its pre-Covid levels of $23, implying over 34% upside from the current levels, the gains will be much higher if there is any positive finding from the awaited clinical trials for Bempeg and Opdivo combination in first-line melanoma treatment.

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