Nektar Therapeutics (NKTR) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics first quarter 2009 financial results call.I will be your coordinator today. At this time, all participants are on a muted line. We will conduct a question-and-answer session at the end of today's conference. (Operator Instructions). As a reminder, today's call is being recorded. I would now like to turn the call over to Ms. Jennifer Ruddock, Senior Director of Investor Relations. Please proceed.

Thank you. Good afternoon, and thank you for joining us for Nektar Therapeutics first quarter 2009 financial results conference call. With us today are Howard Robin, our President and CEO, John Nicholson, our Chief Financial Officer, Dr. Randall Moreadith, our Chief Product Development Officer, Bharatt Chowrira, our Chief Operating Officer, and Dr. Lorianne Masuoka, our Vice President of Clinical Development.

Before we get started, please note the following presentation contains forward-looking statements that reflect our current views as to the company's business strategy, the prospects and timing of potential new collaboration partnerships, the value and potential of our technology platform, the clinical and commercial prospects of our proprietary and partnered products, our financial guidance for 2009 and other future events relating to the company. These forward-looking statements involve uncertainties and other risks that are detailed in Nektar's report and other filings with the SEC, including our form 10-K annual report filed with the SEC on March 6, 2009, our most recent form 10-Q quarterly report, and the report on form 8-K filed today. 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 call will be available for replay on the investor relations page of Nektar's Web site at www.Nektar.com.

With that, I am pleased to hand the call over to Howard. Howard?

Thank you, Jennifer. And thanks to everyone for joining us. I am excited to report that Nektar is making steady progress advancing our clinical programs and executing on our objectives in 2009. Today we will update you on our clinical pipeline and upcoming milestones. We will also review our financial results for the first quarter, and reiterate our financial guidance for the year.

In March, we announced positive topline data from our phase 2 stud of oral Nektar 118 in opioid-induced constipation or OIC. This randomized, placebo controlled double blind study demonstrated that NKTR 118 effectively reverses opioid-induced bowel dysfunction without altering the desired CNS analgesic effects of the opioids. Importantly, this study demonstrates how Nektar's advanced polymer conjugate technology is being used to inhibited drugs from crossing the blood brain barrier, preventing unwanted CNS affects. These highly statistically significant results also demonstrate that we can dramatically enhance the clinical efficacy of oral small molecule drugs. Nektar's polymer conjugate platform is already well recognized as the leading technology in substantially improved biologics. This validation of the next generation of our polymer conjugate platform with oral small molecules represents a major advance in pharmaceutical drug development. NKTR 118 is well positioned to potentially be the first oral therapy to directly address the serious and debilitating problem of OIC, a common complication from patients suffering from chronic pain who take opioids for relief. There are more than 2.6 billion days of chronic opioid use in the U.S. and an estimated 45 to 90% of these patients will develop OIC.

Bowel dysfunction negatively impacts the health and quality of life for patients who will often reduce or interrupt their pain medications to get relief from this serious side effect. There are no oral therapies on the market today that directly address OIC. As an oral once daily therapy, NKTR 118 could dramatically improve patient quality of life and meet a significant unmet medical need. In our Phase II study of NKTR 118, both the 25 milligram dose and 50-milligram dose resulted in a highly statistically significant increase in bowel movements after the first week of treatment, with a P value of 0.002 for the 25-milligram dose, and a P value of 0.0001, for the 50-milligram dose. Patients in our study were on chronic opioid therapies and were highly constipated at the start of the study, with an average of 1.6 bowel movements per week. After receiving the once daily 25-milligram or 50-milligram doses of oral NKTR 118, patients achieved five to six bowel movements per week, essentially restoring normal bowel function. These favorable results for NKTR 118 were sustained over the 28 day treatment period, with a P value of [0.002] (corrected by company after the call) for the 25-milligram dose, and less than 0.0001 for the 50-milligram dose.

NKTR 118 did not result in any increase in pain, CNS withdrawal systems, or any increase in opioid use at any time during the 28-day treatment period at any dose. This provides us with clinically meaningful data that our technology resulted in exclusion of NKTR 118 from the CNS. The database from the NKTR 118 Phase II study was locked last week. We now have greater insights from the compelling results from the full data set, including additional end points such as quality of life, pharmacokinetics and time to first laxation. As we said, we did not see any reverse of of analgesia as measured by pain scores in any of the treatment groups. We are also seeing encouraging results for quality of life for patients taking oral NKTR 118. Finally, for patients on chronic opioid therapy that suffer from long standing severe constipation, we observed that oral NKTR 118 begins to restore normal bowel function within several hours of administration. We plan to submit the complete data set from our Phase II study of oral NKTR 118 for presentation at upcoming pain conferences.

We're making notable progress with oral NKTR 119, a combination of a long acting opioid and NKTR 118. In the Phase II study, NKTR 118 was effective in patients taking a wide range of opioid doses, ranging from 30 to a thousand morphine equivalent units. That fact, the fact that NKTR 118 works over a wide range of opioid doses, enables us to make a combination drug product with a fixed dose of NKTR 118, and a wide variety of the opioid doses. NKTR 119 is designed to provide pain relief to patients without the serious GI side effects seen with opioids on the market today. We have successfully co-formulated a number of combinations of NKTR 118 with various doses of a long acting opioid in a tablet formulation. Oral NKTR 119 will be ready for Phase II studies in the second half of this year. We have significant interest from a number of pharmaceutical companies in both NKTR 118 and NKTR 119. We're in active discussion with these companies and as we previously said, we intend to enter into a strategic partnership this year.

Now I'd like to turn to our novel oncology product candidate, NKTR 102, PEGylated irinotecan, and NKTR 105, PEGylated docetaxel. NKTR 102 and NKTR 105 represent large market opportunities for our company. Irinotecan and docetaxel are both well characterized and widely used chemotherapeutic agents. By applying our advanced polymer conjugate technology to these compounds, we can substantially improve their pharmacodynamic profiles and potentially enhance their therapeutic efficacy. With NKTR 102, we demonstrated an increase half-life of the active metabolite, resulting in constant and increased exposure of the tumor to the drug, to potentially improve efficacy. In our Phase 1 trial after administration of NKTR 102, the active metabolite had a half-life of 50 days compared to a half-life of only 40 hours for the active metabolite, following administration of irinotecan. This allows us to maintain measurable levels of the active metabolite over the 3 week treatment cycle with NKTR 102. With the standard every-three-week single agent irinotecan regimen, the active metabolite levels fall below the level of detection after only seven days.

We have continued to make impressive clinical progress with NKTR 102. The Phase II studies for NKTR 102 are on track and actively enrolling patients. The studies in platinum resistant ovarian and metastatic breast cancers are designed to evaluate objective response rates of single agent NKTR 102. These open label two-on-trials have a two-stage design, and each is enrolling between 55 and 70 patients to evaluate the efficacy of 145 milligrams per metered square dose, administered every two weeks or every three weeks. As we have said previously, we expect to have preliminary results from these studies by the end of this year. The randomized Phase II trial in second line colorectal cancer compares single agent NKTR 102 at 145-milligrams per meter squared every three weeks, with an approved regimen of single agent irinotecan in approximately 174 patients, with tumors containing the KRAS gene mutation. The primary end point for this trial is progression free survival. And the data from this study are anticipated in the first half of 2010.

Our second oncology program, NKTR 105, PEGlyated docetaxel, is proceeding in a Phase 1 clinical trial with the first two dose cohorts enrolled. The study is enrolling approximately 30 patients with refractory solid tumors who have previously failed available therapies. Docetaxel is a highly effective chemotherapeutic agent with proven efficacy in treating a number of solid tumors. Annual sales of the drug worldwide exceed $2 billion.. However, docetaxel treatment is frequently associated with myelosuppression, hyper sensitivity, and fluid retention that can limit treatment options and require administration of steroids. To date, patients in our Phase 1 study of NKTR 105 have not needed pretreatment with any steroids as required with docetaxel. And we have not observed any neutropenia. While the study is still in its early stages, we're very encouraged by these observations.

At the American Association For Cancer Research Meeting in April, we presented important preclinical data for NKTR 105. In these animal models, treatment with NKTR 105 showed increase docetaxel concentrations of of up to four fold higher in tumors as compared to treatment with conventional docetaxel. The preclinical findings demonstrate that the significantly increased drug concentration in the tumors achieved with NKTR 105 were associated with superior anti-tumor activity. NKTR 105 has the potential to offer improved efficacy in patients due to its prolonged half-life, and increased uptake by tumor tissue relative to docetaxel. We're excited about the drug's potential to significantly expand therapeutic options for oncologists and improving outcomes for patients.

We're also making steady progress advancing a number of new research, and pre-clinical programs that we believe hold significant promise. I would like to talk about two of these programs, NKTR 171 and NKTR 140. NKTR 171 is a new program in neuropathic pain, advancing through preclinical studies. Many current treatments for neuropathic pain are poorly tolerated as a result of CNS-related side effects. These side effects can include sedation, dizziness and memory loss. Using the same approach as used with NKTR 118 to prevent crossing of the blood brain barrier, NKTR 171 maybe able to treat neuropathic pain without CNS side effects. NKTR 171 is currently being evaluated in preclinical studies, and we have observed promising results thus far in our in-- in vitro and in vivo models. NKTR 140 is a novel protease inhibitor that is an exciting preclinical candidate in our pipeline. NKTR 140 is being designed to avoid rapid and extensive metabolism and to eliminate the need for co-administration of a protease booster such as retonavir, the current standard of care with protease therapies.

Now I would like to take a minute to discuss Nektar's partnering strategy. I am often asked about this by share holders, we remain focused on working with partners, to accelerate and fund the later stages of clinical development for products in our proprietary pipeline. As a platform technology company, this strategy is important to our future growth and our long term ability to build value. It provides Nektar with the financial flexibility to pursue the many product opportunities emanating from our validated technology platform. As I told you before, we're in active partnering discussions with a number of companies for NKTR 118 and we expect to enter into a collaboration this year.

Finally, I want to reinforce, Nektar is committed to creating value and living within our means. As John will review next, our use of cash in the first quarter included a number of planned expenses that will not recur in future quarters this year, such as annual bonus payments and the Novartis transaction expenses. So consistent with our prior guidance, we expect to end 2009 with $275 million in cash. Importantly, this projection does not include cash from any new partnerships.. We plan to continue to reduce our cash burn in 2010, through careful management of our R & D investments, and the formation of strategic partnerships. We currently have no plans for any dilutive financing, a point of particular importance in this current market climate.

Now I would like to turn the call over to John Nicholson, our Chief Financial Officer. John?

Thank you, Howard. And good afternoon everyone. Nektar made significant improvements to its operating efficiencies in the first quarter of this year. Total operating costs and expenses were down 35%, to $40 million in the first quarter of 2009, compared to $61.9 million in the first quarter of 2008. Nektar's net loss in the first quarter of 2009 declined as well to $31.8 million, versus a net loss of $40.7 million in the first quarter of 2008.

We are reiterating our 2009 guidance, a full-year revenue of between $65 million and $75 million. Revenue for the first quarter was $9.7 million. As a reminder, our revenue will fluctuate from quarter-to-quarter. Included in our revenue projections for the year is the forecasted exercise of a $31 million license option extension, which as previously reported, is expected to occur in the fourth quarter. As of March 31, 2009, we had $325.3 million in cash. In the first quarter, GAAP cash used in operation was $42.4 million. As Howard stated earlier, our use of cash in Q1 included the payment of $11.2 million for a number of planned expenses that will not recur in remaining quarters for 2009. Such as, annual bonus payments, severance payments related to the sale of certain pulmonary delivery assets to Novartis, and the related transaction closing expenses.

Our full year financial guidance for 2009 remains unchanged. We anticipate our GAAP cash used in operations to be $85 million. Importantly, this includes approximately $68 million that we are investing in preclinical and clinical programs this year. As we stated on our last conference call, we expect to end the year with $275 million in cash, which does not include cash from any potential new partnerships. With that, I will hand the call back to Howard.

Thank you, John. In summary, we are making great progress advancing our clinical programs, and executing on our objectives.

Our company has three clear strengths that we believe differentiate us from many other biotechnology companies. A proven and validated drug development platform, a technology that is broadly applicable to both large and small molecules, and a strategy that focuses on substantially improving well characterized or approved molecules. These three assets enable us to potentially create a lower risk R & D pipeline and improve both the time lines and cost of research as compared to traditional drug discovery companies. With our R & D pipeline technology platform and dominant intellectual property estate, Nektar is well positioned as one of the most exciting companies in the biotechnology industry. I am proud of our employees and the tremendous effort they have put into meeting our objectives, and advancing our clinical pipeline, and I look forward to updating you on our continued progress in the months to come.

With that, I would like to open up the call to questions.

(Operator Instructions). And our first question comes from the line of Cory Kasimov with JPMorgan. Go ahead.

Hi, good afternoon, guys, thank you for taking the questions. First of all, just wondering if you could tell us what medical conference you have submitted the 118 data for?

I will let Lorianne answer that question.

Conferences that are upcoming.

We will let Lorianne answer that question.

We are submitting the NKTR 118 Phase II data to upcoming conferences that will be held later this year and early next year. At this time, we will not be releasing information about which conferences until the abstract has been accepted and available to the public viewing.

Okay. All right. Fair enough. Then Howard, to go back to the comments you made about the kind of the business strategy going forward. With what products to partner and potentially what products to keep I mean is there a certain point in time where you're going to want to hold on to a particular asset and take it all the way through on your own, so perhaps do the oncology products fit that bill, or once you get the phase 2 data there and get to that definitive proof of concept will you look to outlicense those as well?

Well, look. It is a great question. We have talked about it before. And I think Nektar's strategy, on the long term basis is certainly to develop our own drugs. And I clearly believe that Nektar will take drugs all the way through to the market, and ultimately market drugs. But I I think at this point in our development, with a platform technology, we're much better served with building that technology platform and availing ourselves of the many opportunities of both small and large molecules where we can apply this technology. And that takes a certain amount of cash and a certain amount of resource. And because of that we can take programs through Phase II. Get excellent results like we saw with NKTR 118 and enter into, I think, what I think will be impressive strategic collaborations that can fund more programs coming through the pipeline. So at some point certainly Nektar expects to take drugs all the way through, but at this point, I think it is much more valuable to our share holders to build the pipeline to demonstrate that our pipeline can result in a number of very, very important product programs, and ultimately, select which program we want to take through to the market ourselves. But I don't think that has to be decided now.

Okay, okay, I agree with that. And then lastly, more I guess of a housekeeping question or financial question. Operating expenses, and in particular, R & D, really done an effective job at controlling those. As we look forward to you reiterating your guidance there on your particular line items within operating expenses, but it seems like based off your comments that you expect to see them continue to drop, that there is a chance that you may even come in below what you're talking about right now in terms of overall spend for this year, is that is a possibility?

Well, what I have said we expect to continue to reduce our cash burn over time. Now there are a couple ways to reduce your cash burn. One way is to keep cutting expenses. I think Nektar has -- I would agree with you, Nektar has done a great job and the employees have done a great job in trimming back expenses over the years. There is a point where you're at a stage where, to enable all the programs that you're working on, one must maintain a certain expense base. Now that said, one of the ways that we reduce cash burn is to enter into collaborations. And I think part of Nektar's strategy to ultimately reduce its usage of cash, and to maintain a growing basis of cash is to ultimately enter into strategic collaborations for the expensive Phase III development program. So I do expect -- I do expect that we will be spending money in -- developing our programs but I also think that we will be generating partnership revenues over the future years in terms of offsetting some of that spending.

So the issue isn't whether we could save any more money. We have reduced our head count over the last two years by 900 people. We have cut our burn by over $100 million a year, and we are now spending $60 plus million a year in clinical expenses where in the past we were burning through $100 million with nothing in the clinic. So we're in a dramatically different position. We're not going to run out of cash, but one of the ways that we offset the clinical costs, associated with building this pipeline, is to work in strategic collaborations with important partners. I have said that I have no plans for any dilutive financings. I stand by that. I think the way we build this company is to work with partners and develop collaborations where we retain an ownership interest in the drug. So without going into specific detail, that for me is not a 10% royalty rate, if you understand what I am talking about. It is a much higher number. And to the extent that we can retain ownership interest in our programs and work with important pharmaceutical companies, I think we can build value that way and maintain and even grow our cash.

Right okay. I understand. I wasn't really trying to be critical of the spend. It was more that the numbers came in even below what we were looking for this quarter in terms of being better, and it just looked as if you use first quarter as a run-rate that this spending guidance that you're giving for 2009, you may not even spend as much money as you're saying you're going to spend is all I was saying --

Well, Cory, I wouldn't go by that simply because we do have -- some clinical studies are ramping down such as NKTR 118, but we have growing enrollment in NKTR 102, so I think you can't necessarily -- you can't take any of our spending and assume that it is linear throughout the year. It will vary quarter by quarter.

Okay, great, thank you for taking the questions.

Our next question comes from the line of John Sonnier with William Blair.

This is Tim McHugh for John. Thank you for taking the question. I guess now that you have had some more time to lock the database and scrub the 118 data set a little more can you give us some updated thoughts especially around safety and adverse events observed?

Okay. Again, good question. I will let Lorianne handle that question..

So, we have recently locked the database for this study and of course we now have much fuller insight into the interpretation of both the efficacy as well as the safety profiles of this product. The safety profile and tolerability profile of this product remains quite excellent, particularly at the 25-milligram dose. As we have disclosed previously, the primary side effect of the higher doses were primarily GI related side effects. So, we feel very confident that we have identified both an efficacious as well as well tolerated and safe dose for future Phase III programs. We will be releasing all of this data at an upcoming meeting.

That sounds good. And I guess a quick question on the 102 program. How is the enrollment going in the second line, irinotecan versus 102 study. And perhaps, can you see if the study doesn't look very compelling versus irinotecan and colorectal cancer patients, maybe still continuing with the program and ovarian and some of these other settings?

Yes, so far the second line colorectal cancer study we're on track with regard to the enrollment we projected earlier in the year. So, we have a development and regulatory strategy that enables us to release information, our top line results of this trial, in the first half of next year. So -- at this point in time there is not a significant issue related to patient succession in that trial. With regard to how the data look, of course that is something that we have to evaluate on an ongoing basis. As you mentioned, we do have on going Phase II programs in other indications such as ovarian and breast cancer, either of which could obviously be significant for this product. We do, however, feel quite confident that this product will do well in the GI indication. Given our past Phase 1 results..

Do you know just to finish up, the I guess historical PFS that you would expect in the irinotecan arm.

We're not prepared to release the exact information about the calculations that went into determining our sample sites, but I think you can rest assured that we used the major publications in this area in assessing what PFS would likely be in this patient population, so in the patients with the KRAS mutation in their tumors as you probably know the outlook is quite poor, and progression free survival is very short. On the order of several months.

Okay, thank you very much.

Our next question comes from the line of Shiv Kapoor with Morgan Joseph. Go ahead.

Hi, a couple of questions. First, on the NKTR 118, it seems like you have come to the conclusion that the 25-milligram dosage will likely be the dosage going forward? Did you see any dose response, and would you need to do any more studies to solidify that?

If you look the5-milligram dose, the 25-milligram and the 50-milligram, you saw a very impressive response. I don't think we have to do any work there but I will let Lorianne comment further.

That is absolutely right, Howard. We did see a very, very nice dose response, which is exactly what you would be looking for in a study of the designs that we had in the Phase II program. That is exactly what we were hoping for. And -- we clearly have highly efficacious doses at both the 25 and 50-milligram dose. Both of those dose levels are quite safe. It really becomes the issue of choosing the dose that has the optimum tolerability. So, we feel very confident that we have an appropriate dose for Phase III testing.

Great. One just house keeping question, can you reconcile the difference for me, the balance sheet shows a lowering of cash by around $53 million, and the cash flow statement shows lowering of cash by around $33 million. Can you explain the difference?

Yes, I will let John handle that.

Yes, basically, what you should be looking at is cash plus cash equivalent. So if you look at on March 31, we had cash of $122.3 million, and investments of $202.9 million. On 12-31 we had cash of $155.6 million. And short term investments of about $223.4 million.

Right. I think I did look at that. Maybe I will have to do this offline. I come up with $379 million going down to $325 million.

Right. Which is -- which is what we said we were going to do this year. In the quarter. So, we ended last year with $379 million, and we finished the first quarter with $325 million.

Right. I was trying to reconcile the difference between -- the cash flow statement shows use of cash of around $33 million. I am wonder wearing the other $20 million is.

Yes, but in the cash flow statement we don't include our short term investments.

I see.

Non-GAAP, okay.

All right. Okay. Thanks.

Our next question comes from the line of Rich Silver with Barclays Capital. Go ahead.

Just a couple. On 061 you had said previously that it was expected to move into Phase III in the second quarter. And just wanted to confirm that -- whether or not it has the Phase III studies have begun..

No, the Phase III studies have not begun yet. We're still building inventory of devices, buyer wants do make sure that they have sufficient devices without any interruption during the entire Phase III study. I can't comment as to exactly when they are going to start because they have asked us to keep that confidential, but we are actually in the process of making devices, I know the inventory has been produced and I can't comment whether -- exactly when they are going to start. But we are definitely moving that program forward.

Okay. And then just a couple more. Following up on Cory's question, regarding spending. So should we assume that the R & D spend guidance of 125 to 135, and G&A of 50 to 55 is unchanged, and if so, can you at least give us some sense of at what point in time, second half, or something along those lines, when we would see the spending pick up relative to where we were in the first quarter.

Yes, the guidance remains unchanged. And as we said, that spending plan will allow us to achieve $275 million in cash by the end of the year, without any new deal revenues. I can't say specifically when you will start to see the change in spend. It could be the third or fourth quarter, remember, you're seeing -- you're starting to see a pretty impressive now ramp up of NKTR 102 in both ovarian and breast as well as colorectal and NKTR 105 is ramping up in its Phase 1 study. So we have also made a number of other expense cuts and we're trying to hold our spending -- keep our spending as low as possible overall. So it is an offsetting reduction of needless spending, is an increase in clinical spending and they the exact point that they cross over and the exact point you start to see an increase in spending versus a reduction in spend it is hard to predict. But I stand by our guidance for this year.

Okay. And then lastly just in terms of the peer reviewed form for disclosure of this Phase II data on 118, can you at least give us some sense of when you might be in a position to share with us when that data might be disclosed?

I believe Lorianne already stated that that is not something that we can give out readily. But I will ask her to see if she can provide any more color on that?

So these abstracts are in preparation as well as in review. And so we will be prepared to provide additional information about the timing once we know the abstracts have been accepted for presentation.

Should we just assume that maybe it is the next conference call, or could it be before then that you could at least let us know where and when.

It is possible. I think at this point in time we're awaiting notification from these academies regarding the status of our presentations and we will certainly update you at that time.

Okay. Thank you.

At this time I show no further questions. I would like to turn the call back over to management for any closing remarks. Please proceed.

Well, thank you for joining us this afternoon. And I look forward to future conference calls and enjoy the rest of the evening, thank you, bye-bye.

Ladies and gentlemen, thank you for your participation in today's conference. That does include the presentation. You may disconnect. Have a wonderful day.