Nektar Therapeutics
Q4 2012 Earnings Call Transcript

Published: 1 Mar 2013

[Operator:]

Good day ladies and gentlemen and welcome to the Nektar Therapeutics' Fourth Quarter and Year End 2012 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 following at that time. (Operator Instructions) As a reminder, this call maybe recorded. I’ll now turn the call over to your host Jennifer Ruddock, Vice President of Investor Relations. Please go ahead.

[Jennifer Ruddock:]

Good afternoon and thank you all for joining us. With us today are Howard Robin, our President and CEO; John Nicholson, our Chief Financial Officer; Dr. Robert Medve, our Chief Medical Officer; and Dr. Steve Doberstein, our Chief Scientific Officer. On this call, we expect to make forward-looking statements regarding our business, including but not limited to the clinical development program plans and expectations, the timing of future clinical results and regulatory filings by us or our collaboration partners, the economic potential of our collaboration partnerships, including potential future milestone payments, the therapeutic and market potential of our drug candidates and those of our partners, our financial guidance for 2013, and certain other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes that are difficult to predict and many of which are outside of our control. You should refer to certain important risks and uncertainties that are detailed in our SEC report including our Form 10-Q filed on November 9, 2012 and our Form 10-K to be filed no later than tomorrow. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise. A webcast of this call will be available for replay on the investor relations page of Nektar’s website at www.nektar.com. And with that I would like to hand the call over to our Howard. Howard?

[Howard Robin:]

Thank you, Jennifer, and thank you all for joining us this afternoon. I’m exceptionally proud of Nektar’s transformation and significant progress over the past several years and as we begin 2013, we have never been in a stronger position. Nektar now has five highly valuable programs spanning multiple therapeutic areas that have either completed Phase III, in Phase III or starting Phase III. And we have a key Phase II program which has been given fast track status by the FDA and for which we will (inaudible) two data this year. Our pipeline leverages an innovated technology platform that continues to generate new drug candidates. We’re very excited that our partner AstraZeneca reported excellent results from the long term safety study of Naloxegol this week. Naloxegol has now completed Phase III development and is being prepared for regulatory filings in the third quarter of this year. We are exceptionally pleased with all of the data from the four KODIAC studies with Naloxegol and I will talk more about the positive results from Naloxegol in a moment. But in addition to Naloxegol, we are in a unique position within our industry with four key phase 3 program. (inaudible) Nektar 102 are wholly owned program and metastatic breast cancer which is in phase 3, Cipro inhale which is in phase 3 with our partner Bayer, PAX855 which is in phase 3 with our partner Baxter and Amikacin inhale with Bayer which is scheduled to start phase three within the next few weeks. Our partner portfolio of Naloxegol BAX855, Cipro inhale and Amikacin inhale represents significant economic potential for Nektar. The future royalties alone associated with these programs not including any milestones or others payment, could total up to $750 million annually. Today, I will share with you some additional detail on these program and our proprietary development pipeline. So as I just mentioned, AstraZeneca announced on Tuesday, positive high level results from long safety study from Naloxegol known as the KODIAC-08 study. The KODIAC-08 study was a very large, 52 week, well controlled, chronic administration safety studies which compared 25 mg of Naloxegol for usual care and patients with constipation take opioids for chronic pain. The usual care was defined as the investor’s choice of laxative treatment regimen. The open label study enrolled a total of 844 patients who are randomized 221, Naloxegol to usual care. 534 patients received Naloxegol once daily for up to 52 weeks and 270 patients continued usual care. The results from the KODIAC-08 long term safety study confirmed the safety profile of Naloxegol that was observed in the previously reported studies of Naloxegol. In KODIAC-08, the most common adverse events observed more frequently in Naloxegol arm than then usual care arm, were abdominal pain, diarrhea, nausea and headache. Importantly, there was no increase in mean pain scores, or mean opioid dose from base line in either treatment arm. Opioids withdrawal was evaluated through adverse event reporting and withdrawal signs were prospectively assessed using the modified Himmelsbach scale. There were no opioids withdrawal adverse events attributable to Naloxegol in the study and there was no notable differences in mean change from base line from modified Himmelsbach scores between usual care and Naloxegol. In addition, there was no imbalance and serious adverse events between the Naloxegol arm and the usual care arm. Importantly, there were a low number of major adverse cardiovascular events or MACE in the study overall and there was no imbalance in these events across the Naloxegol and the usual care arm. To be more specific, there were two MACE events in the usual care arm and two MACE events in the Naloxegol arm. So that means there were two MACE events out of the 270 patients on usual care and only two MACE events out of the 534 patients on Naloxegol. These excellent safety results complements the positive efficacy results reported for Naloxegol in November of last year. And AstraZeneca’s two pivotal studies KODIAC-04 and KODIAC-05 which were both randomized double-blind placebo-controlled trials that enrolled more than 600 patients each, patients received Naloxegol or placebo once daily for 12 weeks. The 25 mg Naloxegol dose meets the primary end point with statistical significance in both pivotal studies with P values of 0.001 and 0.021. All key secondary endpoints in the study were also meet with high statistical significance for the 25 mg dose. These endpoints included a responder analysis in patients with a previously inadequate response to laxatives. The medium time differs spontaneous bowel movements and days for weeks with at least one bowel movement. Results from KODIAC-04 and KODIAC-05 studies have been accepted for an oral presentation at the Annual Digestive Disease Week conference which will be held in Orlando this May. As AstraZeneca stated this week, they are currently preparing registration filings for Naloxegol for submission in the U.S. in EU in Q3 of this year, pending a pre-NDA meeting with the FDA. Nektar is entitled to receive $95 million upon acceptance of regulatory filings of which $70 million is upon acceptance of the U.S. filing and $25 million is upon acceptance of the EU filing. Upon approval and launch in the U.S. and EU, Nektar will receive an additional $140 million in milestone payments. Nektar is also entitled to significant escalating double-digit royalties on product sales from Naloxegol in addition to these royalties there are up to $375 million in sales milestones at certain commercial sales level. And AstraZeneca is responsible for all cost of commercialization of Naloxegol. OIC is a major unmet medical needs. AstraZeneca estimates that there are up to $35 million in the U.S. Canada, UK, France and Germany who takes opioids for long term pain relief and also develop debilitating constipation. OIC can interfere with adequate pain management and reduce quality of life and an estimated 50% of OIC sufferers today. (Inaudible) sufficient relief from conventional actors. AstraZeneca with its global present is an ideal partner for the marketing of Naloxegol. We look forward to the submissions of the regulatory filings later this year. Now I would like to update you on another key part of program in Phase III development, BAX 855. BAX 855 combines with gold standard in hemophilia treatment, factors ADVATE. With Nektar’s proprietary PEGylation technology to create a long-acting recombinant factor VIII with a prolonged half-life. ADVATE has a fantastic 10-year track record in efficacy as well as safety and remains the gold standard of hemophilia A therapy. Our partner Baxter has been the dominant leader for over a decade in this field with 50% of the global $6 billion market in hemophilia A therapy. BAX 855 is designed as a longer acting ADVATE that will retain the proven efficacy in safety profile of this gold standard treatment. The pivotal phase III multicenter open-label study of BAX 855 called for PROLONG-ATE will enroll more than a 100 previously treated adult patients with severe hemophilia A and will assess the efficacy, safety and PK, of BAX 855 for prophylaxis and on-demand treatment. Phase I results for BAX 855 demonstrated an increase in half-life of 1.5-fold as compared to ADVATE. BAX855 was extremely well tolerated with no treatment related adverse events reported and no inhibitor formation. Baxter is planning a BLA filing for BAX 855 in 2014 with a planned launch in 2015. Under our agreement, Nektar will receive milestone payments as well as significant royalties on net sales of BAX 855 upon commercialization. Now we would like to spent a few minute providing an important update on Amikacin Inhale. We have now successfully completed all testing and stability studies and the final nebulizer devices necessary for the start of the Phase 3 study. Bayer has officially accepted these devices and we will be starting the Phase 3 program within the next month. As a reminder there are two planned Phase 3 studies for Amikacin Inhale which will be conducted under an SPA with the FDA. The studies will use a primary endpoints of clinical test of cure and will enroll approximately 600 patients each. As I just said the first clinical study Inhale 1 is scheduled to start within the next month in the U.S. The second clinical study Inhale 2 is scheduled to start in May and will be conducted ex-U.S. Amikacin Inhale represents considerable economic potential for Nektar; Nektar will receive a flat 30% royalty in the U.S. and an average ex U.S. royalty of approximately 20%. The market is estimated to reach at least $700 million a year and gram negative bacteria account for 70% of all ICU pneumonias and are associated with very high rates of morbidity and mortality. Current IV standard of care therapies are limited by their inability to achieve effective concentrations in infected lung tissue. Designed to target the lungs directly with a proven and effective antibiotic, Amikacin Inhale could emerge as the preferred treatment for these deadly pneumonias. Now moving on to another key phase 3 program with Bayer, Cipro Inhale. Cipro Inhale is in Phase 3 studies for non-cystic fibrosis bronchiectasis or NCSB; a very serious chronic respiratory condition for which patients currently have no approved therapies. Based on positive phase 2 data in NCSB patients, Bayer initiated a global Phase 3 clinical program known as the respire program. The two Phase-3 studies in the respire program will each enroll about 300 patients and will evaluate Cipro Inhale as a chronic intermittent therapy for NCSB over 48 weeks as compared to placebo. We estimate that this product could achieve sales of approximately $750 million annually. Under our agreement Bayer is responsible for all development cost associated with Cipro Inhale and we are entitled to escalating royalties with an average royalty of approximately 10% of peak sales. Now, turning to our proprietary Phase-3 program in oncology Nektar 102 or etirinotecan pegol. NKTR-102 is the targeted next generation topoisomerase I inhibitor. Currently in Phase-3 development in metastatic breast cancer. The ongoing Phase 3 BEACON study is an open label randomized HL trial comparing single agent Nektar 102 to an agent of the physician's choice with the primary end point of overall survival. Enrollment in BEACON is ahead of schedule with more than a 140 sites up and running out of the target 106. As the first and only topo I inhibitor being developed in breast cancer NKTR-102 offers a much needed and distinct mechanism of action. All of the current therapies from metastatic breast cancer are microtubule inhibitors or disruptors ensure a common underlying MOA. As a result, drug resistance and overlapping side effects are huge challenges that will eventually negatively impact most if not all patients' outcomes. Physicians are extremely enthusiastic about working with NKTR-102 and we expect to complete enrollment in the BEACON study by the end of this year. Data from the BEACON study is expected around the end of 2014. In platinum resistant and refractory ovarian cancer, we completed our Phase II study and expansion and rolling a total of 169 patients. The data show NKTR-102 clearly has significant activity in platinum resistant and refractory ovarian cancer with the 17% overall response rate and progression free survival of 4.4 months. As a reminder, patients in this study were heavily pretreated with a median of 3 prior treatments. We planned to meet with the FDA and M&A this year to discuss the potential regulatory pass forward with NKTR-102 in ovarian cancer. Earlier I’ve mentioned the enthusiasm of physician for the data with NKTR-102 and its potential and other indications. We’re pleased that key thought leaders in the field of oncology have recently initiated investigator sponsored studies for NKTR-102. We have an ongoing Phase II study with Dr. Lawrence Recht at Stanford University Cancer Institute evaluating NKTR-102 for the treatment of high-grade glioma and we expect that data from the study available this year. We have also recently announced a new investigator study sponsored by Dr. Corey Langer and Dr. Charu Aggarwal at the University of Pennsylvania, Abramson Cancer center which will evaluate NKTR-102 in non-small cell lung cancer. Again, we’re very pleased by the significant and continued interest from clinical thought leaders and evaluating NKTR-102’s potential. Now, I’d like to talk about NKTR-181 our novel mu-opioid molecule, which is gaining significant visibility as a potential breakthrough in pain management. NKTR-181 is been designed to enter CNS slowly to reduce the dopamine rush in euphoria associated with opioids abuse and addiction. This slow rate of entry should also result and reduce CNS adverse effects including sedation and respiratory depression which we give NKTR-181 and ideal clinical profile to treat (inaudible) pain. Traditionally, the pharmaceutical industry has attended to address the problem of abusive opioids with formulation approaches. What we know formulation of approach helps, it is not a solution and in fact it underscores the need for new thinking in better molecules not just new ways of delivering old drugs. NKTR-181 is attracted lots of attention within the medical community because it is a fundamentally different approach. This is a new molecule not a formulation and not a pro-drug. The properties we see in the clinic or intrinsic to the molecule and not a result of any formulation. The issue of opioid abuse and misuse is a serious public health problem in this country. Recent FDA advisory panels on rescheduling hydrocodone and changing prescribing patterns for current opioids clearly demonstrates that addressing prescription drug abuse is a top priority for the FDA. NKTR 181 was granted fast track status by the FDA which allows us to have a closer interaction with the FDA during development and should help expedite the drug development process. Our phase 2 program for NKTR 181 is well underway and it’s designed to demonstrate NKTR 181's analgesic efficacy and evaluated potential for abuse deterrence directly in line with the recent FDA draft guidance. The phase 2 efficacy study for NKTR 181 is a randomized double-blind trial in patients with moderate to severe chronic pain from osteoarthritis of the knee. This study was randomized up to 200 patients with the primary endpoints of efficacy, safety and tolerability. This trial will also enable us to confirm analgesic doses for NKTR 181 in chronic pain patients. We will also be assessing multiple secondary endpoints in order to establish a differentiated profile for NKTR 181 in the treatment of chronic pain. These endpoints will include analyses of CNS mediated side-effects typically seen with standard opioid therapies. Our second study in the phase 2 program is the human abuse liability study. This trial will be a randomized double-blind placebo controlled and positive comparative controlled crossover study. Approximately 40 recreational opioid abusers will be enrolled in the study and we will measure the likability of NKTR 181 as compared to a standard opioid. We have reviewed our HAL study design with the FDA and we will be starting with the study in March. Data from both these phase 2 studies are expected in mid to late summer of this year. The chronic pain market is a very large potential commercial opportunity for Nektar. About $12.6 billion of this market come from opioid therapies and about 46 billion is made up of NSAIDS. For the millions of patients suffering from chronic pain, an effective analgesic without the associated risk of current therapies, could transform the treatment of chronic pain. We are pleased that NKTR 181 is proceeding in the clinic and look forward to sharing more on this program later this year. Our second novel opioid molecule NKTR 192 has a distinct profile from NKTR 181. It is designed to have reduced abuse liability and fewer CNS side effects but is short acting and is designed for the treatment of acute pain. We have successfully completed our phase 1 single ascending dose pharmacokinetic study for NKTR 192 which confirmed the PK profile of NKTR192 was well suited for the treatment of acute pain. We have a second phase 1 study underway to evaluate single ascending doses of NKTR 192 with both PK and phamacodynamic endpoints. We expect to complete this study in the first half of this year and begin preparing for the start of phase II. With Nektar 181 and Nektar 192 in our pipeline, Nektar can address both the chronic and acute pain market. We are extremely excited about the advancement of these important new pain candidates and we look forward to sharing more on Nektar 181 and 192 as they advance through the clinic. Before I turn the call over to John for discussion on financials, I would like to briefly discuss two programs we are currently preparing for the clinic; Nektar 171 for neuropathic pain and Nektar 214, a novel cancer immunotherapy. Nektar 171 is a new sodium channel blocker that also represents a very interesting use of our technology; and it is a keen to what we have accomplished with Naloxegol. Neuropathic pain is a serious and debilitating condition that is not treated effectively with gabapentinoid because of their limited effects. Sodium channel blockers were originally developed as anti-seizure medicines but also works exceptionally well in neuropathic pain. However, because they are CNS drug, they come with the whole host of CNS side effects including significant sedation and risk of seizures. Sodium channel blockers have great potential for treat neuropathic pain if you could limit their CNS exposure. With Nektar 171, we have used our technology to design a new sodium channel blocker to be kept out of the CNS and act only in the periphery. In our pre-clinical models, Nektar 171 has demonstrated excellent analgesic activity with low sedation. Neuropathic pain is another large market opportunity. In spite of the limitations with the existing therapies, total U.S. sales for these drugs during in 2011 were $2.5 billion and the patient population and marketing size are growing. We expect to file an I&D for this compound later this year. Our next development candidate, Nektar 214 is a novel immunostimulatory therapy. Cancer immunotherapy drug such as (inaudible) and anti PD-1 have been great advances in the treatment of multiple tumors. However, what has been missing from this field is a highly potency immunostimulatory drug targeting the IL2 pathway. Nektar 214 is the first molecule in which we have used our proprietary polymer Conjugation technology to optimize receptor binding. Nektar 214 is designed to selectively activate tumor killing T cells through the IL2 pathway without activating inhibitory T cells. Activating the IL2 pathway has been shown to be curative in renal cancer and melanoma but the only available IL2 therapy for lucan has been significantly limited by safety and tolerability concerns related to its frequent and high dosing. Our pre-clinical data is extremely compelling for Nektar 214. At modest doses, Nektar 214 demonstrated dramatic inhibition of tumor growth with significantly less toxicity as compared to pro-lucan. So we are excited about moving NKTR214 towards the clinic. With that I will turn the call over to John.

[John Nicholson:]

Thank you Howard and good afternoon everyone. I will start with a review of Nektar’s 2012 financial results and will then present Nektar’s 2013 financial guidance. At the end of 2012 cash and investments were $302.2 million. Total revenue in the fourth quarter of 2012 was $21.1 million compared to $15.8 million in the fourth quarter of 2011. Total revenue in 2012 was $81.2 million versus $71.5 million in 2011. The increase in revenue for the quarter and the year is primarily attributable to higher product sales and noncash royalty revenue related to the UCB Cimzia and Roche MIRCERA royalty monetization for which Nektar received $124 million in February 2012. Total operating costs and expenses in the fourth quarter of 2012 were $64.5 million versus $50.3 million in the same quarter a year ago. For the full year 2012, total operating costs and expenses were $222.4 million as compared to $195.4 million in 2011. Total operating costs and expenses increased primarily due to higher R&D expense for clinical development and higher cost of goods related to increased product sales. Research &Development expenses were a $46.4million for the fourth quarter of 2012, compared to $33.3 million in the fourth quarter of 2011. For the full year 2012, our Research and Development expenses were $148.7 million as compared to $126.8 million in 2011. Our R&D expenses in 2012 increased primarily as a result of the advancement in the clinic for proprietary pipeline candidate NKTR102 and NKTR181. As Howard mentioned earlier, in the past year we have initiated over 140 investigating site for phase 3 programNKTR102 metastatic breast cancer, and we completed the phase 2 expansion study of NKTR102 in ovarian cancer. For NKTR 181 we completed phase 1 clinical development and initiated a phase 2 randomized control study of NKTR 181 in over 200 patients with chronic pain from osteoarthritis of the knee. In addition our 2012 R&D expense also included the final production and stability testing devices; a device for the start of the amikacin inhale Phase-3 clinical program, which is planned for March. Out of the $40.7 million, in the R&D expense in 2012 approximately $60 million were non-cash expenses such as depreciation and stock based compensation expense. G&A expense with $10.9 million in the fourth quarter 2012 compared to $11.5 million in the fourth quarter of 2011. For the full year 2012, G&A expenses $41.6 million compared to $46.8 million in 2011. 2012 G&A expenses included approximately $10 million of non-cash expenses such as stock based compensation expense and depreciation. Interest expense was $15.5 million in 2012 and non-cash interest expense related to the monetization of UCB Cimzia and Roche Mircera royalties was $18.1 million. In the fourth quarter 2012 interest expense was $4.7 million relating to the Senior Secured Notes reissued in the third quarter 2012 for $125 million. These Notes are due in July of 2017 and callable by Nektar in 2015. As a reminder in September 2012, we repaid the remainder of the $250 million of convertible debt. We no longer have any convertible debt on our balance sheet. Now onto our 2013 financial guidance - revenue for 2013 is expected to be between $200 and $210 million. 2013 revenue guidance includes anticipated milestone payments selling $95 million from AstraZeneca based on planned regulatory balance for Naloxegol as announced this week. As Howard just said, we expect to receive $70 million, upon acceptance of the U.S. filing and $25 million upon acceptance of the EU filing. 2013 revenue guidance also includes $20 million of non-cash relative revenue from UCB Cimzia and Roche Mircera. Given the recent situation on (inaudible) we have not included any relative revenue for (inaudible) in our 2013 guidance. R&D expense for 2013 is anticipated to be within $200 and $220 million. 2013 R&D expense reflects our plans to significantly advance a number of key pipeline programs in the clinic including the completion of enrollment in our NKTR-102 BEACON Phase-3 study by the end of 2013, the completion of Phase-2 development program for NKTR-181 and the start of Phase-3 activities for NKTR-181. In addition R&D expense guidance for 2013 also includes manufacturing courts and commercials manufacturing running these activities to amikacin inhale devices. Our 2013 R&D expense guidance include approximately $17 million of non-cash expenses of depreciation and stock based compensation, 2013, G&A expenses, anticipated to be between $42 million and $44 million. Include in our 2012 G&A expense is approximately $10 million of noncash items of depreciation and stock based compensation. For 2013, we expect interest expense will be approximately $90 million and noncash interest expense related to UCB Cimzia and Roche Mircera royalty's moderation will be approximately $22 million. Capital expenditures are expected to be approximately $10 million in 2013. For 2013, we expect our cash used in operations, including CapEx to be between $95 million and $105 million. And we expect in 2013, with approximately $200 million in cash and investments. With that I will now open the call to question. Operator?

[Operator:]

(Operator Instructions). Your first question comes from the line of Jonathan Aschoff with Brean Capital. Your line is open.

[Jonathan Aschoff:]

What were types of MACE events, if you could tell us that and what was the rate of the abdominal pain that you saw, was it similar to what you saw in Phase II.

[Howard Robin:]

First of all, I can’t comment on the specific type of MACE events, it’s not for us to comment on. I can tell you that it’s interesting that when you look at two events in the usual care arm and two events on the Naloxegol arm and the randomization was 2 to 1, that means the rate of incidence of MACE events was actually lower on the Naloxegol. But I can't comment on what those events were. But it’s actually as it rate less for Naloxegol than it was usual care. With regards to abdominal pain, if you look at the abdominal pain in KODIAC-04 or 05 and 08 at 25 mg dose, the abdominal pain was I think about 12% in KODIAC-04, 19% in KODIAC- 05, 18% in KODIAC-08. If you look at what’s very important dose, so, you’re looking at abdominal pain that was somewhat less than the Phase II study. And I let Rob comment a little further. If you look at what’s very interesting for me is if you look at the KODIAC-07 study which is the rollover study, rate of abdominal pain was about 3%. So, what you have is as you stay on the drug longer, the abdominal pain of course disappears, the abdominal pain is temporary, the abdominal pain is associated with a paralyzed bowel starting up again. So the abdominal pain does go away obviously and as I said look at the patients that were in the KODIAC-7 roll over study, their abdominal pain was fairly low.

[Jonathan Aschoff:]

Okay, but you are only just talking about the 25 mg doses in 4 and 5, right?

[John Nicholson:]

That is what I just talked about, correct. Thank you Howard and thank you Jonathan for the question. To the first part of your question, while not being able to provide details of course, as AstraZeneca will be presenting the state at a future meeting. The character of these events in the two arms is similar in terms of the MACE of answers. There is no really difference in the character of the events that were noted. So I really can't provide any more details than that but on the abdominal pain, as Howard noted generally between 10% and 20% is what we see for abdominal pain. And importantly as we've stated previously that these appear to be early events and our transient and as patients continue on therapy, they actually decrease substantially. So in the extension trial which was the KODIAC-7 trial you see an incidence of abdominal pain, these are patients who have been on the drug, drops dramatically and that's very consistent with what we have been saying. Also, we are actually very pleased to note that this overall incidence of abdominal pain is less than we reported in the Phase II trials so all of this is very comforting; we are very pleased with the data.

[Howard Robin:]

Jonathan one more point I would make, I think what's very important to notice that there were no significant adverse events associated with draft attributable to the Naloxegol. So we didn’t see any serious adverse events related to withdrawal, it was attributable to Naloxegol and I think it's very important to see that even though the number of events were balanced between the usual care arm and Naloxegol arm, as a rate there was actually more in the usual care arm. And as Rob said the types of events we can't discuss, but they are exactly what you'd expect to see when you look at 850 patients for a year.

[Jonathan Aschoff:]

Definitely, can you tell me a couple of questions on (inaudible). What's the incidence of gram negative pneumonias in the hospital setting; (inaudible) inhale and are there any other nebulizer antibiotics approved for hospital use in that setting?

[Howard Robin:]

Well there are about 350,000 patients in the U.S. every year that are mechanically ventilated and there is even a higher incidence in the EU. And we know about 65% of those patients are diagnosed with gram negative pneumonias and I don’t believe there are any effect means of providing and the case in which you know is an excellent antibiotics directly to the lungs, I mean you can give it systemically but you reach toxic levels systemically before you can deal with the resistant bacteria in the lung. So this is a fairly large market and highly-highly underserved and if you look at current therapies that are used in the ICU in these intensive care systems, they are roughly going for $200 a day. So, I think this is a very exciting product, I think it’s got lots of potential. We get a very large economic return and I am very excited that Bayer will be starting the program shortly.

[Jonathan Aschoff:]

And lastly can you tell us the breakdown of $140 million milestones for approval?

[Howard Robin:]

No, we haven’t disclosed that but it is split between U.S. and EU and it's probably more heavily weighted to the U.S. that’s all I would say.

[Operator:]

Our next question comes from Cory Kasimov from JPMorgan, your line is open.

[Matt Loos:]

It's actually Matt Loos for Cory today. Just a couple of questions. The first one is, I am interested to know which PEG is used in OMONTYS and may be which other programs share that same PEG and then if you could just help us frame expectations for the phase 2 data for 181, I guess quantitatively what in your eyes would be a good result in sense of the endpoint and if you could just put that into quantitative terms that will be great thank you.

[Howard Robin:]

Sure let me deal with the first question and then I will turn it over to Rob. I can’t specifically say which PEG that is used that we can’t disclose that but I can tell you that the PEG that used in OMONTYS is used in a number of other products, it’s using in one very significant product that’s being on the market for over 10 years and we have no incidences of allergic reactions or negative side effects with that PEG and it is actually the exact same PEG that is used in OMONTYS and it’s used in a number of other products, made in the same plant, made in the same facility, shipped as one batch compared to the next batch. so there is absolutely no connection there that we can possibly imagine and as I said the exact same PEG has been on the market in a very significant product for well over 10 years with no incidence of any adverse events related to the PEG. Let me turn the second part of the call on Nektar 181 of your question to Rob.

[Robert Medve:]

The expectations around phase 2, there are two protocols in our phase 2 program, that include efficacy and the second one on (inaudible) liability, on the first around efficacy, generally speaking without getting into particular end points in this trial, generally speaking we expect to see about 30% reduction from baseline pain scores as a clinically significant change and that’s been published in the literature certainly available. So we would expect, based upon the design of our trial that we will see that level of affect in our trials. So study is designed and powered and so on to capture that level of effect at least. On the human abuse liability trial, again this is using, an active comparator using a commonly abused compound, so our expectation is that we would see less likability which is the primary endpoint in these sorts of trials, less likability compared to a standard comparator of a highly abused drug, so in general terms those are the endpoints and the outcomes that we expect.

[Operator:]

Our next questions comes from John Sonnier from William Blair, your line is open.

[John Sonnier:]

I know you touched on this, in the prior question but what are the questions we received in the aftermath of (inaudible) whether or not you guys have seen historically antibody development against any portion of the tag, that you comment on, I guess what we know there, and whether or not we need to look more carefully at some of the chronic use PEGylated proteins going forward?

[Howard Robin:]

Good question let me turn that over to Steve, and let him comment on that.

[Stephen Harrison:]

Great, yes, that’s a good question. I think, one of the things that’s important to distinguish here is that the development of the antidrug antibodies which happens with every single protein drug on the market whether it’s PEGylated or not. Some small number of patients develop antidrug antibodies, generally always upon multiple administrations of the drug. So their immune system is recognizing the drug and adapting for it. Typically what happens in those cases is that, rather than getting a hypersensitivity reaction you simply see the neutralizing antibodies clear the drug faster than it normally would, and so in patients who develop those antibodies the drug tends to lose its efficacy. It’s important to distinguish that from what apparently has happened in the case of OMONTYS which appears to be an immediate hypersensitivity reaction upon the very first dose. So I think the two issues are quite separate from each other, immediate hypersensitivity or allergic type reactions like that, anaphylaxis reactions upon first row of dose are really distinct class of events that really are different than anything you would have seen with development of antidrug antibodies.

[John Sonnier:]

That's helpful Steve, and have you seen any evidence of tachyphylaxis I guess on the other side of the equation, whether it might be specifically attributed to an anti-PEG antibody.

[Howard Robin:]

No none that I am aware of; PEG is generally regarded as safe. It's nearly ubiquitous in modern consumer products including cosmetics. Many-many pharmaceuticals as a formulation exhibiant and certainly anyone who has had a colonoscopy is aware of the need to consume large quantities of polyethylene glycol before one has that procedure. So we are not aware of any case in which PEG itself would cause these kind of reactions. I suspect that somewhere there is somebody who might be allergic to PEG; I certainly haven’t heard of them.

[John Nicholson:]

Yes and as I said earlier look at the exact PEG, the exact same PEG as used in OMONTYS is used in a number of other well known drug. And one of them has got significant sales volume and has been on the market for well over 10 years and no instance of these earlier allergic reactions so we thought about it and couldn’t even conceive of a way this could be associated with a peg.

[Operator:]

Our next question comes from Bert Hazlett from Roth Capital your line is open. Bert Hazlett - Roth Capital Partners First is on 118 and again congratulate you on a successful study there; the safety data. Can you tell us what the 118 success and the potential for the approval means for the 119 combination, so there are other elements to that agreement with AstraZeneca, have you had any discussions there and what are the plans for 119?

[Howard Robin:]

Well you know 119 is a combination of an opioid with NKTR-118 so it’s in essence like a prophylactic type therapy. Certainly I can't discuss all of the details of discussions we've had with AstraZeneca. I think clearly there is a high level of interest in 119 and I think rightly so, they wanted to see what would happen with 118 in the clinic before moving forward with the 119 program. I know we've developed 119 as a tablet it’s prepared and I can't comment on how easy AstraZeneca might want to move it forward, but I think clearly they rationally wanted to see the results of the 118 clinical process and now that we have that I am hopeful that 119 does move forward. Bert Hazlett - ROTH Capital Partners Is it a full blown Phase 1 through Phase 3 program that will be required or might they be able to bridge through some of the 118 and the opioid data together?

[Howard Robin:]

It’s a very good question, it’s also a question that I can’t actually answer, I can’t speak to AstraZeneca’s development plans for that. Certainly the preclinical in technology data is all bridgeable. Bert Hazlett - ROTH Capital Partners And then just on 181. Assuming success in the Phase II study is you’re currently in the multiple one. How rapidly would you expect that to move into Phase III maybe you spoke to that but I didn’t quite pick that up?

[Howard Robin:]

As we’ve said in the guidance, we’re planning for the start of Phase III, for later part of this year whether we’re dosing patients in December, we’re dosing patients in January 2014, I can’t be specific on that now. But our goal would be to move into Phase III as rapidly as possible. I have discussions with FDA at the end of Phase II, see what Phase III actually like, remember this does have fast track status. So, let’s see what the FDA thinks of it, let’s see how we can accelerate things and I would move this as rapidly as I possibly could. This is a true breakthrough drug that has enormous potential to change the chronic pain. Bert Hazlett - ROTH Capital Partners And just one more quick one. In terms of 181 and 171 and the entire pain portfolio, at this point given what’s going on with 181, are these in house, are these proprietary products of going forward or are they candidates for licensing.

[Howard Robin:]

No. Looking I think, we haven’t been absolute about how we would move the business forward with NKTR-181 and 192 and 171 but I think it’s sufficient to say that I’m not in any position to or I should say I have no great desire to license those programs out at this point. Those are our programs, they are in house Nektar programs, they are proprietary and I think it solidly cements Nektar as major player in the pain business if these drugs work. So, at this point they are our drugs.

[Operator:]

Our next question comes from Joshua Schimmer from Lazard Capital Markets. Your line is open.

[Joshua Schimmer:]

First on 181, I’m wondering if because it has a high gradient between (inaudible) concentrations would we expected to then have a greater peripheral opioid side effect profile and so does that mean it should likely be co-formulated or co-developed in Naloxegol. And then the second question is if you can remind us on the 102, whether there is a utility or (inaudible) and if so, what makes you say that? Thank you.

[Robert Medve:]

On the first question that is on 181 with the relatively greater participating into referral compartment. This was designed specifically to address the (inaudible) of central side effects. As far as peripheral side effects we certainly don’t expect that they would be greater than existing opioids in terms of the peripheral effects and so that from perspective just changing that gradient is not likely to significantly change what's observant with current opioids and on the second question around 1 or 2. There is a planned interim analysis in the trial, very, very low spend of alpha but it's planned for half of the events and of course since an event based analysis it is not possible to clearly nail that down but enrollment has been progressing very well and we complete enrollment around the end of this year. One would expect that the interim analysis on half of the events given the usual survival will probably not be significantly far behind that.

[Operator:]

(Operator Instructions) Our next question comes from Viren Amin from Jefferies, your line is open.

[Viren Amin:]

I had a question on 181; I understand that the company plans to start phase 3 trials later this year. Would they plan to start it alone or would you potentially partner it before starting the phase 3, thanks.

[Howard Robin:]

I have no plans to partner NKTR-181 at this point, I mean this is a, if NKT-181 works it is a multi-multi-billion dollar drug as you can imagine which greatly serves a medical need that is on the forefront of every American and everyone in the world's attention, and the abuse of opioids right now is so significant that even in the face of a novel opioid the FDA is willing to grant fast track status, so quite frankly, we’re going to run with this, in our guidance, John has already included the start of our phase 3 program and at this point I do not expect to be licensing out NKTR-181 in the U.S. prior to the end of phase 3. If at all by the way.

[Operator:]

I am currently showing no further questions, I will now turn the call back over to Howard Robin for closing remarks.

[Howard Robin:]

Well thank you everyone for joining us today and I just want to close by thanking our employees for their dedication and hard work to advance our proprietary pipeline and our research efforts, I also want to thank our partners AstraZeneca, Bayer and Baxter for their strong commitment to the three late stage programs underway, an Opioid-Induced Constipation, Hemophilia A and pneumonia. And Nektar is in its terrific position in 2013 and we look forward to sharing more on our progress with you throughout the year. This month we'll be seeing many of you at the (inaudible) Roth and Barclays Conferences and we look forward to catching up with you then. So we appreciate your support as shareholders of our company. Thank you very much.

[Operator:]

Ladies and gentlemen that does conclude today's conference. You may all disconnect and have a wonderful day.