Nektar Therapeutics (NKTR) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second-quarter 2011 Nektar Therapeutics financial results conference call. My name is Karma and I will be your coordinator for today.

At this time all participants are in a listen only mode. (Operator Instructions). Later we will conduct a question-and-answer session. I would now like to turn the call over to your host for today, Ms. Jennifer Ruddock, Vice President of Investor Relations. Please proceed.

Thank you, Karma. Thank you to everyone for joining us. With us today are Howard Robin, our President and CEO; John Nicholson, our Chief Financial Officer; Dr. Robert Medve, our new Chief Medical Officer, Steve Doberstein on, our Chief Scientific Officer; and Barry Flannelly, our VP of Global Product Strategy.

Before we get started please note that on the call we expect to make forward-looking statements that reflect our current views as to the value and potential of our technology platform, future plans for our clinical trials and those of our partners, the therapeutic and economic potential of our drug candidates, financial guidance for 2011, and other future events and opportunities.

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 filed on April 29, 2011, and our Form 8-K filed today.

Actual events could differ materially from these forward-looking statements, and 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 of Nektar's website at Nektar.com.

Now I would like to hand the call over to Howard Robin. Howard.

Thank you, Jennifer, and thanks to everyone for joining us this afternoon. First, I want to say that we are tremendously disappointed with Nektar's stock price. While this is very frustrating, the fundamentals of Nektar are stronger than ever.

We believe we are one of the most promising companies in the sector, irrespective of our current valuation. Over the past few years we have built a portfolio of important programs, and we strongly believe we're making the right investments in our pipeline to build value over the long term.

Now let me walk you through our multiple programs. We have one program in Phase 3 and two programs gearing up to enter Phase 3. NKTR-118 is in Phase 3 with AstraZeneca for opioid-induced constipation. NKTR-102 is scheduled to enter Phase 3 in metastatic breast cancer later this year. And NKTR-061 for pneumonia is advancing towards Phase 3 in 2012.

A new highly promising pain candidate, NKTR-181, is moving rapidly through Phase 1, and we expected to enter phase 2 in the first half of next year. We are also on track with our commitment to deliver one new IND candidate this year.

Nektar has a portfolio of partnered programs in addition to the AstraZeneca and bio programs I just named, that are also valuable. We should start to receive royalties in 2012 with the upcoming potential approvals of MAP's and Allergan's Levadex, and Affymax' and Takeda's Peginesatide. Both companies recently announced that their NDAs were accepted by the FDA.

Also, future royalties on Baxter's PEGylated factor VIII could be significant. I will talk more about that program in a minute.

As most of you know, one of our most important programs is our partnership with AstraZeneca for NKTR-118 for opioid-induced constipation. AZ is currently enrolling patients in the NKTR-118 Phase 3 program called KODIAC.

Let me summarize why the NKTR-118 program is so important to Nektar. First, we had excellent Phase 2 data in a randomized trial, and the Phase 3 program builds on this success.

Second, NKTR-118 addresses a significant unmet medical need, and the economics on this program could be transformational for Nektar.

Third, Nektar has no further spending on this program. And lastly, our partner AstraZeneca has an outstanding track record of developing new products and is a world-class marketing organization. We are highly confident in their ability to successfully develop and market NKTR-118.

Opioids are widely prescribed in pain management with 250 million prescriptions written annually in the US alone, and some 50% of these patients develop constipation. OIC is an important medical issue for physicians and patients, and it increases health care utilization.

NKTR-118 is designed to alleviate OIC by selectively blocking opiate receptors in the GI system without counteracting the analgesics effects of opiates in the brain.

Under our agreement with AZ for NKTR-118 we are eligible for up to $235 million in development milestones and up to $375 million in sales milestones at certain commercial sales levels, as well as significant and escalating double-digit royalties.

We could not have chosen a better partner to develop and market NKTR-118 than AstraZeneca. KODIAC is a comprehensive and global Phase 3 program. There are two 12-week 630 patients efficacy studies and a 52-week safety study in non-cancer pain patients. It also includes a 340 patient four-week efficacy study in cancer pain patients. Additionally, there is a comprehensive development program for Japan.

As AZ said on their financial call last week, NKTR-118 is on track for filing in 2013.

Now I will talk about NKTR-102 in cancer. In June we had a very positive end of Phase 2 meeting with the FDA on our breast cancer study for NKTR-102. The agency agreed with our proposed study design, including primary outcome measures, study population, sample size and comparators. We are now rapidly moving forward to start the Phase 3 study.

Our trial called the BEACON study, will include approximately 840 patients comparing single agent NKTR-102 to an agent of physician's choice. Patients will include those that have had prior treatment with anthracycline, taxane and capecitabine, either in the adjuvant or metastatic setting. The primary endpoint is overall survival.

Patients with HER2-positive or HER2-negative disease or those with triple negative breast cancer will all be eligible for the trial.

NKTR-102 performed very well across all subsets in our Phase 2 study, with a 30% response rate, including six patients with complete resolution of target lesions. The high level of activity was consistent in all subsets. Patients with prior AT treatment, prior ATC treatment, HER2-positive and HER2-negative disease, as well as triple negative disease. There is no doubt that this drug is highly active in metastatic breast cancer.

Now let's talk about our clinical design strategy. We chose the BEACON study design because it allows us to have the greatest probability of regulatory approval globally. There is no clear standard of care for patients with metastatic breast cancer who have had prior ATC treatment. A successful study in this population will give NKTR-102 the opportunity to become a worldwide standard of care in advanced breast cancer.

Another important advantage of our BEACON study design is that there are no competing Phase 3 trials in this patient population. And further, as the first topoisomerase I-inhibitor in this setting, NKTR-102 offers a different mechanism of action than currently approved agents, such as eribulin and taxane, which are microtubule inhibitors and exhibit cross resistance with each other. Therefore NKTR-102 has the opportunity to emerge as a highly compelling treatment option.

We will start Phase 3 by the end of the year. The principal investigator in the US is Dr. Edith Perez, a leading breast cancer specialist and Deputy Director of the Mayo Clinic Cancer Center. Dr. Perez was a significant contributor to our Phase 2 study in metastatic breast cancer. And she has also been instrumental as an advisor in the design of our Phase 3 study.

In the EU our principal investigator is Dr. Javier Cortes, who is Deputy Director of the Breast Cancer Program at Vall d'Hebron University Hospital in Barcelona. Dr. Cortes has also been an important advisor for us in planning Phase 3. He is widely respected as being on the leading edge of clinical research in breast cancer. And he was a lead investigator for the eribulin Phase 3 program.

As we are ramping up activities for the BEACON study, NKTR-102 Phase 2 metastatic breast cancer data will be recognized in an oral session at the ASCO 2011 Breast Cancer Symposium next month in San Francisco. The data will be presented by Agustin Garcia, Associate Professor of Medicine at the USC Norris Cancer Center.

Moving onto NKTR-102 in platinum-resistant ovarian cancer, we continue to enroll patients in our expanded Phase 2 single arm study of NKTR-102 in women with prior Doxil treatment. We expect preliminary topline data in the first quarter of 2012. And this will guide our next steps in our ovarian cancer regulatory strategy and our Phase 3 study design.

We're also continuing to enroll patients in our Phase 2 metastatic colorectal cancer study.

Now let's talk about NKTR-181, which is generating a great deal of excitement in the pain community. NKTR-181 is a novel opioid which has been engineered to have an intense PK profile and a controlled rate of entry into the CNS, potentially reducing the CNS side effects associated with standard opioid therapies.

NKTR-181 leverages our expertise in controlling drug entry into the brain and represents a sizable opportunity for Nektar. In July we completed the NKTR-181 single ascending dose Phase 1 study, which enrolled approximately 110 healthy subjects.

The results from our Phase 1 study are very compelling. The first observation that was exceptionally important for NKTR-181 is that NKTR-181 as a molecule, with no sustained release formulation, was actually administered as a liquid in this study, achieved a plasma PK profile that is comparable to what is observed with OxyContin, which relies on sustained release formulation technology to achieve its PK profile.

Remember that a major problem with OxyContin and other reformulations is that their potential for conversion into an immediate release more abusable form. To date we have found no lab or kitchen chemistries that can alter the molecular characteristics of NKTR-181 into those of an immediate release product.

In our Phase 1 study NKTR-181 was very well-tolerated and achieved an analgesics effect using the cold pressor test, a model of pain used to measure CNS analgesic response in healthy subjects. In addition, pupillometry data reflects the slowed rate of entry of the molecule into the CNS, consistent with our target product profile.

The PK profile of NKTR-181 should allow it to be dosed once or twice daily, giving it potentially important position in the long-acting opioid market. The long-acting opioid market represents annual sales of $5 billion in the US alone.

As you know, the FDA is very concerned about the growing healthcare problem with existing opioids, and they have identified the misuse and aversion of these drugs as a significant public health issue.

The final results from our Phase 1 study have been accepted for presentation at the American Academy of Pain Management's annual meeting in the third week of September.

Our second Phase 1 study, a multiple ascending dose of NKTR-181, will start in September. This study, which will evaluate four dose cohorts of NKTR-181 over an eight-day treatment period should be completed before the end of the year.

Following that we plan to advance NKTR-181 rapidly into Phase 2 in the first half of 2012. If NKTR-181 is successful we believe it could dramatically change the pain market landscape.

We have also leveraged our ability to modulate the entry of molecules into the CNS to develop a pipeline of novel pain programs. These include candidates in neuropathic pain, a peripherally selective opioid to address the COX-2 inhibitor market, and a rapid-acting opioid to complement NKTR-181. One of these will emerge as our next IND candidate by year-end.

Now I would like to talk about NKTR-061 or BAY 41-4661, Amikacin Inhale, partnered with Bayer. We have made great progress in the second quarter on the commercial device and are conducting our final test on the drug device combination.

Bayer plans to start Phase 3 next year, and they have secured an SPA for the study design. This program has significant economic potential for Nektar, with a flat 30% royalty in the United States and an average ex-US royalty of approximately 20%.

Amikacin Inhale is a nebulizer drug device product that fits into a ventilator to deliver aerosolized antibiotics directly into the lungs to treat gram-negative pneumonias. These pneumonias carry a mortality rate higher than 30% and represents a high unmet medical need and substantial cost burden to the healthcare system.

The problem with existing I.V. therapies is that they can't reach effective concentrations in effective lungs at tolerable doses, and Amikacin Inhale would be the first product to specifically target these infections in the lung. Bayer is highly committed to their anti-infective hospital franchise. And both Bayer and Nektar are very focused on moving Amikacin Inhale as quickly as possible into Phase 3.

Another substantial economic collaboration for Nektar is Baxter's Long-Acting Factor VIII program, which is entering Phase 1 before the end of this year. As you know, Baxter's current therapy for hemophilia A, ADVATE, is the world's leading factor VIII therapy with sales in excess of $2 billion.

BAX 855 is a stable PEGylated Factor VIII molecule which uses Nektar's patented technology. As most of you know, Nektar's polymer conjugate technology is the gold standard to extend the half-life of biologics. We are very pleased that BAX 855 has emerged as the lead candidate after extensive successful preclinical work.

Analysts following the factor VIII space estimate a market potential of between $3 billion and $4 billion for long-acting factor VIII products. Under our agreements with Baxter to develop hemophilia therapies, we are entitled to receive development and approval milestones as well as royalties.

As I said when I opened the call, I believe Nektar's fundamentals are stronger than ever, and we are very disappointed that this is not reflected in our current valuation. We ended the second quarter with $482 million in cash. We have important partnerships for Nektar proprietary products -- NKTR-118 with AstraZeneca and NKTR-061 with Bayer. In addition, our partnerships with MAP and Affymax could begin generating royalties next year.

We have a substantial proprietary clinical pipeline, including NKTR-102 in oncology entering Phase 3 and NKTR-181, a novel opioid program which represent an enormous opportunity in the pain market. Further, we have a deep pipeline of additional compounds in research.

Before I hand the call to John for a discussion on our financials, I want to acknowledge Dr. Robert Medve, Nektar's new Chief Medical Officer. Dr. Medve has deep experience in all stages of clinical development. He has an excellent track record with key late-stage clinical programs and regulatory strategy that led to approval for several important pain therapies during his tenure at Johnson & Johnson.

While here at Nektar, he has been instrumental in the execution of our novel opioid program, NKTR-181, and in our recent positive regulatory interactions for NKTR-102.

As most of you already know, our former CMO, Dr. Lorianne Masuoka, transitioned from Nektar for personal reasons and to spend more time with her family. She will continue to serve as a consultant to Nektar as needed over the coming year.

But that, I will now turn the call over to John for a discussion on our financials. John.

Thank you, Howard, and good afternoon everyone. I will start by reviewing our financial guidance for 2011, which is unchanged. Revenue for 2011 is expected to be between $58 million and $62 million. Our R&D expense guidance is still between $152 million and $158 million, with approximately $20 million of this as non-cash expenses, such as stock-based compensation and depreciation.

2011 G&A is still anticipated to be between $44 million and $46 million. Included our 2011 G&A expense are $30 million of non-cash items, such as amortized free rent for our San Francisco facility, stock-based compensation expense and depreciation.

Capital expenditures for ongoing operations are expected to be $17 million for 2011. Total revenue in Q2 2011 was $17.3 million, a $6 million increase over Q1 2011 revenue of $11.3 million. The increase in revenue is primarily due to increased product sales in the quarter.

Year-over-year revenue in Q2 was down because of the expected completion in 2010 of the amortization of approximately $25.3 million of the $125 million payment from AstraZeneca for NKTR-118, which was included in the second quarter in 2010. Again, this payment was fully recognized as of December 31, 2010.

R&D expenses in the second quarter of 2011 increased to $32.3 million versus $32.2 million in the first quarter of 2011, and $25.6 million in the same quarter a year ago. The increase was primarily related to the advancement of multiple programs in clinical development, including the first Phase 1 study of NKTR-181 and our continued NKTR-102 studies.

In the second quarter of 2011 $5.1 million of R&D expenses were non-cash expenses of stock-based compensation and depreciation. R&D expense continues to reflect our continued investment into Nektar's preclinical pipeline to meet our objective of a new IND candidate this year.

G&A expense in Q2 2011, $11.2 million, was essentially flat as compared to Q1 of 2011. In the second quarter $3.2 million of G&A expense was non-cash expenses related to amortization of free rent, stock-based compensation and depreciation.

Cash, cash equivalents and investments at the end of Q2 were $481.8 million, as compared to $518.6 million at March 31, 2011. As we said on our last call, we still expect to end the year with approximately $400 million to $410 million in cash.

With that, I will now open the call to questions. Operator.

(Operator Instructions). Jonathan Aschoff, Brean Murray.

Howard, I was wondering if you could tell us a little more specifically what is coming from the 102 updated data set, if it is in fact updated in September?

Let me ask Rob to answer that question. But I think that -- I don't believe you're going to see any updated data. I think you're just going to see final results or the results you have already seen in our oral session at ASCO Breast. Rob, would you like to comment further?

Yes, Howard, that is exactly correct. There will be no update from the data that was presented at ASCO, so the ORR, progression-free survival and the overall survival numbers will remain as they were reported at ASCO.

Okay, and the 181 will simply be the entire data set for the 110 [health fees], right?

That which is presented at the pain management meeting, that is correct.

Then can you give us solid sense now of the cost for the single breast cancer trial and perhaps data timing, or is that just going to be really hard to predict right now?

Well, look, we said that we would start Phase 3 at the end of this year. You can imagine we haven't given out specific guidance on what the cost is, but you can imagine that that study will run approximately 3 years, and you can approximate the cost in the $100 million range. So I think you can calculate that out based on an 840 patients or so.

So without being very specific, I think we are very -- look, we're very excited about that program. As I said earlier, this is a highly, highly active drug in breast cancer. People look at the fact that we have chosen the ATC population, and I think that is a very good strategy because these are patients that really don't have very many other treatment options. And as I said, there are no competing trials in that area. So we're pretty excited about going after that population in a physician's choice trial.

That said, this drug was highly active in every subset in metastatic breast cancer. Look at the response rate in triple negative patients, which is about 50%. Look at the overall response rate of about 30%. And look at the fact that in these studies we had six resolution -- six patients with complete resolution of the target lesions. This is a very, very active drug in metastatic breast cancer. And we picked the ATC population because we thought that was the clearest path towards approval.

Okay, thank you very much.

(Operator Instructions).

Okay, if there are no other questions, I want to thank you for joining us on today's call. As I said earlier, our team is highly focused on executing on our plans and enhancing the value of our Company. I am exceptionally proud of the employees and their continued accomplishments.

We look forward to seeing many of you at our investor meetings next week and in the coming months. We appreciate your support as shareholders of our Company. And I want to thank you and say good afternoon. Thanks very much.

This concludes the presentation for today, ladies and gentlemen. You may now disconnect. Have a wonderful day.