Why Is Nektar (NKTR) Up 11.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Nektar Therapeutics (NKTR). Shares have added about 11.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Nektar due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers. <p style="text-align: justify;"><strong>Nektar Q2 Earnings In Line, Product Sales Down Y/Y</strong></p><p style="text-align: justify;">Nektar Therapeutics reported earnings of $5.33 per share in the second quarter of 2018, matching the Zacks Consensus Estimate. The company had recorded a loss of 39 cents per share in the year-ago period.</p><p style="text-align: justify;">Quarterly revenues were $1.09 billion compared with the year-ago figure of $34.6 million. The significant increase in revenues was attributable to upfront fees received from Bristol-Myers related to new strategic collaboration agreement entered into in April. The top line beat the Zacks Consensus Estimate of $1.04 billion.</p><p style="text-align: justify;"><strong>Quarter in Detail</strong></p><p style="text-align: justify;">The top line comprised product sales, royalty revenues, non-cash royalty revenues besides license, collaboration and other revenues.</p><p style="text-align: justify;">In the second quarter, product sales declined 62.6% to $5.9 million from $15.7 million a year ago.  However, non-cash royalty revenues increased 36.3% to $9 million.</p><p style="text-align: justify;">The company reported royalty revenues of $8.6 million in the quarter, registering an improvement of 15.2% from $7.4 million a year ago.</p><p style="text-align: justify;">License, collaboration and other revenues came in at $1.06 billion compared with $4.8 million in the prior year. In April 2018, the company signed a new strategic collaboration agreement with Bristol-Myers, replacing its earlier clinical collaboration agreement to develop Nektar’s cancer candidate, NKTR-214, in combination with Bristol-Myers’ Opdivo and/or Yervoy. This agreement triggered an upfront payment of $1.1 billion and purchase of $850 million worth of Nektar’s common shares by Bristol-Myers.</p><p style="text-align: justify;">Research and development (R&D) expenses escalated 46.4% to $88.3 million, primarily due to investments in pipeline including key candidates NKTR-358, NKTR-214 and NKTR-181. It also included costs related to filing of a NDA for NKTR-181.</p><p style="text-align: justify;">General and administrative (G&A) expenses were up 26.9% to $20.3 million in the reported quarter primarily due to higher stock-based compensation expenses.</p>

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Nektar has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Nektar has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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