Ladies and gentlemen, thank you for standing by and welcome to the Nektar Therapeutics fourth quarter 2020 financial results. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference may be recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Ms. Jennifer Ruddock, Head of Corporate Affairs. Ma'am, you may begin.

Thank you Crystal and good afternoon everyone. Thank you for joining us today. With us on the call are Howard Robin, our President and CEO; Gil Labrucherie, our COO and CFO; Dr. Jonathan Zalevsky, our Chief of Research and Development; and Dr. Brian Kotzin, our Interim Chief Medical Officer and Head of Development. On today's call, we expect to make forward-looking statements regarding our business, including clinical trial enrollment and clinical trial results, timing and plans for future clinical trials, timing and plans for future clinical data presentations, the therapeutic potential of our drug candidates, outcomes and plans for health authority regulatory actions and decisions, estimates and predictions of the COVID-19 pandemic's impact on our business and clinical trials, financial guidance 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 was filed on November 6, 2020, which is available at www.sec.gov. We undertake no obligation to update any of these forward-looking statements, whether as a result of new information, future developments or otherwise. A webcast of this call will be available on the IR page of Nektar's website at nektar.com. Before turning over the call to Howard, I would like to remind you that I will moderate the Q&A session for our team as we are all in different locations so we can avoid technical issues during the session. We appreciate your patience as we work to ensure there are no technology disruptions for those listening on the call today. With that said, I will hand the call over to our President and CEO, Howard Robin. Howard?

Thank you Jennifer. Thanks to everyone for joining us on the call today. Over the past year, Nektar has made excellent progress positioning our company as a leader in the development of cytokine therapeutics. Importantly, we successfully broadened the registrational program in solid tumors for our lead IL-2 program bempeg with the addition of multiple registrational trials in adjuvant melanoma, muscle invasive bladder cancer, and most recently head and neck cancer. We also successfully completed enrollment in the ongoing Nektar-sponsored registrational studies in renal cell carcinoma and bladder cancer overcoming the challenges presented by the pandemic over the past year. We initiated a new development strategy with our IL-15 program, advancing two separate Phase 1/2 clinical studies to combine NKTR-255 with leading ADCC compounds rituximab and daratumumab, in liquid tumors, and cetuximab in solid tumors. And for NKTR-358, our Treg stimulator, we and our partner Eli Lilly broadened the clinical program with four mid-stage studies in different autoimmune disorders, including a Phase 2 in lupus, a Phase 2 study in ulcerative colitis, and two Phase 1b studies, one in psoriasis and the second in atopic dermatitis. We have also bolstered our already strong financial position with a $150 million royalty financing in December and a novel $150 million risk sharing collaboration, which we just completed with Blackstone Life Sciences and Abingworth through their SFJ entity to fully fund the study for bempeg plus pembro in head and neck cancer, and we are working with Merck on this study. Our deep pipeline of candidates in immuno-oncology and immunology together with a strong cash balance positions Nektar well as we enter 2021. So, let me begin today with bempeg, our most advanced late-stage clinical program, an IL-2 pathway agonist that is being developed in combination with checkpoint inhibitors nivolumab and pembrolizumab. Our…

Thank you Howard. Let me begin with a quick review the bempeg data from the PIVOT-02 melanoma cohort presented at SITC. As Howard noted, we reached the median PFS of 30.9 months. Overall response rate was 53%, with 34% of patients achieving a complete response. Importantly, we have also observed a median depth of response at 78.5%. Our results are notable when you look at historical data from published literature for depth of response for single-agent nivo and ipi/nivo, which were 35% and 52%, respectively. As we have discussed before, an FDA meta-analysis of melanoma trial has shown the depth of response in target lesions highly correlates with improved PFS and OS. And indeed with our median PFS of 30.9 months, we have observed a correlation very consistent with the FDA meta-analysis. We have not yet reached a median overall survival for this cohort. But as Howard stated earlier, our landmark OS at two years was substantially better than historical rates recorded for the current standards of care in this setting, nivo as well as ipi/nivo. The data reinforces our confidence as we advance our ongoing trials for bempeg, including our five ongoing registrational trials and with the coming study in head and neck cancer will soon be a total of six registrational studies. Now let me start with an update on the first-line metastatic melanoma study, which is being run by our partner, BMS. As a reminder, in 2019 we received a breakthrough therapy designation for bempeg plus nivo based on the high complete response rate we observed in this setting. In the second Phase 3 study, which compares the doublet to single-agent nivo, we have three primary endpoints, overall response rate or ORR, progression free survival or PFS and overall survival or OS. The ORR endpoint was designed…

Thank you, JZ. As Howard said earlier, we are very pleased with the broadening scope and advancement of the NKTR-358 program by our partner, Eli Lilly. Following positive data in lupus patients last year, Lilly commenced a Phase 2 study in lupus and now is initiating a Phase 2 study in ulcerative colitis as well as progressing the two separate Phase 1b studies in psoriasis and atopic dermatitis. The rationale for a T regulatory cell or Treg mechanism in the treatment of autoimmune diseases is compelling and based upon extensive evidence of the role of a malfunctioning imbalanced immune system as the underlying cause of the clinical manifestations in these diseases. Many autoimmune and inflammatory disorders, including systemic lupus and ulcerative colitis, are associated with decreased Treg numbers, reduced Treg function and/or reduced production of IL-2. With NKTR-358, our goal is to address these Treg abnormalities and to develop an IL-2 like molecule that could selectively stimulate Tregs in a more selective manner than native low dose IL-2. In November of last year at the annual American College of Rheumatology meeting, we shared new data from our Phase 1b study evaluating NKTR-358 in patients with mild to moderate lupus. We reported on improvement in lupus skin disease activity with NKTR-358. The study enrolled patients with mild to moderate lupus and patients only received three doses of NKTR-358 every two weeks, so it was not specifically designed to measure efficacy. However, we were highly encouraged that in one of our exploratory endpoints, NKTR-358 led to a dose-dependent reduction in lupus skin disease activity measured by the CLASI activity score in a subset of 18 patients with a baseline score greater than or equal to four. Patients experienced an improvement in activity scores while patients in the placebo arm saw no decline…

Thank you Brian and good afternoon everyone. This afternoon, we announced our full year financial results for 2020 in our earnings press release. On this call, I will briefly recap our royalty monetization transaction completed at the end of 2020 as well as review our annual financial guidance for 2021. On December 30, 2020, we further fortified our balance sheet through a $150 million royalty monetization with HealthCare Royalty Partners. The royalty interest involved in this transaction were from our license agreement with AstraZeneca for MOVANTIK and the license agreements for our PEGylated Factor VIII portfolio, which primarily relate to royalties from Takeda for ADYNOVATE. An important feature of this transaction is that after prespecified cash-on-cap return caps are reached, the residual royalties revert back to Nektar. As a result of the $150 million of proceeds we received from this royalty monetization and the repayment of our $250 million in senior notes earlier in the year, we ended 2020 in a strong financial position, including $1.2 billion of cash and investments and no debt. Now turning to our 2021 guidance. We expect to end 2021 with approximately $750 million in cash and investments. After taking into account the repayment of the $250 million in senior debt in 2020, the completion of our royalty monetization in 2020 and the $50 million in milestones received from BMS in 2020 with the start of the MIBC and adjuvant melanoma registrational studies, our cash usage in 2021 is relatively consistent on a year-over-year basis, primarily as a result of the Phase 3 studies for bempeg achieving much higher levels of patient enrollment as well as the ramp-up of our clinical development work for NKTR-255. Before I go over our annual financial guidance for this year, I wanted to briefly review how we anticipate accounting…

[Operator Instructions]. And our first question comes from Peter Lawson from Barclays. Your line is open.

Hi. Thanks so much. I guess on the PROPEL study, that seems as if that was delayed. Just wondering if you could kind of talk through that, whether that's kind of good news delayed or just an abundance of caution?

Yes. Thanks Peter. I am going to ask JZ to answer that. JZ, could you update on what we said earlier this year in January? Thanks.

Yes. Sure thing. Hi Peter. Thanks for the question. So, one of the good things that happened in that study is as COVID kind of ebbed in Europe, we saw a very fast rate of enrollment from European sites. And what that did is, over the last two months of 2020, we saw very, very rapid patient accrual and we enrolled approximately 60 patients into that trial. And so, the situation then is now the patient population is in the study, but they have only enrolled within the last couple of months. And so our intention is to provide the most robust, rich data set that we can. And so, given the number of patients that are enrolled, right, it's very important that patients are in the study for a long enough period of time to allow for the duration of follow-up and the treatment duration to extend. And then for us, when we report data, we want to report a minimum of two scans for all of the patients that we have enrolled into the study. So the reason why we targeted the second half of the year was really to provide the most comprehensive and complete and mature data set that we can, and in terms of the kind of information that we will be targeting to provide later this year, as you know, the study has patients split across the different PD-L1 expression subgroups, the less than 1%, the 1% to 49% and the greater than or equal to 50%. And so, we would be looking to report the response rates as well as the proportion of patients with a deep response, including CRs, the duration of response, any available accumulation of data not just the ORR but any longer term follow-up data that's available as well, as well as the safety profile and additional translational biomarkers, and we are looking forward to presenting that later this year.

Thank you. Our next question comes from Jay Olson from Oppenheimer. Your line is open.

Hi. Congrats on the collaboration with Merck for the combination study in squamous cell carcinoma of the head and neck. I was wondering if you could comment on the role of HPV in that disease setting and whether you expect to see different levels of response to bempeg in patients who are HPV-positive versus negative, and also maybe if you could talk about how bempeg may differentiate from IL-15 in that setting? Thank you.

JZ, could you take that?

Sure. Yes. Thanks for the question. Very insightful question. So, one of the interesting things about this tumor type is, as you have looked at the presentation of the disease with time, it's kind of changed, right. And so, there was a time when the majority of patients were smokers and you saw this and you associated with lifestyle, but probably within the last one or two decades, you are seeing a much greater increase of patients with HPV involvement, many of them younger and not maybe necessarily smokers, but they present with the disease anyway. So, HPV status, right, is an important [indiscernible] driver, and it's an important component of the patient population in the study. So, those patients are definitely included. And in terms of their presentation of disease, there are some differences that are really smart to cue in on those. So, we know that this is already an immune-sensitive tumor type, and we know that there is pretty high mutational burden in these patients. So, what you find in HPV patients is they have additional viral antigens, right. And so, you actually have the potential of an even greater kind of a T cell response for patients that have HPV-positive tumors. And that certainly was in our thought process with the bempeg mechanism of action with the kind of T cell priming that it induces knowing that HPV-positive patients will have even more tumor-associated antigens that you can prime T cells against, so that's definitely something we are thinking a lot about. And then we are focusing on bempeg in this tumor indication. It's a combination with a checkpoint inhibitor, right, with PD-1 and pembro. We really think that's much more of a bempeg guided mechanism than, per se, for 255. But with 225, right, we are considering other indications even though we are also using head and neck in the study where we are combining with cetuximab. There we are targeting the second line or later, and we are targeting the refractory population. And the mechanism of 255 in that setting is really to potentiate the ADCC component of tumor targeting associated with cetuximab. So, they are kind of two different mechanisms intended to have two different kinds of combination because of the different combination partners. And then also, of course, the different line of therapy. Thank you for your question.

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

Hi guys. Good evening. Thanks for taking my questions. Did Merck see any of the PROPEL lung data that you are generating with pembro in the context of the talks on head and neck study? And can you remind us of the pembro monotherapy benchmarks for each of the PD-L1 expression levels in PROPEL?

Howard, I will ask you to take the first part of that one. And JZ, if you could take the second.

Yes. Hi Jessica. Look, Merck certainly spent a lot of time vetting bempeg before they entered into the significant collaboration. I mean, remember, they are going to be providing drug for a 500-patient study, and while you can't be precise on the number of vials or the exact amount, that's somewhere between, if you ballpark it, $50 million to $70 million worth of drug. So, they clearly have vetted bempeg very well and I think they strongly believe in the mechanism. I can't tell you that they have looked at the lung data. We haven't disclosed that yet. So, I think you will have to just assume that they have looked at everything they can look at.

JZ, you want to talk about the benchmarks for pembro for monotherapy?

Yes. So, they are taken from various Keynote studies, Jess. So, in the early KEYNOTE-001 study, there was a little bit of data for single-agent pembro in the PDL less than 1%. And there, they saw about a 7% to 8% response rate for single-agent pembro in this setting. And of course, pembro is combined with chemo in that setting, right. So that's what they studied. But for single-agent pembro, there was 7% to 8%. For the 1% to 49%, there's data from KEYNOTE-42 that showed about a 17% response rate for single-agent pembro. And then for the greater than or equal to 50% subgroups, there's both data from KEYNOTE-24 and data from KEYNOTE-42 and they are in the 40% to 45% range for ORR. So those are the kinds of bars or metrics, benchmarks, that we are using to compare the PROPEL data against the single-agent pembro data in each of the different PD-L1 subgroups.

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

Thank you for taking our questions and congratulations on all the progress in 2020. I wanted to maybe turn back to your collaboration with Merck in head and neck and specifically, with regard to your identification of front-line patients. I think the market data currently shows that PD-1 therapy is in excess of 50% already in the front-line setting. So I was wondering if you could maybe first comment on how you are thinking about the recruitment time line for your Phase 2 and Phase 3? And then versus the monotherapy arm that you will include in the trial, how you think about what sort of margin you would look for in your interim futility analysis? Thank you very much.

Thanks Paul. JZ, I will ask you to comment a little bit on the plan for the enrollment. Thanks.

Sure. Yes. Thanks Paul. So roughly 80% to 85% of patients with head and neck cancer actually have PD-L1 positivity. They will have a combined CPS score of greater than or equal to one. So it is very immune-sensitive. And it's a tumor type that already has a pretty high baseline of positivity. And then what we found from an earlier Merck's Keynote study, is that the distribution of patients, say, the two categories that Merck used, the one to 19 and the greater than 20 CPS breakdown, that was about 50-50 in that patient population. So there's a pretty high proportion, right. Patients that basically qualify, almost all of them will have a CPS score for inclusion into the study. So we think there's a really good opportunity to enroll this trial pretty quickly because in addition, every patient will get either the standard of care pembro or the experimental arm, which is pembro plus bempeg. So it's the standard of care plus a mechanism that could provide synergy. So this is a very nice option for patients. And it's a very nice option for physicians, right, because the opportunity to put a patient onto a trial where they are going to get standard of care or standard of care plus, I mean, that's just a very favorable setting. So we expect this trial could enroll quite quickly. And then I am sorry, I missed the second part of your question. Do you mind repeating it, Paul?

What margin you would look for in terms of your interim or futility analysis? Thank you very much.

Yes. Okay. Thank you. Sorry, I missed that. So yes, so we have a prespecified futility and it's when 200 patients would be enrolled and followed for a short amount of time and looked at by ORR. We haven't given the kind of guidance on what the futility margin is. But it's something that's obviously a part of the study design. It's something we discuss with health authorities, something we discuss with Merck as well. And it's obviously a part of the statistical analysis plan for the study. Thanks for the question.

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

Hi. Good afternoon and thanks for taking my question. So my question is really around the CMC for 358. Do you expect making 358 to be as complicated as bempeg a couple years back? Thank you.

Thanks Difei. JZ, I am going to ask you to talk a little bit about this.

Sure thing, yes.

No problem.

Hi Difei. Thank you for the question. So the 358 molecule is quite different than the bempeg molecule. So on the one hand, it is also interleukin-2, right. So in terms of the kind of fermentation, that's all the same. But the PEG is completely different. For example, you know that the PEG is releasable in bempeg, whereas the PEG is stable, it's a stable linkage in 358. And you also know bempeg is a prodrug, whereas 358, again, differs in that regard. It's an immediately active molecule. So it's quite different. And it's under a totally different set of controls, both within in-process as well and totally different set of specifications for release. I also think it's important to mention that the nature of the agreement that we have with Eli Lilly, Nektar was responsible for executing Phase 1 and also we were responsible for manufacture through the early part of Phase 2. But after that, Lilly assumed control of the entire program. And so in fact, Lilly is now responsible in executing, not only on the clinical study, but also on the manufacture of NKTR-358. And they are, of course, scaling it and moving it into commercial manufacturing.

This is Howard. I would just add one more thing to that. If you look back at the bempeg manufacturing issue which, of course, you are alluding to, I will remind you that that was one bad lot of intermediate that unfortunately got its way into two production lots for clinical studies. But those were bad lots that were made in 2016. So the problem has been resolved and is long behind us. I understand that it has shown up in a terrible way. But the manufacturing problems were associated with a bad lot of intermediate. There are no ongoing manufacturing problems or issues with anything that we make at Nektar. I just wanted to make that clear.

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

Great. Thanks for taking my question. So JZ, I think you reminded the melanoma study and talked about the immune profile a little bit. So just wondering, so for the five patients who had 100% tumor size reduction but did not qualify for CR, in terms of their durability and PFS, did they look more like a CR or like a typical PR? And I have heard this from other investigators, just curious if fever is like an early proxy for response based on across all the bempeg trials that you have seen?

Yes. Hi Andy. Thank you for the questions. So let me take them in two parts. So the first thing that we have noted in the melanoma data set, as we reported at SITC, it was a very long PFS, right, 30.9 months. And actually, when you look at some of that distribution, for patients that had very, very deep responses, either the 100% target lesion clearance or the CRs, they really stratified like the FDA meta analysis indicated. We saw very, very high durability, very long disease control, right. And in fact, for those patients that had those kind of depth of response, right, we have not seen relapse, at all. So they are very much, yes, like, again our data, it's like a page out of the meta analysis. The depth of response really, really has a very profound effect on both PFS and OS. And when you stratify those kind of curves, that's exactly what you see. Now to your second question, you raised a very interesting kind of comment. And going all the way back to Steve Rosenberg studies at high dose IL-2 in 1980, people have been looking so closely for correlates of immune activation, whether they are AEs or whether they are cell types or others, to see if those kind of AEs or cytokine-related activities that you can measure throughout the clinical manifestation are associated with that. And there isn't really like convincing publications, but people have looked at things like pruritus, things like the cytokine itch and the cytokine skin reactions that you can see. They have looked at eosinophil, right. As we know, they can be induced by the IL-2 pathway. And I do have to say that we don't have like a clear trend in our data sets that we…

Thank you. And our last question comes from Ben Burnett from Stifel. Your line is open.

H. Thank you very much. Just a quick question on the 358 program. I guess as you expand that beyond lupus into these different disease settings, like how do you think about a dose schedule of 358? And is the Phase 1 informative here?

Yes. Thanks Ben. Brian, I am going to ask you to take that question, if you can.

Sure. Yes, I am glad to. Thanks for the question. Yes, first of all, the Phase 1 study is indeed informative. It basically gave us a lot of information regarding the relationship of dose to the induction and the degree of induction of regulatory T cells. It also gave us information regarding how high you can go up, where you maintain exquisite selectivity for just simulation of regulatory T cells. And as you know or I hope you know that it was really very well tolerated. So we had a good feeling for taking all of the doses that we studied in the Phase 1 program, taking it into later phase studies. So in the later phase studies, basically all of them basically were looking to see and we don't know in each of those diseases, which of these doses are most likely to generate the greatest degree of clinical impact. And is it the highest dose that generates the highest number of Tregs? Is it a middle dose that generates just elevated levels? Or is it a low dose that stimulates regulatory cells at a low level? And the exquisity, the selectivity also perhaps at the highest dose is somewhat less than at the middle dose. So at the moment, that's what we need to find out. And I would say to your question about, we don't know whether different diseases might have different dose levels that would maximize the clinical response. I think that's the excitement of doing this broad scope and looking at a number of Phase 2 studies in a number of different indications. Thank you.

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

Well, thank you everyone for joining us today. And I would like to especially thank our employees for their continued dedication and consistent efforts during these very challenging times. Their dedication to advancing our clinical studies while keeping our business on track is truly impressive and I want to thank every one of them. As I stated earlier, we are well-positioned with a strong balance sheet, a maturing portfolio of immuno-oncology and immunology programs. And we thank our shareholders for their ongoing support and look forward to continuing to provide you with updates on our progress. It should be a great year. We hope that you and your families continue to stay safe and healthy. And again, thanks for joining us.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect. Everyone, have a wonderful day.