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Biotech / Medical : INHL - Inhale Therapeutics - Pulmonary Insulin!

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To: deeno who wrote (210)6/10/2004 11:31:25 AM
From: deeno   of 225

EPS (Dec): 2003A -$1.34; 2004E -$0.97; 2005E -$0.77
GAAP EPS (Dec): 2003A -$1.18; 2004E -$1.30; 2005E -$0.87
NKTR; $17.85; C-1-9
12-Month Price Objective: $28.00 (10-Mar-2004)

NKTR stock is under pressure today due to concerns in the market of a delay in the US filing
for Exubera.
There have been concerns in the market regarding a delay in the US filing for Exubera
subsequent to the 2004 American Diabetes Association Meeting (ADA). Such concerns have
included: a) delay in enrolment for Pfizer’s safety study in type 1 diabetics; and b) potential
delays in filing due to safety issues seen in type 1 diabetic patients in competing products
(e.g., possible neutralizing antibodies in Novo Nordisk's inhaled insulin).
Our discussions with investigators at the ADA meeting did not allude to a delay in the filing.
We sensed that the two-year safety data from the studies in type 2 diabetics were either
complete or nearing completion. One-year data from the controlled safety studies in type 2
patients were presented by Testa et. al. (posters 487 and 1831).
We believe that neutralizing antibodies are becoming less of an issue in type 2 patients. One-year
extension data presented by Barnett et. al., (poster 454) and 4 year follow up data
presented by Skyler et. al., (poster 486) indicated that elevated antibodies had no impact on
efficacy (e.g., post prandial glucose, HbA1c percentage) or safety (e.g., hypoglycemia).
Additionally, data presented by Heise et. al., (poster 463) showed that in 45 type 1 patients,
Exubera did not elicit any changes in efficacy parameters (post prandial glucose levels,
glucose infusion rates, fasting glucose levels). These studies support the lack of clinical
impact of elevated antibody levels.
While we are unable to corroborate any potential delay, NKTR stock is likely to weaken due
to these concerns. The estimated impact of a one-year delay in the US filing is included in
Table 1. In the event of a delay the valuation model suggests a $23.00 price objective for
NKTR. However, our enthusiasm regarding Exubera remains unchanged. In our opinion, the
abstracts presented at the ADA effectively address concerns regarding changes in lung
function as well as the clinical impact of elevated antibodies. Furthermore, takeaway
messages from the ADA included: 1) Insulin is clearly underdosed in the treatment of
diabetes; 2) There is overwhelming evidence that diabetic patients should be treated with
higher doses of insulin, earlier in the disease progression; 3) There is clear demand for less
invasive insulin formulations given patient anxiety relating to long-term management of
diabetes, especially the use of injections. We believe that these trends bode well for Exubera.
United States
9 March 2004
Hari Sambasivam, Ph.D
First Vice President
Michael Pollard
Industry Analyst
Nektar Therapeutics
Concerns Regarding Delay Overlook
Improving Visibility on Safety & Efficacy
Volatility Risk:
HIGH Reason for Report: Company Update
Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
Refer to important disclosures on pages 3 to 4. Analyst Certification on page 2.
Global Securities Research & Economics Group Global Fundamental Equity Research Department RC#10116127
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