10.25.07 

nktr: SEND LAWYERS, GUNS AND MONEY...
Warren Zevon is alive again and rocking in San Carlos but no FDA approved anti-emetic could keep NKTR from reaching a new low after the language in the 8K. While the sudden termination by Pfizer a week ago may have caught all of us by surprise, Nektar's carefully worded 8K response to cover their backsides should not. Let's be realistic here: the deal that rivaled the Apollo program inked January 18, 1995 can't be unraveled with Nektar getting everything back in San Carlos in a week. Termination provisions almost always have 90 days to provide a transition period for parties to transfer clinical data packages, I.P., inventory and other assets, but Pfizer could realistically expect to send its packaging plant on rails from Terre Haute to San Carlos and fed ex the keys to the Frankfurt insulin factory. So Nektar needed to tell the investors that there were costs involved and that it would likely take another partner to step up to rescue Exubera. Yes, there are financial consequences and while we may need lawyers, guns and money to get Pfizer to formally let go, this still remains the best near-term investment NKTR can make for its shareholders in our view. What has NKTR down another 10% today is the implied barriers to Nektar getting Exubera back to even have a fighting chance and all the caveats of such execution from 'identifying a partner' (gimme a break - my 11 year-old daughter Gabi said 'Dad, how 'bout JNJ, they care about diabetics') to further potential regulatory approvals which at a minimum would require a new PAI (pre-approval inspection) when a new partner stepped up to buy Pfizer's Terre Haute filling and packaging line (MUST SELL - No Reasonable Offer refused) and a state of the art insulin factory that sits adjacent to Aventis (who may have been the only winner in the Exubera story with a Monty Hall - 'I will give you $1.3B now to walk away from this potential $5B blockbuster today' - Let's Make a Deal). Think about this, Aventis could take that $1.3B, buy NKTR for 100% premium to today's price and gobble up the remaining Pfizer assets and re-launch Exubera for less than what Pfizer paid them to give up their small share which would have amounted to about 20% of profits. Aventis could cut Exubera's price by 30% to move all the inventory and get on the formularies and still make a lot of money no longer having to share with Pfizer or pay NKTR's royalty. JNJ, who trumpeted its vision on CNBC last week to be a global diabetes (200 million diabetics) healthcare company could do the same. But to get from here to there will take some time and yes, flirting, dating and perhaps a few one night stands. After a twelve-year bad marriage, it may take some time before the next sugar daddy looks attractive. So what today's 8K essentially told us is that all those Nektarines might have to live in their VW microbus and eat a lot of Rice-a-Roni, but that's how it was in the early days. But now there's FDA approval (in many countries) and NKTR has all the rights. Contact Us for Full Report - PDF

10.18.07 

nktr: EXUBERA EPITAPH? PFIZER FOLDS, BUT NKTR NOW OWNS 100% OF ASSETS; IS FDA APPROVED, FIRST-IN-CLASS, TECHNOLOGY, PATENTS, $500M INVENTORY WORTHLESS? NOT TO MNKD, JNJ...
We believe NKTR's value is worth more, not less, now that Pfizer has given up as NKTR now owns 100% of Exubera without the $2.8B costs that Pfizer just wrote off. If a warehouse of around $500M of Exubera revenue, all the manufacturing know-how and I.T. is worthless, then why is the only pure comp, MNKD valued at $750M which is still 3 years away (no insulin source, manufacturing, at least a year from NDA filing) worth 20% more than NKTR which has royalties from several approved products and another ten in clinical trials, several in late stage with expected revenue contributions in '08 and '09? This, folks, in our view, is an opportunity, particularly if the rest of the pipeline is worth $10/share implying that Exubera is worth negative $3. We believe this is a very compelling inflection point right here: NKTR owns 100% of what Pfizer concluded was a flop (which is less than $2B) vs. just 10% of whatever Pfizer may have delivered. We like Nektar's strategic position right here and suspect there are more than a few with a strategic commitment to diabetes ranging from Al Mann's deep pockets at MNKD whose strategy depends on Exubera developing the inhaled insulin market to JNJ who just announced a global commitment to diabetes. Paradoxically, given the internal turmoil within Pfizer over the past few years, this may be the best outcome for NKTR and its shareholders. At a minimum, NKTR has time to ponder its moves and while the shorts are doing their victory lap covering today, value investors who look for opportunities to buy distressed assets when the headline looks this negative may be well rewarded. Finally, after a decade where NKTR management, often frustrated, had to defer to Pfizer, today is a new day which could become an unexpected windfall. We will wait until NKTR reports before changing our model, but at this valuation with no Exubera expectations (but now all the assets) with a late stage pipeline that most have ignored, but will now need to value, this may mark the bottom, but investors will likely have time to bottom fish for the balance of 2007. Contact Us for Full Report - PDF

08.09.07 

nktr: THE TERMINATOR: BELIEVE AMGEN WILL PAY UP TO AVOID NEULASTA DISASTA; $250M IN ANNUAL PROFITS RIPE FOR THE TAKING
Now six months into the job, cost cutting initiatives underway, and a nice deal with Bayer under the belt, but with NKTR testing new lows this past week, it's time to really shake things up and as Willie Sutton answered about his profession, 'That's where the money is.' Predecessor Rob Chess would never go for this (but then given the Titanic launch of Exubera maybe by now he might), but this is right up the new street fighter from New York's alley and could quadruple NKTR stock in a year, in our view. We would prefer to take the high road, but after what NKTR shareholders have been through, it's time to take the gloves off. In short, we believe Nektar needs to terminate its supply of PEG-Neulasta immediately and simultaneously begin supplying Teva (TEVA: Buy), Barr (BRL: Buy) and anybody else who might be interested in getting a slice of the now $3B Neulasta market, in our view. Amgen has been getting a free ride for five years and now it's time to pay, in our view. Business is business and nothing less than Nektar's survival is at stake. Considering the value that Nektar has provided - Amgen has rotated its blockbuster Neupogen franchise to long-acting and clinically superior PEG-Neulasta on the world's best PEG drug delivery technology. Need a case study? Back in 1998, Enzon knew how to leverage its position with PEG-Intron A capturing a 7% royalty from Schering-Plough in what became a $2B+ product for HCV and which investors may recall resulted in a ten bagger, as ENZN stock ran from $6 to $60. Nektar should be enjoying the same royalty rate which today would equate to over $200M in royalties, or $2.00 EPS this year by our estimates. Amgen has lost a third of its value as investors likely fear decreasing EPO sales, with the recent CMS decision to decrease reimbursement and recommendations to use lower doses. In short, AMGN shareholders and management may be scared. So, what better time to politely inform Amgen that Nektar will stop supplying the magic PEG that Neulasta has provided? Just for fun, we listened to Amgen's last earnings conference Q&A which happened to include a question about partner exclusivity that may be relevant to Nektar. Amgen's response to a potential Aranesp distributor terminating its exclusivity with Amgen was that its partners should 'talk to us about it and....we will all walk out with a big smile on our face'. Our quick take? We believe Amgen is in a weak position with grave uncertainty about the Aranesp's prospects. Neulasta has emerged as Amgen's largest earnings contributor and is likely far more important to Amgen achieving financial results for this year and next than management or investors would have expected just a year ago. In short, Amgen seems highly dependent on Neulasta, which makes this precisely the ideal time for Nektar's new CEO to fly down to Thousand Oaks and inform CEO Kevin Sharer that Nektar is exiting the PEG manufacturing business and terminating the supply agreement. Of course, to the extent that Amgen agrees to amend the supply agreement to include a 'competitive' royalty rate commiserate with industry norms (take a look at Amgen's website on how it works with suppliers), then perhaps something can be worked out so 'everyone will walk out with a smile' per Amgen's partnering business philosophy. As we see it, Amgen will have the following choices: 1) risk losing a major share of Neulasta franchise via a significant supply disruption while other g-CSF competitors with biogenerics, including Teva and Barr, likely quickly grab much of the international sales; or 2) accept a slightly smaller gross margin on Neulasta in the form of a 7% royalty to Nektar that limits the material impact on Amgen's 2008 guidance, which now may be highly dependent on Neulasta should the anemia franchise become more anemic, which seems likely to us at this juncture. We might be missing some details, but this much seems certain to us at this juncture: Amgen needs Nektar far more than Nektar needs Amgen. Nektar has nothing to lose, in our view. Amgen has everything to lose, in our view. So forgive us for not forecasting the net present value of 2013 of $466M potential Nektar sales across some ten products that each require FDA approval, none before 2009 when a modest royalty on an existing $3B product that is dependent on the PEG Nektar supplies could deliver $250M in profit in 2008 by our estimates. All this could be worked out in the next few months which would make all the rest of the discussion from Exubera manufacturing to pipeline progress completely irrelevant, in our view. Contact Us for Full Report - PDF

08.06.07 

nktr: BAYER DEAL ADDS CREDIBILITY AS NON-EXUBERA COMPANY
NKTR CEO Howard Robin has doggedly tried to portray its business model as more than an Exubera company ever since coming on board several months ago with little apparent success. However, today's announcement on a partnership with Bayer Healthcare should make that assertion a bit more credible as NKTR-061 inhaled amikacin product finds a partner willing to put $50 million upfront with a maximum of $175 million milestone payment, all the while allowing NKTR to maintain co-promoting rights in the U.S. (subject to a profit sharing plan) and a tiered royalty stream for ex-U.S. markets up to 30%. Hard lessons learned from Pfizer deal, consistent with what NKTR management has outlined previously: maintain ownership and control while maximizing partnership synergy. Exubera, certainly, is what garners the current limelight for NKTR but investors should recall that NKTR is a leading PEGylation company whose technology allows a broad platform for other drugs to be reformulated and delivered for therapeutic use. As well as being a leader in dry powder inhalation technology. Currently NKTR has disclosed four pipeline products in Phase 3, four in Phase 2 (one of which is NKTR-061), five products in Phase 1, none of which has received much attention being overshadowed by Exubera. With this partnership deal which we view as lucrative for NKTR adding credibility to its technology, we suspect negative sentiment due to Exubera overhang is somewhat mitigated. Investors could be pleasantly surprised with upside coming from NKTR's 10 FDA approved or filed products which include Cimzia for Crohn's disease and Mircera, an EPO. With current price at an all time 52-week low, we see potential upside coming from its approved products or 8 products in its mid to late stage pipeline providing potential catalysts for the stock to move as clinical trials progress further. Contact Us for Full Report - PDF

05.24.07 

nktr: $65M COST CUTTING POSITIVE STEPS; DO AVANDIA & EXUBERA STORIES EXEMPLIFY OUR CULTURE? SHORT-TERM GAIN TRUMPS LONG-TERM PAIN: FLAGS OF OUR FATHERS SALUTE FALLEN NEKTARINES
New Nektar management has likely moved the right 'Nektarines' up and moved the non-essential personnel out with last night's announced $65M cost cutting initiatives that will result in close to 350 employees (full and part time) leaving the company. Even if Exubera had been a successful launch, we estimate about half these cuts were still necessary. But until Pfizer Exubera sales catch up, with manufacturing that could be at least another year (less if Pfizer marketing wakes up and starts a DTC campaign in the next few weeks to capture its share of the 1 million U.S. Avandia patients who can easily switch), the San Carlos insulin dry powder factory could sit idle (and likely go to single shift in the coming months) for some time. At this critical juncture, we can only applaud Nektar's new CEO for taking action in just four short months. New COO, Hoyung Huh, M.D., PhD., a cerebral giant who shaped Nektar's focused strategic plan from which new proprietary programs such as Pulmonary Amikacin with impressive Phase 2 results published this week, gets to run operations, while Sr. VP Chris Searcy stays on to in-license, partners or divest products and drug delivery technologies. Mike Simms, who we worked with over a decade, ago brings decades of manufacturing experience is promoted to stay the course and we presume to improve gross margins across all operations, which includes the PEG business which could use more help. CFO Lou Drapeau will retire and with the tough balance decisions made reducing the burn rate to around $40M per previous guidance, Nektar can take its time hiring a replacement, in our view. In short, these look like all the right moves to us. As this was all expected from the Q1 conference call, we aren't changing estimates at this juncture, but we would like to offer the following reflections on Exubera and Avandia whose stories may be more connected to what our culture has become, and which may explain why diabetes has become the epidemic of our time as short-term gains trump long-term sacrifice. Contact Us for Full Report - PDF

05.22.07 

nktr: CARPE DIEM! WILL AVANDIA SETBACK INSPIRE EXUBERA COMEBACK? PFIZER GETS CHANCE TO CAPTURE 2 MILLION DIABETICS UP FOR GRABS; MERCK AND AMYLIN CAN'T GET ALL OF IT
Watching this past weekend's Mets-Yankees subway series, the starting rotation of both teams featured former minor league prospects that nobody could have imagined would be pitching in primetime a few years ago, or in the Yankees' case, just a few weeks ago. But when the big name brands suddenly go down, the up-and-comers, who might not have proven they have all the stuff they need to compete, are sometimes thrust into the limelight. And in some cases, those who failed and were sent back to the minors are given a second chance. With yesterday's New England Journal of Medicine article citing 40 studies that conclude diabetics taking Avandia, the leading Type 2 drug with 2006 sales over $3B, GSK's (down 8% losing some $13B in market value) setback has created a new window for Pfizer to come back with Exubera, in our view. And we believe the timing couldn't be better. Just a month before the ADA (American Diabetes Association) meeting and Pfizer's larger, newly trained sales force and ready to unleash a DTC campaign later this summer, the missing magic that Pfizer needs to fire up its Exubera aborted launch and change the conversation has come in this most unexpected competitive gift, in our view. We can't underestimate the power of this opportunity that if Pfizer seizes the day (that's certainly a big 'if', in our view), the defensive game Pfizer's been forced to play (responding to clinically irrelevant issues of the size, route of delivery and patient learning curve) to an offensive blitz that cites the safety of insulin vs. the risks of new agents whose effectiveness on glucose control are worse than insulin, but may have the convenience of a pill. But if that convenient pill increases the risk of heart attacks by 43%, as the New England Journal of Medicine study concluded, then maybe the collective diabetic community of caregivers, payors and patients will be more open to listen to the Exubera story. While it's premature to forecast how many of the some 2 million Avandia patients ($3B at $4 per day) will move onto other therapies, Pfizer's target market - Type 2 patients who have failed oral therapy, has had Avandia since Glaxo launched 8 years ago. Sure, Merck's Januvia may capture the lion's share of this and Amylin (AMLN: Buy) is poised to pounce on this opportunity (Wall Street seemingly did already, with AMLN up 6% yesterday). But with most investors seemingly having thrown in the towel for Exubera and NKTR (still near 52-week lows), all Pfizer needs to do is capture just 1% of this 2M patient pie to quadruple is paltry 5,000 Exubera installed base, by our estimates. The context of this Avandia story should give us all pause to stop, listen, and learn. Exubera was always about making it easy and safe to give what millions of diabetics need but aren't getting with insulin. At a minimum, Pfizer should get back some of that swagger that they (and the Yankees) have lost. Glaxo has given Pfizer a gift, in our view. Carpe Diem! Contact Us for Full Report - PDF

05.10.07 

nktr: DARKEST BEFORE THE DAWN? $60M+ COST CUTS COMING, BUT LOWERING EXUBERA SALES, ESTIMATES, TARGET YET AGAIN
With less than 5,000 diabetics using Exubera, which Pfizer's CEO and Nektar's both characterized as 'highly disappointing', about a third of those beloved 'Nektarines' who stuck it out all the way up to the top of Mt. Everest will likely soon be out of a job. As we approach the one year anniversary of Pfizer's launch at last year's ADA, and with enough Exubera inventory to supply a few hundred thousand diabetics, we are astonished that Pfizer is still holding back on DTC until the second half 2007. But after everything we have observed over the past year, nothing should surprise us any more. Maybe Pfizer can say it has just launched Exubera, but this analyst can't re-launch coverage of Nektar with any credibility. But we'll try to extrapolate on last night's call and make adjustments accordingly with a focus on lowering Exubera production revenues in 2008E, lowering Pfizer Exubera sales projections, and tempering our outlook through 2010. Our new 2007-2010 Exubera end sales forecasts are lowered from $250M, $485M, $917M and $1516M to $67M, $200M, $713M and $1,045M which now assumes about 30,000 diabetics will be using Exubera as we exit this year, reaching 100,000 diabetics in 2008 and reaching 500,000 diabetics by 2010 which is less than half what Pfizer was forecasting a year ago. Combining a more achievable forecast which necessitates Pfizer making its new, better-late-than-never marketing mix that involves DTD (direct to diabetic) pull marketing beginning this fall (yes, a full year later than everything else it should have done) with Nektar's internal cost cutting measures, we arrive at the following new NKTR revenue and EPS estimates through 2010. Total 2007 revenues move from $220M to $237M which comes from the impact of deferred revenue recognition of $26M in Exubera revenue, with EPS moving from a loss of ($1.00) to a loss of ($0.95); 2008 sales from $277M to $207M with lower Exubera production sales and royalties partially offset by new contributions from Roche CERA EPO royalties, and 2008 EPS goes from a loss of ($0.12) to break-even as full impact of the $60M in cost cutting measures would be expected to be formally announced in the next few weeks to buffer the P&L. In 2009 total revenues fall from $471M to $378M with new contributions from Roche's CERA EPO, UCB's Cimzia and Novartis (Chiron) Toby contributing about $34M in new revenue which assuming continued disciplined cost management models EPS at $0.62 down from our previous estimate of $0.65. Our total revenue estimate for 2010 falls from $722M to $576M, largely on lowered Exubera projections with EPS coming down from $1.27 to $1.00. Our new target price of $19 comes down from $22 by applying our 30 P/E multiple on 2010 discounted back two years at 25%. Contact Us for Full Report - PDF

03.01.07 

nktr: IN LIKE A LION; NEW CEO TAKES BULL BY THE HORNS; Q4 BEATS, GUIDANCE REAFFIRMED; PFIZER ON NOTICE; CAMP NEKTAR CLOSING
The new CEO provided all the upbeat rhetoric we expected, but will investors respond? Q4 beat expectations, 2007 guidance was reaffirmed (many feared Pfizer would back away from its estimated $400M in Exubera inventory measured in up to $135M in sales to Nektar), Pfizer Exubera launch was clarified, and 'Camp Nektar' is officially closed with a potential 20% headcount reduction coming soon. With NKTR trading at new multi-year historic lows in this week's market correction, this may be the time to take another look, in our view. After a decade of listening to a beaten-down Pfizer muzzled management team that shrugged its shoulders with deference to 42nd Street, it was refreshing to hear the new CEO try to set the record straight, which starts with getting a seat at the Pfizer Exubera table and forcing (not wishing for) best efforts. Some investors might frown on backing away from previous in-the-black-in-2008 (or when Exubera likely hits $1B in sales), but to us the reality of this objective from a year ago faded away well before Mr. Robin came down (even Batman couldn't make Nektar profitable next year). We feel no new CEO could inherit a decade of 'Nektarine' culture with the spending discipline of college freshmen on trust funds and figure out how to right the ship in six weeks. To be fair, these Nektarines, an eclectic erudite clan, persevered when others might have been extinct on the elusive decade journey culminating in Exubera's approval. Without the reinforcement of FDA approval and perennial underperforming stock, the lack of cost discipline without a clear path to profitability was hardly a surprise, but what was far worse was the annual binge of dilutive financings as one CFO after another fell off the wagon, which our new fearless leader has pledged to stop. But whether its prodding Pfizer to make Exubera the blockbuster it can be, getting a few hundred Nektarines to start surfing Craigslist for another job, or aggressively funding fewer higher value proprietary programs, and be more transparent (Nektar never had much too hide, there just wasn't that much to show), it may take another year until we see evidence of some new trajectory. Until then, like it or not, NKTR stock remains tied to Exubera IMS Rx trends which need to accelerate before most investors may get back on the train, especially in a market that may be a bit more averse to high beta stocks without earnings visibility on the horizon, in our view. Make no mistake; we believe NKTR remains highly undervalued, with our ex-Exubera valuation (see previous published February 8 note) at $10-12. But even a glass full of water looks empty if it's further than investors can see. At least Nektar has found a CEO that marched in like a lion, which we could mark as a bottom for NKTR shares. Contact Us for Full Report - PDF

02.08.07 

nktr: WORST EFFORTS? NEW EXUBERA SURGE: LIPITOR A TEAM IN FOR LYRICA B TEAM, BUT DISRUPTION COULD DELAY RX TRAJECTORY; LOWERING ESTIMATES, TARGET TO $22.50; ALKS HAS BETTER VISIBILITY
Despite Pfizer's obligations to use its best efforts, we have witnessed nothing less than worst efforts from Exubera's FDA approval over a year ago in a case on how to fumble a blockbuster. In this note, we highlight four faux pas we have seen from manufacturing, marketing, reimbursement to distribution and offer our Maddening advice from the sidelines, but with Pfizer looking about as graceful as Rex Grossman in the 4Q of the Super Bowl, we are left with little choice but to succumb to the reality and are lowering our 2007-2010 Exubera forecast from $739M, $1358M, $2037M, and $2607M to $250M, $455M, $917M, $1516M, respectively, which results from lowering our projected U.S. diabetic penetration from just over 100,000 in 2007 reaching 600,000 by 2010. Holding all other assumptions constant for now, our new 2007-2010 EPS estimates move to a loss of ($0.75), ($0.12), $0.65 and $1.27, from $0.04, $0.94, $1.48 and $2.00, respectively. Our new target price falls from $30 to $22.50 applying a 30 P/E multiple to our new 2010 EPS estimate of $1.27 and discounting back two years at 30%. So what should investors do with this stock that appears down for the count, at least in the short run? While our bottoms up analysis indicates that NKTR is worth $9-12 (see below repeating our analysis from last week) with no Exubera, NKTR appears undervalued, but with sentiment turning from bad to worse owing to the understandable loss in confidence of partner Pfizer, investors looking to move to better visibility should look at Alkermes (ALKS: Buy) (see separate note out this AM) which printed a second sequentially higher profitable quarter, also looks cheap, and at least has more control over its destiny with Vivitrol than Nektar seems to have with Exubera, in our view. Contact Us for Full Report - PDF

01.23.07 

nktr: COMMENTS FROM PFIZER CALL; $2B EXUBERA TARGET INTACT; DTC MARKETING TO START IN H2:07; INTERNATIONAL MARKET EXPECTED TO LAG BEHIND U.S.
With future growth prospects less than solid, and with a troubled pipeline due to halted torcetrapib, Pfizer hunkered down to restructure itself by closing several plants and cutting 10,000, or 10% of its total workforce. Newly launched products including Sutent, Chantix, Eraxis and of our interest, Exubera, will have to step up and sustain the company during this painful restructuring process, in our view. Accordingly, Pfizer has stated it is throwing its full support behind Exubera where it continues to take a measured approach of rolling out phased launches, coupled with extensive education for patients as well as health care providers to increase acceptance and transition. Although the current rate of development could chafe short-term investors, we maintain our view that an innovative pharmaceutical product needs time for it to gain momentum, especially where it is expected to change diabetes treatment radically. During the Q&A, management reiterated its 2010 Exubera target of $1.8 billion to $2 billion, confirming its belief in the inhaled insulin. Further, management indicated that the third wave of marketing direct to consumer (DTC) will begin in H2:07. When asked about the 2006 sales figures, Pfizer revealed that 2006 numbers were negligible due to the phased roll out where it is spending considerable time and effort on Exubera education. Further, in the mid-term, Pfizer expects the U.S. market to lead Exubera sales, where international markets will lag due to adjusting to a one payor system, rendering European launch of Exubera less significant to the P&L. CEO Kindler's statement 'Exubera is in full throttle for 2007', is a good indication to us of Pfizer's commitment to the product, while its unchanged $2 billion Exubera target is an indicator to us of Exubera's market potential. We look for Rx data post-primary physician roll out in the near term, but suspect DTC marketing could outpace previous efforts. Contact Us for Full Report - PDF

12.04.06 

nktr: IS PFE'S LOSS, NKTR'S GAIN? EXUBERA MORE IMPORTANT THAN EVER; NEKTAR'S STRATEGIC VALUE RISES
So what do you do when your #1 candidate to replace $5B in lost sales in 2010 suddenly disappears? Get out the strategic planning playbook and ask the remaining players on the field to step up. While our fundamental analysis of NKTR shares on rapidly improving Exubera visibility over the next few months remains unchanged with our target price of $30, the news of Exubera partner Pfizer's most visible late stage pipeline product which was touted as the next Lipitor to reach the market in the next few years at its annual R&D day last Thursday is nothing less than shocking and raised the obvious question: What can PFE do to close this strategic gap where some $10B in future potential revenues is suddenly removed from everybody's models. In our view, Pfizer senior management is now more likely to look outside the company for growth which should include potential acquisitions that will increase earnings in the 2008 + timeframe. As we have opined in the past, NKTR captures about half of Exubera earnings which looking out to 2010 represent about 30% in operating income or around $300M of the projected $600M of $2B worldwide Exubera sales (PFE's guidance has been north of $2B by 2010). Valuing NKTR via discounting 2010 earnings ($2.00) or the NPV of PFE's lost Exubera earnings it would have by owning NKTR, we estimate NKTR value to PFE at $35 to $40 which does not include a potential premium for NKTR's pipeline which now has 10 products in clinical trials or the potential strategic value of a San Francisco Bay Area footprint to amplify PFE's R&D capability which judging from the news out this morning may be more productive externally than what has been coming out of Groton, CT. Throw in the obvious that NKTR continues to look for a new CEO with no obvious candidates at this juncture and a recent meeting of NKTR's interim CEO with PFE CEO in NY last month, investors now have a lot to think about, particularly when NKTR shares are trading below where they were a year ago, are flat YTD and the fundamentals - Exubera approved, launched, pipeline moving forward, have improved. Is there a more attractively priced risk reward story to put under your tree this holiday? We suspect not, but if you need delivery in less than three weeks, don't ask PFE to gift wrap your order in Indiana. Contact Us for Full Report - PDF

11.29.06 

nktr: WILL PFIZER ANALYST DAY HELP NKTR? LARGE GAP BETWEEN PFIZER EXUBERA FORECAST AND STREET; UPDATE FROM NKTR MEETING CONFIRMS IMPROVING VISIBILITY; PIPELINE UNDERVALUED
Yesterday we hosted a day of meetings with investors in San Francisco which of course focused on Exubera launch visibility. Much of the discussion centered on the gap of real time Rx and sales visibility and Pfizer's increased forecast of Exubera launch quantities by 10-20% for 2007 which combined with 2006 orders are projected to be in the $200M to $250M range which Nektar estimates translates into $800M to $1B in end product sales. With Exubera 2007 consensus sales (analysts following NKTR) just over $400M (we're near high end at $739M), we expect Pfizer to feature Exubera during tomorrow's 6-hour (10am-4pm) annual analyst day as a major growth driver for 2007 and beyond. So major questions need to be answered tomorrow: Does Pfizer really believe it can sell close to $1B of Exubera in 2007? Have internal filling and packaging scale up manufacturing issues been resolved? Why has it raised internal forecast by NKTR orders without real time evidence of rapid market adoption? What are marketing strategies and tactics going forward? How might today's announced sales force cuts impact Exubera? Will Exubera have greater share of remaining Pfizer voice? What are GP and DTC plans? In short: Does Pfizer have some grand marketing strategy up its sleeve or are they foolishly na ve? Without much Rx and sales data so far, Pfizer will need to make a compelling case Exubera. From NKTR's perspective, they have delivered and we understand that top NKTR management met with top PFE management a few weeks ago and came away reassured that PFE has its a team on the field. But it will take PFE, not NKTR to reassure NKTR shareholders tomorrow. Meanwhile, we are encouraged by the progress that NKTR is making on the rest of its pipeline which as we move into 2007 should increase in value with 10 other projects now in the clinic including two expected partner approved products, Roche's CERA EPO and UCB's Cimza (Crohn's disease) in Q1, 2007. Finally, some investors are wondering why it's taking NKTR so long to bring in a new CEO prompting one to comment NKTR as the 'headless horseman'. Contact Us for Full Report - PDF

11.20.06 

nktr: IMPROVING VISIBILITY; GPS ADOPTING; SETS STAGE FOR DTC; EXUBERA SUPERBOWL WOULD BE TOUCHDOWN
Folks, the Exubera train is finally leaving the station. Pfizer has opened up the GP playbook and now appears to be implementing its second marketing phase targeting GPs and utilizing positive experiences in symposia to drive GP adoption. Our individual experience confirmed this last week. Following an annual check up with a GP who had been an early adopter of Lantus a few years ago, we were pleasantly surprised that not only has this internist heard of Exubera, he has ten patients taking Exubera and said, 'They all love it'. Dr. Tyroler's not an endocrinologist, but has seen many diabetic patients. Most were switched from injectable insulin: three Type I's who still use Lantus (long acting once a day), and the rest Type 2's who have stopped injectable insulin for Exubera and in 3 cases, had failed oral therapy, but were badly out of control. 'Nothing was working...but Exubera has in just one month.' This physician plans to speak at a regional symposia Pfizer is sponsoring the week after Thanksgiving that will be attended by other GPs. With this encouraging development which appears ahead of Pfizer's recent guidance of GP (or second marketing phase) for January, we managed to contact several other GPs who have recently prescribed Exubera in major regions - the Bay Area, Connecticut, New Jersey, and Texas. The enthusiasm was largely the same as here in Fairfax. While admittedly anecdotal, at a minimum we can infer the following that we view as positive for NKTR stock which has enjoyed a 15% rise in the last few weeks during a period where healthcare stocks, particularly drug stocks, have underperformed post the elections. Contact Us for Full Report - PDF

11.03.06 

nktr: RAISED GUIDANCE IMPROVES VISIBILITY
With the Street's radar seemingly tuned to weekly Rx data for Exubera, Nektar surprised the Street for the second consecutive quarter, which beat top line expectations ($59M vs. $51M consensus) driven by Exubera manufacturing revenue ($27M) per guidance. Understanding the frustration of the slow ramp of Exubera, Nektar management provided more color on financials. We now know that Nektar receives manufacturing orders from Pfizer one quarter in advance, meaning it already has Q1:07 orders from Pfizer right now. Using this estimation, Nektar increased its guidance for 2006 and 2007, increasing the Exubera manufacturing and royalty revenue range to $90-$100M from $70-$90M. This figure is derived from the company's Exubera manufacturing forecasts, which are predicated on the current rate of Pfizer's orders. Also, Nektar receives Exubera royalty revenue one quarter in arrears, dampening FY royalty revenue projections by a quarter. Basing its numbers on this assumption, Nektar believes it will be profitable in 2008, when Exubera sales are expected to reach half of the 2010 target number, which is about $1B. Our 2008 Exubera sales forecast is $1.35B above Nektar's projections. However, Nektar declined to give a definitive number for 2007 due to limited Exubera Rx data and also added the caveat that its 2008 forecasts depend upon the 2007 Exubera sales ramp. With management providing harder numbers for the Street to chew on, and increased guidance for both 2006 and 2007, we believe the downtrodden stock should gain increased visibility, although the next significant catalyst is not expected to materialize until early 2007 when Exubera Rx data is compiled. Investors may also note that Exubera is a drug-device combination, where Nektar manufactures the powder, the device from a subcontractor, and Pfizer is responsible for packaging the product into device ready tabs. Our previous report (10/25/06) noted the scale up issues Pfizer is experiencing with this innovative product, but also knowing there is a three to four year lead time before the competition's expected entry, we suspect Pfizer's long-term look at marketing the product is still a viable strategy. Aside from Exubera, Nektar has a steadily progressing pipeline with inhaled Amphotericin currently in Phase 2, and an oncology product and an opioid product which will enter Phase 1. With raised guidance and more color on Exubera projections increasing visibility, plus a developing pipeline, we find the NKTR stock risk/reward compelling at current levels and as such, are reiterating our Buy rating. Contact Us for Full Report - PDF

10.25.06 

nktr: VISIBLY INVISIBLE: SUPPLY, NOT DEMAND DELAYED EXUBERA; PFIZER'S FUMBLED FILLING, BUT PICKS UP THE BALL SETTING STAGE FOR POWERFUL, ALBEIT DELAYED, LAUNCH
In Wall Street lingo, visibility is everything and without it, stocks usually underperform, as NKTR shares have of late. But what about a case where you can see why you're not seeing? From invisible invisibility (not knowing why we can't see) to visibly invisible? That's where we think we are now, which we conclude is a signal to buy. Why? In short: Demand greater than Supply is a lot better than Supply greater than Demand, which is what much of the thinking on Wall Street has likely been since Pfizer formally launched Exubera. We don't like it, but we now clearly understand this previously stealth execution risk, and given the unique supplier relationship between Nektar and Pfizer where Nektar makes devices and powder then ships to Pfizer for final filling and packaging, it makes sense to us. In short, what Nektar developed, perfected and scaled up over a decade, (the ability to take tiny 20 micron doses and the manufacturing process to crank out over a billion doses a year), Pfizer likely couldn't replicate at its own new site with its own people in a few quarters since the late January FDA approval. Did Nektar offer to help? Sure. But to borrow a Katrina metaphor, there may have been rumors of a 'hurricane' in Indiana (where Pfizer's manufacturing site is), the innovators in San Carlos offered to send in 'FEMA', but Pfizer declined and apparently struggled to get it right. Is it fixed now? Yes, as best as we can tell by Pfizer's guidance for a January 2007 GP launch (the company has been marketing to Endos and other specialists since July, but mainly to educate). But we suspect the yields aren't where they wanted to be and the bottom line; Pfizer couldn't deliver on stated internal production standard: 'continuity of supply.' If one thinks about it, if the pent-up demand was as high as we (and others) have postulated, Pfizer ran the risk of getting diabetics to switch to Exubera and not being able to refill prescriptions. Not exactly the way to start launching a potential blockbuster, in our view. So if one considers the context of the competitive landscape where we don't expect the second inhaled insulin to reach the market until at least 2010, it makes strategic sense to us for Pfizer to proceed with this phased launch, which as we learned from Pfizer last week, effectively delays Exubera visibility until Q1:07. So while in reality Exubera sales are not visible, we can at least say that Exubera is visibly invisible, which is better than invisibly invisible, which is where we were until the supply issue was apparent. We reiterate our Buy rating and $30 target price. Contact Us for Full Report - PDF

09.29.06 

nktr: CALM, CONFIDENT CEO; EXUBERA PRODUCTION TO 24X7; UPSIDE TO 2006 REVENUE ESTIMATES; PFIZER PLANS 'DTD' IN EARLY 2007.
Earlier this week, we had dinner with CEO Rob Chess who confidently characterized the Exubera launch as going very well and according to plan; so well in fact that Nektar shifted manufacturing into highest gear last week: 24x7 - three shifts, seven days a week, which based on the estimated 1B annual dose (and about $1B at a dollar a dose on average) capacity suggests to us that Pfizer clearly has its sights on making Exubera the blockbuster we expect. Of course, 'the plan', has been a subject of debate ever since the June ADA meeting revealed that diabetics would not have access to Exubera for a few months. Investors who feared the worst (and shorts who fanned the flames) took NKTR stock down to last week's low, some 40% below June ADA highs, with Wall Street declaring that Exubera would be a flop weeks after the first inhaled insulin was introduced 84 years after the first injectable insulin. Fifteen years in development, eight months after formal FDA approval, and just a month into the formal launch and Wall Street makes its snap judgment. But Nektar's cerebral, farsighted CEO whom we have known since the company's earliest days never looked more relaxed or confident. But how could he when NKTR stock was plummeting? What could he know that Wall Street didn't? Surely the market knew more than he did after fifteen years of quiet, steady leadership. Some highlights from our dinner suggest that Wall Street might consider listening to the quiet, albeit less visible internal visibility at Nektar and Pfizer, rather than the loud, less informed external visibility. Contact Us for Full Report - PDF

09.22.06 

nktr: IRRATIONAL EXUBERA FEARS? INVESTORS CAN'T WAIT FOR PFIZER TO DELIVER
Nothing surprises us anymore on this perennial glass half empty stock which despite the significantly lower risk profile with a FDA approval and launch quantities which we estimate at around $200 million of inventory (devices and dry insulin powder doses in the channel -- that's all NKTR can control at this juncture), NKTR is worth some 40% less than BEFORE Exubera was approved. But this isn't about Nektar management executing its business plan, and even Pfizer executing its deliberate launch. It's about Wall Street's timeline which seems far shorter and what makes the shorts so smart at this juncture. After 15 years in development and with no other inhaled insulin competitors for at least another four years, Pfizer can afford to make Exubera a phased in launch, taking the time to educate all the endocrinologists, assure that spirometers are available and maximize the patient satisfaction from a smaller, target market of early adopters. We've seen this in numerous cases of new disruptive technologies where consumers change from the old to the new: computers, cell phones, CDs, DVDs, etc., and the first year of any of these markets were challenging and hard to project. But Wall Street has its own timetable: portfolio managers need to achieve results if not every quarter then at least every year and with Q3 coming to a close and the 2006 finish line in sight, more investors appear to have lost patience. And with the full knowledge that Pfizer provided on its July 20 call that there would be no meaningful visibility of Exubera Rx and sales trends until late this year. So without any hard evidence (the market research has been consistent and remained positive with about 8-10% of Type 2s expected to use Exubera) to support our forecast that at least 1 million diabetics will be using Exubera over the next few years (that translates into roughly $2.00 EPS in 2010E) and to support our $30 target price, which remains unchanged, investors are left to wonder about the real beginning of the launch trajectory and have to decide how much pain they can endure in the mean time. In our view, what's taken NKTR shares to new lows has less to do with the ultimate success of Exubera -- we haven't flinched (we took numbers down in July to account for this delayed launch already but left 2008, 2009, 2010 estimates largely unchanged), than with Wall Street's near-term need to deliver immediate results for its own purposes. The valuation and execution risk aren't really relevant at this juncture. The problem here is that portfolio managers need to hand in their report cards in three months whereas NKTR and PFE are looking at what's the best way to maximize Exubera sales over the next three years. The shorts likely understood this and have profited as may the value investors who patiently waited on the sidelines during this period of lack of visibility. As painful as this may be to watch NKTR stock melt down to Wall Street's need to get results right now, we would much rather be in this position than at an FDA non-approval or diabetes patient rejection which isn't happening. What is happening is a careful, comprehensive launch for the first non-injectable insulin since 1923. Viewed in this context, that last few quarters, (and the next few don't mean a whole lot to us), lack of near-term visibility putting pressure on NKTR stock may be rational, but concluding that Exubera is a failure this early given all the evidence we have to the contrary implies that selling NKTR at these levels may be irrational, in our view. For investors who have a timeframe that goes past December 31, we believe this is a great buying opportunity. But we're not so sure that there are that many investors that have this long of a timeframe. But thank goodness NKTR and PFE do. In the end, that's what will matter. Contact Us for Full Report - PDF

08.04.06 

nktr: EXUBERA INVENTORY UP $100M WITH $30M+ CONTRACT REVENUES EXCEEDING Q2 ESTIMATES; STEALTH PIPELINE GAINING VISIBILITY TOO, BUT WILL INVESTORS LISTEN BEFORE LABOR DAY?
Pfizer may not be selling yet, but Nektar is cranking out Exubera. With all the talk of 'round the clock manufacturing to meet pent-up demand, Nektar posted dramatically higher Exubera manufacturing revenue (over $30M or 10x Q1, which only contained a month, but still 3x sequentially) while incurring no Exubera royalty revenue due to the delayed launch in accordance with its guidance. Considering NKTR stock has retreated over 25% since ADA two months ago, this upside surprise wasn't exactly priced in the stock, but with many investors likely tuning out after Pfizer effectively pushed the launch out by a quarter, we could jump up and down about the implications of filling the channel, but suspect the market may shrug this obvious positive inflection point and wait for the real Rx data this fall. If this is the case, there is not much point in reminding investors about the now clearly advancing pipeline with two other partner launches in 2007 and four other proprietary products (one heading into Phase 3, two into Phase 2 and another in Phase 1), but at current prices, we suffice it to say that investors now get a free call option on the rest of Nektar's portfolio, even under the most cynical Exubera forecasts that fall well below Pfizer's $2-3B 2010 target. Contact Us for Full Report - PDF

08.03.06 

nktr: NOVO NO WAY; ARDM YEARS BEHIND, Q2 RESULTS, CALL AFTER THE MARKET CLOSE; EXUBERA LAUNCH RAMP; COST CUTTING; NEW CEO SEARCH UPDATE SHOULD BE FOCUS, AND NOW LONG I.P. DISCUSSION
Considering Pfizer's new CEO was general counsel and comes from an industry where customers have been inhaling their food at McDonald's for decades, Novo Nordisk's legal shot across the bow that attempts to make the case that Novo Nordisk (via its acquisition of Aradigm's inhalation technology) patented the art of inhalation won't get very far and frankly strikes us as frivolous on the surface. But seriously, Nektar's technology and patent estate (36 issued) is older and broader than Aradigm who, we note, is at least three years behind in development and more likely to infringe Nektar than vice versa, in our view. While neither Pfizer nor Nektar have commented yet, our sense is that Novo Nordisk is desperate, very far behind, has a few cards to play, and so what the heck. We won't go so far as to suggest that a few lawyers in Copenhagen who need to justify keeping their jobs persuaded Novo Nordisk management to forge ahead no matter how long the odds or that a few senior folks across the bay in Hayward helped initiate this sour grape (more like prune given this heatwave) move on the eve of the launch. But, hey, human nature has a dark side as we all know. In any event, we think courts will throw all this out. No judge is going to tell millions of diabetics that Exubera won't be available, just like almost always, similar last minute overtures to block cheaper generics are nearly always dismissed. Novo Nordisk may pursue its legal angle and, who knows, might wind up getting some marketing rights to sell Exubera in northern Europe (good for everybody), but that would likely come many months or years from now. The very worst case, using biotechnology patent disputes as precedents, could involve Pfizer and Nektar licensing patents in exchange for a small royalty of about 1% or a few million up front. However, considering that no patent litigation came until now (Novo Nordisk could have done this at any time for the last several years), we find all of this a bit suspicious and disingenuous. Contact Us for Full Report - PDF

07.21.06 

nktr: BAITED BREATH; 'MEASURED' LAUNCH MAY IMPROVE EXUBERA ADOPTION CURVE; ADJUSTING MODEL, MAINTAINING '09, '10 ESTIMATES AND $30 TARGET PRICE; PFIZER GAME PLAN MAKES SENSE TO US
Waiting with baited breath, we were pleased to hear Pfizer highlight Exubera on yesterday's call which included the very positive signal of a simultaneous 10% increase in the Exubera launch quantity order communicated via Nektar's raised revenue guidance. While the extended early launch phase formally pushed initial revenue forecasts back a quarter, we conclude that the quality of the launch - better training of physicians and diabetics, higher initial formulary status improving reimbursement, and the ability to supply more pent-up demand may improve the probability of achieving ambitious Exubera sales targets which we continue to peg at $2 billion in U.S. by 2010 with $2.00 EPS to Nektar, which supports our $30 price target (which is unchanged). We are, however adjusting our projections with lower Exubera revenues in 2006 and 2007, but with negligible impact to Nektar's P&L as higher manufacturing revenues and projected cost cutting projections beginning in H2:06 largely offset lower initial royalty contributions. Our formal Exubera 2006-2010 sales projections (booked by Pfizer) fall from $251M, $992M, $1.6B, $2.2B and $2.7B to $70M, $739M, $1.3B, $2B and $2.3B, respectively. This is our first revision this year and reflects an effective two quarter delay from our initial estimates that Pfizer would launch in Q2 (a full quarter after January approval) to what now is clear is really a Q4 launch. With 2007 estimates coming down by about a third which is in line with Nektar's decline from recent highs just before ADA a few months ago, we conclude that the market has already priced the 'measured' launch with these reduced near-term expectations into NKTR's stock. While our Nektar EPS estimates for valuation purposes do not change materially, we note the following changes and rationale: 2006 EPS changes slightly from a loss of ($1.13) to ($1.16) which we readily concede could widen depending on Q4 royalty revenue recognition from Exubera sales; more importantly, it could be the beginning of a protracted cost-cutting phase which we are initially modeling at about 10% annually beginning in 2007, which even with lower Exubera projections should still put NKTR in the black (we model 2007 at $0.04 from $0.07); we are lowering 2008 from $1.17 to $0.94 reflecting lower Exubera sales, but continue to project EPS break-out around $1.50 and $2.00 in 2009 and 2010 with diabetic penetration reaching 1 million in 2010 in the U.S. after four full years on the market and with Exubera likely to be the only available inhaled insulin on the market until at least mid 2010. Factoring in contributions from other products including CERA (PEG-EPO) of which Roche trumpeted great expectations on its call yesterday, along with cost discipline impact from a new CEO that could be announced on Nektar's August 3 Q2 call, we conclude that NKTR stock should only keep rising from here. Contact Us for Full Report - PDF

07.17.06 

nktr: EXUBERA HITS U.S. PHARMACIES THIS WEEK; REITERATE BUY RATING
Whether Nektar will ever turn profitable, or whether Exubera becomes a blockbuster, nobody will know for a while, but starting today, 20 million American diabetics have a new choice. Eighty-four years after Lilly launched the first injectable insulin; over 15 years since Inhale's founding on a home equity loan, 11 years since Pfizer signed the deal; five years since the phase 3 efficacy trials were completed, 18 months after NDA submission, 10 months after a positive FDA panel meeting and nearly six months after final FDA approval, Exubera hits U.S. pharmacies this week and thousands of Pfizer sales reps (fresh off the national launch meeting) will be out generating the first prescriptions. But in this perennial glass-half-empty stock, will this longest awaited launch turn NKTR stock, trading 20% below the ADA Exubera fanfare just a month ago? While we could take the easy way out and blame international fireworks displays fueling energy prices and pushing the economy to the brink of a recession this fall as excuses to stay on the sidelines, our experience tells us that fundamentals still matter, case studies (Amylin's (AMLN: Hold) chart looked like Nektar's a year ago until its big August break out) and AMLN reached new highs last week, and that investors will rotate funds into sectors (health care works in a slowing economy and that's what most economists are singing these days), and beaten down stocks with better risk-reward profiles are most likely to outperform. So for starters, we note that while investors have been heading for the exits across the globe across all sectors these past few months, Nektar, Pfizer and West Pharma employees were punching in around the clock working 24x7 to build launch quantities to supply demand. This week we will find whether diabetic demand for Exubera will exceed Wall Street's demand for NKTR stock. That might not take much which is the essence of our thesis at this historic juncture: expectations have fallen so low that we wonder how strong the launch needs to go for NKTR to bounce back. With some of the estimated 15 million short sellers sitting on 20-25% profits in just a few months, what's the upside (downside) from not covering here? In our view, while hardly visible since ADA, the execution risk has decreased, and visibility has increased with several meaningful catalysts that could drive NKTR stock up 25% in the next few weeks: 1) formal launch this week - availability, pricing and reimbursement data should be formally unveiled; 2) Pfizer's Q2 conference call with Q&A likely to reduce uncertainty; 3) Nektar's call in early August which will not only provide updated Exubera launch quantities but may reveal more cost cutting efforts and the hiring of a new CEO. This may be the bottom right here; it's darkest before the dawn. We maintain our estimates and $30 price target and reiterate our Buy rating on NKTR shares. Contact Us for Full Report - PDF

06.12.06 

nktr: BEST WISHES TO FOUNDER, INDUSTRY REPORT ERRATA; TONIGHT'S ADA DINNER CELEBRATES COMMITMENT TO DIABETES
In our just published industry report: 2020 Foresight: The Future of Diabetes, we presented a comprehensive analysis of the diabetes industry and a thesis for overweighting diabetes in investors portfolios. We included a discussion of emerging therapeutics for diabetes management with a focus on inhaled insulin for which the recently approved Exubera (the major new product at ADA this year - which we put on the cover) was discussed at length in the industry report and in a separate previously published NKTR reports. We also reiterated NKTR as our top pick for 2006. However, we also attempted to inject some levity in our historical discussion about this most challenging, lengthy and expensive development in the pharmaceutical industry in which Nektar and Pfizer have invested in excess of $1.5 billion by our estimates. This represents a serious commitment to a very serious disease, diabetes, which took my father's life. There's nothing funny about diabetes. The early Exubera prototype described in the report did not exist, and was never a product candidate for development by Nektar or its partner Pfizer. It was made by West Pharmaceuticals at our request as a mock gift to celebrate the culmination of Exubera's approval and to laugh at struggles along the way. Contact Us for Full Report - PDF

06.12.06 

nktr: BEST WISHES TO FOUNDER, INDUSTRY REPORT ERRATA; TONIGHT'S ADA DINNER CELEBRATES COMMITMENT TO DIABETES
In our just published industry report: 2020 Foresight: The Future of Diabetes, we presented a comprehensive analysis of the diabetes industry and a thesis for overweighting diabetes in investors portfolios. We included a discussion of emerging therapeutics for diabetes management with a focus on inhaled insulin for which the recently approved Exubera (the major new product at ADA this year - which we put on the cover) was discussed at length in the industry report and in a separate previously published NKTR reports. We also reiterated NKTR as our top pick for 2006. However, we also attempted to inject some levity in our historical discussion about this most challenging, lengthy and expensive development in the pharmaceutical industry in which Nektar and Pfizer have invested in excess of $1.5 billion by our estimates. This represents a serious commitment to a very serious disease, diabetes, which took my father's life. There's nothing funny about diabetes. The early Exubera prototype described in the report did not exist, and was never a product candidate for development by Nektar or its partner Pfizer. It was made by West Pharmaceuticals at our request as a mock gift to celebrate the culmination of Exubera's approval and to laugh at struggles along the way. Contact Us for Full Report - PDF

06.05.06 

nktr: ADA PREVIEW: PFIZER'S ARC DE TRIUMPH: EXUBERA BOOTHS ON BOTH SIDES OF AISLE; TEN EXUBERA PRESENTATIONS; TODAY'S CONFERENCE CALL FOCUS ON LAUNCH; DINE WITH STARS JUNE 12
Like the Arc de Triumph at the top of the Champs Elysees in Paris, Pfizer has two towering booths on both sides of the main aisle at the entrance to the ADA exhibit hall in Washington. It's right on the web for all to see at http://www.afassanoco.com/media/pdf/ada/currentfloorplan.pdf. This means everybody - they're expecting record attendance of over 20,000 at this year's American Diabetes Association which kicks off this Friday and lasts through June 13. The Exhibit hall where physicians, patients and yes, investors, can see the opening kickoff of Pfizer's Exubera marketing machine will open on Saturday, and we conclude Nektar stock will be more valuable next Monday than today and recommend buying the stock all this week ahead of ADA. We will be hosting a physician conference call today previewing the ADA meeting and assessing several new diabetes products in development with a panel of two distinguished endocrinologists. Also out today is our industry report, 2020 Foresight: The Future of Diabetes Management - Part 2. We will host a poster tour of ADA abstracts at 10:00 AM (EDT) Saturday, June 10 - including the first of 10 Exubera presentations and conclude with a reception and dinner on Monday, June 12 with managements from ten companies as well as leading endocrinologists who are likely to influence the adoption of these novel advances in diabetes. Contact Us for Full Report - PDF

05.22.06 

nktr: ICH BIN EIN EXUBERA! GERMANY PRICING, REIMBURSEMENT BETTER THAN EXPECTED; A $500M MARKET? UPSIDE TO OUR MODEL; BODES WELL FOR U.S. PRICING AT OR HIGHER THAN OUR ESTIMATES
Diabetes is an epidemic in Germany and the government seems willing to step up now to prepare for the projected 10M diabetics by 2010. While investors attempt to analyze all the permutations surrounding the U.S. Exubera launch, diabetics who walked into Germany's pharmacies with a prescription for Exubera last week didn't pay a Euro out of their own pocket. The tab is on the government who will fully reimburse Exubera at an average price of at least $4-5 per day. This is a big deal. A very big deal in our opinion, and we believe it could move Nektar's needle by 20%, nearly the recent correction in NKTR shares over the past week. Germany is the largest diabetic market with the largest percentage (similar to the U.S. with about 8% prevalence) of its 85M population, or around 7M deutsche diabetics. So with an opportunity that may be roughly 30% the size of the U.S. with pricing about the same (thanks in part to the strong Euro), Pfizer and Nektar have launched Exubera in the largest diabetes market with the best reimbursement scenario. Our model suggests that just a 3% penetration of German diabetics by Exubera could produce about $500M in revenues by 2010, which would equate to over 70% of our entire international forecast. At a minimum, Germany represents a cushion to a slower U.S. ramp, which helps increase our confidence for our overall forecasts. Contact Us for Full Report - PDF

05.16.06 

nktr: BAITED BREATH? BULLISH EXUBERA OUTLOOK ALLOWS MANAGEMENT TO SCALE BACK CONTINGENCY PLANS; JOIN US JUNE 12
Leave it to the glass-half-empty crowd to lead a suddenly more cautious market to reach a conclusion that (in our view) has no basis in logic or fact. On last week's conference call (and if recent conference calls include a visible appearance in Las Vegas today), Nektar management provided a roadmap to profitability that included a combination of what they control - how much they spend. The timing for this, 'we're watching the bottom line', guidance is just what we would expect now that Exubera is approved and launch is imminent. In our view, Nektar has taken the ultimate sigh of relief that this harrowing five-year delay is over and the original game plan from Inhale is on track to deliver what it has always hoped for. But unless investors have been part of this story for the past decade, including an unexpected strategic air pocket about this time in 2001 that resulted in some serious contingency planning culminating in changing the company's name from Inhale to Nektar, the decision to unwind a significant percentage of the 'hedged' Nektar pipeline, could be misinterpreted by Wall Street. We conclude that management's initiatives to cut expenses outside Exubera are nothing more than the outcome of the formal expectations that Exubera will propel earnings growth for many years to come and that the relative contribution of other products and technologies in the development pipeline now have less strategic and financial significance than before Exubera was formally approved earlier this year. In short, we believe Nektar no longer needs to hedge its bets, and like any well-run hedge fund, the company is pruning its portfolio to maximize its returns, in our view. With NKTR shares pulling back over 10% in a broad market correction and just three weeks before ADA when we expect Exubera to launch, this appears to be a very attractive entry point to add to positions, put some cash to work with near term catalysts, or to just get on board after months of waiting to pull the trigger. Contact Us for Full Report - PDF

05.16.06 

nktr: BAITED BREATH? BULLISH EXUBERA OUTLOOK ALLOWS MANAGEMENT TO SCALE BACK CONTINGENCY PLANS; JOIN US JUNE 12
Leave it to the glass-half-empty crowd to lead a suddenly more cautious market to reach a conclusion that (in our view) has no basis in logic or fact. On last week's conference call (and if recent conference calls include a visible appearance in Las Vegas today), Nektar management provided a roadmap to profitability that included a combination of what they control - how much they spend. The timing for this, 'we're watching the bottom line', guidance is just what we would expect now that Exubera is approved and launch is imminent. In our view, Nektar has taken the ultimate sigh of relief that this harrowing five-year delay is over and the original game plan from Inhale is on track to deliver what it has always hoped for. But unless investors have been part of this story for the past decade, including an unexpected strategic air pocket about this time in 2001 that resulted in some serious contingency planning culminating in changing the company's name from Inhale to Nektar, the decision to unwind a significant percentage of the 'hedged' Nektar pipeline, could be misinterpreted by Wall Street. We conclude that management's initiatives to cut expenses outside Exubera are nothing more than the outcome of the formal expectations that Exubera will propel earnings growth for many years to come and that the relative contribution of other products and technologies in the development pipeline now have less strategic and financial significance than before Exubera was formally approved earlier this year. In short, we believe Nektar no longer needs to hedge its bets, and like any well-run hedge fund, the company is pruning its portfolio to maximize its returns, in our view. With NKTR shares pulling back over 10% in a broad market correction and just three weeks before ADA when we expect Exubera to launch, this appears to be a very attractive entry point to add to positions, put some cash to work with near term catalysts, or to just get on board after months of waiting to pull the trigger. Contact Us for Full Report - PDF

05.11.06 

nktr: Q1 RESULTS; WIR LIEBEN EXUBERA
Nektar Therapeutics reported a GAAP net loss of ($0.38) for Q1, or a loss of ($0.28) per share excluding charges, compared to our ($0.37) estimate. The narrower than expected loss was driven primarily by lower than expected R&D spending, as management begins to implement cost savings initiatives to allow for greater earnings leverage and flexibility. With an Exubera worldwide launch now beginning with a launch in Germany later this month, we view the company's efforts to limit the cost base as a positive as investors look forward to Exubera driving profitability and break out earnings in the 2007/2008 timeframe. Plans for partnering the proprietary pipeline, divestiture of non-core assets, and efficiency improvements suggest that Nektar could be in a more favorable position to deliver earnings from a strong Exubera launch. Considering Exubera's significant market potential and upcoming approval and launch, we are reiterating our Buy rating and $30 price target, or 33x our 2008 EPS estimate of $1.17, discounted back one year at 25%. Contact Us for Full Report - PDF

04.19.06 

nktr: EXUBERA RATIONALE: IS $2B U.S. BY 2010 CONSERVATIVE? HOW WE MODEL THE LAUNCH THROUGH 2010; PRICING, PENETRATION, PROFITS
We believe the market is underestimating the Exubera launch and conclude that NKTR stock could reach our $30 target price by year-end if Pfizer approaches our launch trajectory, which we outline in this report. With yesterday's U.K. pricing pushback on Exubera, investors are asking the most basic of questions, 'What is Exubera worth? Who's going to pay for it? How much will they pay? How many diabetics will use Exubera and just how long will all this take to play out?' We share our views below. Contact Us for Full Report - PDF

04.07.06 

nktr: ADA JUST TWO MONTHS AWAY; BUY NEKTAR TODAY
Just two months away from this year's ADA meeting, we advise investors to remember AMLN's (Amylin: Buy) performance in 2005, which no one believed following its FDA approval of Byetta last April, but finally traded up with sentiment turning positive on favorable physician reception at the June 2005 ADA meeting. We think NKTR shares could make a similar performance this year with Exubera, which continues to trade below levels at approval, as we expect partner Pfizer to have a visible presence and a high level of physician interest in Exubera at the ADA meeting. Similar to AMLN shares going from $15 to $20 on ADA buzz last year, we wouldn't be surprised if NKTR shares went from $20 to $25 at the ADA this year. NKTR's 45% discount to its peers on a 2009E revenue multiple, expected Russell 2000 rebalancing, and a potential high profile CEO hire in Q3 provide additional support for upside to the valuation in our view. For those focusing on pricing and reimbursement, and concerned these issues could hinder product uptake, we remind investors that when Byetta was approved, it was also a tier 3 product seeking to get more favorable reimbursement, but that didn't stop the product from achieving favorable uptake and surpassing consensus expectations. Exubera will have to deal with pricing and reimbursement, but in our view: 1) plenty of diabetics will be willing to pay an initial higher co-pay (early adopters appear price insensitive) and 2) the contribution to overall diabetes health will ultimately drive favorable reimbursement, as Exubera lowers healthcare costs with improved compliance leading to improved disease management with fewer costly long-term complications, in our view. While we acknowledge that many investors are waiting to see the evidence of a successful launch and the prescription and revenue numbers that won't be visible until this summer, we believe forward looking investors who took advantage of last year's AMLN weakness at this juncture before the launch could be similarly rewarded by owning NKTR at this midpoint between approval and launch. The train is leaving the station - All Aboard! Contact Us for Full Report - PDF

03.29.06 

nktr: NEW NASTY NEKTAR? SUSTAINABLE COMPETITIVE ADVANTAGE 'A TIME OF OUR CHOOSING' - CEO SEARCH FINDS ROCK STARS
Fast followers forget about it. If the other inhaled insulin followers don't plunge into crevasses by their own missteps, then those who climb toward the summit may soon face the cannons of some 36 issues patents that could either force competitors to find another way up the mountain, or pay a heavy toll for taking the only proven path to the top. Perched atop Mt. Everest where Nektar Therapeutics has been quietly shoring up its reinforcements around its fortress since formally arriving on the summit two months ago, Nektar is moving from years of preparing for commercial readiness (scale-up, approval and manufacturing) in preparation for this June's Exubera launch, which is now strategically behind the company to maximizing the total value of its technology and manufacturing assets to create a sustainable competitive advantage. The major takeaways from last week's meeting at Nektar which included a comprehensive tour across each step in Exubera's manufacturing operations were 1) entry barriers are enormous with the likelihood of competitive entrants (Alkermes [ALKS: Buy] and MannKind [MNKD: Hold]) reaching the market before 2010 now highly unlikely with the probability of reaching market in 2011 or later increasingly likely; and 2) Nektar's I.P. estate with 36 issued patents, including a 2001 issued pioneering patent with broad claims appear to block other inhaled insulin products using dry powder formulations, implying to us that both Alkermes and MannKind will either have to find another way (they can't), will give up and go away (they won't) or pay to play (they must) in the form of toll royalties whereby Nektar could get attractive royalties on at least two other inhaled insulin products if and when they reach the market. All of this suggests to us that investors' assumptions will need to change to give Nektar a longer lead time before competition arrives, a larger market share and lower discount rate for lower executive risk as Pfizer and Nektar prove that Exubera can be launched and rapidly adopted. If we are right about this, it may not be long before the market values Nektar at $30 per share when today, investors can own Nektar for less than $20. Finally, we have learned that the profile of CEO candidates is nothing short of top flight, which suggests that by this fall, investors could see a familiar face from senior management of big cap biotech lead Nektar to the mid-cap status it now deserves. Contact Us for Full Report - PDF

03.29.06 

nktr: NEW NASTY NEKTAR? SUSTAINABLE COMPETITIVE ADVANTAGE 'A TIME OF OUR CHOOSING' - CEO SEARCH FINDS ROCK STARS
Fast followers forget about it. If the other inhaled insulin followers don't plunge into crevasses by their own missteps, then those who climb toward the summit may soon face the cannons of some 36 issues patents that could either force competitors to find another way up the mountain, or pay a heavy toll for taking the only proven path to the top. Perched atop Mt. Everest where Nektar Therapeutics has been quietly shoring up its reinforcements around its fortress since formally arriving on the summit two months ago, Nektar is moving from years of preparing for commercial readiness (scale-up, approval and manufacturing) in preparation for this June's Exubera launch, which is now strategically behind the company to maximizing the total value of its technology and manufacturing assets to create a sustainable competitive advantage. The major takeaways from last week's meeting at Nektar which included a comprehensive tour across each step in Exubera's manufacturing operations were 1) entry barriers are enormous with the likelihood of competitive entrants (Alkermes [ALKS: Buy] and MannKind [MNKD: Hold]) reaching the market before 2010 now highly unlikely with the probability of reaching market in 2011 or later increasingly likely; and 2) Nektar's I.P. estate with 36 issued patents, including a 2001 issued pioneering patent with broad claims appear to block other inhaled insulin products using dry powder formulations, implying to us that both Alkermes and MannKind will either have to find another way (they can't), will give up and go away (they won't) or pay to play (they must) in the form of toll royalties whereby Nektar could get attractive royalties on at least two other inhaled insulin products if and when they reach the market. All of this suggests to us that investors' assumptions will need to change to give Nektar a longer lead time before competition arrives, a larger market share and lower discount rate for lower executive risk as Pfizer and Nektar prove that Exubera can be launched and rapidly adopted. If we are right about this, it may not be long before the market values Nektar at $30 per share when today, investors can own Nektar for less than $20. Finally, we have learned that the profile of CEO candidates is nothing short of top flight, which suggests that by this fall, investors could see a familiar face from senior management of big cap biotech lead Nektar to the mid-cap status it now deserves. Contact Us for Full Report - PDF

03.01.06 

nktr: COULD EXUBERA REACH $300M IN 2006? VISIBLE EXUBERA GUIDANCE
Nektar Therapeutics reported a Q4:05 net loss of $35M, or ($0.40) per share, excluding special charges. Management provided 2006 guidance, and in our view, the key line item in guidance was $60-$80M in Exubera revenues, mostly all for manufacturing revenues, and the majority of which we anticipate represent product which will be sold in 2006, and some of which will flow into 2007 (we expect 2006 end sales to likely include some product manufactured in 2005). Whatever Nektar's manufacturing revenues are, we estimate this will translate into end sales which are roughly triple, at a minimum, with potential upside as the Nektar component of Exubera COGS does not include all of Pfizer's COGS. While we had thought about lowering our 2006 Exubera forecasts given a June launch vs. our previous H1:06 launch expectation, if these numbers, (which we estimate correspond to roughly $300M in Exubera 2006 end sales), represent an indication of the Pfizer launch, our initial estimate for 2006 might not be far off, and our forecasts for the next five years may in fact be conservative. If Pfizer can sell most of what Nektar is making, $300M is a possible Pfizer target, and suggests our current $251M estimate may be achievable in 2006. Therefore, we are maintaining our Exubera forecasts. Our 2006 EPS estimate is widened to a loss of ($1.35) from ($0.93), to account for higher than expected cost guidance, though our out year estimates remain unchanged, with profitability expected in 2007 and break out earnings in 2008. Considering Exubera's significant market potential and upcoming approval and launch, we are reiterating our Buy rating and $30 price target, or 33x our 2008 EPS estimate of $1.17, discounted back one year at 25%. Contact Us for Full Report - PDF

02.22.06 

nktr: Q4 PREVIEW; EXUBERA CONTRACT REVENUE LEADING INDICATOR
Nektar is reporting Q4 results next week (Tuesday, February 28). For the quarter, we forecast total revenues of $31 million for Nektar, with a loss per share of ($0.39), compared to the consensus at $32 million in sales and a loss per share at ($0.38). In our view, the key number for Nektar's Q4 earnings will be contract revenue related to Exubera, which we believe should be sequentially up very strong over the $5M reported in the September quarter, and could provide an indication of what kind of revenue ramp Nektar could experience from Exubera from 2006, not just from a royalty on sales, but the expected significant ongoing and accelerating inventory build. Our total $21 million in total contract revenue for the quarter, including $3 million in Exubera commercial readiness revenue is likely too conservative depending on the amount of contract sales on Exubera occurred during the quarter. Considering the need for Pfizer to build launch quantities ahead of a June launch and to meet considerable pent up demand, we believe the contract revenue to Nektar could be a significant contributor even before the first sales are recorded. Pfizer's confirmation of a June launch and guidance that some analysts expectations for Exubera are too low at its analyst meeting earlier this month suggests Pfizer is expecting and planning for a sizable launch into the US and EU markets, with Exubera contract revenue in Q4 and in the quarters ahead likely to serve as an indicator of the magnitude of the upcoming launch Pfizer has in mind. Contact Us for Full Report - PDF

02.10.06 

nktr: RATIONAL EXUBERANCE: REMOVING NEEDLE MOVES THE NEEDLE; PFIZER TALKS STREET FORECAST UP; OUR $2.8B IN 2010 MAY BE LOW
Street estimates for Exubera sales are too low according to Pfizer. This was the pleasant surprise we were hoping for. How much? Who knows, but considering that Pfizer has 235 products in R&D, is launching 6 products this year, and ONLY highlighted three products where its internal forecasts are 'significantly greater' than consensus among Pfizer analysts of around $1.2B, we believe this is a big deal. In our view, Pfizer would never send this very loud signal if it didn't believe Exubera would be at least twice as big by 2010. Based on the significant market need, growing diabetes prevalence, and data which show strong patient preference for Exubera, we believe internal expectations could be closer to $5 billion (twice our forecasts), so to the extent that Pfizer wanted to tell the Street to update their models, this was the first chance to send the message. While we acknowledge that consensus Exubera revenue estimates among NKTR analysts is higher than big pharma analysts following Pfizer, we believe estimates remain too low and are more likely to come up than fall. If the current consensus for Exubera is closer to $1.2B than our $2.8B 2010 estimate, that implies the market is only expecting 2010 EPS of around $1.00 to NKTR (we're at $2.00 which is probably too low given what Pfizer just signaled). This appears to be the opposite of what may now be happening to AMLN at twice the multiple and market cap to NKTR. We believe the simple call today is to swap out of AMLN, weakening near-term visibility, numbers appear to be coming down, into NKTR, improving visibility and numbers expected to be coming up. If investors ultimately conclude that $2.00 is more likely than $1.00 in 2010, then the NKTR stock could trade closer to $60 than $30 in three years. Contact Us for Full Report - PDF

01.30.06 

nktr: ON THE SUMMIT AT LAST! 2010 VIEW FROM 29,035 FEET IS CLEAR
After Sir Edmund Hillary was the first to stand atop the highest point on earth, many believed the path for those that followed would be easier. Nothing could be further from the truth: it took three years before the second successful Everest expedition and a decade later only four parties (15 people in total) had stood on the summit. Over the past thirty years, while many more have successfully made the climb, nearly 200 have met their maker during this period including the infamous 15 who ventured 'into thin air' never to return. Inhale's journey took 15 years consuming $1 billion in capital before they changed their name which some interpreted as turning back from the Holy Grail vision of inhaled insulin. How the market reacts to Friday's news will be interesting. Will the doubters who never believed FDA would approve inhaled insulin come on board now? Will money flow to the potential 2nd, 3rd or 4th entrants to the first non-injectable insulin since it was first available as pork insulin in the early 20s? Beware the crevasse that all must cross. What assumptions will the market make for Pfizer's penetration in Europe and the U.S. with a label as good as it could have hoped for? Finally, what should investors pay today for what should be worldwide sales in excess of $2B by 2010, which translates into around $2.00 EPS to NKTR? $70 potential in three years suggests unique risk-reward profile with regulatory risk behind us. Applying a biotech 35 P/E multiple suggests that if the market believed Exubera could generate $2B by 2010, NKTR stock should trade around $70 sometime in 2009. If Amylin (AMLN: Buy) can trade on 2009 today, why not NKTR with Exubera approved? Contact Us for Full Report - PDF

01.26.06 

nktr: EU APPROVAL, LABEL, SUPPORTS US APPROVAL TOMORROW
Pfizer announced earlier today that the European Commission has granted final approval to Exubera for the treatment of type 1 and type 2 diabetes. We view this announcement as essentially a formality following the favorable October EU committee review. The news suggests that Pfizer has been able to address any labeling issues, including comments on safety and dosing, which would be common to both an EU and US label, and which we believe, on the margin bodes well for a formal FDA final approval (PDUFA date tomorrow). For investors looking for the last bit of indication for a full approval in the U.S. by the PDUFA date, here it is. Yesterday, we handicapped the chances of a full approval at 80%, leaving a 20% chance for an approvable letter; with today's EU approval, we now believe the likelihood of approval is 90%. We also believe the EU label is consistent with rapid adoption for Exubera, with a broad label and negligible patient adoption barrier, with just initial pulmonary function testing and 6-month follow up versus ongoing testing a positive in our view. As far as the Nektar story, where the market has mostly feared the worst case, the European label looks closer to the best case. There is no reason, in our view, that the US label should be any different. Contact Us for Full Report - PDF

01.25.06 

nktr: EXUBERA PDUFA 80:20 FULL APPROVAL; WHY $30 BY YEAR-END
Assuming full FDA approval for Exubera which could come as soon as Friday, with January 27 the PDUFA date for FDA action, we expect NKTR shares may finally leave teen status for good and make the case for $30 by year end (or sooner) in this report. We handicap full approval probability at 80% leaving a 20% chance for approvable letter which would likely be due to Pfizer's inability to satisfy FDA concerns about 3mg vs. 1mg dosing as it relates to Exubera's use by diabetics, all of whom must titrate dose base on blood glucose levels via injectable insulin anyway. It's hard to imagine that after a decade in the clinic that including 5 years since the Phase 3 data were complete on the 1mg and 3mg dosing that Pfizer and Nektar couldn't check this box (including over four months from the Sept 8 panel meeting) to the satisfaction of FDA, but on this Mt. Everest expedition, until we see the flag planted on the summit, nothing is certain, which we believe is why NKTR shares have been frozen in this trading range of over a year now. As we have said before, this interim catalyst is significant, as in our view it supports the potential of Exubera, and with Pfizer stepping up its commitment, we anticipate a timely and aggressive product launch as Pfizer seeks to recoup and profit from its considerable investment into Exubera. Are there any investors that believe that Pfizer would have written a $1 billion plus check if they thought the FDA is going to pan Exubera? Trading at $20, in our view, the market has correctly concluded that the FDA should give full approval, as opposed to approvable letter. Now let's look toward subsequent catalysts that will inform the market about the Exubera launch and how we get to $30. Contact Us for Full Report - PDF

01.13.06 

nktr: PFIZER ACQUIRES EXUBERA RIGHTS FROM SANOFI
Late yesterday, Pfizer announced that it had acquired Sanofi-Aventis' rights to Exubera for $1.3 billion net of local taxes. Included in the deal are Sanofi-Aventis' rights to the Frankfurt, Germany bulk insulin manufacturing facility. The deal size is essentially in line with our discounted cash flow valuation of half the Exubera franchise, and while we had previously anticipated that Pfizer might have paid a premium to our estimate, possibly $2 billion or more for Sanofi-Aventis' rights, which would have indicated upside to Pfizer's perceived value of the franchise, this assumed an October PDUFA date. The delay to the PDUFA may have allowed Pfizer to pay a little less, as we believe Sanofi-Aventis may have had to take a discount on the deal given any remaining approval risk, as well as execution risk on the launch. When the accounting is done, we believe Pfizer is likely to put this deal in 2005, as it attempts to clear the decks. As we have said before, this interim catalyst is significant, as in our view it supports the potential of Exubera, and with Pfizer stepping up its commitment, we anticipate a timely and aggressive product launch as Pfizer seeks to recoup and profit from its considerable investment into Exubera. Are there any investors that believe that Pfizer would have written a $1 billion plus check if they thought the FDA is going to pan Exubera? Trading at $20, in our view, the market has correctly concluded that the FDA should give full approval, as opposed to approvable letter, in two weeks. Friday the 13th appears to be a lucky day for Nektar investors. Contact Us for Full Report - PDF

11.15.05 

nktr: EUROPEAN EXUBERANCE: 'SMALLER, EASIER TO USE THAN I THOUGHT'; YOU NEVER CAN TELL
Seeing, feeling, using is believing. Last week we escorted Nektar's founder and the former Pfizer executive who inked the Exubera deal a decade ago before changing sides. The motif of all our meetings was that Exubera was smaller (fits easily in jacket pocket or purse) and easier to use than these investors had perceived from what has been published in the investment community. While we weren't surprised to see this reaction over and over in multiple cities, languages and cultures, we wonder how much longer the gap will continue between the reality of what Nektar has accomplished over 15 years, the expected U.S. and European approvals in the next few months and the enormous contribution to diabetes disease management --- and Nektar's valuation that, in our view, has very cautious expectations priced into today's share price. Nektar is trading at what we feel is a significant discount; in our view the stock has significant upside potential with a relative low risk profile. That's Wall Street where sentiment can remain negative until the results are actually delivered. That certainly was the case if one looks at Amylin's chart until we had a few months of Byetta Rx to look at. And remember that in Amylin's case, Byetta was a new drug, only approved in the U.S. with all the execution risks of adoption including reimbursement. The market for Exubera is larger with less market adoption risk in our view and perhaps the hungriest marketing partner in Pfizer, which is starving for growth. Given where NKTR traded a year ago in anticipation of an NDA filing, we would have had a hard time believing that NKTR shares would be trading below $25 today if we had been told that U.S. panel recommended approval and Europe followed suit with formal approval and launch just a few months away. Yet here we are at $16, down some 20% YTD. Nektar's founder was understandably perplexed by this, but never have we seen this pioneer so happy and confident as last week. Contact Us for Full Report - PDF

11.04.05 

nktr: Q3 RESULTS; AWAITING EXUBERA APPROVAL AND LAUNCH
With favorable recommendations for approval in the U.S. and EU, we continue to anticipate early 2006 approvals for Exubera in both the U.S. and EU. While we do not expect revenues to Nektar from Exubera until product approval, we note that revenues in Q1 on initial launch quantities could be significant as Pfizer and Sanofi build up launch quantities to satisfy pent up demand for the product upon launch, with Nektar to receive the manufacturing component of its Exubera revenue stream at time of shipment, versus royalties based on product sales at the end of each quarter. Exubera is poised to become the first product to market in a multi-billion dollar inhaled insulin market, driving significant earnings growth for Nektar, with company profitability projected in 2007 and breakout earnings growth in 2008. Considering Exubera's significant market potential and upcoming approval and launch, as well as an advancing pipeline of partnered and proprietary products, we are reiterating our Buy rating given Exubera's strong prospects, and our price target of $30, or 33x our 2008 EPS estimate of $1.17 discounted back one year at 25%. Contact Us for Full Report - PDF

10.31.05 

nktr: FDA DECISION ON EXUBERA EXPECTED BY JANUARY
While we had anticipated an Exubera approval by year end, it appears that a decision is more likely in early 2006 (we estimate a January 27 PDUFA date). Friday's announced extension to the Exubera review timeline provides visibility on the timing of an expected FDA final approval and coupled with the recent favorable recommendation for approval in the EU, in our view affirms that a final approval is a near-term event and that Exubera is not expected to face a protracted review period. Considering the uncertainty in its business, we believe Pfizer is likely to launch Exubera as quickly as possible following approval, and we continue to forecast an early 2006 product launch, and remain comfortable with our 2006 sales estimate of $130 million. Contact Us for Full Report - PDF

10.14.05 

nktr: POSITIVE EU OPINION FOR EXUBERA
Yesterday, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMEA) announced that it had issued a positive opinion for Pfizer's Exubera for the treatment of type 1 and type 2 diabetics. Final approval based on a positive opinion is typically issued within 90 days. We therefore anticipate final EU approval by year end or early 2006, with a H1 2006 EU launch, consistent with our current forecasts. The past few weeks have gone as favorably as could be expected for Nektar, with an FDA panel recommendation for approval in September with no unexpected restrictions, and now an EU panel thumbs up which also suggests a broad label. Considering a nearing Exubera commercial launch into a multibillion inhaled insulin market, and no expected competition for at least three years, we continue to anticipate a strong launch and uptake, with worldwide sales of $1.6 billion, or roughly 1 million patients, by 2008. Contact Us for Full Report - PDF

09.30.05 

nktr: 2010 FORESIGHT: PIPELINE, GUIDANCE, VISIBILITY
Near-term Exubera adoption or long-term valuation of pipeline supports our target price of $30. In Nektar's first extensive investor day in four years, management provided the first long-term revenue and margin guidance through 2010 which we conclude supports a floor EPS in 2010 of $2.00. Discounting this estimate by three years at 30% and applying a biotech 33x multiple, we arrive at a target price of $30, which coincides with our current target price derived by discounting our 2008 EPS estimate of $1.17 by 25% for one year with the same 33x P/E multiple. Our assumptions on an Exubera launch (Q1:06), adoption and revenue ramp remain unchanged ($251M in 2006, $991M in 2007 and $1.6B in 2008 Exubera sales to Pfizer) with total Nektar 2005-2008 sales including other existing launched products with small royalty streams unchanged at $122M, $149M, $252M, and $378M (76% Exubera), respectively. What has changed is the context of this relatively near-term forecast, dependent upon Exubera, to the implied contribution from all other products, with total Nektar revenues of $650M to $850M four years after Exubera launch, and headed to 25-30% operating margins. If we use the lower end of this range of around $700M (about 60% Exubera) for 2010 sales on a 30% operating margin fully taxed, Nektar EPS should be roughly $2.00. So investors now have two ways to value NKTR: 1) revenue ramp of Exubera and implied 2008 or 2009 EPS from a one product story which is how most, including us, have attempted to value NKTR; or 2) projected 2010 sales from a product portfolio which now includes two newly announced products (much lower development risk with higher profitability than Exubera) expected to reach the market in 2010, both of which Nektar might sell themselves along with royalty streams from potentially three other products which could be filed with the FDA in 2006 and launched in 2007 or 2008 with nice contributions to earnings by 2010. While further out, this diversified portfolio, with up to ten products on the market, has intrinsic appeal, particularly for those investors who remain cautious about Exubera. But now may be time to throw caution to the wind based on a compelling presentation by Pfizer and Nektar which addressed virtually all concerns raised by Wall Street and the FDA in the past weeks, months and years on Exubera, which we discuss in detail in this note. Finally, management updated near-term guidance that improved visibility with a clear roadmap to achieve revenue targets by 2010 and profitability (one year following Exubera launch), and operating margin targets around 25%. Connecting the dots from Nektar's comprehensive overview, we conclude that Nektar is projecting around $500M in Exubera revenues by 2010, about 20% higher than our estimate. At a minimum, we feel investors have far more visibility to value Nektar's prospects - qualitative and quantitative - than they did before today. Contact Us for Full Report - PDF

09.09.05 

nktr: A VERY HAPPY BIRTHDAY FOR NEKTAR'S FOUNDER
Yesterday, an FDA advisory panel recommended 7 to 2 that Exubera be approved for the treatment of type 1 and type 2 diabetes. We view this recommendation for approval, with Exubera receiving favorable votes on all requested indications, as a historic positive milestone for Nektar, and the history of diabetes management, with the first non-injectable formulation since insulin was first marketed in 1923 nearing an approval and launch. Today happens to be the birthday of Nektar's founder, John Patton, who started this visionary, pioneering, and bold endeavor 15 years ago. Looking at him during the panel meeting, we suspect he may have aged more than he had in the previous decade and a half, but as of last evening, he never looked younger. During the years, thousands have joined in this journey, including those at Nektar, Pfizer, Sanofi-Aventis, and the collective investment community, who have endured the ups and downs prior to reaching this joyous occasion - none of it would have happened if it wasn't for a sole biotech cowboy who started with a vision that now will soon be a reality for millions of diabetics around the world. Given the increased visibility on a near term approval and launch, and as we approach 2006 and look forward to future earnings, we are raising our price target from $25 to $30, or 33x our 2008 EPS estimate of $1.17, discounted back one year at 25%. Contact Us for Full Report - PDF

09.07.05 

nktr: EXUBERA PANEL DOCS OUT; NO SHOW STOPPERS; PULMONARY SAFETY NOT AN ISSUE; CLINICAL DATA SOLID FOR BROAD USE
We have reviewed the FDA documents that were posted to the website this morning and our initial assessment of the 240-page Pfizer briefing and FDA documents suggests that there are no showstoppers regarding the Exubera NDA filing, and we continue to believe a recommendation for approval for the general diabetes population is likely. Most significant in the FDA review documents is that the pulmonary reviewers conclude that there is sufficient data, in terms of both numbers of patients and duration of therapy, to assess pulmonary safety in the general population (no underlying lung disease) which suggests to us that Pfizer will not have to perform more safety trials prior to an approval. The language and tone from the pulmonary review also appear to support a vote for approval as they systemically review safety risk parameters, and find stable long-term pulmonary safety measures (FEV1 and DLCO) for Exubera-treated patients. This supports our previous analysis and indications from other 3rd parties (Dr. Jay Skyler conference call last week) that the pulmonary division is not likely to stop, but rather support product approval. Efficacy data review by the FDA also appears to be in line to support an approval, as expected. We note that the documents refer to an NDA filing date of December 27, 2004, with a PDUFA goal date of October 27, 2005. With NKTR shares up 10% today, we conclude that many of the 8M+ short shares are covering which we believe is a very good idea for those who refused to believe until the very end. Here's the link: Contact Us for Full Report - PDF

08.24.05 

nktr: HOLDING OUR BREATH; EXUBERA PANEL PREVIEW: SEPTEMBER 1 CONFERENCE CALL WITH J. SKYLER, 'ASTONISHED IF PANEL DON'T VOTE YES'
We recommend investors aggressively increase NKTR positions in the next two weeks in front of the September 8 Exubera panel meeting, as we fully expect a recommendation for approval. We will hold a FDA panel preview conference call at 10:30 AM, September 1, with Dr. Jay Skyler, University of Miami Medical School and a principal investigator in Exubera's Phase 3 clinical trials. Dr. Skyler, who has served on FDA panels in the past, will discuss the FDA advisory committee meeting process, the composition of the panel, and offer his insight on what to expect and his views on the outcome. We anticipate that Exubera will be the first product to market in a multi-billion dollar inhaled insulin market, driving significant earnings growth for Nektar, with expected company profitability projected in 2007 and breakout earnings growth in 2008. We continue to rate NKTR shares a Buy with a price target of $25, or 33x our 2008 EPS estimate of $1.17 discounted annually at 25%. Contact Us for Full Report - PDF

08.15.05 

nktr: FOR A SONG, AEGN ADDS HARMONY; WILL JANE RETURN?
For those who watch the pulmonary drug delivery sector, this deal comes as no surprise and the timing for AEGN shareholders, most notably Chairman Jane Shaw (who just left Aerogen in June as CEO), could work very well as AEGN was running on fumes (de-listed from NASDAQ last month) and NKTR currency looks cheap with an upcoming September 8 Exubera FDA panel meeting potentially lifting NKTR shares if the panel recommends approval as we expect. Dr. Shaw, former President of Alza and well known and respected on Wall Street, struggled to get funding for Aerogen, which went public in November 2000. According to SEC filings, Jane owns 5% of AEGN shares directly and we suspect may have indirect control of as much as 15% through two other northern California venture capital firms. It has been widely known that Aerogen was seeking an exit strategy through a sale or merger for the past two years. This deal appears to be the best choice, perhaps by far, from a strategic perspective and gives AEGN shareholders the most upside from turning 75% of their investment into NKTR stock that appears to be trading at a discount to where it should, in our opinion. Contact Us for Full Report - PDF

08.05.05 

nktr: ALL EYES ON SEPT 8 PANEL MEETING: NATURAL AMLN HEDGE
We continue to anticipate that Exubera will be the first product to market in a multi-billion dollar inhaled insulin market, driving significant earnings growth for Nektar, with company profitability projected in 2007 and breakout earnings growth in 2008. We are reiterating our Buy rating given Exubera's strong prospects, and our price target of $25, or 33x our 2008 EPS estimate of $1.17 discounted annually at 25%. We note for long-term Amylin (AMLN: Buy) investors, we believe shares of NKTR offer a natural hedge against near-term AMLN volatility on product launch speculation. Contact Us for Full Report - PDF

07.21.05 

nktr: EXUBERA FDA PANEL MEETING SCHEDULED FOR SEPT 8 - INCREASING VISIBILITY, DECREASING UNCERTAINTY
We have learned through the FDA website that an Exubera panel meeting has been scheduled for September 8. This is the first confirmation of the timing of a panel meeting for Exubera, which we suspected could come in September. The confirmed and timely meeting for Exubera, roughly 8 months following Pfizer's NDA submission, increases the visibility on the regulatory progress of the product in the U.S., and suggests to us that Pfizer's filing is complete, reviewable, and sufficient to support a potential approval. We believe Exubera is approvable, and based on our discussion with physicians, panel discussions regarding pulmonary safety are more likely to impact the product's label and required post marketing studies, as opposed to approval status. With visibility improving and uncertainty decreasing, we believe shares of NKTR have an improving and compelling risk/reward profile, and we reiterate our Buy rating on the shares. Contact Us for Full Report - PDF

07.20.05 

nktr: EUROPEAN 'APPROVABLE LETTER' EU CHMP VOTES YES, BUT FORMAL APPROVAL MAY COINCIDE WITH U.S. IN OCTOBER
Investors looking to own NKTR shares on the dips with a lower risk profile, here is your chance. The Committee for Medicinal Products for Human Use (CHMP) voted to support Exubera approval after its late June meeting (the report may come out next week), however based on a request by Pfizer/Sanofi-Aventis to submit additional information (we suspect related to the inhaleable device, not the clinical data, not safety data), the formal EU approval may not come until October. Our suspicion is that Pfizer is not quite ready to launch Exubera now anyway, so a European approval would not change the plan for the launch which we suspect will be a global launch at year-end focusing on 2006. (We have no EU or U.S. Exubera sales in our model for 2005, so this changes nothing.) Short-term (very short) oriented investors sensing some delay apparently may have been baling out on this news, but this makes no sense to us at all. After a decade of development, what is another few months, and we now know that CHMP (ok, unofficially) voted for approval. Hey, that is a lot of risk that just came out of this story. Folks, they are not asking for more safety data. There is not the faintest hint of a rejection from over the pond. And frankly, an EU approval that coincides with U.S. approval (PDUFA end of October) makes life a lot easier for everybody, in our view. So take a deep breathe, sit back, relax and by all means, own more NKTR shares. Exubera is coming. And by the way, for those who stare at the BTK index thinking they have missed the biotech rally, NKTR is one of the increasingly few trains who have not left the station, trading, dare we say astonishingly, below year-end, below when Pfizer announced it filed Exubera NDA, and now still down YTD with EU effectively giving Exubera an approvable letter. Contact Us for Full Report - PDF

05.26.05 

nktr: BREATHE DEEP - ADA ABSTRACTS SUPPORT EXUBERA APPROVAL
Abstracts from the upcoming ADA meeting (June 10-14, San Diego, CA) have been released and include eight separate abstracts surrounding Exubera. A key presentation includes two-year safety data in Type 2 diabetics, which will be presented as an oral poster. Additional abstracts include short-term efficacy and pulmonary data in Type 1 diabetics. We conclude that these data, in aggregate, should help support a full NDA approval for Exubera later this year. Potential catalysts going forward include more ADA developments, potential European approval perhaps as early as June, the potential acquisition of European marketing rights by Pfizer from Sanofi-Aventis, an expected FDA panel meeting on Exubera potentially in September or October, and expected FDA approval on or shortly after October 28, 2005 (the ten-month PDUFA) date. Nektar Therapeutics is our favorite idea with multiple visible potential catalysts over the next six months which we believe could allow the stock to reach our target price of $25. Contact Us for Full Report - PDF

05.25.05 

nktr: MORE THAN MEETS THE EYE-NEKTAR MAKES MACUGEN WORK
We reiterate our Buy rating and $25 price target, 33 times our 2008 EPS estimate of $1.17 discounted annually at 25%. This report highlights Macugen, developed by Eyetech Pharmaceutical (EYET/Not Rated) using Nektar's drug delivery technology. Macugen was approved in December for AMD (age-related macular degeneration) and launched and marketed by Pfizer. Nektar receives royalties from Macugen sales. Contact Us for Full Report - PDF

05.12.05 

nktr: INITIATING COVERAGE WITH A BUY; STANDING ON THE SUMMIT
We are initiating coverage of Nektar with a Buy rating and $25 price target, 33 times our 2008 EPS estimate of $1.17 discounted annually at 25%. We anticipate that Exubera will be the first product to market in a multi-billion dollar inhaled insulin market, driving significant earnings growth for Nektar, with company profitability projected in 2007 and breakout earnings growth in 2008. We forecast an Exubera product launch in the U.S. in H1:06, with global sales of $2 billion by 2008. Nektar is our top diabetes pick given Exubera's strong commercial prospects and we rate the shares a Buy. Contact Us for Full Report - PDF