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

Thank you, Crystal. Good afternoon, and thank you to everyone for joining us this afternoon. With us today are Howard Robin, our President and CEO; Gil Labrucherie, our Chief Financial Officer; Dr. Steve Doberstein, our Chief Scientific Officer; Dr. Ivan Gergel, our Chief Medical Officer and Dr. Jonathan Zalevsky, our Senior Vice President of Biology. On the call, we expect to make forward-looking statements regarding our business, including potential regulatory approval milestones and commercial launch timing, the timing of future clinical trials and clinical trial results, clinical development plans, the therapeutic potential of certain drugs and our 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 the Form 8K we filed today and our most recent Form 10-Q, which is available at sec.gov. We undertake no obligation to update any of these 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. Thanks to everyone for joining us today for our third quarter conference call. On today's call we will review the many upcoming milestones for Nektar's pipeline over the next six months, including our plan submission of an NDA for Nektar-181 and the continued advancement of our I-O portfolio, including Nektar-214, Nektar-262 and Nektar-255. We will also update our financial guidance for the remainder of 2017. As you know, we will see many of you at the SITC Conference at the upcoming analyst event and we plan to discuss our Nektar-214 program and the rest of our I-O portfolio in more depth at the event. So, we'll keep our comments brief today in anticipation of the important presentation with our clinical investigator panel on Saturday. First let's review the substantial progress we've made with Nektar-181, which has emerged not only as a critically important new potential medicine to treat patients with moderate-to-severe chronic pain, but also as an important building block in our nation's effort to solve the opioid public health emergency and stem the tide of new opioid addiction. As you know our data package for Nektar-181 includes an extensive amount of efficacy and safety data in over 2,100 patients and healthy subjects. This includes our 600-patients Phase 3 efficacy trial, our two-human abuse potential studies, our 630-patient long-term safety and efficacy trial as well as a wide range of PK and PD studies of therapeutic and supra therapeutic doses of Nektar-181 in over 450 healthy volunteers. Our CSO, Steve Doberstein and our Head of Regulatory, Carlo DiFonzo, recently led discussions with the agency in a Type C meeting in October to discuss our plan to submit an NDA for Nektar-181 for the treatment of moderate-to-severe chronic low back pain in patients who are new to opioid…

Thank you, Howard and good afternoon, everyone. On today's call I will provide an update on our partnered programs as well as updated financial guidance for the remainder of 2017. In the third quarter Nektar and Eli Lilly announced a significant collaboration for Nektar-358, which includes a broad development plan to evaluate Nektar-358 in at least four different autoimmune indications in the clinic. Lilly paid Nektar an initial upfront payment of $150 million in the third quarter, $128 million of which we recognized as revenue in Q3. In addition, we will receive up to $250 million in development and regulatory milestones through various phases of development, success and regulatory approval. For Phase 2 and Phase 3 with Lilly covering 75% of development costs, our royalty rates will start in the mid-teens and reach the low 20s when Nektar-358 achieves $500 million in annual global sales. So, in essence Nektar is funding a quarter of the development and retaining a one-third ownership of the drug. Lilly is also responsible for all costs of global commercialization with Nektar having a co-promote in the United States. Turning to our on-the-market royalty bearing assets. Our royalty revenue from MOVANTIK and ADYNOVATE continue to grow in the third quarter. Royalties from MOVANTIK and ADYNOVATE grew 25% in the third quarter of 2017 as compared to the second quarter of 2017. Royalty contribution from these products has grown 82% year-to-date, as compared to the first nine months of 2016. On the market expansion front, Shire is awaiting European Commission approval for ADYNOVI around the end of 2017. Next, I'd like to give a brief update on our Bayer collaborations that are in late stage development. With respect to Cipro Inhale, Bayer has filed an NDA with the FDA, based upon the Phase 3 RESPIRE studies. The…

Thank you. [Operator instructions] Our first question comes from Jessica Fye from JPMorgan. Your line is open.

Hey guys this is Ryan on for Jess. I appreciate you taking our questions. Just a couple on 214. As you go into SITC how do we think about the duration of follow-up that we'll have for the lung patients? And then second you know whether I guess how we should think about response rates? Should we think about it more broadly based on the overall N in each tumor type or would you -- could we think about the data being more categorized by say those with only two scans, thanks?

Yeah hi, this is Jonathan Zalevsky. Hello. So, at SITC we'll show spider plots. So, you can get a sense of the patients that are on the study and of course remember the data they we're showing is from an ongoing study. So, we'll be showing you data from patients that are continuing on the trial.

Okay. And then in terms of how they might be broken down, could we see them categorized by like the number of scans as well?

Yeah and so it and remember when you look at a spider plot what you're looking at is each point on the spider plot is a scan right. So, when you're looking at multiple points on the same line, you're seeing the same patient being scanned multiple times. So, you'll be able to see that data from patients that have had multiple scans on the therapy and then of course when you look at multiple scans, you're also looking for patients that have multiple confirmations of their overall response profiles. So, we'll be showing you all of that data.

And we've also broken down the data by patients who are PDL1 positive and negative.

Okay. Great. Thank you.

Thank you. Our next question comes from Chris Shibutani from Cowen and Company. Your line is open.

Thank you. I wanted to ask questions about 214 and the data that we'll see at SITC in particular with regard to understanding the baseline PDL1 status for these patients. You mentioned that we will see some of that. The questions that I have centered around, should be expect that efficacy could meaningfully differ between the three different tumor types as a function of PDL1 status positive or negative? And then secondly, thinking also about the baseline status, should we be thinking about implications for efficacy in the naïve versus the refractory setting in particular, how can we extrapolate or what would be appropriate to read forward in that regard thanks?

Sure. So, thanks Chris, so we are characterizing the baseline PDL status for almost all of the patients in the trial and we will be showing response broken down by baseline PDL1 status. And so, you'll see that across all of the tumor types that will be presenting data on which includes melanoma patients, renal cell carcinoma as well as non-small cell lung cancer. And so, as we've presented in earlier presentations for example if you remember at SITC last year, we showed you that Nektar-214 treatment was able to convert a patient that was PDL1 negative at baseline to PDL1 positive on treatment and so we have a good understanding that PDL1 is really able to change the whole tumor microenvironment. And as a course of that it's able to change what we expect will be the possibility of patients that are even PDL1 negative to have the chance to benefit from treatment of the combination of Nektar-214 plus nivolumab and so we'll be showing you all of that kind of baseline data. And then in addition -- yeah and so you will be able to see all of those responses broken down and you'll also see the rates as well associated with that.

And as far as thinking about the refractory setting, which we won't see at SITC but how should we interpret and think about the baseline PDL1 status in that refractory population?

Yeah so in that dose escalation part of the trial, remember that that was all done in approved indications for nivolumab. So, you'll be looking at first line and second line instances, but as we've explained before in the dose expansion portion of the trial, which began in August, there we are looking at relapse refractory populations as well and we'll be presenting data in the future meeting for that.

Thank you. Our next question comes from Difei Yang from Mizuho. Your line is open.

Good afternoon and thank you for taking the questions. This is Matt on for Difei. We were wondering if you could of the 16 patients did you know that break down between the MM and RCC that you have in melanoma?

Yeah. There are eight melanoma patients. That's correct and eight RCC patients. That's for the 16 that are listed in the abstract.

Yeah for PIVOT 02 and then sorry, go ahead.

No, I was going to say, but you'll see data from all 38 patients as we announced in our press release this morning that were included in the dose escalation. So, you'll see more data on Saturday.

Definitely looking forward to that. And then in terms of the next forum, in terms of timeframes when could we expect more data related to Pivot 02 or Pivot 04 aside from this upcoming weekend?

We'll give an update on that at our presentation this weekend.

Great. Thank you so much.

Thank you. Our next question comes from Bert Hazlett from BTIG. Your line is open.

Yes, congratulations on the program especially with 181 and others. Just on 181 for a minute does the positive development that have happened with the regulatory agency alter your commercial strategy or your partnering strategy and maybe mention it but should we -- is the possibility for expedited review on the table as well and I have a 358 question as well?

Okay. Well look I can't comment on the expedited review because we have to -- we have to submit our NDA and then the FDA can make decisions on how they want to proceed. I can tell you that as I said earlier, we've had discussions -- intense discussions with the White House Members of Congress and all the parties that are principally involved in dealing with his opioid crisis and I think there's a general high level of interest in Nektar-181. That said Nektar has evolved into an immuno oncology company if you look at our portfolio in immune on immuno oncology with 214 and 262 and 255 and I'm not even discussing the things that we have at the preclinical stage prior to that. I think we clearly plan to find a partner for Nektar-181. We don't intend to become a pain company. We're focused on immuno oncology and therefore a partnership on 181 is still absolutely in the plans.

Okay. Thank you. And then 358 has there been -- as you interact with your partners in Indianapolis, has there been an evolution of the indications that they could be pursued with the molecule given the plethora of opportunities that are in front of it? And has there been any particular alteration of the order of any indication -- any additional clarity you can provide there would be helpful?

Yeah thanks Bert, this is JZ. So, no, we definitely still continue to prioritize Lupus and as we announced even in the Phase Ib multiple ascending dose study, we will be including patients with Lupus in some of those dose escalation repeat dose arms of the study. We've also continued to discuss additional indications such as gastrointestinal diseases like UC,Crohn's and psoriasis and so forth and they all remain key parts of the discussion, but we're definitely continuing to focus on Lupus and that will be the first patient population who will enroll starting with the MAD early next year.

Okay. Terrific. And just one quick one. When do you think we'll see the first human data on 255 in combination with 214?

Good question. So, let me maybe just take a step back. So, with 262, which is our TLR agonist…

I mean, 262, forgive me. I meant 262.

No worries. That IND is still on track for the end of this year and in very early 2018, we'll start the combination of clinical trial with Nektar-262 plus Nektar-214. So, I'd expect that we would have an opportunity to show some of those early first in human results at an upcoming medical meeting, that would be in the future after we begin that study because it will just start early next year.

Okay. Thank you. Congratulations on the progress.

Thanks.

Thank you. Our next question comes from Michael Higgins from Roth Capital Partners. Your line is open.

Thanks operator. Hi guys. Couple questions on 181 if I could, with your NDA and 181 not including a pivotal trial from the good experience patients which you had agreed to with the FDA in a Phase 2 meeting, but nonetheless your NDAs I guess your skinny NDAs that's over 2,000 patient is positive news. The question is at this stage does the agency describe any changes in the stat methods or is the bar potentially higher because you got -- because you're not including that opioid experience patient group?

No, that didn't come up at our meeting with the FDA and I think we recognize that at this point we have data in and chronic lower back pain on opioid naïve patients and that's what the NDA submission will be based on. I think given the fact that there's a significant opioid crisis, I can't comment on how narrow or broadly the FDA wants to review this at this stage, but I certainly don't think they have any concern with the statistical design of the study that we run.

You don't think the label would be only including opioid naïve patients for what I am hearing it doesn't sound like your any language at all regarding opioid experience.

It could be limited to opioid naive patients, that's entirely possible, but also remember, also remember that that's the population that is directly affected by the opioid crisis. You have patients that are already addicted to opioid and Nektar-181 is not the solution for helping them with their addiction problems. This potentially could be, but it's not -- that's not necessarily what we looked at. If you look at the patients who are opioid naïve, patients who have chronic or back pain for example who have not taken an opioid in quite some time, those are the patients that are subject to the problems that we see with the current crop of opioids and we hope to make a big impact there. So, I don't see that as being an issue either way.

Good. Great feedback. Good to hear. Then finally on 181, any updated thoughts for us on the partnering if you're looking for U.S. or looking for global or what your thoughts are there?

The partnership we're looking for would be global in nature. Of course, there's certainly more significant opioid crisis in the U.S. than there is ex U.S. but the partnerships that we're looking at would span the globe. It's not a U.S. or European-only partnership.

Appreciate it. We look forward to seeing you guys this weekend. Thank you.

Thank you. Our next question comes from Andy Shay from William Blair. Your line is open.

Yeah, thanks for taking my questions. Just wanted to congratulate the Nektar team on the significant progress with NKTR-214 as well as 181. So accordingly, I've two questions, one in each asset. So, for JZ on the abstract that's released today, regarding the Phase 1/2 PIVOT-02 trail, do you mind telling us how many of these responders are confirmed versus not confirmed?

Sure yes. So that's actually something that we will not talk about right now, but we'll present all of that to you at SITC. So, Adi and his podium presentation will cover that. He will cover the patients that were reported in the study because again they continued on in the trial. So, he'll report a complete update of all of that. We'll also be showing you a waterfall plot, which will show for all the patients that were evaluated of those 38 we had scanned available and you'll see a waterfall plot of all of those responses as well as spider plots in each of the different indications. So please come to the event and you'll see all of that data unveiled.

Great. Thank you. And in terms of 181 I just want to get a sense about the definition of opioid naïve, is there a consensus among the decisions or specialists of what that definition is and maybe from the regulators as well because I foresee if you get a label that is just for opioid naïve patients is there a way for doctors to check -- to doublecheck whether he or she is prescribing to the right patient population?

Well there are criteria for that and it's generally -- it's generally patients who have not had opioids in six months or taking less than 10 morphine equivalent units. There are some guidelines for that. So, I think opioid naïve patient doesn't mean a person who has never taken an opioid. It means that they haven't taken an opioid recently or they're on a fairly low dose of opioids. We used those guidelines in our trial. So, when we studied opioid naïve patients, we follow the guidelines that the general population and that the FDA looks at for the definition of opioid naïve.

Great. Thank you.

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

Yeah. Thanks very much. First congratulations on the FDA decision to bypass the Phase 3 and go right to an NDA it's pretty impressive, doesn't happen very often. So, two questions on that, the first thing is should we assume that because of the FDA's position that the terms of a potential partnership have gone up? And secondly does it bring in any new additional partners to the table or because the meeting was so recent, you haven't seen that happen? And then secondly, you mentioned you're hoping for C3 or C4 like Tramadol. Could you give us some more granularity on those discussions? Would the FDA perhaps goes straight to that or maybe give you a C2 with a promise that you could move to a C3 with a certain period of time? Any granularity would be appreciated, thanks.

Yeah look I think -- look the FDA has to take our submission. They have to file it. They have to review it and then we will -- then they will engage us in discussions and as I said earlier, the issue of one efficacy trial was a review issue, it will ultimately most likely go to an ad-com for discussion. But I think we were very pleased with the FDA clearly recognized that there is a major opioid crisis in this country and understand that we put almost all of our effort into the human abuse potential side and the safety side. I think is very little debate that mu-opioid agonists are good analgesics. That doesn't need a lot of scientific proof and we all know what this molecule is. It's very well-defined. It's very well characterized. The real issue is, can you demonstrate that you don't cause abuse, that you don't cause likability, that you don't cause the kinds of problems associated, safety problems associated with the current opioids and I think we did that in a very meaningful way and that's where we put all of our effort into trial, into the abuse potential side and the safety side and we have an incredibly powerful safety database. So, on a risk-benefit ratio, reward ratio there is very little risk connected to Nektar-181 and there is lot of potential reward. And I think that's how we approached it. In terms of scheduling, the FDA did say that they believe our data package is adequate to allow the discussion -- to allow the discussion as to whether we should have labeling that is better than C2 that would be three or four. Obviously, that's a review issue. They're not going to comment now on whether they believe that our data package is adequate for that, but they clearly stated that they believe we have enough data so that it warrants that discussion and quite frankly it's all going to be review issue at that point.

And just one more clarification, the FDA basically said, look you got what you need to file, go file or is it more the company saying let's go file and we'll take our chances. Just wondering if you can give us a little granularity on that?

Look the FDA will never tell you please file it. We're going to -- please submit it, we're going to file it, they're never going to tell you that until you get it and they review it for the first pass. What they did say is that the issue of one efficacy trial will be a review issue. They did say that they plan to bring it to an ad-com and they did recognize the opioid crisis and they did say that they hope to move this program forward. And quite frankly like I said earlier, we don't have the minutes back from the meeting yet. So, I got to review the minutes when we get those back, but you know the FDA never tells you go ahead and file your -- submit your NDA. We're going to file it. They don't do that. So, it was a very encouraging meeting. It was extremely productive. They recognized that there is a major opioid crisis. I think everybody recognizes that the opioid agonists are good analgesics and I'm hopeful that we move this drug forward as rapidly as possible.

Okay. Thanks.

Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Howard Robin for any closing remarks.

Well, thank you for joining us today. I think we've been working very hard at building our I-O portfolio. We hope to see many of you, if not all of you at SITC and it should be a very interesting meeting. And again, I want to thank all the Nektar employees and scientists for all the incredibly hard work they put into making what I think is one of the best I-O portfolios in the business. So, thank you everybody. Appreciate it.

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