Nektar Therapeutics (NKTR) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Q2 2019 Financial Results Conference Call. [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 today. With us are Howard Robin, our President and CEO; Gil Labrucherie, our Chief Financial Officer; Dr. Stephen 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 clinical trial results, timing and plans for future clinical trials, timing and plans for future clinical data presentations at medical meetings, the therapeutic potential of our drug candidates, the effects of manufacturing processes and controls, outcomes and plans for health authority, regulatory actions and decisions, financial guidance, and certain other statements regarding the future of our business. Because these forward-looking statements relate to the future, they're 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 8-K filed today and the Form 10-Q that we filed on May 9, 2019, which 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 of Nektar's website at nektar.com. With that, I will now turn the call over to our Howard. Howard?

Good afternoon everyone and thank you for joining us on today's call. Today we'll review the quarterly results, provide several updates on our programs in the clinical pipeline, including a specific discussion on the NKTR-214 or the bempeg program and reiterate our financial guidance for 2019. I'll start with several updates on our pipeline programs. First, NKTR-181, as we previously announced in late July, the FDA issued a general advice letter which was sent to several sponsors including us. A letter stated that the FDA would be postponing product specific opioid analgesic advisory committee meetings, while they consider certain scientific and policy issues for the opioid class of pain treatments. This includes the advisory committee meeting originally scheduled to review NKTR-181 on August 21. We will work with the FDA as they continue their review of our NDA. We are hopeful based upon our interactions with the agency that the FDA will be able to reschedule the panel before the end of the year. They have told us that they would inform us as soon as they could on the timeline for the new meeting. And of course we're disappointed in the delay but we understand the importance of the agency taking a comprehensive view as they address considerations for this class of drugs. The FDA has been very cooperative in the development and review of NKTR-181 and we believe that NKTR-181 will be a step forward and an important building block to help address the opioid epidemic. Our NDA includes a 2,200 patients and healthy volunteer data package to support its profile. We invented this product with the specific objective of helping to address the opioid crisis that plagues our country. We look forward to a scientific discussion that the rescheduled advisory committee meeting and continued collaboration with the FDA team. This past quarter, we created a wholly owned subsidiary Inheris which is preparing to launch NKTR-181 upon its potential approval. As we head to our potential approval, our objective is to finalize a capital structure with one or more potential capital partners in order to support these activities. The goal is to introduce a different model in the pain space using a specialized medical liaison team and a small sales force. We are carefully gating our spending at each stage prior to potential FDA approval and commercial launch of NKTR-181. We continue to be very excited about the future for this novel potential medicine. Next, I'd like to provide a brief update on NKTR-358, our T regulatory, IL-2 pathway candidate, which is advancing in the clinic for treatment of autoimmune conditions. We presented our first inhuman single ascending dose study data at this past EULAR Congress, which demonstrated our NKTR-358 selectively stimulates t regulatory cells in a dose dependent fashion. We plan to present additional data from this first trial at the American College of Rheumatology meeting later this year. The multiple ascending dose study in lupus patients is continuing and based on its completion. Later this year, Eli Lilly has plans to initiate a Phase 2b dose ranging lupus study early next year. Eli Lilly is also planning to start new Phase 1b studies later this year in two other autoimmune and inflammatory diseases. Eli Lilly and Nektar are very excited about NKTR-358 and its potential to become the first resolution therapeutic for multiple autoimmune and inflammatory indications. Moving onto NKTR-255 our IL-15 agonist program, we're pleased to report that the IND for NKTR-255 was successfully filed with the FDA and we're initiating our first in-human clinical trials this quarter in patients with either relapse refractory non-Hodgkin's lymphoma or multiple myeloma. The first studies are designed to evaluate the safety and dose schedule of NKTR-255 as monotherapy evaluate biomarkers and to expand into combination with an antibody that works through an ADCC mechanism. As IL-15 strongly promotes the expansion, activation and survival of NK cells we're excited about its potential to successfully combine with the ADCC mechanism.

In addition, we're also planning to initiate a clinical trial for NKTR-255 in combination with CD19 CAR-T cells in patients with diffused large B cell lymphoma. The study is based upon the compelling preclinical data that was generated by our collaborators at the Fred Hutchinson Cancer Center, which demonstrated that NKTR-255 can enhance the persistence of CAR T cells leading to more durable responses following CAR T therapy in animal models. We're planning a number of presentations for NKTR-255 at the upcoming ASH Conference later this year, including additional data with CAR T therapy. Finally, our research collaboration with Gilead for NKTR-255 is continuing nicely. They are evaluating NKTR-255 with various molecules in their portfolio in area of virology, which is an entirely different application for this important mechanism. So we're very pleased with the advancement of our IL-15 program. Now I'd like to discuss the bempeg program. As you know, last quarter we extended the start time for registrational trials under the BMS collaboration by four months. In order for BMS to maintain exclusivity for the indications indicated included in those registrational trials. We currently have four registrational trials ongoing, one in first-line melanoma, one in first-line renal cell, urothelial, one in first-line renal cell carcinoma and one in second-line relapsed non-small cell lung cancer. Over the past several months, we and BMS had been working together on our development program of registrational trials of bempeg and nivo and various tumor types and indications in a highly complex and changing competitive landscape for the anti-PD-1 class. As both companies have stated, BMS and Nektar have been encouraged by data and a number of tumor types from PIVOT-02, our Phase I/II study of the doublet of bempeg and Nivo. At the recent ASCO 2019 meeting, we reported an update from the first-line melanoma cohort in PIVOT-02 that showed an improvement in complete response rates and deepening of responses for patients who responded to the doublet therapy, a clear benefit for these patients. We recently announced that these compelling data led to a breakthrough designation from the FDA. Now withstanding this extremely positive development, we like you still have lingering questions about the softening in response rates that we observed in PIVOT. In particular, if you remember back when we presented data at ASCO in 2018, many of you asked us about the softening in response rates between the first and second Fleming cohorts in melanoma and what could be the underlying cause of this variance. As more patient data have matured and become available over the past six months, we've continued to analyze all of the pivot cohorts closely and an effort to understand whether there was a root cause to this observation or whether it was a result of normal variability. Now, let me tell you what we've learned. As we've been working to finalize the manufacturing process and increase production capacity in order to supply our large scale clinical program and validate commercial scale manufacturing. We established all of the compendial methods that are expected in accordance with normal GMP guidance. In addition, we created new product specific assays to be used for quality control in this scaled manufacturing process. With these new assays, we conducted a thorough characterization of all of the 22 lots of bempeg peg produced to-date, including all of those which currently supply and we'll supply our current and future registrational studies. The characterization work from these new assays revealed that two of the earliest production batches of bempeg were different than the other 20 batches produced. These two early manufacturing lots are known as lots two and five and the time of their production bidding beginning in 2016 it was early on in the manufacturing campaign and these lots were within the manufacturing controls and release specifications. As such, we did not detect any meaningful variability upon their release. Various early production batches of bempeg were sequentially distributed in PIVOT-02, lots one, two, three and five. As more clinical data matured and became available in PIVOT-02 and once we had identified the outlier variances of lots two and five, we then had the basis to start analyzing any potential differences between data from patients that started treatment with lots one and three as compared to lots two and five. We found notable correlations in several cohorts with evidence of an improved clinical benefit and patients who started treatment with lots one and three as compared to patients who started treatment with lots two and five. We have identified the cause of the physical differences between these lots, which we now stemmed from a single suboptimal batch of in-process intermediate that was used to produce only these two lots, lots two and five of the 22 lots we've made to-date. The issue was restricted only to the single batch of intermediate used in lots two and five and importantly our recently developed product assay show that fortunately, the rest of the bempeg batches that have been produced have characterization profiles comparable to lots one and three. Lot two had already been full used in PIVOT and lot five was almost full utilized PIVOT and PROPEL. No material from lot two or five is currently being used in any of the ongoing clinical trials and this material has not been used at all in any of the ongoing registrational trials. As a result of this discovery, we have developed a comprehensive control strategy to limit variances in raw materials, intermediates and the final product in our manufacturing and this is being validated for commercial scale manufacturing. This has been submitted to and accepted by FDA in collaboration with BMS. The new assays and control strategies also allow us to build new IP around the product. In addition, as we were scaling up manufacturing, we also changed the structure of our CMC organization in terms of leadership and alignment of skills and activities. Supply chain and manufacturing are now being run with new leadership under Kevin Brodbeck, who has successfully led our manufacturing facilities for other programs with partners from development through commercialization. And Biologics Process Sciences is now reporting to our Chief Scientific Officer, Dr. Jonathan Zalevsky as his team has deep subject matter in this area. I'll now turn the call to Steve Doberstein to comment on some additional detail with respect to the clinical differences based on the drug lots we observed in PIVOT. As notable as these correlations are to us and BMS, they of course cannot be used to determine causality. These clinical differences between lots were also shared with the FDA as part of their review of our control strategy. Steve?

Thank you, Howard. First, I'd like to outline how we analyze differences in the clinical performance between the lots. The majority of patients in PIVOT-02 rotated through different lots beyond cycle three of their treatment. So we focused our analysis on clinical differences based on the starting lots that our patient received. As of mid-May, approximately half of the patients in PIVOT began treatment with lots one and three, and half began treatment with lots two and five. We looked at differences in safety, first scan response and best objective response rate including complete response rate. In the particular cohorts of first-line melanoma, first-line renal cell carcinoma and first-line urothelial carcinoma we saw a correlation between improved clinical benefit in those patients who received lots one or three for their first dose, as compared to those who receive lots two or five for their first dose. This trend of improved clinical benefit was maintained even when analyzing these metrics by patient demographics baseline disease criteria or investigator sites. Given that the usage of the sub-optimal in-process intermediate was limited to only lots two and five, we combined the data for patients initially dosed with either lots two or five together and we combined the data for patients initially dosed with either lots two or five together and we combine the data for patients who started with in trend lots one or three together. First, let's start with safety. We observed no meaningful differences in safety between lots one and three and lots two and five, although some minor differences were observed and a directional trend towards more reported AEs did occur with lots one and three. Overall, the safety profile of the doublet continues to be well tolerated and is consistent with our prior data presentations. Starting now with the first-line melanoma cohort. As you'll recall, the best objective response rate as reported at ASCO 2019 for efficacy of valuable patients was 53% with a complete response rate of 34%. In addition, 42% of patients achieved 100% reduction in their target lesions. All 10 patients who were on treatment at the time of ASCO 2019 remain on treatment today or have achieved maximal clinical benefit in the study. As Howard stated, these data recently led to a breakthrough designation in first-line melanoma. Notably when you analyze this cohorts by combined lots for the 16 patients who started on lots one and three, the response rate at first scan was 56%. The response rate at first scan for the 22 patients who started on lots two and five was only 18%. The best objective response rate for lots one and three was 75% with a complete response rate of 44%. For lots two and five, the best objective response rate was 36% with a complete response rate of only 27%. As you'd imagine, these response differences also lead to an improvement in PFS seen between the lots. You'll recall that the overall patient population was at a median 12.7 months follow-up at ASCO 2019, and the median PFS was at a minimum of 12.7 months. When you break out those patients who started on lot one and three, median PFS can't yet be estimated because there are too few events of progressive disease. However, for patients who started on lots two and five, median PFS is estimated at 5.2 months and is reflected in a minimum median PFS of 12.7 months for the overall cohort. Notably 41% of the 22 patients who started on lots two and five experienced progressive disease at first scan. In the first-line urothelial cancer cohort, we now have 37 patients valuable for efficacy by investigator and we plan to present these data for this cohort at a future medical meeting. Since we first presented our urothelial cancer data at ASCO-GU, unfortunately 80% of new patient enrollments started treatments on lots two and five. Currently, the best ORR for the entire cohort is 38% with a complete response rate of 14%, there are still 13 patients with treatment ongoing in this cohort, of these, five have experienced complete responses and an additional five more patients could see further deepening of response. There are also four patients who are being treated beyond progression. When you analyze these data by lots, for the 12 patients who started on lots one and three, response at first scan was 42%. The response at first scan of the 25 patients who started on lot two and five was 32%. For patients who started on lots one and three, the best objective response rate was 50% with a complete response rate of 42%. For patients who started on lot two and five, the best objective response rate was only 32% and none of these patients had a complete response. These response differences also lead to an improvement in PFS for patients who started on lots one and three. PFS for the urothelial cohort is quite immature, but can be estimated at 4.1 months for the entire cohort, but when you examined by starting a lot, for patients who started on lots one and three median PFS can be estimated at 5.5 months, and for patients who started on lots two and five, median PFS is estimated at only 3.5 months. In the first-line renal cell carcinoma cohort, we currently have 49 patients are valuable for efficacy by investigator. Currently the best ORR for the whole cohort is 35% with a complete response rate of 4%, 11 patients remain on treatment in the RCC cohort. When you examine clinical performance by lot for the 25 patients who started on lots one and three, the response at first scan was 20%. For the 24 patients who started on lots two and five, the response at first scan was only 4%. The best objective response rate was 40% for patients starting on lots one and three, as compared to a best objective response rate of 29% for lots two and five. Median PFS is quite immature for the whole cohort, but is estimated at 7.6 months. When you analyze by lots for this cohort, median PFS for patients who started on lot one and three was only – was 11.2 months and PFS for patients who started on lot two and five was only 5.5 months. In first-line non-small cell lung cancer, when we examine the first scan depth of tumor reduction split by lots, there is some early evidence that the 16 patients who started on lots one and three are experiencing a greater reduction in their target lesions than the 13 patients who started on lots two and five. However, the data are very immature in this cohort and we'll continue to monitor whether this trend continues as data mature and as more patients are enrolled. In other cohorts in pivot beyond the ones I've just described, we did observe some clinical differences between patients who started on different lots, however, the differences were not as notable as they were in the other first-line settings. As of the May 17th data cut, we did not meet the Fleming thresholds for the response rates for relapsed or refractory settings in PIVOT-02 and this has made it more difficult to discern any differences in these cohorts. However, there are similarities, for example, in the cohorts of second and third-line non-small cell lung cancer, the few responses we observed were in patients who started on lots one and three. In the second-line I-O naïve RCC cohort, over half the patients who started on lots two and five had progressive disease at first scan, as compared to only 16% who started on lots one and three. Before I hand the call back to Howard, I'd like to briefly comment on planned data presentations for the rest of the year. First in melanoma, despite the differences between patients who started treatment with lot two and five and PIVOT-02, we're pleased with the ongoing deepening of responses we've reported in the first-line melanoma cohort, we and BMS have submitted an abstract to present updated 18-month follow-up data at the 2019 SITC meeting. Second in triple-negative breast cancer, we have submitted an abstract to the upcoming CRI quadruplet meeting for this cohort, we intend to hold a webcast with a leading breast cancer expert to review these data during that meeting. Third RCC, we are planning to submit these data from this cohort for possible presentation at ESMO I-O in December. Fourth non-small cell lung cancer. In January of this year at the time of the JP Morgan Conference, we had 10 patients evaluable for efficacy with varying PD-L1 status across all three of our first-line non-small cell lung cancer PD-L1 expression sub-cohorts. Enrollment has been slower than we anticipated in these cohorts and there are a number of patients who were enrolled more recently in the second and third quarters. Overall the early data we're observing in these few patients in the first-line non-small cell lung cancer sub-cohorts support the bempeg mechanism of action and its potential benefit in the below 50% PD-L1 expressors and in the PD-L1 negative baseline patients. As you know, we've reported that effect in other tumor types as well. In the greater than 50% PD-L1 expression sub-cohort, we haven't seen this same benefit and we're trying to understand this observation in light of the manufacturing issue. As I just stated, when we examine the depth of tumor reduction by lots, there is some early evidence that patients may be benefiting more when started on lots one and three. We’re enrolling additional patients in the first-line non-small cell lung cancer cohorts and those patients are starting treatment with bempeg lots that are not lots two and five. As a result of the current immaturity of the data and the desire to continue to enroll more of first-line non-small cell lung cancer patients, we withdrew our accepted abstract for the upcoming ESMO meeting. We plan to present these first-line non-small cell lung cancer cohorts once the data are more mature. As you'll recall, our PROPEL study was designed to be a dose finding Phase 1 trial to evaluate pembrolizumab in combination with bempeg, bempeg in non-small cell lung cancer and other tumor types. As Howard stated earlier, lot five was almost fully utilized in PROPEL. Now the patients are starting on different bempeg lots in PROPEL, we plan to focus on enrolling first-line non-small cell lung patients into PROPEL and we're also evaluating different dose levels of bempeg in non-small cell lung cancer to ensure dose optimization. This will allow us to generate important data in first-line non-small cell lung cancer with the pembro and bempeg doublet. With respect to additional trials starting with other collaborators in bempeg, Pfizer and Nektar have finalized the Phase 1b/2 study in head and neck cancer and castration-resistant prostate cancer. This study will be initiating imminently and we'll evaluate various doublet and triplet combination with bempeg and Pfizer and Merck Serono's anti-PD-L1 patient avelumab, Pfizer's PARP inhibitor Talazoparib and Pfizer and Astellas' Enzalutamide. We're very excited to work with Pfizer on this because of the opportunity in these two solid tumor settings for bempeg, particularly in patients that with PD-L1 negative tumors. With that, I'll turn the call back over to Howard.

Thank you, Steve. Of course, we're very disappointed that we discovered this historical problem [Technical Difficulty].

Ladies and gentlemen, please stand by. Pardon me, you may proceed.

Okay. Sorry, we got cut off for a moment. Thanks, Steve. Of course, we're disappointed to have discovered this historical problem with these early manufacturing lots, but we believe we've identified and developed solutions to these issues, and we now believe we have the right drug product to support the registrational trials. We and BMS are working together to ensure a consistent and comprehensive quality control that was implemented for commercial scale manufacturing for bempeg. Nektar and BMS have also been in regular dialogue over the past few weeks regarding the development program. BMS has communicated to us that they remain very committed to the bempeg development program, particularly in light of the recent breakthrough designation in melanoma and the tremendous opportunity for both companies. They are highly committed to the ongoing registrational trials in first-line melanoma, first-line urothelial cancer and first-line renal cell carcinoma, as well as our new expansion cohort of second-line non-small cell lung cancer patients in PIVOT. Additional trials with BMS are under discussion and being planned, what it makes sense, based upon support PIVOT data or existing standard of care in a tumor setting, we and BMS plan to focus on five or six key registrational trials that will clearly demonstrate the clinical benefit of bempeg and nivo. Certain other trials in indications, we may do in partnership with other collaborators. As part of this, we will be carefully evaluating the timing and allocation of our resources as we finalize details of the overall bempeg program. We are in a very fortunate position with a strong balance sheet. However, we're going to be prudent in our capital allocation plans and the objective of getting bempeg approved as quickly as possible and advancing our pipeline with the resources on hand. And with that, I'll hand the call over to Gil to review our financial guidance for 2019.

Thank you, Howard, and good afternoon everyone. Today we issued our financial results press release for the quarter ended June 30, 2019. I will briefly review our updated 2019 financial guidance. Starting with our cash position, we anticipate in 2019 with at least $1.5 billion of cash and investments. Our full-year GAAP revenue guidance remains between $100 million to $110 million. For GAAP expense guidance, we now anticipate 2019 GAAP R&D expense will range between $475 million and $500 million, which includes approximately $80 million of non-cash depreciation and stock compensation expense. G&A expense for 2019 is still projected to be between $110 million and $120 million which includes approximately $35 million of non-cash depreciation and stock compensation expense. We continue to invest in activities necessary to support regulatory approval of NKTR-181 and as Howard discussed earlier we are carefully staging our investment and commercial readiness for NKTR-181 as we approach a potential approval later this year. 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. A lot of information packed in there. Fair amount to digest. Just trying to figure out what the right sequence of questions and I'm sure many of my colleagues will follow as well, but to make clear, you said that your analysis was that it was the initial dose from the lots that were problematic that were associated with the differences in response rates and clinical response that you were measuring. Mechanistically, can you explain why that would be the case. My second question relates to the Bristol collaboration. You had previously disclosed that the timeline had been extended to the end of September to make commitments. Is that still the case, and now firm that whatever programs get extended or commenced by the end of September that will be the time point at which you would then proceed to making decisions potentially with other collaborators. Thanks very much.

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–: I think that probably isn't terribly relevant right now, what I said was that together, we have three trials, three registrational trials, very large trials already running, we are planning on doing a number of additional trials and to the extent that we evaluate the landscape and determine that it isn't worth pursuing a specific indication then Nektar will be free to pursue that with other agents. And whether, whether that's a definitive cut off by the end of September, that's probably not terribly relevant, I can tell you that those types of decisions will be made in the very, very near future. And we'll be announcing our plan to move forward.

And then, sorry, can I just ask, is there a way, the difference in the batches 2 and 5 to translate that over to some of the characteristic of the final drug product. Would you say that the shortcomings in batches 2 and 5 were related to decreased potency. Is there some change in the deep regulation rate that would have made some question bio-availability at I-O2. Can you link the two together at all?

Hey, Chris. Can you hear me? This is Jonathan Zalevsky.

Yes. Hey, Jon.

Yes, hey, there. Yes. So what we have done is we have looked at the kind of physical differences between the different batches and as you remember, we published a model that described how receptor bias and receptor occupancy arises from bempeg the drug. This was in our plus publication a few years ago. So, we were able to use that model and we did identify that the characteristics of these batches 2 and 5 would make them less effective at occupying the receptor the same way as we reported in that paper and so they would arise less buyers. That's one of the things that we've learned.

Okay, thanks. I'll get back in the queue, I am sure plenty of other related questions. Thank you.

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

Great. Good afternoon and thanks for taking my questions. From a development plan standpoint, you mentioned that you and Bristol plan to focus on 5 or 6 key registrational trials and you outlined for the beginning of the call between first-line melanoma first line since notably you see second-line non-small cell in first line renal. Can you help us think about what other settings , those one to 2 other registrational trials might be in

–: I do believe that's a good way to develop and focus development of net of bempeg and I would expect that that's where we wind up clearly at this point, running 20 trials is probably not the right thing to do in terms of, in terms of how we use our resources. But I think if we, if we identify and I know we will 5 or 6 very relevant very significant registrational trials. I would expect that we can bring bempeg and nivo to a very, very good result and that's our plan to go forward.

Okay, got it. And Howard, just kind of following up on that, in your quote, in the press release, I think you mentioned the potential for the doublet of bempeg and nivo. I just wanted to confirm is that to say that there maybe be less interest now in exploring that I-O doublet in combination with chemo TKI's et cetera.

I'm going to let Mary cover where we're going with that. Hold on. Thank you.

Yes. Hi Jess, it's Mary. We are continuing to evaluate our options with the doublet and other agents both chemotherapy and TKI and so we'll keep you posted on the additional development and results in those studies. Thanks.

Okay, great. And maybe just a last one, just to make sure I understand with the potentially registrational non-small cell expansion cohort in those patients who progressed on PD-1 plus chemo. Do you anticipate updating that data or presenting that data along the way or should we only expect to hear the results from that study once it's mature. I think it's been estimated its being kind of like a second half 2020 event?

Yes, thanks for the question, Jess. Yes, we are anticipating in the second half of 2020. We also believe we should have data from the first line since ineligible bladder cancer study in the second half of 2020 as well as some early data from the Phase III in melanoma that same time frame?

And Jessica, I think as we, as we move forward in the PROPEL study studying non-small cell lung cancer in combination with pembro we'll be reporting on that as well.

Great. Thank you.

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

Hey guys, good afternoon. Thanks for taking the questions. The first one is a point of clarification for the breakthrough therapy status in melanoma. Can you confirm if that was based on the 53 or 34 CRI that was presented at ASCO or if they were aware of what was going on here with the manufacturing and if it was based on that 75. The higher 75 response rate?

Yes. Tyler, this is Steve. The breakthrough status is based on the entire dataset that was presented as it was presented at ASCO 2019. So while the agency is aware of the difference in the response rates between the batches that we talked about that the breakthrough status is based on the entire data set altogether.

Okay, that's helpful.

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Okay, that's helpful. And when you are talking about first-line lung in the breakdown of PD-L1 greater than 50 below 50 and negative and the differences there, you said, I think it's less than 50 PD-L1 expression status and negative that the data supports the mechanism of action of bempeg plus nivo. So can you just expand upon what you observed there in those cohorts that supports the MOA.

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Got it. Okay and then just to follow-up on the pivotal trials before that are ongoing. Can you confirm the order in the second half of next year is based upon current enrollment of bladder, melanoma and lung, if recall that might have been the order last time we spoke, and then also in melanoma. I think you guys said it was an early data look, is that still not going to be the median progression-free survival endpoint for potential approval and as a follow-up, do you still have that interim overall response rate look at six-months prior to that as well.

Yes. So look, it's a little bit too early. I think to handicap the specific order of finish of those trials. They're all still enrolling obviously, the big one is melanoma and that I think is the one that is being operationalized by BMS. I'll let Mary speak to the specifics of how that data are going to roll-out with respect to ORR analysis and things like that.

Yes, hi, Tyler, this is Mary. Yes. We expect the first data to readouts for the Phase III melanoma trial in the second half of 2020.

Okay. Thanks for taking the questions.

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

–:

Look, the biggest need in that indication of course is in those patients who are PD-L1 negative at baseline and in those patients that are PD-L1 to 49%. So that's exactly the area in which we think we get most benefit. And as we are doing throughout the rest of the program, that's where we're focusing our most accelerated efforts I think we'll continue to divide those in those subgroups as we study one both with nivo and with pembro in the context of the PROPEL study.

Okay. And then, just on the PROPEL study. Can you maybe, just confirm for us. I think you said lot 5 was not used, but in terms of the go forward here have any other patient has been exposed to some of the questionable lots? And I guess, can you just confirm for us, I guess with the plan patient enrollments if there any currently enrolled, patients who were exposed to some of the earlier lots?

So, let me take the first part of that question first. What we meant to communicate is that in PROPEL all of the initial patients has received only lot 5. So that confounds the early set of patients that were in that trial, quite a bit. Now, there are still patients on all of our studies who received some level of lot 2 and 5.

Okay. Thank you for that.

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

Hey, good afternoon guys. This is Alex on for Difei. Just a clarification question for me, in your four ongoing registrational trials, can you just confirm that you mentioned earlier no patients were treated with the affect of batches. Is that correct?

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Okay. Thank you.

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

Thank you. Like to kind of take a step back and ask maybe more generally about the relationship with BMS and it maybe I'm hearing this incorrectly, but I'd love for you to verify. Is the agreement under consideration for renegotiation or there clawbacks or there are potential material reconsideration clearly the prioritization appears to be different but somewhat, but I'd love for you to characterize the specifics with BMS at this point, if you can?

Sure. Well, first of all, there are no clawbacks, there is no renegotiation. The fact is that at this point, we will be moving forward with 5 or 6 major registrational trials, albeit we're not moving forward with 18. I think everybody understands that by now, but there are no clawbacks. There is no effect there on terms or conditions and to the extent that BMS chooses not to move forward in a particular indication, then we are free to work with other companies in that indication and that will be, we will be dealing with that and ascertaining that very, very shortly, and I realize I said earlier, whether I can't promise that that's going to be September, it's going to be October. But in the very, very near future, we will have an absolute plan that we bring forward with BMS. So that everybody understands exactly where we're working on. We've already defined four of those programs, the most likely be two more and we will communicate that with everybody. But there are no clawbacks there is no provision for changing anything. The contract is working as it should. And to the extent that BMS does not want to move forward in any specific areas than those are ours to do what we want with.

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Yes, I wouldn't, I wouldn't call it a restart of PROPEL, I think we unfortunately lot 5 was used in all the PROPEL patients and we are now using other lots which are comparable to lots 1 and 3 and we will be moving forward in PROPEL particularly in first-line non-small cell lung cancer in combination with pembro and as data emerges from that study, we will share with everybody so we are refocusing it but I wouldn't say we're restarting it.

Okay. And just ancillary question, I know the molecules are related, but NKTR-214, NKTR-358 is there any reason to think that potential similar circumstances have gone with the manufacture of NKTR-358 or have you looked into that at all?

Hey Bert. This is JZ, no this manufacturing issue was solely and exclusively related to bempeg, it does not impact any of the other molecules that we manufacture by either ourselves or any of our partners of collaboration.

Okay, thank you.

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

Great, thanks for taking my question. I'm trying to piece together the exact mechanism. It seems like patients who will receive treatment from lots two and three, the response rate and durability at least that you look like they just received OPDIVO alone. So in terms of – Jay-Z, I think you mentioned about the differences in receptor, occupancy is it – is it a problem with the primary sequence, is it primary – is it problem with the peculation. And in terms of that did you guys get a chance to look at bio-marker data, to kind of correlate the lots two and five issues and really see a difference, not only in the occupancy, but also biomarkers specifically priming of the T-cells and everything, you guys have been looking at.

Yes, hey, Andy, this is JZ. So yes, we did look at a number of these. And let me kind of summarize some of those. So let's start off with the pharmacodynamics, so we did look at the pharmacodynamics between the different lots and between the different patients of course in PIVOT and I will say that we did not observe specific pharmacodynamic differences between the lots. But we do have to remember, there are some limitations and the main one being that we only collect on-treatment biopsy at week three. So basically, at the end of that first cycle, so we don't know if other time points would have shown us other kinds of differences. And while we didn't see some of those pharmacodynamic differences as I mentioned, our mathematical modeling did indicate that based on some of these physical differences, we would expect a really different profile of receptor occupancy, particularly the bias around the dimeric beta and gamma receptors. And you can't really get into some of the structural things that we found is a proprietary and as I mentioned, they've even led to some new intellectual property. But what we do know is that relationship with the clinical data that Steve presented is something that's very notable and we have very, very high confidence that what happened in GMP two and five of those two lots really is not happening anymore with moved well beyond that with our control strategy that we are implementing into the commercial manufacturing.

Great. Okay. And is it consistent. I didn't have time to kind of look overall be different histologies but is it consistent and is it true that it seems like bempeg and in-dose cohorts did not actually contribute to any meaningful efficacy, is that kind of a true statement based on your observations?

Yeah. So based on our analysis of the data, yes patients that started lots two and five, they looked more like NIVO monotherapy would look. That's exactly right. That's what the data is indicating.

Okay. And so do you mind reminding me kind of mentioned about a Fleming analysis in the non-small cell lung cancer. I didn't really quite get that do you might, kind of reminding me with what's going on there?

Yes. So obviously to look at the Fleming, we have to have fully enrolled cohorts and we haven't yet fully enrolled to0 the maximum number of patients to analyze the Fleming, so once we do that we will find a conference to present those data and that was specifically the reason why when we spoke to the investigator who submitted the abstract to ESMO she did not want to present the data as we don't have a complete dataset and the data are too immature at this time to analyze the Fleming.

Oh, got it, okay. Now, I get it. Thank you. Thank you very much and yes – okay, got it. Cool. Thank you very much for answering all my questions.

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

Thanks very much. I know the clear focus of the call today is on bempeg in oncology. But given the unusual General Advice Letter you got from the FDA a couple of weeks ago, the delay for the adcom and your comments at the top of the call. I just had two questions on NKTR-181. The first regards your NDA filing. So I know that the letter you got from the FDA was only four weeks away from the PDUFA date. So could you comment by that time usually there is labeling discussions going on. Could you comment as to whether you actually engaged in some level of label discussions? And secondly, were all the manufacturing sites cleared. And then the second question relates to the JV. I think you said you're seeking equity partners. Do we assume that the equity partners will sign up assuming FDA approval or if you get FDA approval and you don't get all the equity partners you want, will the company underwrite at least part of the JV on its own? Thanks.

Okay, thanks. Well, look, your first question was very insightful. And the answer is yes, we are having labeling discussions with the agency regarding NKTR-181 and they continue to review the NDA and we're still hopeful that we have an adcom result by the end of the year. There are no manufacturing issues, no CMC issues. We've been fully reviewed there has been nothing that's come up there. So I don't see that as an issue. In terms of financing, look I think you can imagine that you're not going to have capital partners putting significant capital prior to – at a minimum an adcom or approval. But I think everybody recognizes how important this drug is in going toward solving the opioid crisis. It is a major component of solving the opioid crisis for our country. And I think everybody recognizes it. I think the FDA hopefully recognizes it and I think at some point, capital will be accessible, but I clearly think that we're going to have to at least have an adcom first before, before anybody commits. I'm not terribly concerned about that I think will make that happen. We've set up an important subsidiary Inheris with a great management team who is absolutely focused on making this – bringing this drug to market in a very, very important way and like I said, it's very encouraging that we are continuing labeling discussions with the agency.

Great, thanks.

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

Hi, thanks for taking my questions. So given that the enrollment in non-small cell lung cancer is going slowly and it seems like a lot of the patients in your trial as well as in the urothelial cancer trial got these batches two and five. What gives you confidence that you're registrational trials will be positive in those two indications?

Well, look in non-small cell lung cancer we haven't yet talked about our registrational trial pathway there. So stay tuned, I think as that data emerges and as it continues to evolve, we will be able to say more about that. I think when we look across the totality of the bladder cancer dataset and in particular, the number of deep responses that we see in the duration of those responses, I think we feel pretty good about our bladder cancer performance against the standard of care in the landscape right now.

All right, but sorry, isn’t the second-line trial in lung cancer, one of the four trials isn’t that going to be used for registration?

Yes. Hi, this is Mary. Yes. Just two things, one, when we look at bladder cancer, even when you look at the pool data, we still have a complete response rate that is twice as good as what you'd see with pembro or atezolizumab and then even when you look at our lots one and three, you really see the half the patients responded and 42% of them actually had complete responses. So we do have tremendous confidence in our mechanism of action in the bladder cancer study and we look forward to the outcome of that. Now, with respect to the second-line non-small cell lung cancer at ASCO 2018, we did have Dr. Scott Gettinger built through three different cases, two of which were responders and the third one, which was having very meaningful clinical response and these were in patients who had previously been treated with I-O agents and what was unique about that patient population is they also had responses to their initial I-O treatment. And so we modified that second line I-O refractory patient population, so that these patients could not have had primary refractory disease they could only have relapsed disease, meaning that they had 120 days of stable disease or better in order to come on to the trial. And I can let JZ mechanistically explain why we feel that there is a rationale for that.

Yes, thanks, Mary. The one thing that I'll add is, so remember like just as the key biomarker component, especially when you consider the urothelial carcinoma, remember that we showed a very high frequency at PD-L1 conversion in that population, which is why, of course, that is a PD-L1 negative readout kind of a study. We provided that mechanistically. And the key was that data that we showed with the entire cohort of patients. So even though we are noting the sort of differences between lots and we're applying that to a registration strategy. We still believe that there is enough confidence from the data that we have that progressing into the registrational program we have a good opportunity to be successful.

Yes, and George and just closing this conversation. The two responders that we did see started on lots one and three again providing the confidence that will see efficacy in this patient population.

Okay. And then at SITC when you present the melanoma data, are we going to see the whole intent to treat population or are you going to break out the patients based on a lot of drug that was received?

Yes. So we haven't prepared the presentation yet, but obviously we've always shown pool data and we have the opportunity, an agreement with BMS to show the data by first lot that's been received. So we do have that possibility and we shared with you today, the response rate at first scan as well as the best overall response so far in that population. Again, I just want to emphasize that our breakthrough therapy designation was based on the pooled data between lots one and three and lots two and five, and the FDA were fully aware of these differences that we've seen between lots when they reviewed the BDT document.

Okay, great. And one more quick question, in the REVEAL trial with NKTR-262 your TLR agonist, which batch was used in that study?

Hey George, this is JZ that we used batch for in that study, which is not the batch that was used in PIVOT, but from a characterization point of view batch four resembles lots one and three or batches one and four from PIVOT.

Okay, great. Thanks very much.

Thank you. [Operator Instructions] And our next question comes from Daina Graybosch from SVB Leerink. Your line is open.

Hi, thank you for the questions. The first one on the MBC and the CRI could we interpret from your comments on the potential registration trials as well as breaking down the lots that you did not see a promising efficacy signal in this indication?

Yes, hi, since we're presenting data at the quadruplet meeting in September. We didn't go through all of the data presentation but we look forward to sharing those data with you in Paris at the CRI quadruplet meeting in September.

Great. And then a question on follow-up for JZ, you talked about the mathematical modeling to compare the lots. Have you had the opportunity to do any pre-clinical lab experiments to validate that and then all your previous preclinical work, do we know what lots those were done with?

Yes, hey, Daina, this is JZ. So, as we mentioned, we did discuss the control strategy with the FDA and so there was a lot of data that was necessary in order for that discussion, because we had to present to the FDA, all the things and our findings, I can't get into the details of that though, because as I mentioned earlier that's proprietary to our molecule and to our company and it's even led to some new intellectual property that we filed. So I can’t get into some of those details, but to your other question, then in terms of the batches used for the earlier preclinical studies, including our own publications. As we've described what we observed in lots two and five was historical really an outlier compared to all of the other batches we identified where we didn't see those kinds of differences. So the material that we use, even in our early research early discovery campaigns, it was material that was more representative of lots one and three.

Got it. And then one last question, which lots did you use in the single agent dose escalation data? Was that anything from these problematic lots?

Yes, this is JZ again. Yes, it was a lot, one that was used in the single agent in the Excel monotherapy trial. And also the dose escalation part of PIVOT-02 that also used lot one.

Actually one more question. This is a huge investment both you and BMS have in all these registration trials, would you consider repeating any of the cohorts to get a sample and any of these ongoing registration trials quicker that was clean with good lots?

Well, I don't think that's the plan. I think we believe that we've identified the root cause can never prove causality, but we believe we understand what's happened and we already have, as I said three registrational trials running. We know the lots that are going into the clinic now for all the registrational trials look like lot one and lot three and as I said, no one in the registrational trials ever received lot two or five. So there is no reason to slow things down. And as you know, the landscape is also dramatically changing on a rapid basis – kind of rapid way in the field of immuno-oncology. So slowing things down to do additional homework so to speak, I don't think is particularly attractive here and I don't think there's really any need for it. We have some very, very clear results in a number of these studies. Look at melanoma for example, here you have breakthrough status in first-line melanoma, which is a pretty significant accomplishment. So we're going to, we're going to move ahead with these studies in registrational trial setting and get bempeg to market as quickly as we can.

Okay. Thank you.

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

Well, thank you for joining us today. Everyone I know you'll have some more questions at a later date. There was a lot of information provided, but we're happy to set up one-on-one meetings and discuss this with you in more depth, if you need to understand it better. And I want to thank all of our employees who I know are working very diligently on all the tasks that way ahead of them. So thank you for joining us this afternoon.

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