Sep 272013

Nektar’s NKTR-181 Disappoints, Misses Primary Endpoint on Mixed Phase II Data –
Preliminary top-line results from a Phase II trial of NKTR-181(‘181) for the treatment of moderate-to-severe chronic pain in patients with osteoarthritis of the knee missed their primary endpoint due to a unusual lack of a placebo rebound.  The drug candidate was shown to be effective and reduced pain in almost all patients treated.  ‘181 also showed an excellent safety profile with a significant reduction in CNS side effects, as it was designed to do.  However, the strong efficacy and side effect profile were counter balanced by the placebo patients not rebounding as quickly as expected, causing the trial to miss its primary endpoint.  Because this was only top-line data release, we are lacking some key details including the exact placebo rebound rate and the p-value.  Additional color on the trial will be provided at the upcoming NKTR R&D day October 8th in New York.

NKTR-181 is Active, Appears Effective – The Phase II trial utilized a double-blind, placebo-controlled, randomized withdrawal study design to assess the efficacy, safety and tolerability of ‘181. Of the 295 patients that entered the study, 97% achieved meaningful pain relief with ‘181, meaning just 3% or only 9 patients failed to demonstrate pain relief on the drug.  A total of 213 patients achieved an average 40% reduction in pain and entered the randomized phase of the trial. Following the titration period, patients were randomized 1:1 to either continue to receive ‘181 or to receive placebo for 21 days.  The drug candidate performed as expected as an opioid analgesic throughout the study, with patients continuing to show a reduction in pain scores throughout the randomized phase of the study as well.  The overall mean pain score entering the trial was 6.8 on a scale of 1-10.  After treatment, patients had a significant reduction in mean pain for an average score of 3.9.  The unusual lack of a placebo rebound caused the Phase II trial to miss the primary endpoint, which was based upon the average change in a patient’s pain score from pre-randomization baseline to the end of the double-blind, randomized treatment period of the trial.  One potential theory on why the placebo patients did not know they were off drug – the lack of CNS side effects are what usually signal a patient that they are “off drug”, or in common vernacular, when you no longer get a “buzz” you know you are not on drug and are actually on placebo.

Minimal Side Effects, Unlikely Abuse/Addiction – NKTR-181 was also well-tolerated over the entire treatment period. The most common adverse events observed for patients taking NKTR-181 were constipation (22.4%) and nausea (10.3%). Discontinuation for adverse events was 18% during the titration period with the most common adverse events cited for discontinuation of constipation (8.8%), nausea (4%) and somnolence (3%).   ‘181 side effects are all normal for this class of drugs with the noted benefit of little to no CNS problems, hence there is a low likelihood of abuse/addiction.

Next Steps, FDA Meetings/Phase III Trials – The data demonstrated that ‘181 is active and safe, and NKTR expects that the molecule will be advanced into pivotal trials.  The drug candidate has already been granted Fast-Track designation from the FDA given its potential to address multiple shortcomings of current opioids.  Fast track status will provide for a quick turn around on discussions regarding Phase III design for ‘181 allowing NKTR to proceed into pivotal trials.  In our view, the FDA should not have any problem signing off on ‘181 for an agreed upon Phase III development program, given the strong combination of efficacy and safety seen to date.  In fact, the FDA should have some constructive feedback on placebo effects and trial design for NKTR given their vast experience in regulating this drug class.

It is important to remember that this was a Phase II proof-of-concept trial and was undertaken to show that ‘181 is effective, safe, and has a significantly cleaner side effect profile than currently abused and sometimes life-threatening opioids.  In our view, despite the placebo problem, all of these objectives were achieved.  In addition, based on the successful HAL studies released in June, ‘181 has shown that it has no interest for drug abusers as they can not get high on the compound.  The mixed data and failed primary endpoint is disappointing, but ‘181 is a new chemical entity and, therefore, may require some new clinical trial designs as well.  However, in our view, ‘181 is still on track to proceed into Phase III development. In aftermarket trading, NKTR shares were, in our view, discounting complete failure of this compound. We believe while data represents a setback, there is a lot of value remaining to be seen in NKTR-181.

NKTR is a BUY under 13 with a TARGET PRICE of 20