Nektar Therapeutics (NKTR) Q1 2016 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Nektar Therapeutics First Quarter 2016 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 may be recorded. I would turn the call over to your host, Jennifer Ruddock, Vice President, Investor Relations. Please go ahead.

Thank you, Stephanie. Good afternoon and thank you for joining us. With us today are Howard Robin, our President and CEO; John Nicholson, our Chief Financial Officer; Dr. Ivan Gergel, our Chief Medical Officer; Dr. Steve Doberstein, our Chief Scientific Officer; and Dr. Jonathan Zalevsky, our Vice President of Biology. On this call, we expect to make forward-looking statements regarding our business, including potential regulatory approval decisions and commercial launch timings, the timing of future clinical 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 2016, and certain other statements regarding the future of our business. Because 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 Form 10-K, filed on February 29, 2016, which is available at sec.gov. 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 on the IR page of Nektar's website at nektar.com. And with that, I will hand the call over to Howard. Howard?

Thank you, Jennifer. Thanks to everyone for joining us today for our first quarter 2016 call. On today's call, we will briefly discuss our quarterly results, and review upcoming milestones for Nektar. Ivan, will provide an update on our plans for NKTR-181 and NKTR-214, both of which were advancing on track in the clinic. Jonathan, will also give a short summary of the exciting data for NKTR-214 recently presented at AACR Conference. First, I'll start with a few comments on MOVENTIG. As of mid-April, over 220,000 total prescriptions for MOVENTIG have been filled in the US. We are pleased with AstraZeneca and Daiichi efforts to build the OIC market and the performance of MOVENTIG in its first year. As many of you have seen AstraZeneca and Daiichi recently initiated a new branded TV commercial for MOVENTIG, which began airing in the past month and they are also continuing to run the unbranded OIC educational campaign ads. They continue to focus on raising awareness about the serious medical condition of OIC in patients with chronic pain and encouraging these patients to talk to their physicians about their condition. Because there has not been a medication to treat OIC effectively, raising awareness of MOVENTIG as a new treatment option is an important component of building the OIC market. Months-over-month US MOVENTIG prescriptions are growing nicely and weekly prescriptions for the week ended April 22 were 7,700. This translates to an annual run rate of approximately $110 million as of today. AstraZeneca and their marketing partner Daiichi continue to be pleased with the favorable reception that the medicine has received so far from the medical and patient communities. We recently received the $28 million payment from AstraZeneca related to Nektar's 40% portion of the upfront payment for the European agreement for MOVENTIG with ProStrakan. We will also receive 40% of the additional milestone payments paid by ProStrakan to AstraZeneca for expected European countries pricing approvals in 2016. ProStrakan is highly focused on the success of MOVENTIG in Europe and they have deep expertise in marketing pain medications. We look forward to them building the OIC market in Europe. Now let's talk about the tremendous progress Baxalta has been making with ADYNOVATE for hemophilia A, which was launched in November of 2015 in the US. Last week, Baxalta provided an update on the ADYNOVATE launch, highlighting the blockbuster potential of ADYNOVATE. They noted that they have already achieved 60% penetration at hemophilia treatment centers with positive patients and prescriber response. In March of this year, Baxalta filed for approval of ADYNOVATE for Europe, in early April ADYNOVATE was approved in Japan. Baxalta has also filed for approval ADYNOVATE in Canada and Switzerland. They continue to invest in ADYNOVATE to position this new treatment to grow and lead the global market for hemophilia A. As a reminder, Nektar is entitled to receive mid single digit royalties on sales up to $1.2 billion and royalties in the low teens on sales greater than $1.2 billion, as well as an additional $55 million in sales amount. As we stated in the past, the economic potential for MOVENTIG and ADYNOVATE alone should contribute substantial revenues to Nektar and move us towards becoming a cash flow positive company. In the area of anti-infectives, Amikacin Inhale and Cipro Inhale being developed by Bayer, and they are also poised to become important new potential medicines that could represent significant revenue for our company. Bayer expects data readouts from these Phase 3 programs in 2016 or early 2017. Cipro DPI is targeting non-cystic-fibrosis Bronchiectasis. The Phase 3 RESPIRE program features two 48-week studies. Bayer completed the first trial for Cipro DPI and the second study is expected to be completed in the second half of this year. We currently expect that Bayer plans to submit results from these trials for presentation at medical meetings sometime this year. We estimate the market for Cipro DPI to be about $750 million and Nektar will receive an average 10% royalty on the sales. Amikacin Inhale targets ventilator associated gram-negative pneumonia in the ICU setting. Bayer is expected top line data from the Amikacin Inhale Phase 3 program late this year or early 2017. We estimate the global market for Amikacin Inhale to be approximately $700 million, which could translate into highly significant revenues for Nektar, as we will receive a flat 30% royalty on US sales and an average 22% royalty on ex-US sales. I'd like to give you a brief update on another significant partnered program for Nektar, Ophthotech's Fovista for wet AMD. Ophthotech recently confirmed that the two Phase 3 trials combining Fovista with Lucentis, are both on track to deliver top line data in the fourth quarter of this year. Based upon this timing, and if the studies are successful, Ophthotech believes that since Fovista has fast track status at the FDA they could qualify for priorities reviews since other wet AMD drugs have been given priorities. If that occurs, that would allow them to launch Fovista in the fourth quarter of 2017. In addition to earning a mid-single-digit royalty, Nektar's manufacturing will support the commercial supply chain for Fovista. The current market for therapeutics treating wet AMD is approximately $6 billion. So the Fovista product sales and royalties represent a very large opportunity for Ophthotech and Nektar. Our partnered portfolio and our wholly-owned pipeline candidate, highlight the strategy we've undertaken at Nektar to carefully balance our development risk across multiple drug candidates and different therapeutic areas. The strategy has served us well and has resulted in a deep and valuable portfolio, which includes two approved and launched medicines with partners, in MOVANTIK and ADYNOVATE, five Phase 3 partnered programs, which add significantly to our royalty revenue potential, and two highly valuable wholly-owned drug candidates, NKTR-181 for chronic pain patients, and our first clinical stage immuno-oncology therapy, NKTR-214. As a new opioid analgesic molecule, properties that are inherent to its molecular restructure. NKTR-181 could emerge as a very important drug to treat patients with moderate to severe chronic pain. Opioid abuse is a major societal problem which continues to be at the forefront of national news. NKTR-181's slow rate of entry into the brain is designed to reduce its euphoria and likeability, as compared with highly abused opioids and the opioid formulations. NKTR-181 is also designed to close less respiratory depression and sedation which could dramatically improve its safety profile over other opioids. Finally, since NKTR-181's properties are inherent to the molecule and are not a result of a formulation and it is not a precursor to a highly abused rapid acting opioid, it could also address the very serious issue of diversion in this country. In immuno-oncology, NKTR-214 has the potential to bring a new mechanism direct in selective stimulation of a patient's cancer fighting T-cells, to the next generation of cancer immunotherapies. In essence, NKTR-214 grows tumor killing T-cells in a way that no other immunotherapy does. We've seen compelling data in our preclinical studies with NKTR-214, including NKTR-214's effect on increasing tumor killing T-cells within the tumor itself. NKTR-214 is incredibly promising preclinical anti-tumor activity, both as a single agent and in combination with a wide range of other IO therapy such as checkpoint inhibitors, vaccines and CAR T-therapies. We are very excited to be working with MD Anderson and Yale on the first clinical study of NKTR-214 and Ivan is going to take you through this study design in a moment. Given the great potential and excitement around immuno-oncology, we are very excited to be developing a drug that could become a center piece in this evolving landscape. In addition, we're also working on other IO and immuno therapies and research, such as NKTR-255, our IL15 candidate which could also play a complementary role for NKTR-214. We will continue to grow our research effort in this area. We're very excited about the opportunities ahead of us, with NKTR-214 and with NKTR-181. And I'll now hand the call over to Ivan, to give you a quick update on both programs.

Thanks very much, Howard. I'd like to start by giving you an update on NKTR-181. First, as we stated last quarter enrollment in our ongoing pivotal efficacy study SUMMIT-07 is ahead of schedule and we are on track to have our top line data from this trial in the first quarter of 2017. As a reminder, the trial utilizes an enriched enrollment randomized withdrawal design, and is evaluating NKTR-181 in approximately 600 opioid naive patients with chronic low back pain. Patients from the ongoing SUMMIT-07 are also rolling over into the 52 week long term safety study of NKTR-181 which was initiated last year as well. We'll also be initiating a human abuse liability trial which we will design with the FDAs guidance under our fast track status to support abuse deterrent labeling and scheduling for NKTR-181. We intend to start this trial in the second half of the year, so we can complete it around the same time as SUMMIT-07 is completed. As Howard stated, NKTR-181 could become important in the fight against opioid abuse. We know that agonism of the new opioid receptor is the best way to treat many chronic pain conditions, but to-date formulation approaches with opioids have not sufficiently addressed the abuse problem and other concerns with opioid medications. This has left physicians with a challenge of treating chronic pain patients effectively, while balancing the risks of opioid abuse obviously, but also the concurrent risk of opioid respiratory depression, another side effect like somnolence. Because NKTR-181's properties are inherent to its molecular structure and it can't be converted to a more rapidly acting potential dangerous opioid, NKTR-181 would represent a significant advancement in pain medicine for physicians and patients. Now, let's move on to what we're doing in immuno-oncology, and in particular, the progress we are making with our Phase 1/2 trial for NKTR-214. As Howard mentioned, the dose escalation portion of this study is proceeding on track. We still expect to report preliminary top line data sometime in the second half of 2016. This first stage of the trial is evaluating single agent NKTR-214, given once every three weeks in escalating dose cohort and its been conducted at MD Anderson and Yale Cancer Center. This dose escalation portion of the trial includes patients with melanoma and patients with renal cell carcinoma among others. In addition to evaluating tumor responses and safety, we are also capturing important biomarker data from both plasma samples and tumor biopsies. As we have stated in the past, although the first stage of this trial is open label, we will wait until we have data from a meaningful number of patients before we provide any results. And as I said, we are on track for that to occur sometime in the second half of this year. Once we determine the recommended Phase 2 dose from the findings of this first stage of the trial, we plan to expand into specific tumor cohort to evaluate the efficacy of NKTR-214 as a single agent. We are also planning a combination dose escalation trial for NKTR-214 with an anti-PD-1 agent and we plan to initiate this in the second half of the year. With that, I am going to hand the call over to Dr. Jonathan Zalevsky, who is our Vice President of Biology. He is going to discuss some interesting new findings we recently presented at AACR with respect to T-cell clonality and in particular, the findings with respect to combination work we've done with NKTR-214 and an anti-PD-1 agent.

Thanks, Ivan. I'd like to spend a few minutes reviewing the very exciting tumor infiltrating T-cells clonality data which we presented recently at the AACR Conference in New Orelans. As you know, with NKTR-214 we bias receptor sub-unit binding within the IL2 receptor complex in order to stimulate the production of tumor killing cytotoxic T-cells and natural killer cells and minimize the production of regulatory T-cells which suppress the anti-tumor response. This unique mechanism of immune system replenishment and stimulation of the tumor micro environment highly differentiates NKTR-214 from other immuno therapy. The new clonality data at AACR demonstrates how this mechanism translates into highly synergistic activity with the mechanism of checkpoint blockade. Now we conducted a T-cell receptor, also known as TCR repertoire analysis, which was designed to assess both anti-tumor T-cell clonality and T-cell tumor infiltration. The sequencing methods we used for TCRs in the tumor, leverage the immuno seek platform from adaptive bio technology. Now before we discuss the data and its significance, I'd like to take a moment to describe the concept of TIL clonality from the basic immune system perspective. Antigens [ph] that originate from the tumor are engulfed by antigen presenting cells and presented on the cell surface in major hisser compatibility complex. The antigen complexes stimulate the activation and proliferation of T-cells that bear the unique TCR that’s specific to that complex. Now this is a key feature of the exquisite specificity in the immune system, as in this biological program only the T-cell were TCR specific for the antigen proliferate, And with this proliferation comes an increase in the population of T-cells stimulated by that antigen complex and therefore the total T-cell diversity will decrease, as the tumor environment fills up with large numbers of clonal T-cells and these cells express the specifically defined TCRs. And we refer to such a population as oligoclonal, meaning that clonality is increased and now a small number of T-cell clones have proliferated and expanded to take up the entire space. Thus a clonality increase in the tumor suggest an increase in tumor reactive T-cell function and because of this, TIL clonality is emerging as a very important biomarker in clinical studies as immuno-oncology agents. Many of you may be familiar with the groundbreaking paper that was published in Nature by Wolchok and Ribas where they closely examined the phenomena of TIL clonality in order to better understand its correlation to clinical response and survival outcome for cancer patients. Now essentially this paper found that the concomitant presence of both TIL clonality and abundance of TIL are significantly correlated with clinical response and better survival outcomes in patients. So what we saw with NKTR-214 and what was reported at AACR, is that NKTR-214 increased both of these parameters within the tumor. In fact, NKTR-214 is a single agent produced a better TIL clonality profile than either anti-CTLA-4 or anti-PD-1 alone. And this is truly exciting because in this study the TIL clonality with single agent anti-PD-1 was low and virtually identical to the vehicle control. And the combination of NKTR-214 and the checkpoint inhibitor resulted in dramatically higher increases for both of these important parameters, TIL clonality and TIL infiltration, as compared dual checkpoint inhibition. The highest increases in both of the markers occurred when NKTR-214 was added to an anti-PD-1 therapy. So as Ivan stated earlier, our preclinical research including this new clonality data continue to show NKTR-214 can be an ideal combination drug in the evolving landscape of immuno-oncology because in the end every therapy benefits from an agent that grows T-cells like NKTR-214. And with that, I'll turn the call over to John for discussion of our financial results.

Thank you, Jonathan. And good afternoon, everyone. I will start with brief review of Nektar's first quarter 2016 financials and then I will go through our annual financial guidance for this year. Total revenue in Q1, 2016 was $58.9 million versus $108.8 million in the first quarter of 2015. This decrease was due to the recognition of the $90 million one time milestone in Q1, 2015 from AstraZeneca for the US launched MOVANTIK. In the first quarter of 2016, we recognized $28 million for all portion of the upfront license payment AstraZeneca received from ProStrakan for exclusive marketing rights to MOVENTIG in Europe. Of note, although we recognize this payment in Q1, we did not receive the cash until April. So our Q1, 2016 ending cash balance of $288.3 million does not include this $28 million. Total operating costs and expenses for the first quarter of 2016 were $68.4 million versus $65.8 million in the same quarter a year ago. R&D expense was $49.3 million in the first quarter of 2016, compared to $47 million in the first quarter of 2015. The increase is primarily due to NKTR-181 Phase 3 program, and the initiation of NKTR-214 Phase 1/2 clinical study Research and development expenses also included approximately $5 million of non-cash stock-based compensation and depreciation expense. For the first quarter of 2016, G&A expense was essentially flat versus the same quarter a year ago at $10.2 million. This included approximately $3 million in non-cash expenses. Cash and investments at March 31, 2016 were $288.3 million, as compared to $308.9 million at the end of 2015. Again, the cash balance of 288.3 million at the end of Q1 does not include the $28 million cash payment received from AstraZeneca in April for the ProStrakan agreement. Our financial guidance for this year is unchanged from the last conference call. Revenue for 2016 is expected to be between $155 million and $165 million. Our 2016 revenue guidance includes approximately $40 million of upfront and other milestone payments in connection with AstraZeneca's license, MOVENTIG to ProStrakan in the EU. 2016 revenue guidance also includes approximately $22 million of royalty revenue from MOVANTIK, representing sales in Q4, 2015 through the end of Q3, 2016, as we recognize royalties one quarter in arrears. Our revenue guidance also includes approximately $24 million of non-cash royalty revenue from UCB CIMZIA and Roche's MIRCERA. We expect our 2016 GAAP R&D expense would be roughly consistent with our expense in 2015, with a range of $180 million to $190 million. This includes approximately $19 million of non-cash items, such as stock-based compensation and depreciation expense. 2016 G&A is anticipated to be between $40 million and $42 million, which includes $11 million of non-cash expense. In 2016, we still expect our net use of cash will be less than $110 million and as a result we still plan to end 2016 with approximately $200 million in cash and investments. With that, I will now open the call to questions. Operator?

Thank you. [Operator Instructions] Our first question comes from Jessica Fye with JPMorgan. Your line is open.

Hey, there. Thanks for taking my questions. I have a couple on 214. First, can you remind us of your preclinical safety data and is there any risk that that might not translate into wide therapeutic window in humans? And I guess, in addition to that, can you talk about how your selected go forward dose in the event you don’t hit a clear dose limiting toxicity or do you expect to?

Okay. Thank you, Jessica. Well, I think look, good question, at this point I can say that we see no evidence of vascular leak syndrome, which was clearly the problem with Proleukin and we set out to avoid that problem with our new molecule. I can let Ivan comment somewhat on how we intent to perceive. But at this point, we're seeing no evidence of vascular leak syndrome which gives us great confidence that what we saw in our animal models, it will translate similarly into humans. I'll actually let Jonathan comment a little further on that.

Yes. Thanks, Jessica. So from the non-clinical perspective, we did a full toxicology assessment in multiple species, including small and large mammal species. And then we mapped out the dose responses associated with fact and also we mapped out a maximum tolerated dose. Then we did a very standard approach forward picking maximally recommended started dose in human where we applied a ten fold safety factor on the maximal tolerated dose from the most sensitive species which was the monkey. And that was used and of course approved by the FDA in allowing us to open the clinical trial. So everything looks very consistent from that approach and now I'll turn it over to Ivan for the clinical.

Hi, Jessica. So yes, I think your question was, if we don’t find an MTD. Clearly, the Phase 1 study is a – it’s primarily designed to identify an MTD and to look at safety. So we'll be looking at safety signals. But importantly, we have a very comprehensive array of biomarkers included in the study, these includes blood biomarkers, as well as tissue biopsies and we will be taking – and clearly we are going to be doing scans throughout the study too. So we'll be looking for responses. And therefore, I think if we don’t see - clearly define an MTD, we're going to look at the other signals that we get. The biomarker signals, the scan signals that we get to help us define the dose that we'll take into Phase 2. But as we've stated on several times, we will not be sharing any clinical data until the second half of 2016.

Okay. Got it. And you alluded to getting to sort of a critical mass of patients before sharing that data. But can you elaborate on how many patients that might be. I think people are trying to sort of extrapolate from the response rates we've seen from Proleukin and guess a number of patients and figure out what the bar is for response rate. But can you A, address that number of patients question and B, you know, you mentioned a bunch of other sorts of metrics that you'll be evaluating as you think about the potential efficacies. So can you maybe speak to that as well?

So you know, its typical 3 plus 3 design. So we plan to go through 5 or 6 doses, so that could equate to about 20 patients. But if we want to put more in more patients in certain level that could increase the number anywhere from 20 to 40 patients. I can't be specific on other outcomes at this point, but clearly as in response to your first question, we'll be looking at this somewhat holistically.

Got it. Thank you.

Thank you.

Our next question comes from Bert Hazlett with Ladenburg. Your line is open.

Thank you. Thank you, for taking the questions. My question is also on 214, and it’s a simple one, but I think the answer maybe a little bit more delicate. Could you just describe how you're thinking about the combination of 214 and the checkpoint inhibitors when you're considering dosing? Just could you consider - could you just give us a framework on, how do we think about the interactions of the two types of molecules and how you're looking to optimize that or even explore that initially and over the long-term as you consider the types of molecules you're dealing with?

Well, Bert, that’s a good question. And I am going to let Ivan comment a little bit on that. But I'd like to say that, its imperative that, that those type of studies go on because if you think about it, checkpoint inhibitor, if you don’t have sufficient lymphocytes in the tumor, the checkpoint inhibitor is not going to do anything, very important in that tumor setting. So the key is to put sufficient lymphocytes in a tumor, make that cold tumor hot and then the checkpoint inhibitors can effectively release the brake. So the fact, the combination of something like NKTR-214 which will take a cold tumor and make it hot, then combine that with checkpoint inhibition, I think is a very, very important combination in immuno-oncology. I am going to let Ivan go into a little more detail on how we'll be studying that.

Yes. Thanks, Bert. So, clearly we are thinking about the design of a combination study at this point. It will be very lightly combination with a PD-1 inhibitor. Regarding the dose, there are open questions, whether we do these sequentially or give them in combination, lightly we will start with a low dose of 214 depending on what we define as out dose to monitor we'll be going into Phase 2. But I think, you know, why do we pick up PD-1, because we have some terrific preclinical data that speaks to that. And I'll let J. Di speak a bit more to the sort of efficacy in preclinical…

Sure. Thanks, Bert. Certainly the preclinical work that we did allow us to make some rationale approaches to considering dosing because in the preclinical model we had a chance to sequence the agents, whether we evaluated the checkpoint inhibitor given first or NKTR-214 given first and then we compare that to the non-overlapping parts of their mechanism. And certainly, as mentioned by Howard, and also by Ivan, we know that there are certain immuno-logical features that we'd like to install into the tumor micro environment and when we change that, that activation state, they increase until the activation of those tell us well, and then combine that with the checkpoint inhibitor to allow those till, and not be swayed by the tumors immuno-suppressive mechanism. That really gives the best therapeutic effect that we observe in the preclinical studies. So we can take all of that learning into consideration as we design the combination study.

Thank you. So we should not think of really combinations studies proceeding with – how do I put it, with any materiality or with any urgency until we're really informed by the 214 single agent study?

No, I don’t think so, I think we will be – I think we have enough preclinical data to suggest that the combination is going to be extremely effective and we will be starting combination studies in the second half of this year before we announce the final readouts on the mono therapy studies. So we are currently designing those combination studies. We'll be commencing them in the second half of this year and they will be running and I think hopefully very effectively when we discuss the single agent data.

Okay. Thank you. Thank you, for the color. Congratulations on the progress.

Thanks.

Our next question comes from Jonathan Aschoff with Brean Capital. Your line is open.

Thank you. Howard, I was wondering, who would the upcoming health study, different design from the prior one that you did, if by more than just patient number?

Hi, Jonathan, I think look, I think its not just an issue of patients numbers, of course, it will have a larger number of actually immuno patients there, their recreational drug usage. But in any case, I think the issue will be how high up in dose do we need to go, what is – what will be the therapeutic dose of NKTR-181 and what dose in the health study where we have to go to demonstrate a lesser likeability if you will. I think that’s an issue of a discussion with the FDA. We're currently designing that study. It will obviously have a placebo arm, as well as an active opioid arm and the issue will be how high did the active opioid go, how high did NKTR-181 go in terms of dosage. And I think that’s the issue that has to be worked out with the FDA and there are pretty clear standards for doing this. So I don’t think that this study will have a lot of subjectivity to it.

Okay. So, are you saying that earlier one did not potentially go up high enough in 181 dose?

No, the Phase 2 health study went up to 400 milligrams and we saw statistically significant difference between that and 40 milligrams of oxycodone. But I think in a Phase 3 health study you will have to push the NKTR-181 dose higher to comply with FDA regulations. But I don’t see that as a particular issue right now, it’s just something we have to do.

Okay. Can you give us sense of how high?

We haven’t worked that out with the agency yet, so I can't comment Jonathan.

Okay. And another one 181, I was wondering what kind of treatment effect do you think you'll need to see to move forward commercially or perhaps it might easier to comment on, you know, what level of treatment effect even if that second Phase 3 perhaps would disincline you from commercializing it, given what else is out there?

I’m going to let Ivan take that one, go ahead.

Thanks, Jonathan. Look as you know pain studies are notoriously hard to run and one sees enormous ranges between – in pain studies. So if you look at the literacy you see separation placebo anyway from the .25 range or even lower up to the – above the 1.0, I’m talking about the delta here. We've designed this study to demonstrate statistical significant separation from placebo to reject the now hypothesis and I believe that we're successful in doing that, based on the number of patients we have in each arm of the study which currently 300, then we will have very good reasons to take this forward and then initiate the second study.

Yes, Jonathan, let me add to that. I mean clearly NKTR-181 has to perform as an analgesic and has to perform reasonably well as an analgesic and we’ll get that data from the comparative Phase 3 study. But let’s understand what the market really is here. I mean, this is a market that is desperate for a safe opioid. If you look at the euphoria that is caused by current formulations, even if they are abused to current formulations, you know that almost everyone of them can be broken and it adds to a very, very significant societal problem we have with drug abuse. And if you look at sedation and if you look at respiratory depression, I mean, I think you can’t pick up a newspaper without reading about the problems associated with traditional opioids. Remember this is an NCE. This isn't a formulation. It is a new opioid molecule and as long as it works reasonably well as an analgesic and it has significantly less euphoria, less sedation, less respiratory depression, means its overall a much safer opioid. I think there is enormous market for a drug like that.

And Howard, how was the appeal resonating the twice weekly ADYNOVATE versus in particular Biogen's Eloctate?

Yes, I can't comment on that, I have to – I really don’t have that information, but I can tell you that there is no doubt that ADYNOVATE is doing well in the market so far. They have a 60% penetration already at the hemophilia centers and you must understand something about ADYNOVATE. When we designed that molecule, we designed it to be a full length ADVATE molecule. These patients that are doing well on their hemophilia treatment and ADVATE being the most important hemophilia treatment out there, given that they have the largest share of the market, those patients are very stable on that drug, they were looking for a longer active ADVATE. So when we designed ADYNOVATE, we didn’t come up with a completely different molecule. We didn’t come up with something that would take the patients off their current therapy. ADYNOVATE is full length ADVATE with a much better PK profile and that’s the reason that I believe that Baxalta is going to do very, very well. And the patients are going to be very comfortable with it, because they really aren’t switching their medication, they are just getting a longer acting version of the exact same medication.

Great, okay. Thanks a lot.

[Operator Instructions] Our next question comes from David Steinberg with Jefferies. Your line is open.

Thanks and good afternoon. On ADYNOVATE couple of another question. Baxalta had some slides last week, they didn’t have a conference call, but they said that its share had stabilized since launch, it sound like its been on the market 4 or 5 months. Is there any additional color you can give us on the launch and if not, do you think its still going to reach - I think they projected 30% to 40% switch rate. I know it’s early, but any comments on, if you think that’s still the goal or you could be better than that?

Well, look, they believe that the ADVATE performance is stabilized, but I think overall they see this as a blockbuster drug. Now look at ADVATE, it sells over $2 billion a year. I can't comment on where they think they’ll go, specifically with ADYNOVATE, but they - I think they over time expect to gain a large portion of that as ADYNOVATE sales. So it certainly takes time. There is information that has to be developed. There is patients that have to get comfortable with it. But they clearly look at this as a blockbuster drug. I mean, they see this as a billion dollar plus drug without any doubt. So I think it hasn't been on the market long enough to get to that level, but let’s watch it overtime and as I said the most important thing is that it is full length ADVATE and that is really the advantage here, it would have been much simpler to make a different molecule. The complexity in designing this drug came from taking ADVATE, keeping it full length and making it – giving it a much better PK profile. That was extremely challenging. But the advantage in the end is that in the marketplace, these patients are not really switching medication, they are taking a better version of the same drug, that’s why we should take it very well.

Great. And just to pick up on that, what you said about PEG ADVATE in the context of a couple of business questions. So, given what you’re thinking about PEG ADVATE and what Baxalta said and given the launch in MOVANTIK so far and given your current royalty stream. Do you think those three components are enough to get you to profitability or at least breakeven as you look at your P&L going forward?

Well, look, I think if you look at the potential for MOVANTIK which Nektar and AstraZeneca both believe is ultimately a $1 billion plus drug. If you look at Baxter, do believe that ADYNOVATE is a billion dollar plus drug. I think as I said both the royalty stream from both of those products could move us towards cash flow positive. If you look at the other programs we have, such as Fovista with Ophthotech and Cipro and Amikacin with Bayer, I think they are enormous revenues associated with partner products which really put us in a very nice fiscal position. Now, the real tremendous value for Nektar comes in things like NKTR-181 and NKTR-214 which are wholly-owned assets and you could only imagine if NKTR-214 is successful then so far we have very high hopes, NKTR-214 is successful, you can imagine the blockbuster potential of a drug which becomes the center piece in cancer immunotherapy that makes checkpoint inhibitors work better. Just remember, checkpoint inhibitors don’t make NKTR-214 work better. NKTR-214 makes checkpoint inhibitors work better. We become the center piece in cancer immunotherapy and I think there is enormous value there. So I think Nektar is on a path towards a very, very successful future.

I agree though these are higher risk programs, I’m just curious whether kind of what you have to balance your R&D with these royalty streams. Roughly what approximation in terms of years do you think you could turn profitable based on these three components and you can add-in Inhale Amikacin, add in Inhale, Cipro, Ophthotech, what’s the rough guideline when you think profitability owns to?

It’s a great question. We discuss it of course all the time because it’s highly relevant. We want to be cash flow positive company. That’s our mission. Companies have to become cash flow positive and profitabe. There is no doubt about that. But we don’t – look, I don’t give guidance going out more than a year. I can tell you that we're well poised to get there and we have a diverse set of program and opportunities ahead of us and we have a lot of these opportunities are have enormous potential. So do I think we will become cash flow positive and profitable, I absolutely do, that’s our mission, but I can't give you guidance going out more than a year.

Okay. And assuming you do turn profitable, I know they have building up, but perhaps John, could you update us on how many NOLs you have currently that you can apply against future income?

Yes. So we have a combination of state and federal NOLs, so from a standpoint of federal we have $1.2 billion and then in state we have approximately $0.5 billion in state NOL.

Okay. Got it. Thanks a lot.

Our next question comes from Michael Higgins with ROTH Capital Partners. Your line is open.

Hi, guys. Thanks for taking some questions. Other questions today, but I wanted to talk about 255 if I could that – what are the internal gating factors looking for before we see this moving into the clinic and is there any impact on what you’re seeing from 214 along the way?

You broke up for a second on the first part of the question, can you just say it one more time.

Sure on 255 what are your gating factors internally before we see this moving to clinic and is there any impact from what we see –what you see from 214 and what happens with 255?

Well, I think, look I think, IL15, NKTR-255 has great synergies with IL2, so clearly 255 becomes complementary and I think we have a goal of moving that into the clinic as well and we have another – we have a number of other immuno-therapy programs underway. I will let Jonathan comment a bit on how we see the stage impact.

Yes, certainly. So there are certain immunological features of IL15 mechanism that are distinct and non-over lapping with IL2, and those are some of the key center pieces of how we're positioning and using that molecule and thinking about it in the overall armament of immuno therapy regimens. So it has a very defined place in maintaining longevity of T-cell responses, it’s a very important feature. And then its very actively pursued program. We have a lot of resources, and the research and discovery group supply to it, working on that and it’s a program that’s approaching IND.

In the sense before you can get this through IND?

Yes, we're targeting an IND for this in 2017.

Okay. Thanks.

Thank you. And that does conclude the Q&A session. I will now turn the call back over to Howard Robin, for closing remarks.

Well, thank you all for joining us this afternoon. And of course, I'd like to thank our employees for all their hard work and dedication as usual. And we made great progress I believe and we look forward to seeing many of you at the various conferences throughout the spring and summer, including Deutsche Bank, ROTH, Jefferies and Citibank conferences. So, thank you. And everyone have a great evening.

Thank you. Ladies and gentlemen, that does conclude today's conference. You may all disconnect. And everyone have a great day.