Nektar Therapeutics — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
Nektar is a clinical-stage biopharmaceutical company focused on immunotherapy and polymer-conjugate technology. Following major workforce reductions and discontinuation of bempegaldesleukin, its stated pipeline priorities include rezpegaldesleukin for autoimmune diseases and NKTR-255 for cancer. The Lilly collaboration ended and Nektar regained full rights to rezpegaldesleukin, leaving Nektar responsible for its development costs.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $24.1 | $23.6 | $66.2 | $70.0 |
| Operating loss | $44.9 | $54.3 | $230.2 | $323.7 |
| Net loss | $45.8 | $59.0 | $234.0 | $308.5 |
| Net loss per share | $0.24 | $0.31 | $1.23 | $1.65 |
| Cash used in operating activities | Not provided quarterly | Not provided quarterly | $145.6 | $246.3 |
Q3 revenue included $18.2 million of non-cash royalty revenue from previously sold royalty rights; product sales were $5.8 million. For the first nine months, non-cash royalty revenue was $50.9 million of total revenue of $66.2 million. These royalty amounts do not provide cash receipts to Nektar in the period.
Product sales had negative gross margin: cost of goods sold exceeded product sales by $6.6 million in Q3 and $11.3 million year to date. Management expects a larger negative gross margin for full-year 2023, citing a fixed-price manufacturing arrangement and lower allocation of manufacturing costs to R&D.
At September 30, cash and cash equivalents were $64.9 million and short-term investments were $307.7 million, totaling $372.7 million, down from $505.0 million at year-end 2022. Current assets were $399.0 million and current liabilities $52.1 million. Total liabilities were $282.9 million and stockholders’ equity $159.4 million. Liabilities related to sales of future royalties, accounted for as debt, were $123.6 million; operating lease liabilities totaled $121.3 million. Nektar reported no credit facility or other committed capital source.
Management estimated that available working capital would fund its current business plans for at least 12 months from the filing date. Nine-month operating cash use fell year over year, which management attributed to restructuring and lower program wind-down costs. Net investing cash inflow of $122.2 million largely reflected investment maturities exceeding purchases.
Changes versus the prior comparable period
- Q3 revenue increased 2%, while nine-month revenue declined 5% year over year. Lower license and collaboration revenue contributed to the year-to-date decline.
- Net loss narrowed 22% in Q3 and 24% for the first nine months. Lower R&D, general and administrative, and restructuring expenses contributed, although year-to-date results included a $76.5 million goodwill impairment.
- Year-to-date R&D expense fell 54%, largely reflecting workforce reductions, lower facility costs, and the reclassification of bempegaldesleukin wind-down costs to restructuring.
- Cash and investments decreased $132.3 million from December 31, 2022. Goodwill declined to zero after the impairment; lease-asset impairments also reflected weaker San Francisco sublease markets.
Outlook, risks and unusual items
- Nektar initiated a Phase 2b rezpegaldesleukin study in moderate-to-severe atopic dermatitis and planned another Phase 2b study in alopecia areata for late 2023 or early 2024. It also planned to explore other autoimmune indications.
- Management continued development of NKTR-255, including a Phase 2/3 study after CD19 CAR-T therapy, and targeted IND readiness for a TNFR2 agonist antibody by year-end 2023, with a first clinical study planned for 2024.
- The company expects continued substantial losses and negative operating cash flows. It expects R&D and G&A expenses to be significantly lower in 2023 than in 2022, while noting future spending and liquidity depend on clinical outcomes, collaborations, financing access, expenses and potential sublease proceeds.
- In August, Nektar disclosed that Lilly had incorrectly calculated previously presented interim rezpegaldesleukin efficacy data. Nektar later reported final Phase 1b atopic-dermatitis results showing dose-dependent improvements versus placebo; the filing cautions that clinical findings and development outcomes remain uncertain.
- Nektar recorded a $3.7 million inventory-obsolescence provision after identifying a quality concern involving a third-party solvent used in certain Huntsville production batches. The batches were held pending investigation; the solvent was not used in rezpegaldesleukin batches.
- Nektar sued Lilly on August 7, 2023, alleging breach of contract and breach of the implied covenant of good faith and fair dealing. No litigation liability was recorded; the outcome and potential loss were not estimable.
- On September 6, 2023, Nektar and BMS terminated their collaboration agreement; the parties continued to share costs while winding down the bempegaldesleukin program.
- Nasdaq notified Nektar that it did not meet the $1.00 minimum bid-price requirement. The initial compliance period ran through November 22, 2023; the filing stated that delisting remained a risk if compliance was not regained.
Important facts for investors to verify
- Clinical progress, safety and complete study results for rezpegaldesleukin and NKTR-255, including the implications of the corrected Lilly data and the Phase 2 lupus study missing its primary endpoint.
- Cash runway assumptions and future funding needs, particularly because Nektar bears rezpegaldesleukin development costs and has no committed credit facility.
- Resolution of the solvent-quality investigation and whether affected inventory can be used or released.
- Developments in the Lilly litigation and any related financial or operational consequences.
- Nasdaq listing compliance after the stated November 22, 2023 deadline, and the status and economics of planned facility subleases.