Nektar Therapeutics — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report; fourth-quarter figures are noted separately where useful. Nektar is a research-based biopharmaceutical company whose revenue is derived from collaboration agreements, royalties, and partner-related product sales.
Financial performance and position
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $152.9 million | $114.6 million |
| Operating loss | $425.1 million | $440.0 million |
| Net loss | $444.4 million | $440.7 million |
| Net loss per share | $2.49 | $2.52 |
| Operating cash flow | $(313.3) million | $(328.7) million |
| Research and development expense | $408.7 million | $434.6 million |
| General and administrative expense | $104.7 million | $98.7 million |
- Revenue increased 33%. Product sales were $17.5 million, down 13%; royalty revenue was $31.0 million, down 25%; non-cash royalty revenue from sold royalty rights was $48.6 million, up 34%; and license, collaboration and other revenue was $55.8 million, including $50 million of BMS milestones.
- Product gross loss widened to $2.0 million from $1.3 million; product gross margin was negative 11%, compared with negative 6%, primarily due to product mix.
- At year-end, cash, cash equivalents and marketable securities totaled $1.199 billion, down from $1.604 billion. Current assets were $1.138 billion and current liabilities $115.8 million.
- Nektar repaid its $250 million, 7.75% senior secured notes in April 2020, including $4.8 million accrued interest; no senior-note balance remained at year-end. Liabilities related to sales of future royalties were $200.3 million.
- Fourth-quarter 2020 revenue was $23.5 million and net loss was $117.2 million, versus $33.9 million revenue and $112.2 million net loss in fourth-quarter 2019.
Material changes and unusual items
- In December 2020, Nektar sold specified future royalties on MOVANTIK, ADYNOVATE, REBINYN and related licensed products to HCR for $150 million gross proceeds ($146.3 million net of transaction costs). HCR receives the royalties until a contractual threshold is reached; the rights then return to Nektar. The transaction shifted some recognized royalties to non-cash revenue and is expected to affect royalty and interest accounting in 2021.
- Nektar recorded $45.2 million of impairment and wind-down costs after withdrawing the NKTR-181 NDA, following an FDA advisory committee recommendation against approval. The company ended further investment in the program.
- Interest expense fell to $6.9 million from $21.3 million following the note repayment. Interest income and other income declined to $18.3 million from $46.3 million, reflecting lower investment balances and interest rates.
- Revenue remained concentrated: BMS contributed 33% of 2020 revenue; UCB 23%; Takeda/Baxalta 14%; and AstraZeneca 13%.
Outlook, management commentary and risks
- Management said existing working capital was expected to fund current business plans for at least 12 months from filing. It expected operating cash use to increase in 2021, primarily due to higher R&D spending and the absence of offsetting collaboration milestones.
- Management expected R&D expense to increase in 2021 as development of bempegaldesleukin and other programs continues; G&A expense was also expected to rise as commercial capabilities are built. Product sales were expected to increase, while product gross margin was expected to remain negative due to unfavorable mix. License, collaboration and other revenue was expected to decrease after the 2020 BMS milestone recognition.
- Bempegaldesleukin, partnered with BMS for Opdivo combinations, is the lead program and is being studied in multiple registrational oncology trials. Nektar reported approximately $1.405 billion in remaining BMS development and regulatory milestones, subject to clinical and regulatory success. Its annual development-cost contribution is capped at $125 million.
- In February 2021, SFJ agreed to provide up to $150 million to support a Phase 2/3 bempegaldesleukin plus Keytruda study in head and neck cancer. Funding is accompanied by contingent success-based payments to SFJ, including up to $450 million for the first qualifying indication approval and an additional $150 million for a second, subject to the agreement’s terms.
- Key risks include clinical failure or delay—especially for bempegaldesleukin—dependence on BMS and Lilly, COVID-19 impacts on trials and suppliers, intense competition, reliance on collaboration revenue, and substantial ongoing cash needs. The company also cited single- or limited-source suppliers and manufacturing constraints.
- Legal matters include patent disputes and securities and derivative litigation. Certain securities claims were dismissed in early 2021, but appeals or further amended claims remained possible; Nektar recorded no liability for these matters at year-end. The filing says potential losses could not be reasonably estimated.
Investor facts to verify
- Upcoming bempegaldesleukin trial readouts, enrollment and regulatory milestones, and any resulting changes to BMS milestone expectations or collaboration spending.
- Cash burn, investment balances and the timing and conditions of SFJ funding and potential success payments.
- HCR royalty-sale threshold progress, the associated non-cash interest expense, and when royalty rights could revert to Nektar.
- 2021 spending and revenue trends against management’s stated expectations, including the negative product margin outlook.
- Developments in litigation, manufacturing supply, and the effects of COVID-19 on partner-led trials.
Audit and controls: Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective at December 31, 2020.