Waiting to inhale
sanfrancisco.bizjournals.com
Howard Robin's Nektar regroups, but where will inhaled insulin fit?
San Francisco Business Times - by Ron Leuty November 30, 2007
These are the days that undoubtedly try Howard Robin's soul, if not his strategy for Nektar Therapeutics Inc.
In the 10 months since joining Nektar as president and CEO, Robin has tried to shift the focus of the San Carlos company. He has hailed the potential of Exubera, the world's first inhaled insulin device that Nektar launched with Pfizer Inc. in charge of marketing, but has also stressed Nektar's pocket full of other partnered products and its own nascent drug pipeline.
His goal was clear: Build Nektar as a drug-development company on the foundation of Pfizer's Exubera sales.
The strategy now is more crucial than Robin may have ever imagined.
When Pfizer suddenly dumped Exubera in mid-October -- retreating after its inability to market a product with the potential to free many of the world's 171 million diabetics from needles -- Robin was tossed back into a reality forcing Nektar to spend more time, energy and money on Exubera.
Yet bringing Exubera back under Nektar's control could help the company nab Johnson & Johnson or another company with experience marketing diabetes products as a partner. That could assist Nektar in developing a next-generation inhaled insulin product that sheds Exubera's drawbacks.
Whatever path Nektar chooses for Exubera, it is clear that Robin now must generate excitement around the device -- internally and on Wall Street -- all while the company pursues a hefty pipeline of its own inhaled and reconfigured drugs.
That Exubera cheerleader role was clear in an early November conference call with analysts as Robin shared Exubera success stories from the likes of "Sue from Indiana" and "Ellen from Delaware."
Perhaps presciently for Nektar, Robin quoted a phrase from one of the letters: "Finally freedom."
Sirna's savior
When Robin joined Nektar, his mission looked similar to when he took the reins of Sirna Therapeutics Inc. in 2001. He quickly refocused that clinical-stage biotech on RNA interference technology, known as RNAi, that turns off specific genes that underlie certain diseases.
Robin also slashed costs, largely by dismissing half the workforce, won more than $50 million in venture capital financing, moved the headquarters and R&D operations from Boulder, Colo., to San Francisco and signed a development agreement with GlaxoSmithKline.
At the end of 2002, Sirna had a market capitalization under $5 million. Robin sold the company in December 2006 to Merck & Co. for a bidding war-inflated $13 per share, or $1.1 billion.
Robin walked away from the Sirna-Merck deal with some $17.7 million, according to a Securities and Exchange Commission filing, on top of a base salary, bonus and other compensation that in 2005 totaled $563,886.
Weeks after the Sirna-Merck deal closed, Robin landed the top job at Nektar.
"Upon selling Sirna, he didn't go to the beach," said Bryan Roberts, managing general partner at the Menlo Park venture capital firm Venrock, a major Sirna shareholder. "He had a bunch of money. He didn't have to do much. But he wanted to build on (Sirna) and do something more."
With Nektar, there indeed was more. Pfizer had won Food and Drug Administration approval for Nektar-developed Exubera, and some Pfizer executives promoted Exubera as a $2 billion-a-year blockbuster. Robin earlier this year even called Exubera "a good cash cow."
In fact, pre-Robin Nektar management had committed the company to profitability upon Exubera reaching $1 billion in sales. It seemed as though Robin had landed in a situation where he, again, could thrive. But Nektar had its share of problems.
Refocusing Nektar
Robin, who was not available for an interview for this story, didn't shy away from those issues.
"He's a very driven guy, works like a dog," Roberts said. "He's smart, takes good counsel and he hires good people."
The Pfizer relationship was worrisome. The world's largest drugmaker had botched early marketing of Exubera but Robin's company had little sway on Pfizer.
Nektar's diversification was essential.
With his accounting background and the luxury of at least some Exubera revenue coming from Pfizer, Robin insisted that a new focus on efficiency had to happen this year.
"Let me be very clear that we intend to build our pipeline while managing our cash and maintaining financial discipline," he said in a February conference call with analysts. "In other words, we're going to scrutinize how we use our cash and live within our means."
Robin introduced $65 million in cuts, which included shedding about 300 employees. He also split the company into two business units: PEGylation technology, which among other things extends the time a drug spends in the bloodstream, and pulmonary, which develops inhaled drugs.
If only Exubera would produce the revenue Pfizer promised.
Pfizer dysfunction
Pfizer didn't start marketing Exubera until July 2006, six months after gaining FDA approval. Sales lagged in line with insurers' reimbursements, doctors' lack of understanding and patients' confusion with just how to dial up the right amount of insulin from a device that was cumbersome once folded out.
As 2007 wore on, Nektar's financial forecasts turned more conservative, especially when it came to Exubera.
Yet Pfizer was still responsible for nearly 70 percent of Nektar's revenue through the first nine months of this year. Robin met with top-level Pfizer executives, including Jeffrey Kindler, who won Pfizer's corner office in December 2006, only a month before Robin joined Nektar.
Pfizer moved Exubera to its cardiovascular sales force, started a new effort to explain Exubera's benefits to doctors and rolled out a new direct-to-consumers advertising campaign in the summer -- 1 1/2 years after Exubera was approved.
Pfizer's Exubera sales through the first nine months of this year reached a mere $12 million. Only about 4,000 patients used the device, which reportedly cost three to four times that of traditional insulin treatments for type 1 diabetics.
Then, on Oct. 18, Pfizer abruptly dumped Exubera, giving Nektar no advance notice. Robin reportedly found out when an East Coast journalist called his home.
No guarantees
By that time, Nektar was heading toward the end of this year with more than $300 million in cash, cash equivalents and short-term investments, an operating cash burn between zero and $4 million, and a maturing pipeline of products.
What's more, Robin told analysts in mid-November that Nektar -- now with 650 employees -- is aiming for one product approval per year over the next five years.
"We look at Nektar and all we've been thinking about is Exubera," Robin told analysts in August. "And now I want to show you a company that has taken products that are highly likely to work -- I mean, there's no guarantees here -- but highly likely to work because we're taking existing molecules and improving them."
The company cut a deal in August with Bayer HealthCare to develop a specially formulated inhaled version of the drug amikacin to treat patients with hospital-acquired pneumonias. That is set for Phase III trials next year, and Nektar received an upfront payment of $50 million.
Perhaps more importantly, Nektar is working on proprietary products: a PEGylated oral painkiller without the side effect of constipation, a PEGylated treatment for refractory tumors and an inhaled powder to fight mold-induced aspergillosis.
Then there is the second-generation inhaled insulin device -- smaller and easier for diabetics to use -- on which Nektar has spent $23.7 million this year on R&D and $17.4 million last year.
In all, Robin told analysts, the various Nektar products could bring in about $400 million annually by 2014.
"What (Robin's) trying to do is make the case that there's all these other products in development for different diseases," said Andrew Forman, an analyst who covers Nektar for WR Hambrecht and Co. "But none of the products is approved, and they won't be approved soon."
Nektar's three proprietary products are in Phase I.
Some large stockholders apparently aren't waiting. Wells Fargo & Co., which controlled nearly 6 percent of Nektar's stock earlier this year, sold off all of its holdings in the company as of Nov. 13.
If there's a silver lining, Forman said, Exubera is back in Nektar's lap with a $135 million cushion from Pfizer. Nektar still could realize revenue with an experienced diabetes drug company heading up marketing, though Pfizer must approve of the partner.
Nektar has experience that could prove valuable against potential inhaled insulin competitors, he added. Among those are Novo Nordisk A/S, which is Phase III testing with AERx, a product developed with Hayward-based Aradigm Corp.
But even if Exubera relaunches under the flag of a new partner, it will take time to teach a sales force and win over wary doctors and patients.
Yet Venrock's Roberts, who saw Robin relaunch Sirna, woo venture capitalists, then sell the company for a handsome price, is among those who believe Robin can right Exubera while maintaining his long-term strategy for the company.
"The cards were dealt for Exubera long before Howard got there," Roberts said. "I feel confident he's got the tools to work with -- with what Nektar has -- in reorienting the company." |
