Nektar Therapeutics (NKTR) 2008 Q3 法說會逐字稿

Good afternoon, and thank you for joining us for the Nektar Therapeutics conference call. My name is Mage, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes. I will now hand the call other to Nektar Investor Relations, please proceed.

Thank you. Good afternoon and thank you for joining us for Nektar Therapeutics third quarter 2008 financial results conference call. Before we get started, please note that the following presentation containings forward-looking statements that reflect our current views as to the company's business strategy, the value and potential of our technology platform, the clinical prospects of our proprietary and partnered products, future revenue potential of our partnered programs, our financial guidance for 2008, the anticipated closing of the Novartis transaction 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 quarterly report on Form 10-Q filed with the SEC on August 8, 2008, and the report on Form 8-K, filed today, which included our third quarter financial results press release. 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, future events, or developments. A web cast of this conference call will be available for replay on the investor relations page at Nektar's web site at www.nektar.com. In the event that any non-GAAP financial measure is discussed in this conference call, that is not described during the call, related information will be made available on the investor relations page of our web site as soon as practical after the conclusion of the call. With that I am pleased to hand the call over to our president and CEO, Howard Robin.

Thank you, Jennifer, and thanks to everyone for joining us. Today, we will update you on the important progress we've made with Nektar's business and our proprietary and partnered drug development programs as well as review our financial results for the third quarter and year-to-date. On October 21, we took an exceptionally important step with the announcement of our sale of certain pulmonary delivery assets to Novartis for $115 million in cash. Under the asset purchase agreement, Nektar retains ownership of our lead anti-infective programs, the buyer partnered program, Nektar 061 inhaled amikacin, entering Phase III next month. And our proprietary program, Nektar 063 inhaled vancomycin, which is planned to begin Phase II in the first half of 2009. Additionally, we retained our rights to royalties on sales of inhaled cipro which is also partnered with buyer. These anti-infective programs represent the potential for significant revenue streams in Nektar.

Additionally, we retained all rights to our dominant inhaled insulin intellectual property (inaudible). The Novartis transaction underscores our ability to monetize assets that is are no longer strategic to Nektar's future. More importantly, it also highlights the extraordinary value of the rest of the company when you consider that these assets represent only a mere fraction of the company and were sold for $115 million. We can now place our strategic focus squarely on the development of novel therapeutics using our advanced polymer conjugate technology platform while continuing to advance our inhaled amikacin vancomycin. This focus will allow us to rapidly and efficiency advance valuable product candidate into clinical developments. The Novartis transaction also significantly increases our operating efficiencies and builds on the great progress we've made in this area. The transaction will effectively eliminate $45 million of P&L expenses, resulting in a reduction of $30 million of cash usage, associated with our pulmonary operations. Now, some great news. The planned cash from the Novartis transaction has allowed us to repurchase a sizable portion of our convertible debt. Since October 21, the date of the Novartis transaction announcement, we have been successful in repurchasing $100 million of debt at an average price of $0.48 on the dollar. We will continue to monitor the market for our debt and may retire additional debt when strategically appropriate. With the closing of the Novartis transaction, we plan to end 2008 with approximately $375 million in cash. We have monetized some of your non-strategic assets, significantly reduced our debt and significantly reduced our expenses. As a result, Nektar is in a unique position of financial strength.

Now, I'd like to update you on the progress of our clinical pipeline. First let me start with our two oncology programs, Nektar 102 PEGylated irinotecan, and Nektar 105 PEGylated docetaxel. Both represent large market opportunities for Nektar. In October, we presented positive data on Nektar 102 which represents the first PEGylated small molecule to show therapeutic activity in humans. The data presentation was authored by our lead investigator, Dr. Daniel Von Hoff at the 20th EORTC triple meeting in Geneva. In the Phase I trial, we demonstrated that we could achieve a pharmacokinetic profile with a significantly longer half life of the active metabolite of Nektar 102, relative to irinotecan. The half life of the active metabolite of irinotecan is approximately 37 hours. The half life of the active metabolite of Nektar 102 was 50 days. In the Phase I studies summarized in Geneva, 23% of patients demonstrated an objective response with Nektar 102. 12% of the patients experienced a tumor reduction as measured by resist criteria of at least 40% in as much as 58%. And 11% of the patients showed a response whereby the tumor shrunk by 15% to 30%.

It is important to point out that these responses were observed within the first one or two courses of treatment underscoring the impressive potentacy of this compound. The patients in this trial had refractory tumors that is had failed to response to all prior available treatments. We are currently conducting Phase IIA study of Nektar 102 in colorectal cancer and we expect to begin dosing patients in three additional Phase II trials in breast, ovarian and cervical cancers before year end. Also in the fourth quarter, we planned to initiate a Phase IIB randomized trial, evaluating Nektar 102 monotherapy versus irinotecan in second line colorectal cancer patients with the KRAS mutant gene. Specifically, this study will be a head-to-head comparison of Nektar 102 versus irinotecan with a primary end point of progression free survival. Our second oncology development program is Nektar 105 PEGylated docetaxel. In October, we presented positive preclinical data for this compound at the 2008 URT symposium. The data highlights a superior anti-tumor activity of Nektar 105 in preclinical tumor models as compared to docetaxel. As with Nektar 102 our technology platform can enable a substantially improved pharmaco-dynamic profile that potentially enhances therapeutic efficacy for Nektar 105. We are on target to file a IND for this compound by year end. With plans to initiate a Phase I clinical study in the first quarter of 2009. The current (inaudible) market approximates a $4 billion opportunity and we believe Nektar 105 is an important compound that will further illustrate the value that can be crated our polymer conjugation platform.

I'd l now like to turn our attention to our CNS exclusion platform. Illustrated best by Nektar 118, oral PEG-naloxol. Nektar 118 is the first oral drug in our pipeline thats uses our advanced polymer and conjugate chemistry to reduce penetration of drugs across the blood brain barrier and at the same time greatly increasing oral bio-availability. Nektar 118 is a novel orally available peripheral opiate antagonist that we continue to advance into Phase II. Nektar 118 is designed to address the debilitating problem of opioid induced bowel dysfunction a common problem for patients suffering from chronic pain who take opioids for relief. We have optimized our oral formulation of Nektar 118 and are building on this important program to develop a next generation therapy, Nektar 119. Nektar 119 combines an opioid with Nektar 118 to create an analgesic that doesn't cause a debilitating side effects of constipation. Our market research and discussions with potential partners strongly suggests that this program could greatly improve the quality of life for patients in need of chronic pain therapy. We expect to be approved for principle clinical studies of Nektar 119 in 2009.

Now I'd like to briefly update you on our two antibiotic programs which I want to reiterate, were not included in the Novartis transaction. Let me begin with Nektar 1061, amikacin inhale, which is partnered with buyer. Amikacin inhale is being developed for the adjunctive therapy of the very serious and growing problem of gram negative pneumonias in intubated patients. This product remains on track to enter Phase III clinical trials next month and we expect to receive a $10 million milestone payment from buyer 45 days after initiating this trial. Nektar dosed the first patients in our Phase I clinical study, evaluating Nektar 063 inhaled vancomycin in September. Nektar 063 is our proprietary program that uses the same liquid aerosol platform as amikacin inhale and is designed for adjunctive therapy of moderate to severe hospital acquired gram positive pneumonias including serious MRSA infections. The potential to decrease mortality rates and lower the development of antibiotic resistance by delivering targeted high concentrations of the drug to the site of infection, offers a unique therapeutic profile. We plan to initiate a Phase II clinical trial of Nektar 063 in the first half of 2009. I am extremely proud of the progress we have made this year to expand and accelerate the development of our clinical pipeline, which I will say again is one I consider to be, one of the most robust in biotech. Now let me turn the call over to John Nicholson, our Chief Financial Officer to review our financials. John?

Thank you, Howard. And good afternoon. Our third quarter GAAP cash used in operations was $18.6 million, our non-GAAP cash used the in operations was $18.5 million an improvement from $18.7 million in the second quarter, and $25.1 million in the first quarter. Our non-GAAP cash used in the third quarter excludes $100,000 related to work force reduction. On September 30, we had a cash balance of $344.5 million compared to $373.9 million at June 30. In addition to our cash used in operations during the third quarter we had capital expenditures of $4.7 million. We had capital (inaudible) costs and other net uses of cash of $6.1 million. Revenue was $21.4 million in the third quarter and $61.8 million year-to-date. For the full-year 2008 we expect our revenue be approximately $90 million compared to our prior projection of $95 million. This is primarily because of less than expected (inaudible) manufacturing requirements by UCB and less than expected some of it, manufacturing requirements by (inaudible). This lower manufacturing revenue is offset by an improvement in operating expenses and efficiencies for our ongoing business. Other than the timing of the (inaudible) ammocation milestone that Howard mentioned earlier and a drop in our interest earned as a result of the current credit crisis, we would have a non-GAAP cash used in operations of $72 million which had is in line with our target of $75 million. Since we now have to receive the $10 million ammocation milestone payment by early February of 2009 our non-GAAP cash used in operation will be approximately $88 million.

Let me break it down for you. The $72 million I just mentioned less the $10 million (inaudible) milestone that we now receive early next year and a change in interest spread of $6 million. Our GAAP cash used in operations for 2008 is expected to be approximately $147 million which includes the $53 million of cash payments made for the terminated inhaled insulin program and other related items in the first and second quarter and planned cash transactions of $6 million related to the closing of the Novartis transaction in the first quarter. We expect to close the Novartis transaction on December 31, 2008 and receive the $115 million cash payment. As a reminder, on the agreement, Novartis will will assume ownership of certain Nektar pulmonary delivery technologies and manufacturing assets including capital equipment and facility lease obligations. Approximately 140 Nektar employees will join Novartis. As Howard just stated, since October 21, the date of the Novartis transaction announcement, we have been successful in repurchasing $100 million of convertible debt at an average price of $0.48 on the dollar.

With this repurchase of our convertible debt and the remaining cash from the Novartis transaction, we expect to end the year with approximately $375 million in cash, and 0.3 less debt. And remember that this year end cash projection is after we have invested more than $50 million to advance our proprietory clinical programs in 2008. As Howard has told you in the past, the new Nektar is living within our means and doing much more with less. With that, let me turn the call back to Howard.

Thank you John. I want to close now with a key message for investors and analysts alike. I told you that we would chart a new course and as you can clearly see we have done just that. The turn around at Nektar is now largely complete. We have created one of the most robust pipelines in biotech, dramatically improved the companies financial strength, assembled a new management team with a solid track record and refocused the business around our powerful polymer and conjugate chemistry development platform. With that, I'd like to open the call up to questions.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of [Zahar Yamine] from JP Morgan. Please proceed.

[Zahar], do you have a question?

Your line is open.

Let's go to the next question, please Mage.

Your next question comes from the line of from Ian Sanderson from Cowen and Company. Please proceed.

Hi, good afternoon. Thanks for taking the question. It's Ian Sanderson. A couple of pipeline updates that I don't think were addressed on the call. Nektar 125, any update there? And then the PEGylated factor 8 program with buyer.

Well, thank you, yes, the 125 program is still in development. We strongly support it. We haven't said yet when we will file and IND -- this is for PEGylated dyphenhydromine using the same basic technology platform as Nektar 118. Where we keep dyphenhydromine from crossing the blood brain barrier and therefore have a -- an antihistamine without sedation, that is still in our early preclinical stage. We're doing further work on that and we haven't said yet when we expect to file an IND. With regard to our buyer programs -- excuse me, they're moving forward as baxter, I think we -- you know we're not in a position to comment specifically on the status of those programs but at this point I can imagine that its very likely that these programs will mover forward in a very expeditious way and we're very happy to continue our collaboration with baxter.

And you may have given this on the call and I missed it, but was there reason that the, the Phase III -- start of Phase II for inhaled amikacin got shifted into early next year?

Well, no it actually didn't get shifted into early next year. What I said is it will start next month which is December. So, we expect -- buyer expects to start that study next month. We talked about originally we talked about dosing the first patient in November which is this month and now it will be -- the first patient will be dosed next month. I think that maybe is shifted three or four weeks. I think the concept -- the reason we even brought it up is because we get a $10 million milestone 45 days after dosing the first patient. So, had we dosed the first patient on November 15 the $10 million would hit this year, if we dose the first patient on December 1, the $10 million hits next year. And that's the only reason we brought it up.

Okay. That was my confusion. And one last question on the balance sheet, as of September 30, there are $43 million of assets held for sale, should I presume that's the, the pulmonary assets sold to Novartis?

Yes, that is correct.

Okay. Thank you.

Thanks.

And your next question comes from the line of [Zahar Yamine] from JPMorgan. Please proceed.

Hi, guys. Good afternoon, thank you for taking my questions. I had a couple of questions, the first one is in regards to timing for the Phase II data for irinotecan and PEG-naloxol.

Okay. Maybe, I am going to turn it over to Randall Moreadith, our Chief Development Officer to take those specific questions.

Okay great, thanks.

Yes, we remain on track for the Nektar 118 program to release that date on the Phase II trial in the first half of 2009.

Okay. Then, the -- and 102?

Yes, we as you know, we are launching three additional studies in ovarian, breast and cervical cancer as well as the KRAS (inaudible) study, we anticipate the results of those trials in the fourth quarter of 2009 as well.

Okay. And the Phase IIA?

Yes, the Phase IIA program is still on track, we intend to complete enrollment in that study the fourth quarter of this year with the anticipation of publishing those results and presenting those results in early 2009.

Okay. Great. Also, how were you going to disclose the Phase IIA data with Erbitux, do you have any idea? Have you decided on that?

We haven't decided on how we'll present that data, That will be a discussion once we complete the enrollment in the trial.

Great, thank you so much.

Thank you.

Your next question comes from the line of Richard (inaudible) from BCM (inaudible), please proceed.

Hi. Yes, thank you. You know I just want to say firstly though, it's truly heartening, Howard to see a management team taking such a prudent and creative approach to managing its cash and its liabilities, I mean you guys have basically reduced your debt and effectively increased your net cash by $50 million. It's -- it's great to see a management team that has concern for all its stake holders. My question is have you given any thought in terms of the rank order of compounds that you've got in development as far as partnering? Are there any that you have thought about more likely to want to partner?

Well, yes -- look, that's a good question and I think I've said in prior calls and I've talked to investors about this publicly a number of times, is that we're always -- we have the luxury of having an enormous amount of clinical opportunities because our platform lends itself to improving both large and small molecules. So, we're always making that decision, what do we want to carry through the clinic ourselves, what do we want to partner early or mid stage.

At this point I've said if you asked the question, where are my priorities, I think the most likely compound for partnering at this stage is Nektar 118 and 119. The reason I say that is because there are a number of very important companies out there who find the concept of Nektar 119 which is a combination opioid with Nektar 118 to make an analgesic that doesn't cause constipation a very, very attractive product opportunity. If you look at the opioid market and imagine having a product that gets rid of the most debilitating side effect of this type of therapy, you can imagine there are a number of pain companies who would find this very interesting. And it also is a clinical design and a clinical expense that probably is best suited at least in a Phase III setting, to a large pain oriented company. So, while I am not suggesting we're going to license it out, thats -- if you ask me where my first priority in -- in finding a partner, I would say its 118, 119.

Got it. Alright. Again, it is appreciated.

Thanks. Thank you very much.

(OPERATOR INSTRUCTIONS). Your next question comes from the line of river from Rich Silver from Barkleys and Company. Please proceed.

Thanks. Hi, Howard.

Hi, Rich.

UCB (inaudible) I understand that of course it's their product, in terms of regulatory, but can you give us an update on the status for RA as far as (inaudible) both in US and also Europe?

Yes, look. Unfortunately, based on our contractual obligations with them we really can't discuss that product. You saw that we had a little bit of reduction in revenues as a result of less manufacturing requirements for (inaudible) Most of the revenues, by the way, are offset by a reduction in related cost of goods. So, it doesn't have that reduction in that revenue base didn't have much of an impact on Nektar this year, but unfortunately, Rich, I am not allowed to discuss in any kind of detail to the status of their program.

Does the reduction have anything to do with assumptions on the regulatory side?

You know, I couldn't tell you even if I knew all of the detail behind it.

Right.

I could only tell you that reduction is not terribly relevant to Nektar. I mean, its certainly important in that we want to be successful with a partner, but in the scheme of Nektar's broad opportunities, its only a small piece.

Right., okay. And then just on a couple of line items on contract research and SG&A and we saw this quarter. Are those good run-rates? Should we see them high or low? Or just any kind of sense on a go forward basis.

Well, look. What we have done this year is very I think, is very impressive. We -- our operating cash burn of about 70 -- you know, $72 million, and I know it will be somewhat higher than that because of the timing on the buyer payments, but thats and issue of whether it hits December 3 or January 2, right? But our operating cash burn of $72 million leaving out the buyer and leaving out the, the interest issue, is rather remarkable considering we spent over $50 million in outside clinical costs. So, we've gotten -- we've gotten down -- we've gotten Nektar down to fairly low numbers in terms of -- in terms of how we operate our company. If you take out the clinical costs for -- of approximately $50 million you are talking a remainer of about $22 million net expense to operate this company. Now, that doesn't mean that that's what will happen in future years because we're moving more and more programs into Phase II. We're moving more -- we'lll be moving programs either with partners or potentially by ourselves at some point, into Phase III. And as we build this clinical pipeline which I think is rather impressive, there will be more costs incurred.

So, I can't predict today, you know, we're not going to give out guidance today in what next year's cash burn will look like but rest assured we are very, very cautious on how we spend our money. We won't be kids in the candy store and work on every possible opportunity because that burns through cash at too rapid a rate. We have lots of opportunities, it's a true problem of luxury to be able to say, well, here are five things we are going to work on and here's five things we're just not going to work on at the moment. And that's all driven by how we want to spend our cash. So, I think we're done a great job in -- in really being quite judicious on how we use our cash and next year's cash burn rate, I would project will be reasonable and something that everybody will clearly understand, but also understand that we are moving more and more programs through the clinic and that does take money.

Okay. Thank you.

And your next question is a follow up question from Ian Sanderson from Cowen and Company. Please proceed.

Thanks for taking the follow ups and these may be unanswerable, but just to follow up, Howard, on the next years cash burn should we assume that it should be greater than the burn this year?

Look -- sorry, go ahead.

And the second question is, probably also unanswerable, but just looking forward to next week, should we anticipate new pipeline programs being presented or is it mostly an update on the existing pipeline?

Well, I think -- okay. So, let me answer the latter question first. I think next week at R&D day you will hear -- you will hear about our protease inhibitor, Nektar 140, which I think we are very excited about. And you are going to see some early data and early discussion on that molecule. So, I think that will be fun to talk about. With regard to your first question -- look, we haven't finalized our budgets for next year. We're looking at all of our clinical opportunities, we're looking at a number of things. I think -- I think it is important to point out that while I can't give you that kind of guidance today, I think if you look at a net burn of $70 million, $75 million, $80 million, I mean $60 million. You should expect that we'll be in that range somewhere, and you know we're going to move towards a number that allows us to optimize our opportunities in the clinic. Our opportunities in developing in our research efforts, new and novel methods of applying our polymer conjugates and because we have more opportunities than anyone could possibly handle, and again, a true problem of luxury, I think we will be very, very careful in how much we spend next year.

So, I think if you look at Nektar's spending this year and Nektar's spending next year it's probably going to be just about the same although, I'm not going to provide guidance at this point. One thing you should remember is when I talk about that number for this or when we talk about that number for next year, that doesn't include an opportunities we have for partnering, right? So, thats -- so anytime -- if we do partner deals this year or next year, that would only bring that external -- or that net burn rate number down.

Okay, and that also does include the, presumably, the cash savings from the divestiture of the inhalation business.

Yes, as I said there's probably about a $30 million a year cash burn that we've eliminated by divesting a large portion of these pulmonary assets, but of course I would also expect to see that our clinical programs grow, which is a good thing, and that money may very well get used by clinical operations. And I think -- I think thats -- look that's the great opportunity to reinvest. I mean, the ability to take spending away from an area that was producing modest results and move it into an area where we can put many, may programs into the pipeline I think its something very positive for investors.

Okay thank you very much.

And you have no questions at this time, sir. And I would now like to turn the call over to Howard Robin for closing remarks.

Well, thank you for your questions, thank you everyone for joining us today. And I look forward to seeing hopefully all of you at next week on November 12 at our R&D day in New York City. Thanks very much.

Thank you for your participation in today's conference. This completes the presentation. You may now disconnect. Good day.