Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Q4 2018 Financial Results. [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, Head of Investor Relations. Ma'am, you may begin.

Thank you, Crystal. Good afternoon, everyone, and thank you for joining us this afternoon. 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 CSO; and Dr. Mary Tagliaferri, our CMO. 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 to start future clinical trials; the therapeutic potential of certain drugs and drug candidates as well as those of our partners; our financial guidance for 2019 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 10-Q that we filed on November 8th, 2018 and is available at www.sec.gov. We undertake no obligation to update any of these 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 to everyone for joining us on the call today. On today's call, we'll review our plans and milestones over the coming months including the continued trial starts for the registrational program for NKTR-214, now known as bempegaldesleukin or bempeg. The additional trials with other bempeg collaborators, new study is being initiated for NKTR-358 with our partner Lilly. And the start of our first clinical trials with NKTR-255, our IL-15 agonist program and next IL candidate. We will also provide our financial guidance for 2019. As you know, tomorrow we are presenting early translational and gene expression data from the initial dose escalation patients in the REVEAL study of NKTR-262 plus bempeg at the 2019 ASCO-SITC meeting in San Francisco. For those of you who can't travel to San Francisco, we will host a call for investors on Friday afternoon at 3:00 PM Pacific Time, with Dr. Adi Diab of MD Anderson following his oral presentation. So we look forward to speaking with many of you tomorrow. So starting first with chronic pain and an update for NKTR-181. As we've stated in the past, we believe that a significant and necessary building block to addressing the opioid crisis is providing new pain medications that don't carry the same profiles as the existing opioid medications on the market. To this end, we remain confident that NKTR-181 can provide a step forward as part of the opioid crisis solution. We continue to work closely with the FDA during the review of NKTR-181, as we've done throughout its development. This month, we received a notification from the FDA that the review period for NKTR-181 has been extended, our new PDUFA date is now August 29th, 2019. The FDA informed us that they extended the action date to allow…

Thank you, Howard. I'd like to start with a review of our plans for the first set of registrational trials with our partner BMS. As you know, our strategy with BMS is to prioritize and secure as many potential approvals early in first line setting across multiple solid tumor types to establish NKTR-214 plus OPDIVO as the standard of care. To that end, our first 10 trials as we've previously disclosed will be in melanoma, renal cell carcinoma, urothelial carcinoma and non-small cell lung cancer. First, in melanoma we are enrolling 760 patients with advanced or metastatic melanoma into our Phase 3 trial with bempeg plus nivo. Patients will be stratified by PD-L1 status, stage of disease and BRAF status. The primary endpoints or PFS in OS with a projected 22 month timeline for the final PFS analysis. This pivotal study in melanoma is designed to secure the doublet of bempeg plus nivo as the first line I-O standard of care and we're very excited that this study is well underway. In renal cell carcinoma, Bristol-Myers and Nektar are planning to launch multiple registrational trials in advanced patients, which will include separate trials to evaluate the doublet and triplet regimen of bempeg plus nivo and also bempeg plus nivo and ipilimumab in this indication. The first Phase 3 trial in RCC, PIVOT-09 is already underway in first line metastatic patients and is evaluating bempeg plus nivo versus a TKI of physician's choice either sunitinib or cabozantinib in approximately 600 patients with intermediate or poor risk classification. Patients will be randomized 1 to 1, and will be stratified in the trial based upon multiple factors, including PD-L1 status, IMDC risk score and choice of TKI agent. The primary endpoint of the study is overall survival and we estimate the time to…

Thank you, Mary, and good afternoon everyone. I will start with a brief review of highlights from our fourth quarter and full year 2018 financial results and then I will review our 2019 financial guidance. We ended up 2018 with $1.9 billion of cash and investments. Revenue for the fourth quarter ended December 31, 2018 was $39.8 million, as compared to $95.5 million in the fourth quarter of 2017. Revenue totaled $1.2 billion for the year ended December 31, 2018, compared to $307.7 million for the 12 months ended December 31, 2017. 2018 revenue included the recognition of $1.06 billion of license revenue, as a result of the NKTR-214 Bristol Meyers Squibb collaboration. 2017 included the recognition of $130.1 million of licensing and collaboration revenue, as a result of the NKTR-358, Eli Lilly collaboration. R&D expense in the fourth quarter of 2018 was $108.9 million, as compared to $81.4 million in the fourth quarter of 2017. R&D expense totaled $399.5 million in 2018, as compared to $268.5 million in 2017. Our R&D expense is accounted for net of BMS share of bempeg development costs. R&D expense increased primarily as a result of advancing and expanding clinical development of bempeg, NKTR-262, NKTR-358 and IND-enabling activities for NKTR-255. 2018 R&D expense also included a significant expansion of manufacturing activity to supply sufficient inventory of bempeg to support the broad clinical development program with BMS, other collaboration programs as well as our combination program of NKTR-262. G&A expense was $23.8 million in the fourth quarter and $81.4 million for the year ended December 31, 2018, as compared to $12.3 million and $52.4 million in the fourth quarter and the full year of 2017. G&A expense increased in 2018 compared to 2017, primarily due to an increase in non-cash stock compensation expense. For the…

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

Hey guys, good evening. Thanks for taking my question. I appreciate the additional detail on upcoming data releases and just want to make sure I caught when we should expect the next 214 clinical updates besides the data coming tomorrow. Are there any clinical updates before the fall, I think a number of the conferences you mentioned were kind of in September and beyond, should we think of something potentially coming at ASCO? I’m sorry, if I missed that. And then a couple of just on ongoing trials, is there any way you could comment on the enrollment progress with the melanoma pivotal study? And I’m also curious about the – how enrollments going in that a 100 patients second-line lung cohort and when we might think about seeing that data? I think you mentioned, back in November that it might take about a year to enroll that cohort. Is that still your expectation? Thank you.

Hi, Jessica, it’s Mary. Thank you for the questions. So we haven’t made any announcements about any presentations from PIVOT-02 to prior to the fall. And as Howard mentioned, we have plans to present the lung data at ESMO this year, which will be in Barcelona in September. And then also we plan to present data from our triple negative breast cancer cohort at the quadruplets CRI meeting in Paris in September. And then finally, we’re targeting the 18th International Kidney Cancer Symposium, which is in Miami, this year in November. In terms of our registrational trials, these are all on a schedule and I think, we’ve shared with you previously that for the melanoma Phase 3 progression-free survival primary endpoint would have readout in approximately 22 months after the first patient was in. And our first patient was in the study in September of this year. And then, in terms of the bladder, a Phase 2 study in PD-L1 negative cisplatin-ineligible patients, which we shared with you is our potential study for accelerated approval. We plan to have data for that study in the summer of 2020. And then in PIVOT-02, as you’ve asked, we have a 100 patient non-small cell lung cancer cohort and we expect to have data in the second half of 2020.

Awesome. Thank you.

Thank you, Jess.

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

Thanks very much. We appreciate all the updates, including some of the partnerships that you have outside of Bristol. The relationship that you have with Pfizer, it’s interesting that were exceeding more data develop in the prostate area in general. Can you remind us how restrictive that relationship is with Pfizer? Are you, for instance, able to do any other combinations? Are you prevented from combining with any other I-O agents?

Well, yes. Thanks for the question, Chris. Look, we’re free to work outside of the BMS collaboration with any company as long as it is not – as long as the clinical studies and the indications are not – do not fall within the BMS contract. Now head and neck cancer and prostate cancer do not fall within the BMS contract and consequently, we’re free to work with anyone we like.

And so if you’re able to do that with Pfizer and then are you still able to do any work within prostate or head and neck with someone other than by there?

Good question. That’s right. And yes, we are. The relationship with Pfizer is not exclusive. So we can work in prostate and head and neck with other companies as well.

Okay. And then we look forward to the lung data coming up at ESMO in the fall. Way back when there was some initial work that was done with pembro in a PROPEL study. Is there a thought to be able to share some component of that data at some point in the future?

Yes. Hi, Chris, it’s Mary. We definitely, as you know, some of the cohorts in PROPEL study due change of standard of care change and we do anticipate in the second half of this year to have data from the PROPEL study.

Great. Thank you. And then Gil, in terms of the accounting for the subsidiary that you described for the paying group will that be a distinct breakout separate from this guidance? Are you going to have that dependent somewhat based upon what the regulatory process happens with 181? Can you just help us think about that is where I’m looking at our models in the year ahead?

Yes, Chris. So it’ll be a wholly-owned subsidiary that will consolidate the financial. So we probably will – we will include some segment information on the subsidiary, as we begin to account for separately.

Great. Thanks very much.

Thank you. Our next question comes from Paul Choi from Goldman Sachs. Your line is open.

Hi, thanks for taking our questions. I have two clinical trials design questions for Mary. First with regard to RCC, just giving the fluid data in the past few months and the fact that pembrolizumab extended combination as PDUFA coming up here in June. How are you thinking about comparator agents for some of the future trials that you’ve planned versus using TKI monotherapy in the frontline? And then second, with respect to planning for the lung trial, is the rate limiting step here, potential label for pembrolizumab that decision that’s coming up in the near term? Are you waiting to see what updates are you got with regard to the data as well? Thanks for taking our questions.

Hi, Paul. Thank you. So we spend a lot of time with GU oncologists. And there is not one unified consensus about how to treat a first-line patient. Some patients prefer to treat patients with a pure I-O regimen and then save a TKI for second-line if their patients progress, whereas other people prefer to move forward with a combination of a checkpoint inhibitor with the TKI. I had a really interesting conversation with one physician who said, the median PFS with pembro plus axitinib was 15 months. And with that comes a lot of toxicity. He said, in contrast, I could treat my patient with a single agent TKI, have a median progression-free survival of around nine or 10 months and then treat with a single agent checkpoint inhibitor. And that patient would have a median progression-free survival of five to six months. And at the end of sequential treatment, my patient with less toxicity would end up around the same place of progression. And so people have various mindsets about how the frontline patients should be treated into that end, we’ve created a very broad clinical development strategy that would allow patients to be treated with a pure I-O regimen versus a TKI plus an I-O combination. And then in terms of the lung cancer trials, I mean, you raise a really great point, nobody knows yet, how the FDA is going to perceive the KEYNOTE-042 data. And if pembrolizumab will have an expanded label to include not only the greater than 50% patients, who have PD-L1 positive disease at baseline, but will they also approve single agent pembro for the 1% to 49% population. And certainly, we will modify our strategy based on what is the current standard of care today. Our plan is to compare to pembrolizumab in the greater than 50% population, where that is monotherapy is standard of care only in the one top tertiary [ph] of patients to express PD-L1 positive disease at baseline. Thank you for your questions.

Thank you. Our next question comes from George Farmer from BMO Capital Markets. Your line is open.

Hi, thanks for taking my questions. And yes, thank you for all the updates on the progress. I have another question about RCC in the phase – in your Phase 3 study on ClinicalTrials.gov, it also said, there’s a co-primary endpoint of overall response. I’m wondering if that’s still the case and why not include PFS as a primary, as a lot of these other trials have also done.

Yes, thank you for the question. So in terms of ORR, we only do allocate a small amount of alpha, and that allows us to include ORR in our label. And then in terms of overall survival, we believe, looking at the CheckMate-214 data that we can achieved an overall survival endpoint at about 27 months. And if you look closely at the CheckMate-214 data, you’ll see that when you look at the PD-L1 positive patients versus the PD-L1 negative patients, you can see that the progression-free survival hazard ratio for those patients with PD-L1 positive disease actually had a hazard ratio of one. And so we actually believe that moving forward and allocating the largest amount of our alpha to the definitive endpoint of overall survival provides the highest probability of technical success and also, of course, really is the end point. That’s the most important to patients.

Okay. And then on 181, can you describe a little bit on your – what sort of pre-commercial activities you’re engaging in? Do you expect to actually launch this drug, when you receive approval? Or is there anything else that needs to happen before you can do that?

Well, I think the most important thing we’re doing now in addition to building sufficient inventory for a product launch is working with payer engagement and making sure that we have that well squared away as well as setting up the appropriate distribution channels. So we have to – the DEA scheduling typically can take a couple months after approval. So we have to, of course, wait for that. But in the meantime, the process of getting payer engagement done, making sure that we – that the people in the appropriate communities understand what NKTR-181 is and making sure that we have those distribution channels setup is what we’re working on currently.

Okay. Thanks very much.

Thank you. Our next question comes from Alexander Duncan from Piper Jaffray. Your line is open.

Hi, good evening. Thanks for the question. Based on evidence in the cell therapy space IL-15 is associated with many positive characteristics for immune cell activity. So how are you going to demonstrate the value of 255 beyond the planned presentation at AACR? And what are your intention for a significant clinical collaboration with players in the cell therapy space to extract full value out of that asset? Thank you.

Hi there. This is a Jonathan Zalevsky. So yes, so first and foremost, the collaboration with colleagues at the Fred Hutch Cancer Research Center, up in Seattle is a very important component of how we’re aiming to develop NKTR-255. There we’re working closely with Stan Riddell and Cameron Turtle, who are some of the original founders of the field. When we’re conducting studies, they’re demonstrating their effect of NKTR-255 on maintaining the persistence of CAR-T cells, also maintaining their immunological active states. And then controlling some of the dynamics that really govern how well they can maintain an antitumor attack in these preclinical models. And then these models are exactly the kind of studies that we do to inform us how we move into the early clinical studies. And so there are long term plans are to evaluate NKTR-255 in the setting of CAR-T cell therapy, where we can use it to potentiate the overall effectiveness of CAR-T.

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

Thanks for taking my questions. So one follow-up for JZ. So in terms of the CAR-T IL-15 combination, are you administering IL-15 during the expansion phase, ex-vivo or it will be administered concurrently to the patient?

Yes. Well, great question. So first off, the studies that we're conducting now are preclinical studies and there our intention, which is what we're modeling ultimately for the clinic is to use NKTR-255 after or along with CAR-T administration. So our aim is not to use it while you're culturing the cells or doing any of the transduction or so in the normal sort of CAR-T protocol. That stays as is. Our goal is to use IL-15 to maintain the activity, the function and the tumor killing capacity of the CAR-T after they're administered to the patient.

Interesting. Okay. So it's just basically not induction but more of a more of a maintenance dosing throughout the treatment duration.

Yes. One of the ways you could think about it is that we've seen that in patients that undertake CAR-T treatment, the levels of IL-15. You can start to see those change even during the conditioning regimens, but particularly as the levels of IL-15 maintain, we tend to see a correlation that patients that have higher and higher levels of circulating IL-15, they tend to have a better response to the CAR-T administration and the persistence and longevity and the overall efficacy of the CAR-T that was given to those patients. So what we're trying to do is to use NKTR-255 to completely recapitulate that biology and then give the patient that full maximum benefit that the CAR-T can bring to them.

Okay. And in terms of UC – I know you guys have talked about this before at ASCO GU, but just to educate us on how – just from a histological or biology perspective, how different is metastatic UC versus muscle invasive? And the reason is because I just want to get some clarification in terms of from FDA's perspective is, are these two histologies close enough that would allow you to use that as a confirmation for these accelerated approval?

Yes. So, prior to going to ASCO GU, we had an opportunity to have a face to face meeting with the FDA and we did lay out our plan for potential accelerated approval with the study of 165 patients. And we did – we were able to have a discussion about how they get to a potential accelerated approval, should the benefit and risks of the doublet be superior to standard of care. And during that meeting we also had the opportunity to talk to the agency about our confirmatory trial. And because that study in muscle invasive bladder cancer will be conducted in patients who are cisplatinum ineligible, the agency did say that that could serve as our confirmatory trial within event free survival endpoint.

Okay, cool. Got it. Thank you very much.

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

Hey, good afternoon, guys. This is Alex actually on for Difei. Thank you for taking the question. I had one on NKTR-262 plus NKTR-214 on the combo. When you're looking here at patients with metastatic cancer, how do you decide where to inject NKTR-262? And as part of the protocol, can you inject in more than one lesion?

Yes, sure. This is JZ. So the way that protocol is designed, we permit NKTR-262 to only be injected to non-target lesions. And so this is a very important component of the design because as you know, by the normal RECIST scoring criteria, the radiologist will assign target lesions at the screening when the patient is first enrolled into the trial. And those are the tumors that are going to be measured by their dimensions overall for assessment of efficacy as the trial concludes. But in addition, we not only require these target lesions, we require that all patients have at least one and preferably more than one non-target lesions. Those non-target lesions have to be between 20 millimeters and 90 millimeters in size. And those are what are injected by the interventional radiologist. And then we like to have more than one of those lesions because in some patients we can sampled by biopsy, both injected and non-injected, non-target lesions. And then in terms of the number of lesions that are permitted to be injected, the radiologist is allowed to inject up to two non-target lesions per occasion of administration of NKTR-262 and that's given once every three weeks on a Q3 week cycle.

Okay, great. Thank you very much.

Thank you. [Operator Instructions] And our next question comes from Asthika Goonewardene from Bloomberg Intelligence. Your line is open.

Hi, guys. Thanks for taking my questions. I have a small flurry of them if you don't mind. So let's start with the second line, non-small cell lung study that's been started. Could you tell me, are you recruiting squamous as well as non-squamous patients? And then are you also considering a PD-L1 high patients who might've had single agent PD-1 in the first line setting.

Hi. Yes, this is Mary. Thank you for your question. So in the second line non-small cell lung cancer study, we will allow both patients who have squamous and non-squamous cell carcinoma. You have to have had a checkpoint inhibitor plus chemotherapy for that cohort and these patients had to have a stable disease for 120 days in order to be enrolled to this cohort.

Okay. And then what's the endpoint on this study please, Mary?

Yes. So the way we've designed this trial is to show superiority to standard of care. And as you probably know, standard of care in second line would be docetaxel and the objective response rate with docetaxel is roughly 9%. And so you can imagine if you could double the response rate, it would really show a significant benefit over standard of care.

Right. Okay. Yes, that was exactly what I was going at because I remember, sunitinib plus PD-1 had a response rate of 29% and FDA still told them to go to a confirmatory Phase 3 study. So I was just wondering about your thoughts about that.

Yes. In our entire program, we've had the good fortune to have a number of conversations with the FDA. And we certainly had the conversation with the FDA about the use of PIVOT-02 for a one potential accelerated approval. This is always an ongoing discussion with the agency, And again, you have to show you superiority to all available therapies at the time of the readout of your data.

Okay, great. And then…

Just one other point I just wanted to add too, We also have and we shared this on this call that we're planning a confirmatory trial in second and third line non-small cell lung cancer. And that trial specifically we will be looking at NKTR-214 nivo plus chemotherapy versus chemotherapy.

Brilliant. Okay. Thank you for that. Then just to shift gears real quick to the bladder cancer, that first line PD-L1 negative. Has the FDA agreed to use the gem/carbo – potentially give you a second line indication in this setting.

Yes. So just to let you know, this is a PD-L1 low population and that's the patient population that the FDA has said, when you treat with monotherapy checkpoint inhibitors such as atezolizumab or pembrolizumab, that you don't see an overall survival benefit compared to gemcitabine plus a carboplatinum. In this study we are going to be focusing exclusively on the cyst ineligible PD-L1 low population. And as you may be aware, that's actually 70% of the cyst ineligible patients and cyst ineligible as you may know, in first line bladder cancer study is 50% of the population. We would be going for an approval in the PD-L1 low 70% of those patients who are assisting eligible with that study.

Sorry. You have two arms in that study, one is going to be with bempeg plus nivo. And then you have the gem/carbo arm as well. But you're going to put patients on gem/carbo onto bempeg and nivo on progression, right?

Yes, that's correct. So the in that situation, we would really have to look at an overall survival endpoint or you could look at what a third line ORR would be and look at that patient population in about 55 patients. And, what could potentially allow for accelerated approval is benchmarking to third line response rates for patients and analyzing what our response rate is with the doublet.

Okay. Last one. On the first line RCC, bempeg/nivo versus TKI, how are you randomize that? Is it 1 to 1? I'm just trying to understand how you will show a statistically robust data versus specifically cabo in your subgroup analysis, given that that's the superior gem versus Sutent.

Yes. So, we are going to be randomizing 1 to 1. And I think if you actually look at the progression free survival of cabo – in the cabozan trial, actually, it performed similar to Sutent in the CheckMate-214 study. And so we've designed our study to mimic CheckMate-214. And so we believe that cabo performs the way it did and cabozan, it will be similar to Sutent of CheckMate-214. And therefore, we feel like we have accounted for that. Our randomization scheme is 1 to 1 for the 600 patients. So we'll have 300 patients in each arm and of course we will stratify by patients who receive cabo versus Sutent.

Great. Thank you so much for all to detail. Looking forward to a fun year with you guys.

Thank you.

Thank you. And that does 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 for everyone for joining us today. Look, we've had a great year in 2018, we have an exceptionally broad and exciting I-O pipeline and we have an incredible number of shots on goal. So we're very excited about that. And along with that comes some pretty impressive financial strength. So for all of this, I want to thank our employees for their hard work and dedication. And I think you'll see a lot of good results from Nektar this year. So thank you for joining us.

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.