Nektar Therapeutics F4Q08 and Year End 2008 Earnings Call Transcript

Nektar Therapeutics (NKTR)

F4Q08 and Year End 2008 Earnings Call

February 2, 2009 5:00 pm ET

Executives

Jennifer Ruddock – Senior Director of Investor Relations

Howard W. Robin - President and Chief Executive Officer

John Nicholson - Chief Financial Officer, Senior Vice President

Lorianne Masuoka, MD - Vice President of Clinical Development

Analysts

Cory Kasimov - J.P. Morgan

Richard Silver - Barclays Capital

Ian Sanderson - Cowen and Company

Robert Hazlett - BMO Capital Markets

Presentation

Operator

Good day ladies and gentlemen and welcome to the Nektar Therapeutics Fourth Quarter and Year End Earnings Results Conference Call. My name is Stacey and I will be your conference moderator for today. (Operator Instructions) Now I would like to turn the call over to Miss Jennifer Ruddock, Senior Director of Investor Relations for Nektar.

Jennifer Ruddock

Thank you, Stacy. Good afternoon everyone and thank you for joining us. With us today is our President and CEO Howard Robin, our Chief Financial Officer John Nicholson, and our Vice President of Clinical Development, Dr. Lorianne Masuoka.

Before we get started, please note that the following presentation contains forward-looking statements that reflect our current views regarding the clinical status, clinical results, and clinical plans for our proprietary products in various stages of development, the value and potential of our technology platforms, our financial guidance for 2009, and other future events relating to the company. These forward-looking statements involve risks and uncertainties that are detailed in Nektar’s reports and other filings with the SEC including our Form 10-Q filed with the SEC on November 7, 2008 and a report on Form 8-K filed today with the SEC.

Actual results could differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information, future events, or developments. A web cast of this call will be available for replay on the Investor Relations page at Nektar’s www.nektar.com.

In the event that any non-GAAP financial measure is discussed on this conference call that is not described during the call, related information will be made available on the Investor Relations page of our website as soon as practical after the conclusion of the call.

With that, I am pleased to hand the call over to our President and CEO Howard Robin.

Howard Robin

Thank you Jennifer and thanks everyone for joining us. 2007 and 2008 were transformational years for Nektar. We set a new path forward for the Company that focuses squarely on developing innovative drugs with our PEGylation and advanced polymer conjugate technology. The impressive Phase 2 results for NKTR-118 that we announced this morning are a major milestone in the evolution of Nektar into a successful drug development company.

Now on to our exciting news, on the basis of overwhelming evidence of efficacy at two different dose levels we are terminating our Phase 2 NKTR-118 study. The results from this trial were highly specifically significant at the 25 mg dose and the 50 mg dose were the primary endpoint in a dose dependent increase in spontaneous bowel movements or SBMs after the first week of treatment observed with once daily dose of NKTR-118 as compared to placebo. The p value or the primary endpoint was <0.01 for all comparisons. Most importantly there was no reversal of analgesia and increase in daily opiate use for both the 25 mg and 50 mg dose cohorts.

Now I would like to turn the call over to Dr. Lorianne Masuoka, our VP of Clinical Development and she will take you through the data in more detail.

Lorianne Masuoka, MD

We are extremely pleased with the results from our Phase 2 study of NKTR-118. As you may know, opioid induced constipation has a major negative impact on the health and quality of life of patients with moderate to severe chronic pain.

The patients in our Phase 2 study were severely constipated with an average of just over one bowel movement per week and were not adequately treated with currently available remedies, which is what led them to enroll in our clinical trial.

The patients taking NKTR-118 in our trial experienced a marked improvement in bowel function as measured by an average increase of three to four spontaneous bowel movements per week during the first week of treatment. This degree of improvement was maintained through out the 28-day treatment period. More specifically, patients in the 25 mg dose cohort of NKTR-118 had an increase in spontaneous bowel movements from an average of 1.5 at baseline to 5.1 at the end of the first week. A somewhat larger treatment affect was noted for patients in the 50 mg dose cohort of NKTR-118 who had an increase in bowel movements from an average of 1.6 at baseline to 5.7 at the end of the first week.

I’ve just told you how patients taking NKTR-118, who are severely constipated, have an improvement in bowel function to nearly normal after only one week of treatment. Now let me tell you how much better the NKTR-118 patients fared than the placebo patients.

Patients receiving the 25 mg and the 50 mg does of NKTR-118 had an increase of approximately four bowel movements per week as compared to the placebo group, which had an increase of less than two bowel movements per week. These results were highly statistically significant with a p <0.01 for both the 25 and 50 mg dose group starting at the first week of treatment. The results were sustained for a 28-day period overall with a p <0.01 for both dosing cohorts.

NKTR-118 did not result in an increase in pain and was not associated with an increase in opiate use at any time during the 28-day treatment period at any does. NKTR-118 was also not associated with opiate withdrawal as assessed by a change in the clinical opiate withdrawal scale.

The most frequent side effects observed in the study that led to discontinuation of medication were diarrhea, nausea, and abdominal cramping. These GI side effects were most frequent in the 50 mg does cohort, occurred rarely in the 25 mg dose group, and are expected for a drug with this mechanism of action.

The lead investigator for our study is Dr. Lynn Webster, who is the Medical Director of Life Tree Clinical Research. Dr. Webster is a leading expert in pain management and is on the boards of the American Academy of Pain Medicine and the National Pain Foundation. He has evaluated many compounds in the field of pain management including drugs to treat OIC. In his experience, NKTR-118 was extremely effective in treating patients in the Phase 2 study who were on a wide range of opiate doses spanning 30 to 1,000 morphine equivalent units.

Up to 90% of pain patients develop OIC and other symptoms of opioid induced bowel dysfunction. Constipation can be extremely severe and many patients discontinue their opioid therapies as a result, which is a challenge for clinicians treating these patients.

NKTR-118 targets the underlying mechanism of OIC without reversal of analgesia. This oral, once daily, investigational drug could represent a significant advance for both patients and physicians in the treatment of OIC. The final results from our NKTR-118 Phase 2 study are being submitted for presentation at appropriate scientific forums.

With that I would like to turn the call back to Howard.

Howard Robin

As Dr. Masuoka stated, the positive results for NKTR-118 is very promising news for patients taking chronic opioid therapy who are suffering from the debilitating condition of opioid induced constipation.

Based on our positive experience with NKTR-118 we have initiated the development of a new important clinical candidate NKTR-119. NKTR-119 is a combination of a long-acting opiate with NKTR-118. NKTR-119 represents an important new product concept, a novel analgesic that does not cause the serious GI side effects seen with opiates. We anticipate starting a Phase 2 proof of concept study with NKTR-119 in the second half of this year.

We have significant partnering opportunities for both NKTR-118 and NKTR-119. We estimate the potential market for NKTR-118 to exceed $1 billion and NKTR-119 to be substantially larger than that. We are in discussions with a number of pharmaceutical companies and there is significant partner interest.

The data we announced today is critically important to Nektar and our shareholders for another reason. The Phase 2 results for NKTR-118 further validate the use of Nektar’s advanced polymer conjugate technology platform to create innovative small molecule drugs. Our novel and proprietary platform can do three things: First, it significantly improves the pharmacological activity of small molecule drugs; second, it allows the creation of novel orally bioavailable therapeutics and third, it enables preferential distribution of a drug within the body.

This technology break through is the result of our pioneering science in the field of polymer conjugation chemistry and PEGylation.

Nektar’s platform has the potential to create new drugs with highly desirable pharmacologic properties that can significantly improve the treatment paradigm in areas of high unmet medical need.

Now I would like to talk about two other product candidates in the clinic NKTR-102, a PEGylated irinotecan and NKTR-105, PEGylated docetaxel. Both of these represent large market opportunities for Nektar.

NKTR-102 is the first PEGylated oncolytic to show promising therapeutic activity in humans. In January we announced that dosing had begun in our Phase 2 trial for this key compound in platinum resistant ovarian cancer. Since then we have also dosed our first patient in the metastatic breast cancer study and we have dosed patients in the randomized Phase 2b study of NKTR-102 in second line colorectal cancer. Regulatory and IRB approval have also been obtained for the Phase 2 study of single agent NKTR-102 in metastatic cervical cancer.

As we said in our presentation at J.P. Morgan in early January, we expect that preliminary data from the breast and ovarian cancer studies will be available by the end of this year. The randomized Phase 2b study to evaluate NKTR-102 therapy, versus irinotecan in second line colorectal cancer patients with the K-ras gene mutation, will enroll approximately 174 patients.

This study is a head-to-head comparison of NKTR-102 versus irinotecan with a primary endpoint of progression free survival. Data is expected in Q1, Q2 of next year.

We are excited about the potential of NKTR-102 in these multiple tumor settings. We presented positive Phase 1 data on NKTR-102 at the 20^th EORTC Triple meeting in Geneva in October 2008. The date show that our pro drug polymer conjugate approach enables us to optimize the PK profile of the active metabolite of NKTR-102 relative to irinotecan. The half-life of the active metabolite of NKTR-102 is approximately 50 days as opposed to only 47 hours with irinotecan. This results in sustained exposure of the tumor to NKTR-102.

In our Phase 1 study a total of 14 patients out of 76 ha evidence of significant anti-tumor activity with NKTR-102. The Phase 2a study for NKTR-102 plus cetuximab is ongoing. To date we have had four patients with significant anti-tumor activity out of 12 patients. These responses were observed within just the first one or two courses of treatment. Our results so far for NKTR-102 make us extremely encouraged about the expanded Phase 2 development program underway for this chemotherapeutic.

Now let’s discuss NKTR-105 a PEGylated form of docetaxel. We recently dosed our first cohort of patient’s in the NKTR-105 Phase 1 study. This study will evaluate the drug in approximately 30 patients with refractory solid tumors. As with NKTR-102 our technology platform can enable a substantially improved pharmacodynamic profile that potentially enhances therapeutic efficacy. We will be presenting additional pre clinical data at the American Association of Cancer meeting in Colorado in April and we expect to have Phase 1 data for NKTR-105 by the end of the year.

Now let’s discuss some of our pre clinical programs.

The NKTR-118 clinical results reinforced the potential of a number of product opportunities, including two programs for which we are already conducting pre clinical studies, NKTR-140 our protease inhibitor candidate and NKTR-171 for the treatment of pain. These products represent the use of our uniquely engineered polymers conjugated in stable linkages to small molecule drugs to improve physicochemical and pharmacological properties, modulate metabolism, enable preferential distribution, and increase oral bioavailability.

I want to talk for a moment about NKTR-140, our novel protease inhibitor candidate to treat HIV and the next investigational oral drug in our pipeline.

Using a similar polymer conjugation approach that we used in NKTR-118, we have designed NKTR-140 to avoid rapid and extensive metabolism. In addition we believe that using our technology platform could result in increased potency to enhance binding affinity to the protease enzyme. The product could eliminate the rotonavir boosting needed with current protease inhibitor therapy, which can have serious side affects and result in drug-to-drug interactions. Use of NKTR-140 without the need for rotonavir may also reduce viral resistance.

In our pre clinical data in human hepatocytes we saw substantially reduced metabolism with NKTR-140 as compared to a leading protease inhibitor that was rapidly metabolized. We also saw increased potency of NKTR-140 in HIV infected cells in vitro and we’re extremely encouraged about the potential for this drug. Pre clinical studies are under way for NKTR-140 and we expect to file an IND by the end of this year.

NKTR-171 is another promising product candidate using the same technology approach as NKTR-118 in the area of neuropathic pain. We have observed promising pre clinical results in both in vitro and in vivo models. We are currently evaluating NKTR-171 in more advanced models of pain and we will share more on this important compound as it progresses through developments.

Now I would like to turn the call over to John Nicholson who will provide financial guidance for 2009.

John Nicholson

Thank you, Howard, and good afternoon. 2008 was a year of strong financial and operating performance for Nektar. We invested $82 million in clinical trials. We retired $100 million of convertible debt at a significant discount and we ended the year with $379 million in cash.

Revenue for 2009 is expected to be between $65 and $75 million. This projection includes the anticipated exercise of a $31 million dollar existing license option extension in December 2009. The majority of our revenue in 2009 is expected to be product sales and royalties. We are reiterating our 2009 guidance of non-GAAP cash used in operations of $80 million. This includes and investment of $6 to $8 million and our proprietary clinical program. With $4 million in transaction costs related to the Novartis transaction and $1 million of other payments our GAAP cash used in operations is expected to be $85 million.

Capital expenditures are expected to be approximately $20 million in 2009. We reiterate our prior guidance that we expect to end the year with $275 million in cash. This does not include cash from any potential new partnerships.

With that, let me turn the call back to Howard.

Howard Robin

Thank you, John. 2008 was truly a transformational year for Nektar. We are excited about the opportunities that lie ahead for our clinical pipeline in 2009 and beyond. Our ability to use our advanced polymer conjugate technology and translate it into opportunities with small molecules, antibody fragments, peptides, and nucleic acid is what makes Nektar truly unique and tremendously exciting.

I am exceptionally proud of our employees and the hard work that went into building our pipeline and creating the company we are today. With one of the most robust pipelines in the biotech industry, a streamlined and effective organization, a strong cash position, and a dominant intellectual property estate, we are well positioned for success. I look forward to keeping you updated on the progress through out the year.

With that, I would like to open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Cory Kasimov with J.P. Morgan.

Cory Kasimov - J.P. Morgan

I have a few questions around NKTR-118. First of all, what triggered the early look at the data? Was there a built in interim analysis for this study?

Lorianne Masuoka, MD

Built into this trial was an evaluation by a dose escalation committee after the end of each cohort and at the end of the third cohort the dose escalation committee recommended that we not proceed beyond the 50 mg dose and that is what triggered this analysis.

Cory Kasimov - J.P. Morgan

Okay and then who comprised this dose? Is this an independent committee, or is this internal member’s of the clinical development team?

Lorianne Masuoka, MD

This is an external committee with one member who is not actively involved in the conduct of the study within Nektar, so it is largely an independent group.

Cory Kasimov - J.P. Morgan

Okay great. Then can you provide us with any other incremental data on the study? I know you probably are saving it for presentation at the scientific meeting, but, for example, can you share with us the time to first bowel movement? Like the percent that was achieved was within four hours?

Lorianne Masuoka, MD

We will be presenting that data at an upcoming scientific meeting and in order to preserve the integrity of those data for that meeting we need to not discuss any further details at this time.

Cory Kasimov - J.P. Morgan

Okay, safe to say though you’re pleased with what you saw from the standpoint that the study was stopped early like this?

Lorianne Masuoka, MD

It is very safe to say.

Cory Kasimov - J.P. Morgan

Would you be willing to start a Phase 3 study without a partner or do you plan on partnering this and letting them [interposing].

Howard Robin

Look, that’s I’m sorry go ahead Cory.

Cory Kasimov - J.P. Morgan

I was just going to say and let them bear the burden of the cost of a Phase 3 development program?

Howard Robin

Well look, as I said earlier, this drug, and these results have caused great interest in potential partners and we have been speaking to a number of companies for a while, who are awaiting the data. I think it’s safe to say that we are very much planning to find a collaborator for this program.

Now with that said, I don’t want you to think of this as an out license. This would be a program where Nektar retains significant ownership of this drug. So, you could think of it as profit splits, you could think of it as high royalty rates, however you would like to calculate that. I think it would be beneficial to have a partner. I think this is a very large market that needs a fairly sizable sales force and I think the right partner would do very well for us in this area. I think we’ll have those discussions and I would like to have a partnership completed this year.

Cory Kasimov - J.P. Morgan

Okay, so think along the lines of Amacacin, is that right?

Howard Robin

I think that’s a good model for the way I like to do deals.

Operator

Your next question comes from Richard Silver from Barclays Capital.

Richard Silver - Barclays Capital

I’m just trying to get a better sense on the ’09 guidance. Considering the R&D and SG&A numbers in the fourth quarter, can you just comment on those numbers relative to the kind of spend we should be looking for going forward?

John Nicholson

I guess, to answer your question, basically our R&D spend for the last year was about $150 million and our R&D spend for this year will probably be in the $125 to $135 million area, and from a G&A perspective this year, we’re looking along the lines of somewhere in the neighborhood of about a $50 to $55 million range.

Richard Silver - Barclays Capital

Okay and on the revenue guidance, what was the proportion of revenue between contract research, product sales, and royalties?

John Nicholson

Are you talking about for 2008 or 2009?

Richard Silver - Barclays Capital

That’s 2009 guidance.

John Nicholson

Basically in 2009 there is very little there in contract research. Most of it is product sales and royalties.

Richard Silver - Barclays Capital

Okay and any milestones?

John Nicholson

At this point in time, there is approximately somewhere in the neighborhood of around $10 million in milestones.

Howard Robin

Remember, Rich, the paradigm for Nektar is very different now. We are not a delivery service provider. We are not a contract manufacturer, we are a company that is developing therapeutics, and to the extent that we work with partners there will always be some level of partnership revenue. But, for the most part the concept of Nektar receiving revenues to provide services is no longer really within our strategic model.

Operator

Your next question comes from Ian Sanderson with Cowen and Company.

Ian Sanderson - Cowen and Company

On the collaboration front of NKTR-118 would you necessarily do a collaboration deal on this separate from 119 or would you most likely put these together?

Howard Robin

I think that’s a great question. I think it is certainly possible that they can be done separately, but I would imagine that any potential partner would be interested in both of them, since it becomes a bit of a challenge to separate them in terms of development and even in terms of marketing.

With that said, we are certainly willing to look at those types of transactions, but my guess is that it becomes a NKTR-118 and119 transaction. And you can imagine that that has significant value for Nektar in both the short-term affect in terms of cash up front, as well as the back side which would have a substantial royalty associated with it.

Ian Sanderson - Cowen and Company

You know that NKTR-140 is the next oral peg candidate? Also, has something happened with NKTR-125

Howard Robin

NKTR-125 is moving along in a pre clinical sense. We have some more homework to do on it and therefore I haven’t announced when we will be filing an IND for NKTR-125. It’s still a very exciting possibility. At this point we’ve seen such impressive results, at least pre clinically, with NKTR-140 and we’re dealing with significance in important patient population, HIV, that we expect to have that IND filed this year.

Ian Sanderson - Cowen and Company

Then back on 118, I know the safety committee stopped it at 50 mg dose because they felt you didn’t need to go higher, but have you ever looked at what the dose limiting toxicity might be for 118?

Lorianne Masuoka, MD

We don’t have any formal dose limiting toxicity per se in this trial. What we did see was some of the patients had some abdominal complaints which were somewhat more frequent in the 50 mg group and very rare in the 25 mg group. So, we felt that we had a combination of a dose that was not only extremely active, but superbly well tolerated and this provides us a very good dose going forward into Phase 3.

Operator

Your next question comes from Robert Hazlett from BMO Capital Markets.

Robert Hazlett - BMO Capital Markets

With 118 and 119 does PEGylation provide abuse resistant characteristics, or is that something that might potentially be teased out over the long haul?

Howard Robin

Well that’s not the purpose of NKTR-118 or 119. I mean the purpose of NKTR, we haven’t really explored that, and that isn’t really where we see the value of this drug. I mean the value of this drug is, of course, to treat the millions of patients who are taking chronic opioid therapy and have significant problem with their bowel function.

NKTR-119 is, of course, an opioid therapy itself that would not cause constipation. So, I think t those markets are very impressive. I think we see the market for both of these drugs well exceeding $1 billion annually.

I will let Lorianne comment further regarding the potential for substance abuse.

Lorianne Masuoka, MD

I think that the combination of NKTR-118 with an opiate would make it inherently unattractive for those who intend to abuse this product, because of course there is some peripheral reversal of effect and the methods by which the drug abusing population uses these products would probably render it fairly unattractive for that population. Although that wasn’t our specific intent, it doesn’t appear to be a product that would have a significant issue with abuse potential.

Robert Hazlett - BMO Capital Markets

On 140 the question is when will you be able to find which PI you’re using and I guess just any potential data presentations? I know the ID is coming up later this year, but I really wanted to just explore which PI and the data that you’ve generated to date.

Howard Robin

We haven’t stated publicly which protease inhibitor we will be using in this formulation in this novel therapeutic. We will do it later in the year and certainly we will be making formal presentations to show our data and our selection choice. As I said, we’ll have an IND filed by the end of the year. We haven’t stated it yet, but we will and I don’t have a specific time frame for that yet.

Operator

Ladies and gentlemen, we thank you for our participation in today’s conference. This does conclude your presentation. Have a great day.

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