PART I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Nektar Therapeutics reported a $327.2 million net loss for the nine months ended September 30, 2019, primarily due to the absence of $1.06 billion in 2018 BMS collaboration revenue Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $81,224 | $194,905 | | Total current assets | $1,578,824 | $1,437,687 | | Total assets | $2,088,294 | $2,150,172 | | Liabilities & Equity | | | | Total current liabilities | $125,350 | $82,002 | | Total liabilities | $599,583 | $432,597 | | Total stockholders' equity | $1,488,711 | $1,717,575 | - Total assets decreased slightly, while total liabilities increased primarily due to the recognition of $134.9 million in operating lease right-of-use assets and corresponding liabilities of $154.4 million following the adoption of new lease accounting standards (ASC 842)1343 Condensed Consolidated Statements of Operations Statements of Operations Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $29,218 | $27,762 | $80,755 | $1,153,497 | | R&D Expense | $99,048 | $102,895 | $324,197 | $290,653 | | G&A Expense | $23,983 | $18,718 | $71,570 | $57,666 | | Net Income (Loss) | $(98,808) | $(96,143) | $(327,229) | $779,525 | | Diluted EPS | $(0.56) | $(0.56) | $(1.87) | $4.34 | - The significant decrease in revenue and shift from net income to net loss for the nine-month period is primarily due to the recognition of $1.06 billion from the BMS collaboration agreement in 2018, which was not repeated in 2019168395 Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended September 30 (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(203,458) | $835,764 | | Net cash provided by (used in) investing activities | $71,405 | $(1,467,476) | | Net cash provided by financing activities | $18,449 | $849,298 | | Net (decrease) increase in cash and cash equivalents | $(113,681) | $217,499 | - The shift from positive to negative cash flow from operations was mainly due to the absence of the large upfront payment from BMS received in 2018. Financing activities in 2018 were significantly higher due to the $790.2 million issuance of common stock to BMS23167 Notes to Condensed Consolidated Financial Statements The notes detail the company's financial position, key collaboration agreements, adoption of new lease accounting standards, and ongoing legal proceedings - The company's research and development pipeline focuses on treatments for cancer, autoimmune disease, and chronic pain, financed primarily through licensing and collaboration agreements2526 - On January 1, 2019, the company adopted lease accounting standard ASC 842, recording right-of-use assets of $83.5 million and lease liabilities of $96.2 million3843 - The company is involved in a putative securities class action complaint and shareholder derivative complaints alleging misrepresentations about the efficacy and safety of its drug candidate NKTR-21478 - Key collaboration agreements include a strategic partnership with BMS for NKTR-214, which provided a $1.0 billion upfront payment in 2018, and a co-development agreement with Eli Lilly for NKTR-358889196 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses pipeline advancement, attributing significant revenue decline to the absence of 2018 BMS revenue, and confirms sufficient liquidity Overview - The company's strategic focus is on its R&D pipeline, including treatments for cancer (bempegaldesleukin/NKTR-214), autoimmune disease (NKTR-358), and chronic pain (NKTR-181)120 - The FDA granted Breakthrough Therapy designation for NKTR-214 in combination with Opdivo® for untreated unresectable or metastatic melanoma121 - Under the BMS collaboration, Nektar shares 65% of global profits/losses for NKTR-214 and development costs are shared (e.g., Nektar pays 32.5% for NKTR-214 + Opdivo® combination studies), with Nektar's share capped at $125 million annually89121 - An NDA for the chronic pain drug NKTR-181 was submitted, but the FDA missed its PDUFA target date and postponed the advisory committee meeting126 Results of Operations Revenue Breakdown (in thousands) | Revenue Source | Nine Months 2019 | Nine Months 2018 | % Change | | :--- | :--- | :--- | :--- | | Product sales | $14,302 | $16,414 | (13)% | | Royalty revenue | $29,008 | $29,898 | (3)% | | Non-cash royalty revenue | $27,585 | $24,337 | 13% | | License, collaboration and other | $9,860 | $1,082,848 | (99)% | | Total revenue | $80,755 | $1,153,497 | (93)% | - The 99% decrease in License, collaboration, and other revenue for the nine months ended Sep 30, 2019, is primarily due to the recognition of $1.06 billion from the BMS Collaboration Agreement in the same period of 2018139 - Research and development expense for the nine months ended Sep 30, 2019 increased by 12% to $324.2 million, driven by clinical development of NKTR-214, NKTR-358, and NKTR-262. This increase was partially offset by $81.4 million in net cost reimbursements from BMS145146147 - General and administrative expense increased 24% to $71.6 million for the nine-month period, primarily due to costs for NKTR-181 and NKTR-214 commercialization readiness activities150 Liquidity and Capital Resources - As of September 30, 2019, the company had approximately $1.7 billion in cash and investments and $250.0 million in senior secured notes due October 2020161 - Management estimates that current working capital is sufficient to fund business plans for at least the next twelve months162 - Net cash used in operating activities was $203.5 million for the first nine months of 2019, compared to net cash provided by operating activities of $835.8 million in the same period of 2018, with the difference largely due to the $1.85 billion received from BMS in April 2018166167 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risks as of September 30, 2019, have not materially changed from the prior fiscal year-end disclosures - There were no material changes to the company's market risks since the end of the previous fiscal year175 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2019177 - No material changes to internal control over financial reporting were identified during the third quarter of 2019178 PART II: OTHER INFORMATION Item 1. Legal Proceedings The company is involved in securities class action and shareholder derivative complaints alleging misrepresentations about NKTR-214, with no accrual recorded due to unestimable outcomes - The company and certain executives are named in a putative securities class action complaint and shareholder derivative actions alleging misrepresentations about the efficacy, safety, and manufacturing of NKTR-214, which allegedly inflated the stock price78182 - The company states it cannot reasonably estimate any range of potential future charges and has not recorded any contingent liability for these legal proceedings78 Item 1A. Risk Factors The company faces significant risks including dependency on NKTR-214's success, clinical trial failures, manufacturing challenges, regulatory approval uncertainties, reliance on partners, capital requirements, competition, and ongoing litigation - The company is highly dependent on the success of its lead immuno-oncology candidate, NKTR-214, and any clinical or regulatory failure would significantly harm the business184 - There are substantial risks and uncertainties regarding the FDA approval and commercial potential of the chronic pain drug candidate, NKTR-181, especially given the postponed advisory committee meeting200201 - The company relies on contract manufacturing organizations and single-source suppliers for critical raw materials, posing risks of production delays and supply shortages193195 - The company faces substantial future capital requirements and may need to raise additional capital, which could be dilutive to existing stockholders210211 - Ongoing legal proceedings, including securities class action lawsuits related to NKTR-214 disclosures, pose a risk of substantial litigation costs and liabilities236256 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or stock repurchases were reported during the three months ended September 30, 2019 - No unregistered sales of equity securities or stock repurchases were conducted in Q3 2019265 Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None reported266 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable267 Item 5. Other Information No other information was reported for this item - None reported268 Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including officer certifications and XBRL data files - Lists exhibits filed with the report, including officer certifications (31.1, 31.2, 32.1) and XBRL data files271
Nektar(NKTR) - 2019 Q3 - Quarterly Report