Nektar Therapeutics — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Nektar is a research-based biopharmaceutical company developing candidates in oncology, immunology and virology. Revenue is generated through collaboration agreements, product sales, royalties and related payments.
Financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $28.3m | $48.8m | $52.0m | $99.4m |
| Operating loss | $110.2m | $77.7m | $219.6m | $211.3m |
| Net loss | $125.5m | $80.0m | $248.5m | $218.7m |
| Basic and diluted loss per share | $0.69 | $0.45 | $1.37 | $1.23 |
| Operating cash used | Not separately stated | Not separately stated | $160.0m | $162.0m |
Q2 revenue fell 42%; six-month revenue fell 48%. Product sales rose 43% in Q2 and 42% for the half, but were largely offset by no royalty revenue reported in the royalty line and sharply lower license and collaboration revenue. In 2020, license revenue included BMS milestone payments of $25m in each of Q1 and Q2. In 2021, sold royalty rights generated non-cash royalty revenue of $20.5m in Q2 and $39.3m for the half; this is not cash received as current-period royalty income.
Q2 research and development expense rose 5% to $101.3m; six-month expense declined 4% to $196.9m. General and administrative expense increased 21% to $29.6m for Q2 and $61.2m for the half, reflecting personnel and other costs to build commercialization capability. The 2020 half included $45.2m of NKTR-181 termination-related charges, with none in 2021. Q2 product gross margin was 2%, while the six-month margin was negative 6%; management expects a negative product gross margin for full-year 2021.
Financial position and liquidity
At June 30, 2021, cash and marketable securities totaled $1.057bn, down from $1.199bn at December 31, 2020. Cash and cash equivalents were $152.3m; current assets were $1.056bn and current liabilities $131.0m. Total assets were $1.371bn, total liabilities $466.4m and stockholders’ equity $905.0m. The company reported no senior-note interest expense in 2021; its $250m senior notes were repaid in April 2020. Long-term obligations include $188.1m of liabilities for sold future royalties and an $11.6m development derivative liability.
For the first half, operating activities used $160.0m; investing activities provided $83.4m, mainly reflecting net investment maturities and sales; financing activities provided $30.0m, including employee equity-plan proceeds and $1.5m from SFJ. Cash and cash equivalents declined $46.6m. Management estimates available working capital will fund current plans for at least 12 months from filing. Nektar has no committed credit facility; its $300m shelf registration was unused at June 30, 2021.
Material changes, outlook and risks
- Pipeline and collaboration: Bempegaldesleukin is the lead immuno-oncology candidate, being developed with BMS in combination with Opdivo and in other studies. SFJ agreed to provide up to $150m to support a Phase 2/3 head-and-neck cancer study with Keytruda; potential success-based payments to SFJ are contingent on approvals and trial completion. BMS milestone payments remaining were described as approximately $1.405bn, including $625m associated with approval and launch in the first indication across the U.S., EU and Japan.
- Management outlook: Nektar expects 2021 product sales to increase versus 2020, R&D and G&A expense to increase, and license/collaboration revenue to decrease significantly versus 2020. It expects lower interest income as investment balances and market rates have declined. The filing gives no numerical full-year revenue, earnings or cash-flow guidance.
- Royalty monetization: Nektar sold specified future royalties to HCR for $150m in 2020; the associated liability is amortized through non-cash interest expense. HCR’s royalty rights end when contractual thresholds are met, after which the rights return to Nektar. Nektar also continues to recognize non-cash royalties associated with an earlier royalty sale.
- Clinical and operating risks: Results and regulatory approval for bempegaldesleukin are uncertain and materially affect potential milestones, future revenue and liquidity. Nektar depends on BMS, Lilly and other partners for development and commercialization activities. COVID-19, including the Delta variant, could delay trials; the filing reports slower-than-anticipated enrollment in an NKTR-255 study and prior delays to some partner studies. Supply concentration, manufacturing constraints, competition, reimbursement and the need for future capital are also risks.
- Contingencies and unusual items: The SFJ derivative liability is remeasured using significant unobservable assumptions; changes in trial or approval probabilities could affect earnings. Nektar reported no liability for securities and derivative lawsuits because potential losses could not be reasonably estimated. The Mulquin securities action was dismissed with prejudice and on appeal; the Damiba action was dismissed with prejudice. A May 2021 settlement resolved pending PEGylated Factor VIII patent proceedings with Bayer; the filing says this did not affect ADYNOVATE royalties. The company also reported settlements with generic MOVANTIK challengers, subject to stated conditions.
Investor verification points
- Verify clinical and regulatory progress for bempegaldesleukin, including BMS-led trials, the SFJ-funded study and the timing and likelihood of associated milestone payments.
- Track cash burn against the $1.057bn cash-and-investments balance, the stated 12-month funding horizon and the absence of committed credit.
- Assess the economics and accounting of royalty-sale obligations, including non-cash revenue, non-cash interest expense and the thresholds for royalty rights to return to Nektar.
- Monitor COVID-19 and other enrollment or manufacturing delays, partner prioritization, and the expected growth in R&D and commercialization costs.
- Follow the Mulquin appeal, remaining derivative litigation and unresolved intellectual-property matters; the filing does not quantify potential losses.