Nektar Therapeutics
Q3 2013 Earnings Call Transcript

Published: 8 Nov 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Third Quarter 2013 Financial Results Conference Call. At this time all participants are in listen-only mode. Later we’ll conduct a question-and-answer session and instructions will follow at that time. (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.

[Jennifer Ruddock:]

Thank you, Stephanie. Good afternoon 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 in our quarterly report on Form 10-Q which is filed today. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments, or otherwise. A webcast of this call will be available for replay on the IR page at Nektar’s website. With that I would now like to hand the call over to Howard Robin. Howard?

[Howard W. Robin:]

Thank you, Jennifer. Thanks to everyone for joining us this afternoon. I’ll be spending time today focusing on our upcoming milestones for both our partnered and proprietary programs. John will provide more detail on financial guidance later in the call but I want to let you know that we’re updating our year-end cash guidance for 2013. We are now increasing our year-end cash projection by $50 million and we expect to end the year with at least $250 million in cash and investments. As you know we have five highly valuable late stage programs, spanning multiple therapeutic areas that are either filed or in Phase III clinical testing; four of which are being developed by our pharmaceutical partners, AstraZeneca, Baxter, and Bayer. The economics of these partnered programs are significant for Nektar and these programs will provide us with a steady stream of catalysts. These partnered programs, together with the depth of our wholly owned development pipeline clearly set Nektar apart from other companies in our sector. I would like to start with naloxegol, partnered with AstraZeneca. In late August AstraZeneca filed for marketing approval of naloxegol in both Europe and Canada. Both of these submissions have now been accepted for filing within the expected regulatory timeframe. The acceptance of the MAA in Europe triggered payment of a $25 million milestone to Nektar that we received in the third quarter. The NDA for Naloxegol was filed to the FDA in mid September and typically there is a 60 day waiting period for acceptance of a filing in the U.S. We expect the FDA acceptance of the naloxegol filing this month and we will receive a $70 million milestone payment from AstraZeneca upon that acceptance. As many of you are aware there is an FDA advisory panel tentatively scheduled for March 10, and 11, 2014. We are hopeful that at this meeting the data for agents being developed for chronic OIC will be reviewed and discussed but currently there is no specific details available for this meeting. Nektar is entitled to substantial additional milestone payments of up to $175 million for Naloxegol, $35 million if no significant pre-approval cardiovascular safety study is required in the U.S., $100 million upon commercial launch in the U.S. and $40 million upon commercial launch in Europe. We will also receive significant escalating double-digit royalties on global sales of the products and several sales milestones of up to $375 million in addition to the royalties. Importantly Naloxegol would be the first approval of a product that uses our oral, small molecule polymer conjugate technology to specifically restrict the drug's action to the periphery. So as we are very excited about the drug's potential and its upcoming milestones this year, our other partner programs are also making excellent progress. As mentioned four of our five Phase III candidates are being advanced by our partners. In fact we expect the next regulatory filing for one of our partnered programs will be BAX 855, a long acting PEGylated ADVATE, which our partner Baxter expects to file next year. Baxter expects to complete enrollment in the Phase III PROLONG-ATE study for BAX 855 by the end of the year. The study is enrolling more than a 100 patients with hemophilia A and will assess BAX 855 for prophylaxis and on-demand treatments. Baxter is the leader in the hemophilia market and has designed an impressive Phase 3 program. ADVATE is the gold standard treatment today for patients with hemophilia A and BAX 855 is built on this proven therapy that is trusted and used by patients worldwide. Baxter recently announced that they are on track to have Phase 3 data and submit a BLA filing for BAX 855 in 2014. Under our agreement Nektar will receive milestone payments and escalating royalties on net sales of BAX 855. Moving on to our proprietary Phase 3 candidate, NKTR-102, the Phase 3 study for NKTR-102 in metastatic breast cancer was fully enrolled in July and we are very excited about the prospects for NKTR-102 in this area of high unmet medical need. The rapid enrollment in our Phase 3 highlights the enthusiasm among clinicians for this compound and the need for promising new anti-cancer agents to treat metastatic breast cancer. The futility analysis for the BEACON study will occur in early 2014 and will be conducted by an independent data monitoring committee. We expect that final survival data from the BEACON study will be available around the end of 2013 or early 2015. In October we announced that Dr. Alex Adjei at Roswell Park Cancer Institute dosed the first patients in this study to evaluate NKTR-102 as a single agent in patients with relapsed or refractory small cell lung cancer. The Phase 2 study is expected to enroll approximately 38 patients with either chemo sensitive or chemo resistant disease. The primary end point will be the rate of 18 week progression free survival. Stanford University is also evaluating NKTR-102 as a single agent in Avastin resistant glioma patients in the third line or greater setting. This study is being run by Dr. Larry Recht and Seema Nagpal and it enrolled 20 patients in about nine months. Enrollment was completed in August and there are still patients receiving drug in this study. As Dr. Nagpal presented at our R&D day NKTR-102 met the primary end point established for this study with 55% of patients achieving at least six week progression free survival. Because this patient population has very advanced disease the expectation for this end point, based on the performance of other single agents was only 25%. So we greatly exceeded expectations in this very sick patient population. Final data including final response rates, six months survival data as well as the complete safety profile from the study will be presented at a major medical meeting in 2014. Now I’d like to talk about our proprietary pain pipeline starting with Nektar-181. We are currently in the process of designing the Phase 3 program for Nektar-181. This includes meeting with many of the key opinion leaders and experts in the field of pain to get their input on the Phase 2 data and use the findings from the Phase 2 trial to design a successful pivotal trial program. The experts that we had met with over the last several weeks all agreed that Nektar-181 is clearly an effective analgesic with a differentiated profile. In our Phase 2 study we demonstrated that Nektar-181 can provide patients with effective pain relief with substantially fewer CNS side effects than would be expected with standard opioids. During the titration phase of the Phase 2 study a total of 213 patients achieved an average 40% reduction in pain, only 3% of the patients in the titration phase were unable to successively titrate to analgesia with Nektar-181. Only 18% of patients dropped out during titration because of adverse events which were mostly reports of constipation. Importantly nearly all the patients dropping out for adverse events experienced significant pain relief while on the drug. After titration patients receiving Nektar-181 continued to show a reduction on pain scores during the randomized period of the study. While Nektar-181 clearly provided effective analgesia to patients in the study we did not see the expected rebound in pains scores in patients who received placebo during the 21 day treatment period. We believe this uncharacteristic behavior of the placebo arm is due to several key factors which we plan to mitigate in our Phase 3 design. A key point of differentiation for Nektar-181 versus existing opioid therapeutics is that it's anti-abuse properties are intrinsic to its molecular structure and not a result of a formulation. The results from our human abuse liability study of NKTR-181 were extremely compelling. Subjects reported substantially lower drug liking scores and significantly reduced feeling high scores with NKTR-181 as compared to Oxycodone with P values of less than 0.0001. In the critical period shortly after drug administration subjects who received Oxycodone -- receiving Oxycodone reported high scores for both drug liking and feeling high within the first 15 minutes, which is exactly what recreational drug abusers seek in opioids. In addition, NKTR-181 was administered as an oral liquid of drug API in water without formulation confirming that its properties are inherent to its molecular design and not a result of a formulation technique. The HAL study also evaluates subject’s sleepiness and all doses of NKTR-181 scored statistically lower on sleepiness when compared to Oxycodone. Another important point that our key opinion leaders have agreed on are that additional significant differentiating features of NKTR-181 which include low rates of sleepiness and dizziness. This means that NKTR-181 could provide effective pain relief without interfering with the patient’s daily activities and without providing the mental fog that is common with other opioids. As you know NKTR-181 has fast track status from the FDA. We already have a meeting request granted with the FDA to get their initial feedback on trial designs. Our goal is to plan a Phase 2 program that includes an early interim evaluation that will allow us to confirm we have the proper trial design to evaluate NKTR-181 before we commit to the full cost of a Phase 2 program. Our current plans are to dose the first patients in our Phase 2 program sometime in the middle of 2014. We continue to be excited about NKTR-181. We have a drug that works well as an analgesic has a unique safety profile and is not liked by recreational drug users. The Phase II program for NKTR-181 gave a significant insight into the drug and how it works. While we’re disappointed in missing the primary endpoint in the Phase 2 efficacy study it was very informative and will allow us to design the optimal pivotal study for this drug. If we are successful in development of this new medicine we’re confident that NKTR-181 could become the therapy of choice in the $12 billion opioid market for chronic pain. Our second analgesic molecule NKTR-192 is currently in a multiple ascending dose Phase I study in healthy volunteers. We expect to have results from this study by early 2014. NKTR-192 has a distinct molecular structure from NKTR-181 that gives it a shorter half life and a more rapid onset of action making it ideal for the treatment of acute pain conditions. Like NKTR-181, NKTR-192 is also designed to have reduced abuse liability and fewer CNS-mediated side effects. NKTR-192 accomplishes this in two ways; first, NKTR-192 has a slow rate of entry in the brain as compared to rapid acting opioids. Second, NKTR-192 works on a molecular level as a biased partial muagonist. This would make NKTR-192 the first biased partial muagonist that is orally available short acting and can be used in the treatment of acute pain. The development pathway for NKTR-192 will be significantly different than NKTR-181 since it is being developed for acute pain conditions. The market for acute pain accounts for over 100 million prescriptions annually and represents another significant opportunity to address a huge public health need. With both NKTR-181 and NKTR-192 in our pipeline NKTR has the potential to address both the chronic and acute pain markets with products that could truly be transformational. Our next pain candidate poised to enter the clinic is NKTR-171. With NKTR-181 and NKTR-192 our goal was to slow the rate of drug entry into the brain while maintaining centrally focused analgesia. With NKTR-171 we have engineered a molecule to address pain in the periphery where neuropathic pain originates. NKTR-171 is a new sodium channel blocker created using Nektar’s advanced polymer conjugate technology to selectively restrict the molecule’s actions to the periphery and thereby avoid the severe sedation side effects that makes standard sodium channel blockers impractical for most patients. We plan to file the IND for NKTR-171 by the end of the year. We plan and we expect Phase 1 to begin in early 2014. Finally, I want to keep you updated on the timing of our partnered programs of Bayer. Our partner Bayer has two ongoing Phase 3 clinical programs that carry significant economics for Nektar. The first Amikacin Inhale, to treat Gram-negative pneumonias and the second is Cipro Inhal to treat non-cystic fibrosis bronchiectasis or NCFB. Prior estimates of both of these programs should have Phase III data in 2015. We estimate that the market potential for Amikacin Inhale as over $700 million annually and as a reminder our economics for Amikacin Inhale are significant with a 30% flat royalty in the U.S. and an average 22% royalty in ex-U.S. countries. We estimate the market potential for Cipro Inhal is over $700 million annually as well. Under our agreement Bayer is responsible for all development cost associated with Cipro Inhale and we are entitled to escalating royalties with an average royalty of approximately 10%. With that now I would like to turn the call over to John for a discussion of our financials. John?

[John Nicholson:]

Thank you, Howard and good afternoon everyone. Today we’ll focus my discussion on our revised financial guidance for 2013. As Howard said at the beginning the call we are now increasing our end of the year cash projection for 2013. We expect to end this year with at least $250 million in cash and investments. This is an increase of $50 million from our previously expected year-end balance of $200 million. As a result we now expect our 2013 cash used in operations, including capital expenditures will be approximately $50 million as compared to our prior guidance of $95 million to $105 million. The increase in our year-end cash projection is primarily due to the following items. First we now expect manufacturing proceeds to be $50 million higher this year than we’ve previously forecasted due to increased sales of proprietary PEG reagents to one of our collaboration partners. Second we removed approximately $18 million in Nektar-181 Phase III spend from a cash guidance this year as the study is now expected to start in the middle of 2014. Third, capital expenditure will total approximately $5 million this year which is $5 million less than our prior guidance. And finally our expenses for Nektar-102 BEACON study in 2013 are lower than projected because of completion of enrollment five months ahead of schedule. As a reminder our year-end cash guidance includes the $70 million milestone payment from AstraZeneca for the acceptance of the U.S. NDA file for naloxegol which is expected this month. Our revenue is forecasted to be between $135 million and $140 million. As I just stated we expect to receive the $70 million cash milestone payment for naloxegol from AstraZeneca in November of this year. But we plan to recognize this milestone as revenue in 2014. Our 2013 revenue guidance also includes $17 of non-cash revenue from royalty revenue from UCB’s Cimzia and Roche’s MIRCERA. We are reducing our R&D expense guidance for 2013 as well. Our new guidance is between $175 million and $180 million as compared to our prior guidance of between $200 million and $220 million. The new guidance still includes $17 million of non-cash items such as stock-based compensation and depreciation expense. The decrease in our R&D expense is due primarily to the shift of the Phase 3 start for Nektar-181 until the middle of 2014 and lower recognized expenses for the Phase 3 study for Nektar 102. 2013 G&A is still anticipated to be between $42 million to $44 million which includes $10 million of non-cash items. Our interest expense will be approximately $19 million for 2013 with additional $22 million of non-cash interest expense related to the UCB’s Cimzia and Roche’s MIRCERA royalty monetization agreement. Let me reiterate that with the revised guidance I have just provided for 2013 we now plan to end the year with at least $250 million in cash and investments. With that I will open the call for questions.

[Operator:]

(Operator Instructions). Our first question comes from Simos Simeonidis with Cowen and Company. Your line is open.

[Simos Simeonidis:]

Hi, thank you for taking the questions. Howard you spoke about being able to dose first patient in the Phase III program of 181 sometimes in the middle of the year or next year. I believe you also mentioned you have not spoken with FDA yet you requested a meeting. So you have not had any discussions with them yet. You, I assume have spoken with your KOL advisors and internally. Can you give us any color on your thoughts on what the Phase III trial may look like? Any new ideas on how you may go about the issue with the Placebo response you saw in the Phase 2 trial?

[Howard W. Robin:]

Look it's a good question. First of all we have an accepted meeting request by the FDA. So we are just scheduling a date for that. They’ve already agreed to meet with us on this under fast track status they are certainly interested in how this program moves forward. We have had multiple meetings with our KOLs over the last few weeks as you can imagine. And one thing that as I said on the call one thing that everybody agrees with is this is a very effective analgesic. And the issue is how do we design a trial for a drug like this that allows a separation from drug and placebo and I think we are working on that and I think we have some ideas. I am not ready to share them yet but I think the KOLs and Nektar do have a number of ideas on how we could design a trial to clearly show that difference. One of the things that I think is very important to point out is we don’t want to commit the money to a full blown Phase 3 program without having some understanding of whether we are on the right track. I mean Nektar-181 is a unique opioid it's a new opioid no one has seen anything like this before. It has no likeability. It has very few side effects. Patients don’t really know they are taking an opioid and there is a number of issues that you have to work through in your Phase 3 programs when you have a drug that doesn’t hint that it's an opioid relative to drug and placebo. And of course it might mean a parallel arm placebo drug design, it might have to do with how we control background medications. There is a lot of things we can evaluate. And whatever we do because this is a unique molecule and a tremendous opportunity, the Phase 3 design is going to have some type of run-in process so that we’ll get a look to see that we are getting positive results before we commit to the extensive Phase 3 program. And I can’t tell you what that's going to look like, I can’t tell you when we’ll have that answer right. I’d like to have an answer like that six, nine, ten months after we start. But clearly we are going to have, we are going to design this trial but have a clear look after it started and make a judgment whether we are on the right track or not before we commit to a two and half year program. So as we work through that with our advisors as we work through that with the FDA, I think early next year I would like to roll that trial design out and share with everybody and make sure everybody understands what we are doing. But the key is, like I said in the call previously we are -- none of us are happy that we missed that primary end point in Phase 2, but remember it was a Phase 2 its goal was to inform, its goal was to learn from it, it's not a pivotal trial. And now I think we’ve learned a lot about how this drug behaves and what it can do. It is clearly analgesic. It is clearly causes no liking. And it's clearly a novel opioid molecule and now we have to come up with the best way of developing it. But I think we have a tremendous asset and we still remain extremely excited about it and we’ll do it. We will do the development in a very cost effective rational way so that we are not gambling. I think that’s the best way I can describe it.

[Simos Simeonidis:]

Okay great. And you know we are almost four months from the tentatively scheduled Adcom for I guess and naloxegol more may be part of the discussion, and I know probably AstraZeneca is going to be the one that involved in this if naloxegol is part of the discussion. But can you give us any thoughts on what you guys are doing in preparation and what your thoughts are if you are part of this discussion?

[Howard W. Robin:]

Yeah well as I said the FDA has not accepted officially the naloxegol NDA yet. We are expecting that this month and prior to that they are not going to discuss whether we are involved or not. Hopefully of course they are looking at all the programs that involve drug candidates to treat OIC. That said certainly if Naloxegol is a part of that process both AstraZeneca and Nektar will be heavily involved in that Adcom I can assure you and we are preparing for it. And off-course Nektar together with AstraZeneca are both preparing for the Adcom. We are bringing in experts to give us their opinions to guide us through the process and I think there is a tremendous amount of effort being put in place by AstraZeneca and Nektar to prepare for that Adcom should we be invited to with them.

[Simos Simeonidis:]

Okay, great. Thank you very much for taking the questions.

[Operator:]

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

[Steve Byrne:]

Hi, was interested in your level of interest in either having a separate arm or maybe even a smaller study in 181 to have an active comparator and to go head to head and on these issues that could differentiate 181 such as sleepiness, respiratory depression, dizziness what’s your level of interest in that?

[Howard W. Robin:]

Well look our level of interest in that is very high of course because I think one of the things we talk about with NKTR-181 is that it distinguishes itself in its profile in that it doesn’t cause drug liking and that’s a very important component but we’ve also observed is less sedation, drowsiness, respiratory depression those are tremendously critical components of therapy of a chronic opioid, therapy of chronic analgesic. So we are looking at that as a possibility in the design, whether we have an active control, whether we have a third arm that does that. I can’t comment on how this whole trial turns out yet. It probably will be another three, four months before we have this thing gelled. But I can tell you that it will be critical for us to show that we cause significantly less sedation. Now how we measure that, what we look at I can’t comment on that yet. But the fact that Nektar-181 has been observed many time now to cause significantly less sedation it was engineered to cause less sedation. I think that’s another tremendous advantage of the drug. And we do have to look at that there is lots of trial designs for that.

[Steve Byrne:]

And on Amikacin Inhale the way it’s delivered right into the lung can you comment on its cidal activity versus some of the multi drug resistant pathogens out there?

[Howard W. Robin:]

I will let Rob Medve answer that question.

[Robert Medve:]

Steve this is Rob. Yes, Amikacin is very effective bacteria cidal agent. One of the keys to delivering the drug this way is a very small and controlled particle size which allows delivery of effective bacteria cidal agent into the smaller airway and alveoli where the actual bacteria resides or increases the concentration of the drug with the infection as opposed to the challenges of systemic administration where you are having the toxic effects of Amikacin throughout the body and not reaching nearly quite in the concentrations in the lung. So we’re very confident in the outcome of that delivery method.

[Steve Byrne:]

And Rob can you just briefly explain what a biased partial muagonist is?

[Robert Medve:]

Sure, a great question Steve. It’s a -- a partial agonist -- I will start with, break it down in two pieces, a partial muagonist is one that binds the mureceptor but doesn’t cause full agonist activity. A common example of a drug like that would be buprenorphine, which is a partial agonist and of course that’s a very popular drug these days although not orally not available it's important to note. As far as the biased piece of that, once a drug binds to the receptor there is multiple steps from an opioid receptor that occur downstream. A biased ligand is one that doesn’t activate all of those receptors, all of those downstream mechanism so it binds the receptor but it doesn’t activate all of the downstream mechanisms. So it is a very desirable profile to have in a drug. It allows us see things like a ceiling effects on some of the negative side effects like respiratory depression including drug liking. And so what we observed in our pre-clinical data was exactly that ceiling effect on those negative side effects but no apparent limitation to analgesic efficiency. We’re very excited about that profile.

[Howard W. Robin:]

And it was critical to design a drug like that because one of the ways we’re able to get less likability and at the same time get an onset of action that is sufficient to treat acute pain required a combination of a moderate rate of entry into the CNS to get a very, very slow rate of entry into CNS you wouldn’t be working very well in acute pain drug. So more of a moderate rate of entry into the CNS coupled with this biased partial agonist qualities is what gives us a drug that is not liked, that has side effects and at the same time can treat acute pains. So I think it’s rather an important breakthrough in the field of opioid therapeutics.

[Steve Byrne:]

Thank you.

[Operator:]

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

[Robert Hazlett:]

Thank you for taking the question. My question is regard to the strategic nature of Nektar-102 as you consider that molecule more broadly what is the urgency to potentially partner that molecule versus keep it in-house and develop it more broadly. How do you think about NKTR-102 as you are thinking about the strategic implications of the company more broadly?

[Howard W. Robin:]

Well look it’s a very good question and we think about it on a routine basis because obviously for a company the size of Nektar to have a portfolio, an extensive portfolio on pain and also a portfolio in the development of numerous drugs in oncology is perhaps a bit much to chew on. I can say this, there is a number of companies that continue to be interested in NKTR-102. As more and more information is gained about that molecule I think it’s becoming more and more apparent that it has lots of activity and can do things that a standard topoisomerase-1 inhibitor cannot do. That said, we have committed to take it all the way through development and I am committed to take it to the market but that doesn’t mean that I wouldn’t consider partnering opportunities if they make sense and I think the place they do make sense and I believe this is where you are alluding to is if you have a drug like this that’s got potential in metastatic breast cancer, potential in Avastin resistant gliomas, potentially non-small cell lung cancer and small cell lung cancer and without a doubt gastric cancer and a number of other oncology applications as well it takes a lot of resource to do all those trials and find the optimal setting for this drug. So we certainly do talk to companies on a regular basis. As I said there is interest in this molecule. At this point we’re moving it forward as quickly as we can and we haven’t made any decisions yet as to whether this drug is partnered or whether we keep it for ourselves but I can tell you it is a very interesting molecule.

[Robert Hazlett:]

Okay, thanks for the color.

[Operator:]

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

[Howard W. Robin:]

Well thank you everyone for joining us this afternoon. I want to also thank all of our employees for their tremendous efforts in building such an impressive portfolio and I want to thank our shareholders for their continued support. We expect to see many of you at the Brean Murray conference and the JPMorgan conferences. So thank you very much for attending. Good afternoon.

[Operator:]

Thank you ladies and gentlemen that does conclude today’s conference. You may all disconnect and have a wonderful day.