This Megadeal Caused Nektar Therapeutics' 11% Spike Today

What happened

After Bristol-Myers Squibb (NYSE: BMY) inked a multibillion-dollar deal for licensing rights to NKTR-214, Nektar Therapeutics' (NASDAQ: NKTR) shares rallied 11.02% on Wednesday.

So what

Nektar Therapeutics' promising pipeline of drugs helped turn its shares into one of 2017's top-performing stocks and the momentum continued today following news that big-cap biopharma Bristol-Myers has agreed to pay big money for 35% of the potential profit associated with NKTR-214.

Specifically, Bristol-Myers Squibb is paying Nektar Therapeutics $1.85 billion up front, comprising $1 billion in cash and an equity investment of $850 million. The former has also agreed to pay the latter an additional $1.78 billion in milestones, of which $1.43 billion is tied to development and regulatory milestones, with the remainder payable if NKTR-214 achieves specific sales milestones.

In return, Bristol-Myers Squibb gets nearly 8.3 million shares of Nektar Therapeutics at a price of $102.60 per share, and if NKTR-214's trials succeed, it can receive 35% of its global profit. Nektar Therapeutics retains the right to evaluate NKTR-214 in combination with other cancer drugs, so long as those relationships don't target the same mechanism of action as studies being conducted with Bristol-Myers Squibb.

Bristol-Myers Squibb will pick up a substantial amount of the tab associated with combination studies that involve NKTR-214's use alongside its Opdivo and Yervoy. It will also cover 67.5% of development costs for studies involving only NKTR-214 and Opdivo, and will pay 78% of the costs having to do with triplet studies that include NKTR-214, Opdivo, and Yervoy.

Now what

Rumors have been swirling that a deal could be in the works for Nektar Therapeutics lock, stock, and barrel and this licensing agreement provides compelling conviction that Nektar Therapeutics is on to something big with NKTR-214, a solid-tumor cancer drug that activates T cells and natural killer cells directly in tumors and increases PD-L1 expression so that immuno-oncology drugs like Opdivo work better.

Bristol-Myers Squibb's deal suggests that it thinks data from ongoing NKTR-214 will be good. Prior results include a 91% disease control rate in 11 treatment-naive stage IV melanoma patients, a 79% disease control rate in 13 first-line stage 4 kidney cancer patients, and 75% disease control rate in four stage 4 non-small cell lung cancer patients. Additional data from trials, including a previously ongoing combination of NKTR-214 plus Opdivo, are expected soon.

Nektar Therapeutics also has another important catalyst fast approaching. It plans to file NKTR-181 for Food and Drug Administration approval in chronic back pain during Q2 2018. NKTR-181 is intriguing because it's a slow-release medicine that results in less euphoria than existing opioid pain treatments.

Overall, I think this deal is a win because Nektar Therapeutics lands a deep-pocketed partner with extensive experience in NKTR-214's target indications while also retaining significant optionality on this drug. Furthermore, it gives Nektar Therapeutics the option still to find a collaboration partner on NKTR-181 and other cancer-fighting drugs further back in its pipeline.

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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.