Why Nektar Therapeutics Shares Are Soaring 13% Higher

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What happened

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After the company reported third-quarter earnings that were better than industry watchers' forecasts, shares in Nektar Therapeutics (NASDAQ: NKTR) are popping 13.1% higher today as of 2:45 p.m. EST.

So what

Nektar Therapeutics' third-quarter top- and bottom-line figures came in ahead of analysts' forecasts. The company's sales increased $152.9 million from $36.3 million in the third quarter of 2016, and its net income of $60.9 million, or $0.39 per share, marked a big improvement from its net loss of $43.2 million, or $0.32 in the same quarter of 2016.

The increase in revenue and profit was due largely to it recording $127.6 million of a $150 million upfront cash payment from Eli Lilly & Co. (NYSE: LLY). Eli Lilly signed on to collaborate with Nektar Therapeutics on NKTR-358 in July. NKTR-358 is a first-in-class therapeutic that targets immune system imbalances that are associated with various autoimmune diseases by boosting regulatory T-cell production.

Nektar Therapeutics also recorded $9.3 million in royalty revenue from partners, up from $5.6 million in Q3 2016. Noncash royalty revenue and product sales accounted for the remainder of the quarter's revenue.

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Offsetting some of the cash influx last quarter were growing operating expenses. Operating costs climbed to $83.4 million in the third quarter from $69.2 million last year, primarily because of an increase in research and development (R&D) spending. The company's R&D spending grew in part because of the development of NKTR-181, a first-in-class opioid analgesic designed to relieve pain without the high levels of euphoria traditionally associated with opioid medications. 

Now what

Following positive phase 3 trial results for NKTR-181, Nektar Therapeutics plans to file for FDA approval of the drug by April 2018. There's a huge unmet need for new pain relievers that don't have the same addictive qualities as opioids, which suggests that if this drug is eventually approved, it could win a meaningful share of the $12 billion annually spent on opioid medications for pain relief. 

In addition to NKTR-181, Nektar Therapeutics has a flurry of immuno-oncology research underway that should provide a steady stream of data over the coming couple of years. It may also enjoy future payments from Eli Lilly on NKTR-358 because Eli Lilly has agreed to pay up to $250 million more if NKTR-358 achieves development and regulatory milestones.

Overall, this is an exciting time to be an investor in Nektar Therapeutics, but that doesn't mean that this stock is a risk-free investment. Biotech stocks are notoriously volatile, and Nektar Therapeutics isn't immune to setbacks such as regulatory or clinical trial failures. Nevertheless, risk-tolerant investors might want to add Nektar to their watch list because it could become a much bigger company in the future if a few things go its way. 

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.