Nektar Therapeutics — Q1 2023 Form 10-Q
Business context and period: Clinical-stage biopharmaceutical company focused on immunotherapy. This unaudited report covers the three months ended March 31, 2023, compared with Q1 2022; balance-sheet figures are compared with December 31, 2022.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Total revenue | $21.6 million | $24.8 million |
| Operating loss | $134.7 million | $116.6 million |
| Net loss | $137.0 million; $0.73 per share | $90.4 million; $0.49 per share |
| Cash used in operating activities | $51.9 million | $88.4 million |
| Cash and marketable securities | $456.8 million | $505.0 million at Dec. 31, 2022 |
| Current assets / current liabilities | $491.1 million / $59.9 million | $546.0 million / $68.2 million at Dec. 31, 2022 |
| Royalty-sale liabilities | $145.1 million | $155.4 million at Dec. 31, 2022 |
Revenue declined 13%. Product sales fell 17% to $4.7 million; non-cash royalty revenue fell 4% to $16.9 million, while license, collaboration and other revenue was $0.02 million versus $1.6 million. Product sales were below cost of goods sold, producing a $2.3 million product gross loss. The filing says a fixed-price manufacturing arrangement is expected to continue to produce negative gross margin in 2023.
Net loss widened 52%. Q1 2023 included a $76.5 million non-cash goodwill impairment and $13.2 million of non-cash impairment of lease and property assets. Restructuring, impairment and terminated-program costs totaled $21.2 million. Q1 2022 included a $33.4 million gain from reducing the SFJ development derivative liability to zero; there was no comparable gain in 2023. Cash and investments declined $48.2 million from year-end. The company reported $240.9 million of stockholders’ equity and $320.9 million of total liabilities at March 31.
Material changes and management commentary
- Research and development expense fell 72% to $30.5 million, principally reflecting the wind-down of bempegaldesleukin, the 2022 workforce reduction and lower related costs. Some bempegaldesleukin wind-down costs are now classified as restructuring costs, limiting direct year-over-year comparability.
- General and administrative expense declined 23% to $21.1 million. Cost of goods sold increased 33% to $7.1 million.
- In April 2023, Nektar announced a further restructuring targeting an approximately 60% reduction in its San Francisco workforce, expected to be substantially completed by June. It recorded $5.5 million in severance expense in Q1 and expected approximately $1.9 million more, primarily in Q2.
- After Lilly decided not to advance rezpegaldesleukin into Phase 3 for lupus, Nektar announced on April 27 that it would regain full rights. The Phase 2 lupus study missed its primary endpoint, although the company reported improvements on certain measures in a middle-dose subgroup. Nektar planned a Phase 2b atopic dermatitis study in 2023 and to explore other autoimmune indications.
- Key ongoing development priorities include rezpegaldesleukin and NKTR-255. Nektar also targeted IND readiness for a lead TNFR2 agonist antibody candidate by year-end 2023, with a first clinical study planned for 2024.
Outlook, risks and contingencies
Nektar estimated its available working capital would fund current business plans for at least 12 months from filing, and said it had no credit facility or other committed capital. It expected 2023 R&D and G&A expenses to decrease significantly following the restructuring plans, and operating cash use to fall versus 2022. It did not expect significant license, collaboration and other revenue in 2023. These are management expectations, not a formal earnings guidance range.
Following the return of rezpegaldesleukin rights, Nektar expects to bear its development costs unless it secures another collaboration. The company expects continued operating losses and negative operating cash flows. Important risks include clinical and regulatory failure or delay, funding and collaboration uncertainty, reliance on limited suppliers and contract manufacturers, and possible losses or reduced liquidity if investments must be sold before maturity. Subleasing excess San Francisco space is uncertain; changes in market conditions or sublease terms could lead to further impairment charges.
On May 2, 2023, Nektar and its directors were named in a Delaware Chancery Court putative class action alleging a bylaw provision on stockholder action without a meeting violates Delaware law. The company had recorded no litigation liability at March 31 and said the potential loss could not be reasonably estimated. Separately, a patent lawsuit involving MOVANTIK was settled in March 2023 without payment by Nektar. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress, timing and funding needs for NKTR-255 and rezpegaldesleukin, including transfer of relevant rights, data and materials from Lilly.
- Whether planned restructuring savings materialize, and the total costs, workforce effects and any further asset impairments.
- Cash burn relative to the $456.8 million cash-and-investments balance, including the effects of self-funding pipeline development and any need for financing or new collaborations.
- Potential revenue and cash implications of royalty-sale arrangements, product manufacturing economics, and any future subleases of excess facilities.
- Developments in the Delaware stockholder lawsuit and any other litigation or indemnification claims.