Nektar Therapeutics (NKTR) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Nektar Therapeutics fourth-quarter 2011 and year-end financial results conference call. My name is the Stacy, and I will be your conference moderator for today. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today to Ms. Jennifer Ruddock, Vice President of Investor Relations. Please proceed.

Thanks, Stacy. Good afternoon and thank you for joining us today. With us are Howard Robin, our President and CEO; John Nicholson, our Chief Financial Officer; Dr. Robert Medve, our Chief Medical Officer; and Dr. Steve Doberstein, our Chief Scientific Officer.

On this call we expect to make forward-looking statements regarding our business, including but not limited to clinical development plans; the timing of future clinical results and regulatory filings; the economic potential of our collaboration partnerships, including potential milestone payments; the therapeutic and market potential of our drug candidate and those of our partners; our financial guidance for 2012; and certain other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes that are difficult to predict and many of which are outside of our control. Important risks and uncertainties are set forth in our annual report on Form 10-K filed with the SEC today. We undertake no obligation to update any forward-looking statement whether as a result of new information, future developments or otherwise. A webcast of this call will be available for replay on the Investor Relations page of Nektar's website.

With that, I would now like to hand the call over to Howard Robin. Howard?

Thank you, Jennifer, and thanks to everyone for joining us this afternoon.

Today I will spend the first part of the call discussing the royalty transaction that we announced today and our convertible debt. Then I will update you on the significant progress we have made with both our partnered programs in our proprietary pipeline. Following that, John will provide 2012 financial guidance.

This morning we announced the sale of Nektar's royalties on Cimzia and Mircera for $124 million. The proceeds from this transaction will go towards the repayment of more than half of our $215 million in convertible debt. For your reference in 2011, we recognized $8.3 million of royalties from Cimzia and Mircera. I strongly believe that these royalty streams were not adequately reflected in our valuation and their monetization represented a very attractive non-dilutive financing.

We have a number of options to deal with the remaining $91 million in convertible debt. Of course, I prefer non-dilutive options if the terms are right. As I have said before, we will continue to pursue options that are in the best interest of our shareholders.

Now before I go into discussing our pipeline programs, I would like to give you an update on the timing of cash milestones for our most important and advanced program, NKTR-118, which recently received its I&N name, naloxegol. Naloxegol is advancing through Phase 3 development, and AstraZeneca plans to file in both the US and the EU in the middle of 2013.

Now let me tell you what that means for Nektar. Upon acceptance of these filings in 2013, Nektar is entitled to $95 million of our $235 million in filing and launch milestones. The remaining $140 million is due when naloxegol is approved and launched in the US and EU.

We are excited about the scope of AstraZeneca's global and comprehensive Phase 3 program for naloxegol. The KODIAC Phase 3 program has two pivotal 630 patient efficacy studies in non-cancer pain patients.

In addition, KODIAC also has a 52-week open-label safety study in non-cancer pain patients and a 340-patient efficacy study in cancer pain patients. As I mentioned at JPMorgan, the 52-week safety study for naloxegol completed enrollment in November of 2011, and patients are continuing on treatment to complete the one-year safety database. As we said earlier, the studies are on track to file naloxegol in the US and EU in the middle of 2013.

Opioid-induced constipation is an important medical problem addressing a potentially very large market. There are over 250 million prescriptions for opioids written annually in the US alone, and constipation becomes a clinical issue in about 50% of patients. And when we look at who writes the prescriptions for opioids, half are written by primary care physicians. A significant portion of opioid prescriptions are also written by pain specialists and other specialists treating the underlying conditions contributing to pain. Very few of these prescriptions are written by GI specialists, in fact, under 1%. The physician who prescribes opioids are the same physicians who will ultimately manage OIC for patients and write the prescriptions for an OIC drug. And this is precisely why we chose to partner naloxegol with AstraZeneca.

AZ has a global sales team that covers the full spectrum of opioid prescribers, including primary care physicians and specialists in pain and cancer. We cannot think of a better company to market naloxegol, and we are highly confident in AstraZeneca's ability to define and lead the OIC market.

In addition to the $235 million in filing and launch milestones I mentioned earlier, Nektar is entitled to significant escalating double-digit royalties on product sales of naloxegol and up to $375 million in additional sales milestones at certain commercial sales levels on top of those royalties.

As a reminder, AstraZeneca is responsible for all costs of development and commercialization of the product. Naloxegol is a great example of the power of Nektar's research platform and the type of innovative drug candidates we are bringing forward into clinical testing. There are very few companies of Nektar's size that have a proven technology platform capable of rapidly generating such a large and diverse pipeline.

One of the most exciting things about Nektar that I believe is underappreciated is that by the end of this year Nektar could have four different programs in Phase 3 across four different therapeutic areas -- Naloxegol with AstraZeneca, NKTR-102 in metastatic breast cancer, which are already in Phase 3, and NKTR-061 in pneumonia with Bayer, and BAX 855 in hemophilia with Baxter, both of which are planned to enter Phase 3 this year.

Further, the clinical and commercialization costs of three of these programs are being funded by our strategic pharmaceutical partners. All of these programs represent significant economic potential to Nektar.

Now let's talk about NKTR-102, our next generation topoisomerase I inhibitor being developed in multiple tumor settings. As you will recall, the Phase 2 data for NKTR-102 in both ovarian and breast cancer demonstrated highly encouraging results in very poor prognosis populations, which include patients who are heavily pre-treated, highly chemo resistant or had particularly aggressive forms of cancer.

In December we dosed our first patients in the Phase 3 BEACON registration study for NKTR-102 in women with metastatic breast cancer. BEACON, which is an open-label randomized head-to-head trial, will enroll approximately 840 patients comparing single agent NKTR-102 to an agent of physician's choice with a primary endpoint of overall survival. The FDA and EMEA have agreed with our proposed study design, our primary endpoint of overall survival, and our comparator arm. Enrollment is well underway now with more than 60 investigator sites initiated in the United States. We plan to initiate a total of approximately 150 sites in the US and Europe, as well as some Asia-Pacific countries. We currently estimate that enrollment of patients in the BEACON study will be complete by the end of 2013 and that the study could be complete by the end of 2014.

The BEACON study builds on NKTR-102's excellent Phase 2 clinical results in metastatic breast cancer. NKTR-102 performed very well across all subsets in our Phase 2 study in patients with very advanced disease with a 30% response rate, including six patients with complete resolution of target lesions. This high response rate was consistent in all subsets -- patients with prior AT treatment, prior ATC treatment, HER2 positive, HER2 negative disease, as well as triple negative disease, demonstrating that NKTR-102 is highly active in metastatic breast cancer.

As the first and only topoisomerase I inhibitor being developed in breast cancer, NKTR-102 also offers a different mechanism of action than commonly used agents such as [aribulane] and taxanes, which are microtubule inhibitors and exhibit cross-resistance with each other. There is no clear standard of care for patients with metastatic breast cancer who have progressed after ATC treatment.

In addition, there are no late stage studies ongoing in this patient population. If we are successful, NKTR-102 has the opportunity to become a worldwide standard of care in advanced breast cancer.

Moving on to NKTR-102 in platinum-resistant ovarian cancer. As we said last quarter, enrollments in our expanded Phase 2 study was limited because of a Doxil shortage. As a result, we are now closing enrollment, and we have begun collecting data on the patients in this study. Through February, we had enrolled a total of 94 patients in the Phase 2 expansion study. We plan to share our topline response rate data from the trial with you at our upcoming R&D day in New York on April 16, and as we said before, following the review and analysis of these data, we plan to meet with the FDA to discuss NKTR-102 and explore our regulatory options and development strategy in ovarian cancer.

Next, I would like to talk about NKTR-061 or Amikacin Inhale partnered with Bayer. Amikacin Inhale could potentially be the first product to treat serious ICU lung infections by delivering antibiotic directly into the lung. We continue to conduct our final test on the commercial drug device combination to prepare for Phase 3 study. Bayer plans to start Phase 3 in the second half of 2012. The pivotal design for the Phase 3 program was agreed upon through an SPA from the FDA. These studies will enroll approximately 1200 patients with a primary endpoint of clinical test of cure. NKTR-061 has significant economic potential for Nektar with a flat 30% royalty in the US and an average ex-US royalty of approximately 20%. Both Bayer and Nektar continue to be very committed to moving Amikacin Inhale as quickly as possible into Phase 3.

Another significant program for Nektar is BAX 855. BAX 855 is a long-acting ADVATE that uses Nektar-patented PEGylation technology. BAX 855 is in Phase 1 in hemophilia patients with our partner, Baxter. This study is expected to be completed around the middle of this year, and if the Phase 1 study is successful, Baxter plans to initiate the Phase 3 program with BAX 855 before the end of 2012.

Baxter's ADVATE is the world's leading Factor VIII therapy for hemophilia patients and has sales of over $2 billion annually. Analysts following the Factor VIII space estimate a market potential of between $3 billion and $4 billion for long-acting Factor VIII products. As a result, the economic potential of BAX 855 could be very significant for Nektar.

Now I would like to talk about two exciting proprietary drug candidates that Nektar is developing for pain -- NKTR-181 for chronic pain and NKTR-192 for acute pain. Both molecules leverage our expertise in modulating drug entry into the brain.

It is important to note that these are not formulations and not prodrugs. These are new opioid molecules, and each program represents a sizable market opportunity for Nektar.

NKTR-181 represents a significant potential advance in opioid pain relief. Again, NKTR-181 does not require a formulation to achieve its clinical profile. It is compelling properties are inherent to its chemical structure. As a result, based on our research, crushing, melting or otherwise manipulating NKTR-181 will not change its attributes.

NKTR-181 was specifically designed to be long-acting and to enter the CNS slowly, avoiding the rapid rush of traditional opioid compounds, which leads to euphoria and ultimately to higher levels of abuse.

In addition, this slow rate of entry into the brain should also reduce other CNS-mediated side effects which are seen with other traditional opioids such as sedation and respiratory depression.

This past weekend we presented new clinical data from our multiple ascending dose study of NKTR-181 at the American Academy of Pain Management meeting. The double-blind, randomized, placebo-controlled study evaluated multiple doses of NKTR-181 administers twice daily in healthy subjects. Data from this study confirmed that NKTR-181 enters the brain slowly. Using pupil constriction as a measure of the onset of central opioid effect, we've demonstrated that NKTR-181 enters the CNS at a rate approximately 10 times slower than oxycodone. The centrally mediated opioid effects of NKTR-181 extend over an entire 12-hour dosing period.

NKTR-181 is intended to treat chronic pain, and we have now demonstrated analgesic response in two different models of pain in healthy volunteers. In a cold pressure test model of centrally mediated analgesia, NKTR-181 given twice daily over the eight-day dosing period demonstrated a significant analgesic effect as compared to placebo.

In another pain model, a model of ultraviolet burn injury, NKTR-181 produced significant analgesic and anti-hyper analgesic responses indicating that NKTR-181 has both centrally mediated and peripherally mediated analgesic effect. And, importantly, NKTR-181 was well tolerated at all doses in the study. There were no adverse events related to respiratory depression observed at any dose tested. The most common adverse events were mild in nature and included constipation, nausea and dizziness. Of the 48 subjects who receive study drug twice-daily over eight days of dosing, there was only one report of mildly elevated mood.

We are tremendously excited about the proof of concept from our Phase 1 program for NKTR-181. If this program is successful, NKTR-181 will dramatically change the landscape for the treatment of chronic pain. In the US alone, there over $5 billion of annual sales of long-acting opioids to treat chronic pain.

We are currently preparing for the Phase 2 study of NKTR-181, which is scheduled to start in the middle of this year. The Phase 2 program will include a total of up to 300 patients in two studies. The first study will be a randomized, double-blind placebo-controlled study in chronic pain patients, and we expect data from this study in the first half of 2013.

The second study will be a human abuse liability study comparing the likability of NKTR-181 to a currently marketed opioid.

Now I would like to talk about our next important program in pain, NKTR-192, which is also a new mu-opioid analgesic molecule designed to have a reduced rate of entry into the CNS. NKTR-192 targets acute pain with a molecule specifically designed to have a short-acting profile and a relatively fast onset of action. With NKTR-192 we have demonstrated breadth and onset of analgesia and observed reduced sedation, reduced abuse liability and less respiratory depression as compared to standard opioids in our preclinical model. These compelling preclinical findings for NKTR-192 were highlighted at a press conference at the 2011 Society for Neuroscience meeting last November. The results were also covered in a January editorial in the Journal of the American Medical Association. NKTR-192 could be a highly differentiated drug to treat acute pain, which is a $3 billion market in the US alone. We plan to initiate a Phase 1 study of NKTR-192 this quarter, and we should have results from this Phase 1 study by the middle of this year.

With both NKTR-181 and NKTR-192 in our portfolio, Nektar is now positioned to target both chronic and acute pain markets. These new opioid molecules could be game-changing in the area of pain relief, and we are tremendously excited about their advancement and development.

Before I hand the call to John, I want to personally invite you to our R&D day, which will be on April 16 at the Palace Hotel in New York. We are privileged to have a number of key thought leaders in pain and oncology attending, and we look forward to sharing more detail on our programs and the potential of our technology platform.

We also look forward to seeing many of you at both the Cowen & Co. and Barclays conferences in March. With that, I will now turn the call over to John.

Thank you, Howard, and good afternoon, everyone. I will start with a quick review of Nektar's financials for 2011.

Our cash at the end of 2011 was $414.9 million. Of course, this amount does not include the $124 million in connection with the royalty transaction announced earlier today. Total revenue in 2011 was $71.5 million versus $159 million in 2010. The decrease in revenue year over year is attributable to completing the amortization of the $125 million upfront payment from AstraZeneca for NKTR-118, of which approximately $100 million was recognized in 2010.

Total operating costs and expenses in the fourth quarter of 2011 were $50.3 million versus $65.9 million in the same quarter a year ago. The decrease is primarily attributable to the Q4 2010 non-cash impairment charge of $12.6 million relating to the exiting of our San Carlos facility. Total operating expenses for 2011 were $195.4 million as compared to $187.3 million in 2010. This increase in total OpEx was driven by an $18.7 million increase in R&D due to the advancement of multiple clinical development programs, including the initiation of our Phase 3 BEACON study for metastatic breast cancer.

For the full-year 2011, our research and development expenses were $126.8 million as compared to $108.1 million in 2010. 2011 R&D expenses included approximately $19 million in non-cash expenses, including depreciation and stock-based compensation expense. G&A expenses were $46.8 million compared to $41 million in 2010. 2011 G&A expenses included $12.3 million of non-cash expenses such as amortized pre-rent on our San Francisco facility, stock-based compensation expense and depreciation.

Now on to our 2012 financial guidance. Revenue for 2012 is expected to be between $75 million and $85 million. We are looking forward to the potential approvals at the end of March for Peginesatide with Affymax and Levadex with MAP. However, our revenue guidance at this time does not include any projected royalty income from the potential sales of these two drugs.

R&D expense for 2012 is anticipated to be between $152 million and $157 million. Of this, approximately $19 million will be non-cash expenses such as stock-based compensation and depreciation. 2012 R&D expense includes a number of important development activities, including our NKTR-102 BEACON Phase 3 trial, the final production of Phase 3 devices and commercial sale for Amikacin Inhale, the initiation of our Phase 2 trial for NKTR-181, the initiation of our Phase 1 clinical trial for NKTR-192 and the preparation of our next IND candidate, which we plan to announce by the end of 2012.

2012 G&A expense is anticipated to be between $44 million and $46 million. Included in our 2012 G&A expense is $13 million of non-cash items. Capital expenditures are expected to be between $8 million and $10 million for 2012.

Finally for 2012, we expect our cash used in operations, including CapEx, to be between $130 million and $140 million.

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

(Operator Instructions). Jonathan Aschoff, Brean Murray.

I was wondering, guys, how exactly will you evaluate abuse liability in Phase 2 for 181?

I will let Rob answer that question. Go ahead, Rob.

Thank you, Howard, and thank you, Jonathan, for the question. Abuse liability methodology, there's lots of publications around this and recommendations and guidance documents from the FDA. So the methodology is to compare doses of 181 in this case with a comparator opioid. Most likely oxycodone is the standard, looking at intact and manipulated or crushed dosage forms. And then you do those studies in a crossover manner in recreational drug users who then provide a subjective assessment of liking. So the methodology is fairly well defined at this point, and that is what we will be pursuing.

Cory Kasimov, JPMorgan.

I have two of them for you. First, on NKTR-118 or naloxegol, I know you discussed the anticipated timing of the filing in mid-2013, but what has AstraZeneca told you about the timing of a potential data release for that asset?

Well, they have not said when they will release data. What they have said, if you look at clinicaltrials.gov, it says that the studies will be over at the end of this year. They have not said when they will release data. They have said that they plan to make a filing in the middle of next year, and we have said today for the first time that when that filing is accepted we get $95 million. So I would hope that that comes in the middle of next year. But they have not said specifically when they plan to release data, so I cannot answer that question.

Okay. And then on the debt and just your balance sheet in general, if we were to assume that you use cash to pay down the remaining portion of the debt, how long of a runway do you estimate that you have right now to support operations?

Well, look, it is difficult to give that answer without giving 2013 and 2014 guidance, so I really cannot do that. But I think if you look at the remaining $91 million in debt and you look at our burn rate of this year between $130 million and $140 million and then, of course, you examine the likelihood of receiving $95 million from AstraZeneca next year, I think we are generally in pretty good financial shape.

I cannot give you specific guidance on how we plan to deal with the debt. I will tell you that we have a number of options and that we will continue to pursue those options that are in the best interest of our shareholders.

Steve Byrne, Bank of America.

I wanted to ask a couple of questions about 181. In your posters you presented last weekend at the Pain Conference, you illustrate the couple of hour delay between the peak serum levels and central nervous system levels. Is there analgesic effects during that -- those first few hours?

Yes, we do see an analgesic effect onset. The delay is between the peak of the Tmax and the peak of the effect. So we do see analgesic effects. Again, this medication is targeting chronic pain. So whether those effects occur at 30 minutes or one-hour or beyond that is not as relevant for our chronic pain product as you can see in multibillion-dollar products like, say, Duragesic, which is not hallmarked by rabid onset.

So 181 was designed to do exactly what we are seeing it do in these clinical trials. So the analgesic effect does have onset before the peak obviously.

And your comment about it being peripherally acting, is there a mechanism that is also peripherally acting, or is it just that the source of pain is peripherally?

Well, we know -- it's a very good question. We know that opioids have both central and peripheral actions, and we know that mu-opioid receptors are actually up-regulated in the periphery, particularly in the setting of inflammatory pain. And that is why we included one of these experimental models was to look to see if we could pick up a sense of that. And we were able to see that reflected in what we call anti-hyperalgesia or reducing the sensitivity of an already sensitized spot, and we are able to pick up what correlates to a peripheral opioid analgesic effect. So we are very excited to be able to see that, and we will obviously be seeking to capitalize on that as we move into our Phase 2 program.

And can you comment on the Phase 2 design, why it would be a placebo-controlled study and not an active comparator?

Well, comparing two actives in most models with the exception of oncology is not the norm. It is always early in development when we look at placebo comparators, and these are again subjective responses as opposed to, say, the objective responses you see in oncology trials. So it is the standard of development to look at placebo-controlled trials.

And then just one last one, are there COGS associated with the future Cimzia sales?

Yes, we will continue to make the PEG reagent for Cimzia, and we will be paid for them at a specified cost.

Stan Mann.

Good job on some monetization, Howard. My question is, you have done a monetization of cashing in on Cimzia and Mircera, and I guess my question is, you have a fantastically powerful pipeline, can you give us any color at all on your thoughts on monetizing other items in the pipeline or selling Asian or European rights and anything on timing, anything that would help?

Well, look, as I said, we do have a lot of things in our pipeline, both proprietary programs, as well as some other legacy programs that you know are scheduled to have PDUFA dates in the near term.

Specifically again I cannot give any guidance on what we planned to do with the remaining $91 million in debt, other than to say we do have a number of options there. And I prefer to -- I would certainly prefer options that are the least dilutive, and that is what we are targeting. And I said that some time ago when we were thinking about how to best solve the debt problem, and we followed up with this $124 million on Cimzia and Mircera, which was, of course, not diluted and not strategic -- programs that were not strategic for Nektar. And I think we have a number of options, and we will pursue them in a way of causing the least amount of dilution, and that is -- we are all aligned on that. But I cannot give you specifics on what we might do at this point.

Can you say anything about timing? You have a September deadline on the converts, and further on the converts, is there a discount since they are far out on conversion price, and is there any timing thoughts that you have?

Well, I mean, look, clearly that debt will be retired when it is due. We have every intention of doing that. So whatever we do in terms of options, again, I cannot give you specific timing. I can tell you that we have every intention of paying off the debt and in some fashion. So all I can say is stay tuned, and I think we did a great job with that $124 million, and I think we have some good options in front of us.

Okay. And just one other comment. Abbott just did a deal on a gout drug at record levels. One that was in Phase 2, I believe. Are you seeing the opportunities or the marketing opening up for deals or relationships or whatever you want to call it, ventures?

Well, there's always opportunities for deals. The question is, how much of it do you have to give away at what stage? And if you look at programs like NKTR-181, which have the potential to be landscape changing in the pain field, I'm not inclined to be doing any deals with programs like that right now, and NKTR-181 -- NKTR-118 is spoken for. Baxter 855 is spoken for, of course. 061 is spoken for. So, quite frankly, I don't really see that we are looking for deals right now, and there are no anticipated deal monies in any of the guidance John gave you. So we are planning to reach those targets and solve our debt issue without having to do any more deals.

John Sonnier, William Blair. (Operator Instructions).

It looks like there are no more questions. So, Howard, if you want to close.

Well, thank you, everyone, for joining us on today's call. In just a few years, Nektar has generated a deep pipeline of programs that range from late stage to early stage in high value therapeutic areas such as pain, oncology and hemophilia. And, as a result, I believe Nektar has one of the most promising and extensive pipelines for a company in our sector. We are highly focused on executing on our plans and advancing our programs, and I'm exceptionally proud of the hard work of our employees and their continued accomplishments.

So we look forward to seeing you at our R&D day in New York, and we appreciate your support as shareholders. So thank you very much, and stay tuned for more. Bye-bye.

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