Nektar(NKTR) - 2020 Q4 - Annual Report

Part I Business Nektar Therapeutics develops innovative medicines in oncology, immunology, and virology using its polymer conjugate technology, advancing proprietary and partnered programs - Nektar is a research-based biopharmaceutical company focusing on oncology, immunology, and virology, leveraging its proprietary polymer conjugate technology platform to design new drug candidates[21] - The company's lead immuno-oncology (I-O) candidate is bempegaldesleukin, which is being developed in a broad clinical collaboration with Bristol-Myers Squibb (BMS) in combination with Opdivo®[23][24] - Nektar's key collaboration partner programs include NKTR-358 with Eli Lilly for autoimmune diseases, MOVANTIK® with AstraZeneca for opioid-induced constipation, and ADYNOVATE® with Baxalta (Takeda) for Hemophilia A[31][34] - The company's business strategy is to advance its proprietary clinical pipeline, ensure future growth through internal research, transition to a fully-integrated company with commercial capabilities in I-O, selectively enter strategic collaborations, and build its intellectual property estate[44][45][46][47][48] - Competition is intense in the pharmaceutical and biotechnology industry, with Nektar facing competition in its technology platforms and drug programs from numerous large pharmaceutical companies[113][115][116] Our Proprietary Programs - The lead proprietary candidate is bempegaldesleukin, an IL-2 pathway agonist for immuno-oncology, being developed in a comprehensive clinical program, including a major collaboration with Bristol-Myers Squibb (BMS)[23] - The BMS collaboration for bempegaldesleukin includes a $1.0 billion up-front payment, an $850.0 million equity investment, and a 65% profit share for Nektar, with Nektar recording global revenue[24] - Other key proprietary programs include NKTR-262, a TLR agonist developed in combination with bempegaldesleukin, and NKTR-255, an IL-15 pathway agonist for immuno-oncology[26][27] - The company is also exploring bempegaldesleukin and NKTR-255 for applications in virology, including a clinical study of bempegaldesleukin for treating mild COVID-19[28][29] Collaboration Partner Programs - NKTR-358, an IL-2 agonist for autoimmune diseases, is being co-developed with Eli Lilly and Company under a worldwide license agreement, with Nektar receiving a $150.0 million initial payment and eligible for up to $250.0 million in milestones[30][31] - MOVANTIK®, for opioid-induced constipation, was developed by Nektar and licensed to AstraZeneca, which markets the drug globally[34] - ADYNOVATE®, an extended half-life treatment for Hemophilia A, was developed in collaboration with Baxalta (a Takeda subsidiary) and is approved in the U.S., EU, and other countries[34] - More than 10 products using Nektar's PEGylation technology have received regulatory approval in the U.S. or EU through collaborations with companies like Amgen, Pfizer, and UCB Pharma[34] Our Technology Platform - Nektar is a leader in polymer conjugation, with an advanced technology platform designed to improve the profile of a wide range of molecules by enhancing efficacy, safety, targeting, and other pharmacological properties[36][37] - The platform's benefits include improving pharmacokinetics, extending half-life, enabling oral administration of parenteral drugs, and reducing undesirable side effects by limiting passage across the blood-brain barrier[38] - Specific applications of the technology include large molecule pro-drug conjugates like bempegaldesleukin, small molecule stable polymer conjugates like MOVANTIK®, and antibody fragment conjugates like CIMZIA®[39][41][43] Government Regulation - The company's products are subject to extensive regulation by the FDA and comparable foreign agencies, covering research, development, clinical testing, manufacturing, marketing, and sales[83] - The FDA approval process for a new chemical entity involves extensive preclinical testing, submission of an Investigational New Drug (IND) application, and adequate and well-controlled human clinical trials (Phases 1, 2, and 3) before a New Drug Application (NDA) or Biologics License Application (BLA) can be submitted[84][87][88] - The FDA granted Breakthrough Therapy designation for bempegaldesleukin in combination with Opdiv® for metastatic melanoma, which is intended to expedite development and review[93] - Product sales depend on coverage and reimbursement from third-party payers like Medicare, Medicaid, and private insurers, who are increasingly challenging prices and examining cost-effectiveness[95][97] - The company is subject to healthcare laws targeting fraud and abuse, such as the federal Anti-Kickback Statute and the False Claims Act, with non-compliance potentially leading to significant civil and criminal penalties[99][103] Patents and Proprietary Rights - Nektar owns over 300 U.S. and 1,050 foreign patents, with numerous pending applications covering polymer architecture, drug conjugates, formulations, and manufacturing methods[107] - The company's patent strategy is to file applications on innovations to cover major pharmaceutical markets worldwide, with patents generally having a term of twenty years[107] - In addition to patents, Nektar relies on trade secret protection for confidential and proprietary information, requiring employees, consultants, and collaborators to execute confidentiality agreements[108][110] - The patent position of biotechnology companies is uncertain and involves complex legal issues, with no assurance that issued patents will be held valid and enforceable, and they can be challenged through various legal proceedings[109] Risk Factors Nektar faces substantial risks including high dependency on bempegaldesleukin's success, clinical trial failures, intense competition, and capital requirements - The company is highly dependent on the success of its lead I-O candidate, bempegaldesleukin, and a failure in its clinical development would significantly harm the business, market valuation, and financial condition[140] - Nektar relies heavily on collaboration partners like BMS and Lilly to conduct and prioritize clinical trials, and any failure or deprioritization by these partners would significantly harm the prospects of the associated drug candidates[152] - The company has substantial future capital requirements and may not have sufficient access to capital, with failure to receive milestone payments or secure new funding potentially forcing a reduction in R&D investment[158] - The COVID-19 pandemic poses a risk to business operations, including potential disruptions to clinical trials (e.g., enrollment delays), manufacturing supply chains, and the health of the workforce[170][174][175] - Manufacturing and supply risks are significant, as the company relies on contract manufacturers and a limited number of suppliers for critical raw materials, and any disruption could delay clinical studies and harm financial results[180][185] - The company faces risks from intellectual property disputes, potential patent invalidity, and litigation, and is currently involved in several legal proceedings, including securities class action lawsuits[208][218][220] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[244] Properties Nektar's principal facilities include leased corporate headquarters and R&D space in San Francisco, and owned facilities in Alabama and India - Corporate headquarters and R&D operations are located in a 153,203 sq. ft. leased facility in San Francisco, CA, with an additional 135,936 sq. ft. of leased R&D space nearby[245][246] - The company owns a 124,000 sq. ft. facility in Huntsville, Alabama, which houses laboratories and manufacturing facilities for its polymer conjugate technology[247] - An 88,000 sq. ft. research and development facility is owned near Hyderabad, India[248] Legal Proceedings The company is not a party to any material legal proceedings, referring to Item 1A for ongoing litigation details - The company is not currently a party to or aware of any proceedings that it believes will have a material adverse effect on its business, financial condition, or results of operations[249] - For information regarding ongoing securities class action and shareholder derivative litigation, the company refers to the Risk Factors section (Item 1A)[249] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[250] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Nektar's common stock trades on NASDAQ under "NKTR"; the company has never paid and does not anticipate paying cash dividends - The company's common stock trades on The NASDAQ Global Select Market under the symbol "NKTR"[252] Year Ended December 31, 2020 | Year Ended December 31, 2020 | High | Low | | :--- | :--- | :--- | | 1st Quarter | $27.96 | $14.47 | | 2nd Quarter | $23.44 | $16.86 | | 3rd Quarter | $24.79 | $16.59 | | 4th Quarter | $19.03 | $15.77 | - As of February 17, 2021, there were approximately 159 holders of record of the company's common stock[254] - The company has never declared or paid cash dividends and does not anticipate paying any in the foreseeable future[255] Reserved This item is intentionally left blank - None Management's Discussion and Analysis of Financial Condition and Results of Operations Nektar's 2020 revenue increased to $152.9 million due to BMS milestones, with a $444.4 million net loss, and $1.2 billion in cash and investments - The company's strategic focus is on advancing its pipeline, particularly the immuno-oncology candidate bempegaldesleukin in collaboration with BMS, and NKTR-358 in immunology with Lilly[261][262][267] - In January 2020, the company withdrew the NDA for NKTR-181 after an unfavorable FDA advisory committee recommendation and decided to make no further investments in the program[269] - The COVID-19 pandemic has caused varying impacts on clinical trials, with some Nektar-run and partner-run studies experiencing delays of approximately three to six months[279][280][281] - As of December 31, 2020, the company had approximately $1.2 billion in cash and investments and believes it has sufficient working capital to fund business plans for at least the next twelve months[287] Results of Operations Revenue Breakdown (2020 vs. 2019) | Revenue Category | 2020 (in thousands) | 2019 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Product sales | $17,504 | $20,117 | (13)% | | Royalty revenue | $30,999 | $41,222 | (25)% | | Non cash royalty revenue | $48,563 | $36,303 | 34% | | License, collaboration and other | $55,849 | $16,975 | >100% | | Total revenue | $152,915 | $114,617 | 33% | - The increase in License, collaboration and other revenue was driven by the recognition of two $25.0 million milestone payments from the BMS Collaboration Agreement in 2020[294] - Research and development (R&D) expense decreased by 6% to $408.7 million in 2020 from $434.6 million in 2019, mainly due to the cessation of spending on the NKTR-181 program, offset by increased costs for bempegaldesleukin, NKTR-255, and NKTR-262 programs[300][301] - General and administrative (G&A) expense increased 6% to $104.7 million in 2020, primarily due to increased personnel costs to build commercial capabilities for bempegaldesleukin[312] - The company recorded a charge of $45.2 million in 2020 for 'Impairment of Assets and Other Costs for Terminated Program' related to the wind-down of the NKTR-181 program[313][314] Liquidity and Capital Resources - As of December 31, 2020, the company had approximately $1.2 billion in cash and investments in marketable securities[323] - On April 13, 2020, the company repaid the principal and accrued interest of its senior notes, totaling $254.8 million[323] - The company believes its current working capital is sufficient to fund business plans for at least the next twelve months[325] - Future liquidity is significantly impacted by potential milestone payments from the BMS collaboration, which total approximately $1.405 billion remaining, with $625.0 million associated with the first approval and launch of bempegaldesleukin[271][325] - In December 2020, the company received proceeds of $146.3 million (net) from the sale of future royalty rights for MOVANTIK®, ADYNOVATE®, and REBINYN® to Healthcare Royalty Management, LLC[336] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on debt securities, with a 50 basis point increase potentially decreasing fair value by $2.5 million - The primary market risk is interest rate risk on the company's portfolio of debt securities, with investments in high-quality securities with maturities of two years or less to minimize this risk[346] - A hypothetical 50 basis point increase in interest rates would result in an approximate $2.5 million decrease in the fair value of available-for-sale securities as of December 31, 2020[347] - The company is subject to foreign currency exchange risk from transactions in British pounds, Euros, and Indian Rupees, but does not utilize derivative financial instruments to manage this risk[349] Financial Statements and Supplementary Data Consolidated financial statements for 2020 show $1.54 billion in assets, $152.9 million revenue, and a $444.4 million net loss, with an unqualified audit opinion Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | Metric | Amount (in thousands) | | :--- | :--- | | Total current assets | $1,138,005 | | Total assets | $1,538,767 | | Total current liabilities | $115,779 | | Total liabilities | $461,472 | | Total stockholders' equity | $1,077,295 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2020) | Metric | Amount (in thousands) | | :--- | :--- | | Total revenue | $152,915 | | Research and development | $408,678 | | Total operating costs and expenses | $578,026 | | Net loss | $(444,440) | | Net loss per share (Basic & Diluted) | $(2.49) | - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[355][370] - Critical Audit Matters identified by the auditor were the accounting for accrued research and development expenses and the accounting for cost-sharing under the Bristol-Myers Squibb (BMS) Collaboration Agreement[359][362][364] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting or financial disclosure - None[551] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[553] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO 2013 framework[556] - There were no changes in internal control over financial reporting during the fourth quarter of 2020 that materially affected, or are reasonably likely to materially affect, these controls[557] Other Information The company reports no other information for this item - None[560] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 proxy statement - Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders[563] - The company has a Code of Business Conduct and Ethics available on its website, and any amendments or waivers for executive officers will be disclosed there[564] Executive Compensation Information regarding executive compensation is incorporated by reference from the Proxy Statement - The information required by this item is incorporated by reference from the Proxy Statement[566] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the Proxy Statement - The information required by this item is incorporated by reference from the Proxy Statement[567] Certain Relationships and Related Transactions and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference - The information required by this item is incorporated by reference from the Proxy Statement[568] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the Proxy Statement - The information required by this item is incorporated by reference from the Proxy Statement[569] Part IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and key exhibits filed with the Form 10-K, including collaboration agreements and certifications - This item lists all financial statements, schedules, and exhibits filed with the Form 10-K[572][573] - Key exhibits filed or incorporated by reference include the Strategic Collaboration Agreement with Bristol-Myers Squibb, the License Agreement with Eli Lilly, and the Purchase and Sale Agreement with Healthcare Royalty Management[576][577] - Certifications by the Principal Executive Officer and Principal Financial Officer as required by Rule 13a-14(a) and Section 1350 are included as exhibits[577]