Nektar Therapeutics (NKTR) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Third 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 now like to introduce your host for today's conference, Ms. Jennifer Ruddock, Vice President of Investor Relations. Ms. Ruddock, you may begin.

Thank you. Good afternoon, everyone and thank you for joining us today. With us 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 we also have with us Dr. Jonathan Zalevsky, our Vice President of Biology and Dr. Mary Tagliaferri, our VP of Clinical Development. On this call, we expect to make forward-looking statements regarding our business, including potential regulatory approval decisions and commercial launch timing, the timing of future clinical trial, clinical development plan, 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 August 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 at Nektar's website at nektar.com. With that, I will now turn the call over to Howard. Howard?

Thank you, Jennifer, and thanks to everyone for joining us today for our third quarter 2016 call. On today's call we will discuss our progress over the last quarter and also review the significant upcoming catalysts and milestones for Nektar expected over the next six months. We had a very successful third quarter, positive clinical data from our ongoing Phase I trial of NKTR-214 led to a broad clinical collaboration with Bristol-Myers Squibb to evaluate combination regimens with their anti-PD-1 agent in five different tumor types and at least seven different indications. This is the first of a number of strategic collaborations we plan for NKTR-214 all of which will allow us to retain ownership of this program and position NKTR-214 to emerge as a keystone in immuno-oncology. I'll talk more about our strategy with NKTR-214 in a moment. We will also continue to make great progress with NKTR-181. We are on track for a proprietary program for auto-immune disease, NKTR-358 to enter the clinic. Ivan will provide some more detail on this later in the call. First I would like to begin with a few comments on MOVANTIK. As of October 21, over 453,000 total prescriptions for MOVANTIK have been filled in the U.S. AstraZeneca and Daiichi Sankyo remain very committed to building the market for MOVANTIK. Their efforts to gain primary and preferred reimbursement status for MOVANTIK have been very successful and as we enter 2017, these accomplishments will continue to drive MOVANTIK's commercial performance. AstraZeneca and Daiichi Sankyo both believe in the blockbuster potential for MOVANTIK and to that end, they are continuing to execute an unbranded OIC awareness campaign as well as MOVANTIK specific DTC advertising with a new campaign planned to start before the end of this year. In the U.S., MOVANTIK prescriptions continue to grow. Weekly prescriptions for the week ended October 21 totaled about 9,600 roughly about a 10% increase from a quarter ago. This translates to an annual run rate of approximately $145 million at the current WAC price of about $290 per monthly prescription. In Europe Kyowa Kirin is advancing nicely with country launches and reimbursement for MOVANTIK. Pricing in the UK and Germany are already in place and those launches are underway. In Q3 Kyowa Kirin received reimbursement for MOVANTIK in Spain and they expect to receive reimbursement in Italy by year-end and France in early 2017. Both companies continue to be extremely pleased with the favorable feedback from patients and physicians after experience with MOVANTIK and the weekly refill rate is very high 40% to 50%. Now let's talk about the positive progress of ADYNOVATE for Hemophilia A, which was launched in the U.S. in November 2015. The ADYNOVATE launch is progressing with Shire reiterating but they are fully committed to the Hemophilia franchise and that ADYNOVATE clearly fits an unmet need in the marketplace and they're highly focused on ensuring patient access to ADYNOVATE. Remember that ADVATE is the goal standard for treating Hemophilia A and ADYNOVATE is the next generation ADVATE. As a reminder, in Baxalta's Phase III trial of ADYNOVATE, no patients develop inhibitors in the trial and they were no treatment related serious adverse events. A supplemental BLA to expand the use of ADYNOVATE into pediatric patients and surgical settings was filed in February of this year and these pediatric data also served as one of the registration trials for the European filing of the ADYNOVATE this past March. With ADVATE sales exceeding $2.5 billion worldwide the potential for ADYNOVATE as the next-generation ADVATE is extremely exciting. As a reminder, Nektar is entitled to receive mid-single-digit royalties on sales of ADYNOVATE up to $1.2 billon and a flat 13% royalty on sales exceeding $1.2 billion as well as an additional $55 million in sales milestones. Clearly the economic potential for MOVANTIK and ADYNOVATE alone should contribute substantial revenues to Nektar as they continue to capture market share. In addition to these two approved and launch medicines, Nektar has four additional partner programs which are poised to have Phase III data for a potential approval milestone occur in the next several quarters. ONZEALD in Europe and with Daiichi Sankyo fires Cipro DPI, fires Amikacin inhale, and Ophthotech's Fovista. It's successful these larger programs could contribute to our royalty stream as early as the end of 2017. First let's start with ONZEALD, which is partnered by Daiichi Sankyo Europe and it's currently under review in Europe for conditional marketing authorization. In July the EMA validated and accepted the ONZEALD filing. As you will recall the filing is based on the data for ONZEALD in a pre-specified subgroup of patients in our Phase III trial who had advanced breast cancer with a history of brain metastases. You will recall that ONZEALD doubled overall survival in this subset of patients from 4.8 to 10 months. Since the ONZEALD filing was given an accelerated assessment procedure by the CHMP, the review has been shortened to 150 days and so we expect to have a decision on the conditional approval by March of 2017. Upon the first sale of ONZEALD in Europe, we will receive a $10 million in milestone and we will also receive 20% royalties on all net sales in Europe. The milestone and royalties we receive from Daiichi Sankyo will help to fund the confirmatory trial for final approval in Europe which will also serve as the registration trial for ONZEALD in the U.S. Importantly Nektar retains the rights to market ONZEALD in the U.S. and the rest of the world. As a reminder, we were also getting additional milestone payment of $25 million from Daiichi upon final approval in Europe. In the area of anti-infectives, Cipro DPI and Amikacin inhale, two separate programs, being developed by our partner Bayer are poised to complete their Phase III program shortly. In Q3, Bayer presented highly positive data from the first RESPIRE trial of Cipro DPI in adult patients with non-Cystic fibrosis bronchiectasis. These data were presented at the European Respiratory Society International Congress which was held in London in early September. Both primary endpoints were met in the trial for the 14 day on-off dose regimen at Cipro DPI. You recall that two identical RESPIRE trials evaluated treatment with Cipro DPI over a 48-week period. In RESPIRE 1, Cipro DPI significantly prolonged time to first exacerbation versus placebo with a P value of 0.0005 and significantly reduced frequency of exacerbation versus placebo with the P value of 0.0061. The treatment was also well-tolerated with the frequency of treatment emergent adverse events similar across groups. As a reminder, Nektar is entitled to receive an average 10% royalty on sales of Cipro DPI. For Amikacin inhale, we will receive a flat 30% royalty on U.S. sales and an average 22% royalty on ex-U.S. sales, the data from this Phase III program is still on track to report in the first half of 2017. So we look forward to Bayer's announcements with the data from these Phase III programs over the next several quarters. Another key partner program with an upcoming Phase III data catalyst is Ophthotech's Fovista for wet AMD. Ophthotech recently confirmed that they are on track to deliver top-line data from their Phase III program by the end of the year. With a potential for a priority review in this indication, Fovista is positioned for a potential launch in the fourth quarter of 2017. The current market for therapeutic screening wet AMD is $6 billion. We will get a mid-single-digit royalty on net sales of Fovista which represents the substantial opportunity for Nektar. In addition to earning a royalty, we have an exclusive manufacturing arrangement with Ophthotech to support the commercial supply chain for Fovista and so we will also recognize revenue from product sales. So now let's move on to cover our proprietary pipeline. As you know, Nektar has built an impressive pipeline with four highly valuable wholly-owned drug candidates in the therapeutic areas of immuno-oncology, pain, and immunology. In I/O, we have NKTR-214 and NKTR-255 which capitalize on the IL-2 and IL-15 pathways to stimulate tumor-killing T cells and memory T cells. In pain, we have NKTR-181, a novel opioid molecule in Phase III for chronic pain, and in immunology, we have NKTR-358, our very first autoimmune disease candidate, which is planned to enter the clinic in Q1 of 2017. I will comment briefly on these pipeline programs and then Ivan will provide more detail on clinic development plans. Starting with NKTR-214 we really are extremely excited about the initial clinical data for NKTR-214 and the potential of NKTR-214 to transform the immuno-oncology landscape. NKTR-214 is the first medicine that is now demonstrated in humans that it can selectively stimulate the in vivo proliferation and accumulation of endogenous tumor killing lymphocytes within the tumor itself. To date in the I/O field the only way to accomplish this at all effectively has been through Ex-Vivo techniques which can be coupled with significant toxicities. NKTR-214 has also has an extremely attractive and accessible profile as a medicine that has an antibody like dosing regimen and has now demonstrated a well tolerated and favorable safety profile in humans. NKTR-214's compelling biologic profile complements not only the existing checkpoint inhibitor class of drugs but also other mechanisms in development in I/O. The missing medicine in immuno-oncology right now is in agent that can activate the immune system and increase the amount of kills in the tumor micro environment. This is important because of how agents like checkpoint inhibitors work. Remember drugs like checkpoint inhibitors target the patient's immune system not the tumor itself. The immune cells need to be active and abundant in the tumor in order for checkpoint inhibition to work. We have now demonstrated in cancer patients that NKTR-214 grows immune cells in the tumor microenvironment. And because of the clear evidence that we've now demonstrated with NKTR-214's ability to grow cells in the tumor and turn cold tumors hot companies are now coming to us to combine NKTR-214 with their various I/O mechanisms in development. As we evaluate collaborations for NKTR-214, each partner and development program will be carefully chosen to position NKTR-214 strategically with multiple IL mechanisms in a rapidly evolving landscape. As our first step forward on this front, we signed a very important clinical collaboration in the third quarter with Bristol-Myers Squibb which brings together NKTR-214 with Opdivo, the leading anti-PD-1 antibody. The very broad clinical development program with BMS will include five different tumor types and at least seven clinical trials most likely more in patients with melanoma kidney triple negative breast bladder and non-small cell lung cancers. As I said earlier, the BMS collaboration is the first of several we plan to enter into with NKTR-214. The BMS collaboration allows us to advance NKTR-214 in combination with checkpoint inhibition more quickly and more comprehensively than if we had conducted this work on our own and it allows for cost sharing of the trials with Nektar still retaining full ownership of NKTR-214. Additional collaborations will allow us to combine NKTR-214 with other IL mechanisms beyond checkpoint inhibition with biologic rationale strong such as cancer vaccines, adoptive cell therapies, small molecules, and other biologics. I look forward to seeing many of you at the Citi Conference next week in Marylyn where new clinical data from the ongoing Phase I dose escalation trial of NKTR-214 will be presented by our two lead investigators in the trial, Dr. Adi Diab of M.D. Anderson Cancer Center and Dr. Mario Sznol of the Yale Cancer Center who is also the President at SITC. We are continuing to work on our IL portfolio which includes NKTR-255 our IL-15 candidate, NKTR-255 is the memory T cell agent, it plays a complementary role to NKTR-214. Additional targets in our discovery pipeline include one that directly modulate the immunosuppressive mechanisms in the tumor microenvironment and also targets that impact myeloid cell biology. Our goal is to file an IND for NKTR-255 or another IL candidate from our research pipeline in 2017. As we continue our research efforts in I/O, we are working on small molecule programs as well as biologics. Now turning to our immunology work. We are very excited about NKTR-358, Nektar's new autoimmune disease candidate which is designed to stimulate the growth of the body's own regulatory T cells, a medicine which directly increases production of T-Regs in vivo has long been a goal in immunology. With the experience that we gained in the development of NKTR-214 and our ability to develop a medicine which activates the proliferation of cells we knew that we could harness the IL-2 pathway in the opposing way, specifically expanding T regulatory cells and limiting T affected cells. Unlike current immune-suppressing events which globally suppress the immune system to only address disease symptoms, NKTR-358 could be the first medicine to correct the underlying pathology of autoimmune disease. The preclinical and non-human primate data for NKTR-358 are exceedingly promising and highlight NKTR-358's potential to have a profound effect on a number of autoimmune diseases including rheumatoid arthritis, Crohn's disease, psoriasis, lupus and graft-versus-host disease. We are on track to file an IND for NKTR-358 in the first quarter of 2017. Finally we're also on track to have top-line data in Q1 of 2017 from the Phase III efficacy trial for NKTR-181. NKTR-181 could emerge as an important new pain medicine to treat patients with moderate to severe pain. Moreover as opioid abuse remains a major societal problem NKTR-181's unique properties attributable to the molecules inherent structure, position the drug to address the opioids abuse academic. NKTR-181's slow rate of brain injury is uniquely designed to reduce euphoria and likability in sharp contrast to the highly-abused opioids and opioid formulations available today. The drug safety profile might also offer additional advantages over other opioids with a potential for reduced respiratory depression and sedation. Since NKTR-181's properties are inherent to the molecule itself, another result of a reformulation of a highly abused rapid-acting opioid, the drug could also address the serious issue of diversion in this country. With that, I'll now hand the call over to Ivan.

Thanks you, Howard. Good afternoon. I'd like to begin by giving you a brief update on NKTR-181. First, as Howard just stated, we plan to report top-line efficacy data for NKTR-181 in Q1 of 2017 and we now expect the data will come sometime in February or March. NKTR-181 represents a major step forward in the discovery and development of new pain medicines for patients battling chronic pain. As a new chemical entity with inherent abuse deterrent attributes NKTR-181 is designed to provide the pain relief of a full new opioid agonist with significantly less abuse potential, less sedation, and less respiratory depression. As a reminder, we utilized a standard efficacy trial design which is used in the development of long-acting opioids for the treatment of chronic pain. This design is known as enriched enrollment randomized withdrawal. The trial is evaluating NKTR-181 in 600 opioid naïve patients with chronic low back pain. Patients from the efficacy trial are also rolling over into a 52-week long-term safety study which is evaluating doses of NKTR-181 up to 600 milligrams twice daily. This study has now enrolled over 600 patients both rollover patients from the opioid naïve efficacy trial and de novo that patients who are opioid experienced. Due to a higher-than-expected rollover rate and lower dropout rate in the safety trial this study will exceed the requirements for ICH safety exposure guidelines at both six months and 12 months. We're also on track to start the Phase III human abuse liability trial known as a HAL trial in January of 2017. HAL studies are designed to assess the relative abuse potential of a medicine and are conducted in recreational drug uses. Our first Phase II 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. You'll recall that this is the dose range that we are using in the ongoing Phase III efficacy trial. The results showed that all three doses of NKTR-181 was statistically significant in the separation from oxycodone on each of these measures with P values less than 0.0001. The Phase III HAL trial will evaluate the top analgesic dose from the efficacy trial in addition to multiples all of this top dose. Standard opioids have high abuse potential of their therapeutic doses and also have a narrow therapeutic window. We plan to demonstrate in this Phase III HAL trial, the NKTR-181 even at multiples of its therapeutic dose is considerably less light relative to standard opioids at their therapeutic doses. Since NKTR-181 is an MCE and not a formulation, these new data HAL intended to support both favorable scheduling and abuse deterrent labeling for NKTR-181. The people who will have trial is of course much shorter than the efficacy trial and so we expect to complete it in Q2 2017. As I stated earlier, the inherent properties of NKTR-181 that differentiated from existing opioids 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 I/O and in particular the progress that we are making with NKTR-214. As you know we have two clinical data presentations for NKTR-214 at the upcoming Citi Meeting in National Harbor Maryland which starts on November 9. As Howard stated earlier, we will host an Investor and Analyst event which includes a comprehensive presentation and discussion of NKTR-214 clinical data by doctors Diab and Sznol. We are exceptionally pleased to be working closely with Bristol-Myers Squibb on the combination trials of NKTR-214 with Opdivo. BMS is the leader in the development of novel I/O therapies. We believe that commitment to pursue at least seven indication in five different tumor types for the combination program underscores their conviction, the high-end potential of NKTR-214. BMS and Nektar believe that the combination of NKTR-214, the first medicine that grows tumor killing cells with Opdivo the drug that inhibits PD-1 has tremendous promise in advancing the field of immuno-oncology. Nektar and BMS are already screening patients and initiating additional clinical sites for the dose escalation portion of this program and we plan to start enrolling for the expansion cohort in the second half of 2017. The first seven expansion cohorts will include a total of 260 patients in the following indications: first-line melanoma, second-line melanoma, first-line renal cell carcinoma. Renal cell carcinoma patients who have relapsed following treatment with a PD-1 inhibitor, the second-line non-small cell lung cancer with stratification of this cohort based on patients with tumors that express low and high levels of PD-L1, first-line bladder cancer, and triple negative breast cancer. We are very excited about this broad clinical development program. We believe the combination of 214 with Opdivo will allow us to bring the tremendous benefits of I/O therapy to an even greater number of cancer patients. We look forward to the program advancing and generating data over the next 18 to 24 months. With that, I will turn the call over to Gil for a discussion of our financial results.

Thank you, Ivan. I will start with a brief review of the highlights of our third quarter 2016 financial results and I will then go over the annual financial guidance for the year. Before I review our Q3 results, I would like to update our year-end cash guidance as a result of the financing we completed last month. We now plan to end the year with approximately $385 million in cash and investments. For Q3 2016 total revenue was $36.3 million compared to $60 million for Q3 2015. Q3 2015 included recognition of a $40 million milestone payment received from AstraZeneca related to EU launch of MOVANTIK. Excluding this milestone in Q3 2015 revenue increased in Q3 2016 compared to Q3 2015. Product sales and gross margin has substantially increased in 2016 from comparable periods in 2015. These increases are primarily due to higher product sales to Ophthotech under our exclusive manufacturing agreement to supply their ongoing Fovista trials as well as validation batches for their commercial readiness activities. Total operating costs and expenses for Q3 2016 were $69.2 million compared to $59.5 million in the same quarter of 2015 as a result of increased R&D investment. R&D expense was $52 million in the third quarter of 2016 compared to $43.2 million in the same quarter of 2015. This increase was primarily due to investment in our clinical programs including NKTR-181, NKTR-214, and preparations for NKTR-358 to enter the clinic in Q1 of next year. R&D expense for the quarter include approximately $5 million of non-cash stock-based compensation and depreciation expense. G&A expense was $10.3 million in Q3 2016 compared to $9.5 million in the same quarter a year ago. This included approximately $3 million in non-cash stock-based compensation and depreciation expense. Cash and investments at September 30, 2016, were $253.5 million as compared to $308.9 million at the end of 2015. The cash balance at the end of Q3 does not include $189.1 million in net proceeds from our October financing. I will now review our annual financial guidance for 2016, which other than year-end cash remains unchanged from our most recent guidance. We continue to expect total GAAP revenue to be between $160 million and $165 million. There is no change in our 2016 revenue guidance and we still expect to recognize a $5 million MOVANTIK regulatory milestone in the fourth quarter for pricing approval in Italy. There is one remaining $6 million regulatory milestone for MOVANTIK in France which we now expect to receive and recognize in 2017. We continue to expect our GAAP R&D expense will range between $200 million and $210 million. R&D expense includes approximately $21 million of non-cash stock-based compensation and depreciation expense. We continue to expect G&A expense to come in between $40 million and $42 million which includes $12 million of non-cash stock-based compensation and depreciation expense. As I previously mentioned, we now plan to end the year with $385 million in cash and investments. With that, we will now open the call to questions. Operator?

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

Hey guys, thanks for taking my questions. I have a couple on 214. First wondering if you can give us any more color on the distribution of the patient's responses in your Phase I study, i.e. within that group they have 2% to 25% shrinkage, was that distribution closer to 2% or closer to 25%. And then as we extend that patients who qualified a stable disease but may be had growth was that closer to single-digit or was that closer to kind of like on the border progression. Also wanted to just hear a little bit more detail about your appetite to develop 214 as a single agent or whether you see more value ultimately in combination? Thank you.

Well thanks Jessica. Let me take the second part of your question first and then I will turn it over to Mary to give you some more detail. I think look, I certainly strongly believe that NKTR-214 can be developed and we will work as a single agent. I mean if you look at the biomarker data and you look at the data we have collected to-date, there is clear evidence of strong biologic activity. I think it becomes a bit of a challenge to develop it as a single agent given all the excellent drugs that are available in first and second line therapies and combining with things like checkpoint inhibitors are probably much more useful because there's going to be a synergistic effect between checkpoint inhibition and a drug like NKTR-214. So while I think we could develop it as a first-line agent, I think that that in the United States particularly with the advances that people have been made with checkpoint inhibitors I think that -- I think that it is most likely going to be developed in combination with other modalities. Now if you look at checkpoint inhibitor, in addition to one place, you could look at vaccines, you could look at adopted T cells, there are small molecule approaches, there are small molecule checkpoint inhibitor approaches there's lots of things that are being done to use the entire I/O pathway if you will. And I think, I think every one of the -- every one of the modalities being developed needs tumors to be hot. You have to have TILs in the tumors for all of these other modalities to work. So while I think NKTR-214 will work on its own, it's real great value can come in enhancing the effects of all of these other I/O therapies and I'm going to let Mary tell you little bit more about that and answer the first part of your question.

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

Wait, I --

Hi, this is Mary Tagliaferri, thank you Jessica for your question. We do plan on updating both the qualitative and quantitative data that we presented on September 26 at Citi next week and we will have an update on all of the patients who had tumor reductions gone trial as well as all the patient who had stable disease that we previously shared with you on September 26 as well we will go into the biomarker data and have specific quantitative data regarding the CD8 positive T cells in tumor microenvironment and also the changes in the peripheral blood. Like last I would just like to add we will have a comprehensive safety update and provide you with an overview of NKTR-214 and its performance as an outpatient regimen.

Thank you. And our next question comes from the line of Debjit Chattopadhyay with Janney. Your line is open.

Hey, thanks for taking my questions. Just couple of questions, first on the tumor shrinkage, how can you reliably measure a 2% tumor volume decrease, is that within some sort of range of error or 2% reduction it is standard kind of measurement and shouldn't be any errors in that?

Yes, it's a great question. First of all majority of our patients have been enrolled at MD Anderson Cancer Center and 100% of these patients scans are read by an independent radiology group that reviews all the radiology scans for any patient that's in the clinical trial. These radiologists have no idea what treatment the patients are on, they're blinded to the treatment that patients are receiving and they very specifically calculate the sum of the longest diameter of tumor measurements and all of those are added up and then percent calculation is recorded from baseline to the next scan.

As you expand within the doses are of subsequent to recent model right now, do you think that longer-term follow-up you would get even better monotherapy activity or that should not really be the expectation going forward?

Yes, we certainly still as we mentioned on September 26 and as you will see next week we still have patients on study and I do believe you can have new patients who respond later in treatment, we've had one patient who has been on therapy for quite some time as we mentioned on September 26. In addition to looking at a two, three week dosing regimen we're also looking at a two-week dosing schedule for NKTR-214 and we've already enrolled patients to our first q14 dosing regimen. And I just wanted to say, we also have launched and started a combination program and we're currently open at one clinical site and we're screening patients actively and certainly the q14 day dosing regimen is extremely important for our collaboration with BMS but it will be combining with nivolumab which is also a q14-day dosing.

Great and then on the PD-1 expression paradox obviously not the response is not necessarily PD-1 accordingly that PD-1 for expression with checkpoint inhibitors expect for may be lung cancer. So I'm trying to figure out in terms of as NKTR-214 specifically increases PD-1 expression, what the pressure increase that you would need to see a good comminatory of activity with Opdivo?

Hi this is Jonathan Zalevsky, it's a very good question and so the important thing that we're seeing is that there is a change from the baseline, that's important to establish. I mean in addition as we talked in September we're also seeing a change in the proliferative index of the cells themselves. And one of the things that we think is most important is really aligning those two things together at the same time in the tumor microenvironment because we know that when the cells are newly proliferative, it means they've undergone a new round of division and any of the kind of built-up mechanisms of suppression such as mechanisms of exhaustion or mechanisms of terminal differentiation those are all reversed from the cells are newly divided. So those are the things that make us very excited and being able to see that change is why we are going forward with the combination with Nivo.

Great. And one last question on 181, you guided to data sometime in February or March, if my memory tells me right compared to the Phase II study, majority of the patients have 50% to 60% decline from if pains goes from baseline, how often do you see a 50% to 60% decline if pains goes from baseline in other pain studies especially in lower back pain?

Yes, yes thanks, that’s a good question, a very insightful. So in our first study of the Phase II study that we conducted two years ago, earnings dropped off about close to 40%, I think if you look at literature and you look across studies one would like to see drops of around 50% to 55% or more and I think will be on 55%. I think one of the reasons for this is, in the first study the vast majority of patients were treated with so that didn't get beyond sort of the 100 and the 200 milligrams dose. We believe that while those doses may actually work the clearly 300 and 400 is very is a greater and more effective dose and we're seeing well the vast majority of patients actually being titrated to the 300 to 400 dose. So we’re actually very encouraged by that.

Thank you. [Operator Instructions]. Our next question comes from the line of Michael Higgins with Roth Capital. Your line is open.

Thanks operator and good evening guys. Follow-up question on 181, can you give us little more detail on the HAL study that's coming up, specifically what types of abuse you're being -- you're testing, snorting injecting et cetera?

I'm sorry could you repeat the question. I wasn't -- I didn't quite hear it, I apologize.

Sure, sorry on the 181 HAL study, the study is coming up here, what types of abuse do you expect to be testing, snorting, injecting et cetera?

Actually this one will be this will be oral. This is an oral super therapeutic study, if you like. So we're going to test all the drug taken as a tablet which is, it's normal fashion but we're actually going several multiples potentially of the top dose that we're testing in the clinic and we're comparing that to normal dose of oxycodone.

Do you expect to run perhaps in [indiscernible] in injecting?

Yes, so not at this point but I think that's something we were clearly going to work with the FDA to put together a full and comprehensive abuse sort of program. So we can test that, we're obviously very keen to fully elaborate on our profile because we believe the drug itself is inherent in it's an NCA that inherently enters the brain slowly and is therefore should not be associated with abuse potential.

That's an important point because the rate of entry into from plasma to brain is very, very slow compared to typical opioids. So getting it into plasma rapidly via snorting or via injecting for example isn't really, shouldn't really matter all that much. NKTR-181 gets into the brain crosses the blood brain barrier very slowly and consequently it shouldn't really matter how you administer it whether you snort it, whether you inject it, or whether you take it orally as a matter of fact in our Phase II and some of our Phase II and Phase I and Phase II work it was, it was originally given as liquid and patients has to drink it and we measured it that way. So I think the studies as I have been said have to be done but I wouldn't expect to see any significant problems with those studies.

Okay, thanks and just a quick follow-up on the timing for the filing, year-end 2017 or back half of 2017?

You're talking about NKTR-218, so which sorry NKTR-181 I apologize. Yes we have the results of the first pivotal efficacy study either in the sort of in the February/March time frame and will have the results of the HAL study probably at around the sort of the end of the second quarter next year that's our expectation, we will then obviously want to meet with FDA and then discuss with them, what it takes, what it will require to file.

But look I think this. I mean we certainly, if we have a good data from our first Phase III efficacy study as well as good data from the HAL study, we certainly would talk to the agency about some accelerated process and I can't comment on whether we would be successful there but quite frankly given the serious epidemic of opioid abuse in the United States and this drug already having fast-track designation, there ought to be at least some willingness to look at a good data set and think about the benefits to society. That said we've also talked publicly many times about the desire to partner NKTR-181. I think a drug like NKTR-214 in immuno-oncology we can bring that to market ourselves and we've said were going to keep NKTR-214 for ourselves but drug like NKTR-181 which requires enormous primary care sales effort is the kind of a molecule that I or kind of a drug that I would want to partner with another company. So if we have successful Phase III efficacy and HAL data from that first program then I think we would be talking to partners about how do we collaborate to run the second Phase III study and then file the NDA.

Thank you. Our next question comes from the line of Matt Pfau with William Blair. Your line is open.

Hi, just thanks for taking my call. One quick question on NKTR-214, you mentioned the seven kind of expansion cohorts and I noticed first-line lung non-small cell was not on there. Is there any reason for that and also then in second-line will that be chemo failures, some kind of checkpoint failure or looking at both? Thanks.

Thank you. So our second-line lung cancer cohort will be those patients who previously progressed on chemotherapy and we are internally end with BMS talking about our first-line program and we are collecting data and obviously BMS just is recovering from the CheckMate 02 study and internally they're doing a lot of work to understand why that trial failed and we will have ongoing discussions about how it said expanding this collaboration to additional indications.

Thank you. And our next question comes from the line of Bert Hazlett with BTIG.

Congratulations on the progress. We're looking forward to the data upcoming next week. With regard to NKTR-255 and the other programs that are behind 214, how do you expect development of that molecule to proceed, we are talking a lot about combination therapies and combining utilization with 214, how should we expect 255 to proceed as single-agent initially or combination with 214 or what's the rationale development look like at this point?

Yes, hi Bert. Thanks for the question. This is JZ. Yes so with NCTR-255, we have been studying the impact that it has on the immune system and I think you understand some of the biology of it even though it shares a component of the IL-2 signaling receptor complex; it has a lot of different biological properties that are non-overlapping with IL-2. And so those take it into the realm of stimulating the impact on memory responses in the immune system particularly down the central memory or the stem cell memory and factor memory compartments. And also I've given some unique properties on natural killer cells and national killer cells subsets. So we know that there is an opportunity to use the molecule to take advantage of that arm of the immune system. And then when it comes to bringing the molecule forward into the clinic, we're still developing the most optimal way but it is very important in the first in-human experience to really start kind of with even with baby steps, even in the immuno-oncology space. So evaluating the molecule on its own for our first in-human experience would likely be a smart way to begin but then very much like we understand what the evolving I/O landscape understanding then how to add the biology, the NKTR-255 can bring into other I/O modalities will be the important way for the future.

Okay, thank you. We look forward to updates there. Two other quick ones, just I think you mentioned small molecule I/O programs as well, could you confirm that does that use your polymer conjugation technology and then secondly could you remind us of the terms of the manufacturing component that you have with Ophthotech given that it moves the needle in terms of revenue this quarter?

Yes Bert, this is Steve. Certainly everything that we're developing in our proprietary pipeline be it biologics or small molecules, all utilizes our proprietary polymer conjugation technology. Now we've talked a couple of times today about the possibility of expanding our combination work with NKTR-214 into some small molecule NKTR-214 combinations and those might be collaborations with other companies whose molecules wouldn't necessarily be polymer conjugates. But internally we have got some really, really good insightful, I think quite clever ways of using our polymer technology with small molecules in I/O as well. And you will be hearing more about those later this year, I'm sure. I will turn it over to Gil to cover or to Howard to cover the question on Ophthotech.

Yes look that's a good question on Ophthotech and I think in addition like I said in addition to our royalty, we are the exclusive manufacturer for the polymer conjugates associated with Fovista. So while we haven't disclosed any dollar amounts and we can't at this stage, it's basically a volume based fixed price kind of fixed price based on volume kind of contract. And we are exclusive all of Fovista; all of the active polymer conjugates associated with Fovista have to be manufactured by Nektar. So I do think it'll give us some substantial revenues but that's about what I can say about it right now.

Thank you. This concludes today's Q&A session. I would now like to turn the call back over to Howard Robin for any closing comments.

Well thank you everyone for joining us this afternoon. I think NKTR-214 is very exciting and I really if you look at it closely, you will see that it really is the first of its kind and there are no other drugs that really work in vivo to grow and close the proliferation of kills in the tumor micro environment and you need that type of mechanism to complete the entire I/O landscape. It really is the missing piece in I/O and that's why are so excited about it. So we will have good data to share with you at the upcoming Citi Conference, a lot of milestones and how it is coming over the next several quarters, Phase III data for the Bayer programs, Phase III data for NKTR-181, Phase III data for Fovista, and the potential approval of ONZEALD in Europe. So lots of good things happening. We look forward to seeing many of you at the Citi Conference next week for a comprehensive review of NKTR-214. So thanks for joining us this afternoon.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.