Nektar(NKTR) - 2021 Q3 - Quarterly Report

General Information and Risk Summary Form 10-Q Filing Information This section details the filing specifics for Nektar Therapeutics' Quarterly Report on Form 10-Q for the period ended September 30, 2021, including its registration with NASDAQ Global Select Market and filer status - The registrant is Nektar Therapeutics, a Delaware corporation, with Commission File Number: 0-24006[2] Registrant Status | Indicator | Status | | :------------------------ | :----- | | Quarterly Period Ended | September 30, 2021 | | Trading Symbol | NKTR | | Exchange | NASDAQ Global Select Market | | Filed all reports (preceding 12 months) | Yes | | Subject to filing requirements (past 90 days) | Yes | | Submitted Interactive Data File (preceding 12 months) | Yes | | Filer Status | Large accelerated filer | | Shell Company | No | | Outstanding Common Stock (Oct 29, 2021) | 184,557,124 shares | Forward-Looking Statements This section outlines the nature of forward-looking statements within the report, emphasizing that actual results may differ materially due to inherent risks and uncertainties, and the company does not intend to update these statements unless required by law - All statements other than historical fact are forward-looking, including projections of market size, earnings, revenue, milestone payments, royalties, sales, future operations, financial condition, financing alternatives, drug candidates, clinical trial timing, economic conditions, collaboration success, and COVID-19 impact[10] - Forward-looking statements are subject to inherent risks and uncertainties, including those detailed in Part II, Item 1A 'Risk Factors', and actual results could differ materially from projections[10] Summary of Risks This section provides a high-level overview of the significant risk factors that could materially affect Nektar Therapeutics' business, financial condition, and results of operations, categorized by area - The company is highly dependent on the success of bempegaldesleukin, its lead immuno-oncology (I-O) candidate, and its business will be significantly harmed if development is unsuccessful[14] - Significant competition in I-O therapies and polymer conjugate chemistry platforms could render technologies or drug candidates obsolete[14] - The company has substantial future capital requirements and faces risks of insufficient capital access, market size for new drugs being smaller than anticipated, and reliance on collaboration agreements for revenue[14] - The business could be adversely affected by health epidemics, including the ongoing COVID-19 pandemic, potentially causing delays in clinical trials and supply chain disruptions[14] - Risks related to supply and manufacturing include inability to produce sufficient quantities meeting quality standards and reliance on single-source suppliers[17] - Other risks include challenges in building sales/marketing capabilities, intellectual property concerns (e.g., regulatory approval, patent enforceability), and potential litigation[17] PART I: FINANCIAL INFORMATION Condensed Consolidated Financial Statements — Unaudited This section presents the unaudited condensed consolidated financial statements for Nektar Therapeutics, including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with accompanying notes, for the periods ended September 30, 2021, and December 31, 2020 (for balance sheet) or September 30, 2020 (for income/cash flow statements) Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and stockholders' equity from December 31, 2020, to September 30, 2021, primarily driven by a significant reduction in cash and cash equivalents and long-term investments, while total liabilities increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Item | Sep 30, 2021 | Dec 31, 2020 | Change | | :---------------------------------- | :----------- | :----------- | :------- | | Cash and cash equivalents | $54,017 | $198,955 | $(144,938) | | Short-term investments | $867,063 | $862,941 | $4,122 | | Total current assets | $986,135 | $1,138,005 | $(151,870) | | Total assets | $1,277,243 | $1,538,767 | $(261,524) | | Total current liabilities | $139,969 | $115,779 | $24,190 | | Development derivative liability | $21,387 | — | $21,387 | | Liabilities related to sales of future royalties, net | $181,760 | $200,340 | $(18,580) | | Total liabilities | $475,703 | $461,472 | $14,231 | | Total stockholders' equity | $801,540 | $1,077,295 | $(275,755) | Condensed Consolidated Statements of Operations The company reported increased net losses for both the three and nine months ended September 30, 2021, compared to the same periods in 2020, driven by a significant decrease in total revenue and an increase in non-cash interest expense and development derivative liability changes Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenue | $24,921 | $30,033 | $76,898 | $129,453 | | Total operating costs and expenses | $138,517 | $133,083 | $410,091 | $443,843 | | Loss from operations | $(113,596) | $(103,050) | $(333,193) | $(314,390) | | Total non-operating income (expense), net | $(15,998) | $(5,515) | $(44,438) | $(12,482) | | Net loss | $(129,706) | $(108,586) | $(378,192) | $(327,237) | | Basic and diluted net loss per share | $(0.70) | $(0.61) | $(2.07) | $(1.84) | Condensed Consolidated Statements of Comprehensive Loss The comprehensive loss increased for both the three and nine months ended September 30, 2021, compared to the same periods in 2020, primarily reflecting the higher net loss Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(129,706) | $(108,586) | $(378,192) | $(327,237) | | Other comprehensive income (loss) | $(163) | $(1,795) | $(1,268) | $(75) | | Comprehensive loss | $(129,869) | $(110,381) | $(379,460) | $(327,312) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased significantly from December 31, 2020, to September 30, 2021, primarily due to accumulated deficit from net losses, partially offset by capital in excess of par value from equity compensation plans Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Item | Dec 31, 2020 | Sep 30, 2021 | Change | | :---------------------------------- | :----------- | :----------- | :------- | | Common Shares Outstanding | 180,091 | 184,554 | 4,463 | | Capital in Excess of Par Value | $3,388,730 | $3,492,435 | $103,705 | | Accumulated Deficit | $(2,309,158) | $(2,687,350) | $(378,192) | | Total Stockholders' Equity | $1,077,295 | $801,540 | $(275,755) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased for the nine months ended September 30, 2021, compared to the same period in 2020, while cash provided by investing activities decreased substantially. Financing activities shifted from a net use to a net provide, mainly due to the repayment of senior notes in 2020 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | | Net cash used in operating activities | $(261,122) | $(214,653) | $(46,469) | | Net cash provided by investing activities | $82,580 | $403,473 | $(320,893) | | Net cash provided by (used in) financing activities | $33,686 | $(229,349) | $263,035 | | Net decrease in cash and cash equivalents | $(144,938) | $(40,520) | $(104,418) | | Cash and cash equivalents at end of period | $54,017 | $55,843 | $(1,826) | Notes to Condensed Consolidated Financial Statements These notes provide detailed information on the company's organization, significant accounting policies, financial instruments, collaboration agreements, and other financial commitments, offering context to the condensed consolidated financial statements - Nektar Therapeutics is a research-based biopharmaceutical company developing drug candidates for oncology, immunology, and virology using advanced polymer conjugate technology platforms[31] - The company expects to continue incurring substantial losses and negative cash flows from operations due to significant ongoing R&D investment[32] - As of September 30, 2021, the company had approximately $955.3 million in cash and investments in marketable securities[32][63] - The company operates in one business segment focused on developing novel drug candidates using its technology platform[42] - A co-development agreement with SFJ Pharmaceuticals, entered into on February 12, 2021, provides up to $150.0 million in funding for a Phase 2/3 study of bempegaldesleukin in head and neck cancer, with success-based annual payments to SFJ upon FDA approval of bempegaldesleukin for certain indications[67][68] - The company sold rights to future royalties for CIMZIA and MIRCERA in 2012, and for MOVANTIK, ADYNOVATE, and REBINYN in 2020, which are accounted for as liabilities amortized using the interest method, with non-cash royalty revenue recognized[72][74][75] - Legal matters include ongoing securities class action lawsuits and derivative actions related to public statements about bempegaldesleukin clinical trials, for which no liability has been recorded due to inability to reasonably estimate potential future loss[80][81][82][83][85][86] - Total potential future payments for development and regulatory milestones from collaboration agreements totaled approximately $1.7 billion as of September 30, 2021[95] - Stock-based compensation expense totaled $24.7 million for the three months and $72.3 million for the nine months ended September 30, 2021[109] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, highlighting strategic direction, key pipeline developments, the impact of the COVID-19 pandemic, and detailed analysis of revenue, expenses, and liquidity for the periods presented Overview Nektar Therapeutics is a research-based biopharmaceutical company focused on developing innovative medicines in oncology, immunology, and virology using its proprietary polymer conjugate technology. The company's strategic direction emphasizes significant investment in its proprietary drug candidate pipeline, particularly bempegaldesleukin in immuno-oncology, and NKTR-358 in immunology, with a long-term goal of generating significant commercial revenue from proprietary products - Nektar is developing drug candidates for oncology (bempegaldesleukin, NKTR-262, NKTR-255), immunology (NKTR-358), and virology (bempegaldesleukin for COVID-19) leveraging its advanced polymer conjugate technology[116][117][118][119][120][123] - Bempegaldesleukin, in collaboration with BMS, is being evaluated in multiple registrational trials for various cancer indications, including first-line metastatic melanoma (Breakthrough Therapy designation)[117] - A co-development agreement with SFJ Pharmaceuticals provides up to $150.0 million to fund a Phase 2/3 study of bempegaldesleukin plus Keytruda in head and neck cancer[118] - NKTR-358, co-developed with Eli Lilly, is in Phase 1b and Phase 2 studies for autoimmune diseases like systemic lupus erythematosus (SLE), psoriasis, and atopic dermatitis[120][121][122] - The COVID-19 pandemic has caused varying impacts on clinical trial timelines, with some Nektar-run studies experiencing delays and partner-led studies (BMS, Lilly) also facing potential delays[131][132][133] - The company's revenue is exclusively derived from collaboration agreements, with a long-term plan to generate significant commercial revenue from proprietary products, starting with bempegaldesleukin if approved[125] Key Developments and Trends in Liquidity and Capital Resources The company estimates it has sufficient working capital to fund current business plans for at least the next twelve months, with $955.3 million in cash and marketable securities as of September 30, 2021 - As of September 30, 2021, Nektar had approximately $955.3 million in cash and investments in marketable securities[139] - The company estimates it has working capital to fund its current business plans through at least the next twelve months[139] Results of Operations Nektar's results of operations for the three and nine months ended September 30, 2021, show a significant decrease in total revenue, primarily due to the recognition of BMS milestones in 2020 and the reclassification of royalty revenue to non-cash royalty revenue. Operating expenses remained relatively consistent, leading to increased operating and net losses Revenue Total revenue decreased significantly for both the three and nine months ended September 30, 2021, compared to 2020. This was primarily due to the absence of royalty revenue (now non-cash) and lower license, collaboration, and other revenue as significant BMS milestones were recognized in 2020 Revenue (in thousands, except percentages) | Revenue Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Product sales | $5,194 | $5,691 | $(497) | (9)% | | Royalty revenue | — | $12,289 | $(12,289) | (100)% | | Non-cash royalty revenue related to sales of future royalties | $19,413 | $10,422 | $8,991 | 86% | | License, collaboration and other revenue | $314 | $1,631 | $(1,317) | (81)% | | Total revenue | $24,921 | $30,033 | $(5,112) | (17)% | | Revenue Type | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Product sales | $17,835 | $14,620 | $3,215 | 22% | | Royalty revenue | — | $31,411 | $(31,411) | (100)% | | Non-cash royalty revenue related to sales of future royalties | $58,667 | $28,001 | $30,666 | >100% | | License, collaboration and other revenue | $396 | $55,421 | $(55,025) | (99)% | | Total revenue | $76,898 | $129,453 | $(52,555) | (41)% | - Product sales increased for the nine months ended September 30, 2021, due to increased product demand from collaboration partners, with full-year 2021 sales expected to increase YoY[142] - Royalty revenue was zero for the three and nine months ended September 30, 2021, as all such royalties are now recognized as non-cash royalty revenue due to the 2020 Purchase and Sale Agreement[143][144] - License, collaboration and other revenue decreased significantly for the nine months ended September 30, 2021, due to the recognition of $50.0 million in BMS milestones during 2020[146] Cost of Goods Sold and Product Gross Margin Cost of goods sold increased for the nine months ended September 30, 2021, while product gross margin remained negative for both periods, primarily due to a manufacturing arrangement with a fixed price below fully burdened cost, though royalty revenue from this collaboration exceeded the negative gross profit Cost of Goods Sold and Product Gross Margin (in thousands, except percentages) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Cost of goods sold | $5,311 | $5,570 | $(259) | (5)% | | Product gross profit | $(117) | $121 | $(238) | <(100%) | | Product gross margin | (2)% | 2% | | | | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Cost of goods sold | $18,734 | $15,154 | $3,580 | 24% | | Product gross profit | $(899) | $(534) | $(365) | (68)% | | Product gross margin | (5)% | (4)% | | | - Product gross margin was negative for the three and nine months ended September 30, 2021, and the nine months ended September 30, 2020, due to a fixed-price manufacturing arrangement where the price is less than the fully burdened manufacturing cost[151] - Royalty revenue from the collaboration with negative gross profit exceeded the related negative gross profit in both periods[151] Research and Development Expense Research and development expense remained generally consistent for the three and nine months ended September 30, 2021, compared to 2020. Increases in independent bempegaldesleukin development and NKTR-255 studies were offset by decreases in BMS collaboration expenses due to trial enrollment completion and manufacturing activities in 2020, and lower NKTR-358 development costs Research and Development Expense (in thousands, except percentages) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Research and development expense | $103,738 | $100,531 | $3,207 | 3% | | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Research and development expense | $300,655 | $305,954 | $(5,299) | (2)% | - R&D expense increased for independent bempegaldesleukin development (head and neck cancer trial with SFJ, COVID-19 trial) and NKTR-255 studies[154] - R&D expense decreased under the BMS Collaboration Agreement due to full enrollment in certain registrational trials and completion of manufacturing activities in 2020, partially offset by increased expense for the Phase 3 adjuvant melanoma trial[154] - Net reductions to R&D expense for BMS's reimbursements decreased from $29.2 million to $24.3 million for the three months and from $93.8 million to $76.5 million for the nine months ended September 30, 2021[154] General and Administrative Expense General and administrative expenses increased for both the three and nine months ended September 30, 2021, primarily due to increased personnel and third-party costs associated with building commercial capabilities for co-commercializing bempegaldesleukin with BMS General and Administrative Expense (in thousands, except percentages) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | General and administrative expense | $29,468 | $26,982 | $2,486 | 9% | | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | General and administrative expense | $90,702 | $77,546 | $13,156 | 17% | - The increase is attributed to the stage-appropriate build of commercial capability to co-commercialize bempegaldesleukin with BMS[162] Impairment of Assets and Other Costs for Terminated Program No impairment costs were incurred for the three and nine months ended September 30, 2021. In contrast, the nine months ended September 30, 2020, included $45.2 million in costs related to the termination of the NKTR-181 program Impairment of Assets and Other Costs for Terminated Program (in thousands, except percentages) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Impairment of assets and other costs for terminated program | $— | $— | $— | —% | | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Impairment of assets and other costs for terminated program | $— | $45,189 | $(45,189) | (100)% | - The $45.2 million in 2020 was due to the withdrawal of the NDA for NKTR-181, including $19.7 million for advance payments to contract manufacturers and $25.5 million for non-cancellable commitments and severance costs[163] Non-Cash Royalty Revenue and Non-Cash Interest Expense Non-cash royalty revenue and non-cash interest expense increased significantly for the three and nine months ended September 30, 2021, primarily due to the 2020 Purchase and Sale Agreement, which reclassified royalties from MOVANTIK, ADYNOVATE, and REBINYN to non-cash items Non-Cash Royalty Revenue and Non-Cash Interest Expense (in thousands, except percentages) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | 2012 Agreement: Non-cash royalty revenue | $8,904 | $10,422 | $(1,518) | (15)% | | 2012 Agreement: Non-cash interest expense | $7,564 | $8,425 | $(861) | (10)% | | 2020 Agreement: Non-cash royalty revenue | $10,509 | $— | $10,509 | >100% | | 2020 Agreement: Non-cash interest expense | $5,237 | $— | $5,237 | >100% | | Total non-cash royalty revenue | $19,413 | $10,422 | $8,991 | 86% | | Total non-cash interest expense | $12,801 | $8,425 | $4,376 | 52% | | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | 2012 Agreement: Non-cash royalty revenue | $27,744 | $28,001 | $(257) | (1)% | | 2012 Agreement: Non-cash interest expense | $23,042 | $22,084 | $958 | 4% | | 2020 Agreement: Non-cash royalty revenue | $30,923 | $— | $30,923 | >100% | | 2020 Agreement: Non-cash interest expense | $16,144 | $— | $16,144 | >100% | | Total non-cash royalty revenue | $58,667 | $28,001 | $30,666 | >100% | | Total non-cash interest expense | $39,186 | $22,084 | $17,102 | 77% | - The 2020 Purchase and Sale Agreement, effective October 1, 2020, led to the recognition of non-cash royalty revenue and interest expense for MOVANTIK, ADYNOVATE, and REBINYN in 2021, which were not present in 2020[169] - The implicit interest rate for the 2012 Purchase and Sale Agreement remained at 20.2%, with a prospective effective interest rate of 48.0% for both periods[165][168] Change in fair value of development derivative liability A development derivative liability of $3.3 million and $7.6 million was recognized for the three and nine months ended September 30, 2021, respectively, reflecting the accretion of the obligation to SFJ Pharmaceuticals under the co-development agreement Change in fair value of development derivative liability (in thousands, except percentages) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Change in fair value of development derivative liability | $3,328 | $— | $3,328 | >100% | | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Change in fair value of development derivative liability | $7,640 | $— | $7,640 | >100% | - The change reflects the accretion of the scenario-based probability-adjusted discounted cash flows of the obligation to SFJ, using an imputed borrowing rate of 12.2%, net of SFJ's funding obligation at 1.0%[171] Interest Income and Other Income (Expense), net Interest income and other income (expense), net, decreased significantly for both the three and nine months ended September 30, 2021, due to lower investment balances used to fund operations and decreases in market interest rates Interest Income and Other Income (Expense), net (in thousands, except percentages) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Interest income and other income (expense), net | $131 | $2,910 | $(2,779) | (95)% | | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Interest income and other income (expense), net | $2,388 | $16,453 | $(14,065) | (85)% | - Lower investment balances and decreased market interest rates contributed to the decline in interest income[172] Interest Expense Interest expense was zero for the three and nine months ended September 30, 2021, a 100% decrease from the nine months ended September 30, 2020, due to the repayment of $250.0 million in senior secured notes on April 13, 2020 Interest Expense (in thousands, except percentages) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------- | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Interest expense | $— | $— | $— | —% | | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (2021 vs 2020) | Percentage Change | | :------------- | :-------------------------- | :-------------------------- | :-------------------- | :------------------ | | Interest expense | $— | $6,851 | $(6,851) | (100)% | - The company repaid its $250.0 million senior secured notes on April 13, 2020, eliminating interest expense thereafter[173] Liquidity and Capital Resources Nektar's liquidity is supported by $955.3 million in cash and marketable securities as of September 30, 2021, expected to fund operations for at least the next twelve months. Future capital needs are highly dependent on clinical trial outcomes, milestone payments from collaborations (e.g., $1.455 billion potential from BMS), and the ability to secure new financing, with significant uncertainties remaining - As of September 30, 2021, the company had approximately $955.3 million in cash and investments in marketable securities[174] - The company estimates sufficient working capital for at least the next twelve months[175] - Future capital requirements are highly dependent on the cost and timing of clinical studies for bempegaldesleukin, NKTR-358, NKTR-262, and NKTR-255, and the receipt of milestone payments and royalties from existing and new collaborations[175][178] - Potential future payments include approximately $1.455 billion in clinical, regulatory, and commercial launch milestones from the BMS Collaboration Agreement (of which $50.0 million has been received)[176] - The co-development agreement with SFJ Pharmaceuticals provides up to $150.0 million in committed funding for the SCCHN Clinical Trial, with contingent success-based payments due to SFJ upon FDA approvals[176] - Cash flows used in operating activities increased to $261.1 million for the nine months ended September 30, 2021, from $214.7 million in the prior year, and are expected to increase for the full year 2021[181][182][183] - The company has an effective shelf registration statement on Form S-3, permitting the offering of up to $300.0 million in securities, but no securities have been sold under it[180] Critical Accounting Policies and Estimates The preparation of financial statements requires management to make estimates and assumptions, which are inherently uncertain. The development derivative liability under the SFJ co-development agreement is a new material change to critical accounting policies and estimates - Management's estimates and assumptions affect reported asset and liability amounts, and revenue and expense disclosures[187] - The development derivative liability under the co-development agreement with SFJ is a new material change to critical accounting policies and estimates[188] Quantitative and Qualitative Disclosures About Market Risk The company's market risks as of September 30, 2021, have not materially changed from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - Market risks at September 30, 2021, are consistent with those discussed in the Annual Report on Form 10-K for the year ended December 31, 2020[189] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021. There were no material changes in internal control over financial reporting during the quarter, despite adjustments for remote work due to the COVID-19 pandemic - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2021[192] - No material changes in internal control over financial reporting occurred in the three months ended September 30, 2021[193] - Adjustments for remote work due to the COVID-19 pandemic have not materially impacted internal controls over financial reporting[193] - Control systems provide only reasonable, not absolute, assurance against error and fraud due to inherent limitations[194] PART II: OTHER INFORMATION Legal Proceedings This section refers to the detailed disclosures on legal matters provided in Note 6 to the Condensed Consolidated Financial Statements, which are incorporated by reference - Legal matters are detailed in Note 6 to the Condensed Consolidated Financial Statements and are incorporated by reference[197] Risk Factors This section outlines the significant risks that could materially and adversely affect Nektar Therapeutics' business, financial condition, results of operations, and stock price, categorized into several key areas Risks Related to Our Business The company's future success is highly dependent on the successful development and regulatory approval of bempegaldesleukin, its lead immuno-oncology candidate. Significant risks include potential clinical trial failures, intense competition from other I-O therapies, and the inherent unpredictability of preliminary clinical data. Stock price volatility is also a concern, potentially leading to securities litigation - Future success is highly dependent on the successful development, regulatory approval, and commercialization of bempegaldesleukin, with a high risk of failure in clinical trials[199] - Delays in clinical studies are common and can be caused by regulatory issues, partner actions, COVID-19, patient enrollment challenges, manufacturing delays, and changing standards of care, which could delay regulatory approvals and commercialization[201][203][204] - The I-O therapy market is highly competitive, with numerous approved and developing combination therapies, posing substantial risks to the value of Nektar's I-O pipeline[205] - Preliminary and interim clinical data are subject to audit and verification, and final data may differ materially, potentially harming business prospects[210] - The company's stock price is volatile, and fluctuations have historically led to securities class action and shareholder derivative litigation[211][212] Risks Related to our Collaboration Partners Nektar is highly dependent on its collaboration partners, BMS and Lilly, to conduct and prioritize clinical trials and commercialization activities for bempegaldesleukin and NKTR-358. Any failure or deprioritization by partners, or impacts from events like the COVID-19 pandemic on their operations, could significantly harm Nektar's business - High dependence on BMS and Lilly to initiate, conduct, and prioritize clinical trials and commercialization activities for bempegaldesleukin and NKTR-358[214] - Partners' operations may be adversely affected by the COVID-19 pandemic, leading to delays in clinical trials for Nektar's drug candidates[215] Risks Related to our Financial Condition and Capital Requirement Nektar faces substantial future capital requirements and risks not having sufficient access to capital, especially if milestone or royalty payments from collaborations are not received as expected. The commercial potential of drug candidates is difficult to predict, and inadequate reimbursement from third-party payers, along with potential drug reimportation, could negatively impact revenue and financial condition. The company expects to incur substantial losses and negative cash flow, making sustained profitability uncertain - The company's financial condition depends significantly on collaboration partners successfully developing and marketing drugs, with risks including lack of control over marketing efforts, resource allocation, and potential disputes[217][219] - Substantial future capital requirements exist, and access to sufficient capital is uncertain, depending on clinical study outcomes, milestone/royalty payments, and ability to raise additional capital[218][220] - Difficulty in predicting commercial potential of drug candidates due to factors like safety/efficacy, reimbursement, competition, and generic alternatives, which could negatively impact revenue[222] - If government and private insurance programs do not provide adequate payment or reimbursement for products, market acceptance will be limited, negatively impacting business[223] - Legislation allowing reimportation of drugs from foreign countries could decrease product prices and adversely affect future revenues[230][232] - Inability to establish and maintain collaboration partnerships on attractive commercial terms could harm business, results of operations, and financial condition[233] - Revenue is exclusively derived from collaboration agreements, leading to significant fluctuations and making past revenue not indicative of future revenue[234] - The company expects to continue incurring substantial losses and negative cash flow from operations and may not achieve or sustain profitability[235] Risks Related to the COVID-19 Pandemic The COVID-19 pandemic poses significant risks, including disruptions to operations, workforce availability, supply chains, and clinical trials. It could also heighten cybersecurity risks, delay regulatory interactions, and negatively impact global financial markets, making future effects difficult to predict - The COVID-19 pandemic could adversely affect business operations, including manufacturing, due to safety precautions, travel restrictions, and potential long-lasting effects[238] - Risks include unpredictability in expenses, employee productivity, work culture, and heightened cyber-attack risks due to remote work[239][240] - The pandemic could impact workforce availability, third-party obligations, and supply chains, potentially delaying clinical development or regulatory approvals[241] - Clinical trials may be delayed due to investigator recruitment, site initiation, patient screening/enrollment issues, and challenges in complying with protocols[242] - Manufacturing sufficient supplies for clinical trials could be affected by material shortages or commandeering of facilities for vaccines[243] - Regulatory interactions and review/approval of submissions could be postponed or delayed[245] Risks Related to Supply and Manufacturing The company faces risks related to manufacturing, including the inability of itself or contract manufacturers to produce sufficient quantities of biologics meeting quality standards, which could delay clinical studies or reduce sales. Reliance on single-source suppliers for critical raw materials and compliance with cGMP regulations also pose significant challenges and potential liabilities - Inability to manufacture biologics or biologic substances in sufficient quantities meeting quality standards could delay clinical studies, reduce sales, or breach contractual obligations[248] - Reliance on contract manufacturing organizations (CMOs) introduces risks of delays, unexpected expenses, and potential supply shortages if CMOs fail to perform or comply with quality standards[248][250] - Purchasing starting materials from single or limited sources creates risks of production delays, clinical trial delays, and revenue loss if suppliers are interrupted[253] - Manufacturing operations are subject to cGMP and other regulatory requirements; non-compliance could lead to delays, sanctions, or product withdrawals[254] Risks Related to Business Operations Nektar's business operations face risks related to establishing robust sales, marketing, and distribution capabilities, as well as managing growth and expenses effectively. Dependence on third parties for clinical trials and intense competition for highly qualified personnel also pose significant challenges to its development and commercialization plans - Inability to create robust internal sales, marketing, and distribution capabilities or secure third-party agreements will hinder successful commercialization of biologic candidates[255][256] - Dependence on independent clinical investigators and contract research organizations (CROs) to conduct clinical trials means their failure to fulfill obligations could harm development and commercialization[257] - Failure to manage growth effectively could strain resources, personnel, and management systems, adversely affecting operations and financial performance[258] - Inability to attract and retain highly qualified technical personnel due to intense competition could severely harm business and future growth prospects[261] - Loss of key management team members or technical personnel could impair product development and harm business, operating results, and financial condition[262] Risks Related to Intellectual Property, Litigation and Regulatory Concerns Nektar faces significant risks related to intellectual property, including the uncertainty of patent issuance and enforceability, and the potential need for third-party licenses. Regulatory challenges include timely approval of biologic candidates, potential restrictions on use, and compliance with complex healthcare laws. The company is also involved in various legal proceedings, including securities class actions and patent infringement suits, which could result in substantial costs and liabilities - The company may not be able to take advantage of expedited development or regulatory review processes, even with Breakthrough Therapy designation, and such designation does not guarantee expedited approval or broad indication[263][266] - Failure to obtain timely regulatory approval for biologic candidates, or approvals with significant restrictions, would negatively affect business[267] - Complex commercial terms in collaboration agreements can lead to disputes, litigation, or indemnification liabilities, materially affecting financial condition[268][271][272] - Inability to obtain intellectual property licenses on commercially reasonable terms could prevent development and commercialization of biologics[273] - Pending patent applications may not issue, or issued patents may be deemed invalid or unenforceable, leading to loss of valuable intellectual property protection[274] - Reliance on trade secret protection carries risks of independent development by others or loss of secrecy, harming business[279] - Product liability lawsuits could result in substantial liabilities exceeding insurance coverage, consuming resources, and causing adverse publicity[280] - Failure to comply with healthcare laws and regulations (e.g., Anti-Kickback Statute, False Claims Act, HIPAA) could lead to enforcement actions, penalties, and operational restructuring[281][282][284] - Disruptions to the normal functioning of the FDA and other government agencies could hinder product review and approval, adversely affecting business[286][287] - Involvement in legal proceedings, including securities class actions and patent infringement suits, could incur substantial litigation costs and liabilities[288][289][291][292][293][294][295][298] - Violations of privacy and data protection laws (e.g., GDPR, CCPA) could lead to penalties, regulatory scrutiny, and reputational harm[299][300][301][302] - Operations involve hazardous materials and are subject to environmental, health, and safety laws, with compliance being costly and potential for substantial liability from accidents[303][304] General Risks to our Business General business risks include anti-takeover measures, reliance on information technology systems vulnerable to breaches, potential adverse effects from changes in tax law, and negative impacts from global economic conditions and international trade tensions. The company also faces risks related to corporate citizenship and sustainability matters, and catastrophic events like earthquakes - Anti-takeover measures in corporate documents and Delaware law make it more difficult for third parties to acquire the company, even if beneficial to stockholders[305][306] - Significant reliance on information technology systems makes the company vulnerable to failures, breaches, or security lapses, potentially disrupting operations and leading to data loss or theft[307] - Changes in tax law, including federal, state, and international policies, could adversely affect business and financial condition[308][309] - Brexit may negatively affect global economic conditions, market access, and regulatory certainty[310][311] - Global economic conditions, including those resulting from the COVID-19 pandemic, may reduce demand for products and increase clinical trial costs due to trade tensions and tariffs[312][313] - Failure to meet corporate citizenship and sustainability expectations could negatively impact the business[314] - Catastrophic events like earthquakes or natural disasters, particularly in the San Francisco Bay Area or Huntsville, Alabama, could harm manufacturing and supply capabilities[315] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or purchases of equity securities by the company or its affiliates during the three months ended September 30, 2021 - No unregistered sales of equity securities or purchases of equity securities by the company or its affiliates occurred in the three months ended September 30, 2021[317] Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[318] Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable[319] Other Information There is no other information to report under this item - No other information is reported[320] Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including certificates of incorporation, bylaws, certifications, and XBRL taxonomy documents - Exhibits include Certificate of Incorporation, Amended and Restated Bylaws, Certifications of principal executive and financial officers, and Inline XBRL Taxonomy Extension documents[322] SIGNATURES Signatures The report was duly signed on behalf of the registrant by Gil M. Labrucherie, Senior Vice President, Chief Operating Officer, and Chief Financial Officer, and Jillian B. Thomsen, Senior Vice President, Finance and Chief Accounting Officer, on November 4, 2021 - Report signed by Gil M. Labrucherie (SVP, COO, CFO) and Jillian B. Thomsen (SVP, Finance, CAO) on November 4, 2021[326]