Nektar Therapeutics — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Unaudited results. Nektar is a biopharmaceutical company developing drug candidates using its polymer-conjugate technologies and depends heavily on collaboration, product supply, milestone and royalty revenue.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $22.7 million | $28.5 million | $131.5 million | $48.3 million |
| Operating loss | $43.5 million | $22.9 million | $0.4 million | $59.3 million |
| Net loss | $52.7 million | $32.6 million | $18.8 million | $78.8 million |
| Net loss per share | $0.40 | $0.26 | $0.14 | $0.63 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $16.1 million | $(71.4) million |
- Q2 revenue fell 21% year over year, while six-month revenue rose more than 100%, principally due to the $100 million AstraZeneca milestone recognized in Q1 for the U.S. launch of MOVANTIK. The milestone was a major, non-recurring contributor to first-half results.
- Product sales and royalty revenue increased 99% in Q2 to $11.7 million and 68% in the first half to $19.8 million. Q2 license, collaboration and other revenue declined 65% to $6.2 million, partly because $9 million of manufacturing-technology milestones had been recognized in Q2 2014.
- Research and development expense rose 24% in Q2 to $45.4 million and 23% in the first half to $92.4 million, largely reflecting initiation of Phase 3 studies for NKTR-181. Q2 operating loss and net loss widened despite higher product revenue.
- Product gross margin was 10% in Q2 2015 versus 13% in Q2 2014; for the first half it was 4% versus negative 10%. Management said margins vary with manufacturing order mix and fixed costs.
- At June 30, cash, cash equivalents and marketable securities totaled $279.7 million, including $25 million of restricted cash. The restriction expired July 1 and the funds were returned. Current assets were $302.2 million and current liabilities $81.1 million.
- Long-term debt was reported as $133.5 million, including $125 million of 12% senior secured notes due July 2017 and $8.5 million of capital leases; $5.6 million of leases was current. A separate $122.0 million liability related to the sale of future royalties is also on the balance sheet. Total liabilities were $421.6 million.
- First-half operating cash flow included $102 million of collaboration milestone receipts, including the MOVANTIK launch payment. Cash and cash equivalents increased by $8.5 million in the first half to $20.9 million; cash flow should be interpreted alongside the $233.8 million of short-term investments.
Business developments, outlook and risks
- MOVANTIK was launched in the U.S. in March 2015. Nektar expects royalty revenue to increase in 2015 as partner AstraZeneca sells the product. AstraZeneca planned an EU launch of MOVENTIG in the second half of 2015; Nektar expected a $40 million payment upon the specified EU commercial launch, making timing and achievement important uncertainties.
- Management expected 2015 product sales to increase, product gross margin to improve, and R&D expense to increase significantly, primarily due to NKTR-181 Phase 3 studies. It also expected slightly higher G&A expense. These are expectations, not guaranteed outcomes; the filing provides no firm full-year revenue or earnings guidance.
- NKTR-102’s Phase 3 BEACON trial in metastatic breast cancer missed statistical significance on its primary overall-survival endpoint (hazard ratio 0.87; p=0.08), despite a reported 2.1-month median survival difference and favorable findings in two prespecified subgroups. Nektar was exploring regulatory options with U.S. and EU authorities.
- NKTR-181 Phase 3 development began in February 2015 and is expected to require substantial investment over the next two to three years. The filing also describes development programs including Amikacin Inhale, NKTR-171 and NKTR-214, with clinical, regulatory and manufacturing outcomes uncertain.
- Nektar estimated it had at least 12 months of working capital for its current plans, but had no credit facility or other committed capital source. It said future funding needs depend on clinical results, partner activity, product sales, collaboration opportunities and expenses; additional financing may be needed.
- The senior-note indenture requires unrestricted cash and cash equivalents of at least $25 million at the end of any two consecutive fiscal quarters during the specified July 2015–June 2017 period, subject to conditions. The notes also restrict certain financing, investment, asset-sale and other activities.
- Risks include clinical-trial failure or delay, partner decisions and commercial performance, dependence on collaboration revenue, financing needs, manufacturing and single-source supply risks, competition, intellectual-property disputes, regulatory requirements and possible litigation or indemnification costs. Nektar disclosed an Allergan/MAP lawsuit over economic-sharing provisions and a German proceeding in which Bayer seeks co-ownership rights in certain patent filings licensed to Baxalta.
- Management concluded disclosure controls and procedures were effective and reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether AstraZeneca’s MOVENTIG EU launch occurred on the expected timetable and triggered the potential $40 million payment; monitor MOVANTIK sales and resulting royalties.
- How the BEACON results affect NKTR-102’s regulatory path and future development spending.
- NKTR-181 Phase 3 progress, costs and clinical results, and the pace of investment across Nektar’s pipeline.
- Cash, investments and unrestricted cash levels relative to operating needs and the senior-note covenant; assess financing requirements and the July 2017 note maturity.
- Product shipment mix and gross margins, plus the effect of collaboration milestones on reported revenue and operating cash flow.
- Developments in the Allergan/MAP and Bayer patent matters, as well as partner performance and manufacturing or supply risks.