Good day, ladies and gentlemen, and welcome to the Second Quarter 2008 Nektar Therapeutics Financial Results Conference Call. My name is Gwen, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ms. Jennifer Ruddock, Nektar's Senior Director of Investor Relations. Please proceed, ma'am.

Thank you, Gwen. Good afternoon, and thank you for joining us for Nektar Therapeutics second quarter 2008 financial results conference call. Before we get started, please note that the following presentation contains forward-looking statements that reflect our current views as to the Company's business strategy, the value and potential of our technology platform, the clinical prospects of our proprietary and partnered products, future revenue potential of our partnered programs, our financial guidance for 2008 and other future events relating to the Company. These forward-looking statements involve uncertainties and other risks that are detailed in Nektar's reports and other filings with the SEC, including our quarterly report on Form 10-Q filed with the SEC on May 9, 2008 and the report on Form 8-K filed today which included our Q2 financial results press release. Actual events could differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information, future events or developments. A webcast of this conference call will be available for replay on the Investor Relations page at Nektar's website at nektar.com. In the event that any non-GAAP financial measure financial measure is discussed on the call that is not described during the call, related information will be made available on the Investor Relations page of our website as soon as practical after the conclusion of the call. Now, I'm pleased to hand the call over to our President and CEO, Howard Robin.

Thank you, Jennifer. Thank you everyone for joining us. Today we're going to update you on the significant achievements we've made in the second quarter in both our proprietary and partnered drug development programs, and we will review our financial results. Nektar has made exciting progress over the last 18 months. A year and-a-half ago, Nektar's value was exclusively based on Exubera. Despite the Company's robust validated platform technologies, it had no significant proprietary clinical programs under way. It was not investing in the advancement of a pipeline, and the company's cash burn was exceptionally high. If you look at Nektar today, we've evolved into a completely different company. We have a significant program moving into Phase III development, five Phase II development programs, and important new product candidates moving into the clinic. We are focusing our efforts in drug discovery and drug development using our proven technology platforms. Clearly, Nektar has one of the most impressive pipelines in our industry. We will no longer be a drug delivery service provider or a reagent supplier. Before we begin our detailed discussion, I would like to emphasize that as stated last quarter, all spending and charges associated with the termination of the Exubera inhaled insulin program are behind us. What is truly exciting is that Nektar has now created a path forward that positions us to capitalize on our two validated platform technologies in PEGylation chemistry and pulmonary therapeutics. Our proven platforms give us very special edge that most other biopharmaceutical companies do not have, the ability to generate a steady stream of high-value product opportunities, importantly our platforms have broad applicability to small molecules as well as biologics, both novel and established, across a wide range of therapeutic areas. This competitive edge is what I believe makes us an exciting…

Thank you, Howard, and good afternoon, everyone. As I told you on our last conference call, all financial payments related to the termination of inhaled insulin are now behind us with the final payments of $10.3 million made in April. With these final payments, the financial books on Exubera will close. I will now review our financials for the quarter. Our second quarter GAAP cash used in operations was $31.5 million. Our non-GAAP cash used in operations was 18.7 million down from 25.1 million in the first quarter. Our non-GAAP cash used in the second quarter excludes the following specific payments, 10.3 million for final inhaled insulin payments, 1.5 million related to workforce reductions, and a $1 million settlement paid to the University of Alabama. At June 30, we had cash balance of $373.9 million compared to $412.6 million at March 31. Our capital expenditures in the second quarter were 5.1 million and other net uses of cash was 2.1 million. Revenue was $20.4 million in the second quarter, which includes the recognition of 1.8 million from a $10 million clinical milestone for the completion of the renal safety studies for NKTR-061. There will also be an additional $10 million milestone received this month, as Howard mentioned earlier. Our revenue guidance for 2008 remains unchanged. We expect to generate revenue of approximately $95 million. Our revenue in the second half of 2008 will be substantially higher than in the first half of the year because of the recognition of $8.2 million related to the balance of the clinical milestone for NKTR-061 program and higher PEG product shipments occurring in the fourth quarter. For the second half of 2008 on both a GAAP and non-GAAP basis, we expect to use less cash in operations than we did in the first half.…

Thank you, John. I'm proud of our employees and their hard work and commitment to excellence that is evidenced in our achievements in the first half of 2008. Our company is no longer dependent upon the success of a single out licensed product. Instead, we have chartered a new course and created a robust clinical and preclinical pipeline with significant revenue potential. We've built this impressive pipeline while maintaining financial discipline, significantly advancing our clinical programs without any dilutive financing. That is value creation. With that, I'd like to open up the call to questions.

(Operator Instructions). Our first question comes from Corey Kasimov with JP Morgan. Please proceed, sir.

Hey, good afternoon guys. Two questions for you. One big picture, one just specific. The pig picture question, Howard, could you go into more specifics regarding your thinking of monetizing any of these assets? I mean, you talk about how big this pipeline is and as John just said you can't develop all of it so what's your thinking these days with partnering.

Well, look, as I pointed -- as I have said in the discussion, we are certainly actively in discussions with a number of companies on lots of different topics. Nektar has the advantage of having a very very important platform technology and one of the struggles we have is not what drug to work on next because there are no opportunities but there are too many opportunities, so it's difficult to sometimes decide which program you want to work on next with all the different choices. And I think to optimize these technologies we want to work on numerous programs and we've done that this year. I mean, like I said, look at Nektar a year or two ago when there were very few programs. It was essentially the Exubera company. And today you look at Nektar and we have seven clinical programs and a very very extensive preclinical pipeline. So a lot of progress has been made but you can't keep expanding the company without partnerships and without increasing your revenues. So there are a number of things we can do. We are actively talking to companies because I think the value of our technology and the recognition that we really do have a proven technology is there. I think the pharmaceutical marketplace respects Nektar and I think there's an opportunity to do a number of collaborations to further advance our programs. On the other side of the equation are assets that are not necessarily strategic to Nektar and assets that are very very valuable but may not necessarily fit perfectly with our strategy and those assets can be monetized. They could be royalty streams that we monetize, they could be assets that we are not using that could be very valuable to somebody else. So I think there are a number of ways for us to continue to raise capital without having to dilute shareholders.

Okay. Now as far as the buzz around the pipeline is concerned, it seems like most of the attention is focused on your PEG irinotecan. Is that a product you are willing to partner at this point or is that off the table until you get more data?

Well, I think this. I've said we are -- let's contrast that with NKTR-118. We've said that there is a high level of interest in partnering 118 and there is a number of companies that are interested in that. And I think that's certainly because NKTR-118 clearly leads you to NKTR-119, which is an opioid that has been modified to not cause opioid induced bowel dysfunction and that involves working with controlled substances and it involves perhaps technologies which Nektar is not yet best suited to handle and, therefore, I think a partnership collaboration of 118 makes a lot of sense. And if the economics don't look right, we will continue the program ourselves for sure, but there is a place where a partner could bring value. If you look at NKTR-102, I think that's a program that Nektar can easily handle and move through the clinic and I don't have any intention of partnering NKTR-102 right now. Now, that's not to say that we wouldn't enter into a collaboration on either product for Phase III because at some point if Nektar were sitting with only one or two programs, well of course my answer would be we are going to take them all the way through the clinic, we are going to bring them to the market or at least we are going to partner them after we have Phase III results and an approved drug. With the luxury that Nektar has of having such an impressive pipeline and really a proven technology platform, there is no need for Nektar to take huge risks in Phase III development when I think the Phase II programs are being designed to be predictive of Phase III results. So at this point, I'm pretty comfortable in saying that partnering programs in Phase III, at least at this stage of Nektar's evolution, makes a lot of sense and I think perhaps partnering some of our programs even earlier makes sense but we will have -- suffice it to say that we will be partnering everything from the preclinical stage all the way through Phase III selectively and based upon selectively and based upon what makes sense at the moment.

Okay. And then lastly, when and how might you release the results from the IIa study of 102?

I am going to ask Theresa to comment on that because I don’t know her exact timeframe.

Thank you, Howard. The Phase IIa is currently advancing. The Phase IIa is currently advancing. We have excellent activity that we are observing and we should be wrapping that up in a few weeks. What has happened is, as you know, the Phase IIb randomized trial is really the important trial for head to head comparison with irinotecan and so we're excited about pursuing that in the K-Ras mutant population, which is the newly identified population in colorectal cancer with a very important unmet medical need. There is no standard for that group.

Okay. But you will still release the IIa results that are being done in combination with Erbitux?

Yes.

Okay. Thank you.

Our next question comes from the line of Ian Sanderson, Cowen & Company. Please proceed, sir.

Good afternoon. Thanks for taking the questions. On 102, it sounds like this Phase IIb trial is well I think an interesting opportunity, potentially pushes the timeline out a little bit and have you relooked at this sort of revenue projection that you are giving or revenue target whatever by the end of 2012 with some of the new -- in light of some of the new timelines on the internal development pipeline? Secondly and related to that, could you go through the timing again on NKTR-118, the PEG-naloxol, and when do you expect to initiate Phase II trials there? And third on NKTR-119, could you talk a little bit about exactly how that's working since the PEGylation presumably keeps the molecule from crossing the blood brain barrier. I am not sure how you get analgesia out of this?

Okay. Well, let's talk about 102 first. We haven't our position on we will have Phase II data. We said we would have it by the end of next year and actually moving to the K-Ras mutant population doesn't slow the process down, it actually speeds it up. And these are patients that now have no opportunity to use (inaudible) so quite frankly -- and that's about half the population, actually. So I expect that, if anything, that speeds up development doesn't slow down development. So we are standing by our position that by the end of next year we will have data from the Phase IIb study in NKTR-102. With regard to NKTR-118, NKTR-118 is already in Phase II. It's enrolling according to plan and we will have data by the middle of next year. I will let Kevin speak for a few moments on the issue of combination opioid and NKTR-118.

Yes, the 119 program is actually a simple application of the 118 technology aimed at the prevention of OIC in combination with an opioid product. We are looking at several opportunities to treat chronic pain with the prevention of OIC together. The molecule -- the opioid molecule is actually not PEGylated, it's just in formulation with the PEG-naloxol compound and the two work together to provide the pain relief and then prevent the OIC.

So it's simply a combination dosage form, only one portion of which is PEGylated?

That's correct.

Okay. Very helpful. Thank you.

Our next question comes from Jon LeCroy with Natixis. Please proceed, sir.

Thanks for taking my call. On the amikacin payments, the 8.2 you are going to book and then I think you said there is another 10. Does that mean there is going to be 18 million or so recognized in the third quarter?

No. Basically in the third quarter we recognize 8.2. The $10 million even though that will be cash flow into the company we will not recognize that as income due to the fact that as part of the Phase III study that Bayer will be conducting, we will have to contribute $10 million to those studies.

So will that show up anywhere on the income statement over time or offsetting R&D or anything like that?

No. Well, basically it won't show up on income statement because we will be accruing those expenses on the income statement. So it's kind of a wash.

Okay. Thank you.

Our next question comes from David Steinberg. (Operator Instructions).

Yeah, thanks. Dave Steinberg at Deutsche Bank. Couple of questions. You laid out, Howard, your revenue outlook I think for 2012 and I was just wondering if you could also share with us your outlook for profitability during that time? I know previously maybe before you got there, management discussed when they might turn profitable and what key product would drive in the profitability. So could you share with us perhaps when you might turn profitable vis-à-vis that 2012 period? And then secondly, are you still intending on building a sales force and if so what year should we start building that into our model and could you just remind us of how many sales reps you intend to hire at that time?

Okay. Let's address the second half of your question first. Nektar has no plans at this stage for building a sales organization. I think that's premature and at this point quite unnecessary. That doesn't mean that we won't do it at some point. That doesn't mean that we actually wouldn't take a drug like NKTR-102 to market. But at this point, the company -- in my strategy is not a specific requirement that we actually market a drug in the next four years. So right now I have no plans to build a sales organization. Now let's go to the first part of your question, which is profitability. Look, it is very difficult for a company who is conducting -- a small company which does not have products on the market to be profitable especially when they are conducting significant amounts of research and development activities. As a matter of fact, I can't think of any companies that have no marketed product or even outlicensed product with royalties that are profitable on the basis of those royalties. So looking back at Nektar and Exubera royalties, it's unlikely that Nektar would have been profitable in that scenario. Now one can make the company very profitably quickly. One can say let's just collect our royalties, let's not do any more research and development and we could be profitable in the very very short order, but it would look like a very very boring company and there would not be much of a future other than to clip coupons on our royalties. So what are we doing -- what are the two ways to think about profitability? Well, you could think about profitability in terms of earnings per share and you could say well, we earned $1 in total or we earned $10…

Okay, thanks.

Our next question comes from the line of San Mon with Mon Family Investments. Please proceed.

Hi Howard. I guess I have a question on although it seem though, you want to not think about earnings or value near term, I will ask you the question why we would not with the future that you project, why would we not do some share buyback or buy back some of the converts that we have now at a large discount? Fairly obvious that the cash burn with your new efficiencies would last us way into the future before we even have a need for additional cash.

Well, look, it's something and I think I talked about this before. It's something we always consider. I think at this point companies our size with numerous opportunities in research want to reserve our cash for these research opportunities and you can look at the whole issue of buyback of stock in two different ways. Yes, you buy back the stock and you use your cash to do it and you in theory increase your value of the company that way, but there's other ways to increase the value of the enterprise and my view is can you take that cash and can you put it into additional programs and increase the value of the enterprise that way. So there is no magic rule for doing this. I happen to think that we have so many opportunities in front of us that I don't want to give up the cash that could allow us to get any one of these to work because, as we all know, if Nektar's work on seven or eight or nine or ten or nine or ten different programs, one successful program changes this into a very very different company and I think we have so many shots on goal and I don't mean shots on goal in a very cavalier way where you have one drug and you're studying it seven different ways. We have numerous programs moving through preclinical and clinical development. And I think it only takes one or two really important ones to change the whole face of the company. Now, there are other reasons -- there are other regulatory reasons and commercial reasons why buying back shares are not appropriate right now. But, suffice it to say, that it's something we always consider but right now I think the opportunities in front of us for using our cash to develop drugs is so great that I don't want to use it in a financial engineering sense.

Okay. Second question is you have always been very forthright and very able to predict near-term contracts or partnerships. We have heard not a lot in the last several months. Is there something that you would like to anticipate, discuss in more detail about what we can expect with some of these programs on partnerships?

Well I would like to anticipate lots of things but, look, I always worry about giving guidance toward getting deals done because they are not really under your control and you know that you could be in extensive negotiations with a company and they decide at the last minute not to pursue the opportunity any longer. So I think it's always a bit dangerous for CEOs to make deals a specific public goal. That said, what I try to do is make it clear in this call and other calls that I've had and other presentations I've made to investors in that we are committed to doing partnerships. We have lots of opportunities. We talk to lots of companies. There are lots of discussions going on with small and large pharmaceutical companies in terms of Nektar's portfolio. But telling you that next quarter one will get done, next month one will get done or next year one will get done, I think the timing of that is very very difficult to predict. I think the important thing to understand is that management has a philosophy and is committed to collaborating with major companies and it is baked into everything -- every part of our culture. So we do want to get deals done. I strongly believe that Nektar will get deals done in the future, but setting a very strict guidance for when a deal will get done I think is counter-productive.

Our next question comes from Ian Sanderson. (Operator Instructions).

Just a quick followup on NKTR-125, can you just give us an update in terms of where that stands and the clinical timeline there?

NKTR-125, which is PEGylated diphenhydramine, is still in preclinical. We are still evaluating it and we haven't said publicly when we will file the IND but I can tell you it's progressing through the preclinical stages and we will be giving you more information on that as it evolves.

And as similarly on 061, the amikacin with Bayer, when they plan to start enrollment of the Phase III?

Well, we have said that we expect to start enrollment before the end of this year and it's always a little difficult to give out information from a product that we have partnered. But we did say publicly that we would start -- we would expect to start enrollment before the end of the year.

Okay. Thank you.

This concludes the question and answer session. I would now like to turn the call over to Mr. Howard Robin for closing remarks.

Well, in closing, I want to thank everyone for their support and interest in Nektar. We look forward to seeing you at the upcoming Investor Relations event including the UBS Conference in September and the Natixis Conference in October and our R&D which will be held on November 12th in New York. So thank you very much and I appreciate you spending the time with us this afternoon.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.