Nektar Therapeutics — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts below are in millions of dollars unless otherwise noted. Nektar is a research-based biopharmaceutical company whose revenue is derived from collaboration agreements, product supply and royalties; much of its reported royalty revenue is non-cash.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $23.6 | $24.9 | $70.0 | $76.9 |
| Operating loss | $(54.3) | $(113.6) | $(323.7) | $(333.2) |
| Net loss | $(59.0) | $(129.7) | $(308.5) | $(378.2) |
| Basic and diluted loss per share | $(0.31) | $(0.70) | $(1.65) | $(2.07) |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $(246.3) | $(261.1) |
- Q3 revenue comprised $5.0 million product sales, $18.3 million non-cash royalty revenue and $0.3 million license, collaboration and other revenue. Nine-month non-cash royalty revenue was $52.2 million.
- Product gross margin was approximately 0% in Q3 versus negative 2% a year earlier; it was 4% for the nine months versus negative 5%. Management expects full-year 2022 product gross profit to be negative, partly due to a fixed-price supply arrangement whose price is below fully burdened manufacturing cost.
- At September 30, cash and cash equivalents were $105.8 million and short-term investments were $440.6 million, totaling $546.4 million, versus $798.8 million in cash and investments at December 31, 2021. Cash and investments are not the same as cash generated from operations.
- Current assets were $599.5 million and current liabilities $84.0 million. Total liabilities were $368.8 million, including $165.6 million of liabilities related to sales of future royalties and $134.7 million of operating lease liabilities. The royalty-sale obligations are accounted for as imputed debt; the filing reports no conventional credit facility or committed capital source.
- Stockholders’ equity was $412.2 million, down from $679.5 million at year-end 2021; accumulated deficit was $3.14 billion.
Changes versus prior period and unusual items
- Revenue fell 5% in Q3 and 9% for the first nine months year over year. Product sales declined 4% and 10%, respectively; non-cash royalty revenue declined 6% and 11%.
- Operating expenses included $16.8 million of restructuring, impairment and terminated-program costs in Q3 and $124.4 million for nine months. The nine-month total included $58.5 million in asset impairment, $29.8 million in severance and benefits, $28.9 million in bempegaldesleukin wind-down costs, and $7.1 million in contract termination and other costs.
- The lower reported R&D and G&A expenses primarily reflect termination of the bempegaldesleukin program, restructuring and changed presentation of related costs. The nine-month 2022 net loss also benefited from a $33.4 million gain on remeasurement of the SFJ development derivative liability, which was reduced to zero after the program was discontinued.
- Operating cash outflow was $246.3 million for nine months. Investing activities provided $325.8 million, mainly reflecting net investment maturities; financing activities provided $1.4 million. Cash and cash equivalents increased by $80.5 million, primarily alongside the reduction in investments.
Business outlook, risks and contingencies
- Following unsuccessful bempegaldesleukin trial results, Nektar and BMS discontinued that clinical program; Nektar also discontinued its related Keytruda and NKTR-262 studies. The company announced a reorganization, a workforce reduction of about 70% (from approximately 735 to 225 employees) and closure of its India research facility.
- Nektar prioritized rezpegaldesleukin and NKTR-255, along with selected early research programs. Lilly leads rezpegaldesleukin development; Nektar shares 25% of Phase 1b/2 costs and may contribute to Phase 3 costs to support higher potential royalties. Lilly discontinued further rezpegaldesleukin development in ulcerative colitis after an interim analysis.
- Management said cash and investments were expected to fund current business plans for at least 12 months from the filing date, including program wind-down costs. It expects operating cash use, excluding potential upfront, milestone and other contingent payments, to decrease in 2022 versus 2021. Product sales were expected to be marginally lower for full-year 2022; no quantified revenue or earnings guidance was provided.
- Key risks include clinical failure or delay for the prioritized pipeline, dependence on Lilly and other collaborators, need for future capital and lack of committed financing, competition, manufacturing and single-source supply exposure, and potential COVID-19-related trial or supply disruption. Nektar also cited rising inflation and possible investment liquidity losses if securities must be sold before maturity.
- The filing reports ongoing litigation involving Aether Therapeutics concerning MOVANTIK patents. The securities class action concerning bempegaldesleukin statements was dismissed, with the Ninth Circuit affirming dismissal; a related derivative action was stipulated dismissed with prejudice in September 2022. No litigation liability was recorded at September 30, 2022. The filing notes that commercial-agreement indemnification obligations are not capped at a stated amount and their maximum exposure cannot be reasonably estimated.
- Management concluded disclosure controls and procedures were effective as of September 30, 2022. The report was unaudited interim financial information.
Important facts for investors to verify
- Whether the stated minimum 12-month cash runway remains adequate as pipeline plans, restructuring costs and cash burn evolve; the company had no committed credit facility.
- Progress, timing, cost-sharing and any changes in Lilly’s rezpegaldesleukin program, and clinical enrollment and results for NKTR-255.
- Actual savings and final costs from the workforce reduction, facility exits, program wind-down and potential subleasing; management said estimates may change.
- Future collaboration, product-supply and royalty receipts, including the non-cash nature of much reported royalty revenue and the obligations tied to monetized royalties.
- Developments in the Aether patent litigation, supply-chain risks and any changes in reported investment liquidity or valuation.