Nektar Therapeutics (NKTR) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Nektar Therapeutics conference call. I will be your conference moderator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of the conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. Now I would like to turn the call over to Ms. Jennifer Ruddock, Senior Director of Investor Relations for Nektar.

Thank you. Good afternoon, everyone, and thank you for joining us. With us today is our President and CEO, Howard Robin; our Chief Financial Officer, John Nicholson; and our Vice President of Clinical Development Dr. Lorianne Masuoka.

Before we get started please note that the following presentation contains forward-looking statement that reflect our current views regarding the clinical status, clinical results and clinical plans for our proprietary products in various stages of development. The value and potential of our technology platforms, our financial guidance for 2009, and other future events relating to the Company. These forward-looking statements involve risks and uncertainties that are detailed in Nektar's reports and other filings with the SEC including our Form 10-Q filed with the SEC on November 7, 2008, and a report on Form 8-K filed today with the SEC. Actual results 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 webcast of this call will be available for replay 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 during the call related information will be made available on the investor relation page of our website 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. Howard.

Thank you, Jennifer, and thanks to everyone for joining us. 2007 and 2008 were transformational years for Nektar. We set a new pass forward for the Company that focuses squarely on developing innovative drugs with our PEGylation and advanced polymer conjugation technology. The impressive Phase II results for NKTR-118 that we announced this morning are a major milestone in the evolution of Nektar into a successful drug development Company. On onto our exciting news.

On the basis of overwhelming evidence of efficacy at two different dose levels we're terminating our Phase II NKTR-118 study. The results from this trial were highly statistically significant at the 25-milligram dose and the 50-milligram dose for the primary end point in a dose dependent increase in spontaneous bowel movements or SBMs after the first week of treatment observed with once daily dose of NKTR-118 as compared to placebo. The P value for the primary end point was less than 0.01 for all comparisons. Most parentally, there was no reversal of analgesia and no increase in daily opiate use for both the 25 milligram and 50-milligram dose cohorts. Now I would like to turn the call over to Lorianne Masuoka, our VP of Clinical Development and she'll take you through the data in more detail.

Thank you, Howard. We're extremely pleased with the results from our Phase II study of Nektar 118. As you may know, opioid induced constipation has a major negative impact on the health and quality of life of patients with moderate to severe chronic pain. The patients in our Phase II study were severely constipated with an average of just over one bowel movement per week and were not adequately treated with currently available remedies which was what led them to enroll in our clinical trial. The patients taking NKTR-118 in our trial experienced a marked improvement in bowel function as measured by an average increase of three to four spontaneous bowel movements per week during the first week of treatment. This degree of improvement was maintained throughout the 28 day treatment period.

More specifically, patients in the 25-milligram dose cohort of NKTR-118 had an increase in spontaneous bowel movements from an average of 1.5 at baseline to 5.1 at the end of the first week, a somewhat larger treatment effect was noted for patients in the 50-milligram dose cohort of NKTR-118 who had an increase in bowel movement from an average at 1.6 at baseline to 5.7 at the end of the first week. I have just told you how patients taking NKTR-118 who are severely constipated have an improvement in bowel function to nearly normal after only one week of treatment. Now let me tell you how much better the NKTR-118 patients fared than the placebo patients.

Patients receiving the 25-milligram and the 50-milligram dose of NKTR-118 had an increase of approximately four bowel movements per week as compared to the placebo group which had an increase of less than two bowel movements per week. These results were highly statistically significant with a P value less than 0.01 for both the 25 and 50-milligram dose group starting at the first week of treatment. The results were sustained for the 28-day period overall with a P value less than 0.01 for both dosing cohorts. NKTR-118 did not result in an increase in pain and was not associated with an increase in open at use at my time during the 28-day treatment period at any dose. NKTR-118 was also not associated with opiate withdrawal as assessed by a change in the clinical opiate withdrawal scale. The most frequent side effects observed in this study that led to discontinuation of medication were diarrhea, nausea, and abdominal cramping. These GI side effects were most frequent in the 50-milligram dose cohort, occurred rarely in the 25-milligram dose group and are expected for a drug with this mechanism of action.

The lead investigator for our study is Dr. Lynn Webster who is the Medical Director of Life Tree Clinical Research. Dr. Webster is a leading expert in pain management and is on the Boards of the American Academy of Pain Medicine and the National Pain Foundation. He has evaluated many compounds in the field of pain management including drugs to treat OIC. In his experience NKTR-118 was extremely effective in treating patients on a Phase II study who are on a wide range of opiate doses spending to 30 to 1,000 morphine equivalent units. Up to 90% of pain patients develop OIC and other symptoms of opioid induced bowel dysfunction. Constipation can be extremely severe and many patients discontinue their opioid therapies as a result which is a challenge for clinicians treating these patients. NKTR-118 targets the underlying mechanism of OIC without reversal of analgesia. The oral once daily investigational drug could represent a significant advance for both patients and physicians in the treatment of OIC. The final results from our NKTR-118 Phase II study are being submitted for presentation at appropriate scientific forums. With that I would like to turn the call back to Howard.

Thank you, Lorianne. As Dr. Masuoka stated, the positive results for NKTR-118 is very promising news for patients taking chronic opioid therapy or suffering from the debilitating condition of opioid induced constipation. Based on our positive experience with NKTR-118 we have initiated the development of a new important clinical candidate, NKTR-119. NKTR-119 is a combination of a long acting opiate with NKTR-118. NKTR-119 represents an important new product concept, a novel analgesic that does not cause the serious GI side effects seen with opiates. We anticipate starting a Phase II proof of concept study with NKTR-119 in the second half of this year.

We have significant partnering opportunities for both NKTR-118 and NKTR-119. We estimate the potential market for NKTR-118 to exceed $1 billion and NKTR-119 to be substantially larger than that. We are in discussions with a number of pharmaceutical companies and there is significant partner interest. The data we announced today is critically important to Nektar and our shareholders for another reason.

The Phase II results for Nektar 118 further validate the use of Nektar's advanced polymer conjugate technology platform to create innovative small molecule drugs. Our novel and proprietary platform can do three things. First, it significantly improves the pharmacological activity of small molecule drugs. Second, it allows the creation of novel orally bioavailable therapeutics. And third, it enables preferential distribution of a drug within the body. This technology breakthrough is the result of our pioneering science in the field of polymer conjugation chemistry and PEGylation. Nektar's platform has the potential to create new drugs with highly desirable pharmacologic properties and can significantly improve the treatment paradigm in areas high unmet medical need.

Now I would like to talk about two other product candidates in the clinic, NKTR-102, Pegylated irinotecan, and NKTR-105 Pegylated docetaxel. Both of these represent large market opportunities for Nektar. NKTR-102 is the first Pegylated oncolytic to show promising therapeutic activity in humans. In January we announced that dosing had begun in our Phase II trial for this key compound in platinum resistant ovarian cancer. Since then we have also dosed our first patients in the metastatic breast cancer study and with dosed patients in the randomized Phase IIb study of NKTR-102 in second line colorectal cancer. Regulatory and IRB approvals have also been obtained for the Phase II study of single agent NKTR-102 in metastatic cervical cancer.

As we said in our presentation at JPMorgan in early January, we expect that preliminary data from the breast and ovarian cancer studies will be available by the end of this year. The randomized Phase IIb constituted toy evaluate NKTR-102 monotherapy verse irinotecan in second line colorectal cancer patients with the K-RAS gene mutation will enroll approximately 174 patients. This study a head to head comparison of NKTR-102 versus irinotecan with a primary end point of progression free survival. Date is is expected in Q1/Q2 of next year.

We're excited about the potential of NKTR-102 in the multiple tumor settings. We presented positive Phase I data on NKTR-102 at the 20th EORTC triple meeting in Geneva in October 2008. The data show that our pro drug polymer conjugate approach enables us to optimize the PK profile of the active metabolite of NKTR-102 relative to irinotecan. The half life of the active metabolite of NKTR-102 is approximately 50 days as opposed to only 47 hours with irinotecan. This results in sustained exposure of the tumor to NKTR-102.

In our Phase I study a total of 14 patients out of 76 had evidence of significant antitumor activity with NKTR-102. The Phase II A study for NKTR-102 plus ritusimab is ongoing. To date we have had four patients with significant antitumor activity out of twelve patients. These responses were observed within just the first one or two courses of treatment. Our results thus far for NKTR-102 make us extremely urgent about the expanded Phase II development program under way for this chemo therapeutic.

Now let's discuss NKTR-105, a Pegylated form of docetaxel. We recently dosed our first cohort of patients in the NKTR-105 Phase I study. This study will evaluate the drug in approximately 30 patients with refractory solid tumors. As with NKTR-102, our technology platform can enable a substantially improved pharmaco dynamic profile that potentially enhances therapeutic efficacy. We will be presenting additional preclinical data at the American Association of Cancer meeting in Colorado in April, and we expect to have Phase I data for NKTR-105 by the end of the year.

Now let's discuss some of our preclinical programs. The NKTR-118 clinical results reinforce the potential of a number of product opportunities including two programs for which we are already conducting preclinical studies. NKTR-140, our protease inhibitor candidate and NKTR-171 for the treatment of pain. These products represent the use of our uniquely engineered polymers conjugated in stable linkages to small molecule drugs to improve physical, chemical, and pharmacological properties, modulate metabolism, enable preferential distribution and increase oral bioavailability.

I want to talk for a moment about NKTR-140, our novel protease inhibitor candidate to treat HIV and the next investigational oral drug in our pipeline. Using a similar polymer conjugation approach that we used in NKTR-118 we designed NKTR-140 to avoid rapid and extensive metabolism. In addition, we believe that using our technology platform could result in increased potency through enhanced binding affinity to the protease enzyme. The product could eliminate the [ritonivir] boosting needed with current inhibitor therapy which can have serious side effects and result in drug to drug interaction. Use of NKTR-140 without the need for ritonivir may reduce viral resistance.

In our preclinical data in clinical side effects we saw substantially reduced metabolism of NKTR-140 as compared to a leading protease inhibitor that was rapidly metabolized. We also saw increased potency of NKTR-140 in HIV infected cells in vitro and we're extremely encouraged about the potential for this drug. Preclinical studies are underway for NKTR-140, and we expect to file an IND by the end of this year. NKTR-171 is another promising product candidate using the same technology approach as NKTR-118 in the area of neuropathic pain. We have observed promising preclinical results in both in vitro and in vivo models. We are currently evaluating NKTR-171 in more advanced models of pain and will share more on the important compound as it progresses through development. Now I would like to turn the call over to John Nicholson who will provide financial guidance for 2009.

Thank you, Howard, and good afternoon. 2008 was a year of strong financial and operating performance for Nektar. We invested $82 million in clinical trials, we retired $100 million of convertible debt at a significant discount, and we ended the year with $379 million in cash. Revenue for 2009 is expected to be between 65 million and $75 million. This projection includes the anticipated exercise of a $31 million existing license option extension in December 2009. The majority of our revenue in 2009 is expected to be product sales and royalties. We are reiterating our 2009 guidance of non-GAAP cash using operations of $80 million. This includes an investment of $68 million in a proprietary clinical program with $4 million of transaction costs related to Novartis transaction and $1 million of other payments our GAAP cash use in operation is expected to be $85 million. Capital expenditures are expected to be approximately $20 million in 2009. We reiterate our prior guidance we expect to end the year with $275 million in cash. This does not include cash from any potential new partnerships. With that let me turn the call back to Howard.

Thank you, John. 2008 was truly a transformational year for Nektar. We are excited about the opportunities that lie ahead for our clinical pipeline in 2009 and beyond. Our ability to use our advanced polymer conjugate technology and translate it into opportunities with small molecules, antibody fragments, peptides and nucleic acids is what makes Nektar truly unique and tremendously exciting. I am exceptionally proud of our employees and the hard work that went into building our pipeline and creating the Company we are today. With one of the most robust pipelines in the Biotech industry, a streamlined and effective organization, a strong cash position, and a dominant intellectual property state we're well-positioned for success. I look forward to keeping you updated on the progress throughout the year W that I would like to open the call to questions.

Your first question is from the line of [Cory Cavinaugh] with JPMorgan. Please proceed.

Thanks. Good afternoon, guys, thank you for taking the question. A few questions revolving around NKTR-118. First of all, what triggered the early look at the data, was there a built in interim analysis for this study?

Cory I an going to let Lorianne take you through these very specific questions. Lorianne?

Thank you, Cory. Built into this trial was an evaluation by a dose escalation committee after the end of each cohort and at the end of the third cohort the dose escalation committee recommend that we not proceed beyond the 50-milligram dose and that is what triggered this analysis.

And then who comprises dose? Is this an independent committee or internal members of the clinical development team?

This is an external committee with one member who is not ake actively involved in the conduct of the study within Nektar, so it is largely an independent group.

Great. Then can you provide us with any other incremental data on this study? I know you probably are saving for presentation of scientific meeting but for example can you share with us the time to first bowel movement like a percent that achieved within four hours?

We will be presenting that data at an upcoming scientific meeting and in order to preserve the integrity of those data for that meeting we need to not discuss any further details at this time.

Okay. Safe to say you're pleased with what you saw from the standpoint the study was stopped early like this?

Very safe to say.

And then lastly, would you be willing to start a Phase III study without a partner or do you plan on partnering this--?

I am sorry.

I was going to say let them just bear the burden of the cost of a Phase III development program?

Look, as I said earlier, this drug and this, these results have caused great interest in potential partners, and we have been speaking for awhile to a number of companies who were awaiting the data. So I think it is safe to say that we are very much planning to find a collaborator for this program. Now, that said, I don't want you to think of this as an out license. This would be a program where Nektar retains significant ownership of this drug, so you could think of it as profit splits. You can think of it a as high royalty rates, however you would like to calculate that. I think it would be beneficial to have a partner. I think this is a very large market that needs a fairly sizable salesforce, and I think the right partner would do very well for us in this area. I think we'll have those discussions, and I would like to have a partnership completed this year.

Okay. So think along the lines of amikacin, is that fair?

I think that's a good model for the way I like to do deals.

Okay. Great. Thanks for taking the questions.

Your next question comes from the line of Rich Silver with Barclays Capital. Please proceed.

Good afternoon and congratulations on the data.

Thank you, Rich.

Just trying to get a better sense on the '09 guidance. Considering the R&D and SG&A numbers in the fourth quarter, can you just comment on that and those numbers relative to the kind of spend we should be looking for going forward?

Rich, I guess to answer your question basically our R&D spend for last year was about $150 million, and our R&D spend for this year will probably be in the 125 million to $135 million area, and from a G&A perspective this year we're thinking in the lines of somewhere in the neighborhood of 50 million to $55 million range.

Okay. And on the revenue guidance, what was the proportion of revenues between contract research, product sales, royalties?

Are you talking about for 2008 or 2009?

That's 2009 guidance.

Basically in 2009 very little there in contract research, most of it is product sales and royalties.

Okay. And any milestones?

At this point in time approximately somewhere in the neighborhood of around $10 million of milestones.

Okay.

Remember, Rich, the paradigm for Nektar is very different now. We're not a delivery service provider. We're not a contract manufacturer. We're a Company that is developing therapeutics, and to the extent that we work with partners, there will always be some level of partnership revenue, but for the most part the concept of Nektar receiving revenues to provide services is no longer really within our strategic model.

Okay. Thanks very much.

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

Good afternoon and also congratulations on the data. On the partnering front or the I guess it would be collaboration of NKTR-118, would you necessarily do a collaboration deal on this separate from 119 or would you most likely put these together?

Well, I think that's a great question. I think it is certainly possible that they can be done separately, but I would imagine that the partners, any potential partner it would be interested in both of them since it becomes a bit of a challenge to separate them in terms of development and even in terms of marketing. That said, we're certainly willing to look at those types of transactions, but my guess is that it becomes a NKTR-119 transaction, and you can imagine that has significant value for Nektar in both the short-term effect in terms of cash up front as well as the back side which would have a substantial royalty associated with it.

Okay. And then you noted that NKTR-140 is the next oral pep candidate, I thought, and is something happening with NKTR-125?

NKTR-125 is moving along in a preclinical sense. We have some more homework to do on it, and therefore I haven't announced when we will be filing an IND for NKTR-125. It is still a very exciting possibility. At this point we have seen such impressive results at least preclinically with NKTR-140 and we're dealing with a significant and important patient population, HIV, that we expect to have that IND filed this year?

And then back on 118, I know the safety committee stopped it at 50-milligram dose and because they felt they didn't need to go higher. Have you ever looked at what the dose limiting talks might be for 118?

Lorianne, would you like to follow up on that?

Sure. We don't have any formal dose limiting toxicity per se in this trial. What we did see was some of the patients had some abdominal complaints which were somewhat more frequent in the 50-milligram group, and very rare in the 25-milligram group, so we felt that we had a combination of a dose that was not only extremely active but superbly well tolerated, and this provides us a very good dose going forward into Phase III.

Thank you.

(Operator Instructions). Your next question comes from the line of Bert Hazlett with BMO Capital Markets. Please proceed.

Thanks for taking the question. Maybe you have touched on this and maybe I missed it. With 118 and 119, does the PEGylation provide abuse resistant characteristics or is that something that might potentially be teased out over the long haul, and I have a follow-up question 140 after that.

That's not the purpose of NKTR-118 or 119. The purpose of NKTR- -- we really haven't explored that and that isn't really where we see the value of this drug. The value of this drug is of course to treat the millions of patients who are taking chronic opioid therapy and have significant problems with their bowel function. In NKTR-119 is of course an opioid therapy itself that would not cause constipation, so I think those markets are very impressive. I think we see the market for both of these drugs well exceeding $1 billion annually. I will let Lorianne comment further regarding the potential for substance abuse.

So I think that the combination of NKTR-118 with an opiate would make it inherently unattractive for those who intend to abuse this product because of course there is some peripheral reversal of effect, and the method by which the drug abusing population uses these products would probably render it fairly unattractive for that population, so although that wasn't our specific intent, it doesn't appear to be a product that would have a significant issue with abuse potential.

Then I guess -- thank you. On 140 the question is when will you be able to find which PI you're using and I guess just any potential data presentations? I know the idea is coming up later this year, but I really wanted to just explore which PI and the data that you have generated to date?

We haven't stated publicly which protease inhibitor we will be using in this formulation in this novel therapeutic. We will do it later in the year and certainly we will be making formal presentations to show that data and our selection choice, and as I said we'll have an IND filed by the end of the year, so we haven't stated it yet, but we will, and I don't have a time, a specific frame for that yet.

Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect, and have a great day.