Good day, ladies and gentlemen and welcome to the Nektar Therapeutics Q3 2018 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 be given at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to introduce your host for today's conference, Ms. Jennifer Ruddock, Head of Investor Relations. Ma'am, you may begin.

Thank you. Good afternoon, everyone and thank you for joining us today. With us are Howard Robin, our President and CEO; Gil Labrucherie, our Chief Financial Officer; Steve Doberstein, our Head of R&D; Dr. Jonathan Zalevsky, our Chief Scientific Officer; and Dr. Mary Tagliaferri, our Chief Medical Officer. On today's call, we expect to make forward-looking statements regarding our business, including the timing of future clinical trials and clinical trial results, clinical development plans, including the plans or the future clinical trials, the therapeutic potential of certain drugs and drug candidates, as well as those of our partners, our financial guidance for 2018 and certain other statements regarding the future of our business. Because 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 10-Q that we filed on August 9th, 2018, 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 our President and CEO, Howard Robin. Howard?

Thank you, Jennifer and thank you for everyone for joining us today for our third quarter 2018 conference call. On today's call, we will review our accomplishments in 2018 to-date, and also our planned milestones over the coming months, including the initiation of the broad registrational program for NKTR-214, which includes multiple trials during this year in melanoma, renal cell carcinoma and bladder cancers, as well as a new expansion arm in PIVOT enrolling second-line non-small cell lung cancer patients. We will also reiterate our financial guidance for the remainder of 2018. As you know, we're planning to presenting data at this weekend SITC Meeting in Washington DC for stage IV melanoma patients being treated with NKTR-214, plus OPDIVO from the PIVOT study. The presentation will include a number of important metrics, including depth of responses over time, as well as the complete response rate and disease control rate for the population. We will host a call on Saturday morning at 9 AM, following the oral presentation of updated efficacy, safety and biomarker data of the evening before. On the call, we will represent the data from the previous evening's oral session. Dr. Harriet Kluger of the Yale Cancer Center and Dr. Adi Diab of MD Anderson Cancer Center will join us to review Dr. Diab's presentation and discuss our Phase 3 trial in melanoma patients, which is under way. In addition, we will also be presenting early data from the first patients in the REVEAL trial, evaluating NKTR-262, plus NKTR-214. As we stated last quarter, as data from each of the PIVOT cohorts and other tumor types mature over in the next 6 months to 18 months, Nektar and Bristol are planning to present each of the datasets at various medical meetings, including tumor-specific conferences. We are currently planning…

Thanks, Howard. Let me first start with reviewing the clinical plans with Pfizer in prostate and head and neck cancer. We are very excited to be working with Pfizer Oncology to explore the potential of combining multiple mechanisms in two new solid tumor settings. Prostate cancer is the second leading cause of death for American men. Metastatic castration-resistant prostate cancer is an incurable disease with a very poor prognosis and a 5-year survival rate under 30%. Squamous cell carcinoma, the head and neck tends to be diagnosed very late and also has a poor prognosis. Under the new clinical collaboration, Pfizer Oncology will conduct and sponsor a trial with multiple arms evaluating NKTR-214, Pfizer and Merck Serono's anti-PD-L1 agent, avelumab, Pfizer's PARP inhibitor, talazoparib and Pfizer and Astellas's androgen receptor inhibitor, enzalutamide. The planned Phase 1b/2 clinical trial will include multiple patient arms, one will be a Phase 2 cohort to evaluate NKTR-214 plus avelumab in patients with recurrent or metastatic squamous cell carcinoma of the head and neck, who have not received any prior systemic treatments for metastatic disease. Enrollment will include patients with both PD-L1 negative and PD-L1 positive baseline tumors. The second and third cohorts of the study will feature a 1, Phase 1b dose escalation, followed by a Phase 2 component to evaluate NKTR-214 plus avelumab combined with either talazoparib or with enzalutamide in patients with metastatic C, CRPC who have progressed on one or more prior regimens. Pfizer and Nektar are finalizing the protocol and we plan to start the clinical trial in 2019. Cohorts will include 20 patients to 40 patients and we will measure clinical success based on the specific combinations and reference to outcomes in the various settings being investigated in the study. Now I'll spend some time reviewing the plans for…

Thank you, Mary and good afternoon, everyone. I will start with a brief review of highlights for Nektar's third quarter 2018 financial results, and then I will review our 2018 financial guidance. We ended the third quarter with $2 billion of cash and investments. Total revenue was $27.8 million for the quarter and $1.15 billion for the nine months ended September 30, 2018 compared to $152.9 million for the third quarter of 2017 and $212.2 million for the nine months ended September 30, 2017. This significant increase in 2018 revenue is a result of the Bristol-Myers Squibb collaboration that we closed last quarter. R&D expense came in at $102.9 million in Q3 and $290.7 million for the first nine months of 2018 as compared to $65.7 million for the third quarter of 2017 and $187 million for the first nine months of 2017. We expect our R&D expense to increase as we continue to execute on a registrational joint development plan with BMS over the coming months. In addition, we will be initiating multiple trials combining NKTR-214 with other synergistic mechanisms in various cancer settings, including trials with Takeda, Syndax, BioXcel, Vaccibody and our trial with Pfizer in multiple tumor types. It is important to keep in mind that our annual R&D funding obligation with Bristol is subject to a $125 million annual funding cap. This cap will not limit our aggregate annual GAAP R&D expense recognition, but will limit our annual cash funding obligation to $125 million prior to the commercialization of NKTR-214. We recognized a net loss of $96.1 million for the quarter, and net income of $779.5 million for the nine months ended September 30, 2018 as compared to net income of $60.9 million for the third quarter of 2017, and a net loss of $62.9 million for the nine months ended September 30, 2017. Now let's turn to our 2018 financial guidance. Our financial guidance is unchanged. Our full year revenue guidance remains at $1.165 billion to $1.175 billion, which includes $1.06 billion of revenue recognized in Q2 from the BMS upfront collaboration payment, and a portion of the equity investment and an additional $105 million to $115 million of product sales, royalties and other revenue. Our GAAP expense guidance also remains unchanged. We continue to expect 2018 R&D expense to range between $400 million and $425 million, which includes approximately $60 million of non-cash stock compensation and depreciation expense. G&A expense for 2018 is still projected to be between $72 million and $75 million, which includes $28 million of non-cash stock compensation and depreciation expense. We continue to estimate that we will end 2018 with a cash position between $1.9 billion and $1.925 billion. And with that, I will open the call for questions. Operator?

Thank you. [Operator Instructions] And our first question comes from Chris Shibutani from Cowen. Your line is open.

Great, thank you very much. We appreciate the updates on the programs, and particularly with regard to lung, it's interesting to hear about the strategy that you're taking with the expansion of the cohort and I believe in the past you have talked about potentially seeking an accelerated path and obviously in Phase 2, this would be based on a single-arm study. Can you confirm what your thoughts are in terms of when we might be able to see data on perhaps the earlier group of patients that might have been already enrolled in the lung study. And then get a better sense for how you're thinking about the potential for doing a randomized study in the event that an accelerated wouldn't be the path for an approval. I think we have some other industry competitors who've had some updated data and have declared plans to take regulatory pivotal path that involves a randomized trial in for lung. Thank you so much.

Hi, Chris it's Mary. Thanks for your question. So to address the first part of your question, in PIVOT-02 we did, we have a cohort that's second-line and third-line non-small cell lung cancer patients, as you know, when we saw you at ASCO this year, we did present three cases from that cohort and Dr. Gettinger walked through that these patients had been previously treated both with chemotherapy and at least one prior checkpoint inhibitor. Based on the early data that we saw in that cohort, we did go and have a discussion with the FDA about starting a new cohort in non-small cell lung cancer patients that are relapsed to a checkpoint inhibitor in chemotherapy, the same regimen administered in KEYNOTE-189. Through that discussion with the FDA, this new cohort now includes a 100 patients that just is the second-line, not second-line and third-line as our original cohort was, and we just began enrolling to this cohort. First patient is already in and we anticipate enrolling this cohort over the next 12 months. Do we then we follow these patients for roughly six months I mean at that time we have data to potentially present to the FDA. To address your second question about randomized trial as both Howard and I mentioned, we are in the process of developing the next wave of clinical trials, and we do have plans for growing in randomized trials, both in the early setting of non-small cell lung cancer as well as later setting. And this includes a very broad program that we've shared with you before that touches on chemo-sparing regimens in the first-line setting, chemo combinations in the first-line setting and then also looking at randomized trials for patients who have relapsed on prior checkpoint inhibitors with chemotherapy. In addition, also under consideration for us is looking at Stage 3 patients and who are unresectable as well as those patients who are resectable, who are at Stage 2B, 3A and looking at the combination of NKTR-214 plus nivolumab in the adjuvant setting.

So then, specifically with the patients I guess with the 6 that you presented at SITC last year and the additional anecdotal patients, is it, isn't it fair to assume that we have had more experience with patients, I'm not sure what that number is perhaps you can tell me. And would we be able to see that data during 2019 perhaps as ASCO realistic opportunity for an update with some sort of denominator that might be, maybe more than a dozen patients. I realized that you're moving forward with the expansion cohort, but looking, upon the past 12 months, 18 months and then looking that experience with the lung patients and then looking forward to 2019, can we expect data during 2019 from the lung setting?

I'm going to make that answer very short and simple, yes. In 2019, you can expect to see lung data from the PIVOT-02.

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

Thank you and thank you for the comprehensive update. My question is also with regard to data, and it's good to hear the Takeda and other collaborations are beginning to dose. One quick one, I guess is with regard to entinostat in the Syndax index collaboration, there is some intriguing data already with high dose IL-2, obviously that's not NKTR-214, but that's in renal cell carcinoma, could you talk about how you thought about the potential combinations in the settings with entinostat, and why you went toward melanoma? Thanks.

Hey, Bert, thank you for the question. This is Jonathan Zalevsky. So yeah, we definitely, we're very aware of the data with high-dose IL-2 and entinostat in renal cell carcinoma. That was actually one of the reasons that started our initial collaboration with Syndax altogether. And then from those earliest discussions, we went into a very substantial pre-clinical program, where we study the two mechanisms in a range of different mouse syngeneic tumor models to address how the underlying mechanisms of each drug work together, and where the synergy might come from when the two are dosed together into the same immune system. And one of the things that we discovered was, a very high proportion of what we call, high cytokine effector cells, that we detected into the tumor microenvironment when both drugs were dosed together. So this means, specifically, immune cells that were very high end, like interferon gamma, TNF and other kinds of effector cytokines. And so that was the impetus to then look into, in particular, the relapsed/refractory setting, because those kind of cells are especially the kind of cells that can overcome certain kinds of resistance mechanisms. So then targeting the relapsed/refractory melanoma setting became a very attractive utilization of the two molecules. And this is why we prioritized that tumor type into the clinical trial.

Thank you. And then just one other follow-up. Are you using any biomarkers in these studies? And then just a general question, when might we see our first data for any of these, let's call them, collaborations beyond Bristol-Myers, whether it's Takeda or Syndax or any of the other ones? Thanks.

Yeah, sure. So yeah definitely there will be an extensive biomarker program, because these are now new mechanisms. And so just like we've done with 214 plus checkpoint, we always want to translate all of the things that we learn in the pre-clinical species into the human clinical setting. We did that in the PIVOT program. We're also doing that in the REVEAL, where we're combining NKTR-262 and NKTR-214, and likewise, in both the Takeda collaboration as well as in the Syndax collaboration, there are a lot of mechanism-specific biomarkers that we're employing to address that the two mechanisms are there, and that they're working both independently and that they're working together in a complementary and synergistic way. And then, to the second, yeah, data presentations for these trials, because since the trials will be running next year, we're just getting under way. So what we'll be doing is, working closely with both Takeda on the Takeda program and Syndax on that program on the dates for presentation of data from those trials as they mature.

Thank you. And our next question comes from Tyler Van Buren from Piper Jaffray. Your line is open.

Great, thanks guys and good evening. I had a couple of clarifying questions on the abstract that was released yesterday morning just going into the presentation on the weekend. Firstly, I guess there were 41 patients enrolled and we saw that number at ASCO as well and 38 patients were valuable for response at the time of the cut-off. Were those three patients, had they just not received a scan yet? Or why were they not valuable and should we expect a data from 38 patients or 41 patients, Friday evening?

Yes, thank you very much for asking the question, Tyler, those three patients did not have a scan and were not valuable, and we will certainly provide the update for the reason why those three patients were not included in the 41 patients during Dr. Diab's presentation. In addition, we will be updating the confirmed objective response rate, and we will be providing objective response rate per independent radiology. We did something very unique in the PIVOT program, as we embedded independent radiology review into our study. And so that would be new information presented by Dr. Diab, as well as the complete response rate and disease control rate as Howard mentioned, we also will continue to share with you the tolerability profile of NKTR-214 plus nivolumab and we look forward to seeing all of you at SITC.

Thanks, that's helpful. And of the 19, I guess so 19 responded as of the abstract cut-off and 19 didn't respond or didn't respond yet. Could you tell us of those 19 non-responders? How many had one scan, I guess, I'm trying to assess how many of those could potentially respond on a second scan as we go into the update Friday evening.

Yes. Thanks, Tyler. Let me just share with you that the median follow-up is just over 7 months for the patients enrolled to this cohort, and we're very happy to present all the data to you in the next two days when Dr. Diab presents at SITC in his oral presentation. And we're certainly happy to answer questions following his presentation. So we look forward to seeing you there.

Okay, wonderful. And I guess, we'll get the update from the PIVOT cohort, the bladder PIVOT cohort at ASCO GU. I guess, I was just a little bit surprised to see the bladder data being presented before the renal cell, if I have that accurately is, I guess, given the lack of efficacy of PD-1s in this population did that cohort just enroll much quicker based upon the last cut-off we saw or should we expect, be expecting renal cell sometime in the first half as well or not far behind?

Yes, I think you can definitely expect the renal cell carcinoma data to be not far behind the bladder. And as we've shared with you before, in some different, in some tumor types, we see responses occur very rapidly as we've seen in both melanoma and bladder. And as we shared with you previously in renal cell carcinoma, we've seen patients respond all the way out 10 months after being on treatment. And so we wanted to allow the data to mature for the renal cell carcinoma, cohort and yes, we will be presenting bladder at ASCO GU and renal cell soon thereafter.

Thank you. Our next question comes from Jessica Fye from JPMorgan. Your line is open.

Hi guys, thanks for taking my questions. Mary, I've got a couple more for you. You talked about the updated complete response rate in the non-melanoma cohort we're going to see at SITC. And I'm curious, if heading into that you could just benchmark for us what other I-O combinations have shown in first-line melanoma as it relates to the CR rate. I saw some in the 20% range, but it looked like they were kind of more mature, and it seems the maturity of the data set you compare to matters here. So what would you view as compelling on the CR rate and I got a couple on lung.

Yes. Thank you for asking that question. So I just mentioned that our median follow-up is going to be just over 7 months, and I think the apples-to-apples comparison is to look at the CheckMate 067 study that had a median follow-up around the same time. And if you pull then the James Larkin, New England Journal of Medicine 2015 manuscript, you'll see that the median follow-up at this time was just over 12 months. And when you look at the complete response rate for Ipi Plus Nivo in that paper, it was 11.5%, which is much lower than what you saw in the 4-year follow up that was just published in Lancet Oncology. And then if you look at single-agent nivolumab, it was 8.9%. So I think that that's the fair benchmark to the data that we're going to present at SITC.

Okay, thanks for laying that out. I also just want to make sure I understand, in the press release, it mentioned lung as one of the tumor types with another trial starting in the next several months. Was that a reference to the 100 patient second-line non-small cell cohort you've added to PIVOT or was that referring to something else like a Phase 3 starting up in several months?

I like these easy, yes question. So the, the answer is, yes, but that refers to the 100 patient non-small cell lung cancer, second-line cohort that we have in PIVOT.

Okay. And then maybe just following up on Chris' question about what we're going to see from a lung data standpoint in '19? Will we get updates from that kind of post-189 regimen population as you go along. And is there a Fleming analysis built into that, that you might disclose when you hit that threshold? Or is this a cohort you need to sort of not report on, so you can do it all at once and bring it to the FDA? And I'm also curious if in 2019, we'll see that data from those 35 second-line, third-line, I'm going to imagine, mostly post single-agent PD-1 patients you had enrolled as of ASCO? And what you think investors can and cannot read across from data in that population to think about what you might show in the patients, who progressed on PD-1 plus chemo in the first-line, assuming that data probably comes a little later.

Yeah, we definitely plan to present additional lung data in 2019. And we said this repeatedly, as these cohorts mature, we will present the data. And in addition to the relapsed/refractory population, we'll also be looking to present the data in the first-line, both the PD-L1, low, medium and high. So we have plans for both of those two different cohorts. I think the one difference is again, that I just highlighted is, the cohort that we've been enrolling to in PIVOT-02 has been a mixed, second-line and third-line population and we've moved to a pure second-line population for the accelerated approval, potential pathway with the small cell lung cancer, non-small cell lung cancer cohort.

Okay. And just the last one, what do you think you would need to show in that 100 patient pure second-line cohort to secure an accelerated approval?

Yeah, at ASCO, Dr. Scott Gettinger went on the record to say roughly a 20% response rate in that population would be highly compelling for accelerated approval, and that makes a lot of sense when you think of docetaxel in second-line has about a 9% response rate. We have engaged the FDA regarding our strategy and we are having an ongoing dialog with the agency as we move forward and gather more data in this cohort.

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

Hi, good afternoon and thanks for taking my questions. So just a couple here. Sounding like you are in the planning phase of starting a number of registrational trials. Can we assume you have seen data from the PIVOT, ongoing PIVOT studies which allows you to make this joined decision with BMS?

Yeah, we have. We've been analyzing data from the PIVOT-02 trial and we have been reviewing these data with BMS and jointly been making the decision as to where we see the signals are and advancing into registrational trials based on that.

Was there a pre-determined threshold for efficacy to get to the decision?

So, the decision to move forward in a registrational trial is multi-factorial. We've been looking at patient populations where there is a high unmet medical need. We've been looking at populations where those patients with PD-L1 negative disease are underserved by checkpoint inhibitors. We've looking, we've looked at broad patient populations, such as melanoma, where we have seen in our early cohorts a compelling data, both from our biomarkers, our response rates and our safety data to warrant moving forward into registrational trials and last, of course, we look at the competitive landscape and see where we have opportunities to improve upon standard of care.

Okay. Thank you, Mary for that additional color. And then a financial question. So with regards to the collaboration with Pfizer and Takeda, et cetera what is the financial commitment from R&D spending perspective on the Nektar?

Yes. This is Howard. Thanks for the question. Look we had been, Pfizer would prefer that we don't disclose the financial conditions of that collaboration. I will tell you that, clearly, we try to make these collaborations similar to other ones that we've done and both of us will be contributing to the cost of those clinical trials and we're very pleased with what we're doing together with Pfizer.

Thank you. Our next question comes from Asthika Goonewardene from Bloomberg Intelligence. Your line is open.

Hi guys, and thanks for taking my questions. And it's good to be in here, first Nektar call now. I'm going to query you about the relapsed/refractory patient populations that you'd had enrolled in the PIVOT-02 study, mainly in the melanoma and the RCC subgroups. You had about 38, 36 melanoma patients and about 15 RCC relapsed/refractory patients enrolled at ASCO. I'd like to, when you plan on releasing some data in this, these patient groups?

Yes. We said this on our last call as well. Over the course of the next 6 months to 12 months to 18 months, we plan to have an ongoing stream of data from PIVOT-02 and strategically, we feel like it's important to show up in large conferences as well as tumor-specific conferences when we're strategically moving forward into a Phase 3 trial and can run investigator meetings. So we have a very broad publication strategy to release data on an ongoing basis over the next 6 months to 12 months. In addition, as you know, we are also moving forward in relapsed/refractory patient population with our toll-like receptor agonist. And we are combining that with NKTR-214 and so I'd also like to turn this over to Jonathan Zalevsky to comment on our approach in the relapsed/refractory patient population.

Yes. Thank you, Mary and very much to that, the point that I was making earlier about overcoming resistance mechanisms, we know that's a key feature of any kind of successful immuno-oncology regimen. And one other things that we learn when we were developing NKTR-262 in our pre-clinical setting was that, it could really overcome a lot of immune limitations in the context of an anti-tumor I-O kind of a regimen. And to that end, the REVEAL clinical study that began earlier this year is really focusing on evaluating NKTR-262 plus to NKTR-214 doublet in relapsed/refractory patient populations. And so there were rolling relapsed/refractory patients across a range of different tumor types. And so we're very pleased that we will be presenting some of the early results of that trial, also coming up later this weekend. What we're able to see is how the mechanism of intratumoral administration of NKTR-262 and really impact the innate immune system, draw innate immune cells into the tumor and then in combination with NKTR-214 can drive systemic immune responses. So we'll be presenting both the clinical update. And in addition to that also additional pre-clinical data as well as we continue our investigation of those two agents.

Okay. And could you remind me how you define relapsed and refractory to PD-1?

Yeah. Sure.

Yeah. So this, these are patients who, for example, in melanoma have been on a prior checkpoint inhibitor and progressed according to our protocol, we show that the patient has progressed on two prior scanned before enrolling and treating the patients on NKTR-262 plus NKTR-214 and the same eligibility criteria applies in our PIVOT-02 program.

Thank you. [Operator Instructions] And our next question comes from Andy Hsieh from William Blair. Your line is open.

Great, thanks for taking my question. Again, my question will be for Mary and this has to do with the three pivotal RCC trials that's either started or under the planning phase. So first one has to do with the first of three RCC trial. I'm just wondering the reason behind including ORR, which is not an approvable endpoint in RCC as one of the co-primary endpoints, because you, if you include that, obviously that would split the power and just wondering what the rationale of including that was. And related to that, in terms of the comparator arm, [indiscernible], obviously those two are standard of care. But I think, from a market share perspective, pegaptanib is actually used more in the front-line setting. So wondering why that agent wasn't really included in the trial?

Yeah, hi Andy, it's Mary. Thanks for your question. So when you split your alpha, we've only allocated a very small proportion of our alpha to objective response rate, and when you do that, it allows you to include in your label, the results from the comparison of the ORR. So just to clarify that. And then you could bring a bunch of GU oncologists in the room and you'll have varying input from these GU oncologists as to their TKI of choice. We did bring together a steering committee of folks led by Dr. Tannir from MD Anderson, and this was the recommendation of the oncology community and going in a global trial, sutent is commonly used in countries outside the United States, which is why that's one of the 2 TKIs included in the study.

Got it. Yeah, great. That totally makes sense. Related to that, I think the third trial that you talked about which is the one that's inclusive of a TKI. Did you discuss how that will be chosen, is that dealer's choice obviously there is a lot of I-O TKI combination is out there. So it's a little bit harder right now to foresee what will be used more as that market matures over time.

Yes. So in this study, we actually in the Phase 1 part are looking at more than 1 TKI and we'll make a decision following the Phase 1 part of that trial as to which one to take forward into the registrational pivotal part of the study.

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

Well, thank you everyone for joining us this afternoon. And as always, I want to thank the Nektar employees for the incredible progress that they've made in developing medicines to treat devastating diseases. And we look forward to seeing all of you at SITC. So thank you very much.

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.