Nektar(NKTR) - 2020 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements — Unaudited This section presents Nektar Therapeutics' unaudited condensed consolidated financial statements for Q1 2020 versus Q1 2019, reflecting key financial performance and position Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and stockholders' equity, alongside a slight increase in total liabilities, reflecting the period's financial activity Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $1,429,324 | $1,421,894 | | Total assets | $1,887,933 | $1,977,356 | | Total current liabilities | $377,471 | $354,661 | | Total liabilities | $591,507 | $571,965 | | Total stockholders' equity | $1,296,426 | $1,405,391 | Condensed Consolidated Statements of Operations The statements of operations show a significant increase in total revenue but a widened net loss, primarily driven by an impairment charge for a terminated program Condensed Consolidated Statements of Operations (in thousands, except per share data) | | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Total revenue | $50,573 | $28,222 | | License, collaboration and other revenue | $27,515 | $4,204 | | Total operating costs and expenses | $184,204 | $148,909 | | Research and development | $108,987 | $118,463 | | Impairment of assets and other costs | $45,189 | $— | | Loss from operations | ($133,631) | ($120,687) | | Net loss | ($138,651) | ($119,632) | | Basic and diluted net loss per share | ($0.78) | ($0.69) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved slightly, while investing activities provided significant cash, leading to an overall increase in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (in thousands) | | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($78,075) | ($80,895) | | Net cash provided by (used in) investing activities | $197,767 | ($12,138) | | Net cash provided by financing activities | $11,077 | $4,894 | | Net increase (decrease) in cash and cash equivalents | $130,672 | ($88,153) | | Cash and cash equivalents at end of period | $227,035 | $106,752 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, significant events like the NKTR-181 program termination and related impairment, and key collaboration revenue, alongside other financial disclosures - The company is a research-based biopharmaceutical firm focused on developing treatments for cancer and autoimmune diseases, expecting to continue incurring substantial losses and negative cash flows due to significant R&D investment[23][24] - Following a negative FDA advisory committee recommendation for NKTR-181, the company withdrew its NDA and terminated the program, resulting in a Q1 2020 charge of $45.2 million, comprising a $19.7 million write-off of advance payments and $25.5 million in other costs[55][56] - In Q1 2020, the company recognized a $25.0 million milestone payment from its collaboration with Bristol-Myers Squibb (BMS) for bempegaldesleukin, following the first patient visit in a registrational muscle-invasive bladder cancer trial[75][82][85] - On April 13, 2020, subsequent to the quarter's end, the company redeemed its 7.75% senior secured notes by repaying the entire principal of $250.0 million and accrued interest of $4.8 million[107][108] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic pipeline focus, program terminations, the impact of COVID-19 on clinical trials, and financial performance, including revenue growth and net loss, while affirming sufficient working capital Revenue Breakdown Q1 2020 vs Q1 2019 (in thousands) | Revenue Type | Q1 2020 | Q1 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product sales | $3,444 | $4,398 | ($954) | (22)% | | Royalty revenue | $9,719 | $11,390 | ($1,671) | (15)% | | Non-cash royalty revenue | $9,895 | $8,230 | $1,665 | 20% | | License, collaboration & other | $27,515 | $4,204 | $23,311 | >100% | | Total revenue | $50,573 | $28,222 | $22,351 | 79% | - The increase in License, collaboration and other revenue was primarily due to the recognition of a $25.0 million milestone from the BMS Collaboration Agreement for the first patient visit in a registrational muscle invasive bladder cancer trial[151] - The company recorded an impairment charge of $45.2 million in Q1 2020 related to the termination of the NKTR-181 program, including a $19.7 million write-off of advance payments and $25.5 million for non-cancellable commitments and severance[166][167] - The COVID-19 pandemic is expected to delay clinical trial timelines, with partner-led studies projected to be delayed by three to six months and earlier-stage Nektar-run studies by approximately three months[135][136][162] - As of March 31, 2020, the company had approximately $1.5 billion in cash and investments, and subsequently repaid $254.8 million in senior notes, with management believing it has sufficient working capital for at least the next 12 months[143][175] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risks since the prior annual report - Market risks as of March 31, 2020, have not materially changed from those reported in the 2019 Form 10-K[278] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting despite the transition to remote work - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[280] - No material changes to internal control over financial reporting occurred in Q1 2020, and adjustments for remote work due to COVID-19 have not materially impacted these controls[281] PART II: OTHER INFORMATION Item 1. Legal Proceedings This section details ongoing legal proceedings, including securities class action and shareholder derivative complaints, for which no loss can be reasonably estimated or recorded - The company and certain executives are named in securities class action and shareholder derivative lawsuits alleging misrepresentations about bempegaldesleukin's efficacy, safety, and clinical trial plans[70][261] - All legal cases are in early stages, and the company cannot reasonably estimate a potential future loss or range of losses, with no liability recorded as of March 31, 2020[70] Item 1A. Risk Factors This section outlines material risks, including dependency on lead drug candidate success, drug development uncertainty, COVID-19 impacts, manufacturing challenges, capital requirements, and competition - The company's future success is highly dependent on the successful development, regulatory approval, and commercialization of its lead immuno-oncology candidate, bempegaldesleukin[190] - The business could be adversely affected by health epidemics, particularly the COVID-19 pandemic, which may disrupt clinical trials, manufacturing, and the supply chain, and could delay patient enrollment and regulatory interactions[196][197][198] - The company faces risks related to manufacturing, including the ability of its contract manufacturers to produce sufficient quantities and reliance on single-source suppliers for critical raw materials[211][213] - The company has substantial future capital requirements and may not have access to sufficient capital, with future funding depending on achieving milestones, royalties, or new high-value collaborations[219][222] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or share repurchases during the quarter - There were no unregistered sales of equity securities or share repurchases in the three months ended March 31, 2020[287] Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - No defaults upon senior securities occurred[288] Item 5. Other Information No other information was reported under this item - No information was reported under this item[290] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents and required certifications - Lists exhibits filed with the report, including corporate governance documents and required SEC certifications[292][293]