Merrill is less cynical than you guys:
Headcount reduction, cost controls, and lower R&D spend
NKTR announced details of its previously disclosed plan to reduce operating
costs, including total ongoing expense reductions of approximately $65mn. The
company announced its intention to reduce its workforce from 1000 employees to
650, resulting in annual SG&A savings of $21mn. NKTR also expects to reduce its
non-COGS expenses (included in R&D line) by $23mn, R&D spending by $16mn,
and capital spending by $5mn. During the remainder of 2007, NKTR expects to
realize about $27mn of these cost reductions, net of the $10-$12mn restructuring
charges related to the layoffs. We view these cuts as being substantial, relative to
2006 SG&A of $78mn (including one-time items of ~$19mn) and R&D of $151mn.
Reducing expenses and PEG product revenues
We have adjusted our model incorporating the SG&A and R&D expense
reductions. We have also adjusted our estimates for Pegylated product revenues,
reducing revenues from Roche’s CERA and UCB’s Cimzia (in line with ML
estimates). Our revised EPS estimates for 2007-2009 are ($0.79), ($0.63) and
($0.29), up from ($1.15), ($0.77), and ($0.51) previously.
Maintain Buy; Modest downside at current levels
Despite the reductions, key proprietary programs remain intact. Inhaled amikacin
(NKTR-061) is expected to complete a phase IIb study this year, and PEGirinotecan
(NKTR-102) and oral PEG-naloxol (NKTR-118) are both expected to
initiate phase II studies. There is potential for upside pending a) meaningful
increases in Exubera Rx in the coming months; b) partnering deals for one PEG
program and one inhaled program (likely amikacin and/or amphotericin-B); and c)
developmental milestones for PEG-irinotecan and oral PEG-naloxol. |
