Nektar Therapeutics Inc. is getting $50 million up front and retaining co-promotion rights in a deal with Bayer HealthCare AG covering its Phase II inhaled amikacin product for pneumonia.

The deal marks the first co-development and commercialization collaboration for Nektar, whose delivery technologies already are used in nine approved products. Nektar is entitled to $125 million more in milestones from Bayer, and would get almost half of any profits from sales in the U.S.

The worldwide deal with Bayer covers NKTR-061, a product that uses Nektar's pulmonary technology to deliver the aminoglycoside antibiotic amikacin deep into the lung. Phase II trials of the PNKTR-061 in treating Gram-negative pneumonias are expected to be completed later this year.

Hoyoung Huh, chief operating officer of San Carlos-Calif.-based Nektar, said the company was pleased to enter a deal in which it has a seat at the table, in terms of development and commercialization. He said the company going forward will look more closely at those types of collaboration, rather than the outlicensing arrangements it has completed with a number of companies that use its pulmonary and pegylation delivery technologies.

"That was the key significance of this deal, on top of the economic potential, which is the largest in our portfolio," Huh told BioWorld Today. "We wanted some ownership in what we thought was a strategic area for investment in the future. We feel the local delivery of anti-infectives and antibiotics is a key area for us."

NKTR-061 is the lead proprietary product at Nektar. Its next two products are expected to move into Phase II trials later this year: PEGylated formulations of irinotecan for solid tumors and naloxol for opioid-induced constipation. The company also is developing an inhaled amphotericin B product for preventing pulmonary fungal infections. Huh said Nektar will look at entering similar types of deals on those products.

NKTR-061 is expected by Nektar to have several advantages vs. existing amikacin, chief among them that it allows increased dosing and results in reduced toxicity vs. the existing drug, which mostly is delivered intravenously. "We're able to get high levels of the drug at the site of the infection, at the deep lung," Huh said.

Along with the $50 million up-front payment, Nektar is eligible to receive up to $125 million in milestone payments from Bayer. About $70 million of that total would be triggered in the development stage, Huh said, with the remaining $55 million dependent on sales.

Huh said Nektar has estimated the market potential of inhaled amikacin at $500 million to $1 billion, a range that includes potential use against pneumonia in both the hospital and community settings.

Bayer will take over chief development responsibility following the Phase II program. Huh said the Phase III program is expected to start in 2008, with trials expected to take two to two and a half years. That would put anticipated filing and launch in the 2010-11 time frame.

The ongoing Phase II trials are testing NKTR-061 for the adjunctive therapy of ventilated patients with hospital-acquired, Gram-negative pneumonias. If approved, the product would be administered while the patient is on a ventilator, while also allowing for ongoing dosing after the patient no longer requires ventilatory support.

Huh said the deal with Bayer made sense for Nektar not only because of the economic terms, but also because of the comfort level that has developed from the companies' existing relationship. Nektar and Bayer in 2005 entered a deal to develop a dry-powder formulation of ciprofloxacin for inhalation, for treating pseudomonal infections in cystic fibrosis patients.

NKTR-061 profits would be split 52-48, with Bayer getting the larger share, according to an 8-K filing by Nektar. In the same filing, Nektar said it would receive tiered royalties of 14 percent to 30 percent on sales of the product outside the U.S. Huh said internal modeling suggested resulting royalties would come in at the higher end of that range, from 20 percent to 30 percent.

The NKTR-061 product entails a wet formulation of drug, unlike the notable dry-powder formulation used in the diabetes product Exubera, for which Pfizer Inc. gained approval last year. Nektar shares have been hurt by disappointing sales of the drug by Pfizer, which reported Exubera revenues of $4 million in the second quarter. Pfizer has said it plans to step up efforts that would lead to increased sales.

Nektar reported $59.8 million in Exubera-related revenues in the first quarter, an inflated figure due to accounting changes that added two months of sales to the total. Huh also said most of those revenues came from the manufacturing component of the deal with Pfizer, rather than from royalties. Nektar is releasing its second-quarter numbers Wednesday.

Nektar in May announced a restructuring plan that would reduce annual spending by $65 million per year, with a $27 million reduction expected this year. The company had about $398 million in cash as of March 31, with a loss of $25.7 million for the first quarter on total revenues of $85 million.

Huh said the new deal with Bayer does not change anything about the restructuring effort. "It was time for us to bring our company down to a headcount and spend level that would allow us to sustain cash reserves" and focus development on the most promising products, he said. "That was prudent management. We were working on too many products. We decided to focus our portfolio."

While Nektar has three clinical-stage drugs in its pipeline, its partners have many more, including about five that either are under FDA review already or in Phase III development.

Nektar shares (NASDAQ:NKTR) gained 25 cents Monday to close at $8.39.