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…

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…

…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…

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…

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.