We believe that Nektar Therapeutics stock (NASDAQ: NKTR), a biopharmaceutical company focused on discovering and developing medicines in areas that include cancer, autoimmune disease, and chronic pain, is a good buying opportunity at the present time. NKTR stock trades near $16 currently and it is, in fact, down 32% from its pre-Covid high of around $23 seen in February 2020 – just before the coronavirus pandemic hit the world.
NKTR stock has had a volatile ride so far this year. It rallied from levels of around $16 at the beginning of the year to over $25 in Feb, before seeing a gradual decline to levels of $16 currently. The decline can partly be attributed to the lack of activity as the company’s major findings from its studies for the drugs in its pipeline are expected to be out later this year and early next year. While NKTR stock can offer 48% upside if it recovers to pre-Covid levels, the gains will be much higher if the outcome of the clinical trials is positive. While NKTR stock has seen lower levels during the current Covid-19 crisis, how did it fare in the 2008 crisis? In this note we focus on a comparative analysis of Nektar Therapeutics stock during the 2008 recession vs now in our interactive dashboard.
Timeline of 2020 Coronavirus Crisis:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- Since 3/24/2020: S&P 500 rallies 102% from the lows seen on Mar 23, 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here is how NKTR stock and the broader market fared during the 2007-08 crisis
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
Nektar and S&P 500 Performance Over 2007-08 Financial Crisis
NKTR stock declined from levels of about $9 in October 2007 (pre-crisis peak) to levels of $4 in March 2009 (as the markets bottomed out), implying NKTR stock lost 50%. It staged a strong recovery post the 2008 crisis, rallying 108% to levels of $9 by January 2010. In comparison, the S&P 500 Index saw a decline of 51% from its peak in October 2007 and to its bottom in March 2009, followed by a sharp recovery of 48% by January 2010.
What About Nektar’s Fundamentals Over Recent Years
Nektar’s revenues decreased from $0.3 billion in 2017 to $0.1 billion over the last twelve-month period. Revenues were north of $1 billion in 2018, primarily from a strategic collaboration with Bristol-Myers Squibb. For Nektar, the value lies in its pipeline which includes cancer treatments such as Bempeg, that can potentially generate multi-billion dollars in peak sales. For now, there is not much to look at in the numbers. The company also has more expenses with investments in R&D, and this has resulted in its loss per share widening from $0.62 per share in 2017 to $2.49 per share for the last twelve-month period.
Does Nektar Have Sufficient Cash Cushion To Meet Its Obligations?
Nektar’s total debt has decreased from $245 million in 2017 to $148 million currently, while its total cash increased from $296 million in 2017 to over $1.0 billion currently. Nektar spent $311 million in cash for its operations in the last twelve-months period. The company has enough liquidity to weather the current crisis.
Phases of Covid-19 Crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment. Multiple countries have undertaken large-scale vaccine programs for Covid-19, though new variants of coronavirus resulted in an uptick in active cases.
Overall, NKTR stock looks like it can see a rebound in the near term, in our view. Even if we look at the average of analysts price estimates of $31, it reflects nearly 2x upside from the current levels.
While NKTR stock can see a recovery, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for IDEXX vs Vertex.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.