After topping the $110 level in March 2018, shares of Nektar Therapeutics (NASDAQ:NKTR) are in a downtrend. Whether the underperformance is due to investors locking in profits or a lack of any news, the low trading volume suggests the stock could go anywhere from here.
2018 will have many milestone achievements, with the submission of an NDA for NKTR-181 this month as the most recent one. The package has safety and efficacy data of over 2,100 patients. With governments and health care practitioners shunning opioid prescriptions, NKTR-181 has the potential to fill the void in treating patients suffering from chronic pain.
It is worth noting that even though Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Endo International PLC (NASDAQ:ENDP) are starting to attract investors, NKTR stock is more attractive because of the drug’s inherent properties.
If approved, the company could have a blockbuster drug that is not going to stem the addiction of opioids, but it will also offer a treatment without risks of addiction.
Nektar collaborated with Bristol-Myers Squibb Company (NYSE:BMY) to develop NKTR-214 in clinical trials. Used in conjunction with Opdivo, the drugs are a treatment for first-line melanoma and first-line renal cell carcinoma. Lung cancer is still a disease that claims many lives, so the over 20 registered trials should bear fruit for the two companies.
In the last quarter, the company started a clinical collaboration with Takeda Pharmaceutical Co Ltd (ADR) (OTCMKTS:TKPYY) to study NKTR-214 and Takeda’s TAK-659 for treating tumors. A Phase 1 study for the combo in treating non-Hodgkin’s lymphoma starts in the second half of this year.
Nektar has plenty of cash on hand, which implies the company will not issue shares or sell debt in the near term. It ended the first quarter with $333.8 million in cash. For the quarter, the company lost $0.60 a share on revenue of $38 million.
On a more positive note, the company received $1.85 billion from BMY and an $850-million equity investment in connection with the collaboration. Thanks to this payment, the company now forecasts revenue of $1.1 billion for the year. R&D spending will top $400 million to $425 million, a level that is expected for a firm in the developmental stages of drug discovery.
Wall Street has an average price target of $100 on the stock, which implies a 25% return based on a recent price of $80. There are no existing finbox.io fair value models on NKTR stock at this time.
To arrive at a fair value that’s even close to that of the market’s expectations, investors need to make two key assumptions. First, revenue must grow between 10-45% in the next 10 years. Revenue growth of 10% or lower in FY2018 is a reasonable target, but steady expansion after that is far from certain.
The second assumption is that the stock should have a discount rate of at least 12-13%. Given the company does not yet have a product, the uncertainties of future profits are high. If the company continues to report positive results from clinical studies and the filings to the FDA are not delayed, then the stock will trade in the $100+ level.
Bottom Line on NKTR Stock
Value investors missed the easy money in NKTR stock after it blasted from $20 in Nov. 2017 to $111 just months ago. The share price will move on positive results from clinical studies. But the risk is very high. Any setback would send the stock lower, perhaps creating an entry point for those who missed the first rally.
Disclosure: Author owns no shares in any of the companies mentioned.