Nektar Therapeutics (NKTR) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the second quarter 2006 financial results conference call. [OPERATOR INSTRUCTIONS] Later we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Joyce Strand, Ms. Strand you may begin.

Welcome to Nektar Therapeutics conference call and webcast to review our performance for the second quarter 2006. I'm Joyce Strand, Director of Corporate Communications here at Nektar. Today you'll be hearing from Rob Chess, our Chairman and interim President and CEO; Lou Drapeau, our Senior Vice President of Finance and CFO; and Chris Searcy our Vice President of Corporate Development.

Before we get started please note that the following presentation contains forward-looking statements that reflect our current views as to the Company's business strategy, future products, clinical progress of our proprietary and partnered products, market potential for our products collaboration arrangements clinical trials, manufacturing scale-up, financial outlook for 2006, and other future events relating to the Company. These forward-looking statements involve uncertainties and other risks that are detailed in Nektar's reports and other filings with the SEC including our Annual Report on Form 10-K, and most recent Quarterly Report on Form 10-Q. Actual events could differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.

I would like to remind you that the web broadcast of this conference call will be available for replay through August 17, 2006, on the Investor Relations page at Nektar's website at www.Nektar.Com. In the event that any non-GAAP financial measure is discussed on this conference call that is not described in our earnings release, related information will be made available on the Investor Relations page at our website as soon as practical after the conclusion of this conference call. I'll now turn the call over to Rob Chess who will discuss recent highlights of our progress; Lou will then follow with comments on our financial results; and Rob will finish the prepared portion of today's call with some concluding remarks. We will then open the call to your questions. Rob?

Thanks, Joyce. First, I'm pleased to say that Exubera is on it's way. As you probably know, Exubera is approved for the treatment of adults with type one or type two diabetes for the control of high blood sugar levels. In patients with type two diabetes, Exubera can be used alone or in combination with diabetes pills or longer acting insulin. In patients with type one diabetes, Exubera should be used in combination with a longer acting insulin. Exubera is indicated for adults with type one or type two diabetes. Exubera has been launched by Pfizer in Germany and Ireland. In the U.S. Pfizer has initiated the introduction of Exubera by commencing a comprehensive physician and patient education and training program rolled out in Phases beginning July 24. Pfizer will be making initial supplies of Exubera available across the United States in September.

We are very excited about the launch of Exubera given that it is Nektar's pioneering formulation, powder processing, manufacturing, inhaler technologies that created this product and created a true paradigm shift in the way diabetics will take their insulin. All the events and feedback from the past few months have strengthened our belief that over time Exubera will become the preferred way to take insulin and will grow to be a very successful product. The enthusiasm around the American Diabetes Association meeting and around the launch has only reinforced our conviction in the potential and importance of the product. If you attended the annual American Diabetes Association meeting in June or listened to Pfizer's second quarter financial results call two weeks ago, you heard many exciting details about Exubera. At the ADA, Pfizer displayed the first ever Exubera exhibit booth that was always crowded with interested onlookers. In fact some of us believe it was the best attended booth at the conference.

Further, Pfizer presented new two year data from five year ongoing trials that reinforced prior studies for Exubera use by type one and type two patients, and also showed that Exubera patients gained less weight than patients using injectable insulin. In addition, inhaled insulin was a key topic of discussion at many of the meetings throughout the conference.

During the week of July 17, more than 2,300 Pfizer representatives met in San Francisco to prepare for the introduction of Exubera in the U.S. to healthcare professionals dealing with diabetes care. The introduction commenced on July 24, with a comprehensive physician and patient education and training program in the U.S. The next Phase of the introduction is to make initial supplies of Exubera available across the U.S. beginning in September. We continue to ramp Exubera manufacturing based on orders from Pfizer and we announced on July 20, we increased our estimates of Exubera revenue for 2006. According to Pfizer, some initial reimbursement discussions in the U.S. have gone well, but most of the discussions will take place over the next six months. From a personal perspective, I can hardly wait to see Exubera being used and look forward to going to a restaurant or my son's little league game and looking over to see someone inhaling their insulin.

I'd also like to take a brief moment to address questions we've been receiving regarding a patent lawsuit filed on August 1, by Novo Nordisk against Pfizer related to Exubera. As I hope you can appreciate, our policy is not to comment on pending litigation. Although neither Pfizer nor Nektar have had much time to review the lawsuit we're familiar with the intellectual property landscape for inhaled insulin and both companies are confident in the innovation behind the development of Exubera.

While Exubera is an incredibly exciting opportunity, we are more than just an Exubera Company. For longer term growth and sustainability we are developing proprietary products and we have made progress with these products as well. We announced today that our PEGylated pain product completed it's first proof of concept trial in humans. If all goes well in an additional Phase I trial, we should be in Phase II some time next year. Amphotericin B Inhalation Powder received both Orphan and Fast Track designation in the U.S. The inhaled Amphotericin product is important as it leverages our existing anti-infective pulmonary platform and has the potential to prevent a deadly disease, aspergillosis that begins in the lungs and kills more than 50% of immune compromised patients with this disease. We believe inhaled Amphotericin is a 400 to $600 million potential opportunity and plan to move this product into Phase III pivotal trials next year.

We recently met with the FDA on our inhaled Amikacin program to review our clinical development plan and we're encouraged by their reaction. The FDA identified hospital acquired or nosocomial pneumonia as a serious unmet medical need and indicated their committment to work closely with us as we move the product through development. Our next step is planning the next Phase of studies based on feedback from the FDA meeting.

Finally, we anticipate that our PEGylated oncology product will be moving into the clinic next year. In summary, if all goes as planned, we will have four of our own products in the clinic in 2007 and by the end of next year should have one in Phase III, two in Phase II, and one in Phase I. If you recall, we initiated our proprietary program about 3.5 years ago. Our rapid progress in building out a pipeline reinforces that we're using the right strategy to create value, to combine our leading edge and proven delivery technology with existing molecules to create innovative commercially attractive product opportunities. I'd now like to turn the call over to Lou who will briefly talk about our financial results.

Thanks, Rob. As we did last quarter, in the conference call, rather than provide the summary of our financial results which you can also all see in our press release materials, I'll point out a few things about our financials. If I miss something that requires clarification, please ask me at the end of our prepared remarks during the question and answer session. First, with regard to our revenue, the 60 million of revenue for the second quarter includes a full three months of Exubera product revenue. As you recall, in the first quarter we reported only one month of Exubera sales to Pfizer as we recognize that revenue generally based on a 60 day acceptance condition following product shipments. This means that the revenue of 89.2 million for the six months of 2006 includes just four months of Exubera revenue. Each of the remaining quarters in 2006 will have three months of Exubera product sales to Pfizer.

With regard to revenue guidance for 2006, on July 20, we increased Exubera related revenue guidance to a range of 70 to 90 million from a range of 60 to 80 million with most of this revenue being generated by manufacturing sales to Pfizer. Today, we also increased total revenue estimates to a range of 170 to 200 million. Let's now turn to our net loss.

For the second quarter 2006, we reported a GAAP net loss of 62.8 million or $0.70 a share, and a non-GAAP net loss of 24.9 million or $0.28 a share. As we noted last quarter, we are working to divest the Company of non-core assets and also improve the efficiency of how we do business to help us achieve our goal of profitability in 2008. Of course, excluding stock and stock option related compensation expenses and assuming a good Exubera ramp. As we have continued to assess the Company, we took some additional actions that will contribute to an increase in our estimated GAAP net loss for 2006, but longer term should decrease our underlying expense structure and position us for long term growth.

In the second quarter, these activities, including the shut down of Bradford and personnel actions that led to increased severance and stock based expenses along with the expense related to the payment to the University of Alabama and Huntsville litigation settlement led to an increase in our net loss estimate for 2006. Therefor, we are increasing our GAAP net loss estimates for 2006 to 160 to 175 million. However, I want to emphasize that we have not increased our guidance for our non-GAAP net loss which remains unchanged at 100 to 115 million.

Third, regarding cash, the balance of 491 million of cash, cash equivalents, short-term investments and investments in marketable securities as of June 30, 2006, does not include the amount of 17.6 million received from Affymax in July related to a collaboration between the two companies. Further, we expect this Affymax payment will be recognized as revenue over approximately ten years and it will not have a significant impact on our 2006 loss, although of course it will be part of our cash balance. We are not changing our estimate of cash, cash equivalents, and short-term investments and investments in marketable securities at the end of the year of approximately 415 million to 440 million. I'd be happy to answer any additional questions following Rob's concluding remarks. I'll now turn the call back to Rob.

Thanks, Lou. I'd like to conclude by giving an update on our CEO search. I continue to meet with outstanding candidates and remain optimistic we will attract the right person to lead Nektar. As I said previously we are looking for someone who can bring the skills needed to move the Company from development stage to profitability and sustainability. With the launch of Exubera, our strong cash position, our advancing proprietary pipeline and our strong scientific and management team, Nektar is a very attractive opportunity. I still expect to have someone before the end of the year.

In the meantime during this interim period, we will not lose momentum and we'll continue to actively focus the Company on building those components of our business that will result in the maximum increase in shareholder value. We are doing this by better controlling our underlying expense structure and focusing on our core assets and are aligning the business on the three key elements of our stated strategy.

First, Exubera and diabetes life cycle management products with a specific focus on expanding our leadership position in inhaled insulin. Second, developing proprietary products based on our drug delivery technology centered around a few therapeutic areas. And third, high value partner programs that provide us an excellent return on investment. The next several months should provide key milestones in each of these three core areas. In the U.S. and some EU countries we will have initial Exubera sales. We expect to have four proprietary programs in clinical testing in 2007 including one Phase III and two Phase II programs. Potentially two additional partner programs, Roche's CERA and UCB's CIMZIA could be approved at the next 12 months. It is an exciting time at Nektar and I believe we are in excellent position to increase the value of our company on multiple fronts. At this point I'd like to turn the call over to you for your questions. Operator, could you pole for questions, please?

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Rich Silver of Lehman Brothers. Please go ahead.

Two questions. First of all, the 44 million in product sales, could you tell us how much of that was Exubera manufacturing revenues? And second, at the ESDA meeting in Copenhagen, what additional data that we haven't seen already would you expect to be presented there? Are you aware of any studies that again we haven't seen already at the ADA?

Yes. Let me comment first, Rich, on the ESDA meeting and then I'll let Lou talk about the revenue. Obviously, until abstracts are out, we can't comment on anything that's going to be presented in the individual conference. I mean, obviously you can ask Pfizer, but like with all these things the best thing to do is just wait for the abstracts to come out.

Yes, Rich? It's Lou. Of the 44 million, we have not broken out the amount of Exubera related revenue in there, and -- but it's obviously a very significant component of it.

Okay, thank you.

Our next question comes from Sumish Sude of FBR. Please go ahead.

Hi, yes, actually I have two questions. I wanted to know possibly what's the split between the powder and devices within your manufacturing revenues? And also what are the differences in margin between the powder and devices? Thank you.

Yes, on both of those I'm sorry to say that we've not disclosed it and we haven't disclosed what the margin is.

So the one thing I can tell you is that the way our deal is structured, just so you understand is that we're responsible for both the devices and the powders right now, though over time Pfizer has the option for manufacturing up to 50%. On our manufacturing portion, we do it on a cost plus basis and then we get a royalty on overall sales of the product. We don't obviously disclose the specifics of the cost plus the both of those are done on a cost plus basis.

Okay, thanks.

And Jami Rubin of Morgan Stanley has our next question. Please go ahead.

Hi. It's Shelani Mahutra for Jami Rubin. How should we think about modeling the convertible debt that's due next year?

We have two tranches of convertible debt. It's approximately 103 million in total. We haven't made any definitive decisions, but I believe that we have adequate amount of cash balance on hand to repay it.

Okay so we should think about it as being repaid next year?

That's probably a good working model.

Can I have another question? How should we think about projecting R&D spend next year and going forward in light of your plans to partner your lead compounds? Directionally is fine.

Yes. Let me -- what we said is that for our lead programs is we're looking for partners, that may mean we may very well retain rights such as U.S. marketing rights for one or more of those, but as far as specific numbers that's guidance that we would give at our quarterly call probably early next year. That's typically when we give guidance for the next year.

Okay, thank you very much.

And currently there are no other questions in queue. [OPERATOR INSTRUCTIONS] And we have no further questions in queue.

Great. Well, thank you. I guess we must have been very complete on the conference call, but thanks everyone for listening. We'll be very excited to talk to you all next quarter because that will be after the launch of Exubera in the U.S. It should be a very exciting call for all of us and thank you for your attention.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.