Nektar Therapeutics — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; filed February 28, 2013. Nektar is a clinical-stage biopharmaceutical company developing drug candidates using PEGylation and polymer-conjugate technologies. The filing also reports fourth-quarter results and discusses certain developments through February 2013.
Financial results and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $81.2 million | $71.5 million |
| Operating loss | $141.2 million | $123.9 million |
| Net loss | $171.9 million | $134.0 million |
| Net loss per share | $1.50 | $1.19 |
| Research and development expense | $148.7 million | $126.8 million |
| Cash used in operating activities | $129.8 million | $113.7 million |
- Revenue rose 14%, largely on 42% higher product sales ($35.4 million). License, collaboration and other revenue fell to $30.1 million from $36.3 million; 2011 included a $5.0 million license fee. Reported 2012 revenue also included $10.8 million of non-cash royalty revenue related to royalties sold to RPI.
- Product gross margin improved to 14% from 12%, with product gross profit of $5.0 million. Nektar remained substantially loss-making; higher R&D spending and financing-related charges contributed to the larger net loss.
- At year-end, cash, cash equivalents and investments totaled $302.2 million, including $25.0 million restricted cash; working capital was $236.1 million. Management said available resources were expected to fund current plans for at least 12 months.
- Debt and related obligations included $125.0 million of 12% senior secured notes due 2017 and approximately $14.6 million of capital lease obligations. The company reported $149.0 million of indebtedness using its stated measure. The separate $131.3 million liability from the royalty sale is expected to be repaid through the assigned royalties, not ordinarily in cash; a contingent payment of up to $7.0 million could apply if specified MIRCERA sales thresholds are missed.
- Interest expense included $18.1 million of non-cash interest on the royalty-sale liability. The royalty transaction generated $124.0 million gross proceeds ($119.6 million net of transaction costs).
Fourth quarter: Revenue was $21.1 million, operating loss $43.4 million, net loss $52.9 million and diluted loss per share $0.46. Compared with Q4 2011, revenue increased from $15.8 million and net loss widened from $37.5 million.
Business developments and material changes
- Naloxegol: AstraZeneca reported positive top-line results from two Phase 3 efficacy trials and a safety extension in November 2012, followed by positive long-term safety results in February 2013. AstraZeneca planned U.S. and EU regulatory filings in Q3 2013, subject to preparation and FDA discussions. Nektar could receive $95 million if specified filings are submitted and accepted.
- Etirinotecan pegol: Nektar’s Phase 3 BEACON metastatic breast cancer study was underway, with a target of about 840 patients. The FDA granted Fast Track designation in November 2012. Nektar expected substantial ongoing investment; estimated third-party and direct material costs over BEACON’s life were $110–$120 million, with $26 million incurred through 2012.
- Other pipeline: NKTR-181 was in Phase 2 for chronic pain; NKTR-192 entered Phase 1 for acute pain. Baxter began a Phase 3 study of BAX 855 for hemophilia A in February 2013. Bayer’s inhaled amikacin Phase 3 program was expected to begin in March 2013 after device stability work was completed.
- Nektar sold its future CIMZIA and MIRCERA royalty rights to RPI in February 2012 and issued $125 million of 12% secured notes in July. It repaid the remaining convertible subordinated notes in September. The 2012 operating loss also included a $1.7 million impairment charge related to a Huntsville research building.
Outlook, risks and unusual items
- Management expected 2013 product sales to increase, royalties to decrease, R&D expense to increase, and general and administrative expense to rise modestly. It expected higher interest expense and non-cash royalty-sale interest expense. These are expectations, not guarantees.
- The company had no committed credit facility and did not anticipate near-term transactions with substantial upfront payments. If naloxegol filing milestones or new partnership funding did not materialize, Nektar said it might need other financing, potentially dilutive equity or convertible debt.
- Revenue depends entirely on collaboration agreements and is volatile; UCB, Roche and Affymax accounted for 30%, 23% and 11% of 2012 revenue, respectively. Clinical failure, regulatory delay, partner decisions, manufacturing or supply interruptions, and the need for additional capital are key risks.
- Affymax and Takeda announced a voluntary recall of all OMONTYS lots on February 23, 2013 after reports of serious hypersensitivity reactions, including anaphylaxis and three reported deaths. The filing states FDA had been notified of 19 reports; the event could affect associated revenue and collaboration economics.
- Nektar expected to pay RPI $3.0 million in early 2013 because it concluded the 2012 MIRCERA sales threshold would not be met. Up to a further $7.0 million payment could be due in 2014 if the 2013 threshold is not met.
- A lawsuit by the Research Foundation of the State University of New York remained unresolved. Nektar disputed the claim; the filing said the possible loss could not be reasonably estimated and no liability was recorded.
- The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether AstraZeneca submitted and obtained acceptance of naloxegol filings, triggering the potential $95 million milestone, and the eventual regulatory outcome.
- BEACON enrollment, costs, timing and clinical results, alongside NKTR-181 Phase 2 and abuse-liability study outcomes.
- The financial and partnership impact of the OMONTYS recall, including any continuing manufacturing, royalty or milestone effects.
- Cash runway and financing needs against rising R&D spending, the 12% secured-note obligations and restricted-cash requirements.
- Actual MIRCERA sales versus RPI thresholds, the contingent payment, and assumptions behind the royalty-sale liability and its non-cash interest accounting.
- Customer concentration, collaboration renewals or disputes, and the status and potential exposure of the SUNY litigation.