Good day, and thank you for standing by. Welcome to the Nektar Therapeutics First Quarter 2021 Financial Results Conference Call. [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, and 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 CMO 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 on clinical trials, financial guidance and certain other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to inherent uncertainties and risks that are difficult to predict and many of which are outside of our control. Important risks and uncertainties are set forth in the Form 10-K that was filed on February 26, 2021, which is available at sec.gov. We undertake no obligation to update any of these forward-looking statements whether as a result of new information, future developments or otherwise. A webcast of this call will be available on the IR page of Nektar's website at nektar.com. Before turning over the call to Howard, I'd like to remind you that since we're dialing in from different locations today, I will moderate the Q&A session for our team, so we can avoid technical issues during the session. We appreciate your patience. With that said, I would like to hand 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. We entered 2021 with a deep portfolio of candidates in immuno-oncology and immunology, spanning from Phase I to Phase III developments, and we're looking forward to a steady cadence of key data readouts beginning later this year. These data sets have the potential to set Nektar on a new trajectory and transform the treatment of a range of tumor types in autoimmune disease. Each investigational medicine in our portfolio provides us with its own distinct value, and gives us the ability to broaden the patient populations that we could potentially serve. Our pioneering work designing novel cytokine conjugates as medicine has given us a leadership position in the field, and we continue to focus our research in this area and in the area of immune science, setting the stage for the next wave of IND candidates for our company. So I'll start with a brief overview of the status of BEMPEG, our most advanced late-stage clinical program and a novel IL-2 pathway agonist, which is being developed in combination with checkpoint inhibitors, Opdivo or nivolumab and KEYTRUDA or pembrolizumab. Our strategy for BEMPEG combined with these checkpoint inhibitors is focused on pursuing multiple large frontline and adjuvant solid tumor settings. Melanoma, renal cell carcinoma and bladder cancer with nivolumab; and head and neck cancer and non-small cell lung cancer with pembrolizumab. The opportunity for combining BEMPEG in these tumor settings is significant, 2020 sales of PD-1 checkpoint inhibitors across these 5 tumor settings were greater than $5 billion. So we're pleased with how BEMPEG is positioned in multiple registrational studies and with our planning for additional strategic late-stage studies. The clinical program we put in place over the last several years positions us far ahead…

Thank you, Howard. Let me start with the BEMPEG program and timing for our registrational trial readouts. First, for the first-line metastatic melanoma study, which is being run by our partner, BMS, BMS has indicated that data from this trial would be available in the time frame of late this year or in the first part of 2022. Now this study evaluates the combination of BEMPEG plus nivolumab versus nivolumab monotherapy, and the design is modeled on a median progression-free survival, or PFS, for the nivolumab arm to be comparable to the 6.9 months observed in the CheckMate 067 study. And remember that since PFS is an event-driven analysis, a number of factors, including the rate of PFS event accumulation might impact the timing. The next study, which Nektar is running, is the Phase III first-line renal cell carcinoma study. We expect that we could reach our first interim analysis for the primary endpoint of overall survival sometime in the first half of 2022. And as Howard stated earlier, BMS and Nektar are taking a comprehensive approach to the development of BEMPEG plus nivolumab in this tumor type. BMS is conducting a Phase I/II study in RCC that combines BEMPEG plus nivolumab with a TKI and allows us to compare this treatment to the nivolumab TKI regimen to pave the way for a TKI-inclusive regimen in RCC with a BEMPEG plus nivolumab doublet as well. With respect to the Phase II study in first-line cisplatin-ineligible urothelial carcinoma, the study is designed to serve as a basis for a potential filing for accelerated approval. And the primary endpoints of overall response rate or ORR and duration of response as determined by central radiology review for about 110 cis-ineligible urothelial carcinoma patients who have a baseline CPS score of 10 or lower…

Thank you, JZ. As Howard said earlier, we are very pleased with the broad scope and progress of the NKTR-358 program by our partner, Eli Lilly. Following positive data in lupus patients last year, Lilly commenced the Phase II study in lupus, followed earlier this year by the initiation of a Phase II study in ulcerative colitis. Lilly also continues to advance the 2 separate Phase Ib studies in psoriasis and atopic dermatitis. The rationale for T regulatory cell or Treg mechanism in the treatment of autoimmune diseases is compelling, and based upon extensive evidence of the role of the malfunctioning or imbalanced immune system as the underlying cause of the clinical manifestations of 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 effective manner than native low-dose IL-2. Data presented last year at both EULAR and the American College of Rheumatology meeting highlighted the potential of our approach. Importantly, we saw a dose-dependent and profound increase in Tregs and Treg subsets, induced by NKTR-358 in patients with mild-to-moderate lupus. We also saw improvement in lupus skin disease activity with NKTR-358. These exciting data led Lilly to initiate a Phase II study in lupus with moderate to severe systemic lupus. In the Phase II study in lupus, which began dosing patients in quarter 3 of 2020, 280 patients are being randomized to 1 of 3 doses of NKTR-358 or placebo, administered every 2 weeks for a treatment period of 24 weeks. The primary endpoint in the Phase II study is the percentage of patients achieving at least a…

Thank you, Brian, and good afternoon, everyone. On this call, I will review our 2021 financial guidance, which is unchanged for the year. We ended the first quarter in an exceptionally strong financial position with $1.1 billion in cash and investments. During the quarter, we were pleased to announce that we entered into strategic collaborations with SFJ Pharmaceuticals and Merck. Under the terms of these agreements, SFJ is committed to fund up to $150 million to support the BEMPEG registrational study head and neck cancer. And Merck will contribute pembrolizumab at no cost to Nektar. SFJ is entitled to success payments based only on FDA approval of BEMPEG in first-line metastatic melanoma, head and neck cancer and one other BEMPEG indication. We are very pleased with the risk/reward structure of these collaborations, giving us the ability to add another very large indication opportunity to the BEMPEG portfolio. Our projected cash usage for 2021 is unchanged from our February earnings call, and we still plan to end the year with at least $750 million in cash and investments. Our full year GAAP revenue guidance remains unchanged at approximately $100 million for 2021, and includes between $15 million and $20 million of product sales, and $80 million and $85 million of noncash royalties. We expect to recognize this revenue on a fairly ratable basis during the year. Our GAAP R&D expense guidance is also unchanged for the year. We anticipate 2021 GAAP R&D expense will range between $450 million and $500 million. Our R&D guidance includes a significant noncash component of approximately $85 million, which is comprised of $30 million of noncash development expenses for the BEMPEG head and neck study, which is being funded by SFJ, but which will continue to be reflected as a component of our R&D expense, and approximately $55 million of noncash depreciation and stock compensation expense. Our G&A expense guidance for 2021 is still projected to be between $120 million and $125 million, and includes approximately $45 million of noncash depreciation and stock compensation expense. Our noncash interest expense is expected to be between $50 million and $60 million, arising from the monetization of our royalty streams. Additionally, our nonoperating expense includes the accounting for the contingent success-based payments to SFJ as a derivative liability. Over time, we will assess the probability of SFJ earning these success payments and recognize the expense on our income statement with a corresponding increase to the derivative liability based on a probability adjusted and weighted discounted cash flow model that we will examine on a quarterly basis. As I reviewed on our February call, we continue to expect approximately $15 million of noncash expense related to the remeasurement of this derivative liability during 2021. And with that, I will open the call to questions. Operator?

[Operator Instructions] And our first question comes from Peter Lawson from Barclays.

Great. On the PROPEL study in lung, what's the amount of data that we could potentially see in the second half of this year?

Thanks, Peter. JZ, do you mind taking this one?

Yes, sure. Peter, this is JZ. Thank you for the question. So as we gave an update both at JPMorgan and even earlier this year, so the way the study is designed is that it's designed to enroll approximately 60 patients. And those patients are stratified across 3 different PD-L1 expression subgroups. And it's approximately 20 patients across each of the subgroups. And then as we explained late last year, we saw a real increased rate in the amount of accrual of patients. And we talked about it before, it had a lot to do with sort of the reduction in a lot of COVID intensity in Europe. And a lot of our European sites really enrolled very, very quickly. And so with the patients, we intend to follow them for a very long period of time with at least 2 scans of data worth for the patients to provide a very rich and mature data set. And we target our second half of the year presentation, we'll be presenting the totality of data that you can expect to see from such a Phase II study. So for all of the patients, we'll present the response rates, we'll present all the additional composites of the response, such as the complete response rate, the depth of response, the duration of response, any of the time to event kind of endpoints, along with all of the safety information that we've accumulated from the patients as well as some of the biomarkers that we've also collected both from available tumor biopsies as well as whole blood samples. And the kinds of benchmarks that we talked about thinking about this kind of study is, there are some reasonable information for single-agent pembrolizumab across the PD-L1 subgroups. In the less than 1%, we've seen about an 8% response rate for single-agent pembro from KEYNOTE-001. In the 1% to 49% subgroup, we've seen a response rate of about 15% for single-agent PEMBRO. And in the greater than 50%, we've seen a response rate of 40% to 45%. And so those are the kinds of benchmarks to keep in mind as we think about the data from this study. Thanks for the question.

And then just a follow-up. Does that -- I guess the third arm with chemotherapy in the PROPEL lung, when should we see data around that as well?

Yes. So we just started to open those cohorts. So they're just starting in their accrual. So we would expect to see data in the future, well into next year.

Our next question comes from Jay Olson from Oppenheimer.

As nonchemo triplets becomes increasingly promising, can you comment on where the triple combo of BEMPEG plus nivo plus TKI would fit in RCC? And the potential to move a triplet combo like that into earlier lines of non-small cell lung cancer?

Thank you, Jay. JZ, will you take that question?

Sure. Yes. Yes. Thank you for the question. So I think, certainly, we've seen the real impact, right, of a TKI combination with a checkpoint inhibitor in RCC. And we've seen multiple examples of that. We've seen it with avelumab plus axi, with PEMBRO plus axi and then PEMBRO with Lenvima, really some amazing results. And of course, cabo plus nivolumab. So the opportunity to add a third agent does still exist because there's still the need for better response rates, better durability and further elevation of the tail of the curve. Now all that said, you have to also balance all of these things. The RCC landscape is crowded, and there are a lot of developments going on. And then, of course, you also have to pay attention to not overly increasing any of the toxicity when you start combining 3 drugs together. But we're very excited about the opportunity with BEMPEG plus nivolumab and the TKI. And as is BMS, which is why this is a really important part of our development program. And so that clinical trial is well underway. It's recruiting patients. And we think there's a real opportunity in that setting. The other part of your question, I think, is also very, very provocative because we know that there's an ongoing study around the corner that's being run, the LEAP study with PEMBRO plus LENVIMA in non-small cell lung cancer. This one is really focusing on the greater than 1% population added on to nivolumab. And so again, that would be a very interesting trial readout. It's expected likely in the early to mid part of the next year. And as that has the potential of impacting the standard of care in non-small cell lung cancer, again, it would be an opportunity for a triplet combination, again, with the potential of adding BEMPEG even to that doublet as well.

Our next question comes from Jessica Fye from JPMorgan.

I have a few on BEMPEG. First, on melanoma and then a couple on lung. So you talked about the time to potential first data in that first-line melanoma study around year-end or early 2022. And I want to confirm whether that's based on the ORR interim? Or is that a PFS readout that you're referring to? And if it is ORR, then when do you expect the PFS results from that study to readout?

So Jess, this is Jennifer. I'll take this and see if JZ wants to add anything. But BMS is actually running the melanoma study. So we do have 2 endpoints, ORR and PFS, that will readout first. Based on the original design of the study, those 2 endpoints were separated by between 4 to 6 months. We have not decided with BMS yet how we'll be disclosing the data. But I think the best guide is probably to look at other companies that they've had studies running with, in terms of their disclosures and how they disclose data. For example, the CheckMate 9ER study was disclosed in a press release. So again, BMS is running the study, and we'll be working closely with them on the disclosures around it, but I don't think any decisions have been made yet on that. But the original design was ORR then PFS, and both by independent review.

Okay. And then on lung, what do you expect the average number of scans to be per patient in the PROPEL study by the time that it's presented? I know you talked about the patients all having a minimum of 2 scans, but I'm asking what the average number of scans you expect by then will be?

JZ, do you want to try to address this in terms of the level of maturity?

Yes. I mean, so what -- our intention, Jessica, is to present mature data. And so because the study began in the middle part of last year, so some patients have been in the study longer than others. And then, of course, we scan on approximately 9-week interval. And so our intention is that the minimum amount of data is 2 scans per patient. And again, the goal is to just really present a rich and interpretable data set.

And our next question comes from Difei Yang from Mizuho.

This is Alex on for Difei. Another question on the lung data here that's coming up in the second half. You talked a little bit about the sort of benchmarks with PEMBRO alone and kind of the ORR rates in the different PD-L1 expressers. Can you talk a little bit about what you would consider as promising in terms of the delta in response rates versus PEMBRO alone that you'd like to see and that would -- that you would take forward? And then also along with that, will the decision to move forward or not be a joint decision made by Merck and Nektar together?

Thanks, Alex. JZ, do you want to answer?

Yes. Yes, absolutely. Those are good questions. And so as I mentioned, the benchmarks that we talked about for single-agent pembrolizumab. So the study does have some statistical considerations built into it, such as the Fleming criteria that we talked about before. So there are some kind of Fleming guidelines, right, that are incorporated into the trial. But another way that you could think about it, Alex, is just ways that are meaningfully sort of different, right, than those benchmarks. So for example, if you consider the 1% to 49% subgroup and then you also consider the mechanism of action of BEMPEG to essentially transform the tumor microenvironment to look like a tumor that's like greater than 50% in its kind of PD-L1 status, its interferon gene expression, the amount of CD8 infiltrates and other things like that, we -- you could really transform that tumor to increase the efficacy of the combination. So when we look at those benchmarks, we look at things like doubling, for example, or more the response rate in the less than 1%, for example, tripling it. So in the 20s, the mid-20s relative to an 8% historical in the less than 1%. Those are the kinds of ranges that we're looking at. And then you also look at the whole totality of the data as well, right? We'll look at durability of the responses. And we'll look at time to event like progression and other kinds of components as well. In terms of the decision to go to Phase III, remember that we're running the PROPEL study on our own. We're not collaborating with Merck on that trial. And so any decision to move forward to Phase III will be based on the actionability of that data from PROPEL, and that will be our decision, Nektar, to make.

Our next question comes from Ben Burnett from Stifel.

Fantastic. Just a quick one for me. Regarding the PROPEL study and the cohort with chemo being added to the doublet, I guess, what flexibility do you have around the dose of BEMPEG? And are you dose ranging here? Or have you already settled on the specific dose of BEMPEG?

Yes. Those are really good questions. And so we actually have the flexibility to evaluate doses, different doses of BEMPEG in the PROPEL study, as you know. So that includes both a dose optimization component that we're running with just the doublet in a range of different tumor types. And so with chemotherapy, we also have the opportunity to explore different dose levels of BEMPEG, but it's really as needed. I mean, we feel very confident in the dose that we can combine BEMPEG plus PEMBRO with the chemo.

[Operator Instructions] And our next question comes from Daina Graybosch from SVB Leerink.

We had some recent interesting ODAC on accelerated approval of checkpoints, 2 on bladder cancer. And I thought there were 2 points that were relevant to your plan for BEMPEG in bladder. One, there was a discussion that the avelumab approval as a first-line maintenance for platinum-sensitive patients narrows the unmet need for accelerated approval potentially from cisplatinum-ineligible -- from cisplatin-ineligible. And the second, across all of the ODAC conversations was a discomfort from the FDA about using early-stage checkpoint studies to confirm metastatic accelerated approval. And I wonder if you have any thoughts or any implications potentially on your accelerated approval strategy in bladder cancer.

Thank you, Daina. JZ, I'll ask you to take a stab at that one.

Sure. No, absolutely. Thanks, Daina, for the question. Those sets of ODAC committee meetings over several days were very interesting, right, to our entire community. We watch them very closely across all the different tumor types. So -- and certainly, all of the points that you make were points that were discussed. And we'll have to see sort of how the end result of the ODAC and the final interpretation of the FDA's opinion on the things that they specifically didn't vote for but that could impact us in this case. So certainly, on the first point, the unmet need could be different with the recent approval that you mentioned. And one of the things that we always deal with whenever we're attempting an accelerated approval is that you're really judged on the totality of the data against the available standard of care at the time. And so even though that has changed since the time that we started the study, that will still be the situation that we'll be moving into. And so our key point, right, is to provide the best possible data set in PIVOT-10, showing very long durability of response, showing very good ORR, ideally with a CR rate, the kind that we saw in PIVOT-02 when we treated the same patient populations. And then that's well balanced with a very acceptable safety profile so that there's a very reasonable risk-benefit profile for the FDA to make a potential accelerated approval decision. Now to the next part, I think one of the real eye opening things about that ODAC was kind of the overall success of confirmatory studies in general over accelerated approvals. And if you even dissect that from solid tumors versus liquid tumors, I mean it's an even greater kind of a situation. So I do think that the FDA's position on these things might potentially be impacted, which was the nature of all of those ODAC meetings. But for now, we're really just going to have to wait and see and determine how exactly it would impact us, if at all. Thanks for the provocative questions.

And our next question comes from Arlinda Lee from Canaccord.

On 255, can you talk about the -- I know you've answered some of this before, but on the 2 scans, so that means if the interval is at least 2 weeks, then it's going to be essentially if somebody has responded early that they would be a confirmed response and then that duration would be at least 9 weeks? I'm wondering roughly how many patients do you think might be at that point? And then secondly, I was curious about your earlier stage stuff on other cytokines and platforms beyond polymer chemistry. What kind of things would you find interesting? And maybe additive or complementary to what you have now?

Thank you, Arlinda. JZ, do you want to talk through the 255 data that will -- that's seen in these studies?

Yes. So -- yes. I'm not entirely sure if I understood the question, Arlinda. But in 255, we're evaluating patients in either heme or in solid tumor. And then depending on the nature of the heme malignancy, such as NHL or multiple myeloma, they're evaluated differently, right? Like, we use Lugano criteria for the NHL patients and the Myeloma Working Group criteria for evaluating patients with multiple myeloma, and then focus on more of a RECIST kind of a fact in the solid tumor setting. But we're very excited with the data that we're seeing from the 255 studies, both of them. We're able to dose escalate very effectively. We're seeing all the cellular population changes that we expect to see. And we're seeing both systemic as well as local effects that we're observing in patients treated with NKTR-255. To me, also one of the most interesting and I think really profound things is that, remember, in a lot of the patients that we've been treating with multiple myeloma, they're really advanced to the point that they have significant bone marrow dysfunction and damage. And many of these patients actually have a whole range of cellular deficiencies already as a result of the advanced multiple myeloma eroding the bone marrow in the patients. And even in patients that have compromised marrow, 255 is still able to elevate NK cells and CD8 T cells, inducing output even in the face of such advanced disease. So we think those are extremely encouraging signs, seeing with our IL-15 program agonist. And we're very excited to not just continue with these ongoing studies, but also to present some of that data in the second half of this year. Now in terms of some of the things we're doing in research and discovery. So one of the things that I mentioned earlier is we -- earlier this year, we announced a discovery collaboration with a company called Biolojic Design. And they're a company that specializes in a very unique antibody engineering. They actually use a computational approach. It's an AI-guided protein engineering approach. I have a lot of fun times working with antibodies, and the kinds of protein engineering that Biolojic uses is really compelling. So we're working with them in order to target very important immunological targets, and we're using an antibody approach to address them. So this is one example of using a totally different modality. And we have additional uses that we're also exploring. Some of them involve a combination of various chemical modifications to proteins, additional chemical modifications to polymers, non-PEG-based polymers as well that we can use to change both the geometry of proteins as well as the kind of multimeric state proteins to induce different kinds of signaling. But these are all the kinds of things that we're doing in the chemistry labs and in our basic research facility. And I'm excited as those things move forward with the additional INDs to come in the future as well.

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, everyone, for joining us today. And I'd like to thank our employees for their continued dedication and consistent efforts during these very, very challenging times, and their dedication to advancing our clinical studies while keeping our business on track is impressive, and we're very grateful for their contributions. As I stated earlier, we are well positioned with a strong balance sheet and an important portfolio of immuno-oncology and immunology programs, many of which are the most advanced in their field. And we thank our shareholders for their ongoing support and look forward to continuing to provide you with updates on our programs. And we hope that you and your families continue to stay safe and healthy. So thank you very much. Appreciate it.

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