Motely Fool Article(6/26/13)
Nektar Therapeutics (NASDAQ: NKTR) announced data last week that could become a breakthrough in the largest healthcare market in the U.S. – but how much is this “breakthrough” worth to you? The company has a proven technology and is looking to own the pain management market by removing the risk of addiction.
On June 19, Nektar announced that NKTR-181 rated similarly to a placebo in “drug liking” and “feeling high” scores compared to oxycodone in its human abuse liability study. NKTR-181 is a non-addictive opioid painkiller that is currently being tested in Phase 2 trials.
The word “opioid” is almost always linked to abuse and/or addiction, as opioid drug overdose rates have more than tripled since 1990. In fact, opioid abuse is the fastest growing drug problem in the U.S., with more than 12 million people reported using painkillers for non-medical purposes.
Nektar’s NKTR-181 is an opioid, but uses Nektar’s technology to change the delivery of the drug. For example, peak levels of concentration are reached in just 11 minutes with oxycodone, allowing for easy abuse with excessive dosing.
With NKTR-181, it takes 2.9 hours to reach peak levels, and the molecular structure of the drug itself has been redesigned to be “tamper-resistant,” meaning it’s unlikely that abusers would find a way to circumvent its slow entry.
For the last five years companies have attempted various methods to fight the war on prescription drug abuse. This is a massive market in every sense of the word. Hydrocodone is the most prescribed drug in the U.S., with more than 130 million scripts annually, and oxycodone also ranks in the top 20 with more than 50 million scripts. In total, the world market for pain management is estimated at $35 billion; very close to that of the diabetes market.
Currently, Oxycontin dominates this market in revenue, with $3.5 billion in annual sales, and that's growing at a double digit rate. However, this “pain market” also consists of drugs that were developed to aid in the addiction market, which was created due to the pain market. Reckitt Benckiser’s (LSE: RB) drug Suboxone is an opioid antagonist, or a partial opioid, that blocks the same receptors as oxy/hydrocodone but with a lower dosage that prevents the “high” feeling.
Suboxone was introduced to the market in 2002 and now generates $1.5 billion in annual revenue, growing at 30% year-over-year. Since its introduction, Reckitt Benckiser’s stock has risen 375%. However, its entire health segment is Suboxone, which makes up more than 15% of its total sales and 40% of its profits.
More Than Just Pain Management
Drugs such as Suboxone and Methadone only exist because of the viscous cycle of use, abuse, and recover that plague so many who take opioid medications. Nektar’s drug could leave a major footprint in the industry, as a drug that helps patients eliminate their pain, but removes the risk associated with addiction. If we use the $3.5 billion in annual revenue from OxyContin to project peak sales, then Nektar, with a $1.2 billion market capitalization, could produce significant gains.
The investment outlook for Nektar is not just NKTR-181, but also its pipeline and its technology. NKTR-181 is a Phase 2 drug, but if we use three times peak sales (industry average), then this one product could warrant a market capitalization north of $10 billion if $3.5 billion in peak sales are reached.
However, the company also has a Phase 3 metastatic breast cancer drug (NKTR-102) and a Phase 3 drug for opioid induced constipation (OIC) drug (NKTR-118) with partner AstraZeneca. In total, the company has almost 20 clinical and preclinical programs – but also a technology (PEGylation) that is used in conjunction with various products that generate over $7 billion annually.
Conclusion
In my opinion, Nektar could become one of the greatest investment opportunities in the market. The company produced over $80 million in product licenses last year, but this is only a fraction of what it could create if its opioid market is developed properly. NKTR-181 is already showing unprecedented upside, with opioid pain relief and placebo-like effects. As a collection, Nektar looks to have the entire package, and with a market cap of $1.2 billion, we could see large upside as the company enters these massive markets. |
