Nektar Therapeutics (NKTR) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics third quarter 2014 financial results conference call. (Operator Instructions). As a reminder this conference may be recorded. I would now turn the call over to your host, Jennifer Ruddock, Vice President, Investor Relations. Please go ahead.

Thank you, Stephanie. Good afternoon and thank you for joining us. With us today or Howard Robin our President and CEO, John Nicholson, our Chief Financial Officer, Dr. Ivan Gergel, 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 regulatory events and product launch timing, the availability of future clinical trial results, clinical development plans, the economic potential of our collaboration partnerships, the therapeutic and the market potential of our drug candidates and those of our partners, our financial guidance for 2014, 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 quarterly report on Form 10-Q filed with the SEC on August 1st, 2014 which is available at www.SEC.gov. 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 conference call will be available for replay on the Investor Relations page at Nektar's website at Nektar.Com. With that I would like to hand the call over to Howard Robin. Howard?

Thank you, Jennifer. Thanks to everyone for joining us this afternoon for our third quarter financial results call. During the third quarter we achieved two transformational events as a company, the FDA approval of MOVANTIK for OIC, and the positive Phase 3 data for BAX-855 in Hemophilia A. The success of these two partner programs could position Nektar to become cash flow positive, which as you have heard me say in the past is a very important goal for our Company. I will talk more about the economics from these programs in a moment, but first I would like to start by talking about another potentially transformative upcoming milestone for our Company, which is the eagerly anticipated top line data for the Phase 3 BEACON study of NKTR-102 which we expect in the first quarter of 2015.

As our first wholly-owned late stage drug candidate NKTR-102 has the potential to transform our Company. If the BEACON study is successful, NKTR-102 could emerge as an important new therapeutic option for patients with advanced breast cancer, particularly for those women with HER2-negative disease. NKTR-102 would be a highly valuable asset and it would provide us with the opportunity to launch and market our own cancer drug in the United States.

The BEACON study compares single agent NKTR-102 to a single agent of physician's choice in patients with metastatic breast cancer who have failed Anthracycline, Taxane, and Capecitabine therapies. The primary endpoint of the trial is median overall survival, and it is powered to show survival superiority over the physician's choice arm. 90% of the patients enrolled in the BEACON study have HER2-negative breast cancer.

This is important because while there's been tremendous progress in treatments for breast cancer patients with HER2-positive disease, the fact remains that 75% of all patients diagnosed with breast cancer have HER2-negative disease with far fewer treatment options. Many of these treatments which are also single agent chemo therapies are micro tubular disruptors with overlapping mechanisms of action, and overlapping side effects, which include neuropathy and neutropenia .

As a potentially the first topo-1 inhibitor in breast cancer, NKTR-102 offers a differentiated mechanism of action, and a different side effect profile with no neuropathy and very little neutropenia . We're preparing to submit regulatory filings in both the US and Europe in the second half of 2015 pending the outcome of the BEACON trial. As you may recall NKTR-102 also has fast track designation from the FDA which enables us to potentially qualify for priority review, and submit a rolling NDA. As a potent topoisomerase-1 inhibitor, NKTR-102 could be active in multiple important tumor settings. In addition to the BEACON study there are several ongoing investigator sponsored trials, one in glioblastoma at Stanford, one in small-cell lung cancer at University of Pennsylvania, and one in non-small-cell lung cancer at Roswell Park Cancer Institute.

The investigators at Stanford presented positive data from their Phase 2 study of NKTR-102 in Avastin refractory GBM at this year's ASCO, and the additional investigator sponsored trial should have data available in the first half of 2015. We are evaluating our next steps for development of NKTR-102 in glioblastoma and other tumor settings. We have also been invited by the FDA to present on NKTR-102 at a meeting of the Pediatric Subcommittee of the Oncology Drugs Advisory Committee which will be held on December 11th.

The intent of the meeting is to focus on optimizing the development of an oncology and hematology drugs for pediatric use. The FDA has invited Nektar and two other sponsors of products in development for adult cancer indications. They are seeking advice from the Pediatric Subcommittee on the potential role of these drugs in pediatric cancers and hematological disorders. Next let's discuss the approval and launch of MOVANTIK. As I stated earlier, in Q3 we achieved the transformational milestone with the FDA approval of MOVANTIK. MOVANTIK is the first and only oral PAMORA approved to treat opioid-induced constipation in adults with chronic non-cancer pain. Importantly for Nektar, MOVANTIK is the first FDA approved novel oral NCE that was created using our proprietary small molecule polymer chemistry platform.

It is also the first NCE using our technology that is designed to be restricted from the CNS in order to target receptors in the periphery. MOVANTIK represents a true breakthrough for our technology platform and for our scientists at Nektar. It's approval showcases the powerful nature of our chemistry platform which we now know can be used to create both new small molecule drugs as well as new biologic therapeutics. In Q3 AstraZeneca also announced that the EMA's CHMP recommended approval of MOVANTIG, which is the brand name for naloxegol in Europe, for patients suffering from OIC for whom laxative treatment is inadequate.

The CHMP's positive opinion on MOVANTIG will be reviewed by the European commission which could allow MOVANTIG to be approved by the end of this year. The final decision by the EC will be applicable to all 28 EU member countries, as in the US MOVANTIG will be the first, once daily oral PAMORA available in Europe. As you know, MOVANTIK is currently undergoing a routine de-scheduling process by the DEA. The DEA completed their analysis and recommended the de-control of MOVANTIK. And this recommendation was published in the Federal Register last week. Following a 30-day comment period we expect that the DEA will publish the final rule to complete the de-scheduling process.

There's an additional 30-day period following the final publication in the Federal Register before the de-control process is complete, and AstraZeneca plans to launch MOVANTIK in both the US and Europe by the end of Q1 2015 or early Q2 2015. There are millions of patients in the US and Europe that take opioids to manage their chronic pain. OIC is a month and potentially debilitating medical condition in patients taking opioids, and we believe MOVANTIK will provide an important new treatment option for physicians and their patients. As a reminder the MOVANTIK agreement with AstraZeneca provides significant economics to Nektar.

In Q3 we recognized the $70 million NDA filing fee we received last year, and we also recognized an additional $35 million from AstraZeneca related to the approval which we received in October. Upon the launch of MOVANTIK in the US we are entitled to receive a $100 million milestone payment, and upon the launch of MOVANTIG in any major EU country, we are entitled to receive an additional $40 million milestone. We have significant and escalating double-digit royalties on sales of MOVANTIK which start at 20% in the US and start at 18% in Europe. And in addition to these royalties, we are eligible for sales milestones totaling $375 million. We assessed the sales potential of MOVANTIK to be in excess of $1 billion.

And as I stated last quarter, we believe MOVANTIK is not likely to face potential competition from other oral PAMORA therapies for at least two to three years. We believe the competitive first-to-market advantage combined with the sales and marketing strength of AstraZeneca, positions MOVANTIK well for success. Added to the successful approval of MOVANTIK this quarter was the successful outcome of the Phase 3 study for BAX-855 with our partner Baxter which will enable their BLA filing in the fourth quarter of this year, and positions BAX-855 to be Nektar's next approved partner drug. As I stated earlier, the success of MOVANTIK and BAX-855 alone could position Nektar to become cash flow positive and bring us to our next stage of growth as a company.

BAX-855 is a longer acting ADVATE therapy that was invented by Nektar using our proven PEGylated technology. In the Phase 3 studies patients in the twice weekly prophylaxis arm achieved a 95% reduction in median annualized bleed rates as compared to those in the on-demand arm. 96% of all bleeding episodes were controlled with one or two infusions, and notably 40% of patient were bleed-free. With respect to safety which is of critical importance in this patient population, there were no patients who developed inhibitors to BAX-855, and there were no treatment related serious adverse events, including hypersensitivity, reported. The most common product-related adverse event was headache in three patients. So a very clean safety profile.

As Baxter stated on their most recent financial results call, full data from the BAX-855 Phase 3 study were submitted as a late breaker for December's ASH meeting, which will be held in San Francisco. Based on the positive Phase 3 data for BAX-855, Baxter is planning to submit a BLA in the US by the end of this year. They are currently projecting approval by the end of 2015. Baxter is also conducting a comprehensive clinical program for BAX-855 which will support EU filing and potential expansion of the label in the US. Baxter is the global leader in treating patients with Hemophilia A, and ADVATE currently generates over $2 billion in annual sales. Under our agreement, Nektar will receive tiered escalating royalties on net sales. As I stated on our last quarter call, our royalty rates on sales of BAX-855, up to $1.2 billion are in the mid-single digits, and then on sales of BAX-855 exceeding $1.2 billion, the royalty rate is in the low teens.

We are also entitled to remaining approval and sales milestones of $65 million. Now I would like to spend some time discussing NKTR-181, our novel opioid molecule that has the potential to be a transformational product in both the treatment of pain and in addressing the current health epidemic of opioid abuse. I'm pleased to announce that we plan to start the Phase 3 IRB approval process next month and to dose the first patients in February of 2015. This first Phase 3 study will be conducted in opioid naive patient with chronic lower back pain, with a target randomization of 400 patients. Our recent end-of-phase-2 meeting with the FDA was productive and their input has been incorporated into the design of this study.

The Phase 3 program for NKTR-181 will also include a second Phase 3 study in opioid experienced patients, a Phase 3 human abuse liability study, and other standard studies to support an NDA filing. We are continuing to work with the FDA to finalize the protocols for these additional studies. For the efficacy studies in the Phase 3 program, we will utilize an enriched enrollment randomized withdrawal study design. The EERW design has the advantage of allowing titration to the optimal dose for individual patients prior to randomization.

Importantly we have designed several key elements in this study -- into the study in order to position NKTR-181 for the highest probability of success which includes important criteria that has been utilized in other successful Phase 3 EERW studies of long-acting opioids in patient with chronic lower back pain. First, we will require that patients have both a meaningful improvement in pain reduction as well as achieve a specific response criterion. And then patients need to maintain this response for an extended period in order to qualify for the randomization phase of the study.

We have -- we have designed these criteria to be much more stringent than those utilized in the phase 2 program. Second, the randomization treatment period following the initial titration phase will be for a period of 12 weeks. Third, the study is designed to minimize the effect of potentially confounding background medications, and specifically we will not allow the usage of concomitant non-steroidal anti-inflammatory drugs. Also consistent with other designs, we will restrict rescue medication, [dicetametaphin], in the last ten weeks of the study. Finally, we have incorporated an interim analysis as part of the Phase 3 protocol that will confirm or allow for adjustments to the sample size in order to maintain appropriate study power to detect statistically significant differences between NKTR-181 and placebo.

Such an analysis is designed to increase the probability of a successful outcome. We expect the first Phase 3 study will be completed in 18 to 24 months. We plan to initiate the second Phase 3 study of NKTR-181 by the middle of 2015. The team and I are very excited about the prospects for this important therapeutic candidate. NKTR-181 received fast track status from the FDA for the treatment of chronic pain, and if we're successful, it will be the first available novel opioid molecule with anti-abuse properties that are inherent to its molecule structure and not a result of a formulation.

Now let me update you on two of our early stage candidates NKTR-171, a peripherally acting oral sodium channel blocker which is in phase 1 studies, and NKTR-214, a cancer immunotherapy, which we are preparing to enter the clinic next year. NKTR-171 is being developed for peripheral nerve pain and was created using Nektar's advanced polymer conjugation technology to selectively restrict the molecule to peripheral pain pathways, and thereby avoid the CNS side effects that make standard sodium channel blockers impractical for most patients.

We are conducting a comprehensive phase 1 program for NKTR-171 which we expect to be complete in 2015. Current drugs to treat neuropathic pain such as the gabapentinoids represent a multi-billion dollar market in spite of limited efficacy and unwanted side effect. NKTR-171, with its unique design, has the potential to provide a highly effective therapeutic alternative for patients with peripheral neuropathic pain. One of the most exciting areas in drug discovery is cancer immunotherapy, and our technology is well-suited to working on multiple programs in this area. Our first cancer immunotherapy compound NKTR-214 a novel cytokine.

It is engineered to selectively activate a specific sub class of IL-2 receptors that increase the activity of tumor killing cells while reducing the activity of T-regulatory cells that suppress the anti-tumor immune response. This should result in a highly potent molecule that requires lower and less frequent dosing, providing greater efficacy with far fewer side effects than the first generation IL-2 molecule and others that have been attempted in development. This is a completely new application of our polymer conjugation technology to engineer specific receptor activity into a known biologic molecule.

In our pre-clinical work, NKTR-214 demonstrated dramatic activity in an aggressive mouse melanoma model. Because of its mechanism of action which stimulates the immune system, NKTR-214 also has great promise in combination with other immunotherapies such as checkpoint inhibitors which effectively remove the breaks from the immune system. Our pre-clinical work of NKTR-214 in combination with the checkpoint inhibitors, anti CTLA-4, or anti-PD-1, complete lie eradicated tumors for the majority of the animal tested.

Even more impressively, the combination of NKTR-214 and anti CTLA-4 unleashes an anti tumor immune response that lasts long after the initial drug treatment. In these experiments, 30 days after we stopped dosing, mice whose tumors had been eliminated by the combination therapy had additional tumor cells reimplanted. Without any further drug treatment tumors were unable to regrow in 75 -- in 70% of those mice. This shows that the combination regimen of NKTR-214 and anti-CTLA-4 effectively retrained the immune system to recognize and successfully kill the implanted tumor cells and stop them from regrowing. We have completed a comprehensive GLP toxicology program for NKTR-214, and specifically we undertook a full study in non-human primates where we observed no evidence of vascular leak syndrome or low blood pressure at predicted therapeutic doses.

We are completing the manufacturing of drug supplies and the remaining IND enabled studies for NKTR-214 in order to initiate phase 1 studies in the second half of 2015. We are excited to be moving this unique molecule into the clinic next year. Before I hand the call to John I would like to comment on our two Phase 3 anti-infective programs partnered with Bayer. Amikacin Inhale fir ventilator-associated pneumonia, and Cipro DPI for non-cystic fibrosis bronchiectasis, both of which are progressing in the clinic.

Both Cipro DPI and Amikacin Inhale have very significant economic potential for Nektar, with potential Phase 3 data reads out throughout 2016. As a reminder Amikacin Inhale is a drug-device combination product which is being developed to target gram negative pneumonias in patients on ventilators in the ICU. Ventilator-associated pneumonias are the most deadly infections impacting hospital ICU patients. Once acquired these pneumonias are very difficult to treat and there is a high unmet need for new antibiotics that address these potentially life threatening infections. If successful, Amikacin Inhale would be the first new targeted antibiotic drug-device product that works within a ventilator system.

As just stated, the potential to economics for Amikacin Inhale are very significant. We're entitled to a 30% flat royalty in the US, and an average 22% royalty in ex-US countries. Cipro DPI combines Bayer's flagship antibiotic ciprofloxacin with a small pocket-sized breath-actuated portable inhaler. It is being developed to treatment non-cystic fibrosis bronchiectasis or NCFB, a disease that affect over 200,000 patients in the US and Europe each year.

There are no long-term antibiotic therapies approved for patients with NCFB, and if successful, Cipro DPI could be the first targeted inhaled antibiotic delivered as chronic therapy to treat these restructuring bacterial lung infections in these patients. Under our agreement, Bayer is responsible for all development cost associated with Cipro Inhale and we're entitled to escalating royalties with an average royalty of approximately 10%. With that I will turn the call over to John for a discussion on the quarter's financial results.

Thank you, Howard and good afternoon everyone. I will start with updating our financial guidance for 2014. For 2014 we are increasing our guidance for our end-of-year cash balance by $20 million, and as a result we now expect the to end the year with a total of $245 million to $250 million in cash and investments. This represents a net use of cash for 2014 of between $130 million to $135 million. As Howard said, we anticipate the launch of MOVANTIK in late Q1 2015 or early Q2 2015 which would trigger launch milestones to Nektar of $100 million in the US and $40 million in Europe.

As a result our 2014 year-end cash balance projection of between $245 million to $250 million does not include these $140 million in milestones. Revenue for the full year 2014 is still expected to be between $190 million and $195 million, including approximately $20 million of non-cash royalty revenue from UCB Cimzia and Roche's MIRCERA. As Howard mentioned, this guidance includes two significant milestones recognized this quarter pursuant to the agreement with AstraZeneca signed in August 2013. The $70 million milestone payment that we received from AstraZeneca in 2013, and the $35 million milestone from AstraZeneca which we received in October this year.

Through September 30th, 2014 we recognized $17 million of additional milestones related to other collaborations. We now expect our R&D expense to be between $140 million and $145 million, with approximately $16 million of this as non-cash items such as stock-based compensation and depreciation expense. 2014 G&A is still anticipated to be between $40 million to $42 million which includes $10 million of non-cash expense. Total revenue Q3 2014 was $132.9 million versus $60.9 million in the third quarter of 2013.

Revenue for Q3 2014 includes recognition of a $105 million milestone payment upon approval of MOVANTIK by the FDA and an $8 million milestone payment upon completion of Baxter's BAX-855 Phase 3 study. Third quarter 2014 revenue includes $6.1 million of non-cash royalty from revenue from UCB Cimzia, and Roche's MIRCERA. Total operating costs and expenses in the third quarter 2014 were $52.6 million versus $67.4 million in the same quarter a year ago. The total operating cost and expense decrease was primarily driven by lower R&D expense and lower cost of goods sold. For Q3 2014 our research and development expenses were $34.2 million as compared to $43.9 million in the third quarter of 2013.

R&D expense was lower primarily because of decreased costs for NKTR-102 BEACON study in metastatic breast cancer, as the study progresses towards completion. Research and Development expenses included $3.5 million of non-cash stock-based compensation and depreciation expense. For the third quarter of 2014 G&A expense was $9.1 million compared to $10.6 million in the third quarter of 2013. There was approximately $2.3 million in non-cash expenses included within G&A in the third quarter of 2014.

Interest expense this quarter was $4.4 million related to the senior secured notes issued in 2012, non-cash interest expense related to the monetization of UCB's Cimzia and Roche's MIRCERA royalties was $5.2 million. Cash and investments at September 30th, 2014 were $261.7 million as compared to $301.4 million at June 30th, 2014. With that I will now open the call to questions. Operator?

Thank you. (Operator Instructions) Our first question comes from Burt Hazlett with Ladenburg. Your line is now open.

Yes. Hi. I've got one or two questions. First on NKTR-102 thank you for the color with your participation with regard to the pediatric committee that you will be participating in. Could you describe the circumstances a bit more about that participation? How were you selected and why -- why -- or what your participation will be in terms of the indications being discussed and then I have two on MOVANTIK.

Okay. I will let -- I will let Ivan take the first question.

So we believe that the FDA was interested in -- sorry. This is Ivan Gergel, and thanks for the question, Burt. We believe that FDA was interested in some of the data coming out of the Stanford investigator initiated study that was reported a few month back on glioblastoma. We think the FDA -- we believe the FDA sees that as potentially relevant for pediatric community.

And your participation will be what at the meeting?

Yes. We will essentially be presenting some of the data on the mechanism of 102, and some of the [pri] data that we presented to-date. It's essentially information that's in the public domain at this point.

Yes. And I think -- I think the FDA is also interested there in the safety profile, because as you know by re-engineering this molecule and making an NCE which has a -- a very, very different half-life, very different PK profile the side effect are very much dialed down. No neuropathy, very little neutropenia. I mean NKTR-102 is a very clean drug, and I think they're very interested in that.

Terrific. Thank you. Congratulations on the participation. And then just two on MOVANTIK. Again, you've made a terrific progress with that program. How long do you think the pricing negotiations will take in the EU? And then could you just update us on any progress whatsoever with regard to any combinations with the AstraZeneca collaboration? Thanks.

Yes. Look, I think the EU pricing process probably takes three, four months. You know, AZ has said they plan to launch in the US and in the EU late first quarter very early second quarter. And it's very difficult to predict. I mean whether it's three months, four months, five months. I think it's a process that they understand very, very well as you can imagine. With regard to combination, you know, you're referring to NKTR-119. They're looking at that. They haven't started that program in the clinic yet, but I would imagine they're getting much more comfortable so I really can't comment. I would have to send you to them for specific comments on NKTR-119.

Okay. Thank you. Congratulations again.

Our next question comes from Steve Byrne with Bank of America. Your line is now open.

I would like to continue with Bert's question on 119. I guess a technical question for you would be whether there's -- whether there's any formulation issues that you have seen so far combining that product with -- with any of the commonly available opioids? And then from a more commercial perspective do you have a sense from AZ as to their interest level in taking something like that into the market?

Well, look. The first part of your question is the technical challenge. There really isn't much of a technical challenge. We have actually already done it. And taking an opioid and putting it into the same tablet with naloxegol is not a big hurdle and it's been done. It's still a very small tablet. That's not a problem at all, and you could actually -- you could do it that way, you could you actually make a blister pack with both tablets next to each other so you take one tablet of each as a combination dose. There's lots of ways to do it but to put them into one tablet is also not a tremendously complicated thing to do, and like I said we have already made that formulation.

Now, in terms of -- in terms of their level of interest in it they should be interested in it. I mean there's -- you know, I can't speak for them in that regard because they haven't announced anything publicly yet and I won't do that, but I can tell you they should be interested in it. You can combine naloxegol with a number of different opioids. And as you know the -- the morphine equivalent units don't really matter. In other words, regardless of what opioid you're taking it's still a fixed dose, one-a-day MOVANTIK. So it doesn't matter which opioid you combine it with or what the dose of that opioid is. MOVANTIK is 25 milligrams once a day regardless. And I think that makes it fairly easy to combine.

And if such a product were developed and an abuser wanted -- decided to crush and snort it, would the naloxegol enter the CNS if it bypassed the GI tract that way?

No. No. Naloxegol is not going to get into the CNS, even by snorting it so -- I don't -- yes that wouldn't happen, no.

Okay. So there's no -- no anti-abuse functionality from something like that?

Steve, you want -- not really, but Steve let me let you comment.

Yes. Hi, Steve. This is Steve Doberstein. The thing about snorting, the reason that people snort drugs of abuse is to get -- is to bypass first metabolism in the liver. It's actually not -- it's not scientifically correct that the drugs get into the brain faster. So for example just because you snort it doesn't mean it goes directly to the CNS. It actually goes into the bloodstream first. So all of the mechanics of naloxegol that specifically designed to restrict it to the peripheral system would still be in place in that case.

Okay. And then one kind of off the wall question for you, Howard. With the -- the near-term commercialization of inhaled insulin from MannKind and Sanofi, just wondering if any of your patent estate is potentially infringed by that product.

Well, I think, you know, I think we have looked at that, we continue to look at that and I won't comment specifically, but I think had that drug been on the market two or three years ago the answer might have been yes. In today's world, at this late date, there probably isn't much there any longer.

Okay. Thank you.

(Operator Instructions). And I'm currently showing no further questions. I will now turn the call back over to Howard Robin for closing remarks.

Well, I want to thank our employees for their dedication and their hard work. The approval of our first drug, MOVANTIK, is a testament to their efforts and I want to thank them from my heart. Thank you for joining us today and taking the time to be with us an your considered support of Nektar, and we look forward to seeing many of you at the upcoming investment conferences over the next few months. So thank you very much. Bye-bye.

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and everyone have a great day.