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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.
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.
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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