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…

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…

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…

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.