Nektar Therapeutics
Q2 2017 Earnings Call Transcript

Published: 9 Aug 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Q2 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ms. Jennifer Ruddock, Senior Vice President, Investor Relations. You may begin.

[Jennifer Ruddock:]

Thank you, Crystal. Good afternoon, and thank you to everyone for joining us today. With us are Howard Robin, our President and CEO; Gil Labrucherie, our Chief Financial Officer; Dr. Ivan Gergel, our Chief Medical Officer; Dr. Jonathan Zalevsky, our Senior Vice President of Biology; and Dr. Mary Tagliaferri, our Senior Vice President of Clinical Development. On the call today, we expect to make forward-looking statements regarding our business, including potential regulatory approval decisions and commercial launch timing, the timing of future clinical trials and clinical trial results, clinical development plans, the economic potential of our collaboration partnerships, the therapeutic and market potential of certain drugs and drug candidates, as well as those of our partners, our financial guidance for 2017, and certain other statements regarding the future of our business. Because these forward-looking statements relate to the future, they are subject to inherent uncertainties and risks that are difficult to predict and many of which are outside of our control. Important risks and uncertainties are set forth in our most recent Form 10-Q, which is available at sec.gov. We undertake no obligation to update any of these forward-looking statements whether as a result of new information, future developments or otherwise. A webcast of this call will be available on the IR page at Nektar's website at nektar.com. And with that, I will now turn the call over to Howard. Howard?

[Howard Robin:]

Thank you, Jennifer, and thank you to everyone for joining us today for our second quarter conference call. On today's call, we will discuss many upcoming milestones for Nektar's pipeline throughout the end of the year including comprehensive data presentations for NKTR-181 at PAINWEEK in early September and for NKTR-214 at $WIFI. We will also update our financial guidance for the remainder of 2017, which incorporates the recent Lilly collaboration for NKTR-358. Nektar is having a highly successful 2017 with a number of notable recent accomplishments. First, we announced positive data from our human abuse potential trial for NKTR-181 which builds on the overwhelmingly positive Phase 3 efficacy and safety data for NKTR-181 that we announced in the first quarter. NKTR-181 is an important potential medicine that is capturing a lot of attention because of its promise to both address opioid abuse epidemic and advance the treatment of pain. I’ll talk more about our excitement for NKTR-181 in our next steps in a moment. Second, we recently entered into a collaboration with Lilly for Nektar 358, our first-in-class Treg stimulator, which is in development for the treatment of immune and inflammatory disorders. And I will discuss more about the importance of this new partnership in a moment. Third, we are very excited about our emerging data from the PIVOT study for NKTR-214 in combination with nivolumab. And I’ll update you on our progress with that trial. I’ll start with our new collaboration for NKTR-358 with Lilly. Lilly is a strong leader in immunology and this collaboration enables the broad and parallel development of NKTR-358 in multiple autoimmune conditions, so we can ensure that it has full potential as a first-in-class resolution therapeutic. The collaboration allows Nektar to retain a very significant ownership interest in NKTR-358 with substantial royalties for a program with multi-billion dollar commercial potential and an option to co-promote. The Phase 1 program for NKTR-358 is underway and Jonathan will talk more about the development program later. NKTR and Lilly share a broad development vision for NKTR358, which includes evaluating a minimum of four different autoimmune conditions in the clinic. Lilly is paying Nektar an initial upfront payment of $150 million and in addition, we will receive up to $250 million in development and regulatory milestones through various phases of development success and regulatory approval. For Phase 2 and Phase 3, Lilly will cover 75% of development costs and our royalty rates will start in the mid-teens and reach the low-20s when NKTR-358 achieves $500 million in annual global sales. So in essence, Nektar is funding a quarter of the developments in retaining a one-third ownership of the drug. Lilly is responsible for all costs of global commercialization. Nektar also has the option to co-promote in the United States. We are very proud and excited about the scale and breadth of this significant partnership with Lilly. Lilly clearly recognizes that NKTR-358 is a potential breakthrough in treating autoimmune disease and NKTR-358 highlights both the innovative nature of our research and our demonstrated ability to discover important new medicines. Moving on to NKTR-214, I am extremely pleased to announce that Nektar and Bristol recently began enrolling patients into the expansion cohorts in the Phase 2 stage of the PIVOT trial across multiple tumor indications. I’ll let Mary talk more about PIVOT in a moment, as the T-cell growth factor NKTR-214 provides an important new mechanism in immune oncology. We are very excited about the emerging data from the PIVOT trial and we plan to share these data with you at the upcoming SITC Meeting in November. As you know, our objective is to position NKTR-214 as a keystone therapeutic in IO. It is very important to note that NKTR-214 can be combined with many other agents having different mechanisms and in different cancer settings with synergistic efficacy and non-overlapping toxicities to improve patient outcomes. Jonathan will discuss the ongoing preclinical work on this front including the recently announced collaboration with Takeda. As you know, in addition to NKTR-214, Nektar is developing a broad portfolio in immune oncology. Our portfolio also includes NKTR-262, a TLR agonist and NKTR-255, an IL 15 candidate, which can stimulate both NK cells and memory T-cells. The preclinical data for the NKTR-214, 262 combo are particularly compelling and we plan to file the IND for the combination trial of NKTR-262 and NKTR-214 this year. As a novel small molecule TLR agonist, NKTR-262 was designed specifically to be administered with NKTR-214 and most importantly, would give Nektar our first wholly-owned combination regimen in IO. Jonathan will discuss more on NKTR-262 later in the call. Importantly, let’s now move on to discuss NKTR-181, which is emerging as a critically important new potential medicine to treat patients with moderate to severe chronic pain. The opioid abuse and addiction epidemic has clearly become a central focus of the FDA, Congress and the White House and is one of the few truly Bipartisan issues facing our country and as we’ve heard from our discussions with all of these stakeholders. As the first new full new opioid agonist molecule, to be developed in over 50 years, NKTR-181’s unique inherent properties position the drug to not only help stem the rate of new addiction with conventional opioids, but also to reduce diversion of prescription in pain medicines for abuse. When measuring abuse potential, the analgesic doses established in the SUMMIT-07 study were comparable to placebo and much less like than oxycodone in two separate human abuse studies. We’ve also established that NKTR-181 has a well-tolerated safety profile in our 52-week long-term safety study. We now have an extensive amount of efficacy and safety data for NKTR-181 in over 2000 patients and healthy subjects. NKTR-181 is a new molecule, clearly addresses the rapid rate of brain entry which underlies euphoria as well as many of the negative side-effects of conventional opioids. Our extensive pharmacokinetic clinical work with NKTR-181 demonstrates that it is a highly predictable and well-characterized 12-hour terminal half-life regardless of formulation, tablet or solutions. This unique PK and resulting PD profile is important for two reasons. First, it provides full pain relief coverage over a 12-hour period, so there is no need for augmentation with immediate release opioids and second, it addresses the problem raised by the shorter half-life of some controlled release formulations of conventional opioids that is, the emergence of withdraw symptoms several hours before the end of the dosing period. This is sometimes called micro withdrawal and can drive an overwhelming craving to redoes ahead of schedule. For conventional opioid, the combination of high likeability in euphoria, coupled with micro withdrawal effects, prior to taking the next dose can be very strongly reinforcing and therefore dangerous in the context of generating misuse leading to addiction. At PAINWEEK in early September, we plan to present additional data from the SUMMIT-07 trial measuring these metrics of withdrawal. These important new data support that NKTR-181 is a truly unique pain medicine that is not associated with even moderate withdrawal symptoms, either while patients are on treatment or as they come off-treatments. The comprehensive NKTR-181 data established the potency of its analgesics, its low abuse potential, its favorable safety and physical dependency profile, and the strength of its molecular structure which can’t be tampered with broken or converted into a rapid-acting euphorigenic opioid form. We will review our data for NKTR-181 with the agency in the fourth quarter of this year to discuss the potential for an NDA filing based upon the data from our single Phase 3 efficacies trial, our HAP studies and our comprehensive long-term safety study. As a reminder, we have fast-track designation for NKTR-181, if we are given the green light by the FDA the Nektar team is prepared to move forward quickly with a rolling NDA submission in the early part of 2018. We also remain committed to establishing a partnership for NKTR-181 this year in order to allow us to bring this important new medicine to patients as quickly as possible and to maximize value for our shareholders. Now let me turn the call to Mary to update you on NKTR-214 and the PIVOT program.

[Mary Tagliaferri:]

Thank you, Howard, and good afternoon. Today, I'd like to update you on the clinical development program for NKTR-214. As Howard stated, we are very pleased that the Phase I dose escalation portion of the PIVOT program has completed enrollment and we are particularly pleased that we have determined our optimal Phase 2 dose and schedule. A total of 35 patients were enrolled to the dose escalation part of the PIVOT trial. The population includes 20 patients with Stage-4 renal cell carcinoma, 10 patients with Stage-4 melanoma and five patients with locally advanced or metastatic non-small cell lung cancer. All patients enrolled were IO naïve. Our recommended Phase 2 dose is an every three week concurrent dosing schedule of NKTR-214, 0.006 mg per Kg plus Opdivo 360 milligrams. As of today, a total of 22 patients in the dose escalation received this regimen. As our recommended Phase 2 dose or lower, we’ve observed strong efficacy signals across each of these patient populations and at all of our investigator sites and we continue to show no Grade 3 or higher AEs. Moreover, no patient has discontinued treatment in the trial due to an adverse event. As we saw at ASCO, the immune mechanism synergy between NKTR-214 and Opdivo continues to reinforce the ongoing evaluation of the biomarker data. We look forward to presenting updated efficacy safety and biomarker data from the dose escalation part of the study at SITC in November. This program is advancing rapidly and we’ve already dosed our first patients in the expansion cohorts in the Phase 2 part of the PIVOT. We are in the process of activating an additional 40 clinical sites in the U.S. and Europe in order to expedite enrollment to the eight different expansion cohorts spanning five different solid tumor cancers. The expansion cohorts will enroll up to 260 patients and will include first-line melanoma patients, first-line or IO naïve populations with non-small cell lung cancer, renal cell carcinoma, triple negative breast cancer and bladder cancer, as well as IO relapse or refractory patient populations with melanoma, renal cell carcinoma, and non-small cell lung cancer. The three relapse refractory patient populations could provide us with the potential for an accelerated pathway to regulatory approval. We also recently opened our enrollment site for the PROPEL study, which will combine NKTR-214 with Roche’s TECENTRIQ. As we’ve shared in the past, our strategy is to position NKTR-214 as a keystone in immune oncology and also demonstrate that NKTR-214 is synergistic with both anti-PD1 and anti-PDL1 agents. The PROPEL trial will enroll approximately 30 patients with on-label TECENTRIQ indications, which include non-small cell lung cancer patients with metastatic disease who have progressed on a platinum regimen or an EGFR or targeted therapy and also patients with bladder cancer who have progressed on the Platinum regimen. Patients who opt to forego first-line treatments with approved therapies are also eligible for the PROPEL study. There have been patients who have consented to participate in the study and we anticipate that first patient will be dosed soon. The investigator initiated trial in sarcoma, which is being co-funded by BMS has been approved by Memorial Sloan Kettering’s IRB and we expect that the patient dosing will begin as early as September. As a reminder, this is a trial being conducted in approximately 60 patients with sarcoma and the trial will evaluate the combination regimen of NKTR-214 and Opdivo in six different sarcoma sub-types including, Osteosarcoma, chondrosarcoma, undifferentiated pleomorphic sarcoma, angiosarcoma, lymposarcoma and leiomyosarcoma. Depending on the outcome, any one of these sarcoma sub-types could provide an opportunity for a rapid regulatory pathway for approval. With that, I will turn the call over to Jonathan for additional discussions on our strategy with NKTR-214.

[Jonathan Zalevsky:]

Thanks, Mary. I’d like to start with NKTR-214 and then I’ll cover the other parts of our portfolio including NKTR-262, NKTR-255 and NKTR-358. Now as Howard stated earlier, and to build on Mary’s remarks, NKTR-214 is a broad based mechanism that we intend to establish as a keystone therapeutic in IO. And to this end, we have ongoing pre-clinical work with several collaborators which is designed to evaluate the combination of NKTR-214 with additional mechanisms in IO beyond checkpoint inhibition. This includes research in mouse tumor models with neo antigen-based vaccines to explore a patient-specific, personalized cancer vaccine program and it also includes preclinical studies with a number of small molecules. In the second quarter, we announced a new preclinical research program with Takeda to evaluate NKTR-214 with five different Takeda clinical compounds targeted for the treatment of liquid and solid tumors. Preclinical work from this collaboration is ongoing. We are evaluating all five compounds and three different mouse tumor models testing all combinations of single-agents, double combinations and even in the triple combinations with anti-PD1. The emerging data are very encouraging. As we achieve positive preclinical results for these initiatives, our goal is to advance some of these programs rapidly into the clinic. Now as Howard also mentioned, we are moving forward with our own NKTR-214 combination regimen that includes a wholly-owned TLR7/8 agonist NKTR-262. Now the combination of NKTR-262 which activates the immune system and focuses activity against myeloid cell populations with NKTR-214, which activates the adaptive immune system with focused activity against lymphoid cell populations, constitutes a marriage of two highly desirable and complementary mechanism for immune-oncology. By targeting these non-overlapping immunological mechanisms, the combination is armed to provide a robust immune activation and anti-tumor activity. The preclinical data we’ve collected and recently presented at the CHI Conference in Boston supports the mechanism of action and demonstrate profound efficacy and abscopal of tumor clearance. The NKTR-262 program is now completing IND enabling studies and we plan to submit the IND to the FDA before the end of the year. The opening clinical trial will begin in Q1 2018 and will be a trial evaluating NKTR-262 in combination with NKTR-214. And remember, this gives Nektar’s own wholly-owned combination regimen in immuno oncology. I’d like to now expand on Howard’s discussion on NKTR-358 and provide an update on the status of the program. As Howard mentioned, we are extremely excited about the collaboration we now have with Lilly, which is focused on the comprehensive development of NKTR-358. Nektar and Lilly have a shared vision for NKTR-358 and this shared vision is central to our newly minted partnership. Firstly, we see NKTR-358 as a key resolution therapeutic for the treatment of autoimmune disease. NKTR-358 promotes the proliferation and activation of regulatory T-cells also known as TREGs in the body. And TREGs function to block, limit and inhibit immune activation and it adds with the absence or loss of function of TREGs that drive the underlying pathology of many autoimmune diseases. Unlike today’s therapeutics that broadly block immune activation NKTR-358 as a resolution therapeutic is designed to restore the body’s natural processes of immune resolution and thereby prevent the inflammation in tissue damage that underlie autoimmune diseases. Since the NKTR-358 MOA does not overlap with those other agents, it has the potential to provide patients with a transformational treatment opportunity. And in that regard, the second element of Nektar’s and Lilly’s shared vision is that NKTR-358 should be developed broadly in multiple indications in parallel in order to quickly and effectively realize its full potential. We are pleased to share in the development of NKTR-358 and are extremely excited to have Lilly as our partner. Nektar is responsible for all activities up to the end of Phase 1 and then, Lilly will take the lead from Phase 2 onwards. To that end, I would like to provide an update on the ongoing development status of NKTR-358. Currently, NKTR-358 is advancing through the Phase 1a, single ascending dose escalation trial in healthy volunteers. This trial evaluates safety, tolerability, and mechanism-based immunological biomarkers associated with the pharmacodynamics of NKTR-358. We have now dose escalated several times and the trial is progressing very well. We anticipate beginning the Phase 1b trial a multiple ascending dose escalation study of NKTR-358 around the end of 2017 or early 2018 and the Phase 1b trial will include evaluation of NKTR-358 in patients with autoimmune disease. Now as Howard said, NKTR-358 is a notable program for Nektar. It provides further evidence of our ability to optimize cytokine biology and use our core chemistry to control ligand receptor interactions to create potential new breakthrough medicines. This expertise has now been recognized by large pharmaceutical partners such as Bristol and Takeda for NKTR-214 and Lilly for NKTR-358. We are also very proud that our R&D team was able to progress the NKTR-358 program from concepts to first in human dose in only 15 months. Now before closing, I want to briefly build on the theme of Nektar’s strength in cytokine biology with an update on the NKTR-255 program. NKTR-255 targets IL-15, a cytokine related to IO2, but with differing biological functions. IL-15 receptor signal in a unique way as dimers or as trimers and when they signal as trimers, all three sub-units can be on the same cell or can be split between two neighboring cells. We have used Nektar chemistry to design NKTR-255 to retain complete binding properties to all the different IL-15 receptor permutations in order to retain the unique biology of this pathway. This differentiates NKTR-255 from other IL-15 based agonist programs. We recently presented data to show that NKTR-255 has a powerful effect in stimulating NK cell proliferation, activation and functional activity. In addition, NKTR-255 provides a robust signal that expands both the cell number and function of antigen experience T-cells. The program is now progressing through toxicology studies and we plan to submit an IND for NKTR-255 next year. And with that, I’d like to hand the call to Gil.

[Gil Labrucherie:]

Thank you, Jonathan. On today’s call, I will provide a brief update on our partnered programs as well as updated financial guidance for 2017. Starting with MOVANTIK, U.S. sales are currently at a $175 million annual run rate with over 11,000 in weekly prescriptions. As a reminder, Nektar receives 20% royalties on sales of MOVANTIK, which are recognized one quarter in arrears. Royalties for MOVANTIK grew 13% in the second quarter of 2017 as compared to the first quarter of 2017. For ADYNOVATE, our partner Shire just noted on their last conference call that ADYNOVATE sales grew to $75 million in Q2 2017, which represents an annual runrate of $300 million. Sales of ADYNOVATE represented more than 10% of Shire’s hemophilia sales in Q2, which is a tripling of sales for Shire over Q2 of last year. In addition, ADYNOVI was recently approved and launched in Switzerland and Shire is awaiting a potential CHMP opinion and European Commission approval later this year in order to launch ADYNOVI in additional European markets. With respect to Amikacin Inhale, Bayer’s Phase III trials are complete and Bayer expects to have top-line results from this program in the fourth quarter of 2017. For ONZEALD, we have a collaboration in place in Europe with Daiichi Sankyo. As previously announced, we intend to appeal the recent CHMP opinion and seek a reexamination of that opinion, a diagnosis of brain metastasis in women with advanced breast cancer is devastating and there are no therapies approved to treat this specific patient population. During the appeal process, Nektar and Daiichi Sankyo Europe will continue to collaborate on ONZEALD. Now on to our updated financial guidance, we are raising our year-end cash position guidance and now expect to end 2017 with approximately $350 million. This includes the $150 million upfront payment that we expect to receive from Lilly for the NKTR-358 collaboration. Also as a result of this collaboration, we are raising our full year revenue guidance to a range of $215 million to $225 million. Although we are still finalizing our revenue recognition analysis and conclusions for the NKTR-358 collaboration, we expect to recognize approximately $100 million of the $150 million upfront payment from Lilly in the third quarter. We expect 2017 royalty revenue to be between $55 million and $60 million which includes $30 million to $35 million in royalties from MOVANTIK and ADYNOVATE with the remainder coming from non-cash CIMZIA and MIRCERA royalties. Of the $155 million to $165 million in revenue, that we project for the second half of 2017, we expect to recognize approximately 75% of this revenue in the third quarter and 25% in the fourth quarter. We anticipate that GAAP R&D expense will range between $245 million and $255 million, which includes approximately $29 million of non-cash depreciation and stock compensation expense. Our full year R&D expense guidance is increasing slightly by about 6% as a result of pre-NDA filing activities for NKTR-181 including precommercialization manufacturing activities. 2017 G&A expense is projected to be approximately $50 million. G&A expense includes approximately $12 million of non-cash depreciation and stock compensation expense. To reiterate our cash guidance for this year, we plan to end 2017 with approximately $350 million in cash and investments including the $150 million upfront payment for NKTR-358 that we expect to receive from Lilly. It is important to keep in mind that our 2017 projected ending cash position does not include proceeds from any potential partnerships for NKTR-181. With that, we will now open the call to questions. Operator?

[Operator:]

[Operator Instructions] And our first question comes from Jessica Fye from JP Morgan. Your line is open.

[Ryan Tochihara:]

Hey guys, this is Ryan on for Jess. Thanks for taking our questions. I just got a couple for you. Maybe we can start with 181. You talked about – you’ll have some data at the PAINWEEK Conference coming up here, maybe could you give us a sense of what additional details you may present there?

[Ivan Gergel:]

Yes, hi, Ryan. This is Ivan. We are going to present some pretty extensive results from our Phase 3 efficacy study, SUMMIT-07. We’ve also got additional analyses that we’ve undertaken on withdrawal data including output from COWS and SOWS and also abuse data from the MADDERS scale which is part of that too. So it’s really quite an extensive amount of data we are presenting.

[Ryan Tochihara:]

Okay, and my second is on 214. You have a number of collaborations ongoing, I guess, how do you think about sort of prioritizing or the different paths there and then also given – it sounds like there is some exciting data with the Takeda collaboration. Would you present that at some point or would we – or announce kind of what you are seeing there?

[Howard Robin:]

Okay, good well, I’ll let Jonathan talk about what we are doing in Takeda, let me say this. There is incredible amount of interest in NKTR-214 and as you know, we’ve said for quite a while now, that we really see it as the centerpiece in immune oncology and if you look at the progress we are making in combination with OPDIVO checkpoint inhibition, it looks fairly remarkable and we’ll be talking about that at SITC. And in terms of using it with other approaches, I think, almost every one of these approaches in immune oncology recognizes the need to have tumors with a sufficient immune system to respond to these mechanisms. So we are really excited about it. This is not a drug that we are planning to license out NKTR-214 as Nektar’s program and I think we could work with a lot of companies, there is a lot of opportunities here, but NKTR-214 is something that we plan to keep as our own molecule. And I’ll let Jonathan talk for a moment about Takeda.

[Jonathan Zalevsky:]

Yes. Hey, thanks Ryan. So, one of the interesting things in that collaboration is all five of the compounds that we are working on with Takeda. All of them are clinical compounds in Takeda’s portfolio. And there was some opportunities subsequent of that would be that if we see the kind of results that are very, very encouraging from preclinical models, it would lead to opportunities to move into combination clinical studies quite rapidly. Now, as far as data presentation and so forth, that’s something that we’ll have to work out with Takeda because it’s a collaboration that we have. But it’s something that it’d be likely to find in a medical or a cancer research meeting to come in the future.

[Ryan Tochihara:]

Okay, great. Thanks so much guys.

[Operator:]

Thank you. Our next question comes from Bert Hazlett from BTIG. Your line is open.

[Robert Hazlett:]

Thanks. I want to follow-up on an element or two. It seems like Mary’s characterization of strong efficacy signals in each of the settings is just something I’d like to have a little bit more clarity on as much as you can provide it.

[Mary Tagliaferri:]

Hi, Bert. We developed this program to be able to evaluate NKTR-214 and Opdivo in first-line setting with melanoma and first of second-line setting with RCC and first or second-line setting with non-small cell lung cancer and we have a fair number of patients we’ve now enrolled. Our cohort for RCC is 20 patients are cohort for melanoma is 10 patients and for non-small cell lung cancer it’s 5 and that’s just in the dose escalation. And as we’ve mentioned, we’ve advanced into the Phase 2 dose escalation. We do – we have promised our investigators that we would wait until SITC to share the exciting efficacy and safety data and so we are going to do that. And so, in November, we will provide the response data for this set of 35 patients and we will certainly update our safety data, but as we mentioned, we’ve seen no grade 3 related adverse events secondary to this regimen. So thank you for your patience. We look forward to seeing you at SITC.

[Robert Hazlett:]

Well, you certainly will. So the question with regard to sarcoma, I want to make sure that I am understanding – again a little bit more about the urgency with which you are considering the various indications around sarcoma. If you could put a little bit – if you could frame the opportunity and why you are moving into those settings with as much urgency as you are?

[Mary Tagliaferri:]

Yes, so, the optimal treatment strategy for sarcoma has definitely been yet to be defined and Dr. Sandra D'Angelo has really been in the forefront of evaluating immuno oncology for sarcoma and she approached both BMS and Nektar about launching this program because certainly as Howard mentioned, and JZ has repeatedly shared with people driving T-cells into the tumor micro environment in sarcoma will be critical to see responses with immune oncology. So Dr. D'Angelo actually has a wait list of 35 patients. She believes she will have the first patient on this study in September and in the second-line in relapse metastatic patients with sarcoma the response rates are less than 10% and so you can imagine if we can see a response rate of 20% or greater in this patient population, this will be very, very exciting to patients to physicians that we hope we could have a conversation with the FDA about the potential pathway for accelerating the approval should we see these types of responses.

[Robert Hazlett:]

Okay, thank you. And then, just one broader strategy question, I guess, to Howard. The $150 million from Eli Lilly is nice in upfront, does that mean that with all these immune-oncology assets that you have moving forward, it’s your intention to keep them in-house?

[Howard Robin:]

Yes, I think – look, I think, we’ve talked about the desire to partner – NKTR-358 simply because with Lilly we can move very rapidly into multiple autoimmune disease conditions. With regard to NKTR-181, I think we have a potential solution for the opioid abuse crisis in the United States and we want to move that quickly to the market if we can and that’s something that we want to find a partner for to help us with as well. When it comes to immune-oncology, I think we really are in the forefronts of that area. We’ve got a number of very important programs. If you look at NKTR-214 and NKTR-262 and NKTR-255, and some other things that are coming that we haven’t even discussed yet. I think that’s an area where we plan to keep that for ourselves and I think every company needs to have a core that it focuses on. We have an incredibly powerful immune-oncology portfolio here including the things like combination of NKTR-214 and 262 which gives us our own combination which might be just as potent if not more so than a combination of 214 and a checkpoint inhibitor. So, we are in that space, I think permanently now and we are making excellent progress and as time goes on, we’ll be filling you in a new ideas and new molecules that are coming out of research in that area. So you have to think of Nektar now as really focusing its internal capabilities on immune-oncology and we have great external programs as well. So, I think we are in very good shape there.

[Robert Hazlett:]

Terrific. Thanks for the additional color. Congratulations on the progress.

[Howard Robin:]

Thank you.

[Operator:]

Thank you. And our next question comes from Michael Higgins from ROTH Capital Partners. Your line is open.

[Michael Higgins:]

Thanks operator. Good afternoon guys. Couple questions for you if I could on 358. I think you just confirmed for the timing on the Phase 2 when you believe that maybe complete, also these initial patient types might that be lupus and psoriasis? And then one more here, is there a minimum number of indications that Lilly will be paying the 75%? Thanks.

[Jonathan Zalevsky:]

Sure. Hey, Michael. Thanks for the question. So, if I get this right, your question was, on the timing of Phase 1b, as well as the indications or the patients that would be included in the Phase 1b and then the range of total indications that Lilly would be paying for collaborating with us. Is that correct? I just want to make sure.

[Michael Higgins:]

Just started, sure, thanks, yes.

[Jonathan Zalevsky:]

Okay, sure. So, yes, so the timing of Phase 1b as I mentioned is for the very end of this year or very early in 2018. And that’s happening because the single ascending dose trial is progressing very, very nicely and so we are moving into the MAD portion imminently around the end of this year or early next. We’ve talked previously about the inclusion of lupus patients in Phase 1 b and now certainly that we are in collaboration with Eli Lilly, we are taking an approach to look at all of the opportunities for including patients into Phase 1b. And so, that could be lupus patients and also you mentioned psoriasis, also there is another category of patients, are being highly considered. So we are still working closely with our partner there to design the study, but we are very certain that we will be including patients in the Phase 1b study. And in terms of the range of indications, as Howard mentioned, there will be at least four indications in Phase 2 that will be conducted by Eli Lilly. And so, around those four, also from the trials that look very desirable and promising then a Phase 3 program will emerge beyond that. So really it’s a taking a very comprehensive approach. When you think about the application of a mechanism such as TREG mobilization, you can see how you could apply that to a range of autoimmune diseases that are typified by T-cells that are self-reactive against patients on tissues. And you could really apply that very, very broadly. And so, these four indications starting with Phase 2 is a great opening way to really advance and broadly develop NKTR-358.

[Michael Higgins:]

Okay, that’s very helpful, thanks. On ONZEALD I believe you have the interim look, if you could just remind us at the number, I think it’s 120 patients and also the potential timing for that you look for that?

[Mary Tagliaferri:]

Yes, hi, Michael, this is Mary Tagliaferri. We believe that we could have an interim look at the fourth quarter of 2019 with about 130 events for the study and so far enrollment and site onboarding is going very well.

[Michael Higgins:]

Okay, thank you. And then, lastly, on 181, just a follow up question, just to confirm, if there is any potential for the encapsulation on the oxy tablets have had an impact on the release profile versus the oxy that’s available in pharmacies today?

[Ivan Gergel:]

So, the question was whether the over encapsulation had an impact on the pharmacokinetics? Is that what you are saying? We think the answer to that is, yes, actually there is a potential for it to have a slight, delaying effect on the PK release relative to giving in an oral solution.

[Howard Robin:]

I think though, you have to focus on the HAP study in a different way. I mean, if you look at the therapeutic doses of NKTR-181 400 milligrams and less and 200 milligrams, you see no liking whatsoever compared to oxycodone regard of over encapsulation. Now, we were asked because this is a new molecule, this is an NCE, we were asked to do super therapeutic doses and there you still saw something like 10 to 12 x, the therapeutic dose of NKTR-181 was not like to compared to a typical 40 milligram – 60 milligram dose of oxycodone. So I think, overall that trial was incredibly successful and if you look at the data, it looks very much like tramadol and we know tramadol has schedule three labeling – so actually it was schedule four labeling. So we are very happy with the results. You look at the therapeutic dose of NKTR-181 and it’s simply was not likeable. It wasn’t interesting at all in these HAL studies or these HAP studies and we are very hopeful that the FDA sees it that way and we plan to meet with them shortly and discuss an NDA filing.

[Michael Higgins:]

Just a follow-up on that. Tramadol scheduled 3 up until few years ago and despite the ongoing crisis it was moved back to 4 and maybe as an alternative maybe that’s what the FDA was thinking, but, if you continue to expect to go for schedule 3 or do you think you can get 4?

[Ivan Gergel:]

So, a couple of thoughts here. One, I think, if you look at the efficacy results, we saw in our study, it’s clear that we have a potent opioid which behaves not just in our efficacy study, but if you look at pupillometry data, it behaves very much like of a potent opioids. The difference here is not in efficacy. The difference with our agent is the delay, the slow rate that it gets into the CNS and the reason that we believe this is very attractive, it’s because that slow rate, if an opioid entering the CNS sort of it’s not associated with the euphoria that you see when you see opioids rapidly entering the CNS space. So we are very hopeful that we can get schedule 3 potentially better. If you look at our HAP data from the recently completed study, which Howard referred to, if you look the rate of rise, we see very slow rate of rise when you measure liking and when you measure drug high and we think that is completely different to what you see with oxycodone and other sort of typical potent opioids.

[Howard Robin:]

And I think it’s important to use the tramadol super analgesic HAP study results as a good model here, because even it’s schedule 3, the results that they had with their super analgesic dose looks very, very similar to what we saw with super analgesic doses of NKTR-181. So we are very pleased with that and clearly as I said at the analgesic doses, that with NKTR-181 is not really likeable at all and even if the super analgesic doses, it looks like the Tramadol results which granted it Phase 3 – schedule 3 and ultimately schedule 4 labeling. So we are very pleased with that and that’s what we are shooting for.

[Michael Higgins:]

Appreciate the feedback. Thanks guys.

[Operator:]

Thank you. Our next question comes from David Steinberg from Jefferies. Your line is open.

[David Steinberg:]

Thanks, good afternoon. I just wanted to touch base a little bit more on NKTR-181. So, post the strong efficacy results, I think in Q2, you discussed signing a partnership hopefully by year end. And now that you have the second HAL dataset, didn’t derisk further and I think, I assume there are no other milestones before the FDA meeting. So, two questions somewhat linked. You’ve been continually positive that these and other clinical trials that you did go right to an NDA filing and I guess, what’s your most thoughts, conversations with your consultants ask for data. It’d be very unusual to do so on the other hand, it’s a very unusual situation with opioids right now and they are linked, as your partners assess the potential for the product and ask – the efficacy data and will they be – meet with the FDA had to say, or entering into final discussions or do you think you would actually been in partnership before that?

[Howard Robin:]

Yes, you broke up a little bit on your cellphone. So I think, I got most of your question. Look, we are planning to meet with the agency shortly. And we are planning to meet with the agency shortly and I can’t – look, I can’t predict how they are going to react to our single Phase 3 efficacy study. The efficacy study, look, the efficacy study was incredibly successful, it met every primary and secondary endpoints and we also know what NKTR-181 is. It’s a mu-opioid agonist. There is no debate on what it is as a molecule. And the polymer conjugate chemistry approach that we took is also well understood and well documented. So, this is not a molecule that is not well understood and appreciated by the FDA. The HAL study was also or the HAP study was also a tremendous success and clearly demonstrates that we have a molecule that is not likeable. Thirdly, we have a long-term safety study, which is also incredibly successful and we have over 2000 patients and healthy volunteers that have taken NKTR-181. That is an incredibly important database. So, look, I can’t predict where the FDA will go with this. We have Fast Track status. We have a major opioid crisis in this country. This is a key solution to that opioid problem. We are not necessarily going to help people that have already become addicted, but you have to break the cycle. At some point, you have to break the cycle. You have to provide an opioid for pain relief that doesn’t cause people to get addicted to it and it doesn’t allow for diversion and the kind of use that leads to other drug taking. So we have that solution in hand. It’s available to us. I can’t predict how anyone will react to that. Obviously, this is an immediate solution for the opioid problem. If we go much further, then in years are going by before we solve that problem. Now, in terms of collaboration with a company or a partnership, I want to retain some significant ownership in NKTR-181. But I also recognize that Nektar isn’t set up right now for the sales and commercialization of an opioid product to primary care physicians. So we are talking to a number of different companies about different ideas of how to approach this. There are just straight license deals, there are joint venture relationships. There is probably a multitude of different ways to do this. I want to make sure that we do it in a way that gives our shareholders their maximum value and it’s something that that Nektar could afford given the fact that it was a good question that was asked before, we have this incredible portfolio in auto in immune-oncology that I want to move forward. So I don’t want to impact that negatively. And I want to make sure that we can bring that value to our shareholders. So we are looking at what we can do with NKTR-181 to accomplish both those goals. Now whether, I do hope to get a collaboration done, we’ve said, our goal is to get it done this year. I am not going to make hardcore commitments on that obviously. There are a number of companies we are talking with that are highly interested and entities that are highly interested. Let’s see how it moves forward. I am sure, everyone is going to want to understand where we move forward with an NDA, that’s probably a reasonable thing, but that doesn’t mean that that we are not actively involved in discussions. As you properly stated, given the very serious concerns that everybody has about opioid abuse in this country. We have a solution here. And it would be hard for me to imagine that anyone wants to ignore it. In any case, let’s see how this evolves over the coming couple months.

[David Steinberg:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from Andy Shay from William Blair. Your line is open.

[Andy Shay:]

Hi, thanks for taking my question and congrats on a very, very productive quarter. I just have a quick one. I believe last week Bristol-Myers submitted a fixed dose OPDIVO dosing scheme every four weeks 480 milligrams. Just wondering if it’s necessary to go back and do some dose escalation in combination with 214? And then move forward to the expansion cohorts, kind of go on and just get your thoughts on that.

[Mary Tagliaferri:]

Hi, Andy, thank you for your question. We looked at five different dosing regimens in our dose escalation part of the PIVOT trial and we do very extensive biomarker analysis much more so than most early phase clinical trials. And when we look at the aggregate of our safety data, our response data and the biomarker data, it really drove us to the optimal Phase 2 dose which for us is a every three week dosing regimen. And we spoke in extensively to our clinical investigators about your question and everybody feels that is reasonable to have patients come back to the clinic every three weeks and the optimal effect that we are getting both in terms of response, time to response, step to response were all considered. We are also looking to combine NKTR-214 with other triplets and those triplet regimens we are considering the Q4 week dosing cycle. And so, we will have an opportunity to see the effect of Nivo plus 214 plus third agents in triplets. We can always go back and evaluate new dosing regimens as we go forward, we feel confident, we did hit and nailed the right recommended phase 2 dose and we will be able to share those data with you at SITC. We also think that the three week dosing regimen is highly competitive with KEYTRUDA and Opdivo and newer triplet combinations that are coming out. I’d also say, as far as the cytokine goes, there is no other company that has a cytokine that they are dosing every three weeks and seize the influx and the robust immune activation that we are seeing with NKTR-214, which we believe is a huge competitive advantage for our own molecule.

[Andy Shay:]

Yes, that does make sense. Thanks for your answer.

[Operator:]

Thank you. And I am showing no further questions from our phone lines. I would now like to turn the conference back over to Howard Robin for any closing remarks.

[Howard Robin:]

Well, thank you all for joining us this afternoon. As always, I would like to thank our employees for their hard work and dedication to the company and we look forward to seeing many of you at the Morgan Stanley, Canaccord and conferences over the next several months. So, thank you everyone. Bye-bye.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.