Nektar Therapeutics — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Nektar is a research-based biopharmaceutical company developing oncology, immunology and virology candidates using polymer-conjugate technology. Revenue is generated through collaboration agreements, product sales and royalties; the company reported continued substantial losses and negative operating cash flow.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $23.6 million | $50.6 million |
| Operating expenses | $133.0 million | $184.2 million |
| Loss from operations | $(109.4) million | $(133.6) million |
| Net loss | $(123.0) million | $(138.7) million |
| Basic and diluted loss per share | $(0.68) | $(0.78) |
| Cash used in operating activities | $(77.1) million | $(78.1) million |
Revenue composition: Product sales were $4.8 million, up 39%. Non-cash royalty revenue from royalties previously sold was $18.8 million, up 90%. Royalty revenue was zero, compared with $9.7 million, and license, collaboration and other revenue was $0.1 million, compared with $27.5 million. The prior-year period included a $25 million BMS milestone; the 2021 royalty presentation reflects the sale of certain future royalty rights.
Margins and expenses: Product gross margin was negative 20%, versus negative 11%, reflecting a fixed-price manufacturing arrangement with costs above the selling price. Research and development expense fell 12% to $95.6 million, principally due to completed manufacturing activity for bempegaldesleukin and reduced NKTR-358 costs. General and administrative expense rose 21% to $31.7 million as the company built commercial capabilities. No operating or net profit margin was reported; the company remained loss-making.
Balance sheet and liquidity: Cash and cash equivalents were $150.2 million; short- and long-term investments totaled $983.2 million, for cash and investments of $1.133 billion, down from $1.199 billion at year-end 2020. Working capital was approximately $975 million, based on current assets of $1.099 billion and current liabilities of $123.6 million. Total assets were $1.457 billion and stockholders’ equity was $994.5 million. Liabilities included $195.1 million related to sales of future royalties, $139.2 million of operating lease liabilities, and a $4.6 million development derivative liability. Nektar repaid its $250 million senior secured notes in April 2020 and reported no interest expense on those notes in Q1 2021.
Cash flow: Investing activities provided $10.5 million, primarily reflecting investment maturities exceeding purchases; financing activities provided $17.9 million, including $17.1 million from employee equity plans and $0.8 million from SFJ. Cash and cash equivalents declined by $48.8 million during the quarter.
Material changes and notable items
- Total revenue declined 53%, largely because Q1 2020 included a BMS milestone and royalty revenue that shifted to non-cash royalty revenue after the royalty sale.
- The 2020-period operating loss included $45.2 million of impairment and other costs following termination of the NKTR-181 program; no such charge was recorded in Q1 2021.
- Non-cash interest expense on sold-royalty liabilities rose to $13.3 million from $7.0 million. The related non-cash royalty revenue was $18.8 million.
- In February 2021, Nektar entered a co-development agreement with SFJ for a Phase 2/3 bempegaldesleukin plus Keytruda study in PD-L1-positive head and neck cancer. SFJ committed up to $150 million to support the trial. Potential payments to SFJ depend on specified FDA approvals and trial completion; these include $450 million for a first qualifying indication and additional contingent amounts.
Outlook, commentary and risks
- Management estimated existing working capital would fund current business plans for at least 12 months from the filing date. It also expected operating cash use, excluding upfront, milestone and other contingent receipts, to increase in 2021, primarily due to higher R&D spending.
- Management expected 2021 product sales to increase, product gross margin to remain negative, license and collaboration revenue to decline significantly, and R&D and G&A expenses to increase versus 2020. These are directional expectations, not quantified full-year financial guidance.
- Nektar’s lead candidate, bempegaldesleukin, is central to its prospects and potential collaboration milestones. Clinical outcomes, regulatory approval, commercial uptake and partner prioritization remain uncertain. The company also depends on partners for important development and commercialization activities.
- COVID-19 had delayed some company- and partner-run clinical activity, including site starts or enrollment; the company warned that further delays and costs were possible. It also cited clinical-trial, manufacturing and single-/limited-source supply risks.
- The company reported securities and derivative litigation. One securities class action had been dismissed with prejudice and appealed; another was voluntarily dismissed with prejudice. Certain derivative actions remained pending. Nektar said it could not reasonably estimate potential losses and had recorded no liability for these matters.
- Management stated that it expected continued substantial losses and negative operating cash flows and that profitability was not assured. Future capital needs depend on development outcomes, collaboration payments, expenses and access to financing.
Investor verification points
- Track bempegaldesleukin trial results, timelines and BMS collaboration milestones, as well as whether partners continue to prioritize their programs.
- Reconcile cash burn and available liquidity against management’s 12-month funding assessment, including the timing and uncertainty of contingent collaboration funding.
- Review the assumptions and accounting for non-cash royalty revenue, the $195.1 million royalty-sale liability and its imputed interest expense.
- Monitor the SFJ trial’s progress and the contingent success-payment terms, plus the status and potential exposure of pending litigation.