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Is a Beat in the Cards for Nektar (NKTR) in Q2 Earnings?

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We expect Nektar Therapeutics (NKTR - Free Report) to beat estimates when it reports second-quarter 2018 results on Aug 8, after market close.

Nektar’s earnings performance has been a mixed bag over the trailing four quarters. While the company surpassed expectations in two of the last four quarters, it missed the same in the remaining two, delivering an average beat of 28.14%.

However, shares of Nektar have underperformed the industry so far this time. The stock has declined 11.8% compared with the industry’s decrease of a mere 0.2%.

In the last reported quarter, Nektar came up with a negative earnings surprise of 15.38%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Nektar earns revenues from product sales (manufacturing and supply agreements), royalties on sales of partnered drugs, payments related to license and collaboration agreements and non-cash royalty revenues. AstraZeneca’s Movantik is one of the drugs for which Nektar receives sales royalty. However, the drug’s sales have declined in the second quarter, as reported by AstraZeneca, which will impact Nektar’s royalty revenues unfavorably.

The company is also developing several candidates in its pipeline, which includes its lead candidate, Onzeald (pain management) and NKTR-214 (an immuno-stimulatory CD122-biased agonist). Nektar has a collaboration with multiple drug companies to develop NKTR-214 in combination with their cancer candidates.

Nektar’s cash position is expected to get a significant boost with the $1 billion upfront fee in cash and $850 million from purchase of common stock paid by Bristol-Myers (BMY - Free Report) . These payments were made related to the development and commercialization collaboration for developing NKTR-214 in combination with Bristol-Myers’ cancer drugs, Opdivo or Yervoy. Apart from this agreement, Nektar has signed two other collaboration agreements with Takeda and Syndax Pharma for developing NKTR-214 combination regimens during the quarter.

In May, the company submitted a new drug application seeking approval for NKTR-181 for treating chronic low back pain in patients new to any opioid therapy. Moreover, during the quarter, Nektar initiated two separate early-stage clinical studies for evaluating a combination of NKTR-262 and NKTR-214 in solid tumors, and NKTR-358 in systemic lupus erythematosus. These factors are expected to increase operating expense during the quarter.

We expect investors to focus on commercialization plan for NKTR-181, following a potential approval and updates on pipeline candidates, especially NKTR-214.

Earnings Whispers

Our proven model shows that Nektar is likely to beat on earnings in the soon-to-be reported quarter because it has the perfect combination of the two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Nektar has an Earnings ESP of +0.41%, which indicates a likely earnings surprise. The Zacks Consensus Estimate is pegged at $5.33 per share, while the Most Accurate Estimate stands at $5.35 per share.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The combination of Nektar’s Zacks Rank #3 and a positive ESP makes us reasonably confident of a likely positive surprise.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are a couple of other healthcare stocks with the right combination of elements to beat on earnings this time around:

BioDelivery Sciences has an Earnings ESP of +3.23% and a Zacks Rank #2. The company is scheduled to release second-quarter results on Aug 9. You can see the complete list of today’s Zacks #1 Rank stocks here.

Horizon Pharma has an Earnings ESP of +2.56% and a Zacks Rank of 3. The company is expected to release second-quarter results on Aug 8.

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