Nektar Therapeutics
Q2 2013 Earnings Call Transcript

Published: 9 Aug 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Q2 2013 Financial Results Conference Call. (Operator instructions.) I will now turn the call over to your host, Jennifer Ruddock, Vice President Investor Relations. Please go ahead.

[Jennifer Ruddock:]

Thank you, Stephanie. Good afternoon and thank you to everyone 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, 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 in our quarterly report on Form 10(q) filed on May 9th, 2013. 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 at the Nektar website. And with that I would like to now hand the call over to Howard Robin. Howard?

[Howard Robin:]

Thank you, Jennifer. Thanks to everyone for joining us this afternoon. Nektar’s made important strides in the advancements of both our wholly-owned and partnered product pipeline this year, and I’ll be spending time reviewing these today. As you know, we have five highly valuable programs spanning multiple therapeutic areas that are in or have completed Phase III clinical testing. Four of these Phase III product candidates are being developed by our pharmaceutical partners AstraZeneca, Baxter, and Bayer. I’d like to start with an update on Naloxegol partnered with AstraZeneca. We’re pleased to confirm today that AstraZeneca will file both the MAA and the NDA for Naloxegol in September. As you know, AstraZeneca and Nektar have previously reported excellent efficacy and safety data from the KODIAC program which includes two pivotal efficacy studies, a twelve-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 in OIC to prospectively measure potential symptoms of opioid withdrawal over one year of dosing and to externally adjudicate for major adverse 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 of MACE events in this study. The 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. As Howard just discussed, for Naloxegol we expect to receive $70 million upon acceptance of the US filing and $25 million upon acceptance of the EU filing. 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, which includes approximately $17 million of non-cash items such as stock-based compensation and depreciation expense. 2013 G&A is still anticipated to be between $42 million to $44 million which includes $10 million of non-cash items. Total revenue in Q2 2013 was $33.9 million versus $23.7 million in Q2 2012. Total revenue was $56.9 million in the first half of 2013 compared to $41.6 million in the first half of 2012. The increase in revenue for Q2 and the first half of 2013 are due primarily to recognition of a $10 million milestone achieved upon the start of the Amikacin Phase III clinical trial. For the first half of 2013 product sales also increased by $5.5 million compared to the first six months of 2012. Total operating costs and expenses in Q2 2013 were $66.5 million versus $50.7 million in the same quarter a year ago. For the first half of 2013 total operating costs and expenses were $134.6 million compared to $106.6 million in the first half of 2012. The increase was primarily driven by higher R&D expense for clinical development. For Q2 2013, our research and development expenses were $52.2 million as compared to $33.2 million in Q2 2012. R&D expense for the first half of 2013 was $97.8 million compared to $68.3 million in the first half of 2012. 2013 R&D expenses include expenses related to our ongoing NKTR-102 BEACON Phase III study, device production and development for Amikacin Inhale, the ongoing Phase II efficacy study and the completed human abuse liability study for NKTR-181, and preparation for the Phase III study of NKTR-181 and the continuing Phase I NKTR-192studies. Research and development expenses included $4.3 million of non-cash stock-based compensation and depreciation expense in Q2 2013. G&A expense was $9.2 million in Q2 2013 compared to $10.3 million in Q2 2012 and $21.1 million in the first half of 2013 compared to $20.7 million in the first half of 2012. There were approximately $2.5 million in non-cash items included within G&A in Q2 2013. Interest expense this quarter was $4.7 million related to the senior secured notes issued in 2012 and non-cash interest expense related to the monetization of UCB’s Cimzia and Roche’s MIRCERA royalties of $5 million. Cash and investments at June 30, 2013, were $226.9 million as compared to $261.2 million at March 31, 2012. With that I will now open the call to questions. Operator?

[Operator:]

Thank you. (Operator instructions.) Our first question comes from Cory Kasimov with JP Morgan. Your line is open.

[Matt Lowe:]

Hi there, it’s actually Matt Lowe in for Cory today. Just about the Phase II data for 181 which is coming up. Is it still fair to assume that you’re hoping to see a more than 30% reduction in the baseline pain scores? And can you be any more specific with the timing of when we might see that data? Thank you.

[Howard Robin:]

From a timing point of view we’ve said that we’ll have that data available this summer and I’ll let Rob talk about the technical aspects of the trial.

[Robert Medve:]

The endpoint of the trial is built around where the patient’s baseline is when they complete titration to where they wind up at the end of the randomization period. So that’s where the primary is. And so there’s several ways you can look at reduction of pain score here but we’re anticipating that we’ll have that before the end of the summer, and the overall reduction will certainly I think be clinically meaningful. Of course it’s an ongoing trial so we can’t comment with any degree of specificity on that but that’s our expectation.

[Matt Lowe:]

Okay, alright. Thank you.

[Operator:]

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

[Bert Hazlett:]

Thanks for taking the question. Could you provide, Howard, maybe a little bit more context behind the renegotiation of the amendment to Naloxegol? And then I guess did you approach them or did they approach you to affect this? And then secondly can you remind us of the royalty rates for Naloxegol and whether or not those were altered materially at all with this amendment? Thanks.

[Howard Robin:]

Okay. I think both companies came together to try to find a regulatory path forward. I think in this regulatory environment relative to mu-opioid antagonists there are many regulatory approaches one could take. We wanted to make sure of course that the drug is filed as rapidly as possible, and we want to make sure that it has the best possible chance for being staged properly at the planned Ad Com meeting that is being proposed by the FDA. So I think the agreement that we worked out with AstraZeneca allows for both of those objectives to be accomplished. Regarding the royalty, I can’t give you the exact number. I’ve said our royalty rate is in excess of 20% and the only impact that this royalty has via this agreement is that if there are any post-approval clinical study requirements on Naloxegol we said we would share some of the cost of that with AstraZeneca, at maximum $35 million. That’s after of course the drug’s now on the market. We would share some of the cost of that, maximum $35 million, and we would share that by a 2% royalty reduction until that number is captured. So with a royalty rate that’s in excess of 20% I didn’t think that was going to have too much of a negative impact on Nektar so I was perfectly willing to do that.

[Bert Hazlett:]

Okay, thanks for the color. I appreciate it.

[Howard Robin:]

Sure.

[Operator:]

Our next question comes from Jonathan Aschoff with Brean Capital. Your line is now open.

[Jonathan Aschoff:]

Thank you. Howard, did you talk about the approval milestones? Are they still there? I fell off the call for a couple of minutes – maybe you did or did not, I don’t know.

[Howard Robin:]

Yeah, the sales milestones are untouched by this amendment. Sales milestones or approval milestones?

[Jonathan Aschoff:]

That’s great. I’m sorry, I mean the approval milestones.

[Howard Robin:]

Okay, well that is also untouched by this. So the approval milestones of $100 million US and $40 million EU are not affected by this as well as how much was it - $275 million in sales milestones are untouched by this.

[Jonathan Aschoff:]

Excellent. And can you give us any more details on the KODIAC-08 FAEs, particularly the MACE or any sort of death-types of numbers? Or does this still have to await a formal presentation by Astra?

[Howard Robin:]

I’ll let Rob comment on that.

[Robert Medve:]

Astra will be presenting the full results of the KODIAC-08 trial at a meeting in 2013. I don’t have any more specifics than that but they will be reporting on that.

[Jonathan Aschoff:]

Okay, great. Thank you very much.

[Operator:]

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

[Steve Byrne:]

Hi, I was wondering if the HAL study will enable your label for 181 to be differentiated from say the abuse-resistance specification that’s in Oxycontin?

[Howard Robin:]

Rob, do you want to comment?

[Robert Medve:]

Sure. Steve, as you’re aware in the guidance there’s multiple levels of differentiation that are permitted by the current draft guidance document. Needless to say we’re very active in discussions around the content of that document and the implications. The experience to date has been almost exclusively with formulation-based approaches to abuse deterrents. 181 as you are well aware is a different case, presents a different set of circumstances. The HAL data that we’ve generated is really, truly compelling. I’ve done a lot of HAL studies; I’ve not see anything like this particularly noting the analgesic range of the drug. I think one of the best descriptions I’ve heard from the site about the subjects – “They were literally bored by 181.” They reported their participation in the trial as being boring and trust me, that is a really outstanding outcome for a trial like this. So I anticipate, and this is all to be negotiated of course through the FDA and you are aware we have fast track status with 181, but I anticipate that there’s plenty of opportunities for us to have differentiation with 181 and not just on abuse liability. I think the profile of the molecule overall is likely to be quite different as we move through development.

[Steve Byrne:]

And Rob, can you comment on your outlook for any potential scheduling change on Hydrocodone? Do you think that that is possible down the road?

[Robert Medve:]

Well, I can’t comment authoritatively and anything I could offer to you would be simply my opinion. We know that the DEA has asked that that be considered. What patients need, putting on my physician and my pain management hat – what patients need is a therapeutic alternative. To take away the Schedule III Hydrocodone in the absence of a therapeutic alternative would not be I think in the best interests of the patients. So I think at the moment it’s a tough decision. I think as we go forward in development and some of our pipeline products including 181 hopefully we can address that conundrum with our products.

[Steve Byrne:]

Okay, and then just one more on this. Howard, you referred to 181 as potentially filling that need for an analgesic that didn’t have the risk of abuse and addiction. That latter characteristic, lack of addiction, how do you think about that down the road as potentially demonstrating that?

[Howard Robin:]

I’ll let Rob tell you how the clinical design for that works as well. Go ahead.

[Robert Medve:]

I think there’s some confusion around terminology. We use terms like “abuse” which is typically a nonmedical use. “Misuse” is patients who are therapeutically indicated to be on the drug but may not take it as prescribed, and then “addiction” sort of rises to a different level. But in lay discussions they all sort of get rolled into one. So addiction is psychological dependence upon a drug. We know that the central impact of 181 both in terms of the rate and extent of exposure in the CNS is quite different and it’s likely to be quite different in that. We are obviously going to look at that in the course of our development program. We have looked at that in some of our preclinical work already to date which is why we believe that 181 is substantially differentiated based on not just the immediate high but potentially in the longer-term effects of the drug.

[Steve Byrne:]

Thank you.

[Operator:]

Our next question comes from Richard Reznick with William Blair. Your line is open.

[Richard Reznick:]

Hi guys, this is Rich Reznick for John Sonnier at William Blair. A quick question – with the 181 data around the corner, can you talk about the differences in acute pain and chronic pain and then 181 and 192; and what kind of potential you might see for read through on the 181 data and how that would affect the 192 program?

[Howard Robin:]

Both molecules are entirely different. They’re two completely different molecules and they both, NKTR-181 approaches chronic pain with a longer half-life and NKTR-192 approaches acute pain with a shorter half-life. They both have a slower rate of entry into the CNS so they both reduce the euphoria, the dopamine rush associated with opioids that get into the CNS rapidly. So they’re just completely different molecules. NKTR-192 is not a slightly different flavor of NKTR-181. Completely different molecules, completely different structures and the goal was to establish a product that was useful for chronic pain in a long-term pain setting. The other, NKTR-192, was designed to deal very specifically with that short-acting chronic pain market. I’ll let Rob give you a little further insight into that.

[Robert Medve:]

Thank you, Howard. And there’s considerable overlap of course as well. We know that immediate release products, the shorter-acting products are used considerably in chronic pain conditions in repeated dosing as well and so there’s overlap and that’s appropriate. Not everybody responds to every medication the same way. So as Howard noted they’re very, very different. At R&D Day we’ll be discussing that in a little bit more detail of how different these two molecules are. They both appear to be very good analgesics but with some fundamental differences that set them quite far apart actually beyond just the duration of action and the PK profile.

[Howard Robin:]

Yeah, you should not think of NKTR-192 as a short-acting version of NKTR-181. These are two completely different molecules.

[Richard Reznick:]

Okay great, thanks.

[Operator:]

And I’m showing no further questions. At this time I will turn the call back over to Howard Robin for closing remarks.

[Howard Robin:]

Well thank you everyone for your time today. I look forward to sharing NKTR-181 efficacy data this summer and I look forward to seeing all of you in New York at our R&D Day in October. Thanks very much, bye-bye.

[Operator:]

Thank you. Ladies and gentlemen, that does conclude today’s conference. You may now disconnect and have a wonderful day.