AZN: Nektar Deal to Add Value

Recently, AstraZeneca (AZN - Analyst Report) entered into a licensing deal with Nektar Therapeutics (NKTR - Snapshot Report) for two of its pipeline candidates, NKTR-118 and NKTR-119. With the former having completed a phase II trial for the treatment of opioid-induced constipation, the latter, in early stage of development, is intended to treat pain without constipation side effects.

Nektar will receive an upfront payment of $125 million for both the candidates. In addition, for NKTR-118, Nektar has the potential to receive $235 million of milestone payments on achieving certain regulatory milestones, as well as additional tiered sales milestone payments of up to $375 million if the drug succeeds in recording strong sales.

The company will also receive double-digit royalty payments on global sales of the drug. For NKTR-119, Nektar is also supposed to receive milestone and royalty payments.

Per the deal, AstraZeneca will carry on the development of both the drugs and expects to file a New Drug Application (NDA) for NKTR-118 in 2013. It is estimated that 40-90% of patients taking opiates for pain management will develop constipation. According to IMS Health, about 230 million prescriptions were written for opioids in 2007 in the US alone, representing about 65-75% of the total global market. Both NKTR-118 and NKTR-119 can garner a significant market on approval due to the absence of any approved oral drug to treat opioid-induced constipation.

The gastrointestinal franchise of AstraZeneca accounted for 20% of its sales in 2008. The company’s highest-selling drug, Nexium, a second-generation proton pump inhibitor (PPI) for ulcers and acid-reflux disease, recorded sales of $1.2 billion in the second quarter of 2009, down 6%.

We believe sales of Nexium have now peaked and will experience an accelerated decline due to generic and OTC competition in the US from older-generation PPI drugs such as Prilosec, Wyeth’s (WYE) Protonix and Abbott’s (ABT - Analyst Report) Prevacid. We believe that the recent deal with Nektar is an indication that the company intends to strengthen further this segment to reduce the effect of declining Nexium sales.

Read the full analyst report on AZN

Read the full analyst report on NKTR

Read the full analyst report on ABT

Read the full analyst report on WYE