Nektar Therapeutics (NKTR) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Q1 2017 Financial Results. 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 call may be recorded. I would now like to introduce your host for today's conference, Ms. Jennifer Ruddock, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon to everyone, and thank you for joining us today. With us are Howard Robin, our President and CEO; 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 Senior Vice President of Biology; and Mary Tagliaferri, our Senior Vice President 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 trials and clinical trial 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 2017, 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-K, 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 would like to call -- turn the call over to Howard. Howard?

Thank you, Jennifer, and thank you for everyone for joining us today for our first quarter conference call. On today's call, we will discuss the many upcoming milestones for Nektar's pipeline over the next year, and we will reiterate our financial guidance for the remainder of 2017. We had a highly successful first quarter with a number of significant accomplishments. First, we announced overwhelmingly positive Phase III efficacy and safety data for NKTR-181. I'll talk more about this important data and next steps for NKTR-181 in a moment. Second, in Q1, we initiated the first clinical trial of NKTR-358, our first-in-class Treg stimulator that we are developing for the treatment of immune and inflammatory disorders. We've already completed the first dose cohort of the Phase I trial and Jonathan will discuss more on the trial in the development strategy for NKTR-358 later on the call. We continue to advance our PIVOT clinical program with our collaborator Bristol-Myers Squibb to evaluate the combination of our lead I-O program, NKTR-214 and BMS' anti-PD-1 agent Opdivo. We're very pleased with the way the trial is progressing, and we're currently bringing on additional investigator sites for the expansion phase of the trial that will begin in the third quarter of 2017. We look forward to seeing many of you at our event at ASCO this year, and we've invited investigators to share preliminary data on the first patients enrolled in the dose exploration phase of the study. Mary will cover more details on that in a moment, and she will also discuss the trial that we are initiating next month for NKTR-214 in combination with Roche's anti-PD-L1, TECENTRIQ. For NKTR-214 as we stated in the past the BMS collaboration is the first of a number of collaborations for NKTR-214, which are designed to position NKTR-214 as a keystone therapeutic in I-O that is able to be combined with many different mechanisms in different cancer settings to improve patient outcomes. You'll hear more about our strategy with NKTR-214 on this call, and also about our next I-O development candidates, NKTR-262, a new TLR agonist, which complements NKTR-214 and NKTR-255 our novel IL-15 agonist. Nektar's impressive wholly-owned R&D pipeline across immuno-oncology, immunology and pain, position us well for the coming year. In addition, our partnered portfolio includes existing products, such as MOVANTIK with AstraZeneca, which is at $160 million annual run rate in U.S. sales, with over 10,000 prescriptions written each week and ADYNOVATE with Shire, which just noted on their last conference call, an annual run rate of $200 million. It also includes late stage partnered in filed products, such as ONZEALD with Daiichi Sankyo and the Bayer anti-infective programs. For ONZEALD which is partnered with Daiichi Sankyo Europe, the conditional marketing authorization is currently under review in Europe, and we're hoping for an opinion on the conditional approval this month. During the continued review of the ONZEALD MAA, the latest round of feedback in the last month included some additional questions. We recently submitted written responses that we believe adequately address these questions. ONZEALD is scheduled for an oral explanation at the upcoming CHMP meeting in mid-May, and we look forward to a CHMP opinion following this meeting. With respect to Bayer, Amikacin Inhale was on track to complete Phase III around the middle of the year as well, and we will be working with Bayer to announce results from this program sometime in the third quarter of 2017. So now let's move on to discuss Nektar's growing pipeline. We have built an impressive portfolio with five highly valuable wholly-owned drug candidates in the therapeutic areas of immuno-oncology, immunology and chronic pain. In the area of chronic pain, NKTR-181 is emerging as an important new potential medicine to treat patients with moderate-to-severe chronic pain. Opioid abuse continues to be a major societal problem one that has heavy focus from both the FDA and the White House. As the first new full mu-opioid agonist molecule to be developed in decades, NKTR-181's unique inherent properties as a new pain medicine positioned the drug to not only address the opioid abuse epidemic, but also to reduce diversion of prescription pain medicines for abuse. Importantly, the analgesic doses that were established in the SUMMIT-07 study have already shown abuse potential comparable to placebo in a separate human abuse potential study also known as the Human Abuse Liability Study. In the second half of this year, we will wrap up much of the remaining ongoing development work for NKTR-181, including the second human abuse potential trial and the long-term safety trial. At PAINWeek in September, we plan to present additional positive data from the SUMMIT-07 efficacy trial, which includes secondary endpoints using specific metrics of physical and psychological dependence and withdrawal. These important new data support that NKTR-181 is a truly unique pain medicine that is not associated with the symptoms of dependence that are common to the opioid class. We are extremely pleased with the body of data that we have for this program and the clear benefit potential of this new molecule for patients. The NKTR-181 data established the potency of its analgesia, its low abuse potential, its favorable safety and dependency profile, and the strength of its molecular structure, which can't be broken or converted and isn't metabolized into a rapid-acting euphorigenic opioid form. We intent to review our data for NKTR-181 with the agency in the second half of this year to see if we could find a rapid path to approval for NKTR-181. We also remain committed to establishing a partnership for NKTR-181 this year in order to allow us to bring this important new medicine to patients. As you know, Nektar is developing a broad portfolio in immuno-oncology, our goal is to develop medicines, which can target multiple steps in the immune cycle, in order to stimulate a patient's immune system to fight cancer. Our two I-O candidates, NKTR-214 and NKTR-255 are biologics, which capitalize on the important signaling pathways controlled by IL-2 And IL-15 to stimulate tumor-killing T cells, memory T cells and natural killer cells. And we recently introduced NKTR-262, which is a novel small molecule TLR agonist, designed to complement NKTR-214, which would give Nektar our first wholly-owned combination regimen in I-O. NKTR-214 is a T cell growth factor, has the potential to fill a critical gap in immuno-oncology therapeutic regimens. NKTR-214 is a new medicine that can activate the immune system and increase the amount of TILs in the tumor micro environment, without the corresponding severe toxicities associated with other modalities. By supplying physicians and patients with an effective means to replenish and activate the effector T cell population, NKTR-214 has the potential to dramatically change the way patients are treated with I-O therapies. As I stated earlier, Mary will go into more detail on the NKTR-214 development program in a moment. But we are excited about the data that is emerging to date from the combo trial, and we expect to present initial results from patients who are continuing on treatment in the dose escalation part of the study at our ASCO event. Another important landmark for our I-O portfolio, be the entry into the clinic of our next I-O candidate, NKTR-262. We anticipate filing an IND for NKTR-262 by the end of 2017. Jonathan will discuss more on the strategy for development of NKTR-262 in combination with NKTR-214 later on the call. Now turning to our immunology program and, in particular, NKTR-358. We are very excited about the important milestone achieved in March, with the start of our first-in-human trial of NKTR-358. NKTR-358 is a unique and highly differentiated new therapeutic, which stimulates growth of the body’s own regulatory T cells to address the underlying cause of immune-mediated disorders. We announced last week that Dr. Brian Kotzin has joined Nektar as Head of the development program for NKTR-358. Brian has over 30 years of expertise in inflammation and immunology in both research and industry, including most recently 11 years leading immunology R&D at Amgen. Brian is an expert on autoimmune and inflammatory diseases, and his leadership skills, development experience and strategic guidance, will be highly valuable in the advancement of this very important program for Nektar. Unlike current immunosuppressant agents, which globally weaken the immune system to only address disease symptoms. NKTR-358 is a first-in-class resolution therapeutic designed to specifically correct the underlying pathology of autoimmune disease. NKTR-358 is the only medicine of its kind in clinical trials. It has the potential to have a profound effect on a number of immune and inflammatory disorders, including lupus, IBD, RA, psoriasis, MS, type 1 diabetes and even allergy. With an asset that has this much broad potential in so many indications, we believe the right strategy for NKTR-358 is to seek a co-development and co-promotion partnership with a company that has a strong leadership position in immunology and importantly shares our vision for the broad development of NKTR-358. Our goal is to enter into partnership this year. With that, I will now hand the call over to Mary.

Thank you, Howard, and good afternoon. Today, I'd like to review in more detail the clinical strategy and development program for NKTR-214. This includes the PIVOT program, which is evaluating NKTR-214 plus Opdivo and PROPEL study, which will evaluate NKTR-214 plus TECENTRIQ. The Phase I dose escalation portion of the PIVOT program, PIVOT-02, is well underway. BMS and Nektar believe that the combination of Opdivo with NKTR-214, the first medicine that grows tumor-killing TILs has tremendous promise in advancing the field of immuno-oncology. This is why the PIVOT program is pursuing eight or more indications in at least five different tumor types. As a reminder in the dose escalation portion of the program, we are enrolling approximately 20 to 30 patients with first-line melanoma, second-line renal cell carcinoma and second-line non-small cell lung cancer. The dosing regimens we are exploring include a number of two week and three week infusion dosing regimens of NKTR-214 with Opdivo. As we stated in the past, we have not observed any dose limiting toxicities in the trial to-date. This portion of the trial will help us to identify the optimal dosing regimen for NKTR-214 with Opdivo. Our current target is to select the combination regimen with the optimal safety and efficacy profile so that in the third quarter of this year, we can begin to enroll into the eight expansion cohorts of PIVOT. The expansion part of the program will enroll up to 260 patients and will include first line melanoma patients, first line or I-O naive populations with non-small cell lung cancer, renal cell carcinoma, triple negative breast cancer and bladder cancer, as well as I-O relapsed or refractory patient populations with melanoma, renal cell carcinoma and non-small cell lung cancer. The three latter populations could provide us with the potential for an accelerated pathway to regulatory approval. As Howard stated earlier, we are very excited about the efficacy and safety data that are emerging to-date from the ongoing dose escalation stage of the combo trial. At our ASCO Investor event, we expect to share a mix of initial safety, efficacy and biomarker data for 15 to 20 patients who are currently in the ongoing dose escalation part of the study. Bearing in mind, that depending upon when those patients enter the study, some of these patients will only have had first scans, some will have not yet been scanned and others will have been on treatment longer with more than one scan available. At ASCO, we also plan to present updated positive efficacy and biomarker data from the NKTR-214 single agent trial for four patients, who have renal cell carcinoma and were I-O naive at study entry. These patients had stable disease with tumor shrinkage or an unconfirmed PR as best overall response of NKTR-214 monotherapy and they went on to receive anti-PD-1 based therapy (Inaudible) on label TECENTRIQ indications, which include non-small cell lung cancer patients with metastatic disease regimen or an EGFR or other targeted therapy and also patients with bladder cancer who have progressed on a platinum regimen. We expect to start this trial by the middle of the year as it is an important part of our strategy to position NKTR-214 to be able to be combined with the various checkpoint mechanisms. Nektar and BMS are also co-funding an investigator-initiated trial in approximately 60 patients with sarcoma, which will start around the middle of this year once we've established the recommended Phase II dose for NKTR-214 plus Opdivo. This trial which will be conducted at Memorial Sloan-Kettering and MD Anderson, will evaluate the combination regimen in six different sarcoma subtypes, including osteosarcoma, chondrosarcoma, undifferentiated pleomorphic sarcoma, angiosarcoma, liposarcoma and leiomyosarcoma. Finally, as NKTR-214 is a broad-based mechanism, we have ongoing preclinical work with several collaborations -- several collaborators, which is designed to evaluate the combination of NKTR-214 with additional mechanisms in I-O beyond anti-PD-1 and the anti-PD-L1. This includes preclinical research with personalized vaccines to explore a cancer vaccine program, and it also includes preclinical studies with an oral HDAC inhibitor and other small molecules. We are currently assessing other NKTR-214 collaborations and potential research work, including targeted agents outside of I-O, which could be highly promising in both liquid or solid tumors in the context of the strong T cell activity provided by NKTR-214. In addition, as you've seen and as Howard mentioned, we have shared promising preclinical data for our own NKTR-214 combination regimen that includes a wholly-owned TLR7/8 agonist. [Technical Difficulty]

…that activates the innate immune system, and additional myeloid cell functions such as Dendritic cell maturation and antigen presentation. With respect to lymphoid cells, TLR7/8 agonists are known to simulate cytotoxic cell function and inhibit Treg suppressive cell function. These properties are highly desirable in the tumor micro environment, and as a result, TLR agonists have held great promise for anticancer therapy. However, the problem has been that TLR agonists, when given systemically generate a powerful, uncontrolled immune response leading to major safety liabilities. And our vision was to use our technology to create our own TLR agonist molecule that could overcome these limitations and could be used with NKTR-214 in a combination regimen to target all of the patient's tumors with only minimal intratumoral injections of the TLR agonist. This combination regimen is really a perfect one in immuno-oncology because NKTR-214 and NKTR-262 target key nonoverlapping biological mechanisms. NKTR-262 targets the innate immune system and myeloid cell pathways, while NKTR-214 targets the adaptive immune system and lymphoid cell pathways. We have evaluated this combination in a number of studies, where two tumors are implanted into animals, one on each flank. And we treat one of these two tumors with a single intratumoral injection of NKTR-262 and then give systemic NKTR-214. We observed a complete abscopal response with complete regression in both tumors, even the tumor that was not injected with NKTR-262 and this is because of the combined innate and adaptive immune mechanisms at play with the combination of NKTR-262 and NKTR-214. The efficacy of this combination is tremendous, and these complete tumor regressions are durable and we now have complete survival of all animals in multiple preclinical models. And because of this potential for a curative effect, we are very excited about this program. Importantly, NKTR-262 with NKTR-214 provides Nektar [Technical Difficulty] anything that has been done in the field of immunology previously. NKTR-358 is a novel agent that allows for pharmacological control of immune regulatory pathways by increasing the number and suppressive Function of regulatory T cells, the body’s natural mechanism of immune regulation. Patients with autoimmune disease have either an insufficient number and/or insufficient function of these Tregs in their body. And in the case of normal health, the Tregs control the normal population of self-reactive T cells and also play a key role in peripheral tolerance mechanisms. But when there are insufficient numbers or function of Tregs, it leads to a breakdown of these peripheral tolerance mechanisms and ultimately, results in the patient developing an immune-mediated disorder. So we know that it would be ideal to have an easily accessible medicine that could potentiate or stimulate this population in Tregs. With NKTR-358, we've created a molecule that not only selectively simulates the proliferation and overall number of Tregs, but also their functional activity. NKTR-358 does this at low dose levels and has an extended duration of action. For example, a single subcutaneous dose of 25 micrograms per kilogram of NKTR-358 in nonhuman primates generated functional Treg increases greater than sevenfold for a two week long period. Based on this, NKTR-358 could be a self-administered once or twice a month subcutaneous medicine in humans. Now a drug mobilizes Treg mechanisms has long been sort after in the field of immunology. And, although attempts have been made and are still being made to try to achieve a Treg induction profile with small molecules and other approaches, no one has yet been successful. We've learned that the IL-2 pathway is critical for controlling Treg biology, and so it follows that to create an IL-2 based therapeutic could be a far better way to solve this problem. However, we knew that current R&D approaches, such as IL-2 mutein Fc fusions and ex-vivo Treg cell therapies are not an ideal way to approach this pathway. We've learned from our work with NKTR-214 in cancer that there is very narrow therapeutic window with the IL-2 pathway across the desired impact and target cell populations, such as T effectors for cancer and Tregs for autoimmune disease. With NKTR-214, this enabled us to apply our technology to bias receptor binding and favor proliferation of tumor-killing T cells and minimize Treg production. With NKTR-358, we flipped this approach and applied our technology to attenuate IL-2 receptor binding with market specificity on Tregs in order to widen the therapeutic window possible between T cell populations. Alternative approaches to this mechanism have used protein mutagenesis where significant portions of the protein are altered, which can greatly increase the risk of immunogenicity, when in fact, NKTR-358 is the only molecule of its kind that is in the clinic, that gives us the opportunity to truly mobilize Tregs and target the underlying cause of immune-mediated disorders. The promise of a first-in-class resolution therapeutic that fixes the underlying immune system dysfunction is tremendously exciting, not only to us, but also to many others working in immunology today. NKTR-358 has the potential to address a number of immune and inflammatory disorders, including lupus, IBD, rheumatoid arthritis, psoriasis, Type 1 diabetes, multiple sclerosis, psoriasis and allergy. The first human trial for NKTR-358 is underway. The study is a single ascending dose trial in healthy volunteers and is measuring safety and tolerability, increase in duration of changes in Tregs and their function and PK. The study began this past March, and so far, the first dose cohort has been completed. Our goal is to quickly complete this study in the third quarter of this year to enable us to go right into Phase Ib studies. As Howard stated, we look forward to presenting these Phase I data at a medical meeting in the second half of 2017. With that, I'd like to hand the call to Gil.

Thank you, Jonathan, and good afternoon, everyone. Our financial guidance for this year is unchanged from our last conference call. As a reminder, revenue for 2017 is still expected to be between $145 million and $155 million. Our 2017 revenue guidance includes approximately $25 million to $28 million of MOVANTIK royalty revenue, $9 million to $11 million of ADYNOVATE royalty revenue and $30 million of non-cash royalty revenue from CIMZIA and MIRCERA. As I mentioned on the last call, we are not expecting 2017 revenue to be ratable across quarters. We currently anticipate the remainder of our 2017 revenue to be recognized across the next 3 quarters as follows: approximately 25% in Q2 and a relatively even split between Q3 and Q4. We expect our second quarter revenue to include approximately $10 million for final shipments to Ophthotech to close out binding 2017 purchase commitments. We expect to recognize both the milestone for EU approval of ADYNOVATE and the French reimbursement milestone for MOVANTIK in the third quarter. We are modeling the milestone for first commercial of sale of ONZEALD in the fourth quarter of 2017. As a reminder, our revenue guidance does not include any GAAP recognition of proceeds from any potential collaboration transactions. We anticipate 2017 GAAP R&D expense will range between $230 million and $240 million, which includes approximately $29 million of non-cash depreciation and stock compensation expense. 2017 G&A expense is projected to be between $45 million and $47 million, which includes approximately $12 million of non-cash depreciation and stock compensation expense. We ended Q1 with $362 million in cash and investments as compared to $389.1 million at the end of 2016. To reiterate our cash guidance for the year, we still plan to end 2017 with approximately $225 million in cash and investments. It is important to keep in mind that our 2017 projected ending cash position does not include proceeds from potential partnerships for NKTR-358 or NKTR-181, both of which we are targeting to complete by year-end. With that, I will open the call to questions. Operator?

Thank you. [Operator Instructions] And our first question comes from Jessica Fye from JPMorgan.

Hey, guys. This is Ryan on for Jess. I guess, maybe just start with ONZEALD, when you talk -- when you said that the FDA had some questions that you responded to, is there any additional color you could give us on to the nature of what those questions are?

Yes. Hi, Ryan, just to clarify, this is with the CHMP and not the FDA and yes, just wanted to clarify that for you. And the questions were not around manufacturing, they were not around safety or any of the efficacy data. There were no baseline differences between the groups. But as you know, we're seeking conditional approval based on the small subset of patients, roughly 70, with advanced breast cancer and brain metastases from the BEACON trial. So the new questions were mostly on this subset of patients of the mechanisms by which this patient population performed much better on ONZEALD compared to the treatment of physicians' choice. And the appropriate scope of a potential conditional approval. We do believe we have adequately addressed these questions, and in the oral explanation, we plan to present these answers. And with us will be a number of our experts who are our key opinion leaders and are involved in both the pain study and were involved in the BEACON trial as well.

Okay. And on 358 when we to get that Phase I data later this year. I guess given sort of the numbers of indications that the asset could be potentially used in and the potential for partnership discussions with the asset. I guess, how informative is this initial data? And how much to that -- along those lines, how much data will we get to see when you present that -- those top line data?

Ryan, this is JZ. Thanks for the question. So the data from this Phase I single ascending dose trial in healthy volunteers is actually going to be quite informative. Because it's going to the place where the pharmacodynamic measurements, specifically the changes in Treg numbers as well as measurements of their functional activity are directly translatable from all of the preclinical work, including preclinical primate models that we ran directly into the human immune system. So this is one of those unique situations where even if Phase I single dose study in healthy volunteers is quite meaningful because the biomarker were measuring is indeed the therapeutic hypothesis of the drug. So it will really be informative, it will validate the mechanisms of action of the drug in humans.

Great, thank you for taking my questions.

Thank you. And our next question comes Earl D'Souza [ph] from Janney Montgomery.

Hi, everyone and thank you. I have two questions. The first one is, did you guys receive any feedback from your market research around payer willingness to support a premium product with NKTR-181 profile?

Well, look, we've done a lot of homework on that, and I think we haven't talked about establishing a price yet. But suffice it to say, that you're talking about a major health care crisis in the United States. And we think we have a drug, which has a significant improvement of quality of life for these patients. As well as limiting the abuse potential and the diversion potential. So in essence, NKTR-181 does go a long way to solve the opioid abuse problem in the United States. Now we haven't discussed pricing in depth yet with anybody, but I imagine that it would -- I imagine that that won't be an obstacle, and I'm not going to comment on whether it's premium priced or it's priced in a similar fashion to other opioids. Clearly, it's going to be a very, very important program -- product for patients who have no other choice, but to deal with their pain through use of an opioid, if you understand that patients who have moderate-to-severe pain have no choice but to take opioids. It's the only thing that works in that type of pain. And if we have an opioid that is -- does not cause dependence, does not cause abuse, does not cause euphoria, is not necessarily likable from those point of view and is not divertible because it can't be -- the opioid cannot be freed up into euphorigenic form. Then I think we've solved a major health care problem and I think while pricing is always important that we want to make sure that all patients have access to the drug that can't be the main topic of discussion here. This is a novel molecule in a new opioid that has been not seen for decades.

Thank you for that. I believe you touched base on this, but maybe you can share a little color. The ONZEALD approval in the EU, is this going through the regular channel? And in which cases have you received the 120-day question?

Yes, this is Mary. Yes, we -- we submitted a conditional marketing application. We did receive Day 120 and Day 180 questions. And our meeting with the CHMP is in oral explanation to further clarify our responses to those questions in the Day 180.

All right, thank you.

Thank you. Our next question comes from Bert Hazlett from BTIG.

Thank you. I've got a couple actually. First of all, my apologies. During the call -- during Mary's conversation about -- description about the four patients and the data that was going to be presented at ASCO. The call cut out. And it actually happened a couple of times during the call. So I'm going to ask for -- I've had a couple of e-mails into me from clients as well. Mary, would you please repeat what you said about the four patients and the data that was going to be discussed there? Is that additional positive data on the RCC patients? Again, apologies for this, but the call cut out. And then I've got a couple of other follow-ups.

Bert, this is Jennifer Ruddock. We're apologizing for technical difficulties that were caused by NASDAQ during this call unfortunately. So what we're going to do is we are going to post the final transcript on the website immediately as soon as the call ends, so that you can actually see the entire script but I will have Mary repeat the section related to ASCO. And again we're sorry for the NASDAQ technical difficulties on the call. Go ahead, Mary.

Yes. Bert, this is Mary. We apologize that you were unable to hear, but as we previously mentioned there were four patients, who enrolled to the monotherapy study who had renal cell carcinoma, but had not previously received any I-O agent, and those four patients were treated with NKTR-214 and either they had stable disease, or as you know, we had a patient that had an unconfirmed partial response, those patients went on to receive subsequent nivolumab, And Dr. Adi Diab from MD Anderson, originally put 1 patient on nivolumab after he know that this patient had a large influx in CD8 positive T cells in the tumor micro environment and Adi went to put that patient on nivolumab. And at SITC last year, we presented the scanned data for this patient, which showed after the patient received eight weeks of nivolumab following NKTR-214, the patient had a very deep and robust decrease in tumor burden. And Adi showed those scans, which showed roughly 60% reduction in lesions. And so Dr. Diab after noting the very robust response in this one patient, went on to put three other patients on subsequent nivolumab. And we're going to present those data with not only their scanned data, but also their corresponding biomarker data to provide you with a fuller picture of the benefit of NKTR-214 with nivolumab. In addition, at ASCO we will also be showing you the combination data with concurrent dosing of NKTR-214 plus nivolumab.

Okay, thank you very much for that incremental color. The question -- I guess, I have a question on 358 and the PK/PD relationship. Shouldn't that be altered in patients with inflammatory conditions. So as you think about what you're learning here, clearly it will be informative, but would you expect there to be a different PK/PD relationship with 358, as you get into patients rather than normal volunteers?

Hey Bert, this is JZ. Thanks for the question. So we did look at that in our -- some of our preclinical studies, where we looked at the immunological impacts of NKTR-358 in a healthy immune system versus an immune system that's been damaged, with either an acute or a chronic inflammatory insult. I mean, through those studies we do have an understanding of the kinds of appropriate PK/PD responses in dose ranges. And the intention in this first study in healthy volunteers is of course to validate and translate all of that kind of knowledge into the healthy immune system. And then it also prepares us to understand the PK/PD and prepare for our advancement into patients. So it's something that -- it's a journey, but it's all encompass and we'll be using the preclinical data as well as the Phase I data guided.

Okay. Terrific. And then just with regard to the TLR7/8 agonist, how should we think about dosing with that program?

Yes, it's a very good question. When we do the preclinical studies, it's very important that we apply the drug, and we apply it directly into the tumor. But what we know is that it takes very, very few injections into the tumor. In fact in our preclinical studies, just 1 single administration coupled with systemic 214 is enough to completely cure all of the tumors in those animals. And so when we prepare for clinical studies, we'll take guidance from what's known about intratumoral injections of TLR agonists some that have been used before, but then the specific pharmacokinetics that's imparted by our polymer conjugated version of the TLR agonist NKTR-262 as well. So we'll be looking to create a molecule that when it's administered, the patient will be a very, very infrequently administered agent.

Terrific, well we look forward to the data. Thanks very much, congrats on the progress, guys.

Thank you. Our next question comes from Michael Higgins from Roth Capital Partners.

Thank you. Good afternoon, guys. Question first on 358. I'm hoping if we could get some feedback on the timing for partnerships. It sounds like this will after the Phase Ib and that would be later in the year, I just want to confirm that. Also, how long are you following the patients, what measurements can you tell us on the call here that you're looking for in terms of its safety profile as well as offering the insights on its efficacy? Thanks.

Well, look in terms of collaboration, you can imagine there are many companies that are highly interested in a molecule like NKTR-358. It really is the first-in-class the potential resolution therapeutic, and it's -- no one has yet to develop a drug that treats the underlying disorder of autoimmune disease. Lots of drugs treat symptoms as you could imagine, but no one's been able to treat the underlying mechanism. And that's why NKTR-358 is potentially so important, and the discussions we're having with a number of companies are very promising. All I'm going to say at this point is strategically we would like to have a collaboration because as you can imagine, it can be developed in as JZ has said number of times a multitude of different autoimmune diseases and we want to make sure that we can leverage that molecule as broadly as possible and that will take a collaborator who has the economic power as well as the breadth of experience to do that. But what I've said is, we -- the strategy is to have a collaboration with a company that sees the molecule in the same broad way we do, and I hope to have that accomplished this year. I'll let JZ answer the specific questions on what we're measuring.

Yes. Thank you, Howard. So in this single ascending dose trial in healthy volunteers, we're following the subjects out for approximately two months. We're making the normal measurements of tolerability as you measure in all typical studies of this type. And then there is one additional sort of key pharmacodynamic measurements that we're making. Now I've talked earlier about the PD measurements for Treg numbers and Treg activity. But we're also simultaneously measuring non-Treg immune cells such as conventional T cells as well. So another very important endpoint is that kind of the ratio or the window, right? So where you activate and increase the Treg populations, but you leave the conventional T cells unchanged. So those are the main pharmacodynamic endpoints as well as the safety in PK and so forth.

Okay, thanks guys.

Thank you. Our next question comes from David Steinberg from Jefferies. Your line is open.

Thanks and good afternoon. I just wanted to expand on your prior discussions on partnerships for 358 and expand that into 181. So I know with both product candidates you've talked about consummating collaborations before end of the year. And I'm just curious, how are you thinking about structure and economics? And structure, do you intent to carve out a piece for self-marketing? Should we expect straight out licenses from them? And how you're thinking about balancing up front? You obviously, don't have to have the cash, but you could always use more balancing upfront versus backend. And then just on 181, in terms of pain, obviously, there are less players globally than they used to be and perhaps the opioid controversy has scared out some companies. At the same time 181 is part of the solution. So what sort of companies are you talking to and structure on 181 and 358?

Okay. David, very good questions. So let's talk about 358 first. I mean, look, clearly this is a major asset for Nektar. I -- in my discussions with companies, we've made it pretty clear this is not an out license. This is a strategic relationship where the strategic partner brings significant economics as well as significant expertise. So if you -- I think you can rest assured that Nektar will be heavily involved in the development of NKTR-358 as well as potentially an active part of the future marketing of NKTR-358 or co-promotion of 358 at some point in the future. It's a little bit far out to talk about that right now. But suffice it to say that in terms of economics, I would expect substantial upfront economics and I would expect a substantial backend and a commitment for Nektar to be heavily involved in the development of this drug with the partner taking on very, very respectable share of the development costs. So I think you can't treat this as a simple out license, you have to think of this as a vital and strategic asset for Nektar given the fact that there's probably 10 different disease areas that you could -- where you could apply NKTR-358. And as I said earlier, I think it's beneficial to have a company that shares our vision for the broad development in this molecule, but it's going to come with a price, and I'm expecting that there is some substantial economics for Nektar behind this. Now let me move on to NKTR-181, which is a more interesting question. You are correct the opioid crisis has a little bit tainted the opioid world. However, that said, and you said it perfectly, we are the solution for that. And if you talk to patients and physicians, who are -- who have moderate-to-severe pain, chronic pain, there really is no choice, but to take an opioid. There is nothing else that's going to help you. So while there is a problem associated with the word opioid in the U.S. today, and I think we all understand why, I think NKTR-181 greatly benefits from that because it is really the solution to the problem, especially when you see in our data, and we've just mentioned briefly before, that you see no dependence on NKTR-181. That in of itself demonstrates how important this molecule could be. Great analgesia, very low risk of diversion, molecule can't be altered, no dependence -- physical or psychological dependence and a much, much better quality of life, when patients took NKTR-181 overall. So there are fewer companies than they were years ago working in opioid in the pain space. But I think there are certainly enough interested parties, so that NKTR-181 will move forward. You can't even imagine that NKTR-181 doesn't find a suitable home and partnership given how profound effect it can have on the treatment of pain in our country. So we're talking to a number of companies. I said we'll -- our goal is to get a collaboration done this year. And I do expect Nektar-181 to be a major solution for what is a very major problem. And hopefully, the regulatory authorities and even our government will see it that way.

Thanks, Howard. And just a follow-up on 181. I know that the company has expressed some optimism that you only pivotal study obviously, the full result depend on the -- pending HAL data, but what gives you confidence that you actually only need 1 study that's somewhat usual? Have some of your FDA consultants opined on that? And then secondly and related, almost all of the -- or all of the opioids, extended-release opioids are scheduled too. Is the data so far differentiated enough in your opinion that you might get a Schedule 3 or better?

Yes, also excellent question. I think this. Let's deal with the scheduling first. Clearly our goal is Schedule 3 or better. And the data that we have so far and the multifactor analysis that we've done clearly supports that. Obviously, I can't predict what the agency or the DEA will say there. But clearly, we believe that Schedule 3 is appropriate and that's the way we're moving this program forward. Even in the absence of Schedule 3 though, even if it's Schedule 2 labeling, it's still if you look at the limited opportunities for abuse and the better quality of life and less somnolence, better sleep quality, less physical -- no physical and psychological dependence. Regardless of the scheduling, it is still a much, much better molecule and a solution for the opioid problem. So I can't predict scheduling, but we're looking at Schedule 3 or better quite frankly. Now in terms of the approval based upon 1 success -- highly successful Phase III study, look, again, I can't give you any guarantees that that we are successful with that. I mean, we have to have those discussions with the agency. Discussions we've had with experts over the past year have clearly suggested that because we know what this molecule is -- I mean, there is no secret as to what this molecule is. The core molecule is an opioid. We know it gets into the CNS, we know the rate it gets into the CNS, we know exactly how it works and mechanistically how it behaves, we also know that it has excellent analgesia and we will have the HAL study or the HAP study to back up the fact that it's not likable. And quite frankly, given the severity of the opioid crisis in the United States, it is hard to imagine that there is a great reason for not allowing this drug to be available based upon one Phase III study. The long-term safety study is essentially complete and the data there look great. There is no long-term safety issues either. So mechanism is well understood, behavior of the molecule is well understood, the attributes of this molecule do really solve the opioid abuse problem. Can't guarantee that one trial, one Phase III study does it. I mean certainly even if there -- I would imagine that it'd be an obligation for follow-up studies post marketing, post approval. But is 1 trial sufficient to get approved, it should be. But of course, I can't guarantee that and it's up to the agency to make that decision.

Thanks.

Thank you. And that does conclude our question-and-answer session for today's conference call. I would now like to turn the conference over to Howard Robin for any closing remarks.

Well, again, thank you everyone for joining us this afternoon. Again, I want to thank our employees for all their hard work and dedication to the company, they have accomplished an incredible amount of work in the last year, and I'm very thankful for that. So we look forward to seeing many of you at ASCO, UBS and Jefferies in the next months. Thank you very much. Good afternoon.

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