Nektar Therapeutics — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Nektar is a clinical-stage biopharmaceutical company focused on immunotherapies for autoimmune disease and cancer. Financial amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $21.6 | $21.6 |
| Product sales | $6.0 | $4.7 |
| Net loss | $(36.8) | $(137.0) |
| Basic and diluted loss per share | $(0.19) | $(0.73) |
| Cash used in operating activities | $(47.9) | $(51.9) |
- Revenue was essentially flat: product sales rose 28% to $6.0 million, while non-cash royalty revenue declined 8% to $15.5 million. License, collaboration and other revenue was $0.1 million.
- Cost of goods sold was $8.5 million against product sales of $6.0 million; Nektar said product gross margin was negative, primarily reflecting its UCB manufacturing arrangement.
- Operating expenses totaled $57.1 million, including $27.4 million of research and development and $20.1 million of general and administrative expense. Operating loss was $35.4 million.
- At March 31, cash and cash equivalents were $48.6 million; short- and long-term investments totaled $277.4 million, for $326.0 million in cash and marketable securities. Total current assets were $319.8 million and current liabilities $52.4 million.
- Total liabilities were $269.3 million, including $117.9 million of liabilities related to sold future royalties and $114.1 million of operating lease liabilities. The filing reports no credit facility or other committed capital source.
- Financing cash flows included $30.0 million from a pre-funded warrant issuance and $15.0 million from amending the HCR royalty sale; Nektar also paid $3.0 million to repurchase BMS-held shares.
Changes versus the prior comparable period
- Net loss improved by $100.2 million, but the comparison is heavily affected by Q1 2023 charges: $76.5 million goodwill impairment and $13.2 million impairment of leased assets and equipment, alongside $5.5 million of severance. Q1 2024 had $1.0 million of restructuring and contract-termination costs and no goodwill impairment.
- Research and development expense fell 10% to $27.4 million, mainly due to lower employee and facilities costs and lower NKTR-255 spending, partly offset by increased rezpegaldesleukin and NKTR-0165 development costs. G&A declined 4% to $20.1 million.
- Operating cash use decreased by $4.0 million year over year. Cash and investments declined from $329.4 million at December 31, 2023 to $326.0 million at March 31, 2024.
Outlook, management commentary and risks
- Management estimates available working capital will fund current business plans for at least 12 months from the filing date. This is an estimate, not a guarantee; Nektar expects continued losses and negative operating cash flow.
- Nektar expects 2024 product sales to increase versus 2023, with corresponding higher cost of goods sold. It expects non-cash royalty revenue to decline, R&D expense and operating cash use to increase—principally due to two Phase 2b rezpegaldesleukin studies—and G&A to decrease slightly. No numerical revenue, earnings or cash-flow guidance was provided.
- Nektar regained full rights to rezpegaldesleukin after Lilly terminated its license agreement; Nektar now bears development costs. Phase 2b studies are underway in atopic dermatitis and alopecia areata. The company expects NKTR-0165 spending to rise as it conducts IND-enabling studies; it is continuing selected NKTR-255 studies and expects topline data from the Merck KGaA JAVELIN Bladder Medley study in the second half of 2024.
- On March 4, 2024, HCR received $15.0 million in exchange for removing the cap and reversionary rights on royalties previously sold. HCR will receive all future royalties covered by that arrangement; Nektar recognized the proceeds as an increase to the related liability. The company also issued TCG a warrant for 25 million shares at $1.20 per share; it was unexercised at quarter-end and includes beneficial-ownership limits.
- Key risks include clinical-trial failure or delay, dependence on rezpegaldesleukin and NKTR-255, the need for additional capital or partnerships, reliance on third-party manufacturers and limited-source suppliers, and uncertainty about subleasing vacant San Francisco facilities. Management warns that investment securities could incur losses if sold before maturity.
- Nektar’s lawsuit against Lilly alleging breach of contract is proceeding; Lilly has asserted counterclaims. Nektar recorded no litigation liability and says potential losses cannot be reasonably estimated. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
- The filing notes that the stock traded between $0.49 and $0.96 during Q1 and warns that failure to maintain a $1.00 Nasdaq bid price could lead to delisting.
Important facts for investors to verify
- Whether the 12-month liquidity estimate remains supported by cash burn, trial costs, and the timing and terms of any future financing or collaboration.
- Clinical progress, enrollment, safety and efficacy data for both rezpegaldesleukin Phase 2b trials, and the timing and outcome of NKTR-255 studies.
- Expected UCB-related manufacturing economics and inventory write-downs; the filing expects the inventory provision to increase further in 2024.
- The effects of the HCR amendment on future royalty receipts and the outstanding royalty-related liability, as well as potential dilution from the TCG warrant.
- Developments in the Lilly litigation, vacant-space subleasing and Nasdaq listing compliance.