Brean Likes Nektar Therapeutics' Upcoming Launches; Assumes Coverage At Buy

Brean Capital assumes coverage of Nektar Therapeutics (NASDAQ: NKTR) with Buy rating and $23 price target on strong growth in royalties from recent and future new launches.

"In our view, Nektar's products from recent/future launches that are likely to generate the most upside are: Movantik, Adynovate and Amikacin Inhale product," analyst Difei Yang wrote in a note.

Upside Possibilities And Catalysts

"If the upside materializes in these mentioned products, we see growth in sales of an estimated $163.4 million in 2016 to an estimated $403.5 million in 2020. We like the strong sales growth prospect and the possibility of turning cash flow positive," Yang continued.

Nektar granted AstraZeneca plc (ADR) (NYSE: AZN) worldwide rights for Movantik (Moventig in the the EU), which is indicated for opioid induced constipation (OIC) in adults with chronic, non-cancer related pain.

Pursuant to the agreement, Nektar is entitled to 20 percent royalty payments for sales in the United States, and roughly 10 percent for sales in the EU.

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Despite competition from Relistor in oral form, Yang sees the price difference between the two products swing the tide in favor of Movantik.

The company has signed a partnership deal with Shire PLC (ADR) (NASDAQ: SHPG) for Adynovate, indicated for use in patients aged 12 and up who have hemophilia A. Under the deal, Nektar will receive up to an additional $55 million in sales milestones as well as mid- to high-single-digit royalties on Adynovate sales.

Meanwhile, Yang noted that "Amikacin Inhale carries highest royalty rate in product suite."

Indicated for gram-negative pneumonia, Amikacin is an inhale drug-device combination co-developed with Bayer Healthcare. Nektar may receive up to an additional $50 million of development milestones, a 30 percent flat royalty rate on US sales, and about 22 percent royalty rate on ex-U.S. sales.

Further Justification

Despite not included in target price calculation, Yang also noted potential upside from pipeline developments such as the Onzeald partnership with Daiichi Sankyo. Indicated for metastatic breast cancer with brain metastases, Onzeald is a topoisomerase-I inhibitor.

Nektar also has a deal with Bristol-Myers Squibb Co (NYSE: BMY) for evaluating the combination of Opdivo and NKTR-214 as a potential treatment in five tumor types and across up to seven indications.

Shares of Nektar closed Thursday's trading at $16.95, while the $23 price target represents a potential upside of 35.7 percent.

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