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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
w
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2023
or
☐ TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number: 0-24006
NEKTAR THERAPEUTICS
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-3134940
(IRS Employer
Identification No.)
455 Mission Bay Boulevard South
San Francisco, California 94158
(Address of principal executive offices and zip code)
415-482-5300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.0001 par value
Trading Symbol
NKTR
Name of Each Exchange on Which Registered
NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. :
Large Accelerated Filer
Non-accelerated filer
Emerging growth company
☐
☐
☐
Accelerated filer
Smaller reporting company
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒
The approximate aggregate market value of voting stock held by non-affiliates of the registrant, based upon the last sale price of the registrant’s common stock on the last business day of the
registrant’s most recently completed second fiscal quarter, June 30, 2023, as reported on The NASDAQ Capital Market, was approximately $109 million.
As of February 27, 2024, the number of outstanding shares of the registrant’s common stock was 183,617,817.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant’s definitive Proxy Statement to be filed for its 2024 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. Such Proxy Statement will be filed with
the Securities and Exchange Commission within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.
Table of Contents
Summary of Risks
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
NEKTAR THERAPEUTICS
2023 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Item 15.
Signatures
Exhibits and Financial Statement Schedules
PART IV
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5
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Forward-Looking Statements
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes
of this annual report on Form 10-K, including any projections of market size, earnings, revenue, milestone payments, royalties, sales or other financial
items, any statements of the plans and objectives of management for future operations (including, but not limited to, preclinical development, clinical trials
and manufacturing), any statements related to our financial condition and future working capital needs, any statements related to our prior strategic
reorganization and cost restructuring plans, any statements regarding potential future financing alternatives, any statements concerning proposed drug
candidates and our future research and development plans, any statements regarding the timing for the start or end of clinical trials or submission of
regulatory approval filings, any statements regarding future economic conditions or performance, any statements regarding the initiation, formation, or
success of our collaboration arrangements, commercialization activities and product sales levels and future payments that may come due to us under these
arrangements, any statements regarding our plans and objectives to initiate or continue clinical trials, any statements related to potential, anticipated, or
ongoing litigation and any statements of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the
use of terminology such as “believe,” “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential” or “continue,” or the negative thereof or
other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, such
expectations or any of the forward-looking statements may prove to be incorrect and actual results could differ materially from those projected or assumed
in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to
inherent risks and uncertainties, including, but not limited to, the risk factors set forth in Part I, Item 1A “Risk Factors” below and for the reasons described
elsewhere in this annual report on Form 10-K. All forward-looking statements and reasons why results may differ included in this report are made as of the
date hereof and we do not intend to update any forward-looking statements except as required by law or applicable regulations. Except where the context
otherwise requires, in this annual report on Form 10-K, the “Company,” “Nektar,” “we,” “us,” and “our” refer to Nektar Therapeutics, a Delaware
corporation, and, where appropriate, its subsidiaries.
Trademarks
The Nektar brand and product names, including but not limited to Nektar®, contained in this document are trademarks and registered trademarks of
Nektar Therapeutics in the United States (U.S.) and certain other countries. This document also contains references to trademarks and service marks of
other companies that are the property of their respective owners.
Summary of Risks
We are providing the following cautionary discussion of risk factors, uncertainties and assumptions that we believe are relevant to our business.
These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results and
our forward-looking statements. We note these factors for investors as permitted by Section 21E of the Exchange Act and Section 27A of the Securities
Act. Investors in Nektar Therapeutics should carefully consider the risks described below before making an investment decision. You should understand
that it is not possible to predict or identify all such factors. Consequently, you should not consider this section to be a complete discussion of all potential
risks or uncertainties that may substantially impact our business. Moreover, we operate in a competitive and rapidly changing environment. New factors
emerge from time to time and it is not possible to predict the impact of all of these factors on our business, financial condition or results of operations.
Risks to our business are more fully described below in Item IA in this Form 10-K, which risks include, among others:
•
Risks Related to our Research and Development Efforts:
o
o
o
o
o
clinical drug development is a lengthy and uncertain process and we may not be able to generate and develop successful drug
candidates for commercial use;
we are highly dependent on the success of rezpegaldesleukin (previously referred to as NKTR-358) and NKTR-255 and our
business will be significantly harmed if either rezpegaldesleukin or NKTR-255 do not continue to advance in clinical studies;
the outcomes from competitive immunotherapy clinical trials, and the discovery and development of new potential
immunotherapy could have a material and adverse impact on the value of our pipeline;
significant competition for our polymer conjugate chemistry technology platforms and our products and drug candidates could
make our technologies, drug products or drug candidates obsolete or uncompetitive;
preliminary and interim data from our clinical studies are subject to audit and verification procedures that could result in material
changes in the final data and may change as more patient data become available;
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o
o
clinical trials for any of our drug candidates could be delayed for a variety of reasons, including delays associated with activating
clinical sites and lower than anticipated patient enrollment rates, which are often outside of our control; and
we depend on third parties to conduct laboratory experiments, preclinical studies and clinical trials for our biologic candidates
and any failure of those parties to fulfill their obligations according to our instructions and protocol standards could harm our
research and development plans and adversely affect our business.
•
Risks Related to our Financial Condition and Capital Requirements:
o
o
o
o
there is no guarantee that our prior strategic reorganization plan and cost restructuring plans will achieve their intended benefits
and we may need to undertake additional cost-saving measures;
we have substantial future capital requirements and there is a risk we may not have access to sufficient capital to meet our
current business plan;
a significant source of our revenue and capital for research and development has been derived from our collaboration
agreements, and if we are unable to establish and maintain collaboration partnerships with attractive commercial terms,
including significant development milestones and research and development cost-sharing, our business, results of operations and
financial condition could suffer; and
we expect to continue to incur substantial net losses from operations and may not achieve or sustain profitability in the future.
Risks Related to Supply and Manufacturing:
o
o
if we or our contract manufacturers are not able to manufacture drugs or drug substances in sufficient quantities that meet
applicable quality standards, our business, financial condition and results of operations could be harmed; and
we purchase some of the starting material for drugs and drug candidates from a single source or a limited number of suppliers,
and the partial or complete loss of one of these suppliers could cause delays, loss of revenue and contract liability.
Risks Related to Intellectual Property, Litigation and Regulatory Concerns:
o
o
o
we or our partners may not obtain regulatory approval for our drug candidates on a timely basis, or at all;
patents may not issue from our patent applications for our drug candidates, patents that have issued may not be enforceable, or
additional intellectual property licenses from third parties may be required, which may not be available to us on commercially
reasonable terms; and
from time to time, we are involved in legal proceedings and may incur substantial litigation costs and liabilities that could
adversely affect our business, financial condition and results of operations.
•
•
•
Risks Related to our Collaboration Partners:
o
o
we are highly dependent on advancing rezpegaldesleukin in clinical trials, and while we believe we currently have the materials
that are necessary for us to continue clinical development of rezpegaldesleukin, our ability to perform important development
activities will be significantly harmed if Eli Lilly and Company fails to continue to cooperate with us in the transfer of all
materials associated with the rezpegaldesleukin program; and
we may rely on academic and private non-academic institutions to conduct investigator-sponsored clinical studies or trials of our
product candidates and any failure by the investigator-sponsor to meet its obligations with respect to the clinical development of
our product candidates may delay or impair our ability to enter into collaboration agreements, obtain regulatory approval and
commercialize for our product candidates.
In addition to the above-mentioned risks, our business is subject to a number of additional risks faced by businesses generally.
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Item 1. Business
PART I
Nektar Therapeutics is a clinical stage, research-based drug discovery biopharmaceutical company focused on discovering and developing
innovative medicines in the field of immunotherapy. Within this growing field, we direct our efforts toward creating new immunomodulatory agents that
selectively induce, amplify, attenuate or prevent immune responses in order to achieve desired therapeutic outcomes. We apply our deep understanding of
immunology and unparalleled expertise in polymer chemistry to create innovative drug candidates and use our drug development expertise to advance these
molecules through preclinical and clinical development. Our pipeline of clinical-stage and preclinical-stage immunomodulatory agents targets the treatment
of autoimmune diseases (e.g. rezpegaldesleukin and NKTR-0165, respectively) and cancer (e.g. NKTR-255). We continue to make significant investments
in building and advancing our pipeline of drug candidates as we believe that this is the best strategy to build long-term shareholder value.
Our Drug Candidates and Pipeline
By modulating the immune system, our drug candidates target pathways that play critical roles in a wide range of serious diseases. In autoimmune
diseases, our focus is on addressing imbalances in the immune system to restore the body’s self-tolerance mechanisms and to achieve immune homeostasis.
In oncology, we are focused on activating the immune system’s natural tumor-fighting mechanisms.
Autoimmune diseases
We recognize that many autoimmune diseases are caused by an imbalance in the body’s immune system. A failure of the body's self-tolerance
mechanisms enables the formation of pathogenic T cells that cause the immune system to mistakenly attack and damage healthy cells in a person’s body.
Current systemic treatments for autoimmune diseases, including corticosteroids and anti-TNF agents, suppress the immune system broadly and come with
severe side effects. Pharmaceutical agents designed to rebalance the immune system by increasing the function of regulatory T cells (Treg cells), powerful
inhibitory immune cells, could be used to treat patients suffering from autoimmune disorders and inflammatory diseases.
Rezpegaldesleukin
Our drug candidate rezpegaldesleukin is a potential first-in-class resolution therapeutic that may address this underlying immune system imbalance
in people with autoimmune disorders and inflammatory diseases. It is designed to target the interleukin-2 (IL-2) receptor complex in the body in order to
stimulate proliferation of Treg cells. By activating these cells, rezpegaldesleukin may act to bring the immune system back into balance. Rezpegaldesleukin
is being developed as a once or twice monthly self-administered injection for a number of autoimmune disorders and inflammatory diseases.
On October 13, 2023, we announced final efficacy data from a Phase 1b study of rezpegaldesleukin in adult patients with atopic dermatitis (Phase
1b AD Study) at the European Academy of Dermatology and Venereolgy conference. The final efficacy data from the Phase 1b AD study showed that
patients with moderate-to-sever atopic dermatitis that were treated with rezpegaldesluekin had dose-dependent improvements in the eczema area and
severity index (EASI), validated investigated global assessment (vIGA), body surface area (BSA), and itch numeric rating scale (NRS) over twelve weeks
of treatment compared to placebo, which were sustained post-treatment over an additional thirty-six weeks. Rezpegaldesleukin was well tolerated with no
patients in the rezpegaldesleukin groups experiencing severe, serious, or fatal adverse events, and no anti-rezpegaldesleukin antibodies were detected.
In late October 2023, we initiated a Phase 2b clinical study of rezpegaldesleukin in patients with moderate-to-severe atopic dermatitis, and we are
targeting the initiation of a new Phase 2b clinical study in patients with alopecia areata by the end of March 2024. We plan to explore other auto-immune
indications for the development of rezpegaldesleukin.
We developed rezpegaldesleukin and own full rights to this drug candidate. Although we previously entered into a license agreement with Eli
Lilly and Company in 2017 (the Lilly Agreement) to develop and commercialize rezpegaldesleukin, on April 23, 2023, we received from Lilly a notice of
at-will termination of the Lilly Agreement, and on April 27, 2023, we announced that we would be regaining full rights to rezpegaldesleukin.
NKTR-0165
We believe that our preclinical tumor necrosis factor (TNF) receptor type II (TNFR2) agonist asset is a potentially unique bivalent antibody that
selectively stimulates TNFR2 receptor activity, without modulation of the TNFR1 signaling. TNFR2 signaling drives immunoregulatory function and can
provide a direct protective effect for tissue cells. TNFR-2 is
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highly expressed on Tregs, neuronal cells and endothelial cells and has been shown to potentiate the suppressive effects and overall functional properties of
Tregs. Our focus is on TNFR2 antibody candidates that show selective Treg cell binding and signaling profiles that may be potentially developed for
treatment of autoimmune diseases, such as ulcerative colitis, multiple sclerosis and vitiligo. We are carrying out Investigational New Drug (IND) enabling
studies for this program in 2024, after having exercised an option to gain an exclusive license to specified agonistic antibodies and other materials that were
developed pursuant to a research collaboration and license option agreement we entered into with Biolojic Design, Ltd. in 2021.
Oncology
NKTR-255
In oncology, we focus on developing medicines based on targeting biological pathways that stimulate and sustain the body’s immune response in
order to fight cancer. NKTR-255 is an investigational biologic that is designed to target the interleukin-15 (IL-15) pathway in order to activate the body’s
innate and adaptive immunity. Activation of the IL-15 pathway enhances the survival and function of natural killer (NK) cells and induces survival of both
effector and CD8+ memory T cells. Recombinant human IL-15 is rapidly cleared from the body and must be administered frequently and in high doses
limiting its utility due to toxicity. Through optimal engagement of the IL-15 receptor complex, NKTR-255 is designed to enhance functional NK cell
populations and the formation of long-term immunological memory, which may lead to sustained and durable anti-tumor immune response.
We are continuing select developmental studies of NKTR-255 in combination with cell therapies and checkpoint inhibitors while we evaluate
additional strategic partnership pathways for the program. We initiated a Nektar-sponsored Phase 2/3 study to evaluate NKTR-255 following Yescarta® or
Breyanzi® CD19 CAR-T cell therapy in patients with large B-cell lymphoma, and the Fred Hutchinson Cancer Center is evaluating NKTR-255 following
Breyanzi® CD19 CAR-T cell therapy in patients with relapsed/refractory large B-cell lymphoma in an investigator sponsored study. We are continuing our
oncology clinical collaboration with Merck KGaA to evaluate the maintenance regimen of NKTR-255 in combination with avelumab, a PD-L1 inhibitor, in
patients with locally advanced or metastatic urothelial carcinoma in the Phase II JAVELIN Bladder Medley study. We expect to receive topline data from
the study in the second half of 2024. We entered into a new clinical study collaboration with AbelZeta Pharma, Inc. (AbelZeta) (formerly known as CBMG
Holdings) to study NKTR-255 in combination with its C-TIL051, a tumor-infiltrating lymphocyte (TIL) therapy, in advanced non-small cell lung cancer
(NSCLC) patients that are relapsed or refractory to anti-PD-1 therapy. Under the collaboration, we will contribute NKTR-255 and AbelZeta will add
NKTR-255 to its ongoing AbelZeta-sponsored Phase 1 clinical trial. We also have an ongoing investigator sponsored study evaluating NKTR-255 in
combination with IMFINZI (darvulumab) in patients with unresectable Stage 3 NSCLC who have received chemoradiation.
Other Research and Development Program and Advanced Polymer Conjugate Technology Platform
We believe it is important to maintain a diverse pipeline of new drug candidates to build on the value of our business. Our discovery research
organization is continuing to identify new drug candidates by applying our technology platform to a wide range of molecule classes, including small
molecules and proteins, peptides and antibodies. We aim to advance our most promising research drug candidates into preclinical development with the
objective of advancing these early-stage research programs to human clinical studies over the next several years.
We continue to progress our preclinical PEG-Colony Stimulating Factor (PEG-CSF1) program. PEG-CSF1 is a polyethylene glycol modified
version of the CSF1 protein that is intended to optimize the receptor interaction and to selectively modulate resolution processes of inflammation. We
believe this program has applications in a number of therapeutic indications including acute and chronic inflammation as well as fibrosis. We also maintain
our preclinical oncology asset, NKTR-288, which is an investigational PEG conjugate of the protein interferon gamma that is designed utilizing a site-
specific conjugation approach to modify binding of interferon gamma with one of its substrates and to optimize the pharmacodynamic duration of
interferon gamma signaling. We believe this program has therapeutic applications in oncology as well as in other infectious diseases.
Our advanced and proven polymer conjugate technology platform is focused on conjugating polyethylene glycol to a pharmaceutically active
agent, a process often referred to as “PEGylation.” PEGylation has been a highly effective technology platform for the development of therapeutics with
significant commercial success, such as Amgen’s Neulasta (pegfilgrastim) and UCB’s CIMZIA (certolizumab pegol). In addition to inventing new
PEGylated drug candidates, our expertise extends to developing robust manufacturing processes for generating the PEGylation reagents that allow us to
utilize the full potential of this important technology.
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Our advanced polymer conjugate technology platforms have the potential to offer one or more of the following benefits:
•
•
•
•
•
•
•
•
•
improve efficacy or safety of a drug as a result of better pharmacokinetics, pharmacodynamics, longer half-life and sustained exposure of
the drug;
improve targeting or binding affinity of a drug to its target receptors with the potential to improve efficacy and reduce toxicity or drug
resistance;
improve solubility of a drug;
enable oral administration of parenterally-administered drugs, or drugs that must be administered intravenously or subcutaneously, and
increase oral bioavailability of small molecules;
prevent drugs from crossing the blood-brain barrier, or reduce their rate of passage into the brain, thereby limiting undesirable central
nervous system effects;
reduce first-pass metabolism effects of certain drug classes with the potential to improve efficacy, which could reduce the need for other
medicines and reduce toxicity;
reduce the rates of drug absorption and of elimination or metabolism by improving stability of the drug in the body and providing it with
more time to act on its target;
differentially alter binding affinity of a drug for multiple receptors, improving its selectivity for one receptor over another; and
reduce immune response to certain macromolecules with the potential to prolong their effectiveness with repeated doses.
We believe that our substantial investment in research and development has the potential to create significant value if one or more of our current
drug candidates demonstrates positive clinical results, receives regulatory approval in one or more major markets and achieves commercial success.
Our Collaboration Partner Programs
We decide on a drug-candidate-by-drug-candidate basis, how far to advance clinical development (e.g., Phase 1, 2 or 3) and whether to
commercialize products on our own, or seek a partner, or pursue a combination of these approaches. When we determine to seek a partner, our strategy is to
selectively access a partner’s development, regulatory, or commercial capabilities with the structure of the collaboration depending on factors such as
economic risk sharing, the cost and complexity of development, marketing and commercialization needs, therapeutic areas, potential for combination of
drug programs, and geographic capabilities.
Our collaboration partners have advanced drug candidates we invented into commercial drug products. In addition, through our collaborations and
licensing partnerships with a number of well-known biotechnology and pharmaceutical companies, more than ten products using our PEGylation
technology have received regulatory approval in the U.S. or Europe. The following table outlines our collaborations and licensing partnerships. These
collaborations generally contain one or more elements including a license to our intellectual property rights and manufacturing and supply agreements
under which we may receive manufacturing revenue, milestone payments, and/or royalties on commercial sales of drug products.
Drug
Primary or Target
Indications
Drug
Marketer/Partner
®
ADYNOVATE and ADYNOVI
®
ADYNOVATE in Europe)
®
(brand name for
Hemophilia A
Takeda Pharmaceutical
Company Limited
Status(1)
Approved 2015*
®
MOVANTIK (naloxegol tablets) and
MOVENTIG (brand name for MOVANTIK in
Europe)
®
®
Opioid-induced constipation in adult
AstraZeneca AB
Approved 2014*
patients with chronic non-cancer pain (US);
Opioid-induced constipation in adult
patients who have and inadequate response
to laxatives (EU).
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Drug
Primary or Target
Indications
Drug
Marketer/Partner
Status(1)
CIMZIA (certolizumab pegol)
®
Crohn’s disease, Rheumatoid arthritis, and
UCB Pharma
Approved 2008**
Psoriasis/ Ankylosing Spondylitis
®
MIRCERA (C.E.R.A.) (Continuous Erythropoietin
Receptor Activator)
Anemia associated with chronic kidney
F. Hoffmann-La Roche Ltd
Approved 2007**
disease in patients on dialysis and patients
not on dialysis
Macugen (pegaptanib sodium injection)
®
Age-related macular degeneration
Bausch Health Companies Inc.
(formerly, Valeant
Pharmaceuticals International,
Inc.)
Approved 2004
Somavert (pegvisomant)
®
Acromegaly
Pfizer Inc.
Approved 2003
Dapirolizumab Pegol
Systemic Lupus Erythematosus
UCB Pharma (Biogen)
Phase 3
(1) Status definitions are:
Approved — regulatory approval to market and sell product obtained in one or more of the U.S., EU or other countries. Year indicates first regulatory
approval.
Phase 3 — drug candidate in large-scale clinical trials conducted to obtain regulatory approval to market and sell the drug (these trials are typically
initiated following encouraging Phase 2 trial results).
* In December 2020, pursuant to a purchase and sale agreement (the “2020 Purchase and Sale Agreement”) we sold our rights to receive royalties on
future worldwide new sales of ADYNOVATE /ADYNOVI and MOVANTIK /MOVANTIG (as well as REBINYN and specified licensed
products under a Right to Sublicense Agreement, dated October 27, 2017) from and after October 1, 2020 until the purchaser of these rights has
received payments equal to $210.0 million (the “2025 Threshold”), if the 2025 Threshold is achieved on or prior to December 31, 2025, or $240.0
million, if the 2025 Threshold is not achieved on or prior to December 31, 2025 (or, if earlier, the date on which the last royalty payment under the
relevant license agreements is made). All rights to receive royalties will return to Nektar once the 2020 Purchase and Sale Agreement expires.
®
®
®
®
®
** In February 2012, we sold our rights to receive royalties on future worldwide net sales of CIMZIA and MIRCERA effective as of January 1, 2012.
®
®
Government Regulation
Product Development and Approval Process
The research and development, clinical testing, manufacture and marketing of our drug candidates and products using our technologies are subject
to regulation by the FDA and by comparable regulatory agencies in other countries. These national agencies and other federal, state and local entities
regulate, among other things, research and development activities and the testing (in vitro, in animals, and in human clinical trials), manufacture, labeling,
storage, recordkeeping, approval, marketing, advertising and promotion of our products.
The approval process required by the FDA before a product using any of our technologies may be marketed in the U.S. depends on whether the
chemical composition of the product has previously been approved for use in other dosage forms. If the product is a new chemical entity that has not been
previously approved, the process includes the following:
•
•
•
•
extensive preclinical laboratory and animal testing;
submission of an Investigational New Drug (IND) prior to commencing clinical trials;
adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for the intended indication;
extensive pharmaceutical development for the characterization of the chemistry, manufacturing process and controls for the active
ingredient and drug product; and
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•
submission to the FDA of a New Drug Application (NDA) for approval of a drug or a Biological License Application (BLA) for approval
of a biological product.
If the active chemical ingredient has been previously approved by the FDA, the approval process is similar, except that certain preclinical tests,
including those relating to systemic toxicity normally required for the IND and NDA or BLA, and clinical trials, may not be necessary if the company has a
right of reference to existing preclinical or clinical data under Section 505(j) of the Federal Food, Drug, and Cosmetic Act (FDCA) or is eligible for
approval under Section 505(b)(2) of the FDCA or the biosimilars provisions of the Public Health Services Act.
Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the safety and efficacy of the product and its
chosen formulation. Preclinical safety tests must be conducted by laboratories that comply with FDA good laboratory practices (GLP) regulations. The
results of the preclinical tests for drugs, biological products and combination products subject to the primary jurisdiction of the FDA’s Center for Drug
Evaluation and Research (CDER) or Center for Biologics Evaluation and Research (CBER) are submitted to the FDA as part of the IND and are reviewed
by the FDA before clinical trials can begin. Clinical trials may begin 30 days after receipt of the IND by the FDA, unless the FDA raises objections or
requires clarification within that period. Clinical trials involve the administration of the drug to healthy volunteers or patients under the supervision of a
qualified, identified medical investigator according to a protocol submitted in the IND for FDA review. Drug products to be used in clinical trials must be
manufactured according to current good manufacturing practices (cGMP). Clinical trials are conducted in accordance with protocols that detail the
objectives of the study and the parameters to be used to monitor participant safety and product efficacy as well as other criteria to be evaluated in the study.
Each protocol is submitted to the FDA in the IND.
Apart from the IND process described above, each clinical study must be reviewed by an independent Institutional Review Board (IRB), and the
IRB must be kept current with respect to the status of the clinical study. The IRB considers, among other things, ethical factors, the potential risks to
subjects participating in the trial and the possible liability to the institution where the trial is conducted. The IRB also reviews and approves the informed
consent form to be signed by the trial participants and any significant changes in the clinical trial.
Clinical trials are typically conducted in three sequential phases. Phase 1 involves the initial introduction of the drug into healthy human subjects
(in most cases) and the product generally is tested for tolerability, pharmacokinetics, absorption, metabolism and excretion. Phase 2 involves studies in a
limited patient population to:
•
•
•
determine the preliminary efficacy of the product for specific targeted indications;
determine dosage and regimen of administration; and
identify possible adverse effects and safety risks.
If Phase 2 trials demonstrate that a product appears to be effective and to have an acceptable safety profile, Phase 3 trials are typically undertaken
to evaluate the further clinical efficacy and safety of the drug and formulation within an expanded patient population at geographically dispersed clinical
study sites and in large enough trials to provide statistical proof of efficacy and tolerability. The FDA, the clinical trial sponsor, the investigators or the IRB
may suspend clinical trials at any time if, amongst other reasons, any one of them believes that study participants are being subjected to an unacceptable
health risk. In some cases, the FDA and the drug sponsor may determine that Phase 2 trials are not needed prior to entering Phase 3 trials.
Following a series of formal meetings and communications between the drug sponsor and the regulatory agencies, the results of product
development, preclinical studies and clinical studies are submitted to the FDA as an NDA or BLA for approval of the marketing and commercial shipment
of the drug product. The FDA may deny approval if applicable regulatory criteria are not satisfied or may require additional clinical or pharmaceutical
testing or requirements. Even if such data are submitted, the FDA may ultimately decide that the NDA or BLA does not satisfy all of the criteria for
approval. Additionally, the approved labeling may narrowly limit the conditions of use of the product, including the intended uses, or impose warnings,
precautions or contraindications which could significantly limit the potential market for the product. Further, as a condition of approval, the FDA may
impose post-market surveillance, or Phase 4, studies or risk evaluation and mitigation strategies. Product approvals, once obtained, may be withdrawn if
compliance with regulatory standards is not maintained or if safety concerns arise after the product reaches the market. The FDA may require additional
post-marketing clinical testing and pharmacovigilance programs to monitor the effect of drug products that have been commercialized and has the power to
prevent or limit future marketing of the product based on the results of such programs. After approval, there are ongoing reporting obligations concerning
adverse reactions associated with the product, including expedited reports for serious and unexpected adverse events.
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Each manufacturing establishment producing the active pharmaceutical ingredient and finished drug product for the U.S. market must be
registered with the FDA and typically is inspected by the FDA prior to NDA or BLA approval of a drug product manufactured by such establishment. Such
inspections are also held periodically after commercialization. Manufacturing establishments of U.S. marketed products are subject to inspections by the
FDA for compliance with cGMP and other U.S. regulatory requirements. They are also subject to U.S. federal, state, and local regulations regarding
workplace safety, environmental protection and hazardous controls, among others.
In situations where our partners are responsible for clinical and regulatory approval procedures, we may still participate in this process by
submitting to the FDA a drug master file developed and maintained by us which contains data concerning the manufacturing processes for polymer
conjugation materials or drug product. For those products for which we have development responsibility, we prepare and submit an IND and are
responsible for additional clinical and regulatory procedures for drug candidates being developed under an IND. The clinical and manufacturing,
development and regulatory review and approval process generally takes a number of years and requires the expenditure of substantial resources. Our
ability to manufacture and market products, whether developed by us or under collaboration agreements, ultimately depends upon the completion of
satisfactory clinical trials and success in obtaining marketing approvals from the FDA and equivalent foreign health authorities.
Sales of our products outside the U.S. are subject to local regulatory requirements governing clinical trials and marketing approval for drugs. Such
requirements vary widely from country to country.
In the U.S., the FDA may grant Fast Track or Breakthrough Therapy designation to a drug candidate, which allows the FDA to expedite the review
of new drugs that are intended for serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs. Important
features of Fast Track or Breakthrough Therapy designation include a potentially expedited clinical review and close, early communication between the
FDA and the sponsor company to improve the efficiency of product development.
In the U.S., under the Orphan Drug Act, the FDA may grant Orphan Drug Designation to drugs intended to treat a rare disease or condition, which
is generally a disease or condition that affects fewer than 200,000 individuals in the U.S. The company that obtains the first FDA approval for a designated
orphan drug for a rare disease receives marketing exclusivity for use of that drug for the designated condition for a period of seven years. In addition, the
Orphan Drug Act provides for protocol assistance, tax credits, research grants, and exclusions from user fees for sponsors of orphan products. Once a
product receives orphan drug exclusivity, a second product that is considered to be the same drug for the same indication generally may be approved during
the exclusivity period only if the second product is shown to be “clinically superior” to the original orphan drug in that it is more effective, safer or
otherwise makes a “major contribution to patient care” or the holder of exclusive approval cannot assure the availability of sufficient quantities of the
orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Similar incentives also are available for orphan
drugs in the EU.
Coverage, Reimbursement, and Pricing
Sales of any products for which we may obtain regulatory approval depend, in part, on the coverage and reimbursement status of those products.
In the U.S., sales of any products for which we may receive regulatory approval for commercial sale will depend in part on the availability of coverage and
reimbursement from third-party payers. Third-party payers include government programs such as Medicare, Medicaid, TRICARE and the Veterans
Administration, as well as managed care providers, private health insurers and other organizations. Other countries and jurisdictions will also have their
own unique mechanisms for approval and reimbursement.
The process for determining whether a payer will provide coverage for a product is typically separate from the process for setting the
reimbursement rate that the payer will pay for the product. Third-party payers may limit coverage to specific products on an approved list or formulary
which might not include all of the FDA-approved products for a particular indication. Third-party payers may also refuse to include a particular branded
drug on their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.
Further, private payers often follow the coverage and payment policies established by certain government programs, such as Medicare and Medicaid, which
require manufacturers to comply with certain rebate, price reporting, and other obligations. For example, the Medicaid Drug Rebate Program, which is part
of the Medicaid program (a program for financially needy patients, among others), requires pharmaceutical manufacturers to enter into and have in effect a
national rebate agreement with the Secretary of the Department of Health and Human Services under which the manufacturer agrees to report certain prices
to the government and pay rebates to state Medicaid programs on outpatient drugs furnished to Medicaid patients, as a condition for receiving federal
reimbursement for the manufacturer’s outpatient drugs furnished to Medicaid patients. Further, in order for a pharmaceutical product to receive federal
reimbursement under Medicare Part B and Medicaid programs or to be sold
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directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the Public Health Service’s 340B drug
pricing program.
Third-party payers are increasingly challenging the prices charged for medical products and services, and examining the medical necessity and
cost-effectiveness of medical products and services, in addition to their safety and efficacy. Additionally, the containment of healthcare costs has become a
priority of federal and state governments, and the price of therapeutics have been a focus in this effort. The U.S. government and state legislatures have
shown significant interest in implementing cost-containment programs, including price controls and restrictions on reimbursement, among other controls.
Adoption of price controls or other cost-containment measures could limit coverage for or the amounts that federal and state governments or private payers
will pay for health care products and services, which could also result in reduced demand for our drug candidates or additional pricing pressures and affect
our ultimate profitability, if approved. If third-party payers do not consider a product to be cost-effective compared to other available therapies, they may
not cover an approved product or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party
payers fail to provide adequate coverage and reimbursement. Coverage policies and third-party reimbursement rates may change at any time. Even if
favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage
policies and reimbursement rates may be implemented in the future.
Other Healthcare Laws and Regulations
If we obtain regulatory approval of our products, we may be subject to various federal and state laws targeting fraud and abuse in the healthcare
industry. These laws may impact, among other things, our proposed sales and marketing programs. In addition, we may be subject to patient privacy
regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
•
•
•
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering, or paying remuneration (a term interpreted broadly to include anything of value, including, for example, gifts, discounts, and
credits), directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the
purchase, order, or recommendation of, an item or service reimbursable under a federal healthcare program, such as the Medicare and
Medicaid programs. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute regulatory safe
harbors or specific intent to violate it to have committed a violation. On December 2, 2020, the Office of Inspector General, or OIG,
published further modifications to the federal Anti-Kickback Statute regulatory safe harbors. Under the final rules, OIG added safe harbor
protections under the Anti-Kickback Statute for certain coordinated care and value-based arrangements among clinicians, providers, and
others. This rule (with exceptions) became effective January 19, 2021. Implementation of this change and new safe harbors for point-of-
sale reductions in price for prescription pharmaceutical products and pharmacy benefit manager service fees are currently under review
by the Biden administration and may be amended or repealed. We continue to evaluate what effect, if any, the rule will have on our
business;
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities
from knowingly presenting, or causing to be presented, claims for payment to Medicare, Medicaid, or other third-party payers that are
false or fraudulent, or making a false statement or record material to payment of a false claim or avoiding, decreasing, or concealing an
obligation to pay money owed to the federal government. In addition, the government may assert that a claim including items and
services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA.
Manufacturers can be held liable under the federal False Claims Act even when they do not submit claims directly to government payers
if they are deemed to “cause” the submission of false or fraudulent claims. The federal False Claims Act also permits a private individual
acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the federal False Claims Act and to
share in any monetary recovery;
provisions of the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal
statutes, referred to as the “HIPAA All-payer Fraud Prohibition,” that prohibit knowingly and willfully executing a scheme to defraud any
healthcare benefit program and making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a
person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a
violation;
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•
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federal transparency laws, including the federal Physician Payment Sunshine Act, which require manufacturers of certain drugs and
biologics to track and disclose payments and other transfers of value they make to U.S. physicians (currently defined to include doctors,
dentists, optometrists, podiatrists and chiropractors), other licensed health care practitioners and teaching hospitals as well as physician
ownership and investment interests in the manufacturer, and that such information is subsequently made publicly available in a searchable
format on a CMS website;
provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing
regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health
information, and also includes the Final Omnibus Rule published in January 2013, which impose requirements on certain covered
healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates, independent contractors
or agents of covered entities, that perform services for them that involve the creation, maintenance, receipt, use, or disclosure of,
individually identifiable health information relating to the privacy, security and transmission of individually identifiable health
information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly
applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal
courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition,
there may be additional federal, state and non-U.S. laws which govern the privacy and security of health and other personal information
in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating
compliance efforts;
federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely
manner to government programs;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers; and
additionally, state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to
items or services reimbursed by any third-party payer, including commercial insurers, state transparency reporting and compliance laws;
and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in
significant ways and which may not have the same effect, thus complicating compliance efforts. These state-equivalent laws may also
apply to our business practices, including, but not limited to, research, distribution, and sales or marketing arrangements. In addition,
some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General
Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s
Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical
companies to make marketing or price disclosures to the state and require the registration of pharmaceutical sales.
If our drug candidates become commercialized, it is possible that governmental authorities will conclude that our business practices may not
comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and
regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be
subject to significant civil, criminal, and administrative penalties, damages, fines, disgorgement, exclusion from government-funded healthcare programs,
such as Medicare and Medicaid, integrity and oversight agreements to resolve allegations of non-compliance, contractual damages, reputational harm,
diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our
business and our results of operations. Defending against any such actions can be costly, time-consuming and may require significant financial and
personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be
impaired.
In each country or jurisdiction outside of the U.S. in which we seek and receive regulatory approval to commercialize our products, we will be
subject to additional laws and regulations specific to those locations. These regulations and laws will also impact, among other things, our proposed sales
and marketing programs in those jurisdictions.
Legislative and Regulatory Landscape
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the
testing, approval, manufacturing, marketing, coverage and reimbursement of products regulated by the FDA or other government agencies. In addition to
new legislation, FDA and healthcare fraud and abuse and
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coverage and reimbursement regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and
our products. For example, in 2010, the United States Congress enacted the Affordable Care Act, which, among other things, included changes to the
coverage and payment for drug products under government health care programs.
Among the provisions of the Affordable Care Act of importance to potential product candidates are:
•
•
•
•
•
•
an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents,
apportioned among these entities according to their market share in certain government healthcare programs;
expansion of eligibility criteria for Medicaid programs, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program;
expanded the types of entities eligible for the 340B drug discount program;
established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 70% point-of-sale-discount off
the negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the
manufacturers’ outpatient drugs to be covered under Medicare Part D; and
a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,
along with funding for such research.
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. The Budget Control
Act of 2011, among other things, created measures for spending reductions by Congress. This includes aggregate reductions of Medicare payments to
providers up to 2% per fiscal year. Subsequent legislation extended the 2% which remains in effect through 2031. The American Taxpayer Relief Act of
2012 further reduced Medicare payments to several types of providers, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years. Due to the Statutory Pay-As-You-Go Act of 2010, estimated
budget deficit increases resulting from the American Rescue Plan Act of 2021, and subsequent legislation, Medicare payments to providers will be further
reduced starting in 2025 absent further legislation. These laws may result in additional reductions in Medicare and other healthcare funding and otherwise
affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such
product candidate is prescribed or used.
The Inflation Reduction Act of 2022, or IRA, includes several provisions that may impact our business to varying degrees, including provisions
that reduce the out-of-pocket cap for Medicare Part D beneficiaries to $2,000 starting in 2025; impose new manufacturer financial liability on certain drugs
under Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D price caps for certain high-cost drugs and biologics without
generic or biosimilar competition, require companies to pay rebates to Medicare for certain drug prices that increase faster than inflation, and delay the
rebate rule that would limit the fees that pharmacy benefit managers can charge. Further, under the IRA, orphan drugs are exempted from the Medicare
drug price negotiation program, but only if they have one orphan designation and for which the only approved indication is for that disease or condition. If
a product receives multiple orphan designations or has multiple approved indications, it may not qualify for the orphan drug exemption. The
implementation of the IRA is currently subject to ongoing litigation challenging the constitutionality of the IRA’s Medicare drug price negotiation program.
The effects of the IRA on our business and the healthcare industry in general is not yet known.
Furthermore, federal agencies, Congress, state legislatures, and the private sector have shown significant interest in implementing cost
containment programs to limit the growth of health care costs, including price controls, restrictions on reimbursement and other fundamental changes to the
healthcare delivery system. To date, there have been several recent U.S. congressional inquiries, as well as proposed and enacted federal and state
legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient
programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. President Biden has
issued multiple executive orders that have sought to reduce prescription drug costs. In February 2023, HHS also issued a proposal in response to an October
2022 executive order from President Biden that includes a proposed prescription drug pricing model that will test whether targeted Medicare payment
adjustments will sufficiently incentivize manufacturers to complete confirmatory trials for drugs approved through FDA’s accelerated approval pathway.
Although a number of these and other proposed measures may require authorization through additional legislation to become effective, and the
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Biden administration may reverse or otherwise change these measures, both the Biden administration and Congress have indicated that they will continue to
seek new legislative measures to control drug costs.
These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. Any proposed or actual
changes could limit coverage for or the amounts that federal and state governments will pay for health care products and services, which could also result in
reduced demand for our products or additional pricing pressures and affect our ultimate profitability. We expect that additional state and federal healthcare
reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and
services, which could result in reduced demand for our product candidates or additional pricing pressures.
Patents and Proprietary Rights
We own more than 250 U.S. and 1,200 foreign patents and a number of pending patent applications that cover various aspects of our technologies.
We have filed patent applications, and plan to file additional patent applications, covering various aspects of our advanced polymer conjugate technologies
and our drug candidates. More specifically, our patents and patent applications cover polymer architecture, drug candidates, formulations, methods of
making polymers and polymer conjugates, methods of administering our drug candidates, and methods of manufacturing polymers and polymer conjugates.
Our patent portfolio contains patents and patent applications that encompass our advanced polymer conjugate technology platforms as well as our drug
candidates. Our patent strategy is to file patent applications on innovations and improvements to cover a significant majority of the major pharmaceutical
markets in the world. Generally, patents have a term of twenty years from the earliest non-provisional patent application filing priority date (assuming all
maintenance fees are paid). In some instances, patent terms can be increased or decreased, depending on the laws and regulations of the country or
jurisdiction that issued the patent.
We also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that we can meaningfully
protect our trade secrets. Others may independently develop substantially equivalent confidential and proprietary information or otherwise gain access to,
or disclose, our trade secrets. Please refer to Item 1A. Risk Factors, including but not limited to “We rely on trade secret protection and other unpatented
proprietary rights for important proprietary technologies, and any loss of such rights could harm our business, results of operations and financial condition.”
In certain situations in which we work with drugs covered by one or more patents, our ability to develop and commercialize our technologies may be
affected by limitations in our access to these proprietary drugs. Even if we believe we are free to work with a proprietary drug, we cannot guarantee that we
will not be accused of, or determined to be, infringing a third party’s rights and be prohibited from working with the drug or found liable for damages. Any
such restriction on access or liability for damages would have a material adverse effect on our business, results of operations and financial condition.
The patent positions of pharmaceutical and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues.
There can be no assurance that patents that have issued will be held valid and enforceable in a court of law. Even for patents that are held valid and
enforceable, the legal process associated with obtaining such a judgment is time consuming and costly. Additionally, issued patents can be subject to inter
partes review, opposition, reexamination or other proceedings that can result in the revocation of the patent or maintenance of the patent but in an amended
form (and potentially in a form that renders the patent without commercially relevant or broad coverage). Further, our competitors may be able to
circumvent and otherwise design around our patents. Even if a patent is issued and enforceable, because development and commercialization of
pharmaceutical products can be subject to substantial delays, patents may expire early and provide only a short period of protection, if any, following the
commercialization of products encompassed by our patent. We may have to participate in post-grant proceedings before the U.S. Patent and Trademark
Office, which could result in a loss of the patent and/or substantial cost to us. Please refer to Item 1A. Risk Factors, including without limitation, “If any of
our pending patent applications do not issue, or are deemed invalid following issuance, we may lose valuable intellectual property protection.”
U.S. and foreign patent rights and other proprietary rights exist that are owned by third parties and relate to pharmaceutical compositions and
reagents, and equipment and methods for preparation, packaging and delivery of pharmaceutical compositions. We cannot predict with any certainty which,
if any, of these rights will be considered relevant to our technology by authorities in the various jurisdictions where such rights exist, nor can we predict
with certainty which, if any, of these rights will or may be asserted against us by third parties. We could incur substantial costs in defending ourselves and
our partners against any such claims. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which could
effectively block our ability to develop or commercialize some or all of our products in the U.S. and abroad and could result in the award of substantial
damages. In the event of a claim of infringement, we or our partners may be required to obtain one or more licenses from third parties. There can be no
assurance that we can obtain a license to any technology that we determine we need on reasonable terms, if at all, or that we could develop or otherwise
obtain alternative technology. The failure to obtain licenses if needed may have a material adverse effect on our business, results of operations and financial
condition. Please refer to Item 1A. Risk Factors, including without limitation, “We may not be able to obtain intellectual property licenses related to the
development of our drug candidates on a commercially reasonable basis, if at all.”
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It is our policy to require our employees and consultants, outside scientific collaborators, sponsored researchers and other advisors who receive
confidential information from us to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These
agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is
to be kept confidential and not disclosed to third parties except in specific circumstances. The agreements provide that all inventions conceived by an
employee shall be our property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our
trade secrets in the event of unauthorized use or disclosure of such information.
Customer Concentrations
Our revenue is derived from our collaboration agreements with partners, under which we may receive a combination of revenue elements
including up-front payments for licensing agreements, clinical research reimbursement or co-funding, milestone payments based on clinical progress,
regulatory progress or net sales achievements, royalties and/or product sales revenue. Our revenues are concentrated among a limited number of
collaboration partners under long-term arrangements. We derive the substantial majority of our PEGylation reagent product sales from UCB and Pfizer.
Following the 2020 Purchase and Sale Agreement (wherein under a capped return sale arrangement we sold our rights to receive royalties on future
worldwide new sales of MOVANTIK®/MOVANTIG® and ADYNOVATE®/ADYNOVI®, as well as REBINYN® and specified licensed products), other
than our product sales, substantially all of our revenues are non-cash royalty revenues.
Following the termination of our collaboration agreement with Eli Lilly and Company, we do not have a collaboration agreement for
rezpegaldesleukin Therefore, we will not receive collaboration-based revenues for our lead drug candidates, rezpegaldesleukin and NKTR-255 unless we
enter into new collaboration agreements for these drug candidates.
Competition
Competition in the pharmaceutical and biotechnology industry is intense and characterized by aggressive research and development and rapidly-
evolving science, technology, and standards of medical care throughout the world. We frequently compete with pharmaceutical companies and other
institutions with greater financial, research and development, marketing and sales, manufacturing and managerial capabilities. We face competition from
these companies not just in product development but also in areas such as recruiting employees, acquiring technologies that might enhance our ability to
commercialize products, establishing relationships with certain research and academic institutions, enrolling patients in clinical trials and seeking program
partnerships and collaborations with larger pharmaceutical companies.
Science and Technology Competition
We face intense science and technology competition from a multitude of technologies seeking to enhance the efficacy, safety and ease of use of
approved drugs and new drug molecule candidates. A number of the drug candidates in our pipeline have direct and indirect competition from large
pharmaceutical and biopharmaceutical companies. With our advanced polymer conjugate technologies, we believe we have competitive advantages relating
to factors such as efficacy, safety, ease of use and cost for certain applications and molecules. We constantly monitor scientific and medical developments in
order to improve our current technologies, seek licensing opportunities where appropriate, and determine the best applications for our technology platforms.
In the fields of advanced polymer conjugate technologies, our competitors include Biogen Inc., Horizon Pharma, JenKem Technology USA, Dr.
Reddy’s Laboratories Ltd., SunBio Corporation, Laysan Bio, Inc., Mountain View Pharmaceuticals, Inc., Novo Nordisk A/S (formerly assets held by Neose
Technologies, Inc.), NOF Corporation and Aurigene Pharmaceutical Services. Several other chemical, biotechnology and pharmaceutical companies may
also be developing advanced polymer conjugate technology or technologies intended to deliver similar scientific and medical benefits. Some of these
companies license intellectual property or PEGylation materials to other companies, while others apply the technology to create their own drug candidates.
Product and Program Specific Competition
Rezpegaldesleukin
There are a number of competitors in various stages of clinical development that are working on programs which are designed to correct the
underlying immune system imbalance in the body due to autoimmune disease. In particular, we expect to compete with therapies that could be cytokine-
based, microbiome-based, or toleragenic-based therapies (Regeneron, Leo Pharma, Eli Lilly and Company, Galderma, Symbiotix, LLC, Janssen
Pharmaceuticals, AstraZeneca), regulatory T cell therapies (Sangamo Therapeutics, Inc., Quell Therapeutics, Ltd., Sonoma Biotherapeutics, Inc. GentiBio,
Inc., Kyvema Therapeutics, Inc. and Tract Therapeutics, Inc.), or IL-2 based therapies (Amgen, Inc., BMS (through its acquisition of Delnia, Inc.),
Novartis, Inc., ILTOO Pharma, Xencor, inc., Merck & Co (through its acquisition of Pandion Therapeutics), and Sanofi SA).
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NKTR-255
There are numerous companies engaged in developing immunotherapies with different approaches to enhancing NK cell populations which are a
key component of the innate immune system. The approaches include engineered biologics targeting the IL-15 pathway as well as autologous and allogenic
cell therapy approaches. For NKTR-255, we believe companies that are currently researching and developing engineered IL-15 biologics and cell therapies
that could compete with this drug candidate include SOTIO Biotech, Inc., Artiva Biotherapeutics, Fate Therapeutics, ImmunityBio, Inc., Nkarta, Inc.,
NKMax America, and Roche/Genentech (through its partnership with Xencor, Inc.).
Research and Development
Our total research and development expenditures can be disaggregated into the following significant types of expenses (in millions):
Third party and direct materials costs
Personnel, overhead and other costs
Stock-based compensation and depreciation
Research and development expense
Manufacturing and Supply
Year Ended December 31,
2023
2022
$
$
51.9
45.5
16.8
114.2
$
$
79.2
103.9
35.2
218.3
We have a manufacturing facility located in Huntsville, Alabama that manufactures our proprietary PEG reagents for subsequent conjugation to
active pharmaceutical ingredients (APIs). The facility can be used to produce APIs themselves, as well as form PEG conjugates of those APIs, to support
the early phases of clinical development. The facility and associated equipment are designed and operated to be consistent with all applicable laws and
regulations. As we do not maintain the capability to manufacture biologics nor finished drug products for our development programs, we primarily utilize
contract manufacturers to manufacture biologics and finished drug product for us. We also utilize the services of contract manufacturers to manufacture
APIs and finished drug products required for later phases of clinical development and eventual commercialization. Our contract manufacturers have
contractual obligations to comply with all applicable laws and regulations.
We source drug starting materials for our manufacturing activities from one or more suppliers. For the drug starting materials necessary for our
drug candidate development, we have agreements for the supply of such drug components with drug manufacturers or suppliers that we believe have
sufficient capacity to meet our demands. However, from time to time, we source critical raw materials and services from one or a limited number of
suppliers and there is a risk that if such supply or services were interrupted, it could materially harm our business. In addition, we typically order raw
materials and services on a purchase order basis for early phase clinical development products and enter into long-term supply arrangements only for late-
stage products nearing regulatory approval for marketing authorization.
Environment
As a manufacturer of PEG reagents for the U.S. market, we are subject to inspections by the FDA and the U.S. Environmental Protection Agency
for compliance with cGMP and other U.S. regulatory requirements, including U.S. federal, state and local regulations regarding environmental protection
and hazardous and controlled substance controls, among others. Environmental laws and regulations are complex, change frequently and have tended to
become more stringent over time. We have incurred, and may continue to incur, significant expenditures to ensure we are in compliance with these laws and
regulations. To our knowledge, we comply with all material governmental regulations applicable to our business. We would be subject to significant
penalties for failure to comply with these laws and regulations.
Human Capital
As of December 31, 2023, we had 137 employees, of which 97 employees were engaged in research and development, manufacturing, and quality
activities. Substantially all of our employees are located in the U.S. We have a number of employees who hold advanced degrees, such as a Ph.D. None of
our employees are covered by a collective bargaining agreement, and we have experienced no work stoppages. We are committed to attracting, developing,
advancing and retaining a diverse and talented workforce. As part of our measures to attract and retain personnel, we offer a total rewards package to our
full-time employees consisting of base salary, cash bonuses based on individual and company performance, equity compensation and comprehensive
benefits, including health insurance, life insurance, retirement plans, and paid holiday and vacation time. We support our employee’s further development
by providing professional development opportunities. We believe that we maintain good relations with our employees.
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To complement our own expert professional staff, we utilize specialists in clinical development, regulatory affairs, pharmacovigilance, process
engineering, manufacturing and quality assurance. These individuals include scientific advisors as well as independent consultants.
Available Information
Our website address is http://www.nektar.com. The information in, or that can be accessed through, our website is not part of this annual report on
Form 10-K. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports are
available, free of charge, on or through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
Securities Exchange Commission (SEC). The SEC maintains an Internet site that contains reports, proxy and information statements and other information
regarding our filings at www.sec.gov.
The following table sets forth the names, ages and positions of our executive officers as of March 5, 2024:
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Name
Howard W. Robin
Sandra Gardiner
Mark A. Wilson, J.D.
Jonathan Zalevsky, Ph.D.
Age
71
58
52
49
Position
Director, President and Chief Executive Officer
Interim Chief Financial Officer (Principal Financial and Accounting Officer)
Senior Vice President and Chief Legal Officer
Chief Research and Development Officer
Howard W. Robin has served as our President and Chief Executive Officer since January 2007 and has served as a member of our board of
directors since February 2007. Mr. Robin served as Chief Executive Officer, President and a director of Sirna Therapeutics, Inc., a biotechnology company,
from July 2001 to November 2006 and from January 2001 to June 2001, served as their Chief Operating Officer, President and as a director. From 1991 to
2001, Mr. Robin was Corporate Vice President and General Manager at Berlex Laboratories, Inc. (Berlex), a pharmaceutical products company that is a
subsidiary of Schering, AG, and from 1987 to 1991 he served as Vice President of Finance and Business Development and Chief Financial Officer of
Berlex. From 1984 to 1987, Mr. Robin was Director of Business Planning and Development at Berlex. He was a Senior Associate with Arthur Andersen &
Co. prior to joining Berlex. Mr. Robin serves as a director of the Biotechnology Industry Organization, the world’s largest biotechnology industry trade
organization, and also serves as a director of BayBio, a non-profit trade association serving the Northern California life sciences community. He received
his B.S. in Accounting and Finance from Fairleigh Dickinson University in 1974.
Sandra Gardiner has served as our Interim Chief Financial Officer since April 2023. Ms. Gardiner is a partner at FLG Partners, a leading CFO
services firm in the Silicon Valley and a skilled business and finance executive with over 30 years of experience as an EVP and CFO at private and public
companies in the Life Sciences sector. Prior to joining Nektar, she served as the Chief Financial Officer, Executive Vice President of Finance and
Administration, Secretary and Treasurer of Pulse Biosciences, Inc., a bioelectric medicine company, since November 2019. Prior to joining Pulse
Biosciences, she held CFO roles in both domestic and global companies, operating as a director to international subsidiaries throughout Europe, Asia
Pacific and Latin America. Ms. Gardiner holds a B.A. in Management Economics from the University of California, Davis.
Mark A. Wilson has served as our Senior Vice President and Chief Legal Officer since July 2022. Previously, Mr. Wilson served as our General
Counsel since June 2016. Mr. Wilson joined Nektar in May 2002 and initially served as Patent Counsel and then as Senior Patent Counsel to the company
prior to 2008 when he was promoted to Vice President, Intellectual Property. Before joining Nektar in 2002, Mr. Wilson was an associate at Reed &
Associates, a patent law firm in Menlo Park, California, where he represented both start-up and Fortune 500 companies. Mr. Wilson received his J.D. from
Seton Hall University, School of Law, and his B.S. in Pharmacy from Rutgers University, College of Pharmacy. He is registered to practice before the U.S.
Patent and Trademark Office and is a member of the California Bar.
Jonathan Zalevsky has served as our Chief Research & Development Officer since October 2019. Dr. Zalevsky served as our Senior Vice
President, Biology and Preclinical Development from April 2017 through November 2017 and served as our Senior Vice President, Research and Chief
Science Officer from November 2017 to October 2019. From July 2015 through April 2017, Dr. Zalevsky served as our Vice President, Biology and
Preclinical Development. Prior to joining Nektar, Dr. Zalevsky was Global Vice President and Head of the Inflammation Drug Discovery Unit at Takeda
Pharmaceuticals. Prior to working at Takeda, Dr. Zalevsky held a number of research and development positions at Xencor, Inc. Dr. Zalevsky received his
Ph.D. in Biochemistry from the Tetrad Program at the University of California, San Francisco. He received dual bachelor degrees in Biochemistry and
Molecular, Cellular and Developmental Biology from the University of Colorado at Boulder.
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Item 1A. Risk Factors
We are providing the following cautionary discussion of risk factors, uncertainties and assumptions that we believe are relevant to our business.
These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results and
our forward-looking statements. We note these factors for investors as permitted by Section 21E of the Exchange Act and Section 27A of the Securities
Act. Investors in Nektar Therapeutics should carefully consider the risks described below before making an investment decision. You should understand
that it is not possible to predict or identify all such factors. Consequently, you should not consider this section to be a complete discussion of all potential
risks or uncertainties that may substantially impact our business. Moreover, we operate in a competitive and rapidly changing environment. New factors
emerge from time to time and it is not possible to predict the impact of all of these factors on our business, financial condition or results of operations.
Risks Related to our Business
We are highly dependent on the success of drug candidates, including rezpegaldesleukin (previously referred to as NKTR-358) and NKTR-255. If
these drug candidates fail in clinical development our business will be significantly harmed.
Our future success is highly dependent on the clinical success of our drug candidates, including rezpegaldesleukin and NKTR-255. In general,
most investigational drugs, including drug candidates designed to treat patients suffering from autoimmune disorders and cancers, such as
rezpegaldesleukin and NKTR-255, respectively, do not become approved drugs. Accordingly, there is a very meaningful risk that our drug candidates will
not succeed in one or more clinical trials sufficient to support one or more regulatory approvals.
We previously relied on Lilly (through the Lilly Agreement) to initiate, properly conduct, and prioritize clinical trials and other development-
related activities for rezpegaldesleukin. In February 2023, we announced that the Phase 2 Lupus Study of rezpegaldesleukin in SLE conducted by Lilly did
not meet the study’s primary endpoint and that Lilly did not intend to advance rezpegaldesleukin to Phase 3 development in SLE. On April 27, 2023, we
announced that we had received a notice of termination from Lilly with respect to the Lilly Agreement and we would be regaining the full rights to
rezpegaldesleukin from Lilly. Following the return of our rights to develop rezpegaldesleukin, we will bear all costs of development. We have initiated a
Phase 2b study of rezpegaldesleukin in patients with moderate-to-severe atopic dermatitis, and we are targeting by the initiation of a new Phase 2b clinical
study of rezpegaldesleukin in patients with alopecia areata by the end of March 2024. We also plan to other auto-immune indications for the development
of rezpegaldesleukin. While we believe we currently have the materials that are necessary for us to continue clinical development of rezpegaldesleukin, we
may need or benefit from additional materials that Lilly has not yet transferred to us. In the event Lilly fails to promptly and completely transfer to us any
additional needed materials or we are not able to independently source these materials, the continued clinical development of rezpegaldesleukin and our
business will be significantly harmed. Even if the applicable agreement provides us with enforcement or other curative rights to address the potential harm
caused by Lilly’s action (or failure to act), our efforts in pursuing a remedy would be costly and there is no guarantee that these efforts would succeed or be
sufficient to fully address the harm. If continued development of rezpegaldesleukin is not ultimately successful, our market valuation, prospects, financial
condition and results of operations would be materially harmed.
Additionally, promising results from earlier trials may not predict similarly favorable outcomes in subsequent trials. For example, several of our
past, planned and ongoing clinical trials utilize an “open-label” trial design. An “open-label” clinical trial is one where both the patient and investigator
know whether the patient is receiving the investigational drug candidate or either an existing approved drug or placebo. Most typically, open-label clinical
trials test only the investigational drug candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various
limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label
clinical trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an
experimental treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the
physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group
more favorably given this knowledge. The results from an open-label trial may not be predictive of future clinical trial results with any of our drug
candidates for which we include an open-label clinical trial when studied in a controlled environment with a placebo or active control. One or more clinical
failures of our drug candidates would jeopardize and could materially harm our business, results of operations and financial condition.
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Delays in clinical studies are common and have many causes, and any significant delay in clinical studies being conducted by us or our partners
could result in delay in regulatory approvals and jeopardize the ability to proceed to commercialization.
We or our partners may experience delays in conducting clinical trials of our drug candidates. Clinical studies may not begin on time, enroll a
sufficient number of patients or be completed on schedule, if at all. Clinical trials for any of our drug candidates could be delayed for a variety of reasons,
including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
delays in obtaining regulatory authorization to commence a clinical study;
delays in reaching agreement with applicable regulatory authorities on a clinical study design;
for drug candidates currently or previously partnered with other companies, delays caused by our partner;
delays caused by public health epidemics (see also the risk factor in this Item 1A titled “Our business could be adversely affected by the
effects of health epidemics”);
imposition of a clinical hold by the FDA or other health authorities, which may occur at any time including after any inspection of clinical
trial operations or trial sites;
suspension or termination of a clinical study by us, our partners, the FDA or foreign regulatory authorities due to adverse side effects of a
drug on subjects in the trial;
delays associated with clinical site activations;
delays in recruiting suitable patients to participate in a trial;
delays in having patients complete participation in a trial or return for post-treatment follow-up;
clinical sites dropping out of a trial due to the detriment of enrollment rates;
delays in manufacturing and delivery of sufficient supply of clinical trial materials;
changes in regulatory authorities policies or guidance applicable to our drug candidates
delays caused by changing standards of care or new treatment options; and
delays associated with third parties, such as a past collaboration partner, failing to provide us with all the necessary documents, data and
materials necessary to conduct clinical trials.
If the initiation or completion of any of the planned clinical studies for our drug candidates is delayed for any of the above or other reasons, results
for the studies would be delayed, and consequently the regulatory approval process would be delayed which would also delay the ability to commercialize
these drug candidates, which could have a material adverse effect on our business, financial condition and results of operations. Clinical study delays could
also shorten any commercial periods during which our products have patent protection and may allow our competitors to bring products to market before
we do, which could impair our ability to successfully commercialize our drug candidates and may harm our business and results of operations.
We currently rely on academic and private non-academic institutions to conduct investigator-sponsored clinical studies or trials of our product
candidates. Any failure by the investigator-sponsor to meet its obligations with respect to the clinical development of our product candidates may
delay or impair our ability to obtain regulatory approval or commercialize for other product candidates.
We currently rely on academic and private non-academic institutions to conduct and sponsor clinical studies or trials relating to our product
candidates. We do not control the design or conduct of the investigator-sponsored trials, and it is possible that the FDA or non-U.S. regulatory authorities
will not view these investigator-sponsored studies or trials as providing adequate support for future clinical trials, whether controlled by us or independent
investigators, for any one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results.
Such arrangements will likely provide us certain information concerning our drug candidates with respect to the investigator-sponsored studies or
trials, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from the investigator-sponsored
studies or trials. However, we would not have control over the timing and reporting of the data from investigator-sponsored trials, nor would we own the
data from the
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investigator-sponsored studies or trials. If we are unable to confirm or replicate the results from the investigator-sponsored studies or trials or if negative
results are obtained, we would likely be further delayed or prevented from advancing further clinical development of our product candidates. Further, if
investigators or institutions breach their obligations with respect to the clinical development of our product candidates, or if the data proves to be
inadequate compared to the first-hand knowledge we might have gained had the investigator-sponsored studies or trials been sponsored and conducted by
us, then our ability to design and conduct any future clinical trials ourselves may be adversely affected.
Additionally, the FDA or non-U.S. regulatory authorities may disagree with the sufficiency of our right of reference to the preclinical,
manufacturing or clinical data generated by these investigator-sponsored studies or trials or our interpretation of preclinical, manufacturing or clinical data
from these investigator-sponsored studies or trials. If so, the FDA or other non-U.S. regulatory authorities may require us to obtain and submit additional
preclinical, manufacturing or clinical data before we may initiate our planned clinical trials and/or may not accept such additional data as adequate to
initiate our planned clinical trials.
The outcomes from the clinical trials of drug candidates from others, and the discovery and development of new potential therapies in immunology
and oncology, could have a material and adverse impact on the value of the drug candidates in our research and development pipeline.
The research and development of immune-modulatory agents is a very competitive global segment in the biopharmaceutical industry attracting
tens of billions of dollars of investment each year. Our clinical trial plans for rezpegaldesleukin, NKTR-255 and other drug candidates face substantial
competition from other regimens already approved, and many more that are either ahead of or in parallel development in patient populations where we are
studying our drug candidates. As immunotherapy represents a relatively new approach to treatment of autoimmune disorders and cancer and few have
successfully completed late stage development, drug development in this area entails substantial risks and uncertainties that include rapidly changing
standards of care, identifying contribution of components when therapeutic combinations are employed, patient enrollment competition, evolving
regulatory frameworks to evaluate regimens, and varying risk-benefit profiles of competing therapies, any or all of which could have a material and adverse
impact on the probability of success of our drug candidates.
The risk of clinical failure for any drug candidate remains high prior to regulatory approval and there can be no assurance that our product
candidates will obtain regulatory approval for any particular indications.
A number of companies have suffered significant unforeseen failures in clinical studies due to factors such as inconclusive efficacy or safety, even
after achieving preclinical proof-of-concept or positive results from earlier clinical studies that were satisfactory both to them and to reviewing regulatory
authorities. Clinical study outcomes remain very unpredictable and it is possible that one or more of our clinical studies could fail at any time due to
efficacy, safety or other important clinical findings or regulatory requirements. The results from preclinical testing or early clinical trials of a drug candidate
may not predict the results that will be obtained in later phase clinical trials of the drug candidate. We, the FDA, an independent Institutional Review Board
(IRB), an independent ethics committee (IEC), or other applicable regulatory authorities may suspend clinical trials of a drug candidate at any time for
various reasons, including a belief that patients participating in such trials are being exposed to unacceptable health risks or adverse side effects. Similarly,
an IRB or IEC may suspend a clinical trial at a particular trial site. If one or more of our drug candidates fail in clinical studies, it could have a material
adverse effect on our business, financial condition and results of operations.
Significant competition for our polymer conjugate chemistry technology platforms and our partnered and proprietary drugs and drug candidates
could make our technologies, drugs or drug candidates obsolete or noncompetitive, which would negatively impact our business, results of
operations and financial condition.
Our advanced polymer conjugate chemistry platforms and our partnered and proprietary products and drug candidates compete with various
pharmaceutical and biotechnology companies. Competitors of our polymer conjugate chemistry technologies include Biogen Inc., Horizon Pharma,
JenKem Technology USA, Dr. Reddy’s Laboratories Ltd., SunBio Corporation, Laysan Bio, Inc., Mountain View Pharmaceuticals, Inc., Novo Nordisk A/S
(formerly assets held by Neose Technologies, Inc.), NOF Corporation and Aurigene Pharmaceutical Services. Several other chemical, biotechnology and
pharmaceutical companies may also be developing polymer conjugation technologies or technologies that have similar impact on target drug molecules.
Some of these companies license or provide the technology to other companies, while others are developing the technology for internal use.
There are many competitors for our drug candidates currently in development. For rezpegaldesleukin, there are a number of competitors in various
stages of clinical development that are working on programs which are designed to correct the underlying immune system imbalance in the body due to
autoimmune disease. In particular, we expect to compete with therapies that could be cytokine-based, microbiome-based, or toleragenic-based therapies
(Regeneron, Leo Pharma, Eli Lilly
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and Company, Galderma, Symbiotix, LLC, Janssen Pharmaceuticals, AstraZeneca), regulatory T cell therapies (Sangamo Therapeutics, Inc., Quell
Therapeutics, Ltd., Sonoma Biotherapeutics, Inc. GentiBio, Inc., Kyvema Therapeutics, Inc. and Tract Therapeutics, Inc.), or IL-2 based therapies (Amgen,
Inc., BMS (through its acquisition of Delnia, Inc.), Novartis, Inc., ILTOO Pharma, Xencor, inc., Merck & Co (through its acquisition of Pandion
Therapeutics), and Sanofi SA). For NKTR-255, we believe companies that are currently researching and developing engineered IL-15 biologics and cell
therapies that could compete with this drug candidate include SOTIO Biotech, Inc., Artiva Biotherapeutics, Fate Therapeutics, ImmunityBio, Inc., Nkarta,
Inc., NKMax America, and Roche/Genentech (through its partnership with Xencor, Inc.). There can be no assurance that we or our partners will
successfully develop, obtain regulatory approvals for and commercialize next-generation or new products that will successfully compete with those of our
competitors. Many of our competitors have greater financial, research and development, marketing and sales, manufacturing and managerial capabilities.
We face competition from these companies not just in product development but also in areas such as recruiting employees, acquiring technologies that
might enhance our ability to commercialize products, establishing relationships with certain research and academic institutions, enrolling patients in clinical
trials and seeking program partnerships and collaborations with larger pharmaceutical companies. As a result, our competitors may succeed in developing
competing technologies, obtaining regulatory approval or gaining market acceptance for products before we do. These developments could make our
products or technologies noncompetitive or obsolete.
Preliminary and interim data from our clinical studies that we announce or publish from time to time are subject to audit and verification
procedures that could result in material changes in the final data and may change as more patient data become available.
From time to time, we publish preliminary or interim data from our clinical studies. Preliminary data remain subject to audit confirmation and
verification procedures that may result in the final data being materially different from the preliminary data we previously published. Interim data are also
subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.
As a result, preliminary and interim data should be viewed with caution until the final data are available. Material adverse changes in the final data could
significantly harm our business prospects.
Risks Related to our Financial Condition and Capital Requirement
Additional cost-savings measures may be necessary following implementation of our strategic reorganization plan and cost restructuring plans.
Our 2022 and 2023 Restructuring Plans prioritized key research and development efforts that will impact the Company’s future business activities,
including activities involving rezpegaldesleukin, NKTR-255 and several core research programs. There is no guarantee that these Restructuring Plans and
their associated cost restructuring measures will achieve their intended benefits or that our post-restructuring focus will be sufficient for us to achieve
success. Consequently, we may need to undertake additional restructuring and cost-saving activities to further prioritize our key research and development
efforts and these additional restructuring and cost-saving activities may not be successful, which could have a material adverse effect on our business,
financial condition and prospects.
Our results of operations and financial condition depend significantly on the ability of our collaboration partners to successfully develop and
market drugs and they may fail to do so.
Under our collaboration agreements with various pharmaceutical or biotechnology companies, our collaboration partner is generally solely
responsible for:
•
•
•
designing and conducting large scale clinical studies;
preparing and filing documents necessary to obtain government approvals to sell a given drug candidate; and/or
marketing and selling the drugs when and if they are approved.
Our reliance on collaboration partners poses a number of significant risks to our business, including risks that:
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•
•
•
•
•
•
•
•
•
we have very little control over the timing and level of resources that our collaboration partners dedicate to commercial marketing efforts
such as the amount of investment in sales and marketing personnel, general marketing campaigns, direct-to-consumer advertising,
product sampling, pricing agreements and rebate strategies with government and private payers, manufacturing and supply of drug
product, and other marketing and selling activities that need to be undertaken and well executed for a drug to have the potential to achieve
commercial success;
collaboration partners with commercial rights may choose to devote fewer resources to the development or marketing of our partnered
drugs than they devote to their own drugs or other drugs that they have in-licensed;
we have very little control over the timing and amount of resources our partners devote to development programs in one or more major
markets;
disagreements with partners could lead to delays in, or termination of, the research, development or commercialization of drug candidates
or to litigation or arbitration proceedings;
disputes may arise or escalate in the future with respect to the ownership of rights to technology or intellectual property developed with
partners;
we do not have the ability to unilaterally terminate agreements (or partners may have extension or renewal rights) that we believe are not
on commercially reasonable terms or consistent with our current business strategy;
partners may be unable to pay us as expected;
partners may terminate their agreements with us unilaterally for any or no reason, in some cases with the payment of a termination fee
penalty and in other cases with no termination fee penalty; and
partners may respond to natural disasters or health epidemics, such as the COVID-19 pandemic, by ceasing all or some of their
development responsibilities (including the responsibility to clinical develop our drug candidates).
Given these risks, the success of our current and future collaboration partnerships is highly unpredictable and can have a substantial negative
impact on our business. If the approved drugs fail to achieve commercial success or the drugs in development fail to have positive late stage clinical
outcomes sufficient to support regulatory approval in major markets, it could significantly impair our access to capital necessary to fund our research and
development efforts for our drug candidates. If we are unable to obtain sufficient capital resources to advance our drug candidate pipeline, it would
negatively impact the value of our business, results of operations and financial condition.
We have substantial future capital requirements and there is a risk that we may not have access to sufficient capital to meet our current business
plan. If we do not receive substantial milestone or royalty payments from our existing collaboration agreements, execute new high value
collaborations or other arrangements, or are unable to raise additional capital in one or more financing transactions, we would be unable to
continue our current level of investment in research and development.
As of December 31, 2023, we had cash and investments in marketable securities valued at approximately $329.4 million. While we believe that
our cash position will be sufficient to meet our liquidity requirements through at least the next 12 months, our future capital requirements will depend upon
numerous unpredictable factors, including:
•
•
•
•
the cost, timing and outcomes of clinical studies and regulatory reviews of our drug candidates, particularly rezpegaldesleukin;
if and when we receive potential milestone payments and royalties from our existing collaborations if the drug candidates subject to those
collaborations achieve clinical, regulatory or commercial success;
the progress, timing, cost and results of our clinical development programs;
the success, progress, timing and costs of our efforts to implement new collaborations, licenses and other transactions that increase our
current net cash, such as the sale of additional royalty interests held by us, term loan or other debt arrangements, and the issuance of
securities;
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•
•
•
the number of patients, enrollment criteria, primary and secondary endpoints, and the number of clinical studies required by the
regulatory authorities in order to consider for approval our drug candidates and those of our collaboration partners;
our general and administrative expenses, capital expenditures and other uses of cash; and
disputes concerning patents, proprietary rights, or license and collaboration agreements that could negatively impact our receipt of
milestone payments or royalties or require us to make significant payments arising from licenses, settlements, adverse judgments or
ongoing royalties.
A significant multi-year capital commitment is required to advance our drug candidates through the various stages of research and development in
order to generate sufficient data to enable high value collaboration partnerships with significant upfront payments or to successfully achieve regulatory
approval. In the event we do not enter into any new collaboration partnerships with significant upfront payments and we choose to continue to advance our
drug candidates to later stage research and development, we may need to pursue financing alternatives, including dilutive equity-based financings, such as
an offering of convertible debt or common stock, which would dilute the percentage ownership of our current common stockholders and could significantly
lower the market value of our common stock. If sufficient capital is not available to us or is not available on commercially reasonable terms, it could
require us to delay or reduce one or more of our research and development programs. If we are unable to sufficiently advance our research and development
programs, it could substantially impair the value of such programs and result in a material adverse effect on our business, financial condition and results of
operations.
The commercial potential of a drug candidate in development is difficult to predict. If the market size for a new drug is significantly smaller than
we anticipate, it could significantly and negatively impact our revenue, results of operations and financial condition.
It is very difficult to estimate the commercial potential of drug candidates due to important factors such as safety and efficacy compared to other
available treatments, including changing standards of care, third party payer reimbursement standards, patient and physician preferences, the availability of
competitive alternatives that may emerge either during the long drug development process or after commercial introduction, and the availability of generic
and biosimilar versions of our drug candidates following approval by regulatory authorities based on the expiration of regulatory exclusivity or our inability
to prevent generic versions from coming to market by asserting our patents. If due to one or more of these risks the market potential for a drug candidate is
lower than we anticipated, it could significantly and negatively impact the commercial potential of the drug candidate, the commercial terms of any
collaboration partnership potential for such drug candidate, or if we have already entered into a collaboration for such drug candidate, the revenue potential
from royalty and milestone payments could be significantly diminished and this would negatively impact our business, financial condition and results of
operations. We may also depend on our relationships with other companies for sales and marketing performance and the commercialization of drug
candidates. Poor performance by these companies, or disputes with these companies, could negatively impact our revenue and financial condition.
If government and private insurance programs do not provide payment or reimbursement for our partnered drug or proprietary drugs, those drugs
will not be widely accepted, which would have a negative impact on our business, results of operations and financial condition.
In the United States and markets in other countries, patients generally rely on third-party payers to reimburse all or part of the costs associated with
their treatment. In both domestic and foreign markets, sales of our partnered and proprietary products that receive regulatory approval will depend in part
on market acceptance among physicians and patients, pricing approvals by government authorities and the availability of coverage and payment or
reimbursement from third-party payers, such as government programs, including Medicare and Medicaid in the U.S., managed care providers, private
health insurers and other organizations. However, eligibility for coverage does not necessarily signify that a biologic candidate will be adequately
reimbursed in all cases or at a rate that covers costs related to research, development, manufacture, sale, and distribution. Third-party payers are
increasingly challenging the price and cost effectiveness of medical products and services. Therefore, significant uncertainty exists as to the coverage and
pricing approvals for, and the payment or reimbursement status of, newly approved healthcare products. For more information, see “Business –
Government Regulation – Coverage, Reimbursement, and Pricing.”
There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved products and coverage may be more
limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the United States, the principal
decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S.
Department of Health and Human
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Services. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payers tend to follow CMS
to a substantial degree.
Factors payers consider in determining reimbursement are based on whether the product is (i) a covered benefit under its health plan; (ii) safe,
effective and medically necessary; (iii) appropriate for the specific patient; (iv) cost-effective; and (v) neither experimental nor investigational.
In addition, net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payers
and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Increasingly, third-party payers are requiring that drug companies provide them with predetermined discounts from list prices and are challenging
the prices charged for medical products. We cannot be sure that reimbursement will be available for any of our drug product candidates that are
commercialized and, if reimbursement is available, the level of reimbursement.
In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales
price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs
may be reduced by mandatory discounts or rebates required by government healthcare programs.
Moreover, legislation and regulations affecting the pricing of pharmaceuticals may change before regulatory agencies approve our proposed
products for marketing and could further limit coverage or pricing approvals for, and reimbursement of, our products from government authorities and
third-party payers. Federal agencies, Congress and state legislatures have continued to show interest in implementing cost containment programs to limit
the growth of health care costs, including price controls, restrictions on reimbursement and other fundamental changes to the healthcare delivery system. In
addition, in recent years, Congress has enacted various laws seeking to reduce the federal debt level and contain healthcare expenditures, and the Medicare
and other healthcare programs are frequently identified as potential targets for spending cuts. New government legislation or regulations related to pricing
or other fundamental changes to the healthcare delivery system as well as a government or third-party payer decision not to approve pricing for, or provide
adequate coverage or reimbursement of, our products hold the potential to severely limit market opportunities of such products.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements
governing drug pricing vary widely from country to country. For example, the European Union provides options for its Member States to restrict the range
of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human
use. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness
of a particular product candidate to currently available therapies. A Member State may approve a specific price for the medicinal product or it may instead
adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that
any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements
for any of our product candidates. Historically, products launched in the European Union do not follow price structures of the U.S. and generally prices tend
to be significantly lower.
If we are unable to establish and maintain collaboration partnerships on attractive commercial terms, our business, results of operations and
financial condition could suffer.
We intend to continue to seek partnerships with pharmaceutical and biotechnology partners to fund a portion of our research and development
capital requirements. The timing of new collaboration partnerships is difficult to predict due to availability of clinical data, the outcomes from our clinical
studies, the number of potential partners that need to complete due diligence and approval processes, the definitive agreement negotiation process and
numerous other unpredictable factors that can delay, impede or prevent significant transactions. If we are unable to find suitable partners or negotiate
collaboration arrangements with favorable commercial terms with respect to our existing and future biologic candidates or the licensing of our intellectual
property, or if any arrangements we negotiate, or have negotiated, are terminated, it could have a material adverse effect on our business, financial
condition and results of operations.
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Our revenue has historically been exclusively derived from our collaboration agreements, which can result in significant fluctuation in our
revenue from period to period, and our past revenue is therefore not necessarily indicative of our future revenue.
Our revenue has historically been exclusively derived from our collaboration agreements (whether based on our drug candidates or polymeric
reagents), from which we receive upfront fees, research and development reimbursement and funding, milestone and other contingent payments based on
clinical progress, regulatory progress or net sales achievements, royalties and product sales. Significant variations in the timing of receipt of cash payments
and our recognition of revenue can result from payments based on the execution of new collaboration agreements, the timing of clinical outcomes,
regulatory approval, commercial launch or the achievement of certain annual sales thresholds. The amount of our revenue derived from collaboration
agreements in any given period will depend on a number of unpredictable factors, including whether and when we or our collaboration partners achieve
clinical, regulatory and sales milestones, the timing of regulatory approvals in one or more major markets, reimbursement levels by private and government
payers, and the market introduction of new drugs or generic versions of the approved drug, as well as other factors. Our past revenue generated from
collaboration agreements is not necessarily indicative of our future revenue. If any of our existing or future collaboration partners fails to develop, obtain
regulatory approval for, manufacture or ultimately commercialize any biologic candidate under our collaboration agreement, our business, financial
condition, and results of operations could be materially and adversely affected.
We expect to continue to incur substantial losses and negative cash flow from operations and may not achieve or sustain profitability in the future.
For the year ended December 31, 2023, we reported a net loss of $276.1 million. If and when we achieve profitability depends upon a number of
factors, including the timing and recognition of milestones and other contingent payments and royalties received, the timing of revenue under our
collaboration agreements, the amount of investments we make in our proprietary biologic candidates and the regulatory approval and market success of our
biologic candidates. We may not be able to achieve and sustain profitability.
Other factors that will affect whether we achieve and sustain profitability include our ability, alone or together with our partners, to:
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develop drugs utilizing our technologies, either independently or in collaboration with other pharmaceutical or biotechnology companies;
effectively estimate and manage clinical development costs, particularly the cost of the clinical studies for rezpegaldesleukin and NKTR-
255;
receive necessary regulatory and marketing approvals;
maintain or expand manufacturing at necessary levels;
achieve market acceptance of our partnered products;
receive revenue or royalties on products that have been approved, marketed or submitted for marketing approval with regulatory
authorities; and
maintain sufficient funds to finance our activities.
Risks Related to Supply and Manufacturing
If we or our contract manufacturers are not able to manufacture biologic substance or substances in sufficient quantities that meet applicable
quality standards, it could delay clinical studies, result in reduced sales or constitute a breach of our contractual obligations, any of which could
significantly harm our business, financial condition and results of operations.
If we or our contract manufacturing organizations (CMOs) are not able to manufacture and supply sufficient drug quantities meeting applicable
quality standards required to support large clinical studies or commercial manufacturing in a timely manner, it could delay our or our collaboration
partners’ clinical studies or result in a breach of our contractual obligations, which could in turn reduce the potential commercial sales of our or our
collaboration partners’ products. As a result, we could incur substantial costs and damages and any product sales or royalty revenue that we would
otherwise be entitled to receive could be reduced, delayed or eliminated. In most cases, we rely on CMOs to manufacture and supply drug product for our
clinical studies and those of our collaboration partners. The manufacturing of biologics involves significant
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risks and uncertainties related to the demonstration of adequate stability, sufficient purification of the drug substance and drug product, the identification
and elimination of impurities, optimal formulations, process and analytical methods validations, and challenges in controlling for all of these variables. We
have faced and may in the future face significant difficulties, delays and unexpected expenses as we validate third party CMOs required for drug supply to
support our clinical studies and the clinical studies and products of our collaboration partners. Failure by us or our CMOs to supply API or drug products in
sufficient quantities that meet all applicable quality requirements could result in supply shortages for our clinical studies or the clinical studies and
commercial activities of our collaboration partners. Such failures could significantly and materially delay clinical trials and regulatory submissions or result
in reduced sales, any of which could significantly harm our business prospects, results of operations and financial condition.
If any CMO with whom we contract fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may
not have the capabilities or resources, or enter into an agreement with a different CMO, which we may not be able to do on reasonable terms, if at all. In
either scenario, our clinical trials or commercial distribution could be delayed significantly as we establish alternative supply sources. In some cases, the
technical skills required to manufacture our products or biologic candidates may be unique or proprietary to the original CMO and we may have difficulty,
or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such
skills at all. In addition, if we are required to change CMOs for any reason, we will be required to verify that the new CMO maintains facilities and
procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing
comparability study, that any new manufacturing process will produce our product according to the specifications previously submitted to or approved by
the FDA or another regulatory authority. The delays associated with the verification of a new CMO could negatively affect our ability to develop biologic
candidates or commercialize our products in a timely manner or within budget. Furthermore, a CMO may possess technology related to the manufacture of
our biologic candidate that such CMO owns independently. This would increase our reliance on such a CMO or require us to obtain a license from such
CMO in order to have another CMO manufacture our products or biologic candidates. In addition, in the case of the CMOs that supply our biologic
candidates, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging
studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the
comparability of clinical supplies which could require the conduct of additional clinical trials.
Building and validating large scale clinical or commercial-scale manufacturing facilities and processes, recruiting and training qualified personnel
and obtaining necessary regulatory approvals is complex, expensive and time consuming. In the past, we have encountered challenges in scaling up
manufacturing to meet the requirements of large scale clinical trials without making modifications to the drug formulation, which may cause significant
delays in clinical development. There continues to be substantial and unpredictable risk and uncertainty related to manufacturing and supply until such time
as the commercial supply chain is validated and proven.
We purchase some of the starting material for biologics and biologic candidates from a single source or a limited number of suppliers, and the
partial or complete loss of one of these suppliers could cause production delays, clinical trial delays, substantial loss of revenue and contract
liability to third parties.
We often face very limited supply of a critical raw material that can only be obtained from a single, or a limited number of, suppliers, which could
cause production delays, clinical trial delays, substantial lost revenue opportunities or contract liabilities to third parties. For example, there are only a
limited number of qualified suppliers, and in some cases single source suppliers, for the raw materials included in our PEGylation and advanced polymer
conjugate drug formulations. Any interruption in supply, diminution in quality of raw materials supplied to us or failure to procure such raw materials on
commercially feasible terms could harm our business by delaying our clinical trials, impeding commercialization of approved drugs or increasing our costs.
Our manufacturing operations and those of our contract manufacturers are subject to laws and other governmental regulatory requirements,
which, if not met, would have a material adverse effect on our business, results of operations and financial condition.
We and our CMOs are required in certain cases to maintain compliance with current good manufacturing practices (cGMP), including cGMP
guidelines applicable to active pharmaceutical ingredients, and drug products, and with laws and regulations governing manufacture and distribution of
controlled substances, and are subject to inspections by the FDA, or comparable agencies in other jurisdictions administering such requirements. We
anticipate periodic regulatory inspections of our drug manufacturing facilities and the manufacturing facilities of our CMOs for compliance with applicable
regulatory requirements. Any failure to follow and document our or our CMOs’ adherence to such cGMP and other laws and governmental regulations or
satisfy other manufacturing and product release regulatory requirements may disrupt our ability to meet our manufacturing obligations to our customers,
lead to significant delays in the availability of products for
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commercial use or clinical study, result in the termination or hold on a clinical study or delay or prevent filing or approval of marketing applications for our
products. Failure to comply with applicable laws and regulations may also result in sanctions being imposed on us, including fines, injunctions, civil
penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, license revocation,
seizures, administrative detention, or recalls of products, operating restrictions and criminal prosecutions, any of which could harm our business.
Regulatory inspections could result in costly manufacturing changes or facility or capital equipment upgrades to satisfy the FDA that our manufacturing
and quality control procedures are in substantial compliance with cGMP. Manufacturing delays, for us or our CMOs, pending resolution of regulatory
deficiencies or suspensions could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to Business Operations
We depend on third parties to conduct the preclinical studies and clinical trials for our biologic candidates and any failure of those parties to fulfill
their obligations could harm our development plans and adversely affect our business, results of operations and financial condition.
We depend on our collaboration partners, independent clinical investigators, contract research organizations and other third-party service providers
to conduct preclinical studies and clinical trials for our biologic candidates, including to monitor, record, manage and analyze data generated from these
studies. We rely heavily on these parties for the successful execution of our preclinical studies and clinical trials. Though we are ultimately responsible for
the results of their activities, many aspects of their activities are beyond our control, such as the timing, conduct and management of data developed
through these studies and trials. For example, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the general
investigational plan and protocols for the trials, but the independent clinical investigators may prioritize other projects over ours or communicate issues
regarding our biologic candidates to us in an untimely manner. Third parties may not complete activities on schedule or may not conduct our clinical trials
in accordance with regulatory requirements, such as good laboratory practice or good clinical practice, or our stated protocols and any subsequent data
generated may be deemed unacceptable. We rely on our collaboration partners and other third parties to manage, analyze and transmit clinical data, and
those partners and third parties may not carry out the performance of their duties with the required degree of care or skill to ensure valid and scientifically
reliable work products. The early termination of any of our clinical trial arrangements, the failure of third parties to comply with the regulations and
requirements governing clinical trials, the failure of third parties to properly conduct our clinical trials, or erroneously reported data could hinder or delay
the development, approval and commercialization of our product candidates and would adversely affect our business, results of operations and financial
condition.
Our future depends on the proper management of our current and future business operations and their associated expenses.
Our business strategy requires us to manage our business to provide for the continued development of our proprietary and partnered biologic
candidates. Our strategy also calls for us to manage the capital necessary to fund key programs through value-enhancing data and other milestones. If we
are unable to manage effectively our current operations, our business, financial condition and results of operations may be adversely affected. If we are
unable to effectively manage our expenses, we may find it necessary to reduce our personnel-related costs through reductions in our workforce, which
could harm our operations, employee morale and impair our ability to retain and recruit talent. Furthermore, if adequate funds are not available, we may be
required to obtain funds through arrangements with partners or other sources that may require us to relinquish rights to certain of our technologies, products
or future economic rights that we would not otherwise relinquish or require us to enter into other dilutive financing arrangements on unfavorable terms.
Because competition for highly qualified technical personnel is intense, we may not be able to attract and retain the personnel we need to support
our operations and growth.
We must attract and retain experts in the areas of research, development (including clinical testing), manufacturing, regulatory and finance, and
may need to attract and retain commercial, marketing and distribution experts and develop additional expertise in our existing personnel. We face intense
competition from other biopharmaceutical companies, research and academic institutions and other organizations for qualified personnel. Many of the
organizations with which we compete for qualified personnel have greater resources than we have. Because competition for skilled personnel in our
industry is intense, companies such as ours sometimes experience high attrition rates with regard to their skilled employees. Further, in making employment
decisions, job candidates often consider the value of the stock awards they are to receive in connection with their employment. Our equity incentive plan
and employee benefit plans may not be effective in motivating or retaining our employees or attracting new employees, and significant volatility in the
price of our stock may adversely affect our ability to attract or retain qualified personnel. Furthermore, as a result of our 2022 and 2023 Restructuring
Plans, our employees may experience distractions or decreases in employee morale and we may experience increased levels of
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employee attrition and turnover, which would adversely affect our business. If we fail to attract new personnel or to retain and motivate our current
personnel, our business and future growth prospects could be severely harmed.
We are dependent on our management team and key technical personnel, and the loss of any key manager or employee may impair our ability to
develop our products effectively and may harm our business, operating results and financial condition.
Our success largely depends on the continued services of our executive officers and other key personnel. The loss of one or more members of our
management team or other key employees could seriously harm our business, operating results and financial condition. The relationships that our key
managers have cultivated within our industry make us particularly dependent upon their continued employment with us. We are also dependent on the
continued services of our technical personnel because of the highly technical nature of our products and the regulatory approval process. Because our
executive officers and key employees are not obligated to provide us with continued services, they could terminate their employment with us at any time
without penalty. We do not have any post-employment noncompetition agreements with any of our employees and do not maintain key person life
insurance policies on any of our executive officers or key employees.
Rising inflation rates have increased our operating costs and could negatively impact our operations.
Inflation rates, particularly in the United States, have increased recently to levels not seen in decades. Increased inflation has resulted in increased
operating costs. In addition, the United States Federal Reserve has raised, and is expected to continue to raise, interest rates in response to concerns about
inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase
economic uncertainty and heighten these risks.
Our business could be adversely affected by the effects of health epidemics.
Our business could be adversely affected, directly or indirectly, by health epidemics in regions where we have concentrations of clinical trial sites
or other business operations, including both our own manufacturing operations as well as the manufacturing operations of third parties upon whom we rely.
Health epidemics, such as the COVID-19 pandemic and recent outbreak of respiratory syncytial virus (RSV) in the U.S., can negatively affect our clinical
trials and those run by our collaborators or other third parties through delays in investigator recruitment, clinical site initiation, patient screening, or patient
enrollment. In addition, health epidemics may cause disruptions in our supply chain or shortages in raw materials and equipment, which would affect our
ability to manufacture our products and to supply drug candidates for clinical trials.
If the health epidemic is sufficiently severe and widespread, may require us to change the way in which can conduct our business, which may
negatively result in unexpected expenses, decreased employee productivity and availability and employee work culture. Further, a severe and widespread
epidemic may have a broad impact on global financial markets and could reduce our ability to access capital, which could in the future negatively affect our
liquidity. In addition, a recession or market correction resulting from a health epidemic could materially affect our business and the value of our common
stock.
The ultimate effects of health epidemics is uncertain and subject to change and these effects could have a negative impact on our clinical trial
timelines, operations, financial condition and prospects.
Risks Related to Intellectual Property, Litigation and Regulatory Concerns
If we or our partners do not obtain regulatory approval for our biologic candidates on a timely basis, or at all, or if the terms of any approval
impose significant restrictions or limitations on use, our business, results of operations and financial condition will be negatively affected.
We or our partners may not obtain regulatory approval for biologic candidates on a timely basis, or at all, or the terms of any approval (which in
some countries includes pricing approval) may impose significant restrictions or limitations on use. Biologic candidates must undergo rigorous animal and
human testing and an extensive review process for safety and efficacy by the FDA and equivalent foreign regulatory authorities. The time required for
obtaining regulatory decisions is uncertain and difficult to predict. The FDA and other U.S. and foreign regulatory authorities have substantial discretion, at
any phase of development, to terminate clinical studies, require additional clinical development or other testing, delay or withhold registration and
marketing approval and mandate product withdrawals, including recalls. Further, regulatory authorities have the discretion to analyze data using their own
methodologies that may differ from those used by us or our partners, which could lead such authorities to arrive at different conclusions regarding the
safety or efficacy of a biologic candidate. In addition, undesirable side effects caused by our biologic candidates could cause us or regulatory authorities to
interrupt, delay or halt clinical trials and could result in a more restricted label or the delay or denial of regulatory approval by regulatory authorities.
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Even if we or our partners receive regulatory approval of a product, the approval may limit the indicated uses for which the drug may be marketed.
Our and our partnered drugs that have obtained regulatory approval, and the manufacturing processes for these products, are subject to continued review
and periodic inspections by the FDA and other regulatory authorities. Discovery from such review and inspection of previously unknown problems may
result in restrictions on marketed products or on us, including withdrawal or recall of such products from the market, suspension of related manufacturing
operations or a more restricted label. The failure to obtain timely regulatory approval of drug candidates, any product marketing limitations or a product
withdrawal would negatively impact our business, results of operations and financial condition.
We are a party to numerous collaboration agreements and other significant agreements which contain complex commercial terms that could result
in disputes, litigation or indemnification liability that could adversely affect our business, results of operations and financial condition.
We historically derived substantially all of our revenue from collaboration agreements with biotechnology and pharmaceutical companies. These
collaboration agreements contain complex commercial terms, including:
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clinical development and commercialization obligations that are based on certain commercial reasonableness performance standards that
can often be difficult to enforce if disputes arise as to adequacy of our partner’s performance;
research and development performance and reimbursement obligations for our personnel and other resources allocated to partnered
biologic candidate development programs;
clinical and commercial manufacturing agreements, some of which are priced on an actual cost basis for products supplied by us to our
partners with complicated cost allocation formulas and methodologies;
intellectual property ownership allocation between us and our partners for improvements and new inventions developed during the course
of the collaboration;
royalties on drug sales based on a number of complex variables, including net sales calculations, geography, scope of patent claim
coverage, patent life, generic competitors, bundled pricing and other factors; and
indemnity obligations for intellectual property infringement, product liability and certain other claims.
We are a party to numerous significant collaboration agreements and other strategic transaction agreements (e.g. financings and asset divestitures)
that contain complex representations and warranties, covenants and indemnification obligations. If we are found to have materially breached such
agreements, we could be subject to substantial liabilities, which would harm our financial condition.
From time to time, we are involved in litigation matters involving the interpretation and application of complex terms and conditions of our
agreements. One or more disputes may arise or escalate in the future regarding our collaboration agreements, transaction documents, or third-party license
agreements that may ultimately result in costly litigation and unfavorable interpretation of contract terms, which would have a material adverse effect on
our business, financial condition and results of operations.
We may not be able to obtain intellectual property licenses related to the development of our biologic candidates on a commercially reasonable
basis, if at all.
Numerous pending and issued U.S. and foreign patent rights and other proprietary rights owned by third parties relate to pharmaceutical
compositions, methods of preparation and manufacturing, and methods of use and administration. We cannot predict with any certainty which, if any, patent
rights will be considered relevant to our or our collaboration partners’ technology or biologic candidates by authorities in the various jurisdictions where
such rights exist, nor can we predict with certainty which, if any, of these rights will or may be asserted against us by third parties. In certain cases, we have
existing licenses or cross-licenses with third parties; however, the sufficiency of the scope and adequacy of these licenses is very uncertain in view of the
long development and commercialization cycles for biotechnology and pharmaceutical products. There can be no assurance that we can obtain a license to
any technology that we determine we need on reasonable terms, if at all, or that we could develop or otherwise obtain alternate technology to avoid a need
to secure a license. If we are required to enter into a license with a third party, our potential economic benefit for the products subject to the license will be
diminished. If a license is not available on commercially reasonable terms or at all, we may be prevented from developing and commercializing the
biologic, which could significantly harm our business, results of operations, and financial condition.
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If any of our pending patent applications do not issue, or are deemed invalid following issuance, we may lose valuable intellectual property
protection.
The patent positions of pharmaceutical and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues. We
own more than 250 U.S. and 1,200 foreign patents and have a number of pending patent applications that cover various aspects of our technologies. There
can be no assurance that patents that have issued will be held valid and enforceable in a court of law. Even for patents that are held valid and enforceable,
the legal process associated with obtaining such a judgment is time consuming and costly. Additionally, issued patents can be subject to opposition, inter
partes review, re-examinations or other proceedings that can result in the revocation of the patent or maintenance of the patent in amended form (and
potentially in a form that renders the patent without commercially relevant and/or broad coverage). Further, our competitors may be able to circumvent and
otherwise design around our patents. Even if a patent is issued and enforceable, because development and commercialization of pharmaceutical products
can be subject to substantial delays, patents may expire prior to the commercialization of the biologic. Moreover, even if a patent encompassing a biologic
has not expired prior to the biologic’s commercialization, the patent may only provide a short period of protection following the commercialization of the
covered product. In addition, our patents may be subject to post grant proceedings, such as inter partes review and re-examinations, before the U.S. Patent
and Trademark Office (or equivalent proceedings in other jurisdictions), which could result in a loss of the patent and/or substantial cost to us.
We have filed patent applications, and plan to file additional patent applications, covering various aspects of our PEGylation and advanced
polymer conjugate technologies and our biologic candidates. There can be no assurance that the patent applications for which we apply will actually issue
as patents, or do so with commercially relevant and/or broad coverage. The coverage claimed in a patent application can be significantly reduced before the
patent is issued. The scope of our claim coverage can be critical to our ability to enter into licensing transactions with third parties and our right to receive
royalties from our collaboration partnerships. Since publication of discoveries in scientific or patent literature often lags behind the date of such discoveries,
we cannot be certain that we were the first inventor of inventions covered by our patents or patent applications. In addition, there is no guarantee that we
will be the first to file a patent application directed to an invention.
An adverse outcome in any judicial proceeding involving intellectual property, including patents, could subject us to significant liabilities to third
parties, require disputed rights to be licensed from or to third parties or require us to cease using the technology in dispute. In those instances where we
seek an intellectual property license from another, we may not be able to obtain the license on a commercially reasonable basis, if at all, thereby raising
concerns on our ability to freely commercialize our technologies or products.
We rely on trade secret protection and other unpatented proprietary rights for important proprietary technologies, and any loss of such rights could
harm our business, results of operations and financial condition.
We rely on trade secret protection and other unpatented proprietary rights for our confidential and proprietary information. No assurance can be
given that others will not independently develop substantially equivalent confidential and proprietary information or otherwise gain access to our trade
secrets or disclose such technology, or that we can meaningfully protect our trade secrets. In addition, unpatented proprietary rights, including trade secrets
and know-how, can be difficult to protect and may lose their value if they are independently developed by a third party or if their secrecy is lost. Any loss of
trade secret protection or other unpatented proprietary rights could harm our business, results of operations and financial condition.
If product liability lawsuits are brought against us, we may incur substantial liabilities.
The manufacture, clinical testing, marketing and sale of medical products involve inherent product liability risks. If product liability costs exceed
our product liability insurance coverage (or if we cannot secure product liability insurance), we may incur substantial liabilities that could have a severe
negative impact on our financial position. Whether or not we are ultimately successful in any product liability litigation, such litigation would consume
substantial amounts of our financial and managerial resources and might result in adverse publicity, all of which would impair our business. Additionally,
we may not be able to maintain our clinical trial insurance or product liability insurance at an acceptable cost, if at all, and this insurance may not provide
adequate coverage against potential claims or losses.
If we or current or future collaborators or service providers fail to comply with healthcare laws and regulations, we or they could be subject to
enforcement actions and civil or criminal penalties.
Although we do not currently have any products on the market, once we begin commercializing our biologic candidates, if approved, we will be
subject to additional healthcare statutory and regulatory requirements and enforcement by the federal and state governments of the jurisdictions in which
we conduct our business. Healthcare providers, physicians and
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third-party payers play a primary role in the recommendation and prescription of any biologic candidates for which we obtain marketing approval. Our
current and future arrangements with third-party payers and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and
regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our therapeutic
candidates for which we obtain marketing approval. For more information, see “Business – Government Regulation - Other Healthcare Laws and
Regulations.”
Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial
costs. If our operations are found to be in violation of any such requirements, we may be subject to penalties, including administrative, civil or criminal
penalties, imprisonment, monetary damages, the curtailment or restructuring of our operations, or exclusion from participation in government contracting,
healthcare reimbursement or other government programs, including Medicare and Medicaid, any of which could adversely affect financial results. Although
effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated.
Any action against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention
from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations
may be costly to us in terms of money, time and resources.
Healthcare legislative or regulatory reform measures may have a negative impact on our business and results of operations.
The U.S. and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system. The U.S.
government, state legislatures and foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth
of government- paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for
branded prescription drugs. Governmental policy can also change the commercial potential of our product candidates, including efforts to increase patient
access to lower-cost generic and biosimilar drugs. Additional changes that may affect our business include those governing enrollment in federal healthcare
programs, reimbursement changes, rules regarding prescription drug benefits under the health insurance exchanges and fraud and abuse and enforcement.
Continued implementation of the Affordable Care Act and the passage of additional laws and regulations may result in the expansion of new programs such
as Medicare payment for performance initiatives, and may impact existing government healthcare programs, such as by improving the physician quality
reporting system and feedback program. For more information regarding the risks related to recently enacted and future legislation please see “Business –
Government Regulation – Legislative and Regulatory Landscape.”
We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care
organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
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the demand for our product candidates, if we obtain regulatory approval;
our ability to set a price that we believe is fair for our approved products;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.
We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the
U.S. federal government will pay for healthcare drugs and services, which could result in reduced demand for our drug candidates or additional pricing
pressures. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to
control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain drug access
and marketing cost disclosure and transparency measures, and designed to encourage importation from other countries and bulk purchasing. Legally
mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, financial condition, results of operations
and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what
pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate
demand for our drugs or put pressure on our drug pricing, which could negatively affect our business, financial condition, results of operations and
prospects.
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Disruptions to the normal functioning of the FDA and other government agencies could hinder their ability to perform and carry out important
roles and activities on which the operation of our business relies, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding
levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. In the past, average review
times at the agency have fluctuated, and this may continue in the future. In addition, government funding of other agencies on which our operations may
rely is subject to the political process, which is inherently fluid and unpredictable.
In addition, government shutdowns, if prolonged, could significantly impact the ability of government agencies upon which rely (such as the FDA
and SEC) to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Disruptions at the FDA and
other agencies may slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would
adversely affect our business. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process
our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to
access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
We are involved in legal proceedings and may incur substantial litigation costs and liabilities that will adversely affect our business, financial
condition and results of operations.
From time to time, we are involved in legal proceedings where we or other third parties are enforcing or seeking intellectual property rights,
invalidating or limiting patent rights that have already been allowed or issued, or otherwise asserting proprietary rights through one or more potential legal
remedies. Third parties have asserted, and may in the future assert, that we or our partners infringe their proprietary rights, such as patents and trade secrets,
or have otherwise breached our obligations to them. A third party often bases its assertions on a claim that its patents cover our technology platform or
biologic candidates or that we have misappropriated its confidential or proprietary information. Similar assertions of infringement could be based on future
patents that may issue to third parties. In certain of our agreements with our partners, we are obligated to indemnify and hold harmless our collaboration
partners from intellectual property infringement, product liability and certain other claims, which could cause us to incur substantial costs and liability if we
are called upon to defend ourselves and our partners against any claims. We are also regularly involved in opposition proceedings at the European Patent
Office and in inter partes review and re-examination proceedings at the U.S. Patent and Trademark Office where third parties seek to invalidate or limit the
scope of our allowed patent applications or issued patents covering (among other things) our biologic candidates and platform technologies. If a third party
obtains injunctive or other equitable relief against us or our partners, they could effectively prevent us, or our partners, from developing or
commercializing, or deriving revenue from, certain biologics or biologic candidates in the U.S. and abroad. Costs associated with litigation, substantial
damage claims, indemnification claims or royalties paid for licenses from third parties could have a material adverse effect on our business, financial
condition and results of operations.
From time to time, we may also be involved in legal proceedings other than those related to intellectual property, including securities actions or
derivative actions or other complaints.
On August 7, 2023, we filed a complaint in the United States District Court for the Northern District of California against Lilly alleging, among
other claims, breach of contract and breach of implied covenant of good faith and fair dealing, in connection with our collaboration with Lilly.
The cost to us in initiating or defending any litigation or other proceeding, even if resolved in our favor, could be substantial, and litigation would
divert our management’s attention. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our
research and development efforts or result in financial implications either in terms of seeking license arrangements or payment of damages or royalties.
There is no guarantee that our insurance coverage for damages resulting from any litigation or the settlement would be sufficient and could result in
substantial financial risk to the Company.
Given the nature of lawsuits and complaints, we cannot reasonably estimate a potential future loss or a range of potential future losses for any of
the legal proceedings we may be involved in. However, an unfavorable resolution could potentially have a material adverse effect on our business, financial
condition, and results of operations or prospects, and potentially result in paying monetary damages. We have recorded no liability for any litigation matters
in our Consolidated Balance Sheets at December 31, 2023.
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If we are found in violation of privacy and data protection laws, we may be required to pay penalties, be subjected to scrutiny by regulators or
governmental entities, or be suspended from participation in government healthcare programs, which may adversely affect our business, financial
condition and results of operations.
Our business is subject to many laws and regulations intended to protect the privacy and data of individuals participating in our clinical trials and
our employees, among others. For example, with regard to individuals participating in our clinical trials, these laws and regulations govern the safeguarding
the privacy, integrity, availability, security and transmission of individually identifiable health information. In addition to federal laws and regulations in the
United States, such as the HIPAA requirements relating to the privacy, security and transmission of individually identifiable health information, many state
and foreign laws also govern the privacy and security of health information. These laws often differ from each other in significant ways, thus complicating
compliance efforts. The global data protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain
uncertain for the foreseeable future.
In the United States, California recently enacted the California Consumer Privacy Act (CCPA), which took effect on January 1, 2020. The CCPA
gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive
detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action
for data breaches that is expected to increase data breach litigation. The CCPA has increased our compliance costs and may increase our potential liability.
The CCPA has prompted a number of proposals for new federal and state privacy legislation. If passed, these proposals could increase our potential
liability, increase our compliance costs and adversely affect our business.
The European Regulation 2016/679, known as the General Data Protection Regulation (GDPR), and the implementing legislation of EU Member
States, which became effective on May 25, 2018, apply to the collection and processing of personal data, including health-related information, by
companies located in the EU, or in certain circumstances, by companies located outside of the EU and processing personal information of individuals
located in the EU. The GDPR is wide-ranging in scope and imposes strict obligations on the ability to process personal data, including health-related
information, in particular in relation to their collection, use, disclosure and transfer. These include several requirements relating to, for example, (i)
obtaining, in some situations, the consent of the individuals to whom the personal data relates, (ii) the information provided to the individuals about how
their personal information is used, and (iii) ensuring the security and confidentiality of the personal data. The GDPR prohibits the transfer of personal data
to countries outside of the European Economic Area (EEA), such as the United States, which are not considered by the European Commission to provide an
adequate level of data protection. Potential pecuniary fines for noncompliant companies may be up to the greater of €20 million or 4% of annual global
revenue.
To the extent that we are found liable for the inappropriate collection, storage, use or disclosure of protected information of individuals (such as
employees and/or clinical patients protected by any privacy or data protection law), we could be subject to reputational harm, monetary fines (such as those
imposed by the GDPR and CCPA), civil suits, civil penalties or criminal sanctions and requirements to disclose the breach, and the development of our
biologic candidates could be delayed. In addition, we continue to be subject to new and evolving data protection laws and regulations from a variety of
jurisdictions, and there is a risk that our systems and processes for managing and protecting data may be found to be inadequate, which could materially
adversely affect our business, financial condition and results of operations.
Our operations may involve hazardous materials and are subject to environmental, health, and safety laws and regulations. Compliance with these
laws and regulations is costly, and we may incur substantial liability arising from our activities involving the use of hazardous materials.
As a research-based biopharmaceutical company with significant research and development and manufacturing operations, we are subject to
extensive environmental, health, and safety laws and regulations, including those governing the use of hazardous materials. Our research and development
and manufacturing activities involve the controlled use of chemicals, radioactive compounds, and other hazardous materials. The cost of compliance with
environmental, health, and safety regulations (including, but not limited to, the handling and disposal of both our hazardous and non-hazardous waste) is
substantial. If an accident involving these materials or an environmental discharge were to occur, we could be held liable for any resulting damages, or face
regulatory actions, which could exceed our resources or insurance coverage.
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Risks Related to Investment and Securities
We have received a notice of delisting or failure to satisfy a continued listing rule from Nasdaq. Although we have a plan to maintain the listing of
our common stock on Nasdaq, we may ultimately be unsuccessful in doing so which could adversely affect our stock price, the flexibility of our
investors to sell our common stock in the secondary market, and our ability to raise capital.
On May 26, 2023, we received a written notice from the Nasdaq Listing Qualifications Department of the Nasdaq Stock Market LLC (Nasdaq)
stating that we were not in compliance with Nasdaq Listing Rule 5450(a)(1) (the Minimum Bid Price Rule) because the Company’s common stock did not
maintain a minimum closing bid price of $1.00 per share for 30 consecutive business days. The Company was given an initial 180 calendar day period, or
until November 22, 2023, to regain compliance with the Minimum Bid Price Rule.
On November 24, 2023, we received written notice from Nasdaq stating that the Company is eligible for an additional 180 calendar day period, or
until May 20, 2024, to regain compliance with the Minimum Bid Price Rule. In the notice, Nasdaq noted that the Company’s common stock had not
regained compliance with the Minimum Bid Price Rule during the initial 180 calendar day period that ended on November 22, 2023, and that the Company
had submitted written notice to Nasdaq of its intention to cure the required Minimum Bid Price Rule deficiency by effecting a reverse stock split prior to
May 20, 2024, if necessary. To regain compliance with the minimum bid price requirement, the Company’s common stock must be at least $1.00 per share
for a minimum of 10 consecutive business days (and generally no more than 20 consecutive business days) during this additional 180 calendar day period.
In connection with the Company's eligibility for a second compliance period, the Company's common stock was transferred from the Nasdaq Global Select
Market to the Nasdaq Capital Market at the opening of business on November 28, 2023. The Nasdaq Capital Market operates in substantially the same
manner as the Nasdaq Global Select Market, and the Company’s common stock continues to be listed and traded under the symbol “NKTR” on the Nasdaq
Capital Market.
We will continue to actively monitor the closing bid price for its common stock and evaluate available options to regain compliance with the
Minimum Bid Price Rule. If we fail to regain compliance during the second compliance period, then Nasdaq will notify us of its determination to delist the
Company’s common stock. At that time, we may appeal Nasdaq’s delisting determination to a Nasdaq Listing Qualifications panel (the Panel). There can
be no assurance that, if we do appeal any delisting determination by Nasdaq to the Panel, such appeal would be successful. If we are unable to regain
compliance in a timely manner, our common stock may become delisted. Any such delisting could adversely affect the price of our common stock and
make it more difficult for investors to sell our common stock in the secondary market. In addition, a delisting of our common stock could significantly harm
our ability to raise capital necessary to continue our operations.
The price of our common stock has, and may continue to fluctuate significantly, which could result in substantial losses for investors and securities
class action and shareholder derivative litigation.
Our stock price is volatile. During the year ended December 31, 2023, based on closing prices on the Nasdaq Capital Market, the closing price of
our common stock ranged from $0.42 to $3.15 per share. In response to volatility in the price of our common stock in the past, plaintiffs’ securities
litigation firms have sought information from us and/or shareholders as part of their investigation into alleged securities violations and breaches of duties
(among other corporate misconduct allegations). Following their investigations, plaintiffs’ securities litigation firms have often initiated legal action,
including the filing of class action lawsuits, derivative lawsuits, and other forms of redress. We expect our stock price to remain volatile and we continue to
expect the initiation of legal actions by plaintiffs’ securities litigation firms following share price fluctuations. A variety of factors may have a significant
effect on the market price of our common stock, including the risks described in this section titled “Risk Factors” and the following:
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•
•
announcement of our 2022 and 2023 Restructuring Plans;
announcements of data from, or material developments in, our clinical studies and those of our collaboration partners, including data
regarding efficacy and safety, delays in clinical development, regulatory approval or commercial launch – in particular, the results from
clinical studies of bempegaldesleukin and rezpegaldesleukin have had a significant impact on our stock price;
the timing of outcomes from our clinical trials which can be difficult to predict particularly for clinical studies that have event-driven end
points such as progression-free survival and overall survival;
announcements by collaboration partners as to their plans or expectations related to biologic candidates and approved biologics in which
we have a substantial economic interest;
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•
•
•
•
•
•
•
•
•
announcements regarding terminations or disputes under our collaboration agreements;
fluctuations in our results of operations;
developments in patent or other proprietary rights, including intellectual property litigation or entering into intellectual property license
agreements and the costs associated with those arrangements;
announcements of technological innovations or new therapeutic products that may compete with our approved partnered products or
products under development;
announcements of changes in governmental regulation affecting us or our competitors;
litigation brought against us or third parties to whom we have indemnification obligations;
public concern as to the safety of drug formulations developed by us or others;
our financing needs and activities; and
general economic, industry and market conditions, including the impacts of rising inflation and interest rates and global geopolitical
tensions.
At times, our stock price has been volatile even in the absence of significant news or developments. The stock prices of biotechnology companies
and securities markets generally have been subject to dramatic price swings in recent years. In addition, as a result of our lower stock price, we are no
longer a well-known seasoned issuer, which otherwise would allow us to, among other things, file automatically effective shelf registration statements. As a
result, any attempt to access the public capital markets will be more expensive and subject to delays.
We have implemented certain anti-takeover measures, which make it more difficult to acquire us, even though such acquisitions may be beneficial
to our stockholders.
Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to
acquire us, even though such acquisitions may be beneficial to our stockholders. These anti-takeover provisions include:
•
•
•
•
•
•
establishment of a classified board of directors such that not all members of the board may be elected at one time;
lack of a provision for cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to
elect director candidates;
the ability of our board to authorize the issuance of “blank check” preferred stock to increase the number of outstanding shares and thwart
a takeover attempt;
prohibition on stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of stockholders;
establishment of advance notice requirements for nominations for election to the board of directors or for proposing matters that can be
acted upon by stockholders at stockholder meetings; and
limitations on who may call a special meeting of stockholders.
Further, provisions of Delaware law relating to business combinations with interested stockholders may discourage, delay or prevent a third party
from acquiring us. These provisions may also discourage, delay or prevent a third party from acquiring a large portion of our securities or initiating a tender
offer or proxy contest, even if our stockholders might receive a premium for their shares in the acquisition over the then-current market prices. We also
have a change of control severance benefit plan, which provides for certain cash severance, stock award acceleration and other benefits in the event our
employees are terminated (or, in some cases, resign for specified reasons) following an acquisition. This severance plan could discourage a third party from
acquiring us.
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General Risk Factors
We significantly rely on information technology systems and infrastructure, and any failure, inadequacy, damage, interruption, compromise or
breach, or security lapse of that technology within our internal computer systems and infrastructure, or those of our partners, vendors, CROs,
CMOs or other contractors or consultants, may result in a material disruption of our development programs and our operations and financial
condition.
As part of our business, we collect, store and transmit large amounts of confidential information, proprietary or other sensitive information,
including intellectual property and personal data. Despite the implementation of security measures, our internal computer systems and infrastructure or
those of our partners, vendors, contract research organizations (CROs), contract manufacturing organizations (CMOs) and other contractors and consultants
are vulnerable to loss, damage, compromise, interruption, denial-of-service, unauthorized access, or misappropriation. Cyber incidents have been increasing
in frequency, levels of persistence, sophistication and intensity, and can include unauthorized activity by our employees, contractors and other third parties,
as well as by third parties who use cyberattack techniques involving malware, hacking and phishing, social engineering and business email compromises,
among others. Additionally, the risk of cyber-attacks or other privacy or data security incidents may be heightened as a result of an increase in the number
of employees who adopted a remote working environment during the COVID-19 pandemic, which may be less secure and more susceptible to hacking
attacks or other security compromises or breaches. Our information technology systems and infrastructure, and those of our partners, vendors, CROs,
CMOs or other contractors or consultants are also vulnerable to natural disasters, terrorism, war, telecommunication and electrical failures and the types of
interruption, compromise and damage described above. Any such compromise or disruption, no matter the origin, may cause an interruption of our
operations. For instance, the loss or misappropriation of preclinical data or data from any clinical trial involving our biologic candidates could result in
delays in our development and regulatory filing efforts and significantly increase our costs. In addition, the loss, corruption or unauthorized disclosure or
misuse of our trade secrets, personal data or other confidential and/or proprietary or sensitive information could compromise the commercial viability of
one or more of our programs, which would negatively affect our business. Also, the costs to us to investigate, mitigate and remediate cybersecurity
incidents or compromises and comply with applicable legal obligations, including breach notification obligations to individuals, regulators, partners and
others, could be significant and our reputation could be materially damaged. We could also be exposed to litigation or regulatory investigations or actions
by state and federal governmental authorities and non-U.S. authorities, including fines, penalties, and other legal and financial exposure and liabilities.
Changes in tax law could adversely affect our business and financial condition.
Our business is subject to numerous international, federal, state, and other governmental laws, rules, and regulations that may adversely affect our
operating results, including, taxation and tax policy changes, tax rate changes, new tax laws, or revised tax law interpretations, which individually or in
combination may cause our effective tax rate to increase. In the U.S., the rules dealing with federal, state, and local income taxation are constantly under
review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which
changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, such changes have been made and
changes are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial
condition or results of operations.
Global economic and political conditions may negatively affect us and may magnify certain risks that affect our business.
Our operations and performance may be affected by global economic and political conditions. For example, our operations and performance (or
the operations and performance of our partners and service providers) may be negatively affected by political or civil unrest or military action, terrorist
activity, and unstable governments and legal systems. For example, in late February 2022, Russia commenced a military invasion of Ukraine, and the
sustained conflict in Ukraine, including the potential effects of sanctions and retaliatory cyber-attacks on the world economy and markets, has contributed
to increased market volatility and uncertainty. In particular, sanctions imposed by the U.S., EU and other countries in response to the conflict between
Russia and Ukraine and the potential response to such sanctions may have an adverse impact on our business, including our clinical trials, the financial
markets and the global economy. In addition, in October 2023, conflicts arose in Israel and Gaza following terrorist attacks in Israel. As the conflicts
between Ukraine and Russia and escalating conflicts in the Middle East continue, further sanctions, retaliatory attacks, market volatility and uncertainty
may occur, any of which could have a material adverse effect on our business.
As a result of global economic and political conditions, some third-party payers may delay or be unable to satisfy their reimbursement obligations.
Job losses or other economic hardships may also affect patients’ ability to afford healthcare as a result of increased co-pay or deductible obligations, greater
cost sensitivity to existing co-pay or deductible obligations, lost healthcare insurance coverage or for other reasons. Our ability to conduct clinical trials in
regions experiencing political
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or civil unrest could negatively affect clinical trial enrollment or the timely completion of a clinical trial. We believe the aforementioned economic
conditions have led and could continue to lead to reduced demand for our and our collaboration partners’ drug products, which could have a material
adverse effect on our product sales, business and results of operations.
Further, with rising international trade tensions or sanctions, our business may be adversely affected following new or increased tariffs that result
in increased global clinical trial costs as a result of international transportation of clinical drug supplies, as well as the costs of materials and products
imported into the U.S. Tariffs, trade restrictions or sanctions imposed by the U.S. or other countries could increase the prices of our and our collaboration
partners’ drug products, affect our and our collaboration partners’ ability to commercialize such drug products, or create adverse tax consequences in the
U.S. or other countries. As a result, changes in international trade policy, changes in trade agreements and the imposition of tariffs or sanctions by the U.S.
or other countries could materially adversely affect our results of operations and financial condition.
Our business could be negatively impacted by corporate citizenship and sustainability matters.
There is an increased focus from certain investors, employees, and other stakeholders concerning corporate citizenship and sustainability matters,
which include environmental concerns and social investments. We could fail to meet, or be perceived to fail to meet, the expectations of these certain
investors, employees and other stakeholders concerning corporate citizenship and sustainability matters, thereby resulting in a negative impact to our
business.
If natural disasters or other catastrophic events strike, our business may be harmed.
Our corporate headquarters, including a substantial portion of our research and development operations, are located in the San Francisco Bay Area,
a region known for seismic activity and a potential terrorist target. In addition, we own facilities for the manufacture of products using our advanced
polymer conjugate technologies in Huntsville, Alabama and own and lease offices in Hyderabad, India. There are no backup facilities for our
manufacturing operations located in Huntsville, Alabama. In the event of an earthquake or other natural disaster, catastrophic event caused by climate
change, political instability, civil unrest, or terrorist event in any of these locations, our ability to manufacture and supply materials for biologic candidates
in development and our ability to meet our manufacturing obligations to our customers would be significantly disrupted and our business, results of
operations and financial condition would be harmed. Our collaboration partners and important vendors and suppliers to us or our collaboration partners may
also be subject to catastrophic events, such as earthquakes, floods, hurricanes, tornadoes and pandemics any of which could harm our business (including,
for example, by disrupting supply chains important to the success of our business), results of operations and financial condition. We have not undertaken a
systematic analysis of the potential consequences to our business, results of operations and financial condition from a major earthquake or other
catastrophic event, such as a fire, sustained loss of power, terrorist activity or other disaster, and do not have a recovery plan for such disasters. In addition,
our insurance coverage may not be sufficient to compensate us for actual losses from any interruption of our business that may occur.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity.
Cyber Risk Management and Strategy
The Company, under the oversight of the audit committee of the board of directors, has implemented and maintains an enterprise risk management
process, which includes periodic assessments of various risk categories, including cyber risks, across the Company. Our process for assessing, identifying,
and managing risks from cybersecurity threats is informed by industry standards and supported by cybersecurity technologies, including third-party security
solutions, monitoring, and alerting tools, designed to monitor, identify, and address cybersecurity risks.
We leverage a managed security service provider and also engage with other third-party providers and consultants to support our cyber risk
management efforts, including through periodic security testing. We have a process to assess and review the cybersecurity practices of information
technology third-party vendors and service providers, including through review of applicable certifications, security reports, and vendor questionnaires and
contractual requirements, as appropriate.
Governance Related to Cybersecurity Risks
Our cyber risk management program and related operations and processes are directed by the Head of IT in consultation with the legal team and
our third-party security advisor. Currently, the Head of IT role is held by an individual who has over 20 years of information technology experience. The
Head of IT reports to the Chief Legal Officer.
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The Head of IT meets with the Chief Legal Officer periodically to discuss and review our cybersecurity risk management processes and to address
matters related to potential cybersecurity and information technology risks, with input from the Company’s third-party technology providers, as
appropriate. In addition, the Head of IT has regular meetings with our managed security service provider to inform our cyber risk management processes
and reporting to management. The Head of IT, working with the Chief Legal Officer, provides periodic reports on cybersecurity and information
technology matters to the audit committee, which is responsible for reviewing and overseeing the Company’s risk management process, including
cybersecurity risks.
The Chief Legal Officer and the audit committee periodically report on cybersecurity risk management to the full board of directors. The board of
directors, as a whole and through its committees, has responsibility for the periodic review and oversight of information technology risks, including
cybersecurity risks.
Our enterprise risk management program is overseen by a risk management committee comprised of senior managers across key functional areas
that cover cybersecurity and information technology matters. This committee provides periodic reports and updates, as needed, to the board of directors or
one of its designated committees. In collecting information on enterprise risk, cybersecurity is included as a designated risk category, and the results of our
enterprise risk assessment processes, including risks related to cybersecurity, are also discussed with the audit committee and among senior management on
a periodic basis.
Item 2. Properties
California
We lease a 155,215 square foot facility in the Mission Bay Area of San Francisco, California (Mission Bay Facility), under an operating lease
which expires in January 2030. The Mission Bay Facility is our corporate headquarters. We also lease 135,936 square feet of office space in San Francisco
(the Third Street Facility), under an operating lease which expires in January 2030.
In connection with our 2022 and 2023 Restructuring Plans, we have consolidated our San Francisco operations in our Mission Bay Facility, and
we have vacated our Third Street Facility and certain laboratory and office spaces at our Mission Bay Facility. We have sublet approximately 29,000 square
feet of office and laboratory space in our Mission Bay Facility and are seeking to sublease all of the remaining spaces in both Facilities.
Alabama
We currently own facilities consisting of approximately 124,000 square feet in Huntsville, Alabama, which houses laboratories as well as
administrative, clinical and commercial manufacturing facilities for our PEGylation and advanced polymer conjugate technology operations as well as
manufacturing of APIs for early clinical studies.
Item 3. Legal Proceedings
From time to time, we are subject to legal proceedings. We are not currently a party to or aware of any proceedings that we believe will have,
individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on The NASDAQ Capital Market under the symbol “NKTR.”
Holders of Record
As of February 27, 2024, there were approximately 145 holders of record of our common stock.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We currently expect to retain any future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.
There were no sales of unregistered securities and there were no common stock repurchases made during the year ended December 31, 2023.
Securities Authorized for Issuance Under Equity Compensation Plans
Information regarding our equity compensation plans as of December 31, 2023 is disclosed in Item 12 “Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-K and is incorporated herein by reference from our proxy
statement for our 2024 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
Performance Measurement Comparison
The material in this section is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or
otherwise subject to the liability of that section, nor shall the material in this section be deemed to be incorporated by reference in any registration statement
or other document filed with the SEC under the Securities Act or the Exchange Act, except as otherwise expressly stated in such filing.
The following graph compares, for the five year period ended December 31, 2023, the cumulative total stockholder return (change in stock price
plus reinvested dividends) of our common stock with (i) the NASDAQ Composite Index, (ii) the NASDAQ Biotechnology Index and (iii) the RDG
SmallCap Biotechnology Index. Measurement points are the last trading day of each of our fiscal years ended December 31, 2019, December 31, 2020,
December 31, 2021, December 31, 2022 and December 31, 2023. The graph assumes that $100 was invested on December 31, 2018 in the common stock
of the Company, the NASDAQ Composite Index, the NASDAQ Biotechnology Index and the RDG SmallCap Biotechnology Index and assumes
reinvestment of any dividends. The stock price performance in the graph is not intended to forecast or indicate future stock price performance.
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Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from
those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section as well as
factors described in “Part I, Item 1A — Risk Factors.”
Overview
Strategic Direction of Our Business
Nektar Therapeutics is a clinical stage, research-based drug discovery biopharmaceutical company focused on discovering and developing
innovative medicines in the field of immunotherapy. Within this growing field, we direct our efforts toward creating new immunomodulatory agents that
selectively induce, amplify, attenuate or prevent immune responses in order to achieve desired therapeutic outcomes. We apply our deep understanding of
immunology and unparalleled expertise in polymer chemistry to create innovative drug candidates and use our drug development expertise to advance these
molecules through preclinical and clinical development. Our pipeline of clinical-stage and preclinical-stage immunomodulatory agents targets the treatment
of autoimmune diseases (e.g. rezpegaldesleukin and NKTR-0165, respectively) and cancer (e.g. NKTR-255). We continue to make significant investments
in building and advancing our pipeline of drug candidates as we believe that this is the best strategy to build long-term shareholder value.
In April of 2022 and 2023, we implemented the 2022 Restructuring Plan and 2023 Restructuring Plan, respectively, which both prioritized key
research and development efforts that will be most impactful to the Company’s future. Central to both plans is the continuation of clinical development of
both rezpegaldesleukin (previously referred to as NKTR-358) and NKTR-255 programs as well as our core research programs in immunology that include
a separate tumor necrosis factor receptor 2 agonist antibody (NKTR-0165).
Autoimmune and inflammatory diseases cause the immune system to mistakenly attack and damage healthy cells in a person’s body. A failure of
the body’s self-tolerance mechanisms enables the formation of the pathogenic T lymphocytes that conduct this attack. Our drug candidate
rezpegaldesleukin is a potential first-in-class resolution therapeutic that may address this underlying immune system imbalance in people with autoimmune
disorders and inflammatory diseases. It is designed to target the interleukin-2 (IL-2) receptor complex in the body in order to stimulate proliferation of
powerful inhibitory immune cells known as regulatory T cells (Treg cells). By activating these cells, rezpegaldesleukin may act to bring the immune system
back into balance. Rezpegaldesleukin is being developed as a once or twice monthly self-administered injection for a number of autoimmune disorders and
inflammatory diseases.
On October 13, 2023, we announced final efficacy data from a Phase 1b study of rezpegaldesleukin in adult patients with atopic dermatitis (Phase
1b AD Study) at the European Academy of Dermatology and Venereolgy conference. The final efficacy data from the Phase 1b AD study showed that
patients with moderate-to-sever atopic dermatitis that were treated with rezpegaldesluekin had dose-dependent improvements in the eczema area and
severity index (EASI), validated investigated global assessment (vIGA), body surface area (BSA), and itch numeric rating scale (NRS) over twelve weeks
of treatment compared to placebo, which were sustained post-treatment over an additional thirty-six weeks. Rezpegaldesleukin was well tolerated with no
patients in the rezpegaldesleukin groups experiencing severe, serious, or fatal adverse events, and no anti-rezpegaldesleukin antibodies were detected.
In late October 2023, we initiated a Phase 2b clinical study of rezpegaldesleukin in patients with moderate-to-severe atopic dermatitis, and we are
targeting the initiation of a new Phase 2b clinical study in patients with alopecia areata by the end of March 2024. We also plan to explore other auto-
immune indications for the development of rezpegaldesleukin. We developed rezpegaldesleukin and currently own full rights to this drug candidate.
Although we previously entered into a license agreement with Eli Lilly and Company in 2017 (the Lilly Agreement) to develop and commercialize
rezpegaldesleukin, on April 23, 2023, we received from Lilly a notice of at-will termination of the Lilly Agreement, and on April 27, 2023, we announced
that we would be regaining full rights to rezpegaldesleukin.
In oncology, we focus on developing medicines that target biological pathways that stimulate and sustain the body’s immune response in order to
fight cancer. Our drug candidate NKTR-255 is an investigational biologic that is designed to target the IL-15 pathway in order to activate the body’s innate
and adaptive immunity. Through optimal engagement of the IL-15 receptor complex, NKTR-255 is designed to enhance functional NK cell populations and
formation of long-term immunological memory, which may lead to sustained and durable anti-tumor immune response. We are continuing select
developmental studies of NKTR-255 in combination with cell therapies and checkpoint inhibitors while we evaluate additional strategic partnership
pathways for the program.
We initiated a Nektar-sponsored Phase 2/3 study to evaluate NKTR-255 following Yescarta® or Breyanzi® CD19 CAR-T cell therapy in patients
with large B-cell lymphoma, and the Fred Hutchinson Cancer Center is evaluating NKTR-255 following Breyanzi® CD19 CAR-T cell therapy in patients
with relapsed/refractory large B-cell lymphoma as an investigator
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sponsored study. We are continuing our oncology clinical collaboration with Merck KGaA to evaluate the maintenance regimen of NKTR-255 in
combination with avelumab, a PD-L1 inhibitor, in patients with locally advanced or metastatic urothelial carcinoma in the Phase II JAVELIN Bladder
Medley study. We expect to receive topline data from the study in the second half of 2024. We entered into a new clinical study collaboration with AbelZeta
Pharma, Inc. (AbelZeta) (formerly known as CBMG Holdings) to study NKTR-255 in combination with its C-TIL051, a tumor-infiltrating lymphocyte
(TIL) therapy, in advanced non-small cell lung cancer (NSCLC) patients that are relapsed or refractory to anti-PD-1 therapy. Under the collaboration, we
will contribute NKTR-255 and AbelZeta will add NKTR-255 to its ongoing AbelZeta-sponsored Phase 1 clinical trial. We also have an ongoing
investigator sponsored study evaluating NKTR-255 in combination with IMFINZI (darvulumab) in patients with unresectable Stage 3 NSCLC who have
received chemoradiation.
We continue to advance our most promising research drug candidates into preclinical development with the objective of advancing these early-
stage research programs to human clinical studies over the next several years. Our lead research program, NKTR-0165, is our preclinical tumor necrosis
factor (TNF) receptor type II (TNFR2) agonist asset, which we believe is a unique bivalent antibody that selectively stimulates TNFR2 receptor activity,
without modulation of the TNFR1 signaling. TNFR2 signaling drives immunoregulatory function and can provide a direct protective effect for tissue cells.
TNFR-2 is highly expressed on Tregs, neuronal cells and endothelial cells and has been shown to potentiate the suppressive effects and overall functional
properties of Tregs. Our focus on TNFR2 antibody candidates that show selective Treg cell binding and signaling profiles that may be developed for
treatment of autoimmune diseases, such as ulcerative colitis, multiple sclerosis and vitiligo. We are carrying out Investigational New Drug (IND) enabling
studies for this program in 2024, after having exercised an option to gain an exclusive license to specified agonistic antibodies and other materials that were
developed pursuant to a research collaboration and license option agreement we entered into with Biolojic Design, Ltd. in 2021.
We have historically derived substantially all of our revenue and significant amounts of research and development operating capital from our
collaboration agreements. In addition to payments received under the Lilly Agreement, we have received upfront and milestone payments and cost-sharing
reimbursements under a number of other previous collaboration agreements, and certain of our collaboration partners, including Lilly, have borne
substantial costs of developing our drug candidates. Following the return of our rights to develop rezpegaldesleukin from Lilly, unless we enter into a new
collaboration agreement, we will bear all the costs of developing our pipeline drug candidates, other than our clinical collaborations for NKTR-255
described above.
Several of our historical collaboration agreements have resulted in approved drugs, for which we may continue to manufacture the polymer
reagents used in the production of the drug products and may be entitled to royalties for net sales of these approved drugs. However, we have sold the
majority of our rights to receive royalties under these arrangements, including:
•
•
2012 Purchase and Sale Agreement: In 2012, we sold all of our rights to receive royalties from CIMZIA® (for the treatment of Crohn’s
disease and other autoimmune indications) and MIRCERA® (for the treatment of anemia associated with chronic kidney disease) under
our collaborations with UCB Pharma (UCB) and F. Hoffmann-La Roche Ltd, respectively, to RPI Finance Trust (RPI), an affiliate of
Royalty Pharma for $124.0 million.
2020 Purchase and Sale Agreement: In December 2020, we sold our rights, subject to a cap, to receive royalties from MOVANTIK® /
MOVENTIG® (for the treatment of opioid-induced constipation), ADYNOVATE® / ADYNOVI® (a half-life extension product of Factor
VIII) and other hemophilia products, under our arrangements with AstraZeneca AB, Baxalta, Inc. (a wholly owned-subsidiary of Takeda
Pharmaceutical Company Ltd.), and Novo Nordisk A/S, respectively, for $150.0 million to entities managed by Healthcare Royalty
Management (HCR) under a capped sale arrangement, such that all future royalties return to Nektar if HCR receives $210.0 million in
royalties by December 31, 2025 (the 2025 Threshold) or $240.0 million if the 2025 Threshold is not met. On March 4, 2024, Nektar and
HCR amended the 2020 Purchase and Sale Agreement to remove the cap on the royalties in exchange for $15.0 million. See Note 5 to our
Consolidated Financial Statements for additional information.
Our business is subject to significant risks, including the risks inherent in our development efforts, the results of our clinical trials, our dependence
on the marketing efforts by our collaboration partners, uncertainties associated with obtaining and enforcing patents, the lengthy and expensive regulatory
approval process and competition from other products. Drug research and development is an inherently uncertain process with a high risk of failure at every
stage prior to approval. The timing and outcome of clinical trial results are extremely difficult to predict. Clinical development successes and failures can
have a disproportionately positive or negative impact on our scientific and medical prospects, financial condition and prospects, results of operations and
market opportunities. For a discussion of these and some of the other key risks and uncertainties affecting our business, see Item 1A “Risk Factors.”
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With respect to financing our near-term business needs, as set forth below in “Key Developments and Trends in Liquidity and Capital Resources,”
we estimate we have working capital to fund our current business plans through at least the next twelve months. At December 31, 2023, we had
approximately $329.4 million in cash and investments in marketable securities.
Results of Operations
The results of operations for the years ended December 31, 2023 and 2022 is presented below. Additional information required by Item 7 for the
year ended December 31, 2021 can be found in Item 7 in our Annual Report on Form 10-K for the year December 31, 2022, filed with the SEC on February
28, 2023.
Year Ended December 31,
2022
2023
$ Change
2023 vs. 2022
% Change
2023 vs. 2022
Revenue:
Product sales
Non-cash royalty revenue related to sales of future royalties
License, collaboration and other revenue
Total revenue
Operating costs and expenses:
Cost of goods sold
Research and development
General and administrative
Restructuring, impairment and costs of terminated program
Impairment of goodwill
Total operating costs and expenses
Loss from operations
Non-operating income (expense):
Change in fair value of development derivative liability
Non-cash interest expense on liability related to sale of future royalties
Interest income
Other income (expense), net
Total non-operating income (expense), net
Loss before provision for income taxes
Provision (benefit) for income taxes
Net loss
n/m - not meaningful
Revenue
$
20,681 $
68,921
520
90,122
20,348 $
69,794
1,913
92,055
33,768
114,162
77,417
51,958
76,501
353,806
(263,684 )
—
(25,334 )
19,009
(6,247 )
(12,572 )
(276,256 )
(200 )
(276,056 ) $
21,635
218,323
92,333
135,930
—
468,221
(376,166 )
33,427
(28,911 )
6,783
(116 )
11,183
(364,983 )
3,215
(368,198 ) $
$
333
(873 )
(1,393 )
(1,933 )
12,133
(104,161 )
(14,916 )
(83,972 )
76,501
(114,415 )
112,482
(33,427 )
3,577
12,226
(6,131 )
(23,755 )
88,727
(3,415 )
92,142
2 %
(1 )%
(73 )%
(2 )%
56 %
(48 )%
(16 )%
(62 )%
n/m
(24 )%
(30 )%
(100 )%
(12 )%
180 %
5285 %
(212 )%
(24 )%
(106 )%
(25 )%
Our revenue as historically been derived from our collaboration agreements, under which we may receive product sales revenue, royalties, and
license fees, as well as development and sales milestones and other contingent payments. We recognize revenue when we transfer promised goods or
services to our collaboration partners.
•
Product sales and Cost of goods sold: Product sales include predominantly fixed price manufacturing and supply agreements with our
collaboration partners and are the result of firm purchase orders from those partners. Accordingly, the revenue recognized in a given period is
based solely on the demand and requirements of our collaboration partners and is not ratable throughout the year. We expect product sales to
increase for 2024 as compared to 2023 due to increased demand from our partners with a corresponding increase in cost of goods sold.
We have a manufacturing arrangement with UCB that includes a fixed price which is less than the fully burdened manufacturing cost for the
reagent, and we expect this situation to continue in future years. As a result of this arrangement, gross margin was negative for the years
ended December 31, 2023 and 2022.
Following the termination of our bempegaldesleukin program, our manufacturing facility has decreased support of our research and
development programs. Consequently, we have decreased the allocation of our manufacturing facility costs to research and development
expense, which has increased our inventory cost and increased our negative gross margin. We expect the allocation of our manufacturing
facility costs to research and development expense in 2024 to be consistent with 2023.
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For the year ended December 31, 2023, we recorded a provision of $2.0 million for the net realizable value of our batches as an increase to
cost of goods sold. Our manufacturing agreement with UCB provides for a fixed price which we had negotiated in exchange for a higher
royalty rate. Accordingly, when evaluating the net realizable value of our inventory for UCB, we include the negotiated increase of the
royalties in our analysis, and the aggregate revenue has historically been greater than our manufacturing cost. Due to the decrease in the
royalty rate for 2024 as a result of a settlement agreement with UCB, the aggregate revenue is expected to be less than our manufacturing
cost, and therefore we recorded a provision for net realizable value. See Note 5 to our Consolidated Financial Statements for additional
information on the settlement agreement with UCB. We expect the provision to increase in 2024 because the further decrease in the royalty
rate for 2025 will further decrease the aggregate revenue and therefore decrease the net realizable value of the inventory.
During the three months ended September 30, 2023, we recorded a provision for inventory obsolescence of $3.7 million as an increase to cost
of goods sold for certain batches produced in our Huntsville, Alabama manufacturing facility, as a result of our identification of a quality
concern of a solvent obtained from a third party that was used in the manufacturing of these batches. During the three months ended
December 31, 2023, based on further analysis and partner approval, we reversed the provision and recorded a $3.7 million benefit to cost of
goods sold.
Non-cash royalty revenue and Non-cash interest expense: We recognize non-cash royalty revenue and non-cash interest expense resulting
from royalties on several products for which we had previously sold our rights to receive royalties under the 2012 and 2020 Purchase and
Sale Agreements. See Note 5 to our Consolidated Financial Statements for additional information regarding these agreements. These non-
cash revenues and expenses have no affect on our cash flows, and we do not consider them material to our operations. We expect non-cash
royalty revenue to decrease for 2024 as compared to 2023 due to decrease in royalty rate from UCB, and we expect non-cash interest expense
to decrease as a result of the lower liability balance.
On March 4, 2024, Nektar and HCR amended the 2020 Purchase and Sale Agreement to remove the cap on the royalties in exchange for
$15.0 million. See Note 5 to our Consolidated Financial Statements for additional information.
License, collaboration and other revenue: License, collaboration and other revenue includes the recognition of upfront payments,
milestone and other contingent payments received in connection with our license and collaboration agreements. The amount of revenue
depends in part upon the estimated recognition period of the upfront payments allocated to continuing performance obligations, the
achievement of milestones and other contingent events, the continuation of existing collaborations, the amount of research and development
work, and entering into new collaboration agreements, if any. License, collaboration and other revenue was not material for 2022 or 2023,
and, unless we enter into a new collaboration agreement with upfront payments, we do not expect to recognize significant revenue for the full
year 2024.
The timing and future success of our drug development programs and those of our collaboration partners are subject to a number of risks and
uncertainties. See Item 1A. Risk Factors for discussion of the risks associated with the complex nature of our collaboration agreements.
•
•
Research and Development Expense
Research and development expense consists primarily of clinical study costs, contract manufacturing costs, direct costs of outside research,
materials, supplies, licenses and fees as well as personnel costs (including salaries, benefits, and non-cash stock-based compensation). Research and
development expense also includes certain overhead allocations consisting of support and facilities-related costs. Where we perform research and
development activities under a joint development collaboration, such as our collaboration with BMS, we record the expense reimbursement from our
partners as a reduction to research and development expense, and we record our share of our partners’ expenses as an increase to research and development
expense.
The following table presents expenses incurred for direct third-party costs, including clinical and regulatory services, contract manufacturing,
clinical supplies, and preclinical study support for each of our drug candidates. The table also presents other costs and overhead consisting of personnel,
overhead and other indirect costs as we utilize our employee and infrastructure resources across multiple development and research programs (in
thousands):
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Bempegaldesleukin (CD122-preferential IL-2 pathway agonist)(2)
NKTR-255 (IL-15 receptor agonist)
Rezpegaldesleukin (cytokine Treg stimulant)(3)
NKTR-0165 (tumor necrosis factor receptor type II agonist)
Discovery research, manufacturing and other costs
Total clinical development, contract manufacturing and other third party costs
Personnel, overhead and other costs(4)
Stock-based compensation and depreciation
Research and development expense
Clinical Study
Status(1)
Terminated
Phase 1/2
Phase 2b
Preclinical
Various
Year Ended December 31,
2023
2022
—
26,132
14,554
9,345
1,862
51,893
45,503
16,766
114,162 $
29,614
27,670
11,148
1,804
9,403
79,639
103,453
35,231
218,323
$
(1)
(2)
(3)
(4)
Clinical Study Status as of December 31, 2023. Definitions are provided in Part I, Item 1. Business.
In April 2022, BMS and we terminated the development of the bempegaldesleukin program. We report development expenses for
bempegaldesleukin in research and development expense for the first quarter of 2022. For the remaining three quarters of 2022 and all of 2023, we
report third party costs for the wind down of the bempegaldesleukin program in restructuring, impairment and costs of terminated program. The
amounts for the quarter ended March 31, 2022 includes a net reduction of $15.1 million for the BMS reimbursement.
The amounts include our 25% share of costs incurred by Lilly for the Phase 1b and Phase 2 development of rezpegaldesleukin. Lilly was responsible
for 75% of costs.
The amounts include reductions of $9.8 million employee cost reimbursements from BMS under our collaboration for the quarter ended March 31,
2022. For the remaining three quarters of 2022 and all of 2023, we reported direct employee costs supporting the wind down of the
bempegaldesleukin program in restructuring, impairment and costs of terminated program.
As discussed in Note 1 to our Consolidated Financial Statements, in April 2022, BMS and we decided to discontinue development of
bempegaldesleukin in combination with Opdivo®, and we have also decided to discontinue all other development of bempegaldesleukin. BMS and we have
each substantially wound down our respective clinical trials under the BMS Collaboration Agreement. Beginning with the second quarter of 2022, we
report clinical trial expense, other third-party costs and employee costs for the bempegaldesleukin program, net of the reimbursement from BMS, within
restructuring, impairment and costs of terminated program in our Consolidated Statement of Operations. Accordingly, research and development expense
decreased by $29.6 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022 for third-party costs, net of the BMS
reimbursement, for the termination of the bempegaldesleukin program.
As discussed in Note 8 to our Consolidated Financial Statements, pursuant to our 2022 Restructuring Plan, we completed the termination of
approximately 70% of our then current workforce during 2022, and, in April 2023, we announced our 2023 Restructuring Plan to reduce our San Francisco-
based workforce by approximately 60%, which was substantially completed by June 2023. Accordingly, research and development expense decreased by
$52.6 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022 for employee costs, including non-cash stock-
based compensation expense, net of the BMS reimbursement, primarily as a result of these Restructuring Plans. Research and development expense also
decreased for the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to lower allocations of support and facilities-
related costs, primarily as a result of these Restructuring Plans. We expect employee costs, including stock-based compensation expense, and allocations of
support and facilities-related costs to decrease for 2024 as compared to 2023 due to the 2023 Restructuring Plan.
Following the termination of the Lilly collaboration agreement in 2023, we have initiated a Phase 2b study of rezpegaldesleukin in patients with
moderate-to-severe atopic dermatitis, and we are targeting the initiation of a new Phase 2b clinical study in patients with alopecia areata by the end of
March 2024. We expect the costs of these two Phase 2b clinical trials to increase significantly in 2024 as these studies progress. Costs in both years
presented include development costs for rezpegaldesleukin under our collaboration agreement with Lilly as Lilly conducted its clinical trials, for which we
were responsible for 25% of costs and Lilly was responsible for 75% of costs. We do not expect to incur further expenses in 2024 from this collaboration.
We incurred research and development expense in the periods presented for development costs and manufacturing activities for NKTR-255,
including the Nektar-sponsored Phase 2/3 study to evaluate NKTR-255 following Yescarta® or Breyanzi® CD19 CAR-T cell therapy in patients with large
B-cell lymphoma, the Fred Hutchinson Cancer Center investigator-sponsored study evaluating NKTR-255 following Breyanzi® CD19 CAR-T cell therapy
in patients with relapsed/refractory large B-cell lymphoma, our oncology clinical collaboration with Merck KGaA to evaluate the
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maintenance regimen of NKTR-255 in combination with avelumab, a PD-L1 inhibitor, in patients with locally advanced or metastatic urothelial carcinoma
in the Phase II JAVELIN Bladder Medley study, and an ongoing investigator sponsored study evaluating NKTR-255 in combination with IMFINZI
(darvulumab) in patients with unresectable Stage 3 NSCLC who have received chemoradiation. We will continue to incur these costs of developing NKTR-
255 in 2024.
In the year-ended December 31, 2023, for our NKTR-0165 program, we exercised an option to gain an exclusive license to specified agonistic
antibodies and other materials that were developed pursuant to a research collaboration and license option agreement we entered into with Biolojic Design,
Ltd. in 2021. We will carry out IND enabling studies for this program in 2024.
We expect research and development expense in total to increase slightly in 2024 as compared to 2023 primarily due to the increased expense for
the development of rezpegaldesleukin in the Phase 2b trials.
The timing and amount of our future clinical trial expenses will vary significantly based upon our evaluation of ongoing clinical results and the
structure, timing, and scope of additional clinical development programs and potential clinical collaboration partnerships (if any) for these programs.
In addition to our drug candidates that we plan to evaluate in clinical development during 2024 and beyond, we believe it is vitally important to
continue our substantial investment in a pipeline of new drug candidates to continue to build the value of our drug candidate pipeline and our business. We
continue our interest in identifying new drug candidates across a wide range of molecule classes, including small molecules and large proteins, peptides and
antibodies, across multiple therapeutic areas. We also plan from time to time to evaluate opportunities to in-license potential drug candidates from third
parties to add to our drug discovery and development pipeline. We plan to continue to advance our most promising early research drug candidates into
preclinical development with the objective to advance these early stage research programs to human clinical studies over the next several years.
Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to
completion. In order to advance our drug candidates through clinical development, each drug candidate must be tested in numerous preclinical safety,
toxicology and efficacy studies. We then conduct clinical studies for our drug candidates that take several years to complete. The cost and time required to
complete clinical trials may vary significantly over the life of a clinical development program as a result of a variety of factors, including but not limited to:
•
•
•
•
•
•
•
•
•
•
the number of patients required for a given clinical study design;
the length of time required to enroll clinical study participants;
the number and location of sites included in the clinical studies;
the clinical study designs required by the health authorities (i.e. primary and secondary endpoints as well as the size of the study population
needed to demonstrate efficacy and safety outcomes);
the potential for changing standards of care for the target patient population;
the competition for patient recruitment from competitive drug candidates being studied in the same clinical setting;
the costs of producing supplies of the drug candidates needed for clinical trials and regulatory submissions;
the safety and efficacy profile of the drug candidate;
the use of clinical research organizations to assist with the management of the trials; and
the costs and timing of, and the ability to secure, approvals from government health authorities.
Furthermore, our strategy includes the potential of entering into collaborations with third parties to participate in the development and
commercialization of some of our drug candidates such as the collaboration that we have already completed for rezpegaldesleukin, or clinical
collaborations where we would share costs and operational responsibility with a partner. In certain situations, the clinical development program and process
for a drug candidate and the estimated completion date will largely be under the control of that third party and not under our control. We cannot forecast
with any degree of certainty which of our drug candidates will be subject to future collaborations or how such arrangements would affect our development
plans or capital requirements.
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General and Administrative Expense
General and administrative expense includes the cost of administrative staffing, commercial, finance and legal activities. As discussed in Note 8 to
our Consolidated Financial Statements, pursuant to our 2022 Restructuring Plan, which we announced in April 2022, we completed the termination of
approximately 70% of our then current workforce during 2022, and, in April 2023, we announced our 2023 Restructuring Plan to further reduce our San
Francisco-based workforce by approximately 60%, which we substantially completed by June 2023. As a result of our 2022 Restructuring Plan, the
commercial organization was eliminated and all other bempegaldesleukin-related commercialization activities ceased. Accordingly, as a result of these
Restructuring Plans, general and administrative expense decreased for year ended December 31, 2023 as compared to the year ended December 31, 2022.
We expect general and administrative expense will decrease slightly for 2024 as compared to 2023.
Restructuring, Impairment and Costs of Terminated Program
As discussed in Note 8 to our Consolidated Financial Statements, in April 2022, we announced the termination of the bempegaldesleukin program
and the 2022 Restructuring Plan, pursuant to which we completed an approximate 70% reduction of our then current workforce in 2022, and in April 2023,
we announced our 2023 Restructuring Plan to reduce our San Francisco-based workforce by approximately 60%. In connection with these events, we
reported the following costs in Restructuring, impairment and ther costs of terminated program as further described and disclosed in Note 8 to our
Consolidated Financial Statements (in thousands):
Year Ended December 31,
2022
Restructuring
Plan
2023
2023
Restructuring
Plan
2022
Total
2022 Restructuring
Plan
Clinical trial expense, other third-party and employee costs for the wind
down of the bempegaldesleukin program
Severance and benefit expense
Impairment of right-of-use assets and property, plant and equipment
Loss (gain) on sale or disposal of other property, plant and equipment, net
Contract termination and other restructuring costs
Restructuring, impairment and costs of terminated program
$
$
5,492
$
—
14,728
—
1,919
22,139
$
—
7,885
20,600
1,300
34
29,819
$
$
5,492
7,885
35,328
1,300
1,953
51,958
$
$
31,693
30,904
65,761
(3,326 )
10,898
135,930
•
•
•
•
•
Clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program: The expense decreased for
the year ended December 31, 2023 as compared to the year ended December 31, 2022, as we continued to wind down the bempegaldesleukin
program. We expect these costs to decrease in 2024.
Severance and benefits expense: The severance expense recorded in each year reflects the entire expense for the Restructuring Plan of such
year. We do not expect to recognize any further severance expense under the 2022 or 2023 Restructuring Plans in 2024.
Impairment of right-of-use assets and property, plant and equipment: The non-cash impairment charges for 2022 are primarily for our leased
space on Third St., reflecting lower rental recovery rates and extended time to enter into a sublease. The non-cash impairment charge for
2023 are primarily for office and laboratory space on Mission Bay Blvd. South and our office space on Third St., reflecting deteriorations in
both the laboratory and office lease markets. We will continue to update our estimates based on changes in market conditions, whether or not
we are able to enter into subleases and, if we do enter into subleases, the economic terms of such subleases, and we may record non-cash
impairment charges in future periods as these estimates change.
Loss (gain) on sale or disposal of property, plant and equipment: We recognized a net gain of $3.3 million for the sale of property, plant and
equipment for the full year 2022, primarily resulting from the sale of our research and development facility in India. The net loss in 2023
relates to the sale of excess lab equipment.
Contract termination and other restructuring charges: The costs in both years relate primarily to the 2022 Restructuring Plan. The costs
related to the 2023 Restructuring Plan is insignificant.
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Impairment of Goodwill
As discussed in Note 9 to our Consolidated Financial Statements, during the three months ended March 31, 2023 our stock price and resulting
market capitalization experienced a significant, sustained decline. As a result and in accordance with ASC 350-20 Goodwill and ASC 820-10 Fair Value
Measurement, we measured the fair value of the Company based on income and market approaches. Based on this analysis, we wrote off all of our goodwill
in the three months ended March 31, 2023. We had previously recognized goodwill primarily from our acquisitions of Shearwater Corp. and Aerogen, Inc.
in 2001 and 2005, respectively.
Change in Fair Value of Development Derivative Liability
We recorded a gain for the change in fair value of development derivative liability in the three months ended March 31, 2022 because we decided
to discontinue the development of bempegaldesleukin, and therefore reduced the liability to zero as of March 31, 2022. See Note 7 to our Consolidated
Financial Statements for additional information.
Interest Income
Interest income increased for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to increases in
market interest rates, which was partially offset by lower investment balances as we have utilized our cash to fund our operations. We expected interest
income to decrease for 2024 due to lower investment balances as we fund our operations.
Other income (expense), net
We recorded a net loss of $5.1 million for the reclassification of the cumulative translation adjustment for the wind down of our foreign
subsidiaries in the year ended December 31, 2023. We do not expect to recognize significant reclassification adjustments in 2024.
Liquidity and Capital Resources
We have financed our operations primarily through revenue from upfront and milestone payments under our strategic collaboration agreements,
royalties and product sales, as well as public and private placements of debt and equity securities. As of December 31, 2023, we had approximately $329.4
million in cash and investments in marketable securities. After December 31, 2023, we entered into the following financing transactions:
•
•
•
On February 12, 2024, for total cash consideration of $3.0 million, we repurchased the 8.3 million shares previously sold to BMS. See Note 7
to our Consolidated Financial Statements for additional information.
On March 4, 2024, we entered into a Securities Purchase Agreement with TCG Crossover Fund II, L.P. (TCG) wherein TCG agreed to
purchase pre-funded warrants to purchase an aggregate 25,000,000 shares of Nektar’s common stock at a price of $1.20 per share for gross
proceeds of $30.0 million. The closing of the purchase is expected to occur on or before March 6, 2024.
On March 4, 2024, Nektar and HCR amended the 2020 Purchase and Sale Agreement to remove the cap on the royalties in exchange for
$15.0 million. See Note 5 to our Consolidated Financial Statements for additional information.
We estimate that we have working capital to fund our current business plans for at least the next twelve months from the date of filing.
We expect the clinical development of our drug candidates, including rezpegaldesleukin and NKTR-255, will continue to require significant
investment to continue to advance in clinical development with the objective of obtaining regulatory approval or entering into one or more collaboration
partnerships. In the past, we have received a number of significant payments from collaboration agreements and other significant transactions, including
$1.9 billion in total consideration received under our arrangement with BMS, development cost reimbursements from BMS, and a $150.0 million upfront
payment from Lilly for our collaboration agreement for rezpegaldesleukin. Additionally, certain of our collaboration partners, including Lilly, have borne
substantial costs of developing our drug candidates. Following the return of our rights to develop rezpegaldesleukin from Lilly, however, unless we enter
into a new collaboration agreement, we bear all the costs of developing our pipeline drug candidates, other than our clinical collaborations for NKTR-255
described above.
Our current business is subject to significant uncertainties and risks as a result of, among other factors, clinical and regulatory outcomes for
rezpegaldesleukin and NKTR-255; the sales levels for those products, if and when they are approved; whether, when and on what terms we are able to enter
into new collaboration transactions; expenses being higher
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than anticipated, unplanned expenses and the need to satisfy contingent liabilities, including litigation matters and indemnification obligations; and cash
receipts, including sublease income, being lower than anticipated.
We have no credit facility or any other sources of committed capital. The availability and terms of various financing alternatives, if required in the
future, substantially depend on many factors including the success or failure of drug development programs in our pipeline. The availability and terms of
financing alternatives and any future significant payments from existing or new collaborations depend on the positive outcome of ongoing or planned
clinical studies, whether we or our partners are successful in obtaining regulatory authority approvals in major markets, and if approved, the commercial
success of these drugs, as well as general capital market conditions. We may pursue various financing alternatives to fund the expansion of our business as
appropriate.
As a result of our 2022 and 2023 Restructuring Plans, we are seeking to sublease all of our laboratory and office space on Mission Bay Blvd.
South and our office space on Third St., and we have current subleases for a portion of our laboratory and office spaces on Mission Bay Blvd. South. The
San Francisco Bay Area office lease market has been negatively impacted by economic uncertainties, particularly impacting the technology industry, and
the change in work habits due to the COVID-19 pandemic, as employees continue to work remotely. Accordingly, for our vacant office space on Third St.,
there is significant uncertainty as to whether or when we will be able to enter into a sublease as well as the economic terms of such subleases, if any. While
the San Francisco Bay Area life sciences sublease market remained strong during 2022, it has weakened during 2023, including a significant increase in
available sublease space in San Francisco, California. Accordingly, there is increased uncertainty as to whether or when we will be able to enter into a
sublease as well as the economic terms of such subleases, if any.
Due to the potential for adverse developments in the credit markets, we may experience reduced liquidity with respect to some of our investments
in marketable securities. These investments are generally held to maturity, which, in accordance with our investment policy, is less than two years.
However, if the need arises to liquidate such securities before maturity, we may experience losses on liquidation. To date we have not experienced any
liquidity issues with respect to these securities. We believe that, even allowing for potential liquidity issues with respect to these securities and the effect of
various conditions on the financial markets, our remaining cash and investments in marketable securities will be sufficient to meet our anticipated cash
needs for at least the next twelve months.
Cash flows from operating activities
Cash flows used in operating activities for the years ended December 31, 2023 and 2022 totaled $192.6 million and $304.0 million, respectively.
We expect that cash flows used in operating activities, excluding upfront, milestone and other contingent payments received, if any, will increase
for 2024 as compared to 2023 due to the development of rezpegaldesleukin in the Phase 2b trials discussed above.
Cash flows from investing activities
During the years ended December 31, 2023 and 2022, the maturities and sales of our investments, net of purchases, totaled $139.2 million and
$358.3 million, respectively, which we used to fund our operations.
We paid $5.7 million for the purchase or construction of property, plant and equipment in the years ended December 31, 2022, and we also
received $13.2 million from the sales of property, plant and equipment, primarily from the sale of our research and development facility in India during the
year ended December 31, 2022. Our purchases and sales of property, plant and equipment for the year ended December 31, 2023 were not significant.
Cash flows from financing activities
Our cash flows from financing activities for the years December 31, 2023 and 2022 were not significant.
Critical Accounting Policies and Estimates
The preparation and presentation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the
results of which form our basis for making judgments about the carrying value of assets and
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liabilities that are not readily apparent from other sources. We evaluate our estimates on an ongoing basis. Actual results may differ from those estimates
under different assumptions or conditions. We have determined that, for the periods in this report, the following accounting policies and estimates are
critical in understanding our financial condition and the results of our operations.
Impairment of Long-Lived Assets
We assess the impairment of long-lived assets whenever events or changes in business circumstances indicate that the carrying amounts of the
assets may not be fully recoverable. In the case of property, plant and equipment and right-of-use assets for our leases, we determine whether there has been
an impairment by comparing the carrying value of the asset to the anticipated undiscounted net cash flows associated with the asset. If such cash flows are
less than the carrying value, we write down the asset to its fair value, which may be measured as anticipated discounted net cash flows associated with the
asset.
As discussed in Note 8, in connection with our 2022 and 2023 Restructuring Plan, we have consolidated our San Francisco operations in our
Mission Bay Facility, and we have vacated our Third St. Facility and certain laboratory and office spaces at our Mission Bay Facility. We have decided to
sublease all of our leased spaces in the Third St. Facility and the Mission Bay Facility, and we have sublet 29,000 square feet of space. Accordingly, we
evaluated each space for impairment when management decided to sublease the respective space and at each reporting date thereafter, as facts and
circumstances change. The significant assumptions in our impairment analysis relate to sublease income, including the length of time to enter into a
sublease, sublease rental payments, free rent periods, tenant improvement allowances and broker commissions. When available, we use sublease
negotiations or agreements, but in the absence of such information, we develop our own subjective estimates based on current real estate trends and market
conditions. Accordingly, our estimates are subject to significant risk, and the terms of sublease agreements, if any, and the resulting amount and timing of
sublease income, if ever realized, may be materially different than our estimates.
As part of our evaluation of each sublease space, we separately compare the estimated undiscounted sublease income, as described above, for each
sublease to the net book value of the related long-term assets, which include right-of-use assets and certain property, plant and equipment, primarily for
leasehold improvements (collectively, sublease assets). If such sublease income exceeds the net book value of the sublease assets, we do not record an
impairment charge. Otherwise, we record an impairment charge by reducing the net book value of the sublease assets to their estimated fair value, which
we determined by discounting the estimated sublease income using the estimated borrowing rate of a market participant subtenant. Determination of these
key assumptions is complex and highly judgmental.
For certain impairment charges, we used the terms of active sublease negotiations or agreements to estimate sublease income. However, for the
most significant impairment charges we recorded, we developed our estimates of the time to enter into a sublease and sublease payments, including
estimated free rent periods, based on current real estate trends and market conditions. Accordingly, if our estimates for the time to enter the sublease and
estimated free rent periods were longer (shorter), the impairment charge would be greater (smaller), and if our estimates for the rental rates were lower
(higher), the impairment charge would be greater (smaller). Given the current office and life sciences lease market rental conditions in San Francisco and
the larger Bay Area, our estimates are subject to significant uncertainty. The ultimate amount of sublease income may be significantly lower or higher than
the amounts used to record our impairment charges, and we may record additional impairment charges in future periods as our estimates change or when
we enter into sublease negotiations or execute a sublease agreement.
Collaborative Arrangements
When we enter into collaboration agreements with pharmaceutical and biotechnology partners, we assess whether the arrangements fall within the
scope of Accounting Standards Codification (ASC) 808, Collaborative Arrangements (ASC 808) based on whether the arrangements involve joint
operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. To the extent that
the arrangement falls within the scope of ASC 808, we assess whether the payments between us and our collaboration partner fall within the scope of other
accounting literature. If we conclude that payments from the collaboration partner to us represent consideration from a customer, such as license fees and
contract research and development activities, we account for those payments within the scope of ASC 606, Revenue from Contracts with Customers.
However, if we conclude that our collaboration partner is not a customer for certain activities and associated payments, such as for certain collaborative
research, development, manufacturing and commercial activities, we record such payments as a reduction of research and development expense or general
and administrative expense, based on where we record the underlying expense.
We have concluded that our collaboration agreements with BMS and Lilly fall within the scope of ASC 808. We concluded that the upfront and
milestone payments under these arrangements fall within the scope of ASC 606 and therefore
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recognize these payments as revenue in license, collaboration and other revenue. However, due to the collaborative nature of our joint development and
commercialization of bempegaldesleukin, we recognize the reimbursements we receive from BMS for their share of the costs that we incur for the
development, manufacturing and commercialization of bempegaldesleukin as a reduction of research and development expense; general and administrative
expense; or restructuring, impairment and costs of terminated program, as applicable.
Revenue Recognition
We recognize license, collaboration and other research revenue, including the upfront fees and milestone payments based on the facts and
circumstances of each contractual agreement. At the inception of each agreement, we determine which promises represent distinct performance obligations,
for which management must use significant judgment. Additionally, at inception and at each reporting date thereafter, we must determine and update, as
appropriate, the transaction price, which includes variable consideration such as development and commercial launch milestones. We must use judgment to
determine when to include the variable consideration for these milestones in the transaction price such that inclusion of such variable consideration will not
result in a significant reversal of revenue recognized when the contingency surrounding the variable consideration is resolved. Due to the significant
uncertainties involved with clinical development and regulatory approval, we generally do not believe that we would update the transaction price before
events that are outside of our control occur, such as the release of clinical trial results, regulatory acceptance of a BLA or similar filing or regulatory
approval. However, if these results are positive, we may conclude that certain milestones meet the recognition requirements for inclusion in the transaction
price and therefore we would recognize them as revenue before the milestone event occurs and the payment becomes due to us, provided that the
achievement of the milestone is within our control.
Accrued Clinical Trial Expenses
We record an accrued expense for the estimated unbilled costs of our clinical study activities performed by third parties and significant delays
between these expenses being incurred and the timing of vendor submission of invoices to us. The financial terms of these agreements are subject to
negotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts depend on factors such as
the achievement of certain events, successful enrollment of patients and completion of certain clinical trial activities. We generally recognize costs
associated with the start-up and reporting phases of the clinical trials as incurred. We generally accrue costs associated with the treatment phase of clinical
trials based on the estimated activities performed by our third party vendors, including our contract research organizations. We may also accrue expenses
based on the total estimated cost of the treatment phase on a per patient basis and expense the per patient cost ratably over the estimated patient treatment
period. In specific circumstances, such as for certain time-based costs, we recognize clinical trial expenses ratably over the service period, as we believe
that this methodology may be more reflective of the timing of costs incurred.
We base our estimates on the best information available at the time. However, additional information may become available to us which may allow
us to make a more accurate estimate in future periods. In this event, we may be required to record adjustments to research and development expenses in
future periods when the actual level of activity becomes more certain. Such increases or decreases in cost are generally considered to be changes in
estimates and will be reflected in research and development expenses in the period identified.
Debt Modification
As discussed in Note 5 to our Consolidated Financial Statements, to resolve UCB’s challenges to our patents and their resulting obligation to pay
us the royalties on net sales of CIMZIA® which we had sold to RPI, RPI and UCB negotiated a reduction in the royalty term and decreased royalty rates
over the remaining term. This negotiation was implemented through the Letter Agreement between RPI and us, which permitted us to enter into the
Settlement Agreement with UCB in October 2021. When we initially sold our rights to receive royalties to RPI, we concluded that we should account for
the transaction as debt under ASC 450-10 Debt (ASC 450) due to our continuing involvement in the generation of the royalties due to our obligation to
manufacture the polymer reagent purchased by UCB for the production of CIMZIA®. Since this obligation remained unchanged as a result of the
Settlement Agreement, we concluded that we should account for the Letter Agreement within the scope of ASC 450.
In our assessment, we concluded that the Letter Agreement represented a modification of the 2012 Purchase and Sale Agreement, since RPI had
agreed to reduced royalty payments. Since our estimates of the present value of the reduction in the future royalties exceeded 10% of our estimates of the
present value of the royalties before the modification (including the royalties from MIRCERA® which remain unchanged as a result of these agreements),
we concluded that we should treat the modification as an extinguishment of the prior liability and recognize a new liability based on the revised royalty
payments and term, discounted to fair value. The estimation of the fair value required us to develop estimates of the future sales of CIMZIA® and
MIRCERA® over the remaining royalty terms, as well as to estimate an appropriate discount rate. Since no
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active, traded markets exist for arrangements of this nature, we concluded that the 2020 Purchase and Sale Arrangement was economically similar enough
to the modified 2012 Purchase and Sale Agreement to use as a basis for the discount rate because the products under both arrangements are well established
drugs and the duration of the arrangements are similar. Accordingly, we utilized our estimated imputed interest rate of 16% from the inception of the 2020
Purchase and Sale Agreement as the discount rate to estimate the fair value of the modified 2012 Purchase and Sale Agreement.
If our estimates of the future royalties to be received by RPI under the modified 2012 Purchase and Sale Agreement had been higher or lower, our
estimated fair value of the new liability would have been higher or lower as well, resulting in a larger or smaller loss on the revaluation. Similarly, if our
estimated discount rate had been lower or higher, the estimated fair value of the liability would have been higher or lower, resulting in a larger or smaller
loss on revaluation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Inflation Risk
We are exposed to the risk of inflation, which has increased significantly during 2023 and may result in increases to our operating expenses.
Interest Rate and Market Risk
The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, we invest in liquid, high quality debt securities. Our investments in debt securities are subject to interest rate risk.
To minimize the exposure due to an adverse shift in interest rates, we invest in securities with maturities of two years or less and maintain a weighted
average maturity of one year or less.
A hypothetical 50 basis point increase in interest rates would result in an approximate $0.6 million decrease, less than 1%, in the fair value of our
available-for-sale securities at December 31, 2023. This potential change is based on sensitivity analyses performed on our investment securities at
December 31, 2023. Actual results may differ materially. The same hypothetical 50 basis point increase in interest rates would have resulted in an
approximate $0.6 million decrease, less than 1%, in the fair value of our available-for-sale securities at December 31, 2022.
As of December 31, 2023, we held $294.1 million of available-for-sale investments, excluding money market funds, with an average time to
maturity of three months. To date we have not experienced any liquidity issues with respect to these securities, but should such issues arise, we may be
required to hold some, or all, of these securities until maturity. We believe that, even allowing for potential liquidity issues with respect to these securities,
our remaining cash, cash equivalents, and investments in marketable securities will be sufficient to meet our anticipated cash needs for at least the next
twelve months. Based on our available cash, the timing of the maturities of our investments and our expected operating cash requirements, we currently do
not intend to sell these securities prior to maturity and it is more likely than not that we will not be required to sell these securities before we recover the
amortized cost basis.
Foreign Currency Risk
As a result of the sale of our research and development facility in India, we have cash and investment balances in India that we intend to repatriate
as part of our closure of this entity. We are subject to foreign currency exchange risk until we repatriate these funds.
The majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, we have contracts with contract
manufacturing organizations in Europe and incur costs from sites in a variety of international locations which are paid in their respective local currencies.
Accordingly, we are subject to foreign currency exchange risk for these transactions.
Our international operations are subject to risks typical of international operations, including, but not limited to, differing economic conditions,
changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. We do not utilize derivative
financial instruments to manage our exchange rate risks. We do not believe that inflation has had a material adverse impact on our revenues or operations in
any of the past three years.
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Item 8. Financial Statements and Supplementary Data
NEKTAR THERAPEUTICS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets at December 31, 2023 and 2022
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2023
Consolidated Statements of Comprehensive Loss for each of the three years in the period ended December 31, 2023
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2023
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2023
Notes to Consolidated Financial Statements
Page
54
57
58
59
60
61
62
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Nektar Therapeutics
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Nektar Therapeutics (the Company) as of December 31, 2023 and 2022, the related
consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December
31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 5, 2024 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of critical audit matter does not alter in any way our opinion on
the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on
the critical audit matter or on the account or disclosure to which it relates.
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Description of the Matter
Impairment of Long-Lived Assets
As discussed in Note 8 to the consolidated financial statements, during the current year the Company announced a
new strategic reprioritization and cost restructuring plan (the “2023 Restructuring Plan”). Pursuant to the 2023
Restructuring Plan, the Company reduced their San Francisco based workforce and decided to sublease their
remaining office and laboratory space on Mission Bay Blvd. South that was not planned to be sublet previously. This
resulted in the recognition of an impairment charge. In light of the deteriorating real estate market, the Company
recognized additional impairment charges for this space as well as its office and laboratory space that the Company
sought to sublease during 2022. For the year ended December 31, 2023, the Company recorded aggregate impairment
charges of $35.3 million related to the right-of-use asset and associated property, plant and equipment.
We identified the impairment of the Company's real estate assets, including right-of-use assets and related property,
plant and equipment, as a critical audit matter. Auditing the Company’s right-of-use asset impairment model was
complex due to the subjectivity of certain unobservable assumptions utilized to estimate the fair value of the right-of-
use asset. In particular, determining the estimated length of time necessary to obtain a sublease tenant and estimating
market rental rates of a market subtenant utilized in the computation of the fair value of the right-of-use-asset involve
complexity due to the difficulty in estimating prospective market rental rates and forecasting future real estate trends.
How We Addressed the Matter in
Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
management’s long-lived assets impairment evaluation, including controls over the length of time necessary to obtain
a sublease and market rental rates of a market subtenant.
Our audit procedures related to management’s computation of the estimated fair value of the right-of-use asset
included, among others, evaluating the appropriateness of the methodology utilized by management to estimate the
fair value of the right-of-use asset. We evaluated the accuracy and consistency of the application of the Company’s
model to estimate the fair value of the right-of-use asset including the estimated length of time necessary to obtain a
sublease tenant and the estimated market rental rates. We involved a specialist to assist in evaluating the
appropriateness of the estimated rental market rates and estimated length of time to enter into a sublease utilized by
the Company in their impairment assessment.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1993.
San Mateo, California
March 5, 2024
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Nektar Therapeutics
Opinion on Internal Control Over Financial Reporting
We have audited Nektar Therapeutics’ internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our
opinion, Nektar Therapeutics (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31,
2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated March 5, 2024
expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Mateo, California
March 5, 2024
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Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventory
Other current assets
Total current assets
Long-term investments
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill
Other assets
Total assets
NEKTAR THERAPEUTICS
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value information)
ASSETS
December 31,
2023
2022
$
$
$
35,277 $
268,339
1,205
16,101
9,779
330,701
25,825
18,856
18,007
—
4,644
398,033 $
9,848 $
22,162
19,259
51,269
98,517
112,625
4,635
267,046
88,227
416,750
5,981
19,202
15,808
545,968
—
32,451
53,435
76,501
2,245
710,600
12,980
36,557
18,667
68,204
112,829
155,378
7,551
343,962
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Operating lease liabilities, current portion
Total current liabilities
Operating lease liabilities, less current portion
Liabilities related to the sales of future royalties, net
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized; no shares designated, issued or
outstanding at December 31, 2023 or 2022
Common stock, $0.0001 par value; 300,000 shares authorized; 191,384 shares and 188,560 shares
issued and outstanding at December 31, 2023 and 2022, respectively
Capital in excess of par value
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
—
—
19
3,608,137
80
(3,477,249 )
130,987
398,033 $
19
3,574,719
(6,907 )
(3,201,193 )
366,638
710,600
The accompanying notes are an integral part of these consolidated financial statements.
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NEKTAR THERAPEUTICS
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
Year Ended December 31,
2023
2022
2021
Revenue:
Product sales
Non-cash royalty revenue related to the sales of future royalties
License, collaboration and other revenue
Total revenue
Operating costs and expenses:
Cost of goods sold
Research and development
General and administrative
Restructuring, impairment and costs of terminated program
Impairment of goodwill
Total operating costs and expenses
Loss from operations
Non-operating income (expense):
Change in fair value of development derivative liability
Non-cash interest expense on liabilities related to the sales of future royalties
Loss on revaluation of liability related to the sale of future royalties
Interest income
Other income (expense), net
Total non-operating income (expense), net
Loss before provision for income taxes
Provision (benefit) for income taxes
Net loss
Basic and diluted net loss per share
$
$
20,681
68,921
520
90,122
$
20,348
69,794
1,913
92,055
33,768
114,162
77,417
51,958
76,501
353,806
(263,684 )
—
(25,334 )
—
19,009
(6,247 )
(12,572 )
(276,256 )
(200 )
(276,056 )
(1.45 )
$
$
$
$
21,635
218,323
92,333
135,930
—
468,221
(376,166 )
33,427
(28,911 )
—
6,783
(116 )
11,183
(364,983 )
3,215
(368,198 )
$
23,725
77,746
436
101,907
24,897
400,269
122,844
—
—
548,010
(446,103 )
(8,023 )
(47,313 )
(24,410 )
2,731
(162 )
(77,177 )
(523,280 )
557
(523,837 )
Weighted average shares outstanding used in computing basic and diluted net loss per
share
190,001
187,138
183,298
The accompanying notes are an integral part of these consolidated financial statements.
58
(1.97 )
$
(2.86 )
Table of Contents
NEKTAR THERAPEUTICS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Net loss
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale investments
Net foreign currency translation adjustment
Other comprehensive income (loss)
Comprehensive loss
2023
Year Ended December 31,
2022
2021
(276,056 )
$
(368,198 ) $
(523,837 )
1,826
5,161
6,987
(269,069 )
$
(1,114 )
(1,636 )
(2,750 )
(370,948 ) $
(1,568 )
(294 )
(1,862 )
(525,699 )
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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NEKTAR THERAPEUTICS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Balance at December 31, 2020
Shares issued under equity compensation plans
Stock-based compensation
Comprehensive loss
Balance at December 31, 2021
Shares issued under equity compensation plans
Stock-based compensation
Comprehensive loss
Balance at December 31, 2022
Shares issued under equity compensation plans
Stock-based compensation
Comprehensive loss
Balance at December 31, 2023
Common
Shares
180,091 $
5,377
—
—
185,468
3,092
—
—
188,560
2,824
—
—
191,384 $
Par
Value
Capital in
Excess of
Par Value
Accumulated
Other
Total
Comprehensive Accumulated Stockholders’
Loss
Deficit
Equity
18 $
1
—
—
19
—
—
—
19
—
—
—
19 $
3,388,730 $
33,237
94,674
—
3,516,641
758
57,320
—
3,574,719
30
33,388
—
3,608,137 $
—
—
(1,862 )
(4,157 )
—
—
(2,750 )
(6,907 )
—
—
6,987
(2,295 ) $ (2,309,158 ) $ 1,077,295
33,238
94,674
(525,699 )
679,508
758
57,320
(370,948 )
366,638
30
33,388
(269,069 )
130,987
—
—
(523,837 )
(2,832,995 )
—
—
(368,198 )
(3,201,193 )
—
—
(276,056 )
80 $ (3,477,249 ) $
The accompanying notes are an integral part of these consolidated financial statements.
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NEKTAR THERAPEUTICS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash royalty revenue related to the sales of future royalties
Non-cash interest expense on liabilities related to sales of future royalties
Loss on revaluation of liability related to the sale of future royalties
Change in fair value of development derivative liability
Non-cash research and development expense
Stock-based compensation
Depreciation and amortization
Deferred income tax expense
Impairment of right-of-use assets and property, plant and equipment
Impairment of goodwill
(Gain) loss on sale or disposal of property, plant and equipment, net
Provision for net realizable value of inventory
Foreign currency translation adjustment
Amortization of premiums (discounts), net and other non-cash transactions
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Operating leases, net
Other assets
Accounts payable
Accrued expenses
Net cash used in operating activities
Cash flows from investing activities:
Purchases of investments
Maturities of investments
Sales of investments
Purchases of property, plant and equipment
Sales of property, plant and equipment
Net cash provided by investing activities
Cash flows from financing activities:
Cash receipts from development derivative liability
Proceeds from shares issued under equity compensation plans
Net cash provided by financing activities
Effect of foreign exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Operating lease right-of-use assets recognized in exchange for lease liabilities
Cash paid for income taxes
$
$
$
2023
Year Ended December 31,
2022
2021
$
(276,056 ) $
(368,198 ) $
(523,837 )
(68,921 )
25,334
—
—
—
33,388
7,815
(140 )
35,328
76,501
1,300
2,402
5,099
(14,856 )
4,776
699
(8,850 )
3,583
(2,884 )
(17,124 )
(192,606 )
(511,699 )
650,883
—
(865 )
1,245
139,564
—
30
30
62
(52,950 )
88,227
35,277 $
— $
2,656 $
(69,794 )
28,911
—
(33,427 )
4,951
57,320
13,030
2,708
65,761
—
(3,326 )
—
—
(2,435 )
16,511
(3,401 )
(2,680 )
6,906
3,103
(19,947 )
(304,007 )
(467,914 )
826,229
—
(5,676 )
13,196
365,835
750
758
1,508
(327 )
63,009
25,218
88,227 $
(77,746 )
47,313
24,410
8,023
16,703
94,674
14,146
(102 )
—
—
—
—
—
6,730
12,397
(509 )
2,340
(2,586 )
(11,690 )
(22,926 )
(412,660 )
(960,689 )
1,166,951
11,504
(14,989 )
—
202,777
3,000
33,238
36,238
(92 )
(173,737 )
198,955
25,218
— $
272 $
1,057
325
The accompanying notes are an integral part of these consolidated financial statements.
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NEKTAR THERAPEUTICS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
Note 1 — Organization and Summary of Significant Accounting Policies
Organization
We are a clinical stage, research-based drug discovery biopharmaceutical company headquartered in San Francisco, California and incorporated in
Delaware, focused on discovering and developing innovative medicines in the field of immunotherapy. Within this growing field, we direct our efforts
toward creating new immunomodulatory agents that selectively induce, amplify, attenuate or prevent immune responses in order to achieve desired
therapeutic outcomes. Our pipeline of clinical-stage and preclinical-stage immunomodulatory agents targets the treatment of autoimmune diseases (e.g.
rezpegaldesleukin and NKTR-0165, respectively) and cancer (e.g. NKTR-255).
Our research and development activities have required significant ongoing investment to date and are expected to continue to require significant
investment. As a result, we expect to continue to incur substantial losses and negative cash flows from operations in the future. We have financed our
operations primarily through cash generated from licensing, collaboration and manufacturing agreements and financing transactions. At December 31,
2023, we had approximately $329.4 million in cash and investments in marketable securities.
Results of Clinical Trial Programs and Restructuring Plans
In March and April 2022, we announced that our registrational trials of bempegaldesleukin in combination with Opdivo® in metastatic melanoma,
renal cell carcinoma and locally advanced or metastatic urothelial cancer under our Strategic Collaboration Agreement (BMS Collaboration Agreement)
with Bristol-Myers Squibb Company (BMS) did not meet their primary endpoints. Based on these results, in April 2022, we announced our decisions to
discontinue all development of bempegaldesleukin in combination with checkpoint inhibitors, including these trials, our registrational trial in adjuvant
melanoma under our BMS Collaboration Agreement, and our Phase 2/3 study of bempegaldesleukin in combination with Keytruda® in squamous cell
cancer of the head and neck under our Co-Development Agreement with SFJ Pharmaceuticals XII, L.P., an SFJ Pharmaceuticals Group company (SFJ). See
Note 7 for additional information regarding our BMS Collaboration Agreement and Co-Development Agreement with SFJ. On September 6, 2023, BMS
and we terminated the BMS Collaboration Agreement, however, we continue our efforts to wind down the bempegaldesleukin program following the same
cost sharing provisions provided for in the BMS Collaboration Agreement.
In April 2022, we also announced new strategic reorganization and cost restructuring plans (together, the 2022 Restructuring Plan), pursuant to
which we completed an approximate 70% reduction of our workforce during 2022 and sold our research facility in India in December 2022. We also
decided to sublease certain of our leased premises in San Francisco, CA, including all of our office leased space on Third St. (the Third Street Facility) and
portions of our office and laboratory space on Mission Bay Blvd. South (the Mission Bay Facility).
On February 23, 2023, we announced the topline data from the Phase 2 study of rezpegaldesleukin in adult patients with systemic lupus
erythematosus (SLE) (Phase 2 Lupus Study) under our collaboration agreement with Eli Lilly and Company (Lilly). Lilly subsequently notified us that it
did not intend to advance rezpegaldesleukin into Phase 3 development for SLE. On April 27, 2023, we announced that we would be regaining the full rights
to rezpegaldesleukin from Lilly, and the collaboration agreement was subsequently terminated. We have initiated a Phase 2b study of rezpegaldesleukin in
patients with moderate-to-severe atopic dermatitis, and we are targeting the initiation of a Phase 2b study of rezpegaldesleukin in patients with alopecia
areata by the end of March 2024. We also plan to explore other auto-immune indications for the development of rezpegaldesleukin.
Pursuant to plans approved by our Board of Directors (the Board) on March 29, 2023, we announced on April 17, 2023, a new strategic
reprioritization and cost restructuring plan (the 2023 Restructuring Plan). Under the 2023 Restructuring Plan, we reduced our San Francisco-based
workforce by approximately 60%, which was substantially completed by June 2023. In addition, under the 2023 Restructuring Plan, we decided to sublease
our remaining office and laboratory space on Mission Bay Blvd. South which we had not planned to sublease pursuant to the 2022 Restructuring Plan.
We have incurred significant costs resulting from the 2022 and 2023 Restructuring Plans. See Note 8 for additional information on the effect of
these Plans on our Consolidated Financial Statements.
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Basis of Presentation, Principles of Consolidation and Use of Estimates
Our Consolidated Financial Statements include the financial position, results of operations and cash flows of our wholly-owned subsidiaries. We
have eliminated all intercompany accounts and transactions in consolidation.
Our Consolidated Financial Statements are denominated in U.S. dollars. Accordingly, changes in exchange rates between the applicable foreign
currency and the U.S. dollar will affect the translation of each foreign subsidiary’s financial results into U.S. dollars for purposes of reporting our
consolidated financial results. We include translation gains and losses in accumulated other comprehensive income (loss) in the stockholders’ equity section
of our Consolidated Balance Sheets.
Our comprehensive loss consists of our net loss plus our foreign currency translation gains and losses and unrealized holding gains and losses on
available-for-sale securities. Other than as described in Note 3, there were no significant reclassifications out of accumulated other comprehensive loss to
the statements of operations for the periods presented.
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Accounting estimates and
assumptions are inherently uncertain. Actual results could differ materially from those estimates and assumptions. Our estimates include those related to the
selling prices of performance obligations and amounts of variable consideration in collaboration agreements, royalty revenue, and other assumptions
required for revenue recognition as described further below; the net realizable value of inventory; the fair value and impairment of investments, goodwill
and long-lived assets; contingencies, accrued clinical trial, contract manufacturing and other expenses; income taxes; non-cash royalty revenue and non-
cash interest expense from our liabilities related to our sales of future royalties; our assumptions used in stock-based compensation; and ongoing litigation,
among other estimates. We base our estimates on historical experience and on other assumptions that management believes are reasonable under the
circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily
apparent from other sources. As appropriate, we assess estimates each period, update them to reflect current information, and will generally reflect any
changes in estimates in the period first identified.
Fair Value of Financial Instruments
The recorded amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate their fair values due to their relatively short maturities. We record available-for-sale investments and cash equivalents at their
estimated fair values, which are based on market prices from a variety of industry standard data providers and generally represent quoted prices for similar
assets in active markets or have been derived from observable market data. As further described in Note 8, we estimated the fair value of our lease assets
for recognizing impairment charges based on management’s estimates of several unobservable inputs, including estimated time to enter a sublease, sublease
rental rates and free rent periods.
The fair value of our financial assets and liabilities are determined in accordance with the fair value hierarchy established in ASC 820-10, Fair
Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. The fair value hierarchy of ASC Topic 820 requires an entity to maximize the use of observable inputs when measuring fair value and
classifies those inputs into three levels:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities. For the years ended December 31, 2023 and 2022, there were no
transfers between Level 1 and Level 2 of the fair value hierarchy.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Cash, Cash Equivalents, and Investments in Marketable Securities
We consider all investments in marketable securities with an original maturity of three months or less when purchased to be cash equivalents. We
classify investments in securities with remaining maturities of less than one year, or
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where our intent is to use the investments to fund current operations or to make them available for current operations, as short-term investments. We
classify investments in securities with remaining maturities of over one year as long-term investments.
Our cash and investments are held or issued by financial institutions that management believes are of high credit quality. However, we are exposed
to credit risk in the event of default by the third parties that hold or issue such assets. Our investment policy limits investments to fixed income securities
denominated and payable in U.S. dollars such as corporate bonds, corporate commercial paper, U.S. government obligations, and money market funds and
places restrictions on maturities and concentrations by type and issuer.
For our available-for-sale securities, we have significant concentrations of issuers in the banking and financial services industry. While our
investment policy requires that we only invest in highly-rated securities and limit our exposure to any single issuer, a variety of factors may materially
affect the financial condition of issuers. Additionally, pursuant to our investment policy, we may sell securities before maturity if the issuer’s credit rating
has been downgraded below our minimum credit rating requirements, which may result in a loss on the sale. Accordingly, if factors result in downgrades
below our minimum credit rating requirements and if we decide to sell these securities, we may experience losses on such sales.
Investments are designated as available-for-sale and are carried at fair value with unrealized gains and losses reported in stockholders’ equity as
accumulated other comprehensive income (loss). We review our portfolio of available-for-sale debt securities, using both quantitative and qualitative
factors, to determine if declines in fair value below amortized cost have resulted from a credit-related loss or other factors. If the decline in fair value is due
to credit-related factors, we recognize a loss in our Consolidated Statement of Operations, whereas if the decline in fair value is not due to credit-related
factors, we recognize the loss in other comprehensive income (loss).
We include coupon interest on securities classified as available-for-sale, as well as amortization of premiums and accretion of discounts to
maturity, in interest income. The cost of securities sold is based on the specific identification method.
Accounts Receivable and Significant Customer Concentrations
Our customers are primarily pharmaceutical and biotechnology companies that are primarily located in the U.S. and Europe and with whom we
have multi-year arrangements. Our accounts receivable balance contains billed and unbilled trade receivables from product sales, milestones (to the extent
that they have been achieved and are due from the counterparty), other contingent payments, as well as reimbursable costs from collaborative research and
development agreements. We perform a regular review of our partners’ credit risk and payment histories when circumstances warrant, including payments
made subsequent to year-end. When appropriate, we provide for an allowance for doubtful accounts by reserving for specifically identified doubtful
accounts, although historically we have not experienced credit losses from our accounts receivable. We have not recorded provisions for credit losses for
any of the periods presented.
Inventory and Significant Supplier Concentrations
We generally manufacture inventory upon receipt of firm purchase orders from our partners, and we may manufacture certain intermediate work-
in-process materials and purchase raw materials based on purchase forecasts from our partners. Inventory includes direct materials, direct labor, and
manufacturing overhead, and we determine cost on a first-in, first-out basis for raw materials and on a specific identification basis for work-in-process and
finished goods. We value inventory at the lower of cost or net realizable value, and we write down defective or excess inventory to net realizable value
based on historical experience or projected usage. We expense inventory related to our research and development activities when we purchase or
manufacture it.
We are dependent on our suppliers and contract manufacturers to provide raw materials and drugs of appropriate quality and reliability and to meet
applicable contract and regulatory requirements. In certain cases, we rely on single sources of supply of one or more critical materials. Consequently, in the
event that supplies are delayed or interrupted for any reason, our ability to develop and produce our drug candidates or our ability to meet our supply
obligations could be significantly impaired, which could have a material adverse effect on our business, financial condition and results of operations.
Restructuring
We recognize restructuring charges related to reorganization plans that have been committed to by management when liabilities have been
incurred. In connection with these activities, we record restructuring charges at fair value for:
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•
•
•
•
contractual employee termination benefits provided that the obligations result from services already rendered based on vested rights to
such benefits when the payment of benefits becomes probable and the amount can be reasonably estimated;
one-time employee termination benefits on the communication date from management to the employees provided that management has
committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination
benefits are complete, and it is unlikely that changes to the plan will be made or the plan will be withdrawn;
contract termination costs when we cancel the contract in accordance with its terms; and
costs to be incurred over the remaining contract term without economic benefit to us at the cease-use date.
For one-time employee termination benefits, we recognize the liability in full on the communication date when future services are not required or
amortize the liability ratably over the service period, if required. The fair value of termination benefits reflects our estimates of expected utilization of
certain Company-funded post-employment benefits.
See Note 8 for additional information on the severance expense that we recognized for employees terminated in connection with our reductions-in-
force.
Goodwill
Goodwill represents the excess of the price paid for another entity over the fair value of the assets acquired and liabilities assumed in a business
combination. We are organized in one reporting unit and evaluate the goodwill for the Company as a whole. Goodwill has an indefinite useful life and is not
amortized, but instead tested for impairment.
Goodwill is assessed for impairment on an annual basis and whenever events and circumstances indicate that it may be impaired. Factors that
may indicate potential impairment and trigger an impairment test include, but are not limited to, current economic, market and geopolitical conditions,
including a significant, sustained decline in our stock price and market capitalization compared to the net book value; an adverse change in legal factors,
business climate or operational performance of the business; or significant changes in the ability of the reporting unit to generate positive cash flows for our
strategic business objectives. If the carrying value of the reporting unit, including goodwill, exceeds the reporting unit’s fair value, we will recognize a
goodwill impairment loss, and we will write down goodwill such that the carrying value of the reporting unit equals its fair value, provided that we cannot
reduce goodwill below zero.
See Note 9 for additional information regarding the impairment charges we recorded during the three months ended March 31, 2023 in
connection with our goodwill.
Long-Lived Assets
We report property, plant and equipment at cost, net of accumulated depreciation. We capitalize major improvements and expense maintenance and
repairs as incurred. We generally recognize depreciation on a straight-line basis. We depreciate manufacturing, laboratory and other equipment over their
estimated useful lives of generally three to ten years, depreciate buildings over the estimated useful life of generally twenty years and amortize leasehold
improvements over the shorter of the estimated useful lives or the remaining term of the related lease.
We assess the impairment of long-lived assets whenever events or changes in business circumstances indicate that the carrying amounts of the
assets may not be fully recoverable. In the case of property, plant and equipment and right-of-use assets for our leases, we determine whether there has been
an impairment by comparing the carrying value of the asset to the anticipated undiscounted net cash flows associated with the asset. If such cash flows are
less than the carrying value, we write down the asset to its fair value, which may be measured as anticipated net cash flows associated with the asset,
discounted at a rate that we believe a market participant would utilize to reflect the risks associated with the cash flows, such as credit risk.
See Note 8 for additional information regarding the impairment charges we recorded in connection with our leased facilities and certain property
and equipment.
Leases
We determine if an arrangement contains a lease at the inception of the arrangement. Right-of-use assets represent our right to use an underlying
asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We recognize operating lease right-of-
use assets and liabilities at the lease commencement date based
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on the present value of lease payments over the expected lease term. In determining the present value of lease payments, we use our incremental borrowing
rate based on the information available at the lease commencement date. We have elected the practical expedient to account for the lease and non-lease
components, such as common area maintenance charges, as a single lease component for our facilities leases, and elected the short-term lease recognition
exemption for our short-term leases, under which we do not recognize lease liabilities and right-of-use assets for leases with an original term of twelve
months or less.
Our expected lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise any such options.
We recognize lease expense for our operating leases on a straight-line basis over the expected lease term. We have elected to recognize lease incentives,
such as tenant improvement allowances, at the lease commencement date as a reduction of the right-of-use asset and lease liability until paid to us by the
lessor to the extent that the lease provides a specified fixed or maximum level of reimbursement and we are reasonably certain to incur reimbursable costs
at least equaling such amounts.
Please see Note 4 for additional information regarding our leases.
Collaborative Arrangements
We enter into collaboration arrangements with pharmaceutical and biotechnology collaboration partners, under which we may grant licenses to our
collaboration partners to further develop and commercialize one of our drug candidates, either alone or in combination with the collaboration partners’
compounds, or grant licenses to partners to use our technology to research and develop their own drug candidates. We may also perform research,
development, manufacturing and supply activities under our collaboration agreements. Consideration under these contracts may include an upfront
payment, development and regulatory milestones and other contingent payments, expense reimbursements, royalties based on net sales of approved drugs,
and commercial sales milestone payments. Additionally, these contracts may provide options for the customer to purchase our proprietary PEGylation
materials, drug candidates or additional contract research and development services under separate contracts.
When we enter into collaboration agreements, we assess whether the arrangements fall within the scope of ASC 808, Collaborative Arrangements
(ASC 808) based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and
are exposed to significant risks and rewards of the arrangement. To the extent that the arrangement falls within the scope of ASC 808, we assess whether
the payments between us and our collaboration partner fall within the scope of other accounting literature. If we conclude that payments from the
collaboration partner to us represent consideration from a customer, such as license fees and contract research and development activities, we account for
those payments within the scope of ASC 606, Revenue from Contracts with Customers (ASC 606). However, if we conclude that our collaboration partner
is not a customer for certain activities and associated payments, such as for certain collaborative research, development, manufacturing and commercial
activities, we present such payments as a reduction of research and development expense or general and administrative expense, based on where we present
the underlying expense.
Revenue Recognition
For elements of those arrangements that we determine should be accounted for under ASC 606, we assess which activities in our collaboration
agreements are performance obligations that should be accounted for separately and determine the transaction price of the arrangement, which includes the
assessment of the probability of achievement of future milestones and other potential consideration. For arrangements that include multiple performance
obligations, such as granting a license or performing contract research and development activities or participation on joint steering or other committees, we
allocate upfront and milestone payments under a relative standalone selling price method. Accordingly, we develop assumptions that require judgment to
determine the standalone selling price for each performance obligation identified in the contract. These key assumptions may include revenue forecasts,
clinical development timelines and costs, discount rates and probabilities of clinical and regulatory success.
Product sales
Product sales are primarily derived from manufacturing and supply agreements with our customers. We have assessed our current manufacturing
and supply arrangements and have generally determined that they provide the customer an option to purchase our proprietary PEGylation materials.
Accordingly, we treat each purchase order as a discrete exercise of the customer’s option (i.e. a separate contract) rather than as a component of the overall
arrangement. The pricing for the manufacturing and supply is generally at a fixed price and may be subject to annual producer price index (PPI)
adjustments. We invoice and recognize product sales when title and risk of loss pass to the customer, which generally occurs upon shipment. Customer
payments are generally due 30 days from receipt of an invoice. We test our products for adherence to
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technical specifications before shipment; accordingly, we have not experienced any significant returns from our customers. We recognize costs related to
shipping and handling of product to customers in cost of goods sold.
Non-cash royalty revenue
Generally, for our collaboration arrangements that include sales-based royalties, we have granted our collaboration partner a license to our
intellectual property. Pursuant to these arrangements, our collaboration partners are typically obligated to pay a royalty that is based on the net sales of their
approved drugs that are sold in the countries where we have intellectual property rights covering their drugs. We have sold our rights to receive sales-based
royalties for CIMZIA®, MIRCERA®, MOVANTIK®, ADYNOVATE® and REBINYN® as further described in Note 5. For collaboration arrangements that
include sales-based royalties, we have concluded that the license is the predominant item to which the royalties relate, which include commercial milestone
payments based on the level of sales. Accordingly, we recognize royalty revenue when the underlying sales occur based on our best estimates of sales of the
drugs. Our aggregate royalty and non-cash royalty revenue of $68.9 million, $69.8 million and $77.7 million for the years ended December 31, 2023, 2022
and 2021, respectively, represents revenue for granting licenses for which we had satisfied in prior periods.
License, collaboration and other revenue
License Grants: For collaboration arrangements that include a grant of a license to our intellectual property, we consider whether the license grant
is distinct from the other performance obligations included in the arrangement. Generally, we would conclude that the license is distinct if the customer is
able to benefit from the license with the resources available to it. For licenses that are distinct, we recognize revenues from nonrefundable, upfront
payments and other consideration allocated to the license when the license term has begun and we have provided all necessary information regarding the
underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement.
Milestone Payments: At the inception of the arrangement and at each reporting date thereafter, we assess whether we should include any milestone
payments or other forms of variable consideration in the transaction price, based on whether a significant reversal of revenue previously recognized is not
probable upon resolution of the uncertainty. Since milestone payments may become payable to us upon the initiation of a clinical study, filing for or receipt
of regulatory approval or the first commercial sale of a product, we review the relevant facts and circumstances to determine when we should update the
transaction price, which may occur before the triggering event. When we do update the transaction price for milestone payments, we allocate it on a relative
standalone selling price basis and record revenue on a cumulative catch-up basis, which results in recognizing revenue for previously satisfied performance
obligations in such period. If we update the transaction price before the triggering event, we recognize the increase in the transaction price as a contract
asset. Our partners generally pay development milestones subsequent to achievement of the triggering event.
Research and Development Services: For amounts allocated to our research and development obligations in a collaboration arrangement, we
recognize revenue over time using a proportional performance model, representing the transfer of goods or services as we perform activities over the term
of the agreement.
Research and Development Expense
Research and development costs are expensed as incurred and include salaries, benefits and other operating costs such as outside services, supplies
and allocated overhead costs. We perform research and development activities for our drug candidates and technology development and for certain third
parties under collaboration agreements. For our drug candidates and our internal technology development programs, we invest our own funds without
reimbursement from a third party. Where we perform research and development activities under a joint development collaboration, such as our
collaboration with BMS, we record the cost reimbursement from our partner as a reduction to research and development expense when reimbursement
amounts are due to us under the agreement.
We record an accrued expense for the estimated unbilled costs of our clinical study activities performed by third parties. The financial terms of
these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the
contracts depend on factors such as the achievement of certain events, successful enrollment of patients and completion of certain clinical trial activities.
We generally recognize costs associated with the start-up and reporting phases of the clinical trials as incurred. We generally accrue costs associated with
the treatment phase of clinical trials based on the estimated activities performed by our third party vendors, including our contract research organizations.
We may also accrue expenses based on the total estimated cost of the treatment phase on a per patient basis and expense the per patient cost ratably over the
estimated patient treatment period. In specific circumstances, such as for certain time-based costs, we recognize clinical trial expenses ratably over the
service period, as we believe that this methodology may be more reflective of the timing of costs incurred.
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We capitalize advance payments for goods or services that will be used or rendered for future research and development activities and recognize
expense as the related goods are delivered or services performed. We base our estimates on the best information available at the time. However, additional
information may become available to us in the future which may allow us to make a more accurate estimate in future periods. In this event, we may be
required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain. We generally
consider such increases or decreases in cost as changes in estimates and reflect them in research and development expenses in the period identified.
Restructuring, Impairment and Other Costs for Terminated Program
Amounts recorded as restructuring, impairment and other costs for terminated program for the year ended December 31, 2023 and 2022 relate to
the 2022 and 2023 Restructuring Plans. See Note 8 for additional information.
Stock-Based Compensation
Stock-based compensation arrangements include grants of stock options, restricted stock units (RSUs), performance stock units (PSUs) under our
equity incentive plans, as well as shares issued under our Employee Stock Purchase Plan (ESPP), through which employees may purchase our common
stock at a discount to the market price.
We expense the grant date fair value of stock-based compensation on a straight-line basis over the requisite service periods in our Consolidated
Statements of Operations and recognize forfeitures as they occur. For options and RSUs that vest upon the achievement of performance milestones, we
recognize expense provided that we believe that the performance milestones are probable of achievement, and we estimate the vesting period based on our
evaluation of the estimated date of achievement of these milestones. For PSUs, we recognize expense based on the grant date fair value regardless of
whether the market condition is met. The number of shares issuable under PSUs is based on our total shareholder return as compared to other companies
within the NASDAQ biotechnology index over the measurement period and may be capped based on our absolute total shareholder return over such period.
We report expense amounts in cost of goods sold, research and development expense, and general and administrative expense based on the function of the
applicable employee. We estimate the grant date fair value of our stock-based compensation awards as follows:
•
•
•
Stock options - We use the Black-Scholes option pricing model for the respective grant to determine the grant date fair value of stock
options and common stock issued under the Company's equity incentive plans or purchased under the ESPP. The Black-Scholes option
pricing model requires the input of assumptions, including but not limited to, our stock price volatility over the term of the awards, and
actual and projected employee stock option exercise behaviors.
PSUs - We use the Monte Carlo simulation model to determine the grant date fair value of PSUs. The Monte Carlo simulation model
incorporates assumptions such as the volatility of our stock, the volatility of the stock of other peer companies within the index, and the
correlation of both our stock and our peer companies’ stock to the index.
RSUs - The fair value of an RSU is equal to the closing price of our common stock on the grant date.
Income Taxes
We account for income taxes under the liability method. Under this method, we determine deferred tax assets and liabilities based on differences
between the financial reporting and tax reporting bases of assets and liabilities, measured using enacted tax rates and laws that we expect to be in effect
when we expect the differences to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are
uncertain. We record a valuation allowance against deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized.
When we establish or reduce the valuation allowance related to the deferred tax assets, our provision for income taxes will increase or decrease,
respectively, in the period we make such determination.
We utilize a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount of benefit,
determined on a cumulative probability basis, that is more than 50% likely of being realized upon ultimate settlement.
For the year ended December 31, 2023, our income tax benefit was immaterial. For the years ended December 31, 2022 and 2021, our income tax
provision primarily relates to our Nektar India subsidiary. As a result of the 2022
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Restructuring Plan and our intent to wind down our foreign subsidiaries, we have recorded a provision for the repatriation of accumulated earnings and
profits from India. See Note 10 for additional information.
Net Loss Per Share
For all periods presented in the Consolidated Statements of Operations, the net loss available to common stockholders is equal to the reported net
loss. We calculate basic net loss per share based on the weighted-average number of common shares outstanding during the periods presented. For the years
ended December 31, 2023, 2022 and 2021, basic and diluted net loss per share are the same due to our net losses and the requirement to exclude potentially
dilutive securities which would have an antidilutive effect on net loss per share. We excluded shares underlying the weighted average outstanding stock
options, RSUs and PSUs, which totaled 20.4 million, 21.2 million and 18.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Comprehensive Loss
Comprehensive loss is the change in stockholders’ equity from transactions and other events and circumstances other than those resulting from
investments by stockholders and distributions to stockholders. Our comprehensive loss includes our net loss, gains and losses from the foreign currency
translation of the assets and liabilities of our foreign subsidiaries, and unrealized gains and losses on investments in available-for-sale securities.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Improvements
to Reportable Segment Disclosures, which will require disclosure of incremental segment information on an annual and interim basis for all public entities.
The amendments do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative
thresholds to determine its reportable segments. ASU 2023-07 is effective for annual reporting beginning with the fiscal year ending December 31, 2024,
and for interim periods thereafter. We are currently evaluating the incremental disclosures that will be required in the footnotes to our consolidated financial
statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which will require incremental income tax
disclosures on an annual basis for all public entities. The amendments require that public business entities disclose specific categories in the rate
reconciliation and provide additional information for reconciling items meeting a quantitative threshold. The amendments also require disclosure of income
taxes paid to be disaggregated by jurisdiction, and disclosure of income tax expense disaggregated by federal, state, and foreign. ASU 2023-09 is effective
for annual reporting beginning with the fiscal year ending December 31, 2025. We are currently evaluating the incremental disclosures that will be required
in our consolidated financial statements.
Note 2 — Cash and Investments in Marketable Securities
Cash and investments in marketable securities, including cash equivalents, are as follows (in thousands):
Cash and cash equivalents
Short-term investments
Long-term investments
Total cash and investments in marketable securities
Estimated Fair Value at
December 31,
December 31,
2023
2022
$
$
35,277
268,339
25,825
329,441
$
$
88,227
416,750
—
504,977
We invest in liquid, high quality debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to
an adverse shift in interest rates, we invest in securities with maturities of two years or less and maintain a weighted average maturity of one year or less.
All of our long-term investments as of December 31, 2023 had maturities between one and two years.
During the years ended December 31, 2023 and 2022, we did not sell any available-for-sale securities. During the year ended December 31, 2021,
we sold available-for-sale securities totaling $11.5 million. Gross realized gains and losses on those sales were not significant.
We report our accrued interest receivable, which totaled $0.5 million and $0.7 million at December 31, 2023 and December 31, 2022, respectively,
in other current assets on our Consolidated Balance Sheets.
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Our portfolio of cash and investments in marketable securities includes (in thousands):
Corporate notes and bonds
Corporate commercial paper
Available-for-sale investments
Money market funds
Certificates of deposit
Cash
Total cash and investments in marketable
securities
Fair Value
Hierarchy
Level
2
2
1
2
N/A
Amortized Cost
$
38,799 $
255,274
294,073
December 31, 2023
December 31,
2022
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
Fair Value
85 $
47
132
(2 ) $
(80 )
(82 )
$
38,882
255,241
294,123
2,359
15,116
17,843
83,522
344,204
427,726
47,054
21,399
8,798
$
329,441
$
504,977
At December 31, 2022, our gross unrealized losses totaled $1.8 million. Our gross unrealized gains were not significant. As of December 31, 2023
and 2022, we assessed our marketable securities with unrealized losses and concluded that the losses were not attributable to credit. Accordingly, we have
not recorded an allowance for credit losses for these securities.
At both December 31, 2023 and 2022, we had letter of credit arrangements in favor of our landlords and certain vendors totaling $7.5 million and
$7.5 million, respectively. These letters of credit are secured by investments of similar amounts.
Note 3 — Consolidated Financial Statement Details
Inventory
Inventory consists of the following (in thousands):
Raw materials
Work-in-process
Finished goods
Total inventory
December 31,
2023
2022
$
$
1,861 $
12,880
1,360
16,101 $
2,575
10,749
5,878
19,202
For the year ended December 31, 2023, we recorded a provision of $2.0 million for the net realizable value of our batches as an increase to cost of
goods sold. Our manufacturing agreement with UCB Pharma (UCB) provides for a fixed price which we had negotiated in exchange for a higher royalty
rate. Accordingly, when evaluating the net realizable value of our inventory for UCB, we include the negotiated increase of the royalties in our analysis,
and the aggregate revenue has historically been greater than our manufacturing cost. Due to the decrease in the royalty rate for 2024 as a result of a
settlement agreement with UCB, the aggregate revenue is expected to be less than our manufacturing cost, and therefore we recorded a provision for net
realizable value. See Note 5 for additional information on the settlement agreement with UCB.
During the three months ended September 30, 2023, we recorded a provision for inventory obsolescence of $3.7 million as an increase to cost of
goods sold for certain batches produced in our Huntsville, Alabama manufacturing facility, as a result of our identification of a quality concern of a solvent
obtained from a third party that was used in the manufacturing of these batches. In the three months ended December 31, 2023, based on further analysis
and partner approval, we reversed the provision and recorded a $3.7 million benefit to cost of goods sold.
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Other Current Assets
Other current assets consists of the following (in thousands):
Prepaid research and development expenses
Non-trade receivables and other
Other prepaid expenses
Total other current assets
Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
Building and leasehold improvements
Laboratory equipment
Computer equipment and software
Manufacturing equipment
Furniture, fixtures, and other
Depreciable property, plant and equipment at cost
Less: accumulated depreciation
Depreciable property, plant and equipment, net
Construction-in-progress
Property, plant and equipment, net
$
$
$
$
December 31,
2023
2022
4,325 $
1,047
4,407
9,779 $
7,398
2,423
5,987
15,808
December 31,
2023
2022
$
43,184
14,537
22,438
24,315
541
105,015
(86,898 )
18,117
739
18,856
$
74,889
24,243
26,205
25,052
4,263
154,652
(124,731 )
29,921
2,530
32,451
Laboratory and manufacturing equipment, including construction-in-process, include assets that support both our manufacturing and research and
development activities.
As a result of the sustained decrease in the fair value of our single reporting unit during the three months ended March 31, 2023, plans to sublease
all of our laboratory and office space, and the weakening sublease markets, we recorded non-cash impairment charges of $4.8 million for property, plant
and equipment for the year-ended December 31, 2023, which we report in restructuring, impairment and costs of terminated program in our Consolidated
Statement of Operations. See Note 8 for additional information.
Depreciation and amortization expense for property, plant and equipment for the years ended December 31, 2023, 2022, and 2021 was $7.0
million, $12.2 million, and $13.0 million, respectively.
Goodwill
The following is a reconciliation of the change in our goodwill for the year ended December 31, 2023 (in thousands):
Goodwill – beginning balance
Impairment of goodwill
Goodwill – ending balance
Year Ended
December 31, 2023
$
$
76,501
(76,501 )
—
As a result of the decrease in the fair value of our single reporting unit during the three months ended March 31, 2023, we recorded a non-cash
goodwill impairment charge of $76.5 million, which we report as impairment of goodwill in our Consolidated Statement of Operations. We had previously
recognized goodwill primarily from our acquisitions of Shearwater Corp. and Aerogen, Inc. in 2001 and 2005, respectively. See Note 9 for additional
information.
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Accrued Expenses
Accrued expenses consist of the following (in thousands):
Accrued compensation
Accrued clinical trial expenses
Liability to collaboration partners
Accrued contract termination costs
Other accrued expenses
Total accrued expenses
Accumulated Other Comprehensive Income (Loss)
December 31,
2023
2022
$
$
5,553 $
4,321
2,678
3,020
6,590
22,162 $
9,582
12,262
3,808
3,902
7,003
36,557
The following table summarizes the changes in accumulated other comprehensive income (loss) by component (in thousands):
Balance at December 31, 2022
Foreign currency translation gain
Unrealized gain on available-for-sale securities
Reclassification adjustments to income
Balance at December 31, 2023
Foreign currency
translation
Available-for-sale
securities
Accumulated Other
Comprehensive
Income
$
$
(5,131 ) $
62
—
5,099
30 $
(1,776 ) $
—
1,826
—
50 $
(6,907 )
62
1,826
5,099
80
The reclassification from accumulated other comprehensive loss relates to the closure of the operations of our foreign subsidiaries and has been
included within other income (expense), net in our Consolidated Statement of Operations for the year ended December 31, 2023.
Note 4 — Operating Leases
Our leases consist of a Lease Agreement (the Mission Bay Lease) with ARE-San Francisco No. 19, LLC (ARE) for our 155,215 square foot
corporate office and R&D facility located at 455 Mission Bay Boulevard South, San Francisco, California (the Mission Bay Facility) and a Lease
Agreement (the Third Street Lease) with Kilroy Realty Finance Partnership, L.P. (Kilroy) for an additional 135,936 square foot of office space at 360 Third
Street, San Francisco, California (the Third Street Facility). Both leases terminate in January 31, 2030, subject to two consecutive five year renewals for the
Mission Bay Facility and one five year renewal for the Third Street Facility.
•
•
•
•
The monthly base rent for both facilities will escalate over the term of the lease at various intervals.
Both leases include various covenants, indemnities, defaults, termination rights, security deposits and other provisions customary for
lease transactions of this nature.
During the term of the Mission Bay Lease, we are responsible for paying our share of operating expenses specified in the lease, including
utilities, common area maintenance, insurance costs and taxes.
For the Third Street Lease, our fixed annual base rent on an industrial gross lease basis includes certain expenses and property taxes paid
directly by the landlord.
Due to our 2022 and 2023 Restructuring Plans, during the year ended December 31, 2023, we recorded impairment charges of $30.6 million for
our right-of-use assets which we are seeking to sublease. See Note 8 for additional information.
We generally recognize lease expense for our operating leases on a straight-line basis over the lease term. For spaces where we have recognized an
impairment charge, the aggregate lease expense recognized over the remaining term is reduced by the amount of the impairment charge, but we recognize
the remaining lease expense on an accelerated basis. The
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components of lease expense, which we include in operating expenses in our Consolidated Statements of Operations, were as follows (in thousands):
Operating lease expense
Variable lease expense
Total lease expense
2023
Year Ended December 31,
2022
2021
$
$
12,116 $
7,027
19,143 $
17,057 $
10,700
27,757 $
19,153
8,974
28,127
During the years ended December 31, 2023, 2022 and 2021, we paid $21.0 million, $20.1 million and $16.8 million, respectively, of operating
lease payments related to our lease liabilities, which we include in net cash used in operating activities in our Consolidated Statements of Cash Flows.
As of December 31, 2023, the maturities of our operating lease liabilities were as follows (in thousands):
Year ending December 31,
2024
2025
2026
2027
2028
2029 and thereafter
Total lease payments
Less: portion representing interest
Operating lease liabilities
Less: current portion
Operating lease liabilities, less current portion
$
$
19,822
22,255
22,958
23,682
24,427
27,303
140,447
(22,671 )
117,776
(19,259 )
98,517
As of December 31, 2023, the weighted-average remaining lease term is 6.1 years and the weighted-average discount rate was 5.8%.
We have entered into subleases for approximately 29,000 square feet of space in our Mission Bay Facility that would provide recovery of $10.5
million in aggregate fixed lease payments, as well as full recovery of the subtenants' share of operating expenses under our master lease agreement, subject
to certain free rent periods. We record the total sublease income as a reduction of general and administrative expense, which totaled $2.2 million for the
year ended December 31, 2023.
As of December 31, 2023, maturities of our operating lease receivables from subleases for each of the next five years and thereafter were as
follows:
Year ending December 31,
2024
2025
2026
2027
2028
2029 and thereafter
Gross Lease Receivable
$
$
1,360
1,535
1,589
1,645
1,702
1,757
9,588
Note 5 — Liabilities Related to the Sales of Future Royalties
On February 24, 2012, we entered into a purchase and sale agreement (the 2012 Purchase and Sale Agreement) with RPI Finance Trust (RPI), an
affiliate of Royalty Pharma, pursuant to which we sold, and RPI purchased, our right to receive royalty payments (the 2012 Transaction Royalties) arising
from the worldwide net sales, from and after January 1, 2012, of (a) CIMZIA®, under our license, manufacturing and supply agreement with UCB, and (b)
MIRCERA®, under our license, manufacturing and supply agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (together referred to as
Roche). We received aggregate cash proceeds of $124.0 million for the 2012 Transaction Royalties. Although we sold all of our rights to receive royalties
from the CIMZIA® and MIRCERA® products, as a result of our ongoing manufacturing and supply obligations related to the generation of these royalties,
we continue to account for these royalties as revenue. We
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recorded the $124.0 million in proceeds from this transaction as a liability (the 2012 Royalty Obligation) that is amortized using the effective interest
method over the estimated life of the 2012 Purchase and Sale Agreement as royalties from the CIMZIA® and MIRCERA® products are remitted directly to
RPI. As of December 31, 2023, our prospective effective interest rate used to amortize the liability is 30%.
We were required to pay RPI an aggregate $10.0 million as a result of worldwide net sales of MIRCERA® during the years 2013 and 2012 not
reaching certain minimum thresholds. The 2012 Purchase and Sale Agreement does not include any other potential payments related to minimum net sales
thresholds.
On June 5, 2020, UCB served notice of a Declaratory Judgment of Patent Invalidity, filed in the United States District Court for the District of
Delaware, seeking a declaration of invalidity of certain of our patents that we had licensed to UCB and pursued similar actions in other jurisdictions. On
October 14, 2021, RPI and we entered into a Letter Agreement which permitted us to enter into a Settlement Agreement, effective October 13, 2021, with
UCB to effect the negotiation between RPI and UCB in which UCB and RPI agreed to a reduction in the royalty term and annual decreases in the royalty
rate over the remaining royalty term in exchange for UCB’s withdrawal of all of UCB’s litigation and challenges.
We concluded that we should account for the decrease in royalty payments to RPI as a result of these agreements as a modification of our liability.
Due to the significance of the change in the estimated royalty payments, we concluded that we should treat the modification as an extinguishment of the
prior liability and recognize a new liability based on the revised royalty payments and term, discounted to fair value. Accordingly, we estimated the fair
value to be approximately $84.7 million. As a result, we recognized a non-cash loss of $23.5 million on the revaluation of the prior liability in the three
months ended December 31, 2021, and we wrote off the remaining $0.9 million of unamortized transaction costs. We present these charges in Loss on
revaluation of liability related to the sale of future royalties line in our Consolidated Statement of Operations.
On December 16, 2020, we entered into a purchase and sale agreement (the 2020 Purchase and Sale Agreement) with entities managed by
Healthcare Royalty Management, LLC (collectively, HCR). Pursuant to the 2020 Purchase and Sale Agreement, we agreed to sell to HCR certain of our
rights to receive royalty payments (the 2020 Transaction Royalties) arising from the worldwide net sales, from and after October 1, 2020 until such time
that certain return thresholds are met as described below, of (a) MOVANTIK® under that certain License Agreement, dated September 20, 2009, by and
between Nektar and AstraZeneca AB, as amended, (b) ADYNOVATE® under that certain Exclusive Research, Development, License and Manufacturing
and Supply Agreement, dated September 26, 2005, by and among Nektar, Baxalta US Inc. and Baxalta GmbH, as amended, (c) REBINYN® under that
certain Settlement and License Agreement, dated December 21, 2016, by and among Nektar, Novo Nordisk Inc., Novo Nordisk A/S and Novo Nordisk A/G
and (d) licensed products under that certain Right to Sublicense Agreement, dated October 27, 2017, by and among Nektar, Baxalta Incorporated, Baxalta
US Inc. and Baxalta GmbH. Although we sold all of our rights to receive royalties from these products up to the cap, as a result of the limits on the 2020
Transaction Royalties to be received by HCR and our ongoing manufacturing and supply obligations related to the generation of these royalties, we account
for the transaction as debt and recognize these non-cash royalties as revenue. We recorded the $150.0 million in proceeds from this transaction as a liability
(the 2020 Royalty Obligation) that will be amortized using the effective interest method over the estimated life of the 2020 Purchase and Sale Agreement.
As of December 31, 2023, our prospective effective interest rate used to amortize the liability is 17%.
The 2020 Purchase and Sale Agreement was to automatically expire, and the payment of the 2020 Transaction Royalties to HCR would cease,
when HCR received payments of the 2020 Transaction Royalties equal to $210.0 million (the 2025 Threshold), if the 2025 Threshold is achieved on or
prior to December 31, 2025, or $240.0 million, if the 2025 Threshold is not achieved on or prior to December 31, 2025 (or, if earlier, the date on which the
last royalty payment under the relevant license agreements is made). On March 4, 2024, Nektar and HCR amended the 2020 Purchase and Sale Agreement
to remove the cap on the royalties in exchange for $15.0 million. Accordingly, HCR will receive all future royalties of these products, and none of these
royalties will return to Nektar.
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The following table shows the activity within the liability account of each arrangement (in thousands):
Year-Ended December 31, 2023
2020
Purchase
and Sale
Agreement
2012
Purchase
and Sale
Agreement
Total
Period from inception to December 31, 2023
2020
Purchase
and Sale
Agreement
2012
Purchase
and Sale
Agreement
Total
Liabilities related to the sales of future royalties—beginning
balance
$
Royalty monetization proceeds
Non-cash royalty revenue
Non-cash interest expense
Payments to RPI
Loss on revaluation of liability related to the sale of future
royalties
Liabilities related to the sales of future royalties – ending
balance
Less: unamortized transaction costs
Liabilities related to the sales of future royalties, net
55,167 $
—
(37,323 )
6,373
—
102,294 $
—
(31,598 )
18,961
—
157,461 $
—
(68,921 )
25,334
—
— $
124,000
(353,847 )
240,542
(10,000 )
— $
150,000
(118,319 )
57,976
—
—
274,000
(472,166 )
298,518
(10,000 )
—
—
—
23,522
—
23,522
24,217
—
24,217 $
89,657
(1,249 )
88,408 $
113,874
(1,249 )
112,625 $
24,217
—
24,217 $
89,657
(1,249 )
88,408 $
113,874
(1,249 )
112,625
$
As royalties are remitted to RPI and HCR by our licensees, the balances of the respective Royalty Obligations will be effectively repaid over the
lives of the agreements. To determine the amortization of the Royalty Obligations, we are required to estimate the total amount of future royalty payments
to be received by RPI and HCR, respectively. We periodically assess the estimated royalty payments to RPI and HCR from our licensees and to the extent
the amount or timing of such payments is materially different than our original estimates, we prospectively adjust the imputed interest rate and the related
amortization of the appropriate Royalty Obligation.
Note 6 — Commitments and Contingencies
Purchase Commitments
In the normal course of business, we enter into various firm purchase commitments related to contract manufacturing, clinical development and
certain other items. As of December 31, 2023, these commitments were approximately $3.3 million.
Legal Matters
From time to time, we are involved in lawsuits, arbitrations, claims, investigations and proceedings, consisting of intellectual property,
commercial, employment and other matters, which arise in the ordinary course of business. We make provisions for liabilities when it is both probable that
a liability has been incurred and the amount of the loss can be reasonably estimated. Such provisions are reviewed at least quarterly and adjusted to reflect
the impact of settlement negotiations, judicial and administrative rulings, advice of legal counsel, and other information and events pertaining to a particular
case. Litigation is inherently unpredictable. If any unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse
impact on the results of our operations for that period and on our cash flows and liquidity.
On August 7, 2023, we filed a complaint in the United States District Court for the Northern District of California against Lilly alleging, among
other claims, breach of contract and breach of implied covenant of good faith and fair dealing, in connection with our collaboration with Lilly.
We have recorded no liability for any litigation matters in our Consolidated Balance Sheets at either December 31, 2023 or December 31, 2022.
Indemnification Obligations
During the course of our normal operating activities, we have agreed to certain contingent indemnification obligations as further described below.
The term of our indemnification obligations is generally perpetual. There is generally no limitation on the potential amount of future payments we could be
required to make under these indemnification obligations. To date, we have not incurred significant costs to defend lawsuits or settle claims based on our
indemnification obligations. If any of our indemnification obligations is triggered, we may incur substantial liabilities. Because the aggregate
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amount of any of these potential indemnification obligations is not a stated amount, we cannot reasonably estimate the overall maximum amount of any
such obligations. We have recorded no liabilities for these obligations in our Consolidated Balance Sheets at either December 31, 2023 or December 31,
2022.
Indemnifications in Connection with Commercial Agreements
As part of our collaboration agreements with our partners related to the license, development, manufacture and supply of drugs and PEGylation
materials based on our proprietary technologies and drug candidates, we generally agree to defend, indemnify and hold harmless our partners from and
against third party liabilities arising out of the agreement, including product liability (with respect to our activities) and infringement of intellectual property
to the extent the intellectual property is developed by us and licensed to our partners. The term of these indemnification obligations is generally perpetual
commencing after execution of the agreement. There is generally no limitation on the potential amount of future payments we could be required to make
under these indemnification obligations.
From time to time, we enter into other strategic agreements such as divestitures and financing transactions pursuant to which we are required to
make representations and warranties and undertake to perform or comply with certain covenants. For example, we made certain intellectual property
representations in connection with our RPI and HCR transactions, however, the time limitation we have to indemnify RPI with respect to any breach of
these intellectual property-based representations and warranties has passed. In the event it is determined that we breached certain of the representations and
warranties or covenants made by us in any such agreements or certain express indemnification provisions are applicable, we could incur substantial
indemnification liabilities depending on the timing, nature, and amount of any such claims.
To date, we have not incurred any costs to defend lawsuits or settle claims related to these indemnification obligations, nor any breaches of
representations or warranties or covenants. Because the aggregate amount of any potential indemnification obligation is not a stated amount, we cannot
reasonably estimate the overall maximum amount of any such obligations.
Indemnification of Underwriters and Initial Purchasers of our Securities
In connection with our sale of equity we have agreed to defend, indemnify and hold harmless our underwriters or initial purchasers, as applicable,
as well as certain related parties from and against certain liabilities, including liabilities under the Securities Act of 1933, as amended.
Director and Officer Indemnifications
As permitted under Delaware law, and as set forth in our Certificate of Incorporation and our Bylaws, we indemnify our directors, executive
officers, other officers, employees, and other agents for certain events or occurrences that may arise while in such capacity. The maximum potential amount
of future payments we could be required to make under this indemnification is unlimited; however, we have insurance policies that may limit our exposure
and may enable us to recover a portion of any future amounts paid. Assuming the applicability of coverage, the willingness of the insurer to assume
coverage, and subject to certain retention, loss limits and other policy provisions, we believe any obligations under this indemnification would not be
material, other than retention of up to $5.0 million per incident for merger and acquisition related claims, $5.0 million per incident for securities related
claims and $5.0 million per incident for non-securities related claims per our insurance policy. However, no assurances can be given that the covering
insurers will not attempt to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in which case we
may incur substantial liabilities as a result of these indemnification obligations.
Note 7 — License and Collaboration Agreements
We have entered into various collaboration agreements including license agreements and collaborative research, development and
commercialization agreements with various pharmaceutical and biotechnology companies. Under these collaboration arrangements, we are entitled to
receive license fees, upfront payments, milestone and other contingent payments, royalties, sales milestone payments, and payments for the manufacture
and supply of our proprietary PEGylation materials and/or reimbursement for research and development activities. We generally include our costs of
performing these services in research and development expense, except for costs for product sales to our collaboration partners which we include in cost of
goods sold. We analyze our agreements to determine whether we should account for the agreements within the scope of ASC 808 Collaborative
Arrangements, and, if so, we analyze whether we should account for any elements under ASC 606 Revenue from Contracts with Customers.
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Eli Lilly and Company (Lilly): Rezpegaldesleukin (previously referred to as NKTR-358)
On July 23, 2017, we entered into a worldwide license agreement (the Lilly Agreement) with Eli Lilly and Company (Lilly) to co-develop
rezpegaldesleukin, a novel immunological drug candidate that we invented, pursuant to which we received an initial payment of $150.0 million and were
eligible for up to $250.0 million in additional development and regulatory milestones. The Lilly Agreement provided that, during Phase 1b and Phase 2
development, we shared development costs wherein 75% of the costs were borne by Lilly and 25% of the costs were borne by us.
On February 23, 2023, we announced the topline data from the Phase 2 study (Phase 2 Lupus Study) of rezpegaldesleukin in adult patients with
systemic lupus erythematosus (SLE). Although the Phase 2 Lupus Study did not meet its primary endpoint, patients who received the middle dose within
the modified intent-to-treat population, defined as all patients who were randomized and received at least one dose of rezpegaldesleukin, demonstrated
improvement in SLEDAI-2K score as compared to placebo. Nonetheless, Lilly notified us that it does not intend to advance rezpegaldesleukin into Phase 3
development for SLE.
On April 23, 2023, we received from Lilly a notice of at-will termination of the Lilly Agreement. On April 27, 2023, we announced that we would
regain full rights to rezpegaldesleukin from Lilly, and the Lilly Agreement subsequently terminated. Following the return of our rights to develop
rezpegaldesleukin, we bear all costs of development. We have initiated a Phase 2b study of rezpegaldesleukin in patients with moderate-to-severe atopic
dermatitis, and we are targeting the initiation of a Phase 2b study of rezpegaldesleukin in patients with alopecia areata by the end of March 2024. We also
plan to explore other auto-immune indications for the development of rezpegaldesleukin.
On August 7, 2023, we announced that the interim efficacy data previously generated by Lilly for rezpegaldesleukin that were presented at the
EADV conference in September 2022 were incorrectly calculated by Lilly. The erroneous interim data were reported in connection with the Phase 1b study
of rezpegaldesleukin in adult patients with atopic dermatitis (Phase 1b AD Study) and the Phase 1b study of rezpegaldesleukin in adult patients with
psoriasis. We reported the new and corrected data from the Phase 1b AD and psoriasis studies of rezpegaldesleukin.
On October 13, 2023, we announced final efficacy data from the Phase 1b AD Study at the 2023 EADV conference. The final data from the study
demonstrated rezpegaldesleukin resulted in dose-dependent improvements in eczema area and severity index (EASI), validated investigated global
assessment (vIGA), body surface area (BSA), and itch numeric rating scale (NRS) over twelve weeks of treatment compared to placebo, which were
sustained post-treatment over an additional thirty-six weeks.
Bristol-Myers Squibb (BMS): Bempegaldesleukin (previously referred to as NKTR-214)
Effective April 3, 2018, we entered into a Strategic Collaboration Agreement (the BMS Collaboration Agreement) and a Share Purchase
Agreement with BMS. Pursuant to the BMS Collaboration Agreement, we and BMS jointly developed bempegaldesleukin in combination with BMS’
Opdivo®. The parties share the internal and external development costs for bempegaldesleukin in combination regimens based on each party’s relative
ownership interest in the compounds included in the regimens. In accordance with the agreement, the parties share development costs for
bempegaldesleukin in combination with Opdivo®, 67.5% of costs to BMS and 32.5% to Nektar. The parties also shared costs for the manufacturing and
pre-commercial costs of bempegaldesleukin, 35% of the costs to BMS and 65% to Nektar.
Upon the effective date of the BMS Collaboration Agreement in April 2018, BMS paid us a non-refundable upfront cash payment of $1.0 billion
and purchased 8,284,600 shares of our common stock pursuant to the Share Purchase Agreement for total additional cash consideration of $850.0 million.
In 2020, we received additional non-refundable milestone payments of $50.0 million.
As discussed in Note 1, in April 2022, we announced that BMS and we decided to discontinue all development of bempegaldesleukin in
combination with Opdivo®. On September 6, 2023, BMS and we terminated the BMS Collaboration Agreement, and pursuant to the surviving provisions of
the BMS Collaboration Agreement, we and BMS continue our efforts to wind down the bempegaldesleukin program, and the cost sharing provisions
continue to remain in effect as the parties wind down the studies. On February 12, 2024, we repurchased the 8.3 million shares previously sold to BMS for
total cash consideration of $3.0 million.
We determined that the BMS Collaboration Agreement falls within the scope of ASC 808. Based on the cost sharing percentages described above,
we recognized BMS’ reimbursement of our expenses as a reduction of research and development expense and our reimbursement of BMS’ expenses as
research and development expense. As discussed in Note 8, beginning in the second quarter of 2022, we began reporting clinical trial, other third-party
costs and employee costs for the wind down of the bempegaldesleukin program in restructuring, impairment and costs of terminated program.
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Accordingly, during the year ended December 31, 2022, we recorded $45.7 million for the net reimbursement from BMS, of which we recorded $24.9
million as a reduction of research and development expense for the first quarter of 2022, and $20.8 million as a reduction of restructuring, impairment and
costs of terminated program for the remaining three quarters of 2022. During the year ended December 31, 2021, we recorded $101.5 million as a reduction
of research and development expense for the net reimbursement from BMS. The net reimbursement payable to BMS for the year ended December 31, 2023
was not significant.
SFJ Pharmaceuticals
On February 12, 2021, we entered into a Co-Development Agreement (the SFJ Agreement) with SFJ Pharmaceuticals XII, L.P., a SFJ
Pharmaceuticals Group company (SFJ), pursuant to which SFJ would pay up to $150.0 million to support a Phase 2/3 study of bempegaldesleukin in
combination with Keytruda® (pembrolizumab) in metastatic or unresectable recurrent squamous cell carcinoma of the head and neck (the SCCHN Clinical
Trial). SFJ had primary responsibility for the clinical trial management of the SCCHN Clinical Trial, and we were the sponsor of the SCCHN Clinical Trial.
The SFJ Agreement provided for us to pay up to $637.5 million in Success Payments in the event of FDA approval of bempegaldesleukin in up to three
indications.
We accounted for the SFJ Agreement as a derivative liability, which we remeasured to fair value at each reporting date. We recorded increases to
the liability for non-cash research and development expense as SFJ conducted the SCCHN Clinical Trial and for cash receipts from SFJ to us to support our
internal costs of conducting the trial. We presented the gain (loss) from the remeasurement as change in fair value of development derivative liability in our
Consolidated Statements of Operations.
At March 31, 2022, due to the negative results of the metastatic melanoma trial and initial discussions with SFJ, we concluded that it was remote
that SFJ and we would continue the SCCHN Clinical Trial. Accordingly, the fair value of the development derivative liability was reduced to zero as of
March 31, 2022, and we recognized a corresponding gain in change in fair value of development derivative liability. In April 2022, we announced that SFJ
and we agreed to discontinue the SCCHN Clinical Trial. Accordingly, SFJ will not be entitled to any Success Payments, and SFJ has the responsibility to
wind down the SCCHN Clinical Trial at its sole cost. SFJ has no right to seek reimbursement from us for any costs incurred for the SCCHN Clinical Trial.
The following table presents the change in the derivative liability for the years ended December 31, 2022 and 2021:
Fair value as of December 31, 2021 and February 12, 2021 (inception), respectively
Non-cash research and development expense
Cash receipts from SFJ
Change in the fair value of development derivative liability
Fair value at end of period
Other
Fair Value Hierarchy
Level
3
$
3
$
Year Ended December 31,
2022
2021
27,726 $
4,951
750
(33,427 )
— $
—
16,703
3,000
8,023
27,726
We have other collaboration agreements that have resulted in commercialized products for our collaborations partners. Under these agreements, we
may sell our proprietary PEGylation materials for use in these products, and we are entitled to receive royalties based on net sales of these products as well
as sales milestones. Additionally, we have a collaboration agreement for a product under development, under which we are entitled to up to a total of $40.0
million of regulatory milestones, as well as royalties based on net sales, if approved, and sales milestones upon achievement of an annual net sales targets.
However, given the current phase of development of the product under this collaboration agreement, we cannot estimate the probability or timing of
achieving these milestones, and, therefore, have excluded all development milestones from the transaction price for this agreement.
Note 8 — Restructuring, Impairment and Costs of Terminated Program
As discussed in Note 1, because our registrational trials in bempegaldesleukin did not meet their primary endpoints, we decided to discontinue all
development of bempegaldesleukin and wind down the clinical trials studying bempegaldesleukin. In April 2022, we announced the 2022 Restructuring
Plan pursuant to which we completed an approximate 70% reduction of our workforce during 2022. We also sold our research facility in India in December
2022 and decided to sublease certain of our leased premises in San Francisco, CA, including all of our office leased space in the Third Street Facility and
portions of our office and laboratory space in the Mission Bay Facility.
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Pursuant to plans approved by our Board in March 2023, we announced the 2023 Restructuring Plan to further reduce our San Francisco-based
workforce by approximately 60%, which was substantially completed by June 30, 2023. In addition, under the 2023 Restructuring Plan, we decided to
sublease our remaining office and laboratory space in the Mission Bay Facility, which we had not planned to sublease pursuant to the 2022 Restructuring
Plan.
In connection with our 2022 and 2023 Restructuring Plans, we report the following costs in restructuring, impairment and costs of terminated
program:
•
•
•
•
Clinical trial expense, other third-party costs and employee costs for the wind down of the bempegaldesleukin program, net of the
reimbursement from BMS, initiated in 2022;
Severance and related benefit costs pursuant to the 2022 and 2023 Restructuring Plans;
Non-cash impairment of right-of-use assets and property, plant and equipment; and
Contract termination and other costs associated with these plans.
Restructuring, impairment and costs of terminated program includes the following (in thousands):
Year Ended December 31,
2022
Restructuring
Plan
2023
2023
Restructuring
Plan
2022
Total
2022 Restructuring
Plan
Clinical trial expense, other third-party and employee costs for the wind
down of the bempegaldesleukin program
Severance and benefit expense
Impairment of right-of-use assets and property, plant and equipment
Loss (gain) on sale or disposal of other property, plant and equipment, net
Contract termination and other restructuring costs
Restructuring, impairment and costs of terminated program
$
$
5,492
$
—
14,728
—
1,919
22,139
$
—
7,885
20,600
1,300
34
29,819
$
$
5,492
7,885
35,328
1,300
1,953
51,958
$
$
31,693
30,904
65,761
(3,326 )
10,898
135,930
Wind Down of the Bempegaldesleukin Program
In prior periods through March 31, 2022, we reported the clinical trial costs, other third-party costs and employee costs related to the
bempegaldesleukin program primarily in research and development expense. Beginning in the second quarter of 2022, we began reporting clinical trial,
other third-party costs and employee costs for the wind down of the bempegaldesleukin program in restructuring, impairment and costs of terminated
program.
The clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program for the year ended December
31, 2022 includes reductions of $20.8 million, for the net reimbursement from BMS. The net reimbursement payable to BMS for the year ended December
31, 2023 was not significant.
Severance and Benefit Expense
Employees affected by the reduction in force under the 2022 and 2023 Restructuring Plans are entitled to receive severance payments and certain
Company funded benefits. The restructuring charges are recorded at fair value.
For the 2022 Restructuring Plan, we recognized severance and benefit expense in full for employees who had no requirements for future service
upon approval of the 2022 Restructuring Plan by the Board in April 2022. We recognized severance and benefit expense for employees who were required
to render services to receive their severance and benefits ratably over the service period. This service period began on the communication date in April
2022 and was completed for all employees during 2022. We recognized $30.9 million in total severance and benefit expense during 2022 and paid the
remaining liability of $3.3 million in January 2023.
For the 2023 Restructuring Plan, we recognized $7.9 million of severance and benefit expense for the year ended December 31, 2023 and paid the
final liability of $0.2 million in January 2024. We do not expect to recognize any further severance expense for the 2023 Restructuring Plan.
The following table provides details regarding the severance and benefit expense for the years ended December 31, 2023 and 2022 pursuant to the
2022 and 2023 Restructuring Plans and a reconciliation of the severance and benefits liability for the year ended December 31, 2023 pursuant to the 2022
and 2023 Restructuring Plans, which we report within accrued expenses on our Consolidated Balance Sheets (in thousands):
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Liability balance as of December 31, 2021
Expense recognized during the period
Payments during the period
Liability balance as of December 31, 2022
Expense recognized during the period
Payments during the period
Liability balance as of December 31, 2023
Impairment of Long-Lived Assets
2023 Restructuring
Plan
2022 Restructuring
Plan
Total
$
$
$
— $
—
—
— $
7,885
(7,689 )
196 $
— $
30,904
(27,605 )
3,299 $
—
(3,299 )
— $
—
30,904
(27,605 )
3,299
7,885
(10,988 )
196
As a result of our 2022 and 2023 Restructuring Plans, we have decided to sublease all of our leased spaces in the Third Street Facility and the
Mission Bay Facility. Accordingly, we evaluated each space for impairment when management decided to sublease the respective space and at each
reporting date thereafter, as facts and circumstances change. The significant assumptions in our impairment analysis relate to sublease income, including
the length of time to enter into a sublease, sublease rental payments, free rent periods, tenant improvement allowances and broker commissions. When
available, we use sublease negotiations or agreements, but in the absence of such information, we develop our own subjective estimates based on current
real estate trends and market conditions. Accordingly, our estimates are subject to significant risk, and the terms of sublease agreements, if any, and the
resulting amount and timing of sublease income, if ever realized, may be materially different than our estimates.
As part of our evaluation of each sublease space, we separately compare the estimated undiscounted sublease income, as described above, for each
sublease to the net book value of the related long-term assets, which include right-of-use assets and certain property, plant and equipment, primarily for
leasehold improvements (collectively, sublease assets). If such sublease income exceeds the net book value of the sublease assets, we do not record an
impairment charge. Otherwise, we record an impairment charge by reducing the net book value of the sublease assets to their estimated fair value, which
we determined by discounting the estimated sublease income using the estimated borrowing rate of a market participant subtenant, which has ranged from
6.4% for the three months ended June 30, 2022 to 8.7% for the three months ended September 30, 2023.
We recorded non-cash impairment charges of lease assets pertaining to the 2022 and 2023 Restructuring Plans as follows (in thousands):
Sublease Spaces
Mission Bay Blvd. South
Third St
$
Total 2022 Restructuring Plan
Mission Bay Blvd. South - 2023
Restructuring Plan
Total impairment of lease assets $
June 30, 2022
September 30,
2022
December 31,
2022
March 31,
2023
June 30, 2023
September
30, 2023
December 31,
2023
Total
Three-months Ended
$
3,000
49,200
52,200
N/A
52,200
$
$
1,200
—
1,200
N/A
1,200
$
$
361
12,000
12,361
N/A
12,361
$
$
—
—
—
11,500
11,500
$
$
7,061
6,200
13,261
—
13,261
$
$
1,467
—
1,467
9,100
10,567
$
—
—
—
—
—
$
$
13,089
67,400
80,489
20,600
101,089
•
•
•
The non-cash impairment charges for the three months ended June 30, 2022 for our Third St. Facility reflects our initial estimates of sublease
income when management first decided to sublease the spaces. As the San Francisco office lease market has continued to deteriorate, we
have recognized additional non-cash impairment charges for the Third Street Facility in the three months ended December 31, 2022, and in
the three months ended June 30, 2023.
The non-cash impairment charges for the three months ended June 30, 2022 for Mission Bay Facility reflects our initial estimates of sublease
income. As the life sciences lease market has deteriorated during 2023, we recorded additional non-cash impairment charges in the three
months ended June 30, 2023 and in the three months ended September 30, 2023.
The impairment charges under the 2023 Restructuring Plan include $20.6 million for the impairment of the Mission Bay Facility that we
decided to sublease in 2023. We recorded an impairment charge of $11.5 million in the three months ended March 31, 2023, based on our
initial estimates of sublease income. As the life sciences lease market has deteriorated during 2023, including a significant increase in
available sublease space in San Francisco, California, we recorded an additional impairment charge of $9.1 million in the three months ended
September 30, 2023 for this space.
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The following are reconciliations of the impairment charges we recorded for the years ended December 31, 2023 and 2022, including the net book
values of the sublease assets before the impairment and the fair values of the sublease assets. Since we recorded multiple impairment charges for certain
spaces as a resulting of worsening lease markets, we present the net book value before the first impairment in such year and the fair value after the second
impairment in such year (in thousands):
Net book value of impaired sublease assets
Less: Fair value of impaired sublease assets — Level 3 of Fair Value Hierarchy
Book value in excess of fair value
Less: Amounts recorded as amortization between June 30, 2022 and December 31, 2022
for Third St. facility
Total impairment of sublease assets
Year Ended December 31, 2022
Property, Plant and
Equipment
Operating Lease
Right-of-Use Assets
$
72,481 $
(16,174 )
56,307
$
(1,717 )
54,590 $
16,348 $
(4,780 )
11,568
(397 )
11,171 $
Total
88,829
(20,954 )
67,875
(2,114 )
65,761
Operating Lease
Right-of-Use Assets
Year Ended December 31, 2023
Property, Plant and
Equipment
Total
Net book value of impaired facilities before write-off
Less: Fair value of impaired facilities — Level 3 of Fair Value Hierarchy
Book value in excess of fair value
Less: Amounts recorded as amortization between March 31, 2023 and September 30,
2023 for Mission Bay facility
Total impairment of right-of-use assets and property, plant and equipment
$
$
46,292 $
(14,364 )
31,928
(1,371 )
30,557 $
7,206 $
(2,172 )
5,034
(263 )
4,771 $
53,498
(16,536 )
36,962
(1,634 )
35,328
(Gain) Loss on Sale or Disposal of Property, Plant and Equipment, Net
In connection with our 2022 Restructuring Plan, we terminated all research and development activities at our owned facility in India, which we
sold in December 2022. We also sold excess lab equipment and disposed of software to support the commercialization of bempegaldesleukin. In 2023, we
sold additional lab equipment under the 2023 Restructuring Plan. We recorded the gains and losses as follows (in thousands):
Proceeds from sales
Net book value of assets
Total (gain) loss on sale or disposal of other property, plant and equipment, net
Contract Termination and Other Costs
Year Ended December 31,
2023
2022
1,245 $
2,545
1,300 $
13,196
9,870
(3,326 )
$
$
The following is a reconciliation of the contract termination and other costs for the 2022 Restructuring Plan and the related liability of which we
report $3.0 million within accrued expenses and the remaining within other long-term liabilities on our Consolidated Balance Sheet as of December 31,
2023:
Liability balance as of December 31, 2021
Expense recognized during the period
Payments during the period
Liability balance as of December 31, 2022
Expense recognized during the period
Payments during the period
Liability balance as of December 31, 2023
81
Year Ended
December 31, 2023
—
10,898
(3,188 )
7,710
1,919
(4,087 )
5,542
$
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Note 9 — Impairment of Goodwill
During the three months ended March 31, 2023, our stock price and resulting market capitalization experienced a significant, sustained decline.
Accordingly, we assessed our long-lived assets, including our property, plant and equipment, right-of-use assets and goodwill, for impairment.
As part of our long-lived asset impairment analysis, we first assessed which long-lived assets have identifiable cash flows that are largely
independent of the cash flows of other groups of assets. We concluded that the sublease assets, for which we have recognized significant impairment
charges during 2022 and 2023, including for the three months ended March 31, 2023, are independent of our entity-wide group. See Note 8 for additional
information regarding impairment charges that we have recorded for our sublease assets.
We next evaluated our remaining long-lived assets for impairment and performed a recoverability test using the undiscounted cash flows approach.
We did not recognize any additional impairment charges on the remaining long-lived assets.
Finally, we measured the fair value of our reporting unit utilizing both income and market approaches for our entity-wide asset impairment
analysis. Based on this analysis, we wrote off all of our goodwill, resulting in a non-cash impairment charge of $76.5 million during the three months ended
March 31, 2023, which we reported as impairment of goodwill in our Consolidated Statements of Operations for the year ended December 31, 2023. We
had previously recognized goodwill primarily from our acquisitions of Shearwater Corp. and Aerogen, Inc. in 2001 and 2005, respectively.
Note 10 — Stock-Based Compensation
2017 Performance Incentive Plan
Our 2017 Performance Incentive Plan (2017 Plan) provides for the issuance of our common stock to members of the Board of Directors, officers
or employees, certain consultants and advisors and our subsidiaries. Our 2017 Plan has been amended and restated such that an aggregate 51,200,000 shares
have been authorized for issuance as of December 31, 2023, including 12,000,000 shares that were approved on June 8, 2023. Under the 2017 Plan, we may
issue stock options, restricted stock, performance stock, stock units, stock appreciation rights and other similar types of awards. When the 2017 Plan was
approved on June 14, 2017, any shares of our common stock that were available for issuance under our 2012 Performance Incentive Plan (the 2012 Plan)
ceased to be available for future grants. However, options and RSUs granted under the 2012 Plan remained outstanding, and any options or RSUs that were
cancelled or forfeited became available for issuance under the 2017 Plan. Shares issued for RSUs, PSUs or any other “full-value award” are counted against
the share limit as 1.5 shares for every one share granted in connection with the award.
We have granted non-qualified stock options, RSUs and PSUs to employees, officers, and non-employee directors. For our employees, the
requisite service period is generally three to four years for stock options, and three years for RSUs and PSUs. For our directors, the requisite service is
generally one year for stock options and RSUs. The maximum term of a stock option is eight years from the date of grant. The per share exercise price of
an option generally may not be less than the fair market value of a share of our common stock on the NASDAQ Stock Market on the date of grant.
Under our Change in Control Plan (the CIC Plan), in the event of a change of control of Nektar and a subsequent termination of employment
initiated by us or a successor company other than for Cause (as defined in the CIC Plan) within twelve months following a change of control, our
employees are entitled to full acceleration of their unvested equity awards. Our Chief Executive Officer, Senior Vice Presidents and Vice Presidents
(including Principal Fellows) are also entitled to full acceleration of unvested equity awards if the termination is initiated by the employee for a Good
Reason Resignation (as defined in the CIC Plan) within twelve months following a change of control. Additionally, non-employee directors would also be
entitled to full acceleration of vesting of all outstanding stock awards in the event of a change of control transaction.
Employee Stock Purchase Plan
Under the terms of our Employee Stock Purchase Plan (ESPP), employees may purchase shares of our common stock based on a percentage of
their compensation subject to certain limits. Shares are purchased at 85% of the lower of the closing price on either the first day or last day of each six-
month offering period. An aggregate 3,500,000 shares have been authorized for issuance under our ESPP.
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Shares Reserve for Issuance
As of December 31, 2023, shares of common stock reserved for future issuance are as follows (in thousands):
Stock options, RSUs and PSUs outstanding
Shares available for future grant under the 2017 Performance Incentive Plan
Shares available for issuance under the employee stock purchase plan
Total common stock reserved for issuance
Stock-Based Compensation Expense
27,246
10,101
775
38,122
We recognize total stock-based compensation expense in our Consolidated Statements of Operations as follows (in thousands):
Cost of goods sold
Research and development
General and administrative
Restructuring, impairment and costs of terminated program
Total stock-based compensation
2023
Year Ended December 31,
2022
2021
$
$
3,177
13,890
16,321
—
33,388
$
$
2,824
27,727
24,488
2,281
57,320
$
$
2,779
54,821
37,074
—
94,674
Stock-based compensation expense resulting from PSUs and our ESPP was not significant in the years ended December 31, 2023, 2022, and 2021.
As of December 31, 2023, total unrecognized compensation costs of $33.1 million related to unvested stock-based compensation awards are
expected to be recognized as expense over a weighted-average period of 2.3 years.
Black-Scholes Assumptions
The following table lists the Black-Scholes option-pricing model assumptions used to calculate the fair value of employee and director stock
options, as well as the resulting grant-date fair value:
Average risk-free interest rate
Dividend yield
Average volatility factor
Weighted-average expected life
Weighted-average grant-date fair value of options granted
2023
Year Ended December 31,
2022
2021
4.0 %
0.0 %
88.4 %
2.9 %
0.0 %
77.9 %
5.1 years
0.37
$
5.6 years
3.18
$
$
1.2 %
0.0 %
63.8 %
5.5 years
8.07
The average risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant for periods commensurate with the
expected life of the stock-based award. We have never paid dividends, nor do we expect to pay dividends in the foreseeable future; therefore, we used a
dividend yield of zero. Our estimate of expected volatility is based on the daily historical trading data of our common stock at the time of grant over a
historical period commensurate with the expected life of the stock-based award. We estimated the weighted-average expected life based on the contractual
and vesting terms of the stock options, as well as historical cancellation and exercise data.
Summary of Stock Option Activity
The table below presents a summary of stock option activity under our equity incentive plans (in thousands, except for price per share and
contractual life information):
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Outstanding at December 31, 2022
Options granted
Options exercised
Options forfeited & canceled
Outstanding at December 31, 2023
Weighted-
Average
Remaining
Contractual
Life
(in Years)
Aggregate
Intrinsic
Value(1)
Weighted-
Average
Exercise
Price
per Share
16.40
0.51
—
16.07
8.26
6.42
$
Number
of
Shares
14,088 $
11,854
—
(2,926 )
23,016 $
Exercisable at December 31, 2023
6,425
22.99
3.68
$
—
—
(1)
Aggregate intrinsic value represents the difference between the exercise price of the option and the closing market price of our common stock on
December 31, 2023.
The intrinsic value of options exercised during the years ended December 31, 2022 and 2023 was not significant and totaled $17.3 million during
the year ended December 31, 2021.
Summary of RSU Activity
A summary of RSU award activity is as follows (in thousands except for per share amounts):
Unvested at December 31, 2022
Granted
Vested and released
Forfeited and canceled
Unvested at December 31, 2023
Weighted-
Average
Grant
Date Fair
Value
6.81
1.10
7.93
6.11
6.14
Units Issued
9,312
126
(2,759 )
(2,449 )
4,230
$
$
The weighted-average grant-date fair values of RSUs granted during the years ended December 31, 2023, 2022 and 2021 were $1.10, $4.14 and
$14.68, respectively. The fair value of RSU's that vested in the years ended December 31, 2023, 2022 and 2021 totaled $3.6 million, $17.5 million and
$45.3 million, respectively.
401(k) Retirement Plan
We sponsor a 401(k) retirement plan whereby eligible employees may elect to contribute up to the lesser of 60% of their annual compensation or
the statutorily prescribed annual limit allowable under Internal Revenue Service regulations. The 401(k) plan permits us to make matching contributions on
behalf of all participants, up to a maximum of $12,000 per participant for the years ended December 31, 2022 and 2023, and up to a maximum of $6,000
per participant for the year ended December 31, 2021. For the years ended December 31, 2023, 2022, and 2021, we recognized $1.5 million, $2.5 million
and $3.6 million, respectively, of compensation expense in connection with our 401(k) retirement plan.
Note 11 — Income Taxes
Loss before provision for income taxes includes the following components (in thousands):
Domestic
Foreign
Loss before provision for income taxes
2023
Year Ended December 31,
2022
(274,998 ) $
(1,258 )
(276,256 ) $
(371,900 ) $
6,917
(364,983 ) $
$
$
2021
(524,440 )
1,160
(523,280 )
84
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Provision for Income Taxes
The provision for income taxes consists of the following (in thousands):
Current:
Federal
State
Foreign
Total current income tax expense
Deferred:
Federal
State
Foreign
Total deferred income tax expense
Provision (benefit) for income taxes
2023
Year Ended December 31,
2022
2021
$
$
— $
(43 )
(17 )
(60 )
—
—
(140 )
(140 )
(200 ) $
— $
(608 )
1,115
507
—
—
2,708
2,708
3,215 $
—
50
609
659
—
—
(102 )
(102 )
557
Our income tax provision related to continuing operations differs from the amount computed by applying the statutory income tax rate of 21% to
our pretax loss as follows (in thousands):
Income tax benefit at federal statutory rate
Research credits
Change in valuation allowance
Expiration of net operating loss carryforwards
Stock-based compensation
Non-cash interest expense on liability related to sales of future royalties
Non-cash royalty revenue related to sales of future royalties
Loss on revaluation of liability related to the sale of future royalties
Impairment of goodwill
Other
Provision (benefit) for income taxes
2023
Year Ended December 31,
2022
2021
(58,013 ) $
(1,192 )
35,033
312
8,919
5,320
(7,838 )
—
16,065
1,194
(200 ) $
(76,647 ) $
(987 )
51,108
12,348
15,778
6,071
(7,112 )
—
—
2,656
3,215 $
(109,889 )
(4,727 )
97,914
286
6,627
9,936
(7,891 )
4,940
—
3,361
557
$
$
85
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Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. We measure deferred tax assets and liabilities based on the
rates at which they are expected to reverse in the future. Significant components of our deferred tax assets for federal and state income taxes are as follows
(in thousands):
Deferred tax assets:
Net operating loss carryforwards
Research and other credits
Net capital loss carryforwards
Operating lease liabilities
Stock-based compensation
Capitalized research and development costs
Liability related to the sale of future royalties
Other
Deferred tax assets before valuation allowance
Valuation allowance for deferred tax assets
Total deferred tax assets
Deferred tax liabilities:
Operating lease right-of-use assets
Investment in foreign subsidiary
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
December 31,
2023
2022
$
574,737 $
144,128
39,655
25,384
19,447
34,675
6,729
13,863
858,618
(854,528 )
4,090
(3,824 )
(521 )
(265 )
(4,610 )
$
(520 ) $
545,508
142,198
38,445
28,254
22,110
24,134
13,424
13,935
828,008
(816,235 )
11,773
(11,335 )
(2,451 )
(392 )
(14,178 )
(2,405 )
Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Because of our lack
of U.S. earnings history and projected future losses, we have fully reserved our net U.S. deferred tax assets with a valuation allowance. The valuation
allowance increased by $38.3 million for the year ended December 31, 2023 and increased by $30.5 million for the year ended December 31, 2022.
Our net deferred tax liability position reflects the provision for the withholding taxes associated with the repatriation of accumulated earnings and
profits from India.
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2023, we had a net operating loss carryforward for federal income tax purposes of approximately $2.7 billion, of which $1.3
billion is subject to expiration beginning in 2024 and a total state net operating loss carryforward of approximately $0.7 billion, portions of which will
begin to expire in 2027. We have federal tax credits of approximately $126.0 million, which will begin to expire in 2024 and state research credits of
approximately $59.9 million which have no expiration date. Utilization of some of the federal and state net operating loss and credit carryforwards are
subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions.
Unrecognized tax benefits
We have the following activity relating to unrecognized tax benefits (in thousands):
Beginning balance
Tax positions related to current year:
Additions
Reductions
Tax positions related to prior years:
Additions
Reductions
Settlements
Lapses in statute of limitations
Ending balance
2023
Year Ended December 31,
2022
2021
$
85,845 $
80,604 $
78,665
848
—
40,079
—
—
(274 )
126,498 $
378
—
5,272
—
—
(409 )
85,845 $
2,371
—
58
(490 )
—
—
80,604
$
86
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If we are eventually able to recognize our uncertain tax positions, our effective tax rate may be reduced. We currently have a full valuation
allowance against our U.S. net deferred tax asset which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions
be favorably settled in the future. Adjustments to the substantial majority of our uncertain tax positions would result in an adjustment of our net operating
loss or tax credit carryforwards rather than resulting in a cash outlay.
We file income tax returns in the U.S., California, Alabama, certain other states and India. As a result of our net operating loss and research credit
carryforwards, substantially all of our domestic tax years remain open and subject to examination. We may be subject to examination in India from time to
time, but we do not believe that any liability resulting from such an examination would have a material effect on our financial position or results of
operations.
Our policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for income taxes in the consolidated
statements of operations. During the years ended December 31, 2023, 2022 and 2021, no significant interest or penalties were recognized relating to
unrecognized tax benefits. Although it is reasonably possible that certain unrecognized tax benefits could change in the future, we do not anticipate any
significant changes over the next twelve months.
Note 12 — Segment Reporting
We operate in one business segment which focuses on applying our technology platforms to develop novel drug candidates. Our business offerings
have similar economics and other characteristics, including the nature of products and manufacturing processes, types of customers, distribution methods
and regulatory environment. We are comprehensively managed as one business segment by our Chief Executive Officer.
Our revenue is derived primarily from customers in the pharmaceutical and biotechnology industries. Revenue from UCB Pharma, Baxalta /
Takeda, AstraZeneca and Pfizer represented 40%, 21%, 11% and 10% of our revenue, respectively, for the year ended December 31, 2023. Revenue from
UCB Pharma, Baxalta / Takeda, AstraZeneca and Pfizer represented 37%, 25%, 14% and 11% of our revenue, respectively, for the year ended December
31, 2022. Revenue from BMS, UCB Pharma, Baxalta / Takeda, and AstraZeneca represented 36%, 23%, 16% and 13% of our revenue for the year-ended
December 31, 2021.
Revenue by geographic area is based on the headquarters or shipping locations of our partners. The following table sets forth revenue by
geographic area (in thousands):
United States
Rest of World
Total revenue
2023
Year Ended December 31,
2022
11,481
78,641
90,122
$
$
9,841
82,214
92,055
$
$
$
$
2021
10,114
91,793
101,907
At December 31, 2023 and 2022, all of our property, plant and equipment was located in the United States.
Note 13 — Subsequent Events
On March 4, 2024, we entered into a Securities Purchase Agreement with TCG Crossover Fund II, L.P. (TCG) wherein TCG agreed to purchase
pre-funded warrants to purchase an aggregate 25,000,000 shares of Nektar’s common stock at a price of $1.20 per share for gross proceeds of $30.0
million. The closing of the purchase is expected to occur on or before March 6, 2024.
87
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange
Act of 1934 (Exchange Act) reports is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC,
and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15. Based upon, and as of the date of, this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making its assessment
of internal control over financial reporting, management used the criteria described in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 Framework).
Based on our evaluation under the framework described in Internal Control — Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of December 31, 2023.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in their report, which is included herein.
Changes in Internal Control Over Financial Reporting
We continuously seek to improve the efficiency and effectiveness of our internal controls. This results in refinements to processes throughout the
Company. There was no change in our internal control over financial reporting during the quarter ended December 31, 2023, which was identified in
connection with our management’s evaluation required by Exchange Act Rules 13a-15(f) and 15d-15(f) that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures
or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or
mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management
override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
88
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Item 9B. Other Information
(a) None.
(b) None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
89
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Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information relating to our executive officers required by this item is set forth in Part I — Item 1 of this report under the caption “Information
about our Executive Officers” and is incorporated herein by reference. The other information required by this Item is incorporated by reference from the
definitive proxy statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A (Proxy Statement) not later
than 120 days after the end of the fiscal year covered by this Form 10-K under the captions “Corporate Governance and Board of Directors,” “Proposal 1
— Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance.”
Information regarding our audit committee financial expert will be set forth in the Proxy Statement under the caption “Audit Committee,” which
information is incorporated herein by reference.
We have a Code of Business Conduct and Ethics applicable to all employees, including the principal executive officer, principal financial officer
and principal accounting officer or controller, or persons performing similar functions. The Code of Business Conduct and Ethics is posted on our website
at www.nektar.com. Amendments to, and waivers from, the Code of Business Conduct and Ethics that apply to any of these officers, or persons performing
similar functions, and that relate to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K will be disclosed at the
website address provided above and, to the extent required by applicable regulations, on a current report on Form 8-K.
As permitted by SEC Rule 10b5-1, certain of our executive officers, directors and other employees have or may set up a predefined, structured
stock trading program with their broker to sell our stock. The stock trading program allows a broker acting on behalf of the executive officer, director or
other employee to trade our stock during blackout periods or while such executive officer, director or other employee may be aware of material, nonpublic
information, if the trade is performed according to a pre-existing contract, instruction or plan that was established with the broker when such executive
officer, director or employee was not aware of any material, nonpublic information. Executive officers and directors can only sell our stock in accordance
with our securities trading policy and pursuant to a stock trading program set up under Rule 10b5-1 (wherein “exercise and hold” and stock purchases are
exempted, and sales outside such a program can proceed upon approval of the Nominating and Corporate Governance Committee of our Board of
Directors. Employees who are not executive officers may trade our stock outside of the stock trading programs set up under Rule 10b5-1 subject to our
securities trading policy.
Item 11. Executive Compensation
The information required by this Item is included in the Proxy Statement and incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is included in the Proxy Statement and incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this Item is included in the Proxy Statement and incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item is included in the Proxy Statement and incorporated herein by reference.
90
Table of Contents
Item 15. Exhibits and Financial Statement Schedules
(a)
(1)
The following documents are filed as part of this report:
Consolidated Financial Statements:
PART IV
The following financial statements are filed as part of this Annual Report on Form 10-K under Item 8 “Financial Statements and Supplementary
Data.”
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets at December 31, 2023 and 2022
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2023
Consolidated Statements of Comprehensive Loss for each of the three years in the period ended December 31, 2023
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2023
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2023
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules:
Page
54
57
58
59
60
61
62
All financial statement schedules have been omitted because they are not applicable, or the information required is presented in our consolidated
financial statements and notes thereto under Item 8 of this Annual Report on Form 10-K.
(3)
Exhibits.
Except as so indicated in Exhibit 32.1, the following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form
10-K.
Exhibit
Number
Description of Documents
3.1(2)
Certificate of Incorporation of Inhale Therapeutic Systems (Delaware), Inc.
3.2(3)
Certificate of Amendment of the Amended Certificate of Incorporation of Inhale Therapeutic Systems, Inc.
3.3(4)
Certificate of Ownership and Merger of Nektar Therapeutics.
3.4(5)
Certificate of Ownership and Merger of Nektar Therapeutics AL, Corporation with and into Nektar Therapeutics.
3.5(6)
Amended and Restated Bylaws of Nektar Therapeutics.
4.1
Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, and 3.5.
4.2(4)
Specimen Common Stock certificate.
4.3(7)
Indenture dated October 5, 2015 by and between Nektar Therapeutics and Wilmington Trust, National Association, and TC Lending, LLC
including the form of 7.75% Senior Secured Note due 2020.
4.4(28)
Description of Securities.
10.1(8)
Discretionary Incentive Compensation Policy++
10.2(8)
Amended and Restated Change of Control Severance Benefit Plan.++
10.3(9)
2012 Performance Incentive Plan.++
10.4(10)
Forms of Stock Option Agreement, Performance Stock Option Agreement, Restricted Stock Unit Agreement and Performance Restricted
Stock Unit Agreement under the 2012 Performance Incentive Plan.++
91
Table of Contents
Exhibit
Number
Description of Documents
10.5(11)
Nektar Therapeutics Amended and Restated 2017 Performance Incentive Plan, as amended.++
10.6(12)
Forms of Stock Option Agreement, Performance Stock Option Agreement, Non-Employee Director Stock Option Agreement, Restricted
Stock Unit Agreement, Performance Restricted Stock Unit Agreement, and Non-Employee Director Restricted Stock Unit Agreement
under the Amended and Restated 2017 Performance Incentive Plan.++
10.7(13)
Employee Stock Purchase Plan, as amended and restated.++
10.8(14)
Amended and Restated Compensation Plan for Non-Employee Directors.++
10.9(15)
401(k) Retirement Plan.++
10.10(16)
Form of Severance Letter for executive officers of the company.++
10.11(1)
Amended and Restated Letter Agreement, executed effective on December 1, 2008, with Howard W. Robin.++
10.12(1)
Amended and Restated Letter Agreement, executed effective on December 1, 2008, with John Nicholson.++
10.13(17)
Letter Agreement, executed effective on December 10, 2009, with Stephen K. Doberstein, Ph.D.++
10.14(28)
Transition, Separation and General Release Agreement, dated as of January 9, 2020, by and between Stephen K. Doberstein and Nektar
Therapeutics. ++
10.15(19)
Separation, Consulting and General Release Agreement effective as of October 15, 2019, by and between Nektar Therapeutics and John
Nicholson.++
10.16(28)
Employment Agreement effective as of December 4, 2019, by and between Nektar Therapeutics and John Northcott.++
10.17(16)
Amended and Restated Built-to-Suit Lease between Nektar Therapeutics and BMR-201 Industrial Road LLC, dated August 17, 2004, as
amended on January 11, 2005 and July 19, 2007.
10.18(18)
Lease Agreement dated August 4, 2017, as amended by the First Amendment to Lease dated as of August 29, 2017, by and between ARE-
San Francisco No. 19, LLC and Nektar Therapeutics.
10.19(20)
Settlement Agreement and General Release, dated June 30, 2006, by and between The Board of Trustees of the University of Alabama, The
University of Alabama in Huntsville, Nektar Therapeutics AL, Corporation (a wholly-owned subsidiary of Nektar Therapeutics), Nektar
Therapeutics and J. Milton Harris.
10.20(1)
Exclusive Research, Development, License and Manufacturing and Supply Agreement, by and among Nektar AL Corporation, Baxter
Healthcare SA, and Baxter Healthcare Corporation, dated September 26, 2005, as amended.+
10.21(1)
Exclusive License Agreement, dated December 31, 2008, between Nektar Therapeutics, a Delaware corporation, and Novartis Pharma AG,
a Swiss corporation.+
10.22(17)
Supply, Dedicated Suite and Manufacturing Guarantee Agreement, dated October 29, 2010, by and among Nektar Therapeutics, Amgen
Inc. and Amgen Manufacturing, Limited.+
10.23(21)
License Agreement by and between AstraZeneca AB and Nektar Therapeutics, dated September 20, 2009.+
10.24(22)
Collaboration and License Agreement dated as of May 30, 2016, by and between Daiichi Sankyo Europe GmbH and Nektar Therapeutics.
92
Table of Contents
Exhibit
Number
Description of Documents
10.25(18)
License Agreement effective as of August 23, 2017, by and between Eli Lilly and Company and Nektar Therapeutics.
10.26(7)
Purchase Agreement dated September 30, 2015 by and among Nektar Therapeutics and TC Lending, LLC and TAO Fund, LLC.
10.27(7)
Pledge and Security Agreement dated October 5, 2015 by and among Nektar Therapeutics and TC Lending, LLC.
10.28(23)
Purchase and Sale Agreement, dated as of February 24, 2012, between Nektar Therapeutics and RPI Finance Trust.+
10.29(24)
Amendment No. 1 to License Agreement dated effective as of August 8, 2013, by and between Nektar Therapeutics and AstraZeneca AB.+
10.30(25)
Investor Agreement, dated as of February 13, 2018, by and between Bristol-Myers Squibb and Company and Nektar Therapeutics.+
10.31(25)
Strategic Collaboration Agreement, dated as of February 13, 2018, by and between Bristol-Myers Squibb and Company and Nektar
Therapeutics.+
10.32(29)
Co-Development Agreement, dated as of February 12, 2021, by and between SFJ Pharmaceuticals XII, L.P. and Nektar Therapeutics.+
10.33(28)
Amendment No. 1 to Strategic Collaboration Agreement dated as of January 9, 2020, by and between Bristol-Myers Squibb and Company
and Nektar Therapeutics.+
10.34(26)
Share Purchase Agreement, dated as of February 13, 2018, by and between Bristol-Myers Squibb and Company and Nektar Therapeutics.
10.35(27)
Office Lease, effective as of May 31, 2018, by and between Kilroy Realty Finance Partnership, L.P., and Nektar Therapeutics.
10.36(29)
Purchase and Sale Agreement, dated December 16, 2020, by and between entities managed by Healthcare Royalty Management, LLC and
Nektar Therapeutics.+
10.37(30)
Amendment No. 2 to Strategic Collaboration Agreement dated as of January 12, 2022, by and between Bristol-Myers Squibb and Company
and Nektar Therapeutics.+
10.38(31)
Employment Transition, Separation and Consultation Agreement, dated as of June 29, 2022, by and between Nektar Therapeutics and John
Northcott.++
10.39(32)
Consulting Agreement between Nektar Therapeutics and FLG Partners, LLC dated April, 2023++
10.40(33)
Employment Separation and Release Agreement effective as of June 19, 2023 by and between Nektar Therapeutics and Jillian B.
Thomsen.++
10.41(34)
Letter Agreement dated as of September 6, 2023 by and between Bristol-Myers Squibb and Company and Nektar Therapeutics.+
21.1(35)
Subsidiaries of Nektar Therapeutics.
23.1(35)
Consent of Independent Registered Public Accounting Firm.
24
Power of Attorney (reference is made to the signature page).
31.1(35)
Certification of Nektar Therapeutics’ principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a).
93
Table of Contents
Exhibit
Number
Description of Documents
31.2(35)
Certification of Nektar Therapeutics’ principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a).
32.1*
Section 1350 Certifications.
97
Nektar Therapeutics Compensation Recovery Policy, dated June 8, 2023
101.SCH** Inline XBRL Taxonomy Extension Schema Document.
101.CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB** Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**
101.DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Label Linkbase Document.
104**
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).
+ Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit in accordance with the rules of the Securities and
Exchange Commission.
++ Management contract or compensatory plan or arrangement.
* Exhibit 32.1 is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or other
document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act, except as otherwise stated in such filing.
** Inline XBRL information is filed herewith.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Annual Report on Form 10-K for the year ended December 31, 2008.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Current Report on Form 8-K, filed on January 23, 2003.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Annual Report on Form 10-K for the year ended December 31, 2009.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Current Report on Form 8-K, filed on December 16, 2022.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Current Report on Form 8-K, filed on October 6, 2015.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Annual Report on Form 10-K for the year ended December 31, 2011.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Current Report on Form 8-K, filed on June 17, 2015.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Current Report on Form 8-K filed on December 17, 2015.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Annual Report on Form 10-K for the year ended December 31, 2018.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the Quarter ended March 31, 2020.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
94
Table of Contents
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
(34)
(35)
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Annual Report on Form 10-K for the year ended December 31, 2010.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Current Report on Form 8-K filed on February 14, 2018.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics' Annual Report on Form 10-K for the year ended December 31, 2019.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics' Annual Report on Form 10-K for the year ended December 31, 2020.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics' Annual Report on Form 10-K for the year ended December 31, 2021.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.
Incorporated by reference to the indicated exhibit in Nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
Filed herewith.
Item 16. Form 10-K Summary
Not applicable.
95
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
SIGNATURES
on its behalf by the undersigned, thereunto duly authorized.
Date: March 5, 2024
NEKTAR THERAPEUTICS
By: /s/ SANDRA GARDINER
Sandra Gardiner
Interim Chief Financial Officer (Principal Financial and Accounting
Officer)
POWER OF ATTORNEY
KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Howard W. Robin and
Sandra Gardiner and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the
same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratify and confirming all that said attorneys-in-
fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the
capacities and on the dates indicated:
Signature
Title
Date
/s/ HOWARD W. ROBIN
Howard W. Robin
Chief Executive Officer, President and Director
(Principal Executive Officer)
/s/ SANDRA GARDINER
Sandra Gardiner
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
March 5, 2024
March 5, 2024
/s/ ROBERT B. CHESS
Robert B. Chess
/s/ JEFFREY R. AJER
Jeffrey R. Ajer
/s/ DIANA M. BRAINARD
Diana M. Brainard
/s/ MYRIAM J. CURET
Myriam J. Curet
/s/ R. SCOTT GREER
R. Scott Greer
/s/ ROY A. WHITFIELD
Roy A. Whitfield
Director, Chairman of the Board of Directors
March 5, 2024
March 5, 2024
March 5, 2024
March 5, 2024
March 5, 2024
March 5, 2024
Director
Director
Director
Director
Director
96
None.
Subsidiaries of Nektar Therapeutics
Exhibit 21.1
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(1) Registration Statement (Form S-8 No. 333-145259) pertaining to the 401(k) Retirement Plan of Nektar Therapeutics,
(2) Registration Statement (Form S-8 No. 333-170371) pertaining to the Employee Stock Purchase Plan of Nektar Therapeutics,
(3) Registration Statement (Form S-8 No. 333-183193) pertaining to the 2012 Performance Incentive Plan of Nektar Therapeutics,
(4) Registration Statement (Form S-8 No. 333-197781) pertaining to the Employee Stock Purchase Plan of Nektar Therapeutics,
(5) Registration Statement (Form S-8 No. 333-206136) pertaining to the 2012 Performance Incentive Plan of Nektar Therapeutics,
(6) Registration Statement (Form S-8 No. 333-218777) pertaining to the 2017 Performance Incentive Plan of Nektar Therapeutics,
(7) Registration Statement (Form S-8 No. 333-226004) pertaining to the Amended and Restated 2017 Performance Incentive Plan of Nektar Therapeutics,
(8) Registration Statement (Form S-8 No. 333-242327) pertaining to the Amended and Restated 2017 Performance Incentive Plan and Amended and
Restated Employee Stock Purchase Plan of Nektar Therapeutics,
(9) Registration Statement (Form S-8 No. 333-258900) pertaining to the Amended and Restated 2017 Performance Incentive Plan of Nektar Therapeutics,
(10) Registration Statement (Form S-8 No. 333-266580) pertaining to the Amended and Restated 2017 Performance Incentive Plan of Nektar
Therapeutics, and
(11) Registration Statement (Form S-8 No. 333-273962) pertaining to the Amended and Restated 2017 Performance Incentive Plan of Nektar
Therapeutics;
of our reports dated March 5, 2024, with respect to the consolidated financial statements of Nektar Therapeutics and the effectiveness of internal control over financial
reporting of Nektar Therapeutics included in this Annual Report (Form 10-K) of Nektar Therapeutics for the year ended December 31, 2023.
/s/ Ernst & Young LLP
San Mateo, California
March 5, 2024
Exhibit 31.1
I, Howard W. Robin, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Nektar Therapeutics for the year ended December 31, 2023;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 5, 2024
/s/ HOWARD W. ROBIN
Howard W. Robin
Chief Executive Officer, President and Director
Exhibit 31.2
I, Sandra Gardiner, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Nektar Therapeutics for the year ended December 31, 2023;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 5, 2024
/s/ Sandra Gardiner
Sandra Gardiner
Interim Chief Financial Officer
Exhibit 32.1
SECTION 1350 CERTIFICATIONS*
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Howard W. Robin, Chief Executive Officer, President and Director of Nektar Therapeutics (the
“Company”), and Sandra Gardiner, Interim Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge:
1.
2.
The Company’s Annual Report on Form 10-K, for the year ended December 31, 2023, to which this Certification is attached as Exhibit 32.1 (the
“Annual Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the
Company for the period covered by the Annual Report.
Dated: March 5, 2024
/s/ HOWARD W. ROBIN
Howard W. Robin
Chief Executive Officer, President and Director
/s/ Sandra Gardiner
Sandra Gardiner
Interim Chief Financial Officer
*
This certification accompanies the Annual Report on Form 10-K, to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated
by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the
date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
Exhibit 97
NEKTAR THERAPEUTICS
COMPENSATION RECOVERY POLICY
Adopted as of June 8, 2023
Nektar Therapeutics, a Delaware corporation (the “Company”), has adopted a Compensation Recovery Policy (this “Policy”) as
described below.
1. Overview
The Policy sets forth the circumstances and procedures under which the Company shall recover Erroneously Awarded
Compensation from Covered Persons (as defined below) in accordance with rules issued by the United States Securities and
Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the
Nasdaq Stock Market. Please refer to Section 3 below for definitions of capitalized terms used and not otherwise defined
herein.
2. Compensation Recovery Requirement
In the event the Company is required to prepare a Material Financial Restatement, the Company shall reasonably promptly
recover all Erroneously Awarded Compensation with respect to such Material Financial Restatement, and each Covered Person
shall be required to take all actions necessary to enable such recovery.
3. Definitions
a.
b.
c.
d.
“Applicable Recovery Period” means with respect to a Material Financial Restatement, the three completed fiscal
years immediately preceding the Restatement Date for such Material Financial Restatement. In addition, in the event
the Company has changed its fiscal year: (i) any transition period of less than nine months occurring within or
immediately following such three completed fiscal years shall also be part of such Applicable Recovery Period and
(ii) any transition period of nine to 12 months will be deemed to be a completed fiscal year.
“Applicable Rules” means any rules or regulations adopted by the Exchange pursuant to Rule 10D-1 under the
Exchange Act and any applicable rules or regulations adopted by the SEC pursuant to Section 10D of the Exchange
Act.
“Board” means the Board of Directors of the Company.
“Committee” means the Organization and Compensation Committee of the Board or, in the absence of such
committee, a majority of independent directors serving on the Board.
e. A “Covered Person means any Executive Officer. A person’s status as a Covered Person with respect to Erroneously
Awarded Compensation shall be determined as of the time of receipt of such Erroneously Awarded Compensation
regardless of their
current role or status with the Company (e.g., if a person began service as an Executive Officer after the beginning
of an Applicable Recovery Period, that person would not be considered a Covered Person with respect to
Erroneously Awarded Compensation received before the person began service as an Executive Officer, but would be
considered a Covered Person with respect to Erroneously Awarded Compensation received after the person began
service as an Executive Officer where such person served as an Executive Officer at any time during the
performance period for such Erroneously Awarded Compensation).
f.
g.
“Effective Date” means June 8, 2023.
“Erroneously Awarded Compensation” means, with respect to a Material Financial Restatement, the amount of any
Incentive-Based Compensation received by a Covered Person on or after the Effective Date during the Applicable
Recovery Period that exceeds the amount that otherwise would have been received by the Covered Person had such
compensation been determined based on the restated amounts in the Material Financial Restatement, computed
without regard to any taxes paid. Calculation of Erroneously Awarded Compensation with respect to Incentive-
Based Compensation based on stock price or total shareholder return, where the amount of Erroneously Awarded
Compensation is not subject to mathematical recalculation directly from the information in a Material Financial
Restatement, shall be based on a reasonable estimate of the effect of the Material Financial Restatement on the stock
price or total shareholder return upon which the Incentive-Based Compensation was received, and the Company
shall maintain documentation of the determination of such reasonable estimate and provide such documentation to
the Exchange in accordance with the Applicable Rules. Incentive-Based Compensation received by a Covered
Person prior to the Effective Date shall be subject to the Company’s Policy Regarding the Recoupment of Certain
Performance-Based Compensation Payments, effective as of February 8, 2012.
h.
“Exchange” means the Nasdaq Stock Market LLC.
i. An “Executive Officer” means any person who served the Company in any of the following roles, received
Incentive-Based Compensation after beginning service in any such role (regardless of whether such Incentive-Based
Compensation was received during or after such person’s service in such role) and served in such role at any time
during the performance period for such Incentive-Based Compensation: the president, the principal financial officer,
the principal accounting officer (or if there is no such accounting officer the controller), any vice president in charge
of a principal business unit, division or function (such as sales, administration or finance), any other officer who
performs a policy making function, or any other person who performs similar policy making functions for the
Company. Executive officers of parents or subsidiaries of the Company may be deemed executive officers of the
Company if they perform such policy making functions for the Company.
2
j.
k.
“Financial Reporting Measures” mean measures that are determined and presented in accordance with the
accounting principles used in preparing the Company’s financial statements, any measures that are derived wholly or
in part from such measures (including, for example, a non-GAAP financial measure), and stock price and total
shareholder return.
“Incentive-Based Compensation” means any compensation provided, directly or indirectly, by the Company or any
of its subsidiaries that is granted, earned, or vested based, in whole or in part, upon the attainment of a Financial
Reporting Measure. Incentive-Based Compensation is deemed received, earned or vested when the Financial
Reporting Measure is attained, not when the actual payment, grant or vesting occurs.
l. A “Material Financial Restatement” means an accounting restatement of previously issued financial statements of
the Company due to the material noncompliance of the Company with any financial reporting requirement under the
securities laws, including any required accounting restatement to correct an error in previously-issued financial
statements that is material to the previously-issued financial statements or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current period.
m. “Restatement Date” means, with respect to a Material Financial Restatement, the earlier to occur of: (i) the date the
Board or the Audit Committee of the Board concludes, or reasonably should have concluded, that the Company is
required to prepare the Material Financial Restatement or (ii) the date a court, regulator or other legally authorized
body directs the Company to prepare the Material Financial Restatement.
4. Exception to Compensation Recovery Requirement
The Company may elect not to recover Erroneously Awarded Compensation pursuant to this Policy if the Committee determines
that recovery would be impracticable, and one or more of the following conditions, together with any further requirements set
forth in the Applicable Rules, are met: (i) the direct expense paid to a third party to assist in enforcing this Policy would exceed
the amount to be recovered, and the Company has made a reasonable attempt to recover such Erroneously Awarded
Compensation; or (ii) recovery would likely cause an otherwise tax-qualified retirement plan to fail to be so qualified under
applicable regulations.
5. Tax Considerations
To the extent that, pursuant to this Policy, the Company is entitled to recover any Erroneously Awarded Compensation that is
received by a Covered Person, the gross amount received (i.e., the amount the Covered Person received, or was entitled to
receive, before any deductions for tax withholding or other payments) shall be returned by the Covered Person.
6. Method of Compensation Recovery
3
The Committee shall determine, in its sole discretion, the method for recovering Erroneously Awarded Compensation hereunder,
which may include, without limitation, any one or more of the following:
a.
b.
c.
d.
e.
f.
requiring reimbursement of cash Incentive-Based Compensation previously paid;
seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer or other disposition of
any equity-based awards;
cancelling or rescinding some or all outstanding vested or unvested equity-based awards;
adjusting or withholding from unpaid compensation or other set-off;
cancelling or setting-off against planned future grants of equity-based awards; and/or
any other method permitted by applicable law or contract.
Notwithstanding the foregoing, a Covered Person will be deemed to have satisfied such person’s obligation to return Erroneously
Awarded Compensation to the Company if such Erroneously Awarded Compensation is returned in the exact same form in which
it was received; provided that equity withheld to satisfy tax obligations will be deemed to have been received in cash in an
amount equal to the tax withholding payment made.
7. Policy Interpretation
This Policy shall be interpreted in a manner that is consistent with the Applicable Rules and any other applicable law and shall
otherwise be interpreted (including in the determination of amounts recoverable) in the business judgment of the Committee. The
Committee shall take into consideration any applicable interpretations and guidance of the SEC in interpreting this Policy,
including, for example, in determining whether a financial restatement qualifies as a Material Financial Restatement hereunder.
To the extent the Applicable Rules require recovery of Incentive-Based Compensation in additional circumstances besides those
specified above, nothing in this Policy shall be deemed to limit or restrict the right or obligation of the Company to recover
Incentive-Based Compensation to the fullest extent required by the Applicable Rules. This Policy shall be deemed to be
automatically amended, as of the date the Applicable Rules become effective with respect to the Company, to the extent required
for this Policy to comply with the Applicable Rules.
8. Policy Administration
This Policy shall be administered by the Committee. The Committee shall have such powers and authorities related to the
administration of this Policy as are consistent with the governing documents of the Company and applicable law. The Committee
shall have full power and authority to take, or direct the taking of, all actions and to make all determinations required or provided
for under this Policy and shall have full power and authority to take, or direct the taking
4
of, all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of this
Policy that the Committee deems to be necessary or appropriate to the administration of this Policy. The interpretation and
construction by the Committee of any provision of this Policy and all determinations made by the Committee under this policy
shall be final, binding and conclusive.
9. Compensation Recovery Repayments not Subject to Indemnification
Notwithstanding anything to the contrary set forth in any agreement with, or the organizational documents of, the Company or
any of its subsidiaries, Covered Persons are not entitled to indemnification for Erroneously Awarded Compensation recovered
under this Policy and, to the extent any such agreement or organizational document purports to provide otherwise, Covered
Persons hereby irrevocably agree to forego such indemnification.
5