Nektar Therapeutics Is a Short

If we assume there are six million people in the U.S. using opioids to treat chronic pain, and we further assume 20% of them have constipation so bad that they'll need an additional prescription instead of taking an over-the-counter laxative or other anti-constipation product, that means 1.2 million people might be potential users of NKTR-118.

OIC patients are notoriously non-compliant, leaving prescriptions unfilled or untaken. Let's assume these patients only take six months of drug, or seven million prescriptions, per year. Furthermore, I'll be generous and give NKTR-118 half this market. At $200 a prescription, NKTR-118 is a $700 million product, at best. My gut tells me the drug won't generate a fraction of that revenue.

Phase III trials for NKTR-118 are at high risk of failure

All of my analysis so far has assumed that NKTR-118 will meet its primary endpoint in the two, ongoing Phase III trials. In fact, success in these studies is far from certain. I believe there's a very high chance one of the two NKTR-118 trials fails, or at a minimum, "positive" results are not clinically meaningful. A setback like this would effectively terminate the NKTR-118 development program.

The NKTR-118 phase III trials carry a high failure risk because we know from phase II trials that the treatment effect of OIC drugs declines over time while placebo response improves over time. This narrowing of clinical benefit, measured by the number of "spontaneous bowel movements" over time, was evident in studies conducted by Theravance (YHRX) with its experimental OIC drug TD-1211. Alkermes' (ALKS) ALKS 37 worked just fine when patients were treated for 1-2 weeks, but the treatment effect disappeared over longer periods of time, forcing Alkermes to abandon the OIC drug's development.

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.

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