Nektar Therapeutics (NKTR) Q4 2018 Earnings Report, Transcript and Summary

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 time to review data from two additional preclinical abuse liability studies that Nektar conducted, which were first requested by the FDA early on in the review process. We completed these studies quickly and the new data were submitted to the agency at the end of January. The new preclinical data from these studies further support our abuse liability package in the NDA filing. When the studies were requested, we didn't anticipate that the FDA would require more time and the review cycle to incorporate these data into the NDA. However, the FDA indicated that the additional information was determined to constitute a major amendment to the NDA resulting in an extension of the PDUFA goal date by three months. We remain very confident in our entire data package supporting our NDA submission and as I stated, we've been engaged in active dialogue with the FDA throughout the review process. The FDA has informed us that they plan to hold an advisory committee meeting to review our NDA. However, the meeting date has not yet been said. With the changed PDUFA, we are currently preparing for an advisory committee meeting this summer. We have established a separate subsidiary company to commercialize NKTR-181 and are working on finalizing a structure with one or more capital partners to support the commercialization of this important molecule. Our goal is to complete this process before the potential approval of NKTR-181. In the meantime, we're completing the production of launch inventory and conducting other pre-launch commercial readiness activities such as market access, preparation and distribution agreements. We believe this will allow us to ensure that the commercial launch of NKTR-181 is optimized. We continue to be very excited about the future for NKTR-181 and its role in the treatment of chronic pain. Moving now to immuno-oncology. We continue to execute on our strategy to develop a full pipeline of new potential medicines that address the key components of the immune cycle in order to restore immune surveillance and properly harness the body's immune system to fight cancer. Starting with bempeg, our collaboration with Bristol-Myers Squibb, which was established just one year ago. We now have a broad platform to rapidly develop this important IL-2 pathway molecule. In the fourth quarter of 2018 with our partner BMS, we initiated the first registrational trials for the bempeg and nivo doublet combination in first line metastatic melanoma, renal cell carcinoma and bladder cancers and we added a new expansion arm to PIVOT focused on enrolling second line non-small cell lung cancer patients following treatment and relapse in first line with chemo and checkpoint therapy. As you can see, we have made tremendous progress in less than a year. We recently presented exciting data from the ongoing bladder cancer cohort in the PIVOT-02 study at the ASCO GU meeting here in San Francisco. We believe these data are highly supportive of our registrational strategy in bladder cancer. Our first registrational study is underway and it's an accelerated approval strategy in 165 patients who are not eligible for cisplatin therapies and who express low levels of PD-L1 in their tumors at baseline. This indication represents a high unmet medical need as checkpoints are no longer used in these patients. Importantly, it allows us to capitalize on the unique mechanism of bempeg specifically to conversion of PD-L1 non-expressing tumors to PD-L1 expressing tumors. You'll recall that in the PIVOT study 70% of the baseline negative patients in bladder cancer cohort for which we had matching biopsy results converted to expressers of PD-L1 by the third week of treatment. As Dr. Siefker-Radtke of MD Anderson highlighted on our call last week, the data presented at ASCO GU for bempeg and nivo clearly shows a significantly better ORR and CR rate than has been reported with single agent checkpoint inhibitors in this patient population. And this is why we're so excited that our registrational trial in bladder cancer is already underway and we expect it to be the first of our registrational trials to complete and readout. The projected readout from the study will be in the middle of 2020. As we stated earlier in the year, as data from additional PIVOT cohorts in other tumor types mature over the next 12 months, Nektar and Bristol are planning to present the data sets at various medical meetings, including tumor specific conferences. We're currently targeting several presentations at PIVOT data in 2019, including lung cancer data at this year's ESMO meeting. And Nektar and BMS are currently planning to submit data from the triple negative breast cancer cohort for presentation at the quadruplets CRI meeting in September and for renal cell carcinoma, we're targeting the 18th International Kidney Cancer Symposium in November. As you know, the joint development plan with Bristol includes about 20 registrational trials across multiple tumor types and so far the first 10 of these trials in the joint development plan including our accelerated approval strategy in bladder cancer had been initiated or in the process of starting and Mary will talk more about these in a moment. As we stated at JPMorgan, BMS and Nektar are also currently working on the design of the next wave of trials in lung, breast, gastric and colorectal cancers as well as sarcoma. The BMS and Nektar teams have been working very closely together on the program and we've made tremendous progress over a short period of time in building out a comprehensive registrational strategy across the tumor types in this collaboration. We recently announced another development collaboration for bempeg with Pfizer to develop various doublet and triplet combinations with bempeg and Pfizer and Merck Serono's anti-PD-L1 agent avelumab, Pfizer's PARP inhibitor and Pfizer and Xtelesis anti-androgen agent. Pfizer and Nektar are currently working on the design of the Phase 1b/2 study in head and neck cancer and castration resistant prostate cancer and the study will start in the second half of this year. As you know, Pfizer will serve as the sponsor of the study and we will each retain ownership of our individual molecules. We're very excited to work with Pfizer in this because of their expertise in head and neck and prostate cancers and because they also recognize the importance of the unique mechanism of bempeg I-O, particularly in patients with PD-L1 negative tumors. We also have a collaboration with Takeda to combine bempeg with Takeda's TAK-659, which is a dual SYK-FLT inhibitor in liquid tumors. We know that the three mechanisms together, IL-2, SYK-FLT showed a dramatic effect in our preclinical model. So we're excited about the first study, which has already started in advanced NHL patients. Moving on to updates for NKTR-255, our IL-15 agonist cytokine, which we're putting into the clinic later this year. We know that targeting the IL-15 pathway in addition to creating memory T cells, strongly promotes the expansion activation and survival of natural killer cells, which is very important in number of diseases, particularly in lymphomas where the mechanism could greatly enhance ADCC antibodies such as daratumumab. We plan the file IND in the middle of this year and initiate a Phase 1 trial of NKTR-255 in patients with multiple myeloma. We also have a collaboration with the Fred Hutchinson Cancer Center looking at whether we can use NKTR-255 to enhance CAR-T persistence and improve overall responses following CAR-T. Fred Hutch is planning the first presentation of this preclinical data at ASCO this year. In the fourth quarter of last year, we entered into a collaboration with Gilead to explore NKTR-255 with a number of different Gilead compounds in their portfolio in the area of urology. Gilead will initiate these preclinical studies this year and fund 100% of the costs of these studies. I'd like to move on to highlight the great progress we've made with our partner Eli Lilly on the development of NKTR-358. We have an ongoing Phase 1b multiple ascending dose study in lupus patients that is proceeding nicely through dose escalation. Lilly and Nektar nectar plan to present the first clinical data for NKTR-358 at EULAR this summer. The data will be from our completed single ascending dose study of NKTR-358 in healthy volunteers. In addition, Lilly is designing two new Phase 1b studies that will start this year in two new autoimmune indications. We're very excited about NKTR-358, emerging as a potential resolution therapeutic in the treatment of autoimmune disease. Before I hand the call to Mary, I'd like to comment on the incredibly successful and productive year that we've had at Nektar that positions us with a deep clinical pipeline and also puts us in exceptionally strong financial position as we start 2019 with over $1.9 billion in cash on our balance sheet. We signed a landmark collaboration with BMS that allowed us to execute on a full registrational program for bempeg with substantial operational and financial support from our partner. Additional collaborations with Takeda and Pfizer for NKTR-214 with Gilead for NKTR-255 highlight the science and innovation within Nektar that is being recognized by our new partners. We advanced two new clinical candidates in I-O NKTR-265 and – NKTR-262 and NKTR-255, NKTR-358 also move forward rapidly and positions us in the field of immunology with a strong partner in Eli Lilly. So I'm exceptionally proud of our team. They're hard work to continue to advance our novel therapies in I-O, immunology and pain. And with that, I'd like to turn the call over to Mary to review our clinical programs.

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 first interim analysis on the primary endpoint is 27 months. The second Phase 3 trial in RCC being initiated shortly, we’ll evaluate the triplet combination of bempeg, nivo and Ipi compared to the nivo and Ipi doublet in patients with previously untreated metastatic RCC. The study will enroll approximately 800 patients with intermediate or poor IMDC risk scores and we’ll also stratify by PD-L1 status. The third registrational trial in RCC will evaluate a TKI inclusive regimen with bempeg plus nivo and a TKI compared to nivo plus a TKI in first line patients with all IMDC risk levels. The study will include a safety lead-in to determine the TKI combination dose for the second part of the study, which will then evaluate ORR, PFS and OS. In bladder, we’re planning a registrational program to gain approvals in first-line metastatic bladder cancer and other settings. As we just reviewed on our call with Dr. Siefker-Radtke at ASCO GU, Cis-ineligible bladder cancer patients are a population that are in need of better therapeutic options. For those patients whose tumors are low expressers of PD-L1 at baseline for whom single agent checkpoint inhibitors are no longer the preferred standard of care. The only option is to be treated with a gem/carbo chemo regimen. As Howard stated earlier, we just showed that treatment with bempeg plus nivo converted 70% of the baseline negative PD-L1 expressers to PD-L1 positive expressors in our UC cohort in PIVOT-02. We also observed this conversion with NKTR-214 monotherapy in the first Phase 1 trial of bempeg. With this in mind, our first registrational trial in bladder cancer, PIVOT-10 is a potential accelerated approval study that is already underway and is being conducted in cisplatin-ineligible patients that have a low baseline PD-L1 expression or less than 10 combined positive score using the 22C3 pharmDx diagnostic. The trial will enroll approximately 110 patients on the bempeg plus nivo arm and approximately 55 patients to a chemo reference arm of gem/carbo. Patients will be able to cross over to bempeg plus nivo after progressing on the gem/carbo reference arm. We will also collect specific PD-L1 conversion data from patients in the study to support our data package. As this conversion is a unique and differentiating feature observed with the mechanism of bempeg and nivo. The next bladder cancer trial broadens our development strategy to earlier stage disease and can also serve as a confirmatory trial for the PIVOT-10 potential accelerated approval study. This second trial will enroll patients with muscle invasive bladder cancer, who are also cisplatin-ineligible and we will stratify by PD-L1 status and disease classification. During an induction presurgical phase, 540 patients will be enrolled and randomized one to one to one to receive three cycles of bempeg plus nivo, nivo or no treatment. All patients will undergo surgery and then go on to receive bempeg plus nivo or nivo only or observation in the adjuvant setting. The primary endpoint will be event free survival. Finally, we are planning to initiate a third trial in metastatic bladder cancer that we will include first-line metastatic patients who are both cis-eligible and cis-ineligible. Moving on to non-small cell lung cancer, I’ll first talk about the PIVOT expansion in second-line non-small cell lung cancer, which is currently underway. As Howard stated earlier, we are enrolling a 100 patient cohort in PIVOT that includes only second-line relapsed non-small cell lung cancer patients, who received the checkpoint inhibitor combined with chemotherapy in first-line. The original design of PIVOT envisions that an expansion arm in appropriate patient population could potentially serve as an accelerated registrational pathway. As this particular patient population in lung cancer has limited options once their disease has progressed following a checkpoint inhibitor with chemotherapy in first-line, we believe this cohort could also allow us to pursue an accelerated approval pathway. With this strategy, we are also planning a trial and second third-line non small cell lung cancer that could serve as a potential confirmatory trial and would compare NKTR-214 nivo in chemotherapy to chemotherapy alone. In addition, BMS and Nektar are planning a first-line non small cell lung cancer study with the doublet of bempeg plus nivo compared to pembrolizumab single agent, which provides a chemo-sparing regimen approach. We are also designing a second study in first-line non small cell lung cancer, which combines the doublet of bempeg plus nivo with chemotherapy. To that end, we have already incorporated several dose finding cohorts into the PIVOT-02 study that are evaluating various chemotherapy regimens with the doublet in patients with non small cell lung cancer. As Howard mentioned, we are also finalizing our clinical designs with Pfizer in prostate and head and neck cancer. We are very excited to work with the Pfizer Oncology group to explore the potential of combining multiple mechanisms in these two tumor settings. Under the new clinical collaboration, Pfizer Oncology, we’ll conduct the planned Phase 1b/2 clinical trial. That will include multiple patient arms. One will be a Phase 2 cohort to evaluate bempeg plus avelumab in patients with recurrent or metastatic squamous cell carcinoma of the head and neck, who have not received any prior systemic treatment 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, we’ll feature 1b dose escalation followed by a Phase 2 component to evaluate bempeg plus avelumab combined with either talazoparib or within enzalutamide in patients with metastatic CRPC who have progressed on one or more prior regimens. Cohorts will include 20 to 40 patients, and we will measure clinical success based on the specific combinations and referenced outcomes in the various settings being investigated in this study. As Howard also communicated, bempeg is being evaluated with Takeda’s oral dual SYK-FLT inhibitor, known as TAK-659 in a Phase 1/2 clinical trial in Non-Hodgkin Lymphoma. Since, bempeg and TAK-659 target different cell populations, the two compounds provide unique non-overlapping and highly complementary mechanisms. As the first trial with bempeg in a liquid tumor setting, the study provides a strategic opportunity for us to expand bempeg development in this area. The trials enrolling patients, who are relapsed or refractory to at least two prior lines of therapy but no more than three prior treatments. With that clinical update, I’d like to hand the call over to Gil.

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 year ended December 31, 2018, we recognized net income of $681.3 million or $3.78 diluted earnings per share, as compared to a net loss of $96.7 million or 62% basic and diluted net loss per share in 2017. Now let’s turn to our 2019 financial guidance. Starting with our cash position, we expect to end 2019 with approximately $1.5 billion with a receivable balance of approximately $65 million to $75 million due from BMS at the end of 2019 as a result of the annual funding cap. As a reminder, our collaboration with BMS includes a $125 million annual cash funding obligation cap for joint development activities prior to the commercialization of bempeg. To the extent, this occurs in the fourth quarter, the collaboration expenses incurred by us in excess of the cap will be a receivable at the end of the year and reimbursed by BMS in Q1 of 2020. We project that we will reach the R&D reimbursement cap of $125 million during 2019 and anticipate the receivable balance of approximately $65 million to $75 million due from BMS at the end of 2019. GAAP revenue is expected to be between $100 million and $110 million in 2019, which we expect to be fairly ratable over the four quarters of 2019. 2019 GAAP revenue includes approximately $40 million to $45 million of royalty revenue from ADYNOVATE and MOVANTIK and $30 million to $32 million of non-cash royalty revenue related to the CIMZIA and MIRCERA royalty monetization. We anticipate 2019 GAAP R&D expense will range between $500 million and $525 million, which includes approximately $80 million of non-cash depreciation and stock compensation expense. We expect to incur R&D expense on a fairly ratable basis over the four quarters of 2019. As a reminder, our GAAP R&D guidance includes amounts we expect to incur beyond the R&D joint development funding cap of $125 million, which is reimbursed to us by BMS quarterly in arrears. There are few key points that I want to highlight in our 2019 R&D investment plan. A significant amount of our R&D budget represents our portion of the investment in the broad registrational development plan for bempeg that we are executing with our partner of BMS. We have multiple registrational studies underway with many more registrational studies planned. Nektar share of joint development plan cost is approximately 33% of clinical study cost and 65% of bempeg manufacturing and supply cost. In addition, we are also making important investments in bempeg in combination with other mechanisms of action under our collaborations including Takeda, Pfizer, BioXcel and Vaccibody. We expect our bempeg manufacturing investment to be significant in 2019, as we build drug supply inventory to support the multi-year clinical development plan for bempeg. As a reminder, BMS generally shares in approximately 35% of bempeg manufacturing and supply cost. For NKTR-358, we expect to complete the Phase 1b multiple ascending dose study in lupus in the second half of this year. Eli Lilly is planning to conduct two new Phase 1b studies in autoimmune conditions and will lead the clinical development program from Phase 2 through approval. Nektar share of Eli Lilly’s Phase 1b and Phase 2 costs will be 25%. We expect to complete the Phase 1 clinical study for NKTR-262, in combination with bempeg this year with plans to initiate a Phase 2 study later this year. For NKTR-255, we plan to file an IND in the middle of the year and initiate the first Phase 1 clinical study for this program. For NKTR-181, we continue to invest in activities necessary to support regulatory approval and commercial readiness to launch NKTR-181 following the potential approval later this year. In addition, we will complete the manufacture of NKTR-181 commercial launch supplies that are included in our R&D expense and not capitalized into inventory prior to the potential NKTR-181 approval. G&A expense for 2019 is projected to be between $110 million and $120 million, which includes approximately $35 million of non-cash depreciation and stock compensation expense. In 2019, G&A expense includes an initial investment in commercialization and marketing costs for NKTR-181 in preparation for commercial launch following potential approval later this year. For 2019 interest expense will be approximately $22 million and interest income will be approximately $40 million. We expect to recognize approximately $24 million in non-cash interest expense related to the CIMZIA and MIRCERA royalty monetization. As I stated earlier, we plan to end 2019 with approximately $1.5 billion in cash and investments, together with a receivable from BMS for development cost reimbursement of approximately $65 million to $75 million. And with that operator, I’ll open the call for questions.

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.