Nektar Therapeutics (NKTR) 2010 Q3 法說會逐字稿

Good day ladies and gentlemen welcome to the third quarter 2010 Nektar Therapeutic conference call. At this time all participants are in listen only mode. Later we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Ms. Jennifer Ruddock. Maam, you may proceed.

Thank you, Francine. Good afternoon and thank you for joining us for Nektar Therapeutic's third quarter 2010 financial results call. With us today are Howard Robin our President and CEO, John Nicholson our Chief Financial Officer, Bharatt Chowrira our Chief Operating Officer, Dr. Lorianne Masuoka our Chief Medical Officer and Steve Doberstein our Chief Scientific Officer.

Before we get started, please note that in our presentation and in our response to questions today we will make forward-looking statements that reflect our current views as to the value and potential of our technology platform, the progress and potential of our drug candidates, the timing of the start of clinical trials, the timing and potential for a partnership for NKTR-102, the economic potential under certain of our agreements, the market potential for certain of our drug candidates, our financial guidance for 2010 and other future events and opportunities relating to the Company.

These forward-looking statements involve significant risks and uncertainties that are detailed in Nektar's reports and other filings with the SEC, including our Form 10-Q quarterly report filed with the SEC on July 28, 2010, our report on Form 8-K filed today, and our Form 10-Q quarterly report 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 or future events.

A webcast of this call will be available for replay on the investor relations page of Nektar's website at nektar.com. With that I will turn hand the call over to our President and CEO, Howard Robin. Howard?

Thank you, Jennifer, thanks to everyone for joining us today. 2010 continues to be an exceptional year for Nektar. We have made significant progress in advancing an impressive pipeline of high-value therapeutics, including mid-to late stage development programs in oncology and pain.

Through continued productivity in R&D, Nektar's pipeline has both expanded and matured significantly. We now have over 25 therapeutic programs in our pipeline from candidates and discovery to those preparing for phase three. Each of our candidates is designed to address an important clinical need and a significant commercial opportunity. Underpinning all of these accomplishments, is a powerful and validated polymer conjugate technology platform that continues to generate exciting new drug candidates.

Today I will review Nektar's achievements in the last quarter and update you on NKTR-102, NKTR-105, NKTR-181 and selected partner programs. John will review our financial results and guidance and then we will take your questions. Before I review the progress of our key programs I would like to comment briefly on the recently announced Amgen agreement. While the exact terms of this non-exclusive contract are confidential, we are exceptionally pleased with this agreement which was outlined in the 8-K filed this week. We will receive $50 million payment and we will now make reasonable margins on any future orders from Amgen. As a result, we re increasing our year-end cash guidance to reflect the $50 million payment we will receive from Amgen. We now expect to end 2010 with a cash balance of approximately $315 million. Please note that this guidance does not include the potential cash from a NKTR-102 partnership.

Now more importantly, let's talk about NKTR-102. As you know, we continue to be very excited about NKTR-102 and its compelling activity as a single agent in a number of tumor settings. We are currently in active negotiations to partner NKTR-102, and we expect to enter into a partnership around the end of this year. We remain committed to entering into a collaboration that maximizes the value to shareholders and brings NKTR-102 to physicians and patients as quickly as possible.

Chemotherapies represent a $12 billion global market and their use dwarfs that of targeted agents, many of which need chemotherapies to work. As a class though, these agents typically have very short half lives, and Cmax related toxicities, which limit their utility. It has long been hypothesized that if you can improve the PK profile of a chemotherapeutic agent, you could address the limitations of this class and have a very potent anti-cancer drug.

With NKTR-102 we have successfully created a new topoisomerase one inhibitor, with optimized PK properties, with the goal of increasing its efficacy and improving its tolerability. NKTR-102 was specifically designed to have an extended half life that can also achieve greater penetration into tumors, so the agent can have maximum impact on continuously dividing cancer cells. NKTR-102 was also designed to be efficacious with a lower Cmax, which reduces the Cmax related toxicities.

The positive efficacy data that is continuing to emerge for NKTR-102 in the breast and ovarian cancer settings highlight the drugs significant potential to provide great benefits to cancer patients. We have seen these highly promising results with NKTR-102 in some very difficult-to-treat cancer settings. NKTR-102 is currently in multiple clinical trials, including the expanded phase two trial in women with platinum resistant ovarian cancer that have had prior Doxil treatments. A phase two trial in women with metastatic breast cancer and two additional studies in the colorectal cancer setting as a single agent and as part of a combination regimen.

Earlier this year as you will recall, impressive results for NKTR-102 from our ovarian cancer study were presented by Dr. Vergote at the oral gynecologic oncology session at ASCO. I am pleased to tell you today that we've also been invited by a prestigious oncology journal to submit the final data from the 71 patients in the original phase two study with a targeted publication date in the first half of 2011. The data from our ovarian cancer studies indicate that NKTR-102 is a highly active agent with a good tolerability profile in heavily pre-treated chemoresistant patients, a population for which there is no good standard of care today.

The sad fact about ovarian cancer is that although most women respond well initially to platinum based therapies, in almost every case platinum therapies stop working and women eventually become resistant and refractory to these agents. The more platinum resistant the patient becomes, the less likely they are to respond to any other therapies. Among patients consider platinum refractory expected response rates are close to zero.

71% of the patients in the NKTR-102 study had progressed within three months of their last platinum dose and were clearly platinum resistant. And almost half of the patients were actually platinum refractory, which means they did not achieve any benefit from their last platinum regimen. In addition, none of these patients had a good quality response to a prior platinum based regimen. Impressively, about half of these women had a clinical benefit from treatment with NKTR-102.

We also observed an exceptionally high response rate among women who failed Doxil-therapy, which is currently the most widely used treatment for platinum resistant ovarian cancer. This is important as there are no reasonable effective therapies for these women whose disease has not responded well to either platinum or Doxil.

A high objective response rate in this population of doubly chemoresistant patients led to the expansion of our phase two study to enroll 50 more platinum resistant patients who have failed prior Doxil. This expansion is designed to give us the option to pursue an accelerated approval for NKTR-102. As I've said before, approval by the FDA prior to completion of phase three is uncommon, however we think it is important to pursue this option, given the extraordinarily high response rates seen among these patients, for which there are no other viable therapies.

The enrollment of the phase two expansion arm is proceeding well, and received a high level of investigator support. Of course, we're also planning phase three trials for NKTR-102 concurrent with our partnering discussions.

Now, let's spend a minutes on NKTR-102 in breast and colorectal cancers. The study of NKTR-102 in metastatic breast cancer enrolled a total of 70 patients. Approximately 85% of these patients had prior anthracycline and taxane based therapies, with or without capecitabine, which is the most widely used front-line treatment in the metastatic setting. Some patients that have undergone AT or ATC regimens initially respond to their next regimen, but the great challenge in breast cancer is that tumors tend to rapidly develop resistance. As a result , there is an urgent need for new agents with a differentiated mechanism of action in this tumor setting.

NKTR-102 has the potential to become the first topoisomerase one inhibitor used to treat metastatic breast cancer. In June, we released preliminary data from 66 patients in our 70 patient phase two study, showing confirmed and unconfirmed responses of 18% for the Q-14 day regimen and 24% for the Q-21 day regimen. Current results from this ongoing trial are showing even greater activity for NKTR-102 than what we were seeing earlier in the summer. And we will be announcing very important findings from this study at the upcoming San Antonio breast cancer symposium in December.

In the colorectal cancer setting, our phase two clinical trial continues to progress. The randomized 174 patient study is evaluating NKTR-102 against irinotecan in second line colorectal cancer patients, whose tumors have the K-Ras gene mutation. As you know, we are also enrolling our phase one study of NKTR-102 in combination with 5-FU leucovorin. Both of these studies are designed to support our ultimate goal of replacing irinotecan wherever it is used in colorectal cancer.

The activity and safety profile of NKTR-102 has surpassed our expectations time after time in multiple studies involving different tumor types. We've had unusually high activity with NKTR-102 in our phase one study in solid tumors. In fact, it was noted by Dr. Von Hoff, our phase one investigator, that NKTR-102 is the most highly active agent he had studied in all of the 318 phase one studies he's conducted at his center. Then we achieved high response rates with NKTR-102 in the most difficult-to-treat populations, in platinum resistant ovarian cancer. Now, we are seeing compelling results emerging from NKTR-102 in metastatic breast cancer. It is clear that NKTR-102 is a highly active anti-cancer agent and has the potential to be developed in multiple tumor settings.

NKTR-105, a novel antimitotic polymer conjugate is our next clinical stage oncology compound. We are conducting a phase one study of NKTR-105 in advanced solid tumors. We expect to complete the dose escalation portion of the study in the coming weeks, as we are at or very near the recommended phase two dose. We will then be expanding the number of patients at this dose to better inform our phase II studies, which we plan to initiate in the second half of 2011.

At the highest dose levels in the phase one study for NKTR-105, we continue to demonstrate that NKTR-105 has a markedly reduced Cmax and a significantly prolonged half-life of approximately 20 days, as compared to docetaxel's half life of about four days, allowing us to provide continuous exposure of drug-to-tumor in a typical three-week cycle.

What we have accomplished with NKTR-102 and NKTR-105 could be achieved with a wide range of small molecule chemotherapeutics, and Nektar is developing a portfolio of new anti-cancer candidates that leverage our polymer conjugate technology. We look forward to sharing more about these programs as they move towards I&D stage.

Now moving on to our next exciting drug candidate, which is in the area of pain, NKTR-181. This new opioid molecule is gaining significant visibility within the pain community, from both researchers and practitioners alike. While opioid analgesics clearly represent the gold standard in pain control, existing opioids pose significant safety risks. Their misuse, abuse and safety risks have been cited as serious public health issues by the FDA and the medical community. NKTR-181 is the first opioid analgesic candidate with a novel molecular structure that is specifically engineered to address the safety risks and abuse liability of the opioid class of pain killers.

The unique chemical structure of NKTR-181 results in a significantly reduced rate of entry into the brain. In our preclinical models, this slower rate of entry mitigates the physiological basis for addictive behavior by reducing euphoria. In addition, the slower rate of entry also reduces side effects, such as sedation and respiratory depression commonly associated with current opioids.

Nektar scientists recently presented pre-clinical data for NKTR-181 at two prestigious pain conferences. An oral presentation at the Frontiers of Pain research meeting, and a poster presentation at the 2010 Annual American Society of Anesthesiologist meeting. We look forward to presenting additional data for NKTR-181 at the Meeting of the Society of Neuroscience in mid November.

As the data emerged for NKTR-181 we are increasingly excited about its potential to address a serious need for an analgesic that offers physicians a solution to provide potent pain relief to patients, without the serious risks associated with the opioid class. According to the American Pain Society approximately 105 million Americans, or 36% of adults, suffer from chronic pain. The US opioid market alone is a $10 billion market. We believe NKTR-181 is well positioned to dramatically advance the field of pain management and to target this large and growing market. We are completing IND enabling studies for NKTR-181 and expect to be initiating our first human studies in the first quarter of 2011. Our Phase I development program will include endpoints of efficacy as well as safety.

Now I'd like to discuss two other pain candidates in preclinical development, NKTR-171 and NKTR-194. NKTR-171 is being developed to treat neuropathic pain, while eliminating adverse CNS related side effects such as sedation, dizziness and seizures that are found with current therapies. NKTR-194 is an opioid that is entirely excluded from the CNS and is proliferately acting. It's being developed to treat mild to moderate pain, potentially taking the place of NSAIDs and COX-2 inhibitors.

Finally, I'd like to give a quick update on NKTR-118. As we said on our last call AstraZeneca is currently preparing for the phase three trials, which should start in early 2011. To remind you, the AZ collaboration includes worldwide rights to both NKTR-118 and NKTR-119 and Nektar has the potential to receive up to $1.3 billion in milestone payments for these programs, as well as significant double-digit royalties on product sales.

As we look towards 2011, Nektar is well positioned for continued success. I truly believe we have done a remarkable job in building our portfolio, with more than 25 drug candidates in our pipeline, ranging from discovery to those preparing for phase three clinical trials. Furthermore, each of our products addresses a significant clinical need, and represents a major commercial opportunity. We have a successful track record of forming high-value partnerships that provide significant up-front payment in milestones, while maintaining significant economic ownership in our programs. More importantly, we have created a powerful and validated technology platform that continues to generate promising large and small molecule therapeutic agents.

With that I'd like to turn over to John for a review of the third quarter financials.

Thank you, Howard, and good afternoon, everyone. We ended the third quarter with $303.3 million in cash. Revenue in the third quarter increased to $37.9 million as compared to $10.2 million in the same quarter a year ago. This increase was primarily related to the amortization this year of $100 million of the $125 million payment received from AstraZeneca late last year. As we've said on past calls, the amortization of this payment is expected to be completed by year-end in conjunction with the completion of the technology transfer to AstraZeneca for manufacturing of NKTR-118.

Research and development expense in third quarter 2010 increased by 20% to $27.7 million versus $23 million in the third quarter of 2009. This increase represents higher R&D spend related to advancing our clinical and preclinical development programs. Because of this increase in R&D expense, total operating costs and expenses in third quarter were $44.2 million as compared to $39.1 million in the third quarter a year ago.

Now onto guidance for the year. We still anticipate revenues of between $155 million and $160 million, including the amortization I just mentioned of approximately $100 million from the upfront payment of $125 million received from AstraZeneca in 2009. R&D expense for 2010 is still estimated to be between $110 million and $115 million, an increase over the $95 million spent in 2009. Development expense for 2010 include a continuing investment into our phase one clinical study of NKTR-105 and phase one and two studies of NKTR-102 in ovarian, breast, and colorectal cancer. In addition, these expenses include the expansion of phase two trials for NKTR-102 and ovarian cancer, and the manufacture of NKTR-102 phase three clinical supplies. Our research expenses also include preclinical studies in new pain and oncology compounds, as well as the continued activities necessary to bring NKTR-181 into human studies.

G&A expense for 2010 is still anticipated to be approximately $41 million, essentially consistent with 2009 levels. Included in this amount is approximately $13 million of non-cash items, consisting mainly of depreciation and stock compensation expense.

Capital expenditure for ongoing operations is still expected to be $10 million for 2010. Also as expected tenant improvements which are projected to be approximately $25 million of proceeding on budget and according to schedule for Nektar's new Mission Bay research and development center in San Francisco. As we have said previously, we anticipate moving into the facility by the end of this year. As reminder on the terms of lease, we will not pay any rent for this facility until August 2014.

As Howard mentioned our year-end cash guidance will now increase by $50 million in light of the recently signed agreement with Amgen announced this week. The cash at year end is now expected to be approximately $315 million. However, please note that this anticipated year-end cash balance does not include any potential payments related to NKTR-102 partnership. With that I will now open the call to questions. Operator?

Thank you, sir. (Operator Instructions) Our first question comes from the line of Ian Sanderson from Cowen and Company.

Can you hear me?

As we can hear you. Go ahead.

Thanks. Can you talk a little bit about the animal model that was used to demonstrate modulation at the rate at which NKTR-101 crosses the blood brain barrier? I don't know if you know whether that has been replicated in human studies? This seems like a very interesting Just trying to figure out how powerful the validation of the animal study is.

Hi. This is Steve Doberstein. So those animal studies that measured the rate of crossing of the blood brain barrier are all commonly performed in rats. They're pretty standard studies that are very well validated and very well correlated with other animal studies. There haven't been any human clinical studies with NKTR-101 yet, so it's not possible for us to comment on how well that's going to correlate.

Okay. And if I could also ask, Howard, I may have missed this at the beginning of the call, but did you give an update on the colorectal cancer studies of 102?

No, Ian. What we said was the studies are ongoing. We are continuing our phase two study comparing NKTR-102 over to Urenitiquine and the K-RAS gene mutation population. And we've also started a study in combination with 5FU and we don't have any data yet on the studies to give out.

And then finally, just if you could give us a quick snapshot of what milestones we should be looking for, or what might be announced by AstraZeneca on NKTR-118, NKTR-119 in 2011?

I can't speak for them at this point. I can tell you that we've said that we expect the phase three trials to start in early 2011. I can't give you a specific date, that's actually up to AstraZeneca. I imagine when those trail starts, we'll issue some announcement on that. But beyond that, that's all I can tell you at this point, under the contract.

Okay. Thank you.

Our next question comes with a line of Jonathan Aschoff from Brean Murray.

Hi, guys. Thanks for the questions. I have four. Did I miss the phase I findings for NKTR-105, or did you not stay that?

We said we were very close to the maximum tolerated dose and we will be starting phase two the middle of next year. We will be announcing the phase one results either later this year or early next year.

I was wondering what kind of efficacy are you initially looking for with 181 in the clinic? Well let me turn that question over to Dr. Masuoka can answer.

So for the NKTR-181 program, the key objective of the initial set of studies is to demonstrate equal analgesia with the reference opiate compounds. Those are basically represented by very straightforward pain studies. Another very big goal for us it's also to demonstrate a superior safety profile of course. So we'll be looking at the kinds of things that one normally would expect to see, with regard to adverse effects that you would normally expect to see with opioids. We'll be looking to see how NKTR-181 compares against that profile.

Okay, and what other opiates would be most helpful to have, as an alternative to 181? Have you run into any technical barriers trying to modify those other opiates compared to the time you had on the modification on NKTR-181?

Well, we haven't said specifically which opiate is. There could also be various flavors of opioids. While we haven't identified the specific opioid, I think this technology could be applied to a number of different opioids. Steve would you like to comment on the further?

Yes, I'd be happy to. The CNS exclusion technology that we've been talking about the underlines NKTR-181 works across a very broad set of molecular scaffold. And that certainly includes all of the clinically significant opioids. So you can imagine that gives us an array of molecules to work with. We've talked about NKTR-181, we've talked about NKTR-194 and we of course continue to assess what are the real clinical differentiators that one could find, that might allow us to apply the technology to even other opioids on top of that. So stay tuned. We continue to look at that. It's really more of a question of what's the real clinical differentiators for those molecule, and how would they fit into the portfolio.

Okay. And then outside of 171, can you help us understand the opportunity beyond that? Within an outside neuropathic pain with non-opiate drugs that have higher efficacy, but have a lot of CNS-driven toxicity? Therefore they would seriously benefit from a CNS exclusion?

I'll take that one. This is Lorianne. Clearly that program is specifically geared towards polymer conjugation of a product that would be best suited to treating neuropathic pain. Now having said that, there are a myriad of opportunities for treating peripherally based disease states, in which one of the downsides of currently available therapy are the CNS side effects. So in those cases, clearly NKTR technology could be greatly applied to producing superior new therapeutics. We are entertaining quite a number of those ideas and some of those are part of our early preclinical pipeline.

Okay. Thanks a lot.

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

Thanks for taking the question, and Howard congratulations on a lot of progress over there. Just a couple of questions on NKTR-102. It sounds like things continue to go very well there. Your guidance has been to do a transaction strategically this year. You're well-capitalized, why don't you just hang on? Hang on for another six months or a year if the data is coming in strong?

Well, I think this. Good question. But I think there's a great desire to see these programs move rapidly. NKTR-102 for ovarian cancer is ready now for phase three. And what we don't want to do is delay that another six or nine or ten months.

The other thing you should realize though, is that while the data is coming and we can't share it with you, of course. Publicly, the companies that we are negotiating with and that are completing their diligence get to see all the data. So they're right up-to-date with the data that we have today. So they already understand what the data looks like completely in breast cancer and ovarian cancer. And even the data we have so far in colorectal cancer. So that is made fully available to them. So a combination of the fact that they already know exactly we are, together with the fact that I'd like to see this progress rapidly in terms of moving ovarian cancer into phase three, is a good reason not to wait.

That's a great answer. Lorianne, talk a little bit about the filing strategy on his this phase two extension study with 102. I think Doxil was approved in the resistance setting -- what I believe less than 120 patients. Talk about what your data set looks like when you get ready to file and what you're actually asking for. Is it going to Doxil failures? Resistance and refractory patient's? How broad a claim are you going to ask for?

Generally speaking, I can't really -- for competitive reasons I can't tell you exactly what all the details are of our regulatory strategy. But I can say generally, and if you remember back to the data that we presented at ASCO, there was a really good rate of response to NKTR-102 in patients who were not only platinum resistant but also have failed prior Doxil. And while Doxil is approved for use as in the platinum resistant setting, as is Topotecan, there really aren't any good agents that have good efficacy in the setting of patients who are platinum resistant but who've also failed Doxil, i.e. in this double chemoresistant population.

In general the FDA could consider, as an area of unmet medical needs, a patient population that you've specifically identified for whom there is no good current therapy. And a lot of what we are doing with the expansion specifically addresses what we think the FDA will be looking for in terms of that specific population.

Okay. Thanks so much.

(Operator Instructions) We have a question from the light of Shiv Kapoor with Morgan Joseph

Thanks for taking my question. I've a question on the NKTR-105. What are your expectations for phase one data? Have you seen any signs of efficacy? And any ideas yet on phase two design?

I'm going to let Lorianne answer that question for you.

Yes, just to remind everyone the design of the phase one study for NKTR-105 is what's called a classic three plus three design. So basically patients are enrolled in groups of three, and as you see good tolerability you then dose-escalate to some degree. And due to regulatory requirements, we actually had to start that trial at a very, very low dose level. What we've been able to find so far is that the drug has been extremely well tolerated, with regard to the usual kinds of things that you expect to see with (inaudible). We are getting very close to identifying the recommended phase two dose.

We've also announced today that we will be expanding the trial to include an additional number of patients at that dose level. Because we had to start at very low dose levels, there were quite a few patients who were enrolled at that very, very low dose. So what we want to do is get a number of patients that are in a more active range, such as what we are testing now, that will help us decide what to do with regard to our phase two and what indications will be best suited for this product.

Great. Thanks a lot. What about phase two design?

We have a question from the line of Bert Hazlett from BMO Capital Markets.

Thanks, it's Jim Tumbrink for Bert. Thanks for taking the question. Howard, I know you said the publication of the ovarian cancer data -- I think it's first half of 2011 -- is that going to be including some of the extension data? Or is that going to be more complete data from what we saw at ASCO? And then secondly, just an update on Inhaled.

Yes, look. I think the data that you'll see in that publication are essentially the finalized ASCO data. The finalized trial data. It won't be the expansion data. Lorianne, would you like to comment on that further?

That's right. Given the timing of the partnership negotiations and discussions, what we will be publishing are the final results from the 71 patients that are in the original study. Obviously, the expansion group is ongoing at this time and is likely -- the data from that is likely to be released in collaboration with the partner.

With regard to the Inhaled program, it is moving forward. We are producing devices for buyer. The decision was made that we would not start that study until we had the final commercial device manufactured and engineered. Indeed we've done that. We are in the process now of actually producing devices, and I expect that buyer will start that study in the first portion of 2011.

I'm sorry. We actually or I actually missed part of Shiv's question which related to the phase two design for NKTR-105. In general, I think you've seen the kind of phase two studies that we designed. And to some degree, the specifics around the design will be determined by which indication we ultimately pursue for that product.

And we have no further questions. I would now like to turn the call over to Mr. Howard Robin.

Well, thank you for joining us today. We at Nektar are committed to developing and discovering innovative and important new therapeutics, and we have a track record of execution against our goals for speaks well to our future success. I continue to be exceptionally proud of Nektar's employees and their achievements and I am very excited about our future. So stay tuned. We'll talk to you again. Thank you. Good afternoon.

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