Nektar Therapeutics — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited results. Nektar is a research-based biopharmaceutical company developing drug candidates for cancer and autoimmune disease; revenue is primarily from collaborations, royalties, and product supply.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $48.8m | $23.3m | $99.4m | $51.5m |
| Operating loss | $(77.7)m | $(111.0)m | $(211.3)m | $(231.7)m |
| Net loss | $(80.0)m | $(110.3)m | $(218.7)m | $(229.9)m |
| Basic and diluted loss per share | $(0.45) | $(0.63) | $(1.23) | $(1.32) |
| Net cash used in operating activities | Not presented quarterly | $(162.0)m | $(134.8)m |
Q2 revenue rose by 109%, chiefly from $25m of BMS collaboration revenue recognized for a clinical milestone. Six-month revenue increased 93%. Product sales were $5.5m in Q2 and $8.9m for six months; royalty revenue was $9.4m and $19.1m, respectively. Product gross margin remained negative: (5)% for Q2 and (7)% for six months, improving from (15)% and (20)% in the comparable 2019 periods.
Research and development expense was $96.4m in Q2, down 10% year over year, and $205.4m for six months, down 9%. General and administrative expense rose 8% in Q2 to $24.3m and 6% for six months to $50.6m. Six-month results included $45.2m of impairment and other costs from ending the NKTR-181 program. Q2 interest expense fell to $0.6m after repayment of the senior notes.
Balance sheet and liquidity
At June 30, 2020, cash and investments in marketable securities totaled $1.211bn, compared with $1.604bn at December 31, 2019. Cash and cash equivalents were $58.2m; current assets were $1.152bn and total assets $1.595bn. Total liabilities were $338.6m and stockholders’ equity was $1.256bn. The company had no senior secured notes outstanding at quarter-end.
Operating cash outflow for the first half was $162.0m. Investing activities provided $354.8m, largely reflecting investment maturities and sales, while financing activities used $230.9m, including repayment of $250m principal and $4.8m accrued interest on April 13, 2020. Management estimated available working capital would fund current plans for at least 12 months; Nektar reported no committed credit facility.
Developments, outlook, and risks
- BMS collaboration: Nektar recognized $50m of BMS milestones in the first half. The $25m muscle-invasive bladder cancer milestone was achieved in January and paid in March. A further $25m related to the adjuvant melanoma trial was recognized in Q2 before the first-patient, first-visit milestone was achieved on July 27; it was recorded as a contract asset at June 30. BMS reimbursed Nektar a net $65.1m of development costs in the first half, recorded as a reduction of R&D expense.
- Program pipeline: Following an FDA advisory committee recommendation against approval, Nektar withdrew the NKTR-181 application and ended investment in the program. The wind-down included a $19.7m write-off of contract-manufacturer advances and $25.5m of other costs, primarily non-cancellable commitments and severance.
- Management outlook: Nektar expected full-year 2020 product sales to be below 2019 and product gross margin to remain negative. It expected R&D expense to increase versus 2019, principally as bempegaldesleukin development advances, and G&A to rise with commercial-readiness spending. The company expected interest income to decline as investment balances and yields fell. It also expected operating cash use, excluding collaboration and other contingent receipts, to increase versus 2019.
- Clinical and COVID-19 uncertainty: The pandemic had delayed some site initiations and partner studies. Nektar estimated possible delays of about three months for certain earlier-stage company-run studies and at least three to six months for some partner-run studies; management emphasized that impacts remained uncertain. BMS had restarted enrollment and site initiation after pauses, while Lilly’s Phase 1b recruitment for NKTR-358 had been temporarily suspended. Nektar cautioned that delays could increase costs and postpone data, regulatory submissions, or future receipts.
- Principal business risks: Results depend heavily on bempegaldesleukin clinical and regulatory outcomes, partner execution, collaboration milestones and royalties, and access to financing. Other risks include clinical-trial failure or delay, competition, manufacturing and single-source supplier exposure, market acceptance and reimbursement, and possible investment-security losses if credit downgrades require sales before maturity.
- Legal matters: A securities class action concerning earlier bempegaldesleukin statements was dismissed on July 13, 2020, with plaintiffs permitted to amend. Separate securities and derivative cases remained at an early stage; the company could not estimate potential losses and had recorded no liability. Nektar also disclosed patent disputes, including MOVANTIK generic challenges and other intellectual-property proceedings.
Investor verification points
- Confirm timing and cash collection of the $25m adjuvant melanoma milestone recognized before the July 27 achievement date, and distinguish recognized revenue from cash received.
- Review bempegaldesleukin trial progress, data timing, regulatory prospects, and the remaining contingent BMS milestones; their realization is uncertain.
- Track cash burn against management’s at-least-12-month liquidity estimate, including future clinical spending and any further investment-security credit or liquidity effects.
- Assess the continuing impact of COVID-19 on company- and partner-run trials, patient enrollment, manufacturing, and costs.
- Monitor NKTR-181 wind-down costs and the status and potential exposure of securities, derivative, and patent litigation.