Good day, ladies and gentlemen and welcome to the Nektar Therapeutics Second 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 call may be recorded. I would now like to introduce your host for today’s conference, Jennifer Ruddock, Vice President of Investor Relations. Please go ahead.

Thank you, Cath. Good afternoon, everyone and thank you for joining us. With us today are Howard Robin, our President and CEO; John Nicholson, our Chief Operating Officer; Gil Labrucherie; 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 trials, 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 these forward-looking statements relate to the future, they are subject to inherent uncertainties and risks, that are difficult to predict, and many of which are outside of our control. Important risks and uncertainties are set forth in our Form 10-Q, filed on May 4, 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. With that, I will now turn the call over to Howard. Howard?

Thank you, Jennifer. Thank you everyone today for joining us on our second quarter 2016 call. On today's call, we will review our quarterly results and discuss the many upcoming catalysts and milestones for Nektar expected over the next several quarters. Ivan will provide an update on our plans for NKTR-181 and NKTR-214, both of which are advancing on track in the clinic. Also, Jonathan will provide a brief discussion on our translational research for the ongoing trial and future trials of NKTR-214. I'd like to begin with a few comments on MOVANTIK. As of July 22, over 332,000 prescriptions for MOVANTIK had been filled in the U.S. since launch. We continue to be very pleased with the efforts of AstraZeneca and Daiichi Sankyo to create awareness for the OIC market, gain primary and preferred reimbursement status for MOVANTIK and drive MOVANTIK's commercial performance in its first year of launch. As MOVANTIK was the first oral PAMORA approved, which treats the underlying cause of OIC, AstraZeneca and Daiichi continue to execute both on unbranded OIC awareness campaign as well as MOVANTIK-specific DTC advertising. U.S. MOVANTIK prescriptions continue to grow nicely. Weekly prescriptions for the week ended July 22 totaled about 8,800, a 15% increase from a quarter ago. This translates to an annual run rate of roughly $133 million at the current WAC price of approximately $290 from monthly prescription. Both companies continue to be extremely pleased with the favorable feedback from patients and physicians after experience with MOVANTIK. Now, let's talk about the positive progress of ADYNOVATE for Hemophilia A, which was launched in the U.S. in November of 2015. In June, Shire announced the completion of its $32 million acquisition of Baxalta. Shire is fully committed to the hemophilia franchise, and continues to invest in ADYNOVATE to position…

Thanks, Howard, and good afternoon. I’d like to begin by giving an update on NKTR-181. First, as Howard just stated, we are pleased to announce that we've recently completed enrollment in our pivotal efficacy trial in chronic low back pain patients. And we are on track with our goal of having top line efficacy data for NKTR-181 in the first quarter of 2017. As we’ve discussed on prior calls, this trial utilizes an enriched enrollment randomized withdrawal design to evaluate NKTR-181 in 600 opioid naïve patients with chronic low back pain. Patients from the efficacy trial are also rolling over into the 52-week long-term safety study, which was also initiated last year. As we mentioned last quarter, we are starting a Phase III human abuse liabilities trial, which is also referred to as a HAL trial by the end of this year. The results from this study are intended to support final labeling and scheduling for NKTR-181. This planned pivotal HAL trial is, of course, much shorter than the efficacy trial and so we expect to complete it in the second quarter of 2017. HAL studies are designed to assess the relative abuse potential of a medicine. Our first HAL trial measured drug liking, feeling high and sleepiness for a 100 milligrams, 200 milligrams and 400 milligrams doses of NKTR-181 as compared to 40 milligrams of oxycodone and placebo. The results showed that all three doses of NKTR-181 were statistically significant in their separation from oxycodone on each of these measures with P values less than 0.0001. As Howard stated earlier, the inherent properties of NKTR-181 could be pivotal in addressing the prescription opioid abuse problem and could be transformative in the treatment of chronic pain. Now, let's move on to what we’re doing in IO, and in particular, the…

Thanks, Ivan. I’d like to spend a few minutes reviewing the importance of our biomarker program in the ongoing NKTR-214 clinical trial. As you know and as we presented at numerous medical meetings, including the recent ASCO meeting in Chicago, in our pre-clinical studies, NKTR-214 promotes tumor-killing immune cell accumulation directly in the tumor, providing a mechanistic basis for its significant antitumor activity in multiple models. In these studies, we’ve characterized the immune-logical determinants of NKTR-214's action. Now as we evaluate NKTR-214 in patients, both as a single agent and in combination with checkpoint inhibitors, we have made it a priority to incorporate human immune monitoring from the very beginning of the trial, in order to examine NKTR-214's mechanistic affect in multiple physiological systems, including whole blood and the tumor microenvironment. In our ongoing clinical trial, we have incorporated the longitudinal collection of pre and post dose blood samples and tumor tissue. Numerous analytes are being measured from these blood and tumor specimens that classify the mechanistic relationship of NKTR-214 action on tumor immunology and the direct PD effect of NKTR-214 in cancer patients. We're using flow cytometry and IHC methods to measure the identity, proliferation, activation state and total abundance of immune cells present during treatment with NKTR-214. And these measurements include changes in the patient's T-cell and K-cell and T-Reg cell levels from baseline in blood and tumor samples and include activation markers such as the proliferation marker KI-67. And importantly, we're also looking at PD-1 and PD-L1 markers specifically, both in the blood and in the tumor because an agent that could stimulate the induction of these markers could become very well-positioned in combination of the checkpoint inhibitors. In addition, we're looking not only at measures of proliferation and activation, but also at functionality and specificity. For example, we’re using nucleic acid-based technologies to detect changes in overall gene expression and TCR repertoire analysis as a measure of T cell clonality. These measurements will demonstrate to us whether NKTR-214 as a medicine has the ability to grow tills in vivo and replenish the immune system. This mechanism is critically important in IO. While inflamed or hot tumors have been shown to respond best to checkpoint inhibition, we have now learned that many human tumors lack the sufficient TIL population. For this reason, TIL-enhancing MOA to transform the IO landscape. We believe that this scientifically-guided approach for NKTR-214 throughout our human trials will greatly benefit our understanding and help us optimize the potential of NKTR-214 as a single agent and in combination for future IO regiments in a broad range of tumor types. And with that, I'll turn the call over to Gil for a discussion of our financial results.

Thank you, Jonathan. I will start with a brief review of the highlights of our second quarter 2016 financial results and then I will go over our financial guidance for this year. Before I review our Q2 results, I would like to note that our year-end cash guidance remains unchanged and we still plan to end the year with approximately $200 million in cash and investments. For Q2 2016, total revenue was $32.8 million compared to $22.7 million for Q2 2015. This increase was due to higher product sales, royalties and license collaboration and other revenue. Product sales and gross margin have substantially increased in 2016 from comparable periods in 2015. These increases are due to higher product sales to Ophthotech under our exclusive manufacturing agreement to supply their ongoing Fovista clinical trials as well as validation batches for the commercial readiness activities. As Howard mentioned earlier, on May 30 of this year, we entered into a collaboration agreement with Daiichi Sankyo Europe, under which we gave Daiichi exclusive commercialization rights to ONZEALD in Europe. This agreement includes a $20 million upfront payment, which we expect to receive in Q3. In Q2 2016, we recognized $3.2 million of the upfront payment in accordance with GAAP revenue recognition principle. We expect to recognize the remainder of the upfront payment over the estimated period of time it will take to obtain final marketing approval of ONZEALD in Europe. Total operating costs and expenses for Q2 2016 were $71.1 million compared to $66.1 million in the same quarter of 2015 as a result of increased R&D investment. R&D expense was $52.4 million in the second quarter of 2016 compared to $45.4 million in the same quarter of 2015. This increase is primarily due to investment in our clinical programs, including NKTR-181 and NKTR-214.…

[Operator Instructions] Our first question comes from the line of Jessica Fye with JP Morgan. Your line is open.

I guess, I want to dig into 214 a little bit more. You talked about the rapidly-evolving landscape in immuno-oncology, can you elaborate a little bit more on the factors that you weigh as you think about the development path from here, particularly in combo with PD-1, including things like tumor typesetting and maybe, which checkpoint inhibitor you most want to study 214 with? Thank you.

We're having problem with the operator opening the call for questions.

Did you guys hear my question?

We did not here it.

So I just wanted to dig in a little bit more on 214 and the kind of development path from here, you guys talked about the rapidly evolving landscape in immuno-oncology, so curious to hear your thoughts or the factors that you're weighing when you think about what tumor types might be most attractive, which checkpoint inhibitors, which PD-1 or PD-L1, what setting or kind of line of therapy and are you privatizing instead of the fastest possible path to market relative to maybe largest potential commercial opportunities kind of how you weigh those factors?

Okay. Can you hear me because we were having some technical problems with the conference. Can you hear me clearly?

I can hear you, Howard.

Okay, good. I think there is a lot of opportunities to move NKTR-214 forward. As we've said a number of times, clearly, checkpoint inhibitors aren't going to work very well if the tumor doesn't have TIL, if the tumor is cold and not hot, you are not going to see a very effective use of checkpoint inhibitors. So I think clearly we’ll want to move forward in combination with checkpoint inhibitors. You can imagine that there's lots of opportunities there, whether we do that ourselves, whether we do that in collaboration with someone else, I think there's lots of possibilities for exploring the combination of NKTR-214 in combination with checkpoint inhibitors. So we haven't laid out the entire program yet. We're in the process of designing these combination studies, which we will initiate this year. We will be looking at NKTR-214 further as a single agent, and we will be looking at it in combination with checkpoint inhibitors. You can imagine and you can imagine the clinical indications or the cancer indications, you can see where checkpoint indicators indicated. So I think at this point, it's a bit premature to define the problem, but suffice to there is an incredible interest in NKTR-214 because it does serve a very, very important use in cancer immunotherapy. If it works, it will clearly change the way cancer immunotherapy is practiced. Now I will also point out that we want to try to move NKTR-214 as early as we can in the treatment cascade. And you can imagine that moving up line is important for us. So overall, I think we're making great progress. I think we will be talking at further meetings about how we plan to move NKTR-214 forward.

Thank you. Our next question comes from the line of Josh Schimmer with Piper Jaffray. Your line is open.

I'll stick on 214. Maybe questions for Jonathan. At point in the dose escalation do you think active level of exposure, how many patients worth of data do you think you'll have an active dose and what signals should investors been looking for with regards to response rate or turning cold tumors hot, should we be looking at [indiscernible] as a proxy is that kind of a right place to start with sitting next to the patients?

Certainly. As we've stated before, one of the main objectives of this first-in-human trial is to access the safety and tolerability pharmacokinetics and pharmacodynamics of NKTR-214 in solid tumors, multiple types. And the objectives of the study in the standard dose escalation is to identify an active dose level that we will then use for further expansion into both as a single agent, and as we have discussed, also into combination trials with checkpoint inhibitors. Now there is an extensive biomarker program that I alluded to earlier in the call. And one of the main reasons of that is to provide immune monitoring components of mechanism of action. We've had good success in our preclinical models, identifying the magnitudes and the quantities and the types of T cell infiltrates into the tumor, the cytotoxic state of those cells and even changes in the clonality of the entire cell population within the tumor microenvironment. We presented this data in multiple meetings earlier this year. And we're making those same analogous measurements in the clinical trial as well. And we are using the totality of all of that evidence in order to really guide the future development and use of NKTR-214.

Hi Josh, this is Ivan. Just to add to what Steve said, you will recall and we have said this previously, we actually started with a dose that we believe based on our preclinical experiments, you do go into with a dose, even the lowest dose, we believe could be sort of an active dose. And then we will be - as we have said previously, we sort of step up by doubling that dose. The original dose was 0.003 mix per gig. As Jonathan said, there is a bunch of things we're looking at, would clearly trying to define the maximum the sort of recommended Phase II dose, we’re looking at safety, extensive biomarker program, and of course, we'll be looking for responses. And all of these factors we’re going across the range of tumor types, but all of these factors would be taken into consideration as we pick the Phase II dosing. And also as we pick the dose that we go into combination with.

May be one quick question for Gil, if you’re on the line. With the new SEC accounting rules on stock-based compensation, what share count should we be using for next year?

We haven't given guidance for next year yet. We look forward to doing on in the first part of 2017. We don't expect any major changes to our stock-based compensation based on new SEC rules. I think, you'll see a consistent past years.

Thank you. Our next question comes from the line of Debjit Chattopadhyay with Janney Montgomery Scott. Your line is open.

So have you contrast the dose, specifically talking about the 214 here. Could you contrast the dose patients are receiving versus the high dose IL-2, knowing that even the first dose was potentially therapeutic. The reason I asked this is because IL-2 has historically given very rapid responses unlike IL other drugs. So if you are starting with in a close to a therapeutic dose, should we not be seeing some degree of response in patients as and when we get the data?

Just to be clear, what we said is we started at 0.0003 mix per gig and we will be talking about sort of clinical data towards the end of this year. But we haven't said anything about it. Other than the fact we have not seen vascular leak syndrome, we had not spoken about our results of the clinical study to date.

Back to the question, but IL-2 traditionally we has given very rapid responses, unlike any of the checkpoint inhibitor in terms of CTLA-4. So should we not be, you know, should we be surprised -- negatively surprised if we don't see responses even at the higher dose cohorts?

As I said before, I think, we're not going to speculate on clinical results at this point. But it is our plan to talk about clinical data before the end of this year.

Okay, then the study was started like eight months ago. I believe, you have six dosing cohorts here. The fact that you haven't seen any VLS issues yet, how far along are you in the study given that it's been eight months and physicians interest was pretty compelling back middle of last year?

Look, I think, I can tell you that we can't certainly give out the data yet on how many patients enrolled such. But you could imagine that we're progressing nicely. Everything is on track and we have seen no instances of vascular leak syndrome. So I think we're very comfortable with that. I think at this point, we feel fairly safe in saying that we have overcome some of those problems associated with high dose IL-2. But what we can do is get into on this conference call the specifics of the clinical trial data today. We will announce it when we announce the top line data. I wanted to give everybody some comfort that at this point, we see no vascular leak syndrome, and I think, that's a very important criteria for looking at this trial.

And then one question on NKTR-102 for breast cancer patients with CNS med. Do you have a FDA to use the proposed study for either single study for NDA or take it back some of the data from the BEACON study? Thank you so much.

What we have done, as we said previously, is we did meet with FDA and certainly they reviewed the design of the study that we are conducting and if that study is successful, we believe they will review this for potential NDA in the US.

[Operator Instructions] Our next question comes from the line of Bert Hazlett with Ladenburg.

My second question is focused on 181. Is the data for 181, I guess, just talk about the timetable, so you fully enrolled the trial. Can you talk about the endpoint, I think, its 12-week endpoint and then when the data should be available? Not just split hairs, but it seems like first quarter is a little extended regard to the data if you’re fully enrolled in this trial. And then just more broadly on 181, could you talk about the strategy with regard to the importance of the portfolio and partnering and how you're thinking about that molecule specifically as we go forward and build out the opportunities you have in front of you? Thank you.

Let me take the latter part of your question first and I'll turn it over to Ivan. I think look, we've said that if we are successful with the NKTR-181, we would like to find a partner for it. I don't really plan for Nektar to build a major sales and marketing organization in the primary care space. At this point, I think that we would be something that we would not want to focus on. So look, clearly a collaboration of partnership, co-marketing, et cetera for something like NKTR-181 is very important to us. And if NKTR-181 is a success in the Phase III study, then we have made a new opioid molecule that is much, much safer, will much better tolerated, much more pleasing for patients as well as solving a major problem in our society, which is abuse of opioids. So I think, we'll get a lot of attention and I don't think we will have any problem finding an important marketing partner for it. But I don't think that Nektar is going to put in place a sales organization as the sole entity to approach the primary care marketplace. I think, we are much better off positioning ourselves to build an organization to deal with immuno-oncology. But let me ask Ivan to comment on what we expect to see in the trial.

Hazlett, thanks for the question. So it seems like a long time. But you’ll recall that very steps to this study. Firstly, patients need to go through a sort of open label uptitration period where we find their appropriate dose of NKTR-214. Then they get randomized and the randomization period is a 12-week period and then there is a brief follow-up period after that. And of course, at the end of that, we have to bring on data and we have to lock the database. So that puts you well into the first quarter of 2017. I don't think we're being more specific about the timing in that regard, but it certainly puts you went into that period.

Okay. Just very quickly the timing of the HAL study and how we should potentially hear those results as well?

So the HAL study will be initiated at the end of this year. And because it -- I don't think we’ve spoken about the entire design externally. But because of the number of arms and it’s sort of one of these Latin-squared type designs where you have to have a different cohorts being treated in the same way, that study will take a little while, obviously, not as long as efficacy study, but we expect to have data from that sometime in Q2. So data from SUMMIT-07 in Q1, data from the HAL study in Q2.

[Operator Instructions] Okay. I'm showing no further questions at this time. I would like to turn the call back over to Howard Robin for any closing remarks.

Okay, thank you. And I want to thank everyone for joining us today. And I would like to thank employees for their hard work and dedication of the company. And importantly, as you can see from the call, we have a number of milestones and catalysts coming up for Nektar over the next several quarters. We have the Phase I dose escalation trial data for NKTR-214, Phase III data for the bio programs, Phase III data for NKTR-181 efficacy, Phase III data for Fovista from Ophthotech and the potential approval of ONZEALD in Europe. So, lots going on over the next few quarters. And we look forward to seeing many of you at the various conferences and medical meetings throughout the fall. So thank you for joining us. Thanks.

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