Nektar Therapeutics
Q1 2013 Earnings Call Transcript

Published: 10 May 2013

[Operator:]

Good day ladies and gentlemen and welcome to the Nektar Therapeutics' First Quarter 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference maybe recorded. I’ll now turn the call over to your host Jennifer Ruddock, Vice President of Investor Relations. Please go ahead.

[Jennifer Ruddock:]

Thank you. Good afternoon everyone and thank you for joining us. With us today 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, the therapeutic and market potential of our drug candidates and those of our partners, our financial guidance for 2013, which includes potential milestone payments 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 n our quarterly report on Form 10-Q filed today. 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 for replay on the Investor Relations page at Nektar’s website at www.nektar.com. With that I would now like to hand the call over to Howard. Howard?

[Howard Robin:]

Thank you, Jennifer. Thanks to everyone for joining us this afternoon. I’m very pleased with our achievements over this past quarter including the start of two very important clinical studies our Phase 3 study with Amikacin Inhale to treat hospital based pneumonias. And our second Phase 2 study for NKTR-181, which is an human abuse liability study. We expect to have data from this study as well as the efficacy study for NKTR-181. In mid to late summer we will discuss more on NKTR-181 in a moment. Nektar now as five highly valuable programs spanning multiple therapeutic areas that has completed Phase 3 or in Phase 3. Our pipeline leverages an innovative technology platform that continues to generate new drug candidates in pain and oncology. As I said before, Nektar is in a unique position within our industry with 5 key Phase 3 programs spanning several distinct therapeutic areas. Naloxegol which has completed Phase 3 by our partner AstraZeneca, Etirinotecan pegol or NKTR-102, our wholly-owned program in metastatic breast cancer, which is in Phase 3, BAX-855 which is in Phase 3 with our partner our Baxter, Amikacin Inhale which is in Phase 3 with our partner Bayer and Cipro Inhale which is also in Phase 3 with our partner Bayer. In addition to our Phase 3 pipeline, we have two wholly-owned development candidates NKTR-181 and NKTR-192 which position NKTR to capture a significant opportunity in the chronic and acute pain markets. So let me start first with an update on the Naloxegol, AstraZeneca has met with the FDA and EMA and plans for Naloxegol will be finalized over the coming months incorporating the outcome of ongoing pre-NDA discussions with the FDA. As you know, AZ and Nektar, reported excellent efficacy and safety data from the KODIAC program which includes two pivotal efficacy studies, a 12-week extension study and a one-year long-term safety study for Naloxegol. Naloxegol 25 mg dose met its primary endpoint and all of its secondary endpoints in the two efficacy studies. The comprehensive well-controlled 52-week safety study of Naloxegol was the first and only long-term comparative study completed OIC to prospectively measure potential symptoms of opioid withdrawal over one-year of dosingand to externally adjudicate for major cardiovascular events or MACE. In this study called KODIAC 08, there were no reports of opioid withdrawal attributable to Naloxegol over 52-weeks of therapy. Importantly there was no imbalance in MACE events in the study. This study was randomized 2

[John Nicholson:]

Thank you, Howard and good afternoon everyone. I will start with reiterating our financial guidance for 2013, which remains unchanged from our 2012 year end call. For 2013, we expect our cash used in operations including capital expenditures to be between $95 million and $105 million. And we expect to end 2013 with approximately $200 million in cash and investments. Revenue for 2013 is expected to be between $200 million and $210 million. This guidance includes $95 million in milestone payments for the acceptance of regulatory filings for Naloxegol which breaks out as follows,$70 million for the U.S. and $25 million for EU. 2013 revenue guidance also includes $20 million of non-cash royalty revenue from UCB’s Cimzia and Roche’s Mircera. Our R&D expense guidance is still between $200 million and $220 million with approximately $17 million of this is non-cash items such as stock-based compensation and depreciation expense. 2013 G&A is still between $42 million to $44 million, which includes $10 million of non-cash expense. Total revenue in Q1 2013 was $23 million versus $17.9 million the first quarter 2012. Revenue for Q1 2013 includes $4.4 million of non-cash royalty revenue from UCB, Cimzia and Roche’s Mircera. The increase in revenue for the quarter is primarily attributed to higher product sales and non-cash royalty revenue related to UCB Cimzia and Roche Mircera royalty monetization. Total operating costs and expenses in the first quarter of 2013 were $68.4 million versus $55.9 million in the quarter a year ago. The increase is primarily driven by higher R&D expense for clinical development and higher cost of goods related to increased product sales. For Q1 2013 our research and development expenses were $45.6 million as compared to $35.1 million in Q1 2012. R&D expense for the quarter included expenses related to our NKTR-102 BEACON Phase 3 trial. The production of Phase 3 devices for Amikacin inhale, the Phase 2 studies for NKTR-181 and the Phase 1 clinical study of NKTR-192. Research and development expenses included $4.2 million of non-cash stock base compensation and depreciation expense. For the quarter of 2013, G&A expenses $11.1 million compared to $10.4 million in the first quarter of 2012. There were approximately $2.5 million of non-cash expenses included within G&A in the first quarter of 2013. Interest expense this quarter was $4.6 million related to senior secured notes issued in 2012 and non-cash interest expense related to the monetization of UCB, Cimzia and Roche Mircera royalties was $5.5 million. Cash, cash equivalence and short-term investments at March 31, 2013 were $261.2 million as compared to $302.2 million at December 31, 2012. With that I now open the call to questions. Operator?

[Operator:]

Thank you. (Operator Instructions) Our first question comes from Cory Kasimov with JPMorgan. Your line is open.

[Unidentified Analyst:]

(Inaudible) for Cory today. Just a couple of questions on 181 maybe you if could just describe the likeability study in more detail and now you are looking to see less likeability versus a competitor arm and then secondly what the strategy with 181 might be if the data is posted this summer? Thank you.

[Howard Robin:]

Let me have Rob describe the study design to you, I think you will find it quite interesting, great Rob.

[Rob Medve:]

Certainly the HAL study, there is a methodology described in the recent guidance, and our protocol is very closely aligned with that. I have done several of these studies in the course of my career and have a real interest in this area as many of you may know. What we do in these studies, we get recreational users so they are opioid preferring recreational users and they are folks who are not physically dependent upon the drug as a different population. When they come in, they go for a series of tests to assure that they are not physically dependent and that they can distinguish between placebo on a relatively low level of comparative drug. The standard drug for comparison in these trials is always oxycodone and I think that’s pretty telling but oxycodone is a, it’s a standard comparative. If they pass all those barriers, they go into a multiple randomize phase and this several different orders that they can be randomized to and they access liking using a variety of scales and have a different ways of looking at it. And of those, they search for each of the drug arms and they are given sequentially obviously separated by several days. So, that was also in a great density of data around what their feeling after they get the drug and when they are feeling it. So, that’s in a nutshell the methodology. When we look at, what we’ve been looking at to see from the results of these trials, you’re looking in part statistically and in part qualitatively what your, what the differences between the various drug arms, placebo, we expect to see at or near base line, we know 40 mg of oxycodone as an immediate release produces a very robust liking affect very early on that persists. And we’ll see what we’re expecting based upon all of the data we generated to-date both in human and preclinical work that the various doses of 181 will be closer to the placebo side and they went to the oxycodone side, certainly the time course is profoundly different in terms of entry into the brain and that’s what really drives the liking is that entry into the brain. So I hope that helps answers your question.

[Howard Robin:]

The second part of the question that I wanted to answer, you asked for strategy I think we said the studies are enrolled, the data should be available this summer and if the data is positive which we are hopeful then we’re going to prepare this, we’re going to prepare the program for Phase 3 studies. And as you know we have fast track designation for this program, so we’re going to try to move it very quickly forward.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

Our next question comes from Josh Schimmer with Lazard Capital Markets. Your line is open.

[Josh Schimmer:]

Hi, thanks for taking the question. Just wondering if you have any indications from AstraZeneca at this point, they would be willing and prepared to fund the outcome study, fund this trial, if they were required, how long you think it might take if that was the path that you have to go down?

[Howard Robin:]

Yeah, look I think, a good question but at this point AstraZeneca is finalizing their plans and I can’t comment as to what direction they’ll go with that. CV outcome study is challenging because one of the nice things we have observed in our Phase 3 trial is that they were no safety signals for naloxegol. So we didn’t see any difference from control arm versus the drug arm in cardiac events. They were quite balanced with 2 and 2 and actually remember it was 2

[Josh Schimmer:]

Do you have any sense on how patients enrolled KODIAC long-term safety study compared to patients in the long-term open label study of Relistor?

[Howard Robin:]

I will let Rob that in more detail, I can tell you as I said in the call, over half of the patients that were in our long term safety study were already at significant cardiovascular risk, baseline risk. So, Rob you want to comment further on that?

[Rob Medve:]

Sure, what we can tell based upon what’s been presented publicly on the long-term safety for methylnaltrexone which of course remind you was just an open label single arm trial. It was not a comparator group in that trial. But overall demographically it appears to be the same, I can’t comment on their level of risk factors that were present typically in this population you would expect to have a presence of risk factors for this type of patients. So, you would expect this patient population to have at least some degree of moderate to high cardiovascular risk base but just this one of the presence of co-existing risk factors. So, it appears from what we can tell from more of public information it’s a similar population in all the demographics that we can see.

[Josh Schimmer:]

And, and…

[Rob Medve:]

Go ahead, I’m sorry.

[Josh Schimmer:]

But now I’ll let you finish, this is just a follow up…

[Rob Medve:]

Yeah, I would just going to say we, we you know the FDA clearly have to review the Naloxegol filing. They have to review our data. We’ve lots of course individual patient data that has to be looked at by the FDA and as I said earlier, they have told AstraZeneca that they will accept the NDA for filling. So, the current clinical data package is sufficient to support an NDA filling and of course they have to look at the data before they can make any more judgments as well.

[Josh Schimmer:]

In that case is, is it your understanding that the FDA’s interest in a preapproval CV outcome study was based on the other drugs experience and not taking into consideration the experience that’s Naloxegol and so do you, you get the impression that the FDA will reevaluate that perspective after they take a look at your data. Or was part of their view towards the CV outcomes trial taking into consideration the fact the KODIAC study long time safety trial showed no imbalance?

[Howard Robin:]

No, I think look clear the FDA is basing their judgment on what they have observed in other programs. As I tried to describe for everyone, the pharmacology is Naloxegol is very, very different than alvimopan and methylnaltrexone. Clearly they haven’t seen our NDA, they haven’t seen the data set. So they have to review that before they can make a judgment. Their concern and I understand their valid concerns are based upon what they’ve seen in other drug but remember Naloxegol was a very different drug than alvimopan a very different drug than methylnaltrexone. They worked very, they all worked very differently. They all have different mechanism, they all approach the receptors in a different fashion. So, I think we have to provide the information to the FDA and let them make more educated judgment once they see the data but they certainly aren’t making that decision based upon review of the NDA. We haven’t submitted to get all this.

[Josh Schimmer:]

Okay. That’s fine. Thank you.

[Operator:]

Our next question comes from Bert Hazlett with ROTH Capital Partners. Your line is open.

[Bert Hazlett:]

Yes, thank you. All my questions are just taking largely on the cardiac events thank you for that. But, I guess, BEACON, is there interim data expected for BEACON at any point?

[Howard Robin:]

Bob you want to comments on that?

[Rob Medve:]

Yeah, yeah certainly Bert there is a planned interim analysis and those kind of you build into the beginning of the trial. We deliberately chose to spend very, very little alpha on this planned interim analysis which was to be at about half of events. As Howard mentioned our enrollment has been a very brisk, we’re expecting the complete enrollment, ahead of what we originally projected. So in fact the interim analyses were probably occurred after we completed enrollment. So, it’s become sort of, I won’t call it a moot point but we are, it wouldn’t be taking any action based upon the outcome of that, if in the event with that low-low alpha it happens to be a positive trial, we have ought to course start moving to prepare a filling based upon that interim and of course continue the trial.

[Bert Hazlett:]

Okay. Thank you for the color. Thanks.

[Operator:]

Our next question comes from David Steinberg with Deutsche Bank. Your line is open.

[David Steinberg:]

Thanks. I was wondering if you could expand some of your remarks on NKTR-181, assuming the data is positive and you’ve see some of the benefit of lower opioid abuse addiction as well as the opportunity to reduce CNS adverse events. Any thoughts on this product becoming the step therapy to oxycontin, could you give us more granularity on what you think the demand for this type of non-abuse opioid would be in. I know it’s too early but any initial thoughts on how payers would view drug with this profile? Thanks.

[Howard Robin:]

I’ll let Rob comment on some of the positioning against oxycodone or oxycontin. I can tell you that look the single greatest attribute to a drug like this is that it meets the needs of our public health crisis which is that we have a molecule that provides excellent opioid based analgesia which can’t be converted into any kind of rapid acting or useable form. And I think that in of itself puts in a great position to be very important for patients from point of view of pricing, we haven’t gone through that and we certainly haven’t selected pricing at. I would expect this to be a fairly priced product compared to other opioids. And I don't think, I don't think this product has to grab, its market share via price. In reality, if this drug does provide excellent analgesic results as well as it’s non-abusable as well as another major feature which is less sedation. If you take opioid that has, that is less sedating and non-abusable I don't think you have to capture your market solely on price. I’ll let Rob to talk about the overall positioning and in-step positioning relative to oxycon.

[Rob Medve:]

Sure, it’s a very good question and one that we spend a lot of time thinking about just add that I’m a mere medic and not a marketing specialist. So but thinking a lot about where a product like 181 assuming the data comes out as we hope where would that fit. I think in a couple of different ways, if you look at the largest populations that use opioids in this country and that’s osteoarthritis and low back pain. That’s anywhere between 40% and 50% of the use of opioids in this country in that market, the natural place for us to be thinking and targeting. And so I would be certainly looking into that, into that segment as to whether it’s a step, the word use prior oxycodone or oxycon. My thinking is that, is that given the fact that from all observation for 181 got much wider therapeutic index than other drugs. So, meaning, the difference between the efficacy dose and the doses that cause side effects like it reinforcing abuse liability effect and sedation and so on. It’s quite wide compared to something like say oxycodone. It would, if that profile holds, it makes sense that this would be an appropriate place to start phasing on opioid therapy and so that’s again leading to the OA and low back pain population by and large. So, I hope that gives you a little bit of color as to how we think about approaching the market that will of course be driven about -- driven by the data that we generate in our Phase 2 program.

[David Steinberg:]

Yeah, very helpful, thanks very much.

[Operator:]

(Operator Instructions) Our next question comes from Steve Byrne with Bank of America. Your line is open.

[Steve Byrne:]

Rob, I’d like it if you can drill into this KODIAC data little more particularly in the placebo arm, are there any characteristics of the responders in the placebo arm that you can characterize as why they had a response even on the placebo arm, was it the duration of opioid use or something whatever I was wondering where you could take this, this is just perhaps to subset of this population where you might have a greater response rate relative to placebo.

[Rob Medve:]

It’s an interesting question, of course, when you do a trial, our program like AZ, you generate a large amount of data, the top-line is always presented to simply to intend to treat analysis. And that’s the sort of the most brutal way of looking a data so anybody who doesn’t complete for any reason is a non-responder in that kind of analyze. So you can slice and dice and really look at populations that and get different response numbers. What you can’t do is, is make Naloxegol suddenly look like it doesn’t work in a particular group. AZ has been very particular to look at the laxative inadequate responders as they powered sub-population in this study. So they constructed their statistical analysis plan very specifically to look at like it’s inadequate responders. And that’s a very important group and just speaking as clinician now and about pain doctors you may know. You treat patients that they have constipation and unfortunately and you can certainly find this in a literature as well. When they don't get relief from relaxant, they often take medicine to their own hands, if you will, they’ll stop taking the drug. They’ll change the way they are dosing it. So, take drug holidays and they do that all on unsupervised fashion which is obviously and not the safest thing for patients to be doing. So, this population, OIR population is a very important population and I’m pleased with that AZ has specifically looked at that because they are really in need a mechanism specific treatment. So I hope that addresses some of your questions Steve.

[Steve Byrne:]

Does it surprise you that 30% of them would respond even without a laxative?

[Rob Medve:]

Well, say 30% of whom? Can you repeat that question for me Steve? Hello?

[Steve Byrne:]

It is 30%, can you hear me –

[Rob Medve:]

I lost the first part of your question.

[Steve Byrne:]

I just said that the – does that, is that surprise you that you would have a 30% response rate in these patients that were non-responders under laxatives but under the placebo arm you had a 30% response rate.

[Rob Medve:]

I have been doing clinical research long enough that does surprise me at all. I don’t know if anyone who has got migraines. But you can do migraines trials, and you have 50% or more in some trials responding to placebo on migraine and that’s got an end point it includes not only the headache pain but nausea, photophobia and phonophobia. So, and you got 50% response rates there. So patients in placebo response rates are – it’s a curious thing and I hope feel the study within clinical trial methodologies. So 30% is not shocking at all to be. It’s hardly surprising at all from kind of what we ballpark placebo response to be. And we often think that intuitively you raise the bar at an end point you are going to change the placebo response. And that’s actually probably not the case. Probably varies the other way because placebo responders can do by and large have a higher responses. So there is a lot of dynamics that go into placebo response and you can as I say look at multiple layers of data like. Say if you look at patients who are censored for not completing the trial, look at why they didn’t complete the trial. Look at the numbers of patients in a various groups who had inadequate response. And then you will start to see a very different picture emerge. And I obviously can’t share all of that data with you. But that’s a different way to look at numbers like this. So why the patients stop taking the drug. And there is, again, of course if you look at the data and its top-line, its ITT so it’s the absolutely everybody who enrolled in the trial. So and I’m pleased with the results that we do see here and there is obviously a lot more data and its very encouraging while we look at the responds with this drug.

[Steve Byrne:]

That’s very helpful. And if I could just ask one on your 181 study, each of the 40 patients evaluate, each one of the doses along with the oxycodone and the placebo is that sequentially they worked their way through all of those arms?

[Howard Robin:]

We use a complete William Square design. Since there are five arms there, then five sequences and each – and each dosing period the patients are randomized to one of those five sequences. So it gets to be a – as you could imagine quite a mix. But each patient will receive assuming that they complete the entire trial. Each patient will receive each dose and that’s of course separate the wash out between doses and will evaluate all of the five arms in the trial.

[Operator:]

Our next question comes from Josh Schimmer with Lazard Capital Markets. Your line is open.

[Josh Schimmer:]

Thanks for taking the follow-up. Just curious CV riske does the KODIACs study rule out, what’s kind of the upper bound of the hazard ratio that you saw in that trial and where would that stay relative to what the FDA historically, have been looking forward to narrow the risk – the study of cardiovascular risks for drugs pre-approval?

[Howard Robin:]

That’s sort of a very in-depth statistical question, that I’m not – I mean I can’t feel qualified to answer that one. I know AZ has certainly looked at that and is confident that their data represents with no imbalance represents a good look at the cardiovascular safety profile of Naloxegol. As part of the specifics around confidence intervals and upper bounds, I can’t speak to that.

[Josh Schimmer:]

Okay. Thanks.

[Operator:]

And I clear show no further questions at this time. I would now turn the call back over to Howard Robin, CEO.

[Howard Robin:]

Well, thank you for everyone for joining us today. I want to close again by saying thanking our employees for their dedication and hard work to advancing our clinical pipeline and our research efforts. I think we have in our industry one of the most exciting pipelines. And I will see many of you shortly at the UBS conference in New York. We appreciate your support to shareholders. And I will see you in a few weeks. Thank you.

[Operator:]

Thank you. Ladies and gentlemen.