Stressing the collaborative nature and "limited scope of exclusivity" of Nektar Therapeutics Inc.'s immuno-oncology (I-O) deal with Bristol-Myers Squibb Co. (BMS), Howard Robin, Nektar's president and CEO, touted the "transformative" nature of the potential $3.63 billion pact covering NKTR-214. The alliance provides Nektar with $1.85 billion up front – $1 billion in cash and the remainder through an $850 million purchase of approximately 8.28 million Nektar shares (NASDAQ:NKTR) at $102.60 apiece, a 35 percent premium to Tuesday's closing price of $75.66 per share.

The companies will evaluate the potential of NKTR-214 with Opdivo (nivolumab) or Opdivo plus Yervoy (ipilimumab) in registration-enabling trials in more than 20 indications across nine tumor types. BMS obtained exclusive rights in the indications included in the joint development plan for a specified time period. Targeted indications include melanoma and renal cell carcinoma (RCC), for which pivotal trials of the combination approach are expected to start mid-year, along with non-small-cell lung cancer (NSCLC), bladder and triple negative breast cancer.

Nektar, of San Francisco, is entitled to downstream milestones of $1.78 billion, including $1.43 billion in development and regulatory milestones, with the remainder linked to sales. Moreover, Nektar will book revenue for global sales of NKTR-214, recognizing a 65 percent split of global profits for NKTR-214, with BMS receiving the remaining 35 percent along with 100 percent of revenues for its own medicines.

BMS also will shoulder 67.5 percent of the development costs in the collaboration – 67.5 percent for joint NKTR-214/Opdivo development and 78 percent for trials that include NKTR-214 with Opdivo and Yervoy.

No matter how many trials are started in a given year, Nektar's expenses in the joint program are capped at $125 million annually, Robin said.

Nektar's stock started in the red Wednesday but gained lift as investors wrapped their arms around details of the deal, whose up-front economics set a new biopharma partnering standard – by a long shot, according to data from BioWorld and Cortellis Deals Intelligence. Shares closed at $84 for a gain of $8.34, or 11 percent.

Nektar and BMS inked their clinical collaboration in 2016 to evaluate the potential combination of Opdivo and NKTR-214. But BMS saw the potential in NKTR-214, which binds to the CD122 receptor on the surface of CD8-positive and CD4-positive immune cells, as far back as a phase I monotherapy study that included an extensive biomarker program, Stephen Doberstein, Nektar's senior vice president of research and development and chief R&D officer, told BioWorld. That program showed that NKTR-214, as a single agent, caused a large increase in tumor-infiltrating lymphocytes (TILs), effectively turning cold tumors hot. Secondly, the agent tended to increase the expression of PD-1 on T cells inside the tumor.

"Those two things made it really auspicious to think about combining with a checkpoint inhibitor," Doberstein said.

Subsequent data, presented first at the 2017 annual meeting of the American Society of Clinical Oncology (ASCO) with more mature findings in November at the Society of Immunotherapy of Cancer (SITC), showed the companies hypothesized correctly "that NKTR-214 would allow the checkpoint antibodies to do their job in a broader number of patients," he pointed out.

Data presented at SITC came from the ongoing phase I/II PIVOT-02 study on the combination of Opdivo and NKTR-214, showing a compelling objective response rate and impressive disease control rate across melanoma, RCC and NSCLC in PD-L1-positive as well as the more numerous PD-L1-negative patients. (See BioWorld, Nov. 14, 2017.)

"At that point, it was very clear to us that there was great synergy" between the assets, Doberstein said. "We'd been talking all along, but this idea of reaching this very broad collaboration agreement emerged from that data."

'An exceptional set of features'

Even preclinically, NKTR-214 had an effect on the immune systems of animals with tumors that suggested "an exceptional set of features with biological changes that you just didn't see with standard immunotherapy," added Jonathan Zalevsky, Nektar's senior vice president of research and chief scientific officer. "The ability to act on the immune system the way that NKTR-214 does, even preclinically, was a missing gap in immunotherapy regimens."

In fact, the preclinical findings were confirmed "from the very first patient that we enrolled in the monotherapy," Zalevsky said, when the individual's biopsy findings showed a "massive" increase in TILs. "Right from that first patient, companies like BMS started to take notice of NKTR-214," he told BioWorld.

Looking historically across the biopharma space, "none of the up-fronts come anywhere close" to the Nektar-BMS deal among partnerships that involve traditional biotechs, according to Karen Pihl-Carey, BioWorld's analyst. In terms of total potential economics, the Nektar/BMS accord is the fifth largest biopharma collaboration on record. The others cited by Pihl-Carey were last year's $8.5 billion tie-up between Astrazeneca plc and Merck and Co. Inc. for Lynparza (olaparib); Merck's $6.3 billion preclinical I-O pact in 2015 with Ablynx NV; a potential €3.9 billion (US$4.25 billion) global diabetes deal in 2015 between Hanmi Pharmaceutical Co. Ltd. and Sanofi SA; and the potential $4.09 billion antisense therapies pact in 2015 between Ionis Pharmaceuticals Inc. (then known as Isis Pharmaceuticals Inc.) and Astrazeneca. (See BioWorld Today, July 23, 2015, Nov. 6, 2015, and Sept. 28, 2017.)

Most of these partnerships involved up-front payments in the neighborhood of several hundred million dollars or less. Even last year's arrangement between big pharmas Astrazeneca and Merck involved a smaller up front, at $1.6 billion, Pihl-Carey pointed out.

"If this [Nektar] is a deal in lieu of a potential M&A, it will be interesting to see if more follow suit," she said.

In a flash note on Nektar issued last week, Jefferies Group LLC analyst David Steinberg wrote that the company's reported evaluation of strategic options, potentially including a sale, was "not surprising in our view. Post the most recent '214 dataset three weeks ago we discussed NKTR fitting our M&A thesis now that ~90 percent of the valuation is derived from proprietary candidates. And with likely no additional '214 data until ASCO in June, the next key catalyst(s) likely will revolve around '181, partnering and corporate strategy."

Existing partner BMS "would make sense to be on the short list" of potential buyers, Steinberg added.

While deflecting talk about a rumored sale, Doberstein said Robin "has been very clear about the kind of deal that really made sense for us. Given that NKTR-214 has such broad potential applicability, we knew we couldn't do an out-licensing deal. It didn't make any sense. We knew we needed to maintain control of NKTR-214 – of the pricing, the distribution and the revenue from sales. Upon approval, this will have a Nektar label."

The partners plan to move combination trials forward apace.

"We want to get NKTR-214 developed as broadly and rapidly as possible," Robin emphasized on the company's conference call early Wednesday. "If these studies – all registrational studies – are not started within 14 months, they are not subject to exclusivity," enabling Nektar to move forward with other checkpoint combo relationships.

The next data from PIVOT-02 will, indeed, come in June at ASCO, for which abstracts were due Tuesday.

"By the time we are at ASCO, we should have approximately 150 patients' worth of data across all of our various expansion cohorts," including I-O naïve populations as well as some relapsed/refractory patient populations, Mary Tagliaferri, Nektar's senior vice president of clinical development and chief medical officer said. "We're not giving out the exact numbers of patients that will be enrolled to every cohort. Obviously, we're still enrolling, and enrollment is going on quite rapidly."

In the meantime, the BMS tie-up does not prevent Nektar from partnering NKTR-214 with other types of I-O assets, such as chimeric antigen receptor (CAR) T cell therapies – a combination with prospects that Robin described as "extremely interesting."

In a true win-win, the collaboration gives BMS "broad and rapid access" to the NKTR-214/Opdivo combinations "and leaves us a lot of green field to continue to develop" the asset, Doberstein said.

"Almost all of the I-O approaches that are showing any promise at all fundamentally come back to the activity of T cells to attack the tumor and to maintain that response," he pointed out.

The FDA just opened an IND for a combination study of NKTR-214 with NKTR-262, a small molecule agonist that Zalevsky invented that targets toll-like receptors found on innate immune cells. Nektar plans to move quickly into the phase I/II REVEAL study, which will evaluate the safety, tolerability and anti-tumor effect of the combination in patients with a variety of locally advanced or metastatic cancers.

Nektar will continue to advance the remainder of its pipeline, as well, including wholly owned asset NKTR-181, a mu-opioid agonist that proved its mettle last year in a phase III study in more than 600 patients with moderate to severe chronic low back pain who were new to opioid therapy. (See BioWorld Today, March 21, 2017.)

Last year, Nektar also inked an autoimmune alliance with Eli Lilly and Co. to co-develop NKTR-358, which targets the interleukin (IL-2) receptor complex. That candidate was advanced from inception to the clinic in a mere 15 months. (See BioWorld, July 25, 2017.)

New York-based BMS agreed to certain lock-up, standstill and voting provisions on its share ownership for five years, subject to certain exceptions.

Jefferies' Steinberg was more than satisfied with what he called the "mega" collaboration and its prospects to accelerate development of NKTR-214 "significantly."

As Mizuho Securities USA analyst Difei Yang observed in a flash note, the deal could still lead to an outright acquisition.

"We believe BMS is valuating NKTR-214 at approximately $9-$10 [billion]," Yang wrote. "The main implication to us coming out of this transaction is that there is now the potential for a full take-out of Nektar by BMS as more data from NKTR-214 in combo with Opdivo becomes available, possibly when the phase III data on [the] first indication becomes available."

If the deal looked sweet for Nektar, Evercore ISI analyst Umer Raffat said terms were just as favorable for BMS.

"I think BMY got a very good deal structure on this I-O program," he wrote in an email, by retaining 35 percent of the economics "and yet not bet $16 [billion] up front," alluding to an outright purchase of Nektar. BMS also ensured its leadership in phase III I-O combination studies, Raffat pointed out.

The big pharma's interest in the Nektar program "goes beyond just the biology," he added, noting that BMS "was likely intrigued by the early response rate data coming out of NKTR ... specifically in the PD-L1 [patients]."

Overall, "I like this addition to [the] BMY portfolio," Raffat concluded.