UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of outstanding shares of the registrant’s Common Stock, $0.0001 par value, was
NEKTAR THERAPEUTICS
INDEX
2
Forward-Looking Statements
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report on Form 10-Q, including any projections of market size, earnings, revenue, milestone payments, royalties, sales or other financial items, any statements of the plans and objectives of management for future operations (including, but not limited to, preclinical development, clinical trials and manufacturing), any statements related to our financial condition and future working capital needs, any statements related to our strategic reorganization and cost restructuring plans, any statements regarding potential future financing alternatives, any statements concerning proposed drug candidates and our future research and development plans, any statements regarding the timing for the start or end of clinical trials or submission of regulatory approval filings, any statements regarding future economic conditions or performance, any statements regarding the initiation, formation, or success of any collaboration arrangements, commercialization activities and product sales levels and future payments that may come due to us under these arrangements, any statements regarding our plans and objectives to initiate or continue clinical trials, any statements related to potential, anticipated, or ongoing litigation and any statements of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “believe,” “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, such expectations or any of the forward-looking statements may prove to be incorrect and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including, but not limited to, the risk factors set forth in Part I, Item 1A “Risk Factors” below and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof and we do not intend to update any forward-looking statements except as required by law or applicable regulations. Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, the “Company,” “Nektar,” “we,” “us,” and “our” refer to Nektar Therapeutics, a Delaware corporation, and, where appropriate, its subsidiaries.
Trademarks
The Nektar brand and product names, including but not limited to Nektar®, contained in this document are trademarks and registered trademarks of Nektar Therapeutics in the United States (U.S.) and certain other countries. This document also contains references to trademarks and service marks of other companies that are the property of their respective owners.
3
Summary of Risks
We are providing the following cautionary discussion of risk factors, uncertainties and assumptions that we believe are relevant to our business. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results and our forward-looking statements. We note these factors for investors as permitted by Section 21E of the Exchange Act and Section 27A of the Securities Act. Investors in Nektar Therapeutics should carefully consider the risks described below before making an investment decision. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider this section to be a complete discussion of all potential risks or uncertainties that may substantially impact our business. Moreover, we operate in a competitive and rapidly changing environment. New factors emerge from time to time and it is not possible to predict the impact of all of these factors on our business, financial condition or results of operations.
Risks to our business are more fully described below in Item IA in this Form 10-Q, which risks include, among others:
4
In addition to the above-mentioned risks, our business is subject to a number of additional risks faced by businesses generally.
5
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements—Unaudited:
NEKTAR THERAPEUTICS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
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March 31, 2024 |
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December 31, 2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable |
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Inventory, net |
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Other current assets |
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Total current assets |
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Long-term investments |
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Operating lease liabilities, current portion |
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Total current liabilities |
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Operating lease liabilities, less current portion |
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Liabilities related to the sales of future royalties, net |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Capital in excess of par value |
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Treasury stock, at cost; |
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( |
) |
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Accumulated other comprehensive income (loss) |
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( |
) |
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Accumulated deficit |
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( |
) |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
NEKTAR THERAPEUTICS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Revenue: |
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Product sales |
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$ |
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$ |
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Non-cash royalty revenue related to the sales of future royalties |
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License, collaboration and other revenue |
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Total revenue |
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Operating costs and expenses: |
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Cost of goods sold |
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Research and development |
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General and administrative |
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Restructuring, impairment, and costs of terminated program |
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Impairment of goodwill |
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Total operating costs and expenses |
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Loss from operations |
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( |
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( |
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Non-operating income (expense): |
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Non-cash interest expense on liabilities related to the sales of future royalties |
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( |
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( |
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Interest income |
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Other income (expense), net |
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( |
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( |
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Total non-operating income (expense), net |
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( |
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( |
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Loss before provision for income taxes |
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( |
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( |
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Benefit for income taxes |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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Basic and diluted net loss per share |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding used in computing basic and diluted net loss per share |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
NEKTAR THERAPEUTICS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Net loss |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss): |
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Net unrealized gain (loss) on available-for-sale securities |
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( |
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Net foreign currency translation gain (loss) |
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( |
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Other comprehensive income (loss) |
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( |
) |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
NEKTAR THERAPEUTICS
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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Common Stock |
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Treasury Stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital in |
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Accumulated |
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Accumulated |
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Total |
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Balance at December 31, 2022 |
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$ |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Shares issued under equity compensation plans |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Comprehensive income (loss) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Common Stock |
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Treasury Stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital in |
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Accumulated |
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Accumulated |
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Total |
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Balance at December 31, 2023 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Shares issued under equity compensation plans |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Repurchase of common stock from Bristol-Myers Squibb |
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( |
) |
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— |
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( |
) |
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— |
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— |
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— |
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( |
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Issuance of prefunded warrant |
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— |
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— |
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— |
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— |
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— |
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— |
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Comprehensive income (loss) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
Balance at March 31, 2024 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
NEKTAR THERAPEUTICS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three Months Ended |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Non-cash royalty revenue related to the sales of future royalties |
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( |
) |
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( |
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Non-cash interest expense on liabilities related to the sales of future royalties |
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Stock-based compensation |
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Depreciation and amortization |
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Deferred income tax expense |
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( |
) |
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( |
) |
Impairment of right-of-use assets and property, plant and equipment |
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Impairment of goodwill |
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Provision for net realizable value of inventory |
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Amortization of premiums (discounts), net and other non-cash transactions |
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( |
) |
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( |
) |
Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Inventory |
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( |
) |
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( |
) |
Operating leases, net |
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( |
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( |
) |
Other assets |
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( |
) |
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Accounts payable |
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( |
) |
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( |
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Accrued expenses |
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Net cash used in operating activities |
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( |
) |
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( |
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Cash flows from investing activities: |
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Purchases of investments |
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( |
) |
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( |
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Maturities of investments |
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Purchases of property, plant and equipment |
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( |
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( |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Proceeds from shares issued under equity compensation plans |
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Proceeds from issuance of pre-funded warrant |
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Proceeds from sale of future royalties |
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Repurchase of common stock from Bristol-Myers Squibb |
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( |
) |
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Net cash provided by financing activities |
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Effect of foreign exchange rates on cash and cash equivalents |
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( |
) |
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Net increase (decrease) in cash and cash equivalents |
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( |
) |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
NEKTAR THERAPEUTICS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Note 1 — Organization and Summary of Significant Accounting Policies
Organization
We are a clinical stage, research-based drug discovery biopharmaceutical company headquartered in San Francisco, California and incorporated in Delaware, focused on discovering and developing innovative medicines in the field of immunotherapy. Within this growing field, we direct our efforts toward creating new immunomodulatory agents that selectively induce, amplify, attenuate or prevent immune responses in order to achieve desired therapeutic outcomes. Our pipeline of clinical-stage and preclinical-stage immunomodulatory agents targets the treatment of autoimmune diseases (e.g. rezpegaldesleukin and NKTR-0165, respectively) and cancer (e.g. NKTR-255).
Our research and development activities have required significant ongoing investment to date and are expected to continue to require significant investment. As a result, we expect to continue to incur substantial losses and negative cash flows from operations in the future. We have financed our operations primarily through cash generated from licensing, collaboration and manufacturing agreements and financing transactions. As of March 31, 2024, we had approximately $
Financing Transactions
During the three months ended March 31, 2024, we entered into the following transactions:
Restructuring Plans
In April 2022, we announced the termination of the bempegaldesleukin program and a new strategic reorganization and cost restructuring plan (together, the 2022 Restructuring Plan), pursuant to which we completed an approximate
In April 2023, we announced Eli Lilly and Company's (Lilly) decision to terminate our license agreement (the Lilly Agreement) for the development of rezpegaldesleukin, as well as a new strategic reprioritization and cost restructuring plan (the 2023 Restructuring Plan). Under the 2023 Restructuring Plan, we reduced our San Francisco-based workforce by approximately
11
We have regained full rights to rezpegaldesleukin from Lilly, and we initiated a Phase 2b study of rezpegaldesleukin in patients with moderate-to-severe atopic dermatitis in October 2023 and a Phase 2b study of rezpegaldesleukin in patients with severe-to-very severe alopecia areata in March 2024. We will also explore other auto-immune indications for the development of rezpegaldesleukin.
We have incurred significant costs resulting from the 2022 and 2023 Restructuring Plans. See Note 7 for additional information on the effect on our Condensed Consolidated Financial Statements.
Basis of Presentation and Principles of Consolidation
Our Condensed Consolidated Financial Statements include the financial position, results of operations and cash flows of Nektar Therapeutics and our wholly-owned subsidiaries. We have eliminated all intercompany accounts and transactions in consolidation.
We prepared our Condensed Consolidated Financial Statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, we may condense or omit certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles (GAAP) for annual periods. In the opinion of management, these financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results.
Our Condensed Consolidated Financial Statements are denominated in U.S. dollars. Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. dollar will affect the translation of each foreign subsidiary’s financial results into U.S. dollars for purposes of reporting our consolidated financial results. We include translation gains and losses in accumulated other comprehensive loss in the stockholders’ equity section of our Condensed Consolidated Balance Sheets.
Our comprehensive loss consists of our net loss plus our foreign currency translation gains and losses and unrealized gains and losses on available-for-sale securities. There were no significant reclassifications out of accumulated other comprehensive income (loss) to the statements of operations during the three months ended March 31, 2024 and 2023.
The accompanying Condensed Consolidated Financial Statements are unaudited. The Condensed Consolidated Balance Sheet data as of December 31, 2023 was derived from the audited consolidated financial statements which are included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 5, 2024. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and the accompanying notes to those financial statements.
Revenue, expenses, assets, and liabilities can vary during each quarter of the year. The results and trends in these interim Condensed Consolidated Financial Statements are not necessarily indicative of the results to be expected for the full year or any other period.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Accounting estimates and assumptions are inherently uncertain.
Actual results could differ materially from those estimates and assumptions. As appropriate, we assess estimates each period, update them to reflect current information, and generally reflect any changes in estimates in the period first identified.
Significant Concentrations
Our customers are primarily pharmaceutical companies that are located in the U.S. and Europe and with whom we have multi-year arrangements. Our accounts receivable balance contains billed and unbilled trade receivables from product sales, milestones (to the extent that they have been achieved and are due from the counterparty), and other contingent payments, as well as reimbursable costs from collaborative research and development agreements. We generally do not require collateral from our
12
customers. We perform a regular review of our customers’ credit risk and payment histories, including payments made after period end. Historically, we have
We are dependent on our suppliers and contract manufacturers to provide raw materials and drugs of appropriate quality and reliability and to meet applicable contract and regulatory requirements. In certain cases, we rely on single sources of supply of one or more critical materials. Consequently, in the event that supplies are delayed or interrupted for any reason, our ability to develop and produce our drug candidates or our ability to meet our supply obligations could be significantly impaired, which could have a material adverse effect on our business, financial condition and results of operations.
For our available-for-sale securities, we have significant concentrations of issuers in the banking and financial services industries. While our investment policy requires that we only invest in highly-rated securities and limit our exposure to any single issuer, various factors may materially affect the financial condition of issuers. Additionally, pursuant to our investment policy, we may sell securities before maturity if the issuer’s credit rating has been downgraded below our minimum credit rating requirements, which may result in a loss on the sale. Accordingly, if various factors result in downgrades below our minimum credit rating requirements and if we decide to sell these securities, we may experience losses on such sales.
Treasury Stock
We record treasury stock activities under the cost method. Treasury stock is included in authorized and issued shares but excluded from outstanding shares. The re-issuance of treasury stock is accounted for on a first in, first-out basis and any differences between the cost of treasury stock and the re-issuance proceeds are charged or credited to additional paid-in capital.
Restructuring
We recognize restructuring charges related to reorganization plans that have been committed to by management when liabilities have been incurred. In connection with these activities, we record restructuring charges at fair value for:
For one-time employee terminations benefits, we recognize the liability in full on the communication date when future services are not required or amortize the liability ratably over the service period, if required. The fair value of termination benefits reflects our estimates of expected utilization of certain Company-funded post-employment benefits.
See Note 7 for additional information on the severance expense that we recognized for employees terminated in connection with our reductions-in-force.
Impairment of Goodwill
Goodwill is assessed for impairment on an annual basis and whenever events and circumstances indicate that it may be impaired. Factors that may indicate potential impairment and trigger an impairment test include, but are not limited to, current economic, market and geopolitical conditions, including a significant, sustained decline in our stock price and market
13
capitalization compared to the net book value; an adverse change in legal factors, business climate or operational performance of the business; or significant changes in the ability of the reporting unit to generate positive cash flows for our strategic business objectives. If the carrying value of the reporting unit, including goodwill, exceeds the reporting unit’s fair value, we will recognize a goodwill impairment loss, and we will write down goodwill such that the carrying value of the reporting unit equals its fair value, provided that we cannot reduce goodwill below zero.
See Note 8 for additional information regarding the impairment charges we recorded during the three months ended March 31, 2023 in connection with our goodwill.
Long-Lived Asset Impairment
We assess the impairment of long-lived assets whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. In the case of property, plant and equipment and right-of-use assets for our leases, we determine whether there has been an impairment by comparing the carrying value of the asset to the anticipated undiscounted net cash flows associated with the asset. If such cash flows are less than the carrying value, we write down the asset to its fair value, which may be measured as anticipated net cash flows associated with the asset, discounted at a rate that we believe a market participant would utilize to reflect the risks associated with the cash flows, such as credit risk.
See Note 7 for additional information regarding the impairment charges we recorded in connection with our leased facilities and certain property and equipment.
Net Loss per Share
For all periods presented in the Condensed Consolidated Statements of Operations, the net loss available to common stockholders is equal to the reported net loss. We calculate basic net loss per share based on the weighted-average number of common shares outstanding, including the pre-funded warrant, during the periods presented. Shares of common stock into which the pre-funded warrant may be exercised are considered outstanding for the purposes of computing basic net loss per share because the shares may be issued for little or no consideration, are fully vested and are exercisable after the original issuance date. For the three months ended March 31, 2024 and 2023, basic and diluted net loss per share are the same due to our net losses and the requirement to exclude potentially dilutive securities which would have an antidilutive effect on net loss per share.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Potentially dilutive securities |
|
|
|
|
|
|
||
Note 2 — Cash and Investments in Marketable Securities
Cash and investments in marketable securities, including cash equivalents, are as follows (in thousands):
|
|
Estimated Fair Value at |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Short-term investments |
|
|
|
|
|
|
||
Long-term investments |
|
|
|
|
|
|
||
Total cash and investments in marketable securities |
|
$ |
|
|
$ |
|
||
14
Our portfolio of cash and investments in marketable securities includes (in thousands):
|
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||
|
|
Fair Value Hierarchy Level |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Fair Value |
|
|||||
Corporate notes and bonds |
|
2 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Corporate commercial paper |
|
2 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Obligations of U.S. government agencies |
|
2 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Available-for-sale investments |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Money market funds |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Certificates of deposit |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total cash and investments in marketable securities |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|||||||||
For the three months ended March 31, 2024 and 2023, there were no transfers between Level 1 and Level 2 of the fair value hierarchy. At December 31, 2023, our gross unrealized gains and losses were insignificant.
Note 3 — Condensed Consolidated Financial Statement Details
Inventory
Inventory consists of the following (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventory, net |
|
$ |
|
|
$ |
|
||
We manufacture finished goods inventory upon receipt of firm purchase orders, and we may manufacture certain intermediate work-in-process materials and purchase raw materials based on purchase forecasts from our partners. We include direct materials, direct labor, and manufacturing overhead in inventory and determine cost on a first-in, first-out basis for raw materials and on a specific identification basis for work-in-process and finished goods.
As of March 31, 2024 and December 31, 2023, we recorded a provision of $
15
Other Current Assets
Other current assets consist of the following (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Prepaid research and development expenses |
|
$ |
|
|
$ |
|
||
Non-trade receivables and other |
|
|
|
|
|
|
||
Other prepaid expenses |
|
|
|
|
|
|
||
Total other current assets |
|
$ |
|
|
$ |
|
||
Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Accrued compensation |
|
$ |
|
|
$ |
|
||
Accrued clinical trial expenses |
|
|
|
|
|
|
||
Liability to collaboration partners |
|
|
|
|
|
|
||
Accrued contract termination costs |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Total accrued expenses |
|
$ |
|
|
$ |
|
||
Liabilities Related to the Sales of Future Royalties
In 2012 and 2020, we sold to RPI Finance Trust (RPI) and HCR, respectively, our rights to receive royalties under our license and manufacturing agreements with certain pharmaceutical partners under the 2012 Purchase and Sale Agreement and the 2020 Purchase and Sale Agreement, respectively. We account for these transactions as debt and recognize non-cash royalty revenue and non-cash interest expense to amortize the proceeds over the lives of the respective arrangements. We periodically update our prospective non-cash interest rate based on our estimates of future royalties. As of March 31, 2024, our imputed interest rates for the arrangements with RPI and HCR were
The original 2020 Purchase and Sale Agreement was to expire -- and wherein the right to receive royalties would revert to us -- if HCR received aggregate royalties of $
The following is a reconciliation of the changes in our liabilities related to the sales of future royalties for the three months ended March 31, 2024 (in thousands):
|
|
Three Months Ended March 31, 2024 |
|
|||||||||
|
|
2012 Purchase and Sale Agreement |
|
|
2020 Purchase and Sale Agreement |
|
|
Total |
|
|||
Liabilities related to the sales of future royalties, net – beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Non-cash royalty revenue |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-cash interest expense |
|
|
|
|
|
|
|
|
|
|||
Amortization of transaction costs |
|
|
|
|
|
|
|
|
|
|||
Proceeds from the Amendment |
|
|
|
|
|
|
|
|
|
|||
Liabilities related to the sales of future royalties, net – ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|||
16
Note 4 — Commitments and Contingencies
Legal Matters
From time to time, we are involved in lawsuits, arbitrations, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. We make provisions for liabilities when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Such provisions are reviewed at each reporting date and adjusted to reflect the impact of settlement negotiations, judicial and administrative rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. If any unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse impact on the results of our operations for that period and on our cash flows and liquidity.
On August 7, 2023, we filed a complaint in the United States District Court for the Northern District of California (the Court) against Lilly alleging, among other claims, breach of contract and breach of implied covenant of good faith and fair dealing (the Complaint), in connection with our collaboration with Lilly. Following the denial of its motion to dismiss the Complaint entirely, Lilly filed an answer that included counterclaims against us alleging breach of specified confidentiality provisions and defamation. The case is proceeding.
We have recorded
Indemnifications in Connection with Commercial Agreements
As part of our collaboration agreements with our partners related to the license, development, manufacture and supply of drugs and PEGylation materials based on our proprietary technologies and drug candidates, we generally agree to defend, indemnify and hold harmless our partners from and against third party liabilities arising out of the agreement, including product liability (with respect to our activities) and infringement of intellectual property to the extent the intellectual property is developed by us and licensed to our partners. The term of these indemnification obligations is generally perpetual commencing after execution of the agreement. There is generally no limitation on the potential amount of future payments we could be required to make under these indemnification obligations.
From time to time, we enter into other strategic agreements such as divestitures and financing transactions pursuant to which we are required to make representations and warranties and undertake to perform or comply with certain covenants. For example, we made certain intellectual property representations in connection with our RPI and HCR transactions, however, the time limitation we have to indemnify RPI with respect to any breach of these intellectual property-based representations and warranties has passed. In the event it is determined that we breached certain of the representations and warranties or covenants made by us in any such agreements or certain express indemnification provisions are applicable, we could incur substantial indemnification liabilities depending on the timing, nature, and amount of any such claims.
To date, we have not incurred any costs to defend lawsuits or settle claims related to these indemnification obligations, nor any breaches of representations or warranties or covenants. Because the aggregate amount of any potential indemnification obligation is not a stated amount, we cannot reasonably estimate the overall maximum amount of any such obligations.
Note 5 — Pre-Funded Warrant
In March 2024, we issued a pre-funded warrant to purchase an aggregate of
17
excess of
We classified the pre-funded warrant as a component of permanent equity in our Condensed Consolidated Balance Sheets as it is a freestanding financial instrument that was immediately exercisable, does not embody an obligation for the Company to repurchase its own shares and permits the holder to receive a fixed number of shares of common stock upon exercise. All of the shares underlying the pre-funded warrant have been included in the weighted-average number of shares of common stock used to calculate net loss per share attributable to common stockholders because the shares may be issued for little or no consideration, are fully vested and are exercisable after the original issuance date of the pre-funded warrant.
Note 6 — License and Collaboration Agreements
We have entered into various collaboration agreements including license agreements and collaborative research, development and commercialization agreements with various pharmaceutical and biotechnology companies. Under these collaboration arrangements, we are entitled to receive license fees, upfront payments, milestone and other contingent payments, royalties, sales milestone payments, and payments for the manufacture and supply of our proprietary PEGylation materials and/or reimbursement for research and development activities. We generally include our costs of performing these services in research and development expense, except for costs for product sales to our collaboration partners which we include in cost of goods sold. We analyze our agreements to determine whether we should account for the agreements within the scope of ASC 808 Collaborative Arrangements, and, if so, we analyze whether we should account for any elements under ASC 606 Revenue from Contracts with Customers.
Eli Lilly and Company (Lilly): Rezpegaldesleukin (previously referred to as NKTR-358)
On July 23, 2017, we entered into a worldwide license agreement (the Lilly Agreement) with Lilly to co-develop rezpegaldesleukin, a novel immunological drug candidate that we invented, pursuant to which we received an initial payment of $
On April 23, 2023, we received from Lilly a notice of at-will termination of the Lilly Agreement. We have regained full rights to rezpegaldesleukin from Lilly, and the Lilly Agreement subsequently terminated. Following the return of our rights to develop rezpegaldesleukin, we bear all costs of development. We initiated a Phase 2b study of rezpegaldesleukin in patients with moderate-to-severe atopic dermatitis in October 2023 and a Phase 2b study of rezpegaldesleukin in patients with severe-to-very severe alopecia areata in March 2024. We will also explore other auto-immune indications for the development of rezpegaldesleukin.
Bristol-Myers Squibb Company (BMS): Bempegaldesleukin, also referred to as NKTR-214
Effective April 3, 2018, we entered into a Strategic Collaboration Agreement (the BMS Collaboration Agreement) and a Share Purchase Agreement with BMS. Pursuant to the BMS Collaboration Agreement, we and BMS jointly developed bempegaldesleukin in combination with BMS’ Opdivo®. The parties shared the internal and external development costs for bempegaldesleukin in combination regimens based on each party’s relative ownership interest in the compounds included in the regimens.
Upon the effective date of the BMS Collaboration Agreement in April 2018, BMS paid us a non-refundable upfront cash payment of $
In April 2022, we announced that BMS and we decided to discontinue all development of bempegaldesleukin in combination with Opdivo®. On September 6, 2023, BMS and we terminated the BMS Collaboration Agreement, and pursuant to the surviving provisions of the BMS Collaboration Agreement, we and BMS continue our efforts to wind down the
18
bempegaldesleukin program, and the cost sharing provisions continue to remain in effect as the parties wind down the studies. On February 12, 2024, we repurchased the
We determined that the BMS Collaboration Agreement falls within the scope of ASC 808. Based on the cost sharing percentages described above, we recognize the net reimbursement to (from) BMS as an increase (decrease) to the applicable expense. As discussed in Note 7, beginning in the second quarter of 2022, we began reporting clinical trial, other third-party costs and employee costs for the wind down of the bempegaldesleukin program in restructuring, impairment and costs of terminated program. For the three months ended March 31, 2024, such amounts are immaterial and are included in research and development expense.
Other
We have other collaboration agreements that have resulted in commercialized products for our collaborations partners. Under these agreements, we may sell our proprietary PEGylation materials for use in these products, and we are entitled to receive royalties based on net sales of these products as well as sales milestones. As discussed in Note 3, we have sold our rights to receive royalties from these other collaboration agreements. Our non-cash royalty revenue, which totaled $
Additionally, we have a collaboration agreement for a product under development, under which we are entitled to up to a total of $
Note 7 — Restructuring, Impairment and Costs of Terminated Program, and Impairment of Goodwill
Restructuring, Impairment and Costs of Terminated Program
In connection with our 2022 and 2023 Restructuring Plans, we report the following costs in restructuring, impairment and costs of terminated program:
Restructuring, impairment and costs of terminated program includes the following (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program |
|
$ |
|
|
$ |
|
||
Severance and benefit expense |
|
|
|
|
|
|
||
Impairment of right-of-use assets and property, plant and equipment |
|
|
|
|
|
|
||
Contract termination and other restructuring costs |
|
|
|
|
|
|
||
Restructuring, impairment and other costs of terminated program |
|
$ |
|
|
$ |
|
||
Wind Down of the Bempegaldesleukin Program
In prior periods through March 31, 2022, we reported the clinical trial costs, other third-party costs and employee costs related to the bempegaldesleukin program primarily in research and development expense. Beginning in the second quarter of
19
2022, following our announcement to terminate the program, we began reporting clinical trial, other third-party costs and employee costs for the wind down of the bempegaldesleukin program in restructuring, impairment and costs of terminated program. For the three months ended March 31, 2024, such amounts are immaterial and are included in research and development expense.
Severance and Benefit Expense
Employees affected by the reduction in force under the 2022 and 2023 Restructuring Plans are entitled to receive severance payments and certain Company funded benefits. The restructuring charges are recorded at fair value.
For the 2022 Restructuring Plan, we recognized all expense in 2022 and paid the final liability of $
For the 2023 Restructuring Plan, we recognized a liability of $
We do not expect to recognize any additional severance and benefits expense for the 2022 and 2023 Restructuring Plans.
The following table provides details regarding the severance and benefit expense for the three months ended March 31, 2024 pursuant to the 2023 Restructuring Plan and a reconciliation of the severance and benefits liability for the three months ended March 31, 2023 pursuant to the 2022 and 2023 Restructuring Plans, which we report within accrued expenses on our Condensed Consolidated Balance Sheet (in thousands):
|
|
Three Months Ended March 31, 2023 |
|
|||||||||
|
|
2023 Restructuring Plan |
|
|
2022 Restructuring Plan |
|
|
Total |
|
|||
Liability balance as of December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Expense recognized during the period |
|
|
|
|
|
|
|
|
|
|||
Payments during the period |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Liability balance as of March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
Three Months Ended March 31, 2024 |
|
|||||||||
|
|
2023 Restructuring Plan |
|
|
2022 Restructuring Plan |
|
|
Total |
|
|||
Liability balance as of December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Expense recognized during the period |
|
|
|
|
|
|
|
|
|
|||
Payments during the period |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Liability balance as of March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Impairment of Long-Lived Assets
As a result of our 2022 and 2023 Restructuring Plans, we decided to seek a sublease for all of our leased spaces on Third Street and Mission Bay Blvd. South. Accordingly, we evaluate each space for impairment when management decides to sublease the respective space and at each reporting date thereafter, as facts and circumstances change. The significant assumptions in our impairment analysis relate to sublease income, including the length of time to enter into a sublease, sublease rental payments, free rent periods, tenant improvement allowances and broker commissions. When available, we use sublease negotiations or agreements, but in the absence of such information, we develop our own subjective estimates based on current real estate trends and market conditions. Accordingly, our estimates are subject to significant risk, and the terms of sublease agreements, if any, and the resulting amount and timing of sublease income, if ever realized, may be materially different than our estimates.
As part of our evaluation of each sublease space, we separately compare the estimated undiscounted sublease income, as described above, for each sublease to the net book value of the related long-term assets, which include right-of-use assets and
20
certain property, plant and equipment, primarily for leasehold improvements (collectively, sublease assets). If such sublease income exceeds the net book value of the sublease assets, we do not record an impairment charge. Otherwise, we record an impairment charge by reducing the net book value of the sublease assets to their estimated fair value, which we determined by discounting the estimated sublease income using the estimated borrowing rate of a market participant subtenant, which we estimated to be
During the three months ended March 31, 2023, we recorded an impairment charge for our remaining office and laboratory leased space in our Mission Bay Blvd. South facility which we decided to sublease under the 2023 Restructuring Plan. We also recorded impairment charges for certain excess laboratory equipment which we subsequently sold in 2023.
During the three months ended March 31, 2024, while we continue to seek subleases for our office lease space on Third. St. and our office and laboratory lease space on Mission Bay Blvd. South, we recorded
The following is a reconciliation of the impairment charges we recorded for the three months ended March 31, 2023, including the net book values of the sublease assets before the impairment and the fair values of the sublease assets (in thousands):
|
|
Three Months Ended March 31, 2023 |
|
|||||||||
|
|
Property, Plant and Equipment |
|
|
Operating Lease Right-of-Use Assets |
|
|
Total |
|
|||
Net book value of impaired facilities before write-off |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Less: Fair value of impaired facilities — Level 3 of Fair Value Hierarchy |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Impairment expense for facilities |
|
|
|
|
|
|
|
|
|
|||
Impairment of other property, plant and equipment |
|
|
|
|
|
|
|
|
|
|||
Total impairment of right-of-use assets and property, plant and equipment |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Contract Termination and Other Costs
We have incurred significant contract termination costs in connection with our 2022 Restructuring Plan. Because we adjust this liability at fair value at each reporting date, we continue to recognize expense as our estimates change until settlement.
The following are reconciliations of the contract termination and other costs for the 2022 Restructuring Plan for the three months ended March 31, 2024 and 2023. We report $
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Liability balances as of December 31, 2023 and December 31, 2022, respectively |
|
$ |
|
|
$ |
|
||
Expense recognized during the period |
|
|
|
|
|
|
||
Payments during the period |
|
|
( |
) |
|
|
( |
) |
Liability balances as of March 31, 2024 and March 31, 2023, respectively |
|
$ |
|
|
$ |
|
||
Note 8 — Impairment of Goodwill
During the three months ended March 31, 2023, our stock price and resulting market capitalization experienced a significant, sustained decline. Accordingly, we assessed our long-lived assets, including our property, plant and equipment, right-of-use assets and goodwill, for impairment.
As part of our long-lived asset impairment analysis, we first assessed which long-lived assets have identifiable cash flows that are largely independent of the cash flows of other groups of assets. We concluded that the sublease assets, for which we recognized significant impairment charges during 2022 and 2023, including for the three months ended March 31, 2023, are
21
independent of our entity-wide group. See Note 7 for additional information regarding impairment charges that we have recorded for our sublease assets, as well as certain property, plant and equipment that we subsequently sold.
We next evaluated our remaining long-lived assets for impairment and performed a recoverability test using the undiscounted cash flows approach. We did
Finally, we measured the fair value of our reporting unit utilizing both income and market approaches for our entity-wide asset impairment analysis. Based on this analysis, we wrote off all of our goodwill, resulting in a non-cash impairment charge of $
Note 9 — Stock-Based Compensation
We recognized total stock-based compensation expense in our Condensed Consolidated Statements of Operations as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cost of goods sold |
|
$ |
|
|
$ |
|
||
Research and development |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to those discussed in this section as well as factors described in Part II, Item 1A “Risk Factors.”
Overview
Strategic Direction of Our Business
Nektar Therapeutics is a clinical stage, research-based drug discovery biopharmaceutical company focused on discovering and developing innovative medicines in the field of immunotherapy. Within this growing field, we direct our efforts toward creating new immunomodulatory agents that selectively induce, amplify, attenuate or prevent immune responses in order to achieve desired therapeutic outcomes. We apply our deep understanding of immunology and unparalleled expertise in polymer chemistry to create innovative drug candidates and use our drug development expertise to advance these molecules through preclinical and clinical development. Our pipeline of clinical-stage and preclinical-stage immunomodulatory agents targets the treatment of autoimmune diseases (e.g. rezpegaldesleukin and NKTR-0165, respectively) and cancer (e.g. NKTR-255). We continue to make significant investments in building and advancing our pipeline of drug candidates as we believe that this is the best strategy to build long-term shareholder value.
In April of 2022 and 2023, we implemented the 2022 Restructuring Plan and 2023 Restructuring Plan, respectively, which both prioritized key research and development efforts that will be most impactful to the Company’s future. Central to both plans is the continuation of clinical development of both rezpegaldesleukin (previously referred to as NKTR-358) and NKTR-255 programs as well as our core research programs in immunology that include a separate tumor necrosis factor receptor 2 agonist antibody (NKTR-0165).
Autoimmune and inflammatory diseases cause the immune system to mistakenly attack and damage healthy cells in a person’s body. A failure of the body’s self-tolerance mechanisms enables the formation of the pathogenic T lymphocytes that conduct this attack. Our drug candidate rezpegaldesleukin is a potential first-in-class resolution therapeutic that may address this underlying immune system imbalance in people with autoimmune disorders and inflammatory diseases. It is designed to target the interleukin-2 (IL-2) receptor complex in the body in order to stimulate proliferation of powerful inhibitory immune cells known as regulatory T cells (Treg cells). By activating these cells, rezpegaldesleukin may act to bring the immune system back into balance. Rezpegaldesleukin is being developed as a once or twice monthly self-administered injection for a number of autoimmune disorders and inflammatory diseases.
On October 13, 2023, we announced final efficacy data from a Phase 1b study of rezpegaldesleukin in adult patients with atopic dermatitis (Phase 1b AD Study) at the European Academy of Dermatology and Venereolgy conference. The final efficacy data from the Phase 1b AD study showed that patients with moderate-to-severe atopic dermatitis that were treated with rezpegaldesluekin had dose-dependent improvements in the eczema area and severity index (EASI), validated investigated global assessment (vIGA), body surface area (BSA), and itch numeric rating scale (NRS) over twelve weeks of treatment compared to placebo, which were sustained post-treatment over an additional thirty-six weeks. Rezpegaldesleukin was well tolerated with no patients in the rezpegaldesleukin groups experiencing severe, serious, or fatal adverse events, and no anti-rezpegaldesleukin antibodies were detected.
In late October 2023, we initiated a Phase 2b clinical study of rezpegaldesleukin in patients with moderate-to-severe atopic dermatitis, and in Mach 2024, we initiated a Phase 2b clinical study in patients with severe-to-very severe alopecia areata. We also plan to explore other auto-immune indications for the development of rezpegaldesleukin. We developed rezpegaldesleukin and currently own full rights to this drug candidate. Although we previously entered into a license agreement with Eli Lilly and Company in 2017 (the Lilly Agreement) to develop and commercialize rezpegaldesleukin, on April 23, 2023, we received from Lilly a notice of at-will termination of the Lilly Agreement, and on April 27, 2023, we announced that we would be regaining full rights to rezpegaldesleukin.
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In oncology, we focus on developing medicines that target biological pathways that stimulate and sustain the body’s immune response in order to fight cancer. Our drug candidate NKTR-255 is an investigational biologic that is designed to target the IL-15 pathway in order to activate the body’s innate and adaptive immunity. Through optimal engagement of the IL-15 receptor complex, NKTR-255 is designed to enhance functional NK cell populations and formation of long-term immunological memory, which may lead to sustained and durable anti-tumor immune response. We are continuing select developmental studies of NKTR-255 in combination with cell therapies and checkpoint inhibitors while we evaluate additional strategic partnership pathways for the program.
We initiated a Nektar-sponsored Phase 2 study to evaluate NKTR-255 following Yescarta® or Breyanzi® CD19 CAR-T cell therapy in patients with large B-cell lymphoma, and the Fred Hutchinson Cancer Center is evaluating NKTR-255 following Breyanzi® CD19 CAR-T cell therapy in patients with relapsed/refractory large B-cell lymphoma as an investigator sponsored study. We are continuing our oncology clinical collaboration with Merck KGaA to evaluate the maintenance regimen of NKTR-255 in combination with avelumab, a PD-L1 inhibitor, in patients with locally advanced or metastatic urothelial carcinoma in the Phase II JAVELIN Bladder Medley study. We expect to receive topline data from this study in the second half of 2024. We entered into a new clinical study collaboration with AbelZeta Pharma, Inc. (AbelZeta) (formerly known as CBMG Holdings) to study NKTR-255 in combination with its C-TIL051, a tumor-infiltrating lymphocyte (TIL) therapy, in advanced non-small cell lung cancer (NSCLC) patients that are relapsed or refractory to anti-PD-1 therapy. Under the collaboration, we will contribute NKTR-255 and AbelZeta will add NKTR-255 to its ongoing AbelZeta-sponsored Phase 1 clinical trial. We also have an ongoing investigator sponsored study evaluating NKTR-255 in combination with IMFINZI (durvalumab) in patients with unresectable Stage 3 NSCLC who have received chemoradiation.
We continue to advance our most promising research drug candidates into preclinical development with the objective of advancing these early-stage research programs to human clinical studies over the next several years. Our lead research program, NKTR-0165, is our preclinical tumor necrosis factor (TNF) receptor type II (TNFR2) agonist asset, which we believe is a unique bivalent antibody that selectively stimulates TNFR2 receptor activity, without modulation of the TNFR1 signaling. TNFR2 signaling drives immunoregulatory function and can provide a direct protective effect for tissue cells. TNFR-2 is highly expressed on Tregs, neuronal cells and endothelial cells and has been shown to potentiate the suppressive effects and overall functional properties of Tregs. Our focus on TNFR2 antibody candidates that show selective Treg cell binding and signaling profiles that may be developed for treatment of autoimmune diseases, such as ulcerative colitis, multiple sclerosis and vitiligo. We are carrying out Investigational New Drug (IND) enabling studies for this program in 2024, after having exercised an option in December 2023 to gain an exclusive license to specified agonistic antibodies and other materials that were developed pursuant to a research collaboration and license option agreement we entered into with Biolojic Design, Ltd. in 2021.
We have historically derived substantially all of our revenue and significant amounts of research and development operating capital from our collaboration agreements. In addition to payments received under the Lilly Agreement, we have received upfront and milestone payments and cost-sharing reimbursements under a number of other previous collaboration agreements, and certain of our collaboration partners have borne substantial costs of developing our drug candidates. Following the return of our rights to develop rezpegaldesleukin from Lilly, unless we enter into a new collaboration agreement, we will bear all the costs of developing our pipeline drug candidates, other than our clinical collaborations for NKTR-255 described above.
Several of our historical collaboration agreements have resulted in approved drugs, for which we may continue to manufacture the polymer reagents used in the production of the drug products and may be entitled to royalties for net sales of these approved drugs. However, we have sold our rights to receive royalties under these arrangements, including:
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