Nektar Therapeutics — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; selected fourth-quarter figures are identified separately. Nektar is a research-based biopharmaceutical company developing medicines in oncology, immunology and virology, with revenue primarily from collaboration agreements, product supply and royalties.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $101.9 million | $152.9 million | Down 33% |
| Product sales | $23.7 million | $17.5 million | Up 36% |
| Royalty revenue | $0 | $31.0 million | Royalties sold are presented as non-cash revenue |
| Non-cash royalty revenue | $77.7 million | $48.6 million | Up 60% |
| Research and development | $400.3 million | $408.7 million | Down 2% |
| General and administrative | $122.8 million | $104.7 million | Up 17% |
| Operating loss | $446.1 million | $425.1 million | Loss increased |
| Net loss | $523.8 million | $444.4 million | Loss increased |
| Basic and diluted loss per share | $2.86 | $2.49 | Loss per share increased |
| Cash used in operating activities | $412.7 million | $313.3 million | Cash use increased |
- Product gross loss was $1.2 million, a negative gross margin of 5%, improved from a $2.0 million loss and negative 11% margin in 2020. Management expects product gross margin to remain negative in 2022, approximately in line with 2021, excluding potential bempegaldesleukin sales if approved.
- Cash, cash equivalents and marketable securities totaled $798.8 million at year-end, down from $1.20 billion. This included $25.2 million of cash and cash equivalents and $773.6 million of short- and long-term investments. Management estimated available working capital would fund current plans for at least 12 months from filing.
- Assets were $1.12 billion and stockholders’ equity was $679.5 million at year-end. The company had no senior notes outstanding; it repaid $250 million of 7.75% notes in April 2020. Year-end liabilities included $195.4 million related to sold future royalties, $143.2 million of operating lease liabilities and a $27.7 million development derivative liability.
- FY2021 revenue included $77.7 million of non-cash royalty revenue, offset in part by $47.3 million of non-cash interest expense on royalty-sale liabilities and a $24.4 million loss on revaluation of a royalty-sale liability. These items affect reported earnings but are not equivalent to recurring cash revenue or cash interest payments.
Fourth quarter: Revenue was $25.0 million, operating loss was $112.9 million and net loss was $145.6 million. In Q4 2020, revenue was $23.5 million, operating loss was $110.7 million and net loss was $117.2 million.
Business developments and changes versus prior period
- Bempegaldesleukin, Nektar’s lead immuno-oncology candidate, was being evaluated in multiple Phase 1, 2 and 3 studies, including combinations with Bristol Myers Squibb’s Opdivo. The BMS collaboration shares Opdivo-combination development costs 67.5% to BMS and 32.5% to Nektar; Nektar bears 65% of bempegaldesleukin manufacturing and commercialization costs and is entitled to 65% of net commercialization profits or losses.
- Nektar reported approximately $1.4 billion of potential remaining BMS regulatory-submission and commercial-launch milestones, subject to development and approval outcomes, plus up to $350 million in sales milestones. No additional BMS milestones were achieved in 2021; $50 million of trial-initiation milestones had been recognized in 2020.
- Under a 2021 agreement, SFJ committed up to $150 million to fund a Phase 2/3 bempegaldesleukin-plus-Keytruda head-and-neck cancer study. Potential success payments to SFJ depend on FDA approvals and can total $450 million for the first qualifying indication, an additional $150 million for a second qualifying indication, or a $37.5 million one-time payment for another indication.
- NKTR-358 was partnered with Eli Lilly. Lilly funds 75% of Phase 2 development costs; Nektar funds 25%. Lilly conducted Phase 2 studies in lupus and ulcerative colitis and planned further studies following positive interim Phase 1b atopic dermatitis results.
- NKTR-255 was in Phase 1 and Phase 1/2 studies; NKTR-262 was in a Phase 1/2 study. Research and development expense shifted across programs: bempegaldesleukin and NKTR-358 costs decreased in some partnered work, while independent bempegaldesleukin and NKTR-255 spending increased.
- Revenue declined primarily because 2020 included $50 million of BMS milestones and $31.0 million of royalty revenue. Following royalty monetization transactions, royalty receipts on certain products are recorded as non-cash royalty revenue and related liabilities, rather than ordinary cash royalty revenue. Revenue remained concentrated: UCB represented 36%, Takeda/Baxalta 23%, AstraZeneca 16% and Pfizer 13% in 2021.
- In 2020, Nektar discontinued NKTR-181 after an FDA advisory committee did not recommend approval and recorded $45.2 million of impairment and other wind-down costs. No comparable charge was recorded in 2021.
Outlook, risks and unusual items
- Management expected R&D expense and operating cash use, excluding contingent collaboration payments, to increase in 2022, driven by bempegaldesleukin and NKTR-255 development. G&A expense was also expected to increase as Nektar built commercial capabilities. Product sales were expected to decrease in 2022 due to lower partner demand; license and collaboration revenue was expected to be broadly consistent with 2021 absent milestone events.
- Potential bempegaldesleukin commercialization would require substantial upfront investment. Nektar stated that commercialization spending could rise significantly if registrational results supported filings; timing and receipt of related milestones depend on trial outcomes, regulatory review and first commercial sales.
- The company remains loss-making and dependent on collaboration funding, milestones and other financing options. It had no committed credit facility. A $300 million shelf registration was available, but no securities had been sold under it as of year-end.
- Key risks include clinical efficacy or safety failures, especially for bempegaldesleukin; trial delays or changing standards of care; reliance on BMS and Lilly; competition in immuno-oncology; concentrated collaboration revenue; manufacturing and single-source supply risks; and potential reimbursement, pricing and regulatory constraints.
- COVID-19 had not caused a material supply impact as of the filing, but could affect trial enrollment, timelines, partner operations and supply chains. Nektar reported slower-than-anticipated enrollment in an NKTR-255 study and prior delays to some trial sites or studies.
- The SFJ derivative liability is valued using significant unobservable assumptions about clinical success, approval probabilities, timing and discount rates. Management expected material remeasurement effects when clinical results became available.
- Legal matters included Aether Therapeutics’ patent-infringement case concerning MOVANTIK, a pending appeal in the Mulquin securities class action and a stayed Delaware derivative action. Nektar had recorded no liability for the securities and derivative matters, and stated that potential losses could not be reasonably estimated.
- Ernst & Young issued an unqualified audit opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Investor verification priorities
- Verify the clinical results, regulatory status and partner decisions for bempegaldesleukin, including the registrational programs and the assumptions underlying anticipated milestones.
- Assess the cash runway against the reported $412.7 million annual operating cash use, planned 2022 spending increases, commercialization costs and contingent SFJ payments.
- Reconcile the $77.7 million non-cash royalty revenue with cash receipts and the $195.4 million royalty-sale liability; confirm the terms and expected duration of the HCR and RPI arrangements.
- Track revenue concentration and partner demand, particularly the expected 2022 decline in product sales and the reliance on collaboration partners for development and commercialization.
- Review the SFJ derivative liability’s clinical probability assumptions and possible sensitivity to trial results, as well as the status and potential exposure of disclosed litigation.