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12:00 AM
Oct 27, 2008
 |  BioCentury  |  Finance

Ebb & Flow

Drug delivery and infectious disease company Nektar (NASDAQ:NKTR) expects to end the year with about $440 million in cash, courtesy of the sale of part of its pulmonary delivery business to Novartis (NYSE:NVS; SWX:NOVN) for $115 million last week.

All that cash isn't quite free and clear: at June 30 the company had $343.6 million in debt. The bulk is $315 million of 3.25% convertible subordinate notes that mature in 2012, with the remainder being capital lease obligations and other liabilities.

On a conference call, President and CEO Howard Robin said the company is "carefully considering" buying up the convertible debt.

Although an analyst on the call noted the debt is trading at about $0.50 on the dollar, company spokesperson Stephan Herrera declined to comment further. "We don't comment on the value of the bonds," he told BioCentury. "We're well aware that they are trading at a discount."

The company expects the Novartis deal to shrink its annual P&L expense by about $45 million and reduce its cash burn by about $40 million. In 1H08, Nektar had an operating loss of $75.2 million and product sales and royalties of $19.4 million.

PEGging a strategy

Not all the pulmonary assets are going to the pharma company. Nektar will retain ownership of NKTR-061 (Amikacin Inhale) and ciprofloxacin inhaled powder (CIP), both of which are partnered with Bayer (Xetra:BAY). NKTR-061 is slated to enter Phase III trials in hospital-acquired, Gram-negative pneumonia by year end, while CIP is in Phase II for cystic fibrosis-associated lung infection.

Nektar also will retain IP related to inhaled insulin. And the biotech will keep NKTR-063 inhaled vancomycin, which is scheduled to enter Phase II testing early next year in hospital-acquired, Gram-positive pneumonia.

Robin said Nektar is looking to partner NKTR-063 and anticipates it will do one to two partnership deals a year based on its polymer conjugate chemistry platform.

Going forward, Nektar will focus on developing novel therapeutics via its PEGylation and conjugate chemistry platforms. Robin said he does not expect to alter the budgets for these programs based on the influx of cash.

Robin also asserted that the days of 2% or 3% royalty deals are over and that Nektar will not renew those deals. Rather, he anticipates royalty rates in the range of 10-14%. Indeed, Robin noted the NKTR-061 deal with Bayer is at a 30% royalty rate in the U.S(see BioCentury, Aug. 13, 2007).

"We would rather not do a deal than do a deal that harkens back to the old days of Nektar deal making," Herrera said. He noted that a December 2007 deal to develop pegylated therapeutics to treat hemophilia with Baxter (NYSE:BAX) has a royalty rate above 10% (see BioCentury, Dec. 24, 2007).

Novartis gets Nektar's dry powder and liquid pulmonary delivery technologies and manufacturing assets, including capital equipment and facility lease obligations.

The pharma will have full manufacturing and royalty rights to Tobramycin inhalation powder, which it had previously partnered with Nektar. The formulation is in Phase III testing to treat lung infections in CF patients. About 140 Nektar employees will transfer to Novartis as part of the deal.

JPMorgan advised Nektar on the deal, which the companies expect to close by year end.

Nektar closed the week up $1.34 (42%) to $4.53.

Maxymizing cash

Given the financing climate, Maxygen (NASDAQ:MAXY) last week decided it makes no sense to launch a trial that would cost just about half the $200 million in cash it expects to have in the bank at year end.

The company, which had $122 million in cash at June 30, put its lead program on hold until it can secure a partnership. Maxygen also has retained Lazard to explore strategic options, including an acquisition or the sale of corporate assets.

Maxygen already has disposed of one asset. In July, the company sold its hemophilia program to Bayer (Xetra:BAY) for $90 million. The deal included its MAXY-VII recombinant Factor VIIa protein that is expected to enter Phase I(see BioCentury, July 7).

The stock is trading below cash, closing the week down $0.08 to $3.59, which valued the company at $133 million.

Data are expected by year end for lead candidate MAXY-G34, a pegylated variant of human G-CSF in a Phase IIa trial to treat chemotherapy-induced neutropenia in breast cancer.

The company originally expected to begin Phase IIb testing in 2H09....

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