If you think the stumbling start of inhaled-insulin treatment Exubera has hurt Pfizer ( PFE - Get Report), then look at what has happened to its partner, Nektar Therapeutics ( NKTR - Get Report).

Since the Food and Drug Administration approved Exubera in late-January 2006, Nektar, which developed the insulin-inhalation device and the powdered insulin used in the device, has seen its share price drop more than 40%.

But despite Exubera's terrible debut, and despite some analysts' fears of slow acceptance at least into 2008, Wall Street remains remarkably positive about Nektar. Thomson First Call counts nine buy recommendations and four neutral ratings. Most bulls have endorsed the stock for more than 12 months, and some have been cheering since 2004.

A cynic might say that if analysts liked Nektar in the low $20s, then they certainly will love it in the low teens. The stock closed Friday at $11.56.

Some endorse Nektar because they believe Exubera can't do any worse. "With Exubera expectations at a low, clinician sentiment beginning to turn and direct-to-consumer advertising ... coming in the third quarter, we believe Nektar shares can recover," says Ian Sanderson of Cowen & Co. in a May 10 analyst report. Sanderson, who has an outperform rating, doesn't own shares; his firm is a market maker.

"Nektar's top line is still driven by Exubera revenues, which make up more than half of Nektar's revenues," says Jim Reddoch, of Friedman, Billings, Ramsey, in a May 24 report. "Without Exubera, we value Nektar at around $8, as the R&D pipeline is still early," says Reddoch, who has a market perform rating. He doesn't own shares; his firm is a market maker.

More Than Exubera

Figuring out Nektar's potential can prove tricky because Exubera is only part of the story. The disconnect between Nektar's stock price and analysts' opinions has a lot to do with Nektar's technology, says Steven Brozak, of WBB Securities.

"Nektar has a fantastic pipeline," says Brozak, who doesn't cover Nektar and whose firm doesn't have any financial relationship. "Nektar is the Rolls Royce of pegylation."

Pegylation is a process that makes drugs last longer in the body. Scientists take molecules of polyethylene glycol, or PEG, and attach them to proteins. These PEG products retain the strength of the original protein, can cause fewer side effects and enable less frequent dosing.

Nektar's PEG technology is used in several drugs already on the market, and they provide royalty revenue to Nektar. These drugs include those prescribed for Hepatitis C and for reducing infection caused by cancer chemotherapy. Partners include Switzerland's Roche, Amgen ( AMGN - Get Report) and Schering-Plough

Nektar still hasn't made big money from pegylation, but it has high hopes for its own PEG products now in early clinical testing. They include a treatment for constipation in patients taking strong narcotics for pain relief and a drug for colon cancer and other solid tumors. Several partners' products, which use PEG technology, are under FDA review -- treatments for the gastrointestinal ailment Crohn's Disease and for anemia linked to chronic kidney disease.

"Nektar hasn't been able to negotiate high-royalty pegylation contracts in the past, based on the pipeline of pegylation products that licensees are working on," says Karen Andersen, of the independent financial research firm Morningstar. "The technology isn't turning obsolete. Therefore, power could be swinging into Nektar's court in future negotiations."

As analysts look at pegylation, they are attracted to "the elegance of the technology," says Brozak, of WBB Securities. "Investors say 'let's see the revenue,' but it's not there. That's why the stock has been taken out and shot."

New Structure and Style

Analysts also like Nektar for its changes in management. When Howard Robin joined in January as president and CEO, he made it clear that he would impose financial discipline.

Nektar "doesn't manage its processes and money very efficiently," Robin told analysts in a freewheeling conference call on May 9, as he bluntly talked about poor spending habits and Exubera's disappointing launch.

On May 24, he put some numbers behind his comments. Nektar said 200 people, or 25% of its employees, would be dismissed. Robin said annual expenses would be cut by $65 million, with $27 million in reductions coming this year.

Robin also is making managerial changes; Nektar will soon have a new chief financial officer. The company has hired a new senior vice president for operations as well as directors of human resources and investors relations.

"At this critical juncture, we can only applaud Nektar's new CEO for taking action in just four short months," says Andrew Forman, of WR Hambrecht, in a May 24 research note.

Forman has a buy rating. He doesn't own shares; his firm is a market maker.

"I think the new CEO has inspired a certain level of confidence that relatively near-term profitability and independence from Exubera are real possibilities," adds Morningstar's Andersen.

Robin, a 25-year drug industry veteran, doesn't hesitate to cringe at Exubera's early marketing. "It is one of the worst-performing products for a new launch that I can ever recall," he told analysts on May 9. "The product is excellent. The launch has been flawed."

Pfizer's "re-launch" this year will be better, he says. Nektar receives payments for manufacturing and for royalty-based sales. So far, there haven't been many sales. Nektar recently said 3,000 to 4,000 diabetics are using Exubera.

Robin also told analysts that "you can't judge Nektar as an Exubera company." He reminded them not only about experimental PEG products but also about clinical trials using Nektar's inhalation technology, especially for several lung diseases.

But until some of the experimental drugs reach the market, shares of Nektar will be linked to Exubera. Many analysts -- even the bulls -- have sharply reduced sales targets. Calling the Exubera launch "dismal," the independent research publication BioMedTracker recently cut its Exubera estimates in the U.S. to a peak year's revenue of $410 million vs. a former forecast of $2.5 billion.