Nektar's $2.8 Billion Licensing Pact Leaves Options Open

(Bloomberg) -- Nektar Therapeutics’s shares gained Wednesday after the company struck a licensing deal with Bristol-Myers Squibb Co. worth as much as $2.8 billion for partial rights to its promising cancer drug.

While some investors had hoped for an outright takeover, the agreement leaves many rights with Nektar, including the freedom to strike similar arrangements with other drugmakers in the future. Nektar has been exploring options including partnerships or a potential sale, people familiar with the matter said earlier this month.

Under the agreement with Bristol-Myers, Nektar will get $1 billion upfront and another $1.78 billion if its drug NKTR-214 hits certain development and sales goals, the companies said in a statement. Bristol-Myers will also buy $850 million in Nektar shares.

Nektar gained 13 percent to $85.54 at 1:53 p.m. in New York, valuing the drugmaker at more than $13 billion. The shares were already up more than fivefold in the last twelve months, as of Tuesday’s close.

Under the terms of the deal, Bristol-Myers will assume many of the development costs, while Nektar will keep most of the profit.

“This is a very impressive collaboration for Nektar in our view,” said David Steinberg, an analyst with Jefferies Group who recommends buying the shares.

The gains later in the day Wednesday reversed a pre-market drop in the shares as some investors might have hoped for a full takeover. The company’s high valuation and a lack of extensive testing of the drug may have deterred an outright buyer, said Bloomberg Intelligence analyst Asthika Goonewardene.

“Going for a licensing deal made much more sense than M&A” for Bristol-Myers, Goonewardene said in an email. “It was the reality check the Nektar bulls needed.”

Nektar's $2.8 Billion Licensing Pact Leaves Options Open

The agreement gives Bristol-Myers the rights to a promising experimental cancer medicine that appears to work well in combination with its own bestseller Opdivo. While Opdivo has been a commercial success, Bristol-Myers has suffered a handful of clinical stumbles in its race against Merck & Co., which has a similar treatment.

The results of a study that tested NKTR-214 with Opdivo raised hopes that Nektar’s drug could improve the effectiveness of a class of cancer treatments called checkpoint inhibitors, which also includes Opdivo and Merck’s drug Keytruda.

While powerful, checkpoint inhibitors only appear to help about a third of patients, so drugmakers have been hunting for combination candidates that may expand the population of people who can benefit.

Pact Terms

Under the agreement, the two companies will jointly develop and commercialize NKTR-214 in combination with Opdivo and another Bristol-Myers medicine called Yervoy in more than 20 uses across nine different types of tumors. They will also study potential combinations with other cancer medicines.

And while Nektar will be able to work with others, the agreement may block it from partnering with Merck and other makers of Opdivo’s closest competitors. Under the agreement, Bristol-Myers and Nektar “agreed for a specified period of time to not commence development with overlapping mechanisms of action in the same indications as those included in the joint clinical development plan.”

Nektar Chief Executive Officer Howard Robin said his company will set the price of the drug, book the sales and get 65 percent of any profits.

“This is a collaboration, not an outlicense,” Howard said on a conference call. Nektar will have a three-year waiting period before it can make another development agreement to combine its drug with one in the same category as Bristol-Myers’s.

Bristol-Myers’s purchase of Nektar shares comes with a five-year lockup period, the companies said. It will pay $102.60 a share for almost 8.3 million Nektar shares. That’s 36 percent above Tuesday’s close.

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