Recently, Nektar Therapeutics (NKTR) presented data from its phase II trial of oral NKTR-118, meant for the treatment of opioid-induced constipation. The data was presented at the American Academy of Pain Management’s 20th Annual Clinical Meeting in Phoenix, AZ. The drug met the primary endpoint of increase in spontaneous bowel movement over the baseline period along with no reduction of opioid-mediated analgesia in any dose groups. In addition, NKTR-118 was well tolerated, the common side effects being dose-dependent gastrointestinal-related effects.

In September, AstraZeneca (AZN) had entered into a licensing deal with Nektar Therapeutics for two of its pipeline candidates, NKTR-118 and NKTR-119. While the former is a phase II trial candidate, the latter, in its early stage of development, is intended to treat pain without constipation as a side effect.

We believe the deal will be beneficial to both the companies. In addition to receiving an upfront payment of $125 million for both the candidates, Nektar has the potential to receive further funds in the form of milestone payments and double-digit royalty payments on global sales of the drug. Nektar’s financial burden will ease a bit as AstraZeneca will take over the development of both the drugs and expects to file a New Drug Application (NDA) for NKTR-118 in 2013.

AstraZeneca’s gastrointestinal franchise accounted for 20% of its sales in 2008. The recent deal with Nektar is an indication that the company intends to further strengthen this segment to reduce the effect of declining Nexium sales, the company’s highest selling drug. The drug, 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% compared to the year ago period.

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  Wyeth’s (WYE) Protonix, and Abbott’s (ABT) Prevacid.

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.

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