Nektar Therapeutics — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results; balance-sheet comparisons are against December 31, 2021. Nektar is a research-based biopharmaceutical company whose revenue is derived from collaboration agreements, product supply and royalty-related arrangements.
Key financial results
| Metric | Q1 2022 | Q1 2021 / prior period |
|---|---|---|
| Total revenue | $24.8 million | $23.6 million, up 5% |
| Product sales | $5.7 million | $4.8 million, up 19% |
| Non-cash royalty revenue | $17.6 million | $18.8 million, down 7% |
| License, collaboration and other revenue | $1.6 million | $0.1 million; includes $1.5 million from a license agreement, with no further consideration due |
| Operating loss | $116.6 million | $109.4 million |
| Net loss | $90.4 million; $0.49 per share | $123.0 million; $0.68 per share |
| Operating cash flow | $(88.4) million | $(77.1) million |
| Cash and marketable investments | $704.4 million | $798.8 million at December 31, 2021 |
| Current assets / current liabilities | $733.5 million / $105.3 million | $795.6 million / $85.2 million at December 31, 2021 |
| Royalty-sale liabilities, net | $185.6 million | $195.4 million at December 31, 2021 |
Product gross profit was $0.4 million, a 7% margin, versus a $1.0 million gross loss and negative 20% margin a year earlier. Management expects product gross profit to be negative for 2022 because one manufacturing arrangement is priced below fully burdened cost, though related royalty revenue exceeded that gross loss in the periods presented.
Research and development expense rose 12% to $107.3 million; general and administrative expense fell 14% to $27.3 million. The net loss improved largely because Nektar recorded a $33.4 million non-cash gain from reducing the SFJ development derivative liability to zero. This offset operating losses; it was not an operating cash inflow. Cash and investments declined by $94.4 million from year-end, while cash and cash equivalents increased to $68.0 million, partly reflecting net investment maturities.
Material developments and outlook
- Bempegaldesleukin (NKTR-214) program discontinued: After the quarter, Nektar and Bristol Myers Squibb reported that registrational studies failed to meet primary endpoints and decided to end the Opdivo combination program. Nektar also discontinued bempegaldesleukin studies with Keytruda and reported no ongoing clinical development activities for the drug candidate.
- Reorganization: Announced April 25, 2022, the plan prioritizes NKTR-358, NKTR-255 and selected research programs and reduces the workforce by approximately 70%, from about 735 to 225 employees. Nektar expects $30–35 million of severance and related benefits, primarily in Q2 2022, and estimates $70–80 million of third-party vendor and employee costs to wind down bempegaldesleukin, net of BMS reimbursement.
- Liquidity outlook: Management said available working capital was expected to fund current business plans for at least 12 months from the filing date. Nektar has no credit facility or other committed capital source; future financing terms and availability may depend on clinical results and capital-market conditions.
- Program commentary: Nektar is continuing development of NKTR-255, including Phase 1 and Phase 1/2 studies, and NKTR-358 with Lilly. Lilly planned a Phase 2 atopic dermatitis study following positive interim Phase 1b results, but after quarter-end informed Nektar that an interim Phase 2 ulcerative colitis analysis led to discontinuation of development in that indication.
- Other expectations and risks: Management expected 2022 product sales to increase versus 2021, license and collaboration revenue to increase due to the one-time license recognition, and R&D and G&A expense to decrease significantly following program wind-down and restructuring. These are forward-looking estimates, not guarantees. COVID-19, supply constraints, clinical-trial execution, partner decisions and the need for future capital remain risks.
Debt, commitments and contingencies
Nektar accounts for proceeds from sales of future royalty rights as debt because it retains manufacturing obligations. The related net liability was $185.6 million at March 31, 2022; non-cash interest expense was $7.5 million in Q1. The filing reports no credit facility. Current and non-current operating lease liabilities totaled $142.2 million. Securities class-action litigation concerning past bempegaldesleukin statements remained on appeal; Nektar recorded no liability and said a potential loss could not be reasonably estimated. A separate intellectual-property action involving MOVANTIK was also identified in the risk disclosures.
Most important facts for investors to verify
- Whether the restructuring and bempegaldesleukin wind-down costs remain within the stated estimates, and how quickly the workforce and expense reductions take effect.
- Whether cash burn falls as projected and whether the stated 12-month liquidity runway remains adequate after restructuring, clinical commitments and other obligations.
- Clinical progress, funding needs and partner priorities for NKTR-255 and NKTR-358, including any further changes to Lilly’s development plans.
- The assumptions behind royalty-sale liability interest expense and future royalty receipts, and the effect of the $185.6 million net liability.
- Developments in the pending litigation and any material changes to supply, clinical-trial or financing risks.