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

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