Nektar Therapeutics (NKTR) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics third-quarter 2015 financial results conference call. (Operator Instructions). As a reminder, this conference may be recorded. I will now turn the call over to your host, Jennifer Ruddock, Vice President of Investor Relations. Please go ahead.

Thank you, Stephanie. Good afternoon and thank you for joining us today. With us today are Howard Robin, our President and CEO; John Nicholson, our Chief Financial Officer; Dr. Ivan Gergel, our Chief Medical Officer; Dr. Steve Doberstein, our Chief Scientific Officer and Dr. Jonathan Zalevsky, our VP of Biology and Preclinical Development.

On this call we expect to make forward-looking statements regarding our business, including potential regulatory approval decisions and commercial launch timing; the timing of future clinical results; clinical development plans; the economic potential of our collaboration partnerships; the therapeutic and market potential of certain drugs and drug candidates and those of our partners; our financial guidance for 2015 and certain other statements regarding the future of our business.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties and risks that are difficult to predict and many of which are outside of our control. Important risks and uncertainties are set forth in our Form 10-Q which was filed on August 6, 2015 and is available at SEC.gov.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future developments or otherwise. A webcast of this call will be available on the Investor Relations page of Nektar's website at nektar.com. With that I would now like to hand the call over to Howard. Howard?

Thank you, Jennifer, and thanks to everyone for joining us today for our third-quarter 2015 financial results call. I would like to spend today's call reviewing our achievements in the third quarter and then focus on upcoming milestones for Nektar over the next 12 months.

Before we start I would like to give you a quick update on Nektar 214, our new immuno-oncology agent. We are exceptionally pleased to report that last week the FDA cleared our Nektar 214 IND, which included a comprehensive preclinical efficacy, safety and CMC package and our Phase 1/2 protocol. The FDA cleared the IND earlier than anticipated and we expect to dose our first patient shortly at our clinical sites, MD Anderson and Yale.

Nektar 214 has the potential to bring a new mechanism, direct and selective stimulation of a patient's cancer fighting T cells, to the next generation of cancer immunotherapies. In essence, Nektar 214 grows tumor killing T cells in a way that no other immunotherapy does. Ivan will cover the clinical program for Nektar 214 in more detail later in the call.

So let's start with an update on MOVANTIK. We are very pleased with AstraZeneca's continued progress with the launch of MOVANTIK in the US, Europe and the rest of the world.

In the third quarter, following the start of direct-to-consumer advertising here in the US, AstraZeneca has informed us that there are over 10,000 prescribing physicians for MOVANTIK compared to 3,000 in the second quarter. Almost 60% of these physicians are primary care physicians and about 40% are specialists such as pain management positions, orthopedic surgeons and rheumatologists.

As of October 23, over 64,000 total prescriptions have been filled and we are now approaching a 40% refill rate per week. The feedback from physicians and patients on MOVANTIK has been very positive and this is reflected by a discontinuation rate that is extremely low.

As most of you have seen, AstraZeneca recently initiated a branded direct-to-consumer TV campaign which has resulted in robust week-over-week growth in MOVANTIK prescriptions. The current weekly rate of MOVANTIK prescriptions is approximately 5,000. AstraZeneca and their marketing partner, Daiichi Sankyo, are very pleased with the growth of MOVANTIK and, importantly, the favorable reception that the medicine has received so far from the medical and patient community.

AstraZeneca is advancing MOVANTIK in Europe and the rest of the world as well. During the third quarter MOVANTIK, which is marketed as Moventig in Europe, was launched in Germany. This first launch in a major European country triggered the payment of a $40 million milestone to Nektar. In October, AstraZeneca launched Moventig in the UK and Ireland.

As you will recall NICE in the UK cost issued favorable guidance for Moventig earlier in the year. Recently Moventig was approved in Switzerland and is already available in Sweden, Denmark, Norway and Finland. Additional European country launches are planned for the first half of 2016.

Outside of Europe MOVANTIK has been launched in Canada and AstraZeneca has also filed for approvals in Australia, South Africa, Argentina and Colombia. Nektar will receive escalating royalties on net sales which in the US start at 20% and in Europe and the rest of the world start at 18%. We receive these royalties one quarter in arrears. We also have the potential to receive up to $375 million in sales milestones based upon achieving certain annual sales targets.

Following these recent successes and the significant level of commitment from AstraZeneca and Daiichi Sankyo in the US to the success of the drug, we are very excited about the prospects for MOVANTIK as an important news medicine for patients with OIC and its potential ability to provide Nektar with substantial revenue.

Now let's talk about ADYNOVATE, another important medicine invented by Nektar. Baxalta announced on their financial results call last week that the FDA completed its late cycle review and labeling discussions for ADYNOVATE and they anticipate approval before year-end. Additionally, Baxalta pointed out that they expect ADYNOVATE to not only maintain but also expand their 60% market share position in the hemophilia market.

Baxalta has also completed enrollment in the Phase 3 pediatric trial of ADYNOVATE which is being conducted in previously treated patients under the age of 12 with severe hemophilia A. Upon completion of this study they expect to file for marketing authorization in Europe in 2016. The study will also support post-approval label expansion in the US. ADYNOVATE it is also being evaluated in a PK specific dosing study to support both US and European label expansion.

As you know, ADYNOVATE is the next-generation Advate, a medicine which has global sales of over $2.5 billion. As an important continuation of the Advate brand, we are excited about the imminent potential, approval and launch of ADYNOVATE.

Nektar is entitled to receive mid-single-digit royalties on sales up to $1.2 billion and royalties in the low teens on sales greater than $1.2 billion as well as an additional $65 million in development and sales milestones. The economic potential of MOVANTIK and ADYNOVATE alone could contribute substantial revenues to Nektar and move us toward becoming a cash flow positive company.

In the area of anti-infectives Amikacin Inhale and Cipro Inhale, being developed by Bayer, are also poised to become important new potential medicines that could represent significant revenue streams for our Company. Bayer expects data readouts from these Phase 3 programs in 2016 or early 2017. Cipro DPI and Amikacin Inhale are both novel drug device anti-infective products that have been granted qualified infectious disease product, or QIDP, designation by the FDA.

Both products are designed to deliver antibiotic deep into the lungs in order to achieve both higher concentrations at the side of lung infection and lower systemic exposure, therefore significantly reducing toxicities that are associated with these agents when administered systemically.

Cipro DPI is targeting non-cystic fibrosis bronchiectasis, or NCFB. The Phase 3 RESPIRE program features two 48-week multinational randomized placebo-controlled studies. One of these studies has already completed enrollment and Bayer expects the trial to have a top-line data readout in the first half of 2016.

The second study is still enrolling and Bayer expects this study to complete in the second half of 2016.We estimate the market for Cipro DPI to be about $750 million and Nektar will receive an average 10% royalty on net sales.

Amikacin Inhale targets Gram-negative pneumonia in ventilated patients in the ICU. Bayer is expecting top-line data from the Amikacin Inhale Phase 3 program in late 2016 or early 2017. We estimate the global market for Amikacin Inhale to be approximately $700 million, which could translate into highly significant revenues for Nektar as we will receive a flat 30% royalty on US sales and an average of 22% on ex-US sales.

Before I hand the call over to Ivan I would like to give you a brief update on two other partnered programs with significant royalty potential for Nektar: Ophthotech's Fovista and Halozyme's PEGPH20. Our royalty interest in both of these late stage programs is in the mid-single-digits. In addition, Nektar manufacturing will support the commercial supply chains for these potential new medicines, further illustrating the power of Nektar's technologies to enable a broad range of new biologic and small molecule medicines.

Ophthotech recently announced that it completed patient recruitment for its second Phase 3 trial evaluating Fovista, or [pegpluranib], an anti-PDGF agent in combination with Lucentis for the treatment of wet AMD. The company now expects to announce top-line data from both Phase 3 trials of Fovista in the fourth quarter of 2016.

In addition, Ophthotech is currently enrolling a third Phase 3 trial investigating Fovista in combination with either Regeneron's EYLEA or Roche's Avastin. The current market for therapeutics treating wet AMD is approximately $6 billion, so Fovista represents a very large opportunity.

With respect to PEGPH20 our partner Halozyme intends to initiate Phase 3 by the end of the first quarter of 2016 based upon compelling Phase 2 interim data which doubled progression free survival in previously untreated metastatic pancreatic cancer patients who expressed high HA levels.

Our strategy has always been to balance our development risks across multiple drug candidates and therapeutic areas. This strategy has served us well and it has resulted in the deep and valuable pipeline we have built at Nektar, which includes five Phase 3 programs, one medicine poised for approval, ADYNOVATE, and a recently approved and launched medicine, MOVANTIK. And now an exciting new immuno oncology therapy Nektar 214.

Our late stage partnered programs alone combined with the revenue streams from MOVANTIK and ADYNOVATE could potentially lead to peak royalty revenue of more than $750 million annually. With that I would like to hand the call over to Ivan to provide a clinical update on Nektar 181 and Nektar 214.

Thank you, Howard. I would like to start by giving an update on Nektar 181. First, as we stated at our R&D day, enrollment in our ongoing pivotal study, Summit 07 is ahead of schedule. Summit 07 compares Nektar 181 to placebo in opioid naive patients with chronic low back pain and it will enroll about 400 patients.

Since enrollment is ahead of schedule we now expect top-line data from this trial sometime in the fourth quarter of 2016. As you will recall, this trial includes an interim sample size analysis that will occur once half of the patients have completed the randomized treatment period.

This analysis allows us to enroll an additional 200 patients into the trial in order to increase the study's empowering, if necessary, and ultimately increase the likelihood of a successful outcome without incurring a statistical penalty. If there is an increase in the sample size based upon this analysis we would expect top-line data in early 2017 rather than the fourth quarter of 2016.

Patients from Summit 07 will also be eligible to roll over into the long-term safety study of Nektar 181 which was initiated earlier this year. Additionally, we are planning a second Phase 3 study for Nektar 181 which will be conducted in opioid experienced patients and we plan to start this study after we have the results from Summit 07.

As Howard mentioned, Nektar 181 could emerge as an important drug in addressing the major societal problem of opioid abuse. Nektar 181 is particularly interesting because the molecule is designed to be a revolutionary new opioid analgesic which crosses the blood brain barrier at a slow rate. And this slow rate of entry is designed to reduce the euphoria and likability associated with highly abused opioids.

It is important to note that, as opposed to other long-acting opioids, Nektar 181's properties are not a result of a formulation. The slow uptake into the brain is due to the structure of the new opioid molecule itself. And because of this inherent property it could represent a significant advancement in pain medicine. Importantly, Nektar 181 has also been granted fast-track status by the FDA.

Now let's move on to what we are doing in immuno-oncology and in particular to Nektar 214, a program that we recently highlighted at our R&D day in New York. Nektar 214 capitalizes on our novel chemistry approach which allows us to optimize the relative affinity of a biologic for specific receptor subunits within complexes or for multiple receptors.

In the case of Nektar 214 we bias receptor subunit binding within the IL-2 receptor complex in order to stimulate the production of tumor killing effective T cells and to reduce production of regular T cells which suppress the antitumor response. Nektar 214's direct stimulation of the production of affected T cells with a unique biased mechanism differentiates it from all other immunotherapies.

We have demonstrated this biased receptor activity with 214 in a subcutaneous B16-F10 mouse melanoma model where Nektar 214 treatment resulted in a 400 to 1 ratio of CD8 positive effective T cells as compared to T regular T cells within the tumor itself. And to give you an idea of how meaningful this ratio is, in this same model treatment with IL-2 results in a ratio of 20 to 1 and vehicle results in a ratio of 4 to 1.

We believe this explains why Nektar 214 results in dramatic tumor growth delay and complete responses as a single agent in the very difficult to treat preclinical tumor models of melanoma and lung cancer, respectively.

Specifically, in the highly aggressive Lewis lung carcinoma model we observed a 60% complete response rate following treatment with single agent Nektar 214. And it is of note that aldesleukin in this same experiment had no antitumor effect.

With respect to safety, our nonhuman primate studies indicated no evidence of vascular leak syndrome or hypotension, which are the two most important dose limiting toxicities with aldesleukin.

We have also combined Nektar 214 with PD-1 and CTLA-4 inhibitors in various tumor models. These resulted in synergistic antitumor immune responses. Notably in tumor re-challenge experiments with Nektar 214 in combination with anti-CTLA-4 we observed durable and long lasting responses after a single course of the combination was administered.

Although it is a cytokine, Nektar 214 is designed to be dosed like an antibody, similar to the dosing schedules with PD-1 and CTLA-4 agents. Because of its unique mechanism, safety profile and dosing schedule it could be an ideal combination drug in the evolving landscape of immuno-oncology.

As Howard mentioned earlier, the IND for Nektar 214 was cleared by the FDA earlier than anticipated and we intend to dose the first patients in our Phase 1/2 trial by year-end. The trial will be conducted at MD Anderson Cancer Center under the leadership of Doctors Patrick Hwu and Adi Diab and at Yale Cancer Center under the leadership of Dr. Mario Sznol.

The first part of the trial will evaluate Nektar 214 at escalating doses in a three-week dosing schedule. We will assess tumor responses, safety and capture important data on biomarkers from both plasma and tumor samples.

We expect to complete this first part of the Phase 1/2 trial and report top-line data in the second half of 2016. Following dose escalation we intend to expand into various cohorts including advanced melanoma, renal cell carcinoma and non-small cell lung cancer, stratifying patients to identify PDL-1 non-expressors. Our focus with these expansion cohorts will be to identify an accelerated development pathway for Nektar 214.

We also discussed at R&D day our work with Nektar 255, an engineered IL-15 immuno-oncology candidate. IL-15 is a cytokine that is essential for memory T cell response. However, native IL-15 has proven difficult to develop as a medicine because of its short half-life and need for high levels of dosing which contribute to serious side effects in humans.

We envisioned that Nektar 255 could even be dosed sequentially with Nektar 214 and further expand our pipeline in immuno-oncology. We are also assessing other uses of our biased receptor technology in control of the immune system. Our plans are to identify our next IND candidate which will most likely be another potential new cytokine medicine in 2016. And with that I will turn the call over to John for a discussion of our financial results.

Thank you, Ivan, and good afternoon, everyone. I will start with a review of our third-quarter financial results and then I will go through our annual financial guidance.

Total revenue in the third quarter was $60 million primarily consisting of a $40 million milestone payment from AstraZeneca triggered by the first commercial sale of Moventig in Germany. Total operating costs and expenses for the third quarter were $59.5 million versus $52.6 million in the same quarter a year ago.

R&D expense in the third quarter was $43.2 million and included IND enabling manufacturing and final preclinical activities to prepare Nektar 214 for the clinic, the ongoing Nektar 181 Phase 3 program, the commercial scale up of device production for Amikacin Inhale program, and ongoing monitoring expenses for patients still in the follow-up in the Phase 3 BEACON study.

Research and development expenses also included $4 million of non-cash stock-based compensation and depreciation expense. For Q3 G&A expense was $9.5 million which included approximately $2.5 million in non-cash stock-based compensation and depreciation expenses. Cash and investments at September 30, 2015 were $267.8 million as compared to $279.7 million at June 30, 2015 and includes the $40 million milestone that we received from AstraZeneca and recognized as revenue in Q3 2015.

The September 30 cash balance does not include the net proceeds from our recent financing transaction that closed on October 5, 2015. The financing transaction was the direct private placement with TPG of $250 million of senior secured notes with an annual interest rate of 7.75% which are due in October 2020.

We use proceeds from this transaction to fully redeem our $125 million 12% senior secured notes that were outstanding as of September 30, 2015 and would have been due in 2017. We will recognize a one-time expense of $14 million for the early extinguishment of these 12% notes in the fourth quarter of 2015.

With the completion of the financing transaction we now expect to have greater than $305 million in cash and investments at the end of 2015. This ending cash guidance as well as our revenue guidance do not include any royalties from MOVANTIK. As Howard stated earlier, we recognize all royalties on net sales one quarter in arrears for MOVANTIK. We still expect our net use of cash to be approximately $60 million in 2015 excluding the $250 million debt issuance and MOVANTIK royalties.

The rest of our financial guidance remains unchanged. Revenue for 2015 is still expected to be between $215 million and $225 million including $21 million of non-cash royalty revenue. We expect to recognize a $10 million milestone from Baxter in the fourth quarter upon approval of ADYNOVATE although we do not expect to receive the cash payment until Q1 2016.

So what is not included in our 2015 year-end cash guidance? Our R&D expense guidance is still expected to be between $185 million to $195 million including non-cash depreciation and stock-based compensation expense of approximately $16 million. 2015 G&A is anticipated to be between $42 million and $44 million which includes $11 million of non-cash expense.

For 2015 interest expense will be approximately $18 million and non-cash interest expense related to the UCB CIMZIA and Roche MIRCERA royalty monetization will be approximately $21 million.

With the completion of the financing transaction in October 2015 we have significantly reduced our cost of borrowing and strengthened our financial position. And as I just stated, we will now expect to end the year with over $305 million in cash and investments. With that I will now open the call to questions. Operator?

(Operator Instructions). Jessica Fye, JPMorgan.

Thanks for taking my questions. A question for -- maybe this is for Howard. In the prepared remarks, can you remind me what you said about the refill rate you are seeing from MOVANTIK thus far? And is that consistent with what you expected? And if not, what is your and Astra's kind of thinking or the goal refill rate there? And then the second question. Sorry?

Question number two is on 214. Just within those expansion cohorts in the various tumor types you laid out far monotherapy, I am curious which you are most excited about. Where do you see the most potential for efficacy, not just based on the market size? Thanks.

I said the refill rate is approximately 40% and that is what we expected and it is growing and prescriptions are also growing nicely. So I think everyone is very, very pleased with MOVANTIK. There is no doubt that there has been better performance after we started or after AstraZeneca and Daiichi started directing consumer advertising.

But right now, as I have said, there are over 10,000 physicians writing prescriptions, that is up significantly from what it was in the prior quarter. And right now we are running about 5,000 prescriptions a week of which about 40% are refills. And the thing is the numbers will eventually grow clearly. And I think -- I have always said that I believe strongly that this will grow into a $1 billion pharmaceutical product.

I think the ramp rate is very good, I think it will get better. But I think the most important thing is that when you talk to physicians and you talk to patients, they are very, very happy with the drug. The drug works well, it works as expected. Patients are happy with it.

I think it is certainly take some time to create a brand-new market. I mean there is no market there right now and AstraZeneca and Daiichi are creating it from scratch. They are doing an incredibly good job and I think everybody gets very pleased with the performance of MOVANTIK.

I will let Ivan focus for a moment on your question about which indication might be the most interesting for Nektar 214.

Jessica, thanks for the question. Obviously we thought long and hard about where we want to take the drug and the expansion cohorts. And some of that may be directed by the dose ascending part of the study and we see particularly good responses. But each of them has good reason -- each of the indications has a good reason behind it.

I think renal cell carcinoma is obviously somewhere where IL-2 has worked and, given our mechanism of action, there is reason to suspect that we will work there too. But I think it is important to recall that IL-2 you saw 5% to 7% durable responses where in two recent agents that reported out really only came out at about 1% durable responses. So there is reason to believe that we actually might look particularly good in that indication.

Obviously melanoma is somewhere where IL-2 has also shown good efficacy previously. In non-small cell lung, particularly in PDL-1 non-expressors, that is very interesting to us. That is not to say we won't work in PDL-1 expressors. But obviously clearly efficacy in PDL-1 non-expressors will be very, very interesting too. So I hope that helps.

I don't know if you picked one, but thanks for the color (laughter).

I think it will be interesting to do the experiment in all of these indications. And I think picking one now that is most interesting it is hard to say. But I think the fact that we have a molecule here that hopefully safely grows cancer killing -- tumor killing T cells is I think very exciting, there is nothing else like it. And it clearly, if it works, changes the direction of cancer immunotherapy. And I think that is what is exciting and ultimately probably has lots of potential in many different types of cancer.

Yes, and I will add to what Howard said. We have clearly been working with all the leaders in the field at this point and they seem very enthusiastic about the various types of tumor that we have selected. So I think it is difficult really to pick one out of that group at this point.

Got it, thanks. Maybe just to follow up on that, is there any human data that we could see at ASCO potentially or is this really second half before we see your first human data?

Yes, as you've said, it is really second half at this point. We believe that is going to be the first time that we are presenting human data.

Okay, got it. Thank you.

(Operator Instructions). John Sonnier, William Blair.

Thanks for taking the question. Thanks for the progress. Want to ask Ivan about 214. I may have missed this, but did you disclose what size trial you are thinking about either in the dose ascending part of the trial, the expansion cohorts?

Yes, we actually did and we presented slides from this at -- I wasn't specific on this call, but we did go into some detail to that at our R&D day. The dose ascending part of the study will be a sort of somewhat typical 3+3 design. So probably envisage anywhere from 20 to 30-ish patients going into that part.

In our expansion cohorts though we envisage up to -- in the monotherapy expansion cohorts, we envisage anywhere up to 60 or perhaps beyond depending on the sort of signals we are getting.

So we will be growing -- these studies we expect will expand quite -- the study itself will expand dramatically into each of the expansion cohorts. And at the same time, once we have identified a dose, we will also start to consider a combination dosing strategy and try to work through some of the dosing aspects of that.

And as I said, you can imagine that if we see reasonably good results by the second half of next year then we are going to move the expansion cohorts rapidly and move towards a program that allows us to accelerate the approval process for this drug. I mean it is unique and it shows what we can do with our technology and I think it has a lot of applications.

No, that makes a lot of sense. And from the standpoint of patient selection, I know you have said a couple of times that you will be looking specifically at PDL-1 non-expression. Are you also going to be looking at prospectively mutational load? Or I have always thought there could be a potential for this drug in tumors that aren't inflamed to be used as a priming agent. Or is it going to be kind of just strictly driven by PDL-1 non-expression?

No, absolutely not. We have a very extensive biomarker program. As we go through the dose escalation we will -- we are not going to restrict ourselves just to PDL-1. Mutational load is clearly a key component -- other as well as other biomarkers.

Okay, thank you.

I am showing no further questions. I will now turn the call back over to Howard Robin, CEO, for closing remarks.

Thank you, everyone, for joining us this afternoon. Of course I want to thank our employees for all their hard work and dedication. We look forward to seeing you at a number of conferences in November/December and of course here in San Francisco at JPMorgan in January. Thank you very much and have a good evening. Thanks.

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