This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Nektar Therapeutics Is a Short

NEW YORK ( TheStreet) -- My goal in this article is to persuade you to short Nektar Therapeutics (NKTR - Get Report). I'm short the stock and expect my bet will pay off with an excellent return. Nektar is a $1 billion specialty pharmaceutical company whose main asset is NKTR-118, an experimental drug being developed for opioid-induced constipation (OIC.) I believe NKTR-118 has a marginal risk/benefit profile and addresses a small commercial market. I'm shorting Nektar because the stock is worth $3 per share in my model versus its current value of $8.26.

Nektar licensed NKTR-118 commercial rights to AstraZeneca (AZN - Get Report), for which Nektar was paid $125 million in 2009. Nektar will also receive a "significant double-digit" royalty on NKTR-118 sales, if the drug is approved, according to the company. My guess is that this royalty starts at 15% and moves to 20% as sales grow.

Let's calculate a value for NKTR-118. Peak sales of $300 million in 2019 renders the royalty worth $274 million at a 10% discount rate. Likewise, peak sales of $600 million makes the royalty worth $474 million; peak sales of $1 billion equals $845 million in net present value. The key question: What is the upper bound and lower bound of future NKTR-118 revenue?

Nektar-118 will not sell well

Zelnorm, the best-selling constipation drug of all-time, generated revenue of $561 million in 2006. Zelnorm was still growing quite rapidly when it was removed from the market for safety reasons. It probably would have peaked out at $800 million in sales, but no one knows for sure. Zelnorm was approved in irritable bowel syndrome (IBS), a very different and much larger commercial market than opioid-induced constipation (OIC). Nevertheless, Nektar bulls like to claim NKTR-118 will meet or beat Zelnorm in sales, which is hard to believe because the mechanism of action of Zelnorm and NKTR-118 are completely different. Nektar doesn't even seem to have plans to study NKTR-118 in IBS, so Zelnorm isn't a valid comparison.

Let's try predicting NKTR-118 sales by looking at drugs currently approved for OIC. Entereg generated $31 million in trailing 12-month sales before being acquired by Cubist Pharmaceuticals (CBST). Relistor, marketed by Salix Pharmaceuticals (SLXP - Get Report) and Progenics (PGNX - Get Report), had sales of $42 million in the past 12 months. Granted, both drugs have limitations and issues that have probably hurt sales, but Salix and Progenics are developing an oral Relistor that will be filed for regulatory approval shortly. Nektar and AstraZeneca won't report results from phase III studies of NKTR-118 until later this year.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
CBST $101.94 0.14%
AZN $70.07 0.00%
NKTR $11.09 0.00%
PGNX $5.79 0.00%
SLXP $172.60 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs