10-Q
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

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: 0-24006

 

NEKTAR THERAPEUTICS

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

94-3134940

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

455 Mission Bay Boulevard South

San Francisco, California 94158

(Address of principal executive offices)

415-482-5300

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

NKTR

NASDAQ Capital Market

 

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. Yes x No ☐

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). Yes x No ☐

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

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

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 184,079,479 on August 2, 2024.

 

 

 


Table of Contents

 

NEKTAR THERAPEUTICS

INDEX

 

Summary of Risks

4

 

 

 

PART I: FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements — Unaudited:

6

 

Condensed Consolidated Balance Sheets — June 30, 2024 and December 31, 2023

6

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023

7

 

Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2024 and 2023

8

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023

9

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023

10

 

Notes to Condensed Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

 

 

 

PART II: OTHER INFORMATION

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

Item 3.

Defaults Upon Senior Securities

58

Item 4.

Mine Safety Disclosures

58

Item 5.

Other Information

58

Item 6.

Exhibits

59

Signatures

61

 

2


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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.

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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:

Risks Related to our Research and Development Efforts:
o
clinical drug development is a lengthy and uncertain process and we may not be able to generate and develop successful drug candidates for commercial use;
o
we are highly dependent on the success of rezpegaldesleukin (previously referred to as NKTR-358) and NKTR-255 and our business will be significantly harmed if either rezpegaldesleukin or NKTR-255 do not continue to advance in clinical studies;
o
the outcomes from competitive immunotherapy clinical trials, and the discovery and development of new potential immunotherapies could have a material and adverse impact on the value of our pipeline;
o
significant competition for our polymer conjugate chemistry technology platforms and our products and drug candidates could make our technologies, drug products or drug candidates obsolete or uncompetitive;
o
preliminary and interim data from our clinical studies are subject to audit and verification procedures that could result in material changes in the final data and may change as more patient data become available;
o
clinical trials for any of our drug candidates could be delayed for a variety of reasons, including delays associated with activating clinical sites and lower than anticipated patient enrollment rates, which are often outside of our control; and
o
we depend on third parties to conduct laboratory experiments, preclinical studies and clinical trials for our drug candidates and any failure of those parties to fulfill their obligations according to our instructions and protocol standards could harm our research and development plans and adversely affect our business.
Risks Related to our Financial Condition and Capital Requirements:
o
there is no guarantee that our prior strategic reorganization plan and cost restructuring plans will achieve their intended benefits and we may need to undertake additional cost-saving measures;
o
we have substantial future capital requirements and there is a risk we may not have access to sufficient capital to meet our current business plan;
o
a significant source of our revenue and capital for research and development has been derived from our collaboration agreements, and if we are unable to establish and maintain collaboration partnerships with attractive commercial terms, including significant development milestones and research and development cost-sharing, our business, results of operations and financial condition could suffer; and
o
we expect to continue to incur substantial net losses from operations and may not achieve or sustain profitability in the future.

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Risks Related to Supply and Manufacturing:
o
if we or our contract manufacturers are not able to manufacture drugs or drug substances in sufficient quantities that meet applicable quality standards, our business, financial condition and results of operations could be harmed; and
o
we purchase some of the starting material for drugs and drug candidates from a single source or a limited number of suppliers, and the partial or complete loss of one of these suppliers could cause delays, loss of revenue and contract liability.
Risks Related to Intellectual Property, Litigation and Regulatory Concerns:
o
we or our partners may not obtain regulatory approval for our drug candidates on a timely basis, or at all;
o
patents may not issue from our patent applications for our drug candidates, patents that have issued may not be enforceable, or additional intellectual property licenses from third parties may be required, which may not be available to us on commercially reasonable terms; and
o
from time to time, we are involved in legal proceedings and may incur substantial litigation costs and liabilities that could adversely affect our business, financial condition and results of operations.
Risks Related to our Collaboration Partners:
o
we are highly dependent on advancing rezpegaldesleukin in clinical trials, and while we believe we currently have the materials that are necessary for us to continue clinical development of rezpegaldesleukin, our ability to perform important development and regulatory activities will be significantly harmed if Eli Lilly and Company fails to continue to cooperate with us in the transfer of all materials associated with the rezpegaldesleukin program; and
o
we may rely on academic and private non-academic institutions to conduct investigator-sponsored clinical studies or trials of our drug candidates and any failure by the investigator-sponsor to meet its obligations with respect to the clinical development of our drug candidates may delay or impair our ability to enter into collaboration agreements, obtain regulatory approval and commercialize for our drug candidates.

In addition to the above-mentioned risks, our business is subject to a number of additional risks faced by businesses generally.

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PART I: FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements—Unaudited:

NEKTAR THERAPEUTICS

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

 

 

 

June 30, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,940

 

 

$

35,277

 

Short-term investments

 

 

243,295

 

 

 

268,339

 

Accounts receivable

 

 

1,196

 

 

 

1,205

 

Inventory, net

 

 

14,465

 

 

 

16,101

 

Other current assets

 

 

8,292

 

 

 

9,779

 

Total current assets

 

 

295,188

 

 

 

330,701

 

Long-term investments

 

 

19,405

 

 

 

25,825

 

Property, plant and equipment, net

 

 

15,187

 

 

 

18,856

 

Operating lease right-of-use assets

 

 

9,240

 

 

 

18,007

 

Other assets

 

 

4,314

 

 

 

4,644

 

Total assets

 

$

343,334

 

 

$

398,033

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,475

 

 

$

9,848

 

Accrued expenses

 

 

29,514

 

 

 

22,162

 

Operating lease liabilities, current portion

 

 

21,337

 

 

 

19,259

 

Total current liabilities

 

 

57,326

 

 

 

51,269

 

Operating lease liabilities, less current portion

 

 

90,763

 

 

 

98,517

 

Liabilities related to the sales of future royalties, net

 

 

107,506

 

 

 

112,625

 

Other long-term liabilities

 

 

8,051

 

 

 

4,635

 

Total liabilities

 

 

263,646

 

 

 

267,046

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000 shares authorized; no shares designated or outstanding at June 30, 2024 or December 31, 2023, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value; 300,000 shares authorized; 192,346 shares and 191,384 shares issued at June 30, 2024 and December 31, 2023, respectively; 184,061 shares and 191,384 shares outstanding at June 30, 2024 and December 31, 2023, respectively;

 

 

19

 

 

 

19

 

Capital in excess of par value

 

 

3,649,577

 

 

 

3,608,137

 

Treasury stock, at cost; 8,285 shares as of June 30, 2024 and none as of December 31, 2023, respectively

 

 

(3,000

)

 

 

 

Accumulated other comprehensive income (loss)

 

 

(494

)

 

 

80

 

Accumulated deficit

 

 

(3,566,414

)

 

 

(3,477,249

)

Total stockholders’ equity

 

 

79,688

 

 

 

130,987

 

Total liabilities and stockholders’ equity

 

$

343,334

 

 

$

398,033

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NEKTAR THERAPEUTICS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share information)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

6,640

 

 

$

4,658

 

 

$

12,674

 

 

$

9,376

 

Non-cash royalty revenue related to the sales of future royalties

 

 

16,790

 

 

 

15,832

 

 

 

32,298

 

 

 

32,693

 

License, collaboration and other revenue

 

 

59

 

 

 

9

 

 

 

156

 

 

 

24

 

Total revenue

 

 

23,489

 

 

 

20,499

 

 

 

45,128

 

 

 

42,093

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

9,740

 

 

 

6,994

 

 

 

18,274

 

 

 

14,054

 

Research and development

 

 

29,724

 

 

 

29,681

 

 

 

57,132

 

 

 

60,150

 

General and administrative

 

 

20,510

 

 

 

17,869

 

 

 

40,659

 

 

 

38,950

 

Restructuring, impairment, and costs of terminated program

 

 

13,289

 

 

 

16,554

 

 

 

14,264

 

 

 

37,747

 

Impairment of goodwill

 

 

 

 

 

 

 

 

 

 

 

76,501

 

Total operating costs and expenses

 

 

73,263

 

 

 

71,098

 

 

 

130,329

 

 

 

227,402

 

Loss from operations

 

 

(49,774

)

 

 

(50,599

)

 

 

(85,201

)

 

 

(185,309

)

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash interest expense on liabilities related to the sales of future royalties

 

 

(6,408

)

 

 

(6,152

)

 

 

(11,939

)

 

 

(12,557

)

Interest income

 

 

3,901

 

 

 

4,846

 

 

 

8,121

 

 

 

9,181

 

Other income (expense), net

 

 

(36

)

 

 

736

 

 

 

(135

)

 

 

435

 

Total non-operating income (expense), net

 

 

(2,543

)

 

 

(570

)

 

 

(3,953

)

 

 

(2,941

)

Loss before provision for income taxes

 

 

(52,317

)

 

 

(51,169

)

 

 

(89,154

)

 

 

(188,250

)

Provision (benefit) for income taxes

 

 

46

 

 

 

(47

)

 

 

11

 

 

 

(110

)

Net loss

 

$

(52,363

)

 

$

(51,122

)

 

$

(89,165

)

 

$

(188,140

)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.25

)

 

$

(0.27

)

 

$

(0.44

)

 

$

(0.99

)

Weighted average shares outstanding used in computing basic and diluted net loss per share

 

 

208,828

 

 

 

189,656

 

 

 

201,787

 

 

 

189,268

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NEKTAR THERAPEUTICS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net loss

 

$

(52,363

)

 

$

(51,122

)

 

$

(89,165

)

 

$

(188,140

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on available-for-sale securities

 

 

(90

)

 

 

244

 

 

 

(565

)

 

 

1,331

 

Net foreign currency translation gain (loss)

 

 

(1

)

 

 

(1,013

)

 

 

(9

)

 

 

(874

)

Other comprehensive income (loss)

 

 

(91

)

 

 

(769

)

 

 

(574

)

 

 

457

 

Comprehensive loss

 

$

(52,454

)

 

$

(51,891

)

 

$

(89,739

)

 

$

(187,683

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NEKTAR THERAPEUTICS

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital in
Excess of
Par Value

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

Balance at December 31, 2022

 

 

188,560

 

 

$

19

 

 

$

 

 

$

 

 

$

3,574,719

 

 

$

(6,907

)

 

$

(3,201,193

)

 

$

366,638

 

Shares issued under equity compensation plans

 

 

675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,019

 

 

 

 

 

 

 

 

 

10,019

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,226

 

 

 

(137,018

)

 

 

(135,792

)

Balance at March 31, 2023

 

 

189,235

 

 

$

19

 

 

$

 

 

$

 

 

$

3,584,738

 

 

$

(5,681

)

 

$

(3,338,211

)

 

$

240,865

 

Shares issued under equity compensation plans

 

 

884

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,966

 

 

 

 

 

 

 

 

 

7,966

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(769

)

 

 

(51,122

)

 

 

(51,891

)

Balance at June 30, 2023

 

 

190,119

 

 

$

19

 

 

$

 

 

$

 

 

$

3,592,722

 

 

$

(6,450

)

 

$

(3,389,333

)

 

$

196,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital in
Excess of
Par Value

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

Balance at December 31, 2023

 

 

191,384

 

 

$

19

 

 

 

 

 

$

 

 

$

3,608,137

 

 

$

80

 

 

$

(3,477,249

)

 

$

130,987

 

Shares issued under equity compensation plans

 

 

525

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

 

 

 

 

 

 

 

 

6,000

 

Repurchase of common stock from Bristol-Myers Squibb

 

 

(8,285

)

 

 

 

 

 

8,285

 

 

 

(3,000

)

 

 

 

 

 

 

 

 

 

 

 

(3,000

)

Issuance of prefunded warrant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,000

 

 

 

 

 

 

 

 

 

30,000

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(483

)

 

 

(36,802

)

 

 

(37,285

)

Balance at March 31, 2024

 

 

183,624

 

 

$

19

 

 

$

8,285

 

 

$

(3,000

)

 

$

3,644,140

 

 

$

(403

)

 

$

(3,514,051

)

 

$

126,705

 

Shares issued under equity compensation plans

 

 

437

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

19

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,418

 

 

 

 

 

 

 

 

 

5,418

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(91

)

 

 

(52,363

)

 

 

(52,454

)

Balance at June 30, 2024

 

 

184,061

 

 

$

19

 

 

 

8,285

 

 

$

(3,000

)

 

$

3,649,577

 

 

$

(494

)

 

$

(3,566,414

)

 

$

79,688

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NEKTAR THERAPEUTICS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(89,165

)

 

$

(188,140

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Non-cash royalty revenue related to the sales of future royalties

 

 

(32,298

)

 

 

(32,693

)

Non-cash interest expense on liabilities related to the sales of future royalties

 

 

11,939

 

 

 

12,557

 

Stock-based compensation

 

 

11,418

 

 

 

17,985

 

Depreciation and amortization

 

 

3,066

 

 

 

4,468

 

Deferred income tax expense

 

 

19

 

 

 

(1,839

)

Impairment of right-of-use assets and property, plant and equipment

 

 

8,329

 

 

 

26,455

 

Impairment of goodwill

 

 

 

 

 

76,501

 

Provision for net realizable value of inventory

 

 

2,567

 

 

 

1,252

 

Amortization of premiums (discounts), net and other non-cash transactions

 

 

(5,647

)

 

 

(8,150

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

9

 

 

 

4,646

 

Inventory

 

 

(931

)

 

 

(2,739

)

Operating leases, net

 

 

(4,196

)

 

 

(3,717

)

Other assets

 

 

1,817

 

 

 

7,902

 

Accounts payable

 

 

(3,266

)

 

 

(9,997

)

Accrued expenses

 

 

10,749

 

 

 

(7,929

)

Net cash used in operating activities

 

 

(85,590

)

 

 

(103,438

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of investments

 

 

(173,504

)

 

 

(249,724

)

Maturities of investments

 

 

210,087

 

 

 

316,088

 

Purchases of property, plant and equipment

 

 

(343

)

 

 

(595

)

Net cash provided by investing activities

 

 

36,240

 

 

 

65,769

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from shares issued under equity compensation plans

 

 

22

 

 

 

18

 

Proceeds from issuance of pre-funded warrant

 

 

30,000

 

 

 

 

Proceeds from sale of future royalties

 

 

15,000

 

 

 

 

Repurchase of common stock from Bristol-Myers Squibb

 

 

(3,000

)

 

 

 

Net cash provided by financing activities

 

 

42,022

 

 

 

18

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

(9

)

 

 

152

 

Net increase (decrease) in cash and cash equivalents

 

 

(7,337

)

 

 

(37,499

)

Cash and cash equivalents at beginning of period

 

 

35,277

 

 

 

88,227

 

Cash and cash equivalents at end of period

 

$

27,940

 

 

$

50,728

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NEKTAR THERAPEUTICS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 June 30, 2024, we had approximately $290.6 million in cash and investments in marketable securities.

Financing Transactions

During the six months ended June 30, 2024, we entered into the following transactions:

On February 12, 2024, for total cash consideration paid of $3.0 million, we repurchased from Bristol Myers Squibb Company (BMS) 8.3 million shares of Nektar's common stock that were previously sold to BMS, which we report as treasury stock on our Condensed Consolidated Balance Sheets. See Note 6 for additional information.
On March 4, 2024, we entered into a Securities Purchase Agreement with TCG Crossover Fund II, L.P. (TCG), pursuant to which we issued a pre-funded warrant to TCG to purchase 25,000,000 shares of Nektar’s common stock for gross proceeds of $30.0 million (or a purchase price of $1.20 per share of common stock that can be issued upon exercise of the pre-funded warrant). On May 28, 2024, we filed with the SEC a registration statement on Form S-3 (file no. 333-279760) registering for the resale of up to 25,000,000 shares of Nektar’s common stock upon exercise of the pre-funded warrant issued to TCG pursuant to the Securities Purchase Agreement. The registration statement became effective on June 5, 2024. See Note 5 for additional information.
On March 4, 2024, for total cash consideration received of $15.0 million, we entered into an amendment (the Amendment) with entities managed by Healthcare Royalty Management, LLC (collectively, HCR) to remove the cap on royalties previously sold to HCR under a Purchase and Sale Agreement (the 2020 Purchase and Sale Agreement). See Note 3 for additional information.

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 70% reduction of our workforce during 2022. We also decided to seek a sublease for certain of our leased premises in San Francisco, CA, including all of our office space on Third St. and portions of our office and laboratory space on Mission Bay Blvd. South.

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

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60%. In addition, under the 2023 Restructuring Plan, we decided to seek a sublease for our remaining office and laboratory space on Mission Bay Blvd. South which we had not planned to sublease pursuant to the 2022 Restructuring Plan.

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 income (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 and six months ended June 30, 2024 and 2023 except as otherwise disclosed below in Note 3.

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.

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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 customers. We perform a regular review of our customers’ credit risk and payment histories, including payments made after period end. Historically, we have not experienced credit losses from our accounts receivable. We have not recorded reserves for credit losses for the three and six months ended June 30, 2024 and 2023, nor have recorded such an allowance as of June 30, 2024 or December 31, 2023.

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:

contractual or other employee termination benefits provided that the obligations result from services already rendered based on rights that vest or accumulated when the payment of benefits becomes probable and the amount can be reasonably estimated;
one-time employee termination benefits on the communication date from management to the employees provided that management has committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination benefits are complete, and it is unlikely that changes to the plan will be made or the plan will be withdrawn; and
contract termination costs for costs incurred when we cancel the contract in accordance with its terms, or for costs to be incurred over the remaining contract term without economic benefit to us at the cease-use date.

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.

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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 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 and six months ended June 30, 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. We excluded shares underlying the weighted average outstanding stock options, restricted stock units (RSUs) and performance stock units (PSUs), as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Potentially dilutive securities

 

 

26,396

 

 

 

21,317

 

 

 

26,685

 

 

 

22,049

 

 

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

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Cash and cash equivalents

 

$

27,940

 

 

$

35,277

 

Short-term investments

 

 

243,295

 

 

 

268,339

 

Long-term investments

 

 

19,405

 

 

 

25,825

 

Total cash and investments in marketable securities

 

$

290,640

 

 

$

329,441

 

 

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Our portfolio of cash and investments in marketable securities includes (in thousands):

 

 

 

 

 

June 30, 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

 

$

88,822

 

 

$

3

 

 

$

(258

)

 

$

88,567

 

 

$

38,882

 

Corporate commercial paper

 

2

 

 

166,404

 

 

 

 

 

 

(257

)

 

 

166,147

 

 

 

255,241

 

Obligations of U.S. government agencies

 

2

 

 

3,482

 

 

 

 

 

 

(3

)

 

 

3,479

 

 

 

 

Available-for-sale investments

 

 

 

$

258,708

 

 

$

3

 

 

$

(518

)

 

$

258,193

 

 

$

294,123

 

Money market funds

 

1

 

 

 

 

 

 

 

 

 

 

 

8,059

 

 

 

2,359

 

Certificates of deposit

 

2

 

 

 

 

 

 

 

 

 

 

 

14,020

 

 

 

15,116

 

Cash

 

N/A

 

 

 

 

 

 

 

 

 

 

 

10,368

 

 

 

17,843

 

Total cash and investments in marketable securities

 

 

 

 

 

 

 

 

$

290,640

 

 

$

329,441

 

 

For the three and six months ended June 30, 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):

 

 

June 30, 2024

 

 

December 31, 2023

 

Raw materials

 

$

1,719

 

 

$

1,861

 

Work-in-process

 

 

10,590

 

 

 

12,880

 

Finished goods

 

 

2,156

 

 

 

1,360

 

Total inventory, net

 

$

14,465

 

 

$

16,101

 

 

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. We value inventory at the lower of cost or net realizable value, and we write down defective or excess inventory to net realizable value based on historical experience or projected usage. We expense inventory related to our research and development activities as manufactured by us or when purchased.

As of June 30, 2024 and December 31, 2023, we recorded aggregate provisions of $3.1 million and $2.0 million, respectively, for the net realizable value of our batches. Our manufacturing agreement with UCB Pharma (UCB) provides for a fixed selling price which we had negotiated in exchange for a higher royalty rate. Accordingly, when evaluating the net realizable value of our inventory for UCB, we include the negotiated increase of the royalties in our analysis, and the aggregate revenue has historically been greater than our manufacturing cost. Due to the decreases in the royalty rate for 2024 and 2025 as a result of a settlement agreement with UCB, the aggregate revenue is expected to be less than our manufacturing cost for these years, and therefore we recorded a provision for net realizable value. On July 31, 2024, we entered into an extension agreement with UCB that increases the selling price of the reagent beginning in 2025. At the increased selling price, beginning in 2025, we no longer expect the aggregate revenue to be less than our manufacturing costs.

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Other Current Assets

Other current assets consist of the following (in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Prepaid research and development expenses

 

$

4,214

 

 

$

4,325

 

Interest and other non-trade receivables

 

 

1,703

 

 

 

1,047

 

Other prepaid expenses

 

 

2,375

 

 

 

4,407

 

Total other current assets

 

$

8,292

 

 

$

9,779

 

Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Building and leasehold improvements

 

$

41,867

 

 

$

43,184

 

Computer equipment and computer software

 

 

22,118

 

 

 

22,438

 

Manufacturing equipment

 

 

23,980

 

 

 

24,315

 

Laboratory equipment

 

 

14,385

 

 

 

14,537

 

Furniture, fixtures and other

 

 

541

 

 

 

541

 

Depreciable property, plant and equipment at cost

 

 

102,891

 

 

 

105,015

 

Less: accumulated depreciation

 

 

(88,428

)

 

 

(86,898

)

Depreciable property, plant and equipment, net

 

 

14,463

 

 

 

18,117

 

Construction in process

 

 

724

 

 

 

739

 

Property, plant and equipment, net

 

$

15,187

 

 

$

18,856

 

 

Due to the weakening lease markets during the three months ended June 30, 2024, we recorded additional non-cash impairment charges of $1.0 million for property, plant and equipment for the three months ended June 30, 2024, which we report in restructuring, impairment and costs of terminated program in our Condensed Consolidated Statement of Operations. See Note 7 for additional information.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Accrued compensation

 

$

8,715

 

 

$

5,553

 

Accrued research and development expenses

 

 

11,060

 

 

 

10,118

 

Accrued contract termination costs

 

 

3,357

 

 

 

3,020

 

Other accrued expenses

 

 

6,382

 

 

 

3,471

 

Total accrued expenses

 

$