Nektar Therapeutics (NKTR) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2009 Nektar Therapeutics conference call. I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to send the presentation over to your host for today's conference, Ms. Jennifer Ruddock, Senior Director of Investor Relations. Please proceed.

Thank you. Good afternoon. Thank you for joining us for Nektar Therapeutics second quarter 2009 financial results conference call. With us today are Howard Robin, our President and CEO, John Nicholson, our Chief Financial Officer, Bharatt Chowrira, our Chief Operating Officer, Dr. Randall Moreadith, our Chief Drug Development Officer, and Dr. Lorianne Masuoka, our Chief Medical Officer.

Before we get started, please note that the following presentation contains forward-looking statements, that reflect our current views as to the Company's business strategies, the prospects and timing of potential new collaboration partnerships, the value and potential of our technology platform, the clinical and commercial prospects of our proprietary and partnered products, our financial guidance for 2009, and other future events relating to the Company.

These forward-looking statements involve uncertainties and other risks that are detailed in Nektar's reports and other filings with the SEC, including our Form 10-K Annual report filed with the SEC on March 6, 2009, our most recent Form 10-Q quarterly report, and the report on Form 8-K filed today. Actual events could differ materially from these forward-looking statements.

We assume no obligation to update any forward-looking statements as a result of new information, future events, or development. A webcast of this conference call will be available for replay on the Investor Relations page of Nektar's website at www.nektar.com.

With that, I would like to hand the call over to Howard.

Thank you Jennifer. And thanks to everyone for joining us today. Nektar continues making excellent progress advancing our clinical pipeline, and executing on our 2009 objectives. This year is an important year for Nektar, because we are seeing the positive results from our transformation to a drug development company, with an impressive pipeline of near, mid, and longer-term opportunities.

In 2009 we made a strong commitment to building an advanced clinical pipeline at Nektar, with a planned investment of $60 million into clinical developments. Across the board our clinical stage programs are proceeding on track. We have completed our Phase II program for NKTR-118, and by year end, we plan to report the preliminary from our ongoing Phase II studies for NKTR-102 in ovarian cancer and breast cancer. In addition to results from our Phase I study of NKTR-105 in solid tumors.

Today I want to update you on the continued progress of our proprietary clinical pipeline which I believe is one of the most promising in biotech. I will start with our most advanced proprietary product, NKTR-118. NKTR-118 is an orally peripheral acting opioid-antagonist In development to treat opioid induced constipation.

The results from our Phase II, randomized, placebo controlled, double blind study, demonstrate that oral NKTR-118 effectively reverses reduces opioid induced constipation, without interfering with the desired CNS analgesic effects of opioids. NKTR-118 demonstrates how Nektar's advance polymer conjugate technologies is being used to inhibit small molecule drugs from entering the brain to prevent unwanted CNS effects, and to achieve a targeted effect in a specific peripheral organ.

NKTR-118 is also an example of how our technology can turn an injectable drug, into an orally bioavailable drug, dramatically increasing its market potential. Final results from the Phase II NKTR-118 studies, have been accepted for presentation at the American Academy of Pain Management Meeting, that begins October 8th in Phoenix, Arizona. In addition, new clinical pharmacokinetic data on the tablet formulation of NKTR-118 will also be presented on September 13th at the American College of Clinical Pharmacology Meeting in San Antonio, Texas.

Opioid induced constipation is a debilitating and frequent problem for patients with chronic pain who are treated with opioids. More than 230 million prescriptions are written each year for opioids in the US alone. And somewhere between 45 and 90% of patients on Opioid therapy will develop this complication. Bowel dysfunction is a serious quality of life issue for patients, and has the undesired consequence of patients often reducing or interrupting their pain management regimen.

None of the currently available therapies adequately restore bowel function, for the majority of these patients. As an oral once daily tablet, NKTR-118 has the potential to dramatically improve patient quality of life, and allow uninterrupted pain relief therapy. With robust Phase II data in hand, we believe that NKTR-118 is positioned to become the first oral therapy to directly reverse the debilitating problem of OIC.

The market opportunity for NKTR-118 is significant. With more than 2.6 billion patient days of Opioid use in the US alone, NKTR-118 could generate potentially more than $1 billion in sales per year. The final results for the primary endpoint from our Phase II study were highly statistically significant, and clinically meaningful for both the 25 milligram and 50 milligram once daily dose cohorts. With restoration to normal bowel function after the first week of therapy, and over the entire 28-day treatment period. After the first week of treatment, patients taking NKTR-118 improved to between 5 to 6 bowel movements per week, from an average of approximately 1.5 bowel movements per week at baseline.

Let me share new responder data. Over the 28-day treatment period, almost every patient responded to NKTR-118. Further, an impressive 75% of patients in the 25 milligram cohort had a major response to NKTR-118, with a P value of 0.0003. At the 50 milligram dose, an even more impressive 92% of patients experienced a major response, with a P value of 0.0001.

Importantly we did not see increase in pain or increase in opioid use over the course of treatment with NKTR-118, again reinforcing and validating that the drug doesn't interfere with the CNS analgesic effects of opioids. Further, patients in our Phase II study were administered many different types of opioids, across a large range of doses. The choice of opioids did not effect the efficacy of NKTR-118 in our studies. These results suggest that a single daily oral dose of NKTR-118, can restore bowel function across virtually every class of opioid, and across a wide range of doses spanning 30 to 1,000 morphine equivalent units per day.

We are particularly excited about NKTR-119. Our co-formulation product of NKTR-118 with a long-acting opioid. NKTR-119 has been designed to provide pain relief to patients, without the serious GI side effects seen with opioids on the market today. Because NKTR-118 is effective over a wide range of opioid doses, we are able to create a whole formulated oral product candidate, that contain a fixed dose regiment of NKTR-118, combined with a wide variety of opioid types and doses. NKTR-119 represents the next generation of opioid therapies, and could have an even larger market potential than NKTR-118.

We have developed the NKTR-119 tablets, completed the dissolution and stability studies, and we are preparing for a Phase II proof of concept clinical study of NKTR-119. Given the robust data we have seen to-date for NKTR-118, and the tremendous potential for both NKTR-118 and NKTR-119, we are in active negotiations with prospective partners for global, as well as regional development and commercialization collaboration. We are considering all of these options carefully, in order to maximize the value of our NKTR-118 and NKTR-119 partnering strategy. As we have previously stated, we expect to enter into a partnership before the end of the year.

Now I would like to turn to our novel oncology product candidates, NKTR-102 and NKTR-105. These compounds utilize our advanced polymer conjugate technology, to greatly improve efficacy, and expand beyond the current usage of irinotecan docetaxel, which are both widely used chemotherapeutic agents. NKTR-102 is designed to enhance the efficacy by extending the half life of irinotecan's active metabolites, and increasing the exposure of the tumor to the drug.

We are conducting clinical studies of NKTR-102 in ovarian, breast, and colorectal cancers. Each of these Phase II clinical trials, is on track and actively enrolling patients. We expect to have preliminary results from our Phase II trials in platinum resistant ovarian cancer and metastatic breast cancer by year end. These studies are designed to evaluate objective response rates of single agent NKTR-102, administered at a dose of 145 milligrams per meter squared, every two weeks or every three weeks.

Of note, I would like to mention that we have been accepted to present preclinical and Phase I data on NKTR-102 in ovarian cancer on September 22nd at the ECCO ESMO Meeting, held in Berlin. The Phase II study of NKTR-102 in second line colorectal cancer, is a randomized study comparing single agent NKTR-102 at 145 milligrams per meter squared every three weeks, versus the approved single agent regimen of irinotecan.

This trial is designed to enroll approximately 174 patients, diagnosed with tumors containing the KRAS gene mutation. The primary endpoint for this trial is progression-free survival. The study compares NKTR-102 to irinotecan in the treatment of second line colorectal cancer patients, and could enable us to position NKTR-102 as the market's leader in indications wherever irinotecan is used. Irinotecan is currently used in over 75% of second line colorectal cancer treatments, and so this market opportunity for Nektar is significant. As we have told you in the past, data from this study are anticipated in the first half of 2010.

Our second oncology compound, NKTR-105, a conjugated form of docetaxel is proceeding nicely in a Phase I clinical study. This dose escalation study is enrolling approximately 30 patients, who have refractory solid tumors, who have previously failed available therapies. Docetaxel is an effective chemotherapeutic agent, and is approved for use in many cancers. Is has an worldwide sales of more than $2 billion. However there are limitations to the use of docetaxel, treatment is frequently associated with dose-limiting neutropenia, hypersensitivity reactions and fluid retentions, that can limit treatment options, and require administration of steroids.

We are monitoring the patients in our NKTR-105 steady for the appearance of hypersensitivity reactions and neutropenias. To date, patients treated with NKTR-105 have not encountered side effects, necessitating the use of corticosteroids or [GPSS]. We are very encouraged by these initial observations, and we anticipate reporting data for the Phase I study by year-end.

I want to take a brief moment to update you on NKTR-061, or amikacin inhale. Our inhaled antibiotic product partnered with Bayer, to treat Gram-negative pneumonias. These pneumonias represent a substantial portion of all pneumonias reported in intensive care units today, and carry a mortality rate of more than 30% among ventilated patients. Results from Phase II clinical studies of amikacin inhale, demonstrate that patients achieved more than 1,000 times the lung exposure, with inhaled amikacin treatments, than can be obtained with IV therapy.

Because of this, amikacin inhale may increase survival rates for this patient population. The Phase III clinical trials for NKTR-061, which are run by our partner Bayer, are slated to begin in the first quarter of 2010. The study design and supportive information for Phase III is available on clinicaltrials.gov.

Turning now to our preclinical research programs. We continue to focus on new product opportunities, emanating from our proprietary advanced polymer conjugate technology platform. NKTR-118 and NKTR-102 demonstrate that our platform can significantly enhance the pharmacokinetic and pharmacodynamic profile of small molecule drugs. Nektar is already the undisputed market leader in the PEGylation of large molecules, our current success with Nektar's technology in the area of small molecules, is enabling us to explore new problems in peripheral pain, HIV therapy, and antihistamines.

With our NKTR-171 program, we are developing a new drug candidate that acts outside of the brain, to treat pain without CNS side effects, such as dizziness, sedation, and memory loss, that greatly limit many current treatments. It is currently being evaluated in preclinical studies, and we have observed promising results thus far in our in-vitro in-vivo models.

In the area of HIV research, our NKTR-140 program leverages our polymer conjugate technology, to avoid the rapid and extensive metabolism that occurs with all available protease inhibitors. Because of the rapid metabolism associated with current protease inhibitors, coadministration of a second protease inhibitor, such as ritonavir, is typically required. Eliminating the need for coadministration of a booster, would greatly improve both the safety profile and compliance for protease inhibitor therapies. We are currently conducting preclinical testing to potentially bring forth a candidate into IND enabling sites.

Finally we are also pursuing a research program for the treatment of allergic rhinitis, NKTR-125. Using a conjugation approach similar to NKTR-118, this program combines our advanced polymer technology, with a potent antihistamine to enhance anti-inflammatory efficacy, while minimizing CNS side effects, such as drowsiness.

In closing, I am pleased with the performance of our Company this year. Nektar now has one of the most robust pipelines in biopharma today, a strong financial position, a dominant intellectual property and state, and an exceptionally experienced management and R&D team.

I will now turn the call to John for a review of the financials.

Thank you, Howard. Good afternoon everyone.

We have significantly reduced our operating costs and expenses in the second quarter and the first half of this year, as compared to a year-ago. Total operating costs and expenses were down 19% to $43.5 million in the second quarter of 2009, compared to $53.8 million in the second quarter of 2008. For the first half of 2009, total operating costs and expenses were down 28% to $83.5 million, as compared to $115.6 million in the first half of 2008.

Our net loss in the second quarter of 2009 declined as well to $32.1 million, versus a loss of $33.4 million in the second quarter of 2008. We still expect 2009 revenues to be in the range of 65 million to $75 million. Included in our revenue and cash projections is a forecasted exercise of a $31 million license option extension, which is expected to occur in the fourth quarter. Our cash guidance for 2009 remains unchanged. We expect to end the year with $275 million.

As a reminder, we do not expect the quarterly cash usage trend to continue for the remaining two quarters, as our revenue and cash receipts will be more heavily weighted in the second half of the year. Importantly, our year-end cash and investments projection of $275 million, does not include potential payments of any new partnerships.

We anticipate our cash used in operations to be approximately $80 million. As Howard mentioned at the beginning of the call, that amount reflects a substantial investment of approximately $60 million in clinical programs this year, and $8 million into preclinical programs. As you can clearly see, we have significantly reduced our operating costs and expenses, while building an advanced stage clinical pipeline.

Capital expenditures and other expenses are still expected to be 20 million to $25 million, which includes the Novartis closing costs of $4 million. Much of this capital outlay represents an investment into our new 90,000 square foot R&D facility in India, opening in the fourth quarter of 2009. This facility will greatly expand the Company's in-house research and preclinical development capabilities, including our ability to do our own biolinical analysis, analytical development, and in-house biology. This investment will enable us to greatly increase our efficiencies, and significantly reduce future external R&D expenses.

With that, I would now like to open the call to questions. Operator?

(Operator Instructions). Your first question comes from the line of Jonathan Aschoff with Brean Murray.

Hi guys. I was wondering if you could shed light actually on another company. Namely why would [Fabian] alter the manufacturing process between the manufacturing of clinical and trial material, and the [NLA] submission? Basically I was wondering why they would change the amount of peg? I mean, did they have variability issues, that prompted such a last minute change?

I am going to let Bharatt Chowrira, our Chief Operating Officer handle that question.

Thanks, Jonathan. We don't quite know the details, obviously, regarding the decision making process at Fabian, regarding the manufacturing processes, but all I can comment on, is that we have had significant experience in manufacturing PEGylation, and PEGylated protein products for a number of partners. We have nine products in the market, as you know, that are PEGylated proteins that use Nektar's technology.

And we have built this expertise over a number of years. It is not trivial, as you can imagine to go from a research scale or clinical scale of PEGylations, to a commercial scale of manufacturing. There is a lot of know-how and expertise that goes into that. So we have a good track record on that. So not sure exactly what happened with Fabian, but I can tell you Nektar is one of the leaders in this area of making PEGylated proteins, and we have the expertise to do that.

Thanks Bharatt. I was wondering if I could ask something about NKTR-118, basically as it relates to Sucampo. Your potential partners for 118, the ones you are quite down the road with, do they really think that Sucampo was much of a competitor, and they were maybe holding out for that Phase III result, or really something they thought was a foregone conclusion?

These drugs work by very, very different mechanisms. As I said earlier, we are dealing directly with the issues that cause opioid induced constipation. The effect of the opioids paralyzing the bowel. Now the Sucampo causes a lot more fluid to collect in the bowel, and that might have some benefit, but that is a very, very different mechanism, and it is sort of a secondary approach to dealing with the problem.

Our approach with NKTR-118 is to antagonize the morphine and restore normal bowel movements, and I think that is the significant difference, and I think the partners greatly appreciate that.

Okay, thanks a lot.

Your next question comes from the line of Rich Silver with Barclays Capital.

Are you still expecting a partnership deal by the end of the year? Yes? Correct?

Yes, I said that, that is correct.

Sorry. And just a few pipeline questions. You mentioned that 061, the Bayer's trial will begin in the first quarter 2010. I guess previously we expected it in the second quarter. Can you elaborate on what is behind the delay?

Yes, I think look, you can take two different approaches towards starting a clinical trial. One is to have the final product, the final device designed and manufactured, or you could take some more of a risk and start your trial early, and do the finalization of the device, in parallel with the clinical process.

Bayer correctly made a decision to wait until we had finalized the device, made sure that it could be scaled up, and it was manufactured in a cost-effective manner, and it could be made consistently, and they chose to have those devices manufactured, and put into inventory before they started the clinical trial. I think that was a wise decision. We are moving towards that. We have every belief that we will have sufficient devices manufactured. And these are final devices, they are scaled up, they are cost effective, they are cost efficient. We will have those devices made for Bayer to start in the first quarter of next year.

Okay and just a couple of other P&L questions. SG&A and R&D guidance, is that also unchanged for the year?

That is correct. We are still staying with the R&D of about 100 million there, and G&A somewhere in the $45 million range.

Okay, and in terms of cost to goods in the second quarter, it seemed a little bit high. Any explanation for that?

Yes, basically what it came down to was, we had lower production volumes this year than we did last year. With that obviously you have unabsorbed manufacturing overhead that gets put into the cost of fewer products that are being made. The other issue is our product mix changed a little bit differently than it was, this year versus last year.

What about on a go-forward basis?

On a go-forward basis, we would expect gross margins probably to be closer to, I am just talking about product sales now, gross margins to be basically closer to where it was in the second quarter of this year.

It was in the first quarter or the second quarter?

Second quarter.

Okay. On 118, any pain conferences where you will be presenting Phase II data?

Yes, we said that we would be presenting at, I want to get you the right dates, so we make sure it is clear, I have to go back to my notes for a moment, we said that we would be presenting data on NKTR-118 at the American Academy of Pain Management Meeting on October 8th in Phoenix.

Okay. And the start on 102 in cervical cancer?

Well we are ready to proceed, we are ready to enroll sites, however we have made a decision that we want to see the results in our Phase II preliminary results in ovarian and breast, before we start that study. There is also a limit to how much a small company can pursue at one point in time.

Okay and then on 119, you said that you were preparing for Phase II proof of concept study. When would that begin?

Well we haven't said the exact date yet. Of course that will likely be a function of what the partnering looks like. NKTR-118 and 119 will likely be partnered with the same company, and they will have to have some significant input into exactly when we would start that study.

Just clarification, sorry, again on the R&D and G&A guidance. We thought that previously it was 125 to 135 for R&D, and G&A was 50 to 55, and now you are saying 100 for R&D, and 45 for G&A?

Yes, that is correct. The reason for that is from our standpoint, because we are trying to come in with our cash guidance of $275 million, obviously there are certain things that we thought we were going to be able to do this year that were, from a financial discipline standpoint, we have to postpone.

Oh, okay, so that it was reduced?

Yes.

Okay, thanks.

Your next question comes from the line of Mona Ashiya, JPMorgan.

Hi, guys. Calling in for Cory. Couple of questions . Did I hear you say you wouldn't start the 119 trial without a

No, what I said was at this point, since we are in active discussions with companies, it makes no sense to start a trial before we consummated a relationship, simply because you can imagine that that partner would want to have a lot of input into the process of designing the trial. In the absence of a partnership, of course we would be starting Phase III trials on NKTR-118, and Phase II trials on NKTR-119. At this point, since we are in those discussions, there is no good reason to move into Phase II without the partner being an active participant.

Okay, got you. On 102, I was wondering if you could frame expectations for the results that we will see later this year in ovarian and breast. What is the response rate you would be looking forward to go, to make a go decision?

I will ask Lorianne to answer that.

Thanks.

The results that we will be providing to you will be preliminary data from the ovarian and breast cancer trials, both of which are proceeding very well. At this time I can't really release to you information specifically about the anticipated objective response rate. As you know, patients have to be on therapy for a minimum of a couple of months, before you can tell if any individual is a responder. We believe that we will have significant new information to share with you at the end of the year.

Okay. And then just a final question for Bharatt. Just a housekeeping one. Wondering when the key patents for 102 and 105 expire?

Okay, so we have multiple families of patents for each of those products, and they extend the life of the coverage for each of these products, or a period of a number of years. So we haven't publicly talked about what the expiration is for any one of those products. Needless to say, we have multiple layers of coverage, we have multiple aspects of each of those products that are covered, by either issued or pending patent applications. That is something--

Can you provide like a ballpark estimate? Will it extend beyond 2020?

On an average, a lot of these patents are filed in the last three to five years, and so you can imagine the coverage for each one of those patents is 20 years from the time you file. So you can do the math for some of these patents. We continue to file on each of these products, when we get new data, and that, with the aim of extending the coverage for each one of those products.

Okay, thanks.

Your next question is a follow-up question from the line of John Sonnier with William Blair.

Hi, it is John Sonnier. Thanks for taking the question, and congratulations on a lot of good progress over there. Howard, thanks for the additional granularity on the 118 trial? I just want to make sure I have got that down right. In the 25 mega arm, did you say 75% responds to 0.0003.

That is correct.

And 50 was 92% at 0.0001, correct?

The first one was 0.0003, and at the 50 Meg it was 92% at 0.0001.

Okay. This is 28-day data, but this is only four doses, is that correct?

Say that again, I am sorry.

This was 28-day data but was it only 4 doses?

Lorraine, why don't you go through the specifics?

For this study we had three dosing cohorts. 5, 25, and 50 milligrams. Each patient was dosed on a daily basis for 28 consecutive days.

Oh, dosed daily for 28 days.

That is right.

Okay. And then the 119 study, do you think you would need a similar structure in terms of the total number of doses, to get your proof of concept? Do we envision a trial like this?

For the 119 study, this is going to be somewhat different than the 118 study. As you know, when we combine 118 with an opioid, we believe that not only will opioid induced bowel dysfunction be ameliorated, but it could potentially be prevented as well. The dosing duration may not be exactly the same as for a 118 program. We will certainly be able to release further information about this trial, as Howard mentioned, as we crystallize the trial going forward with a partner.

Conceptually it would be shorter, is that correct?

So in principle, if you are looking at the prevention of opioid induced constipation, you could potentially identify a pharmacologic effect in a somewhat short period of time, that is right.

There is a lot of excitement because of the work going on at Gilead with ritonavir, [sparing] and pharmaco-enhancing, when will you guys be in a position to disclose the base compound, which protease inhibitor you are working with? And when might we see the proof of concept on that compound?

Look, we haven't said that yet, we are still doing a number of preclinical models, to make sure that we have the right candidate, and the right composition to move into the IND stage. At this point, I can't project when that will be. I can assure you, as soon as we are ready to put that candidate forward to an IND filing, we will make sure everybody knows it.

Perfect, thanks a lot.

Your next question comes from the line of Ian Sanderson with Cowen and Company.

Good afternoon, thanks for taking the question. First maybe Howard, could you give us, given that you have been talking to companies for quite some time on NKTR-118, what the push back has been there, if any? And secondly, if there is any progress made on the inhaled vancomycin program?

First of all, there has been no push back on NKTR-118. As a matter of fact I think everybody looks, every potential partner looks at 118 and sees enormous potential. The data that we have has been referred to as tremendous and exciting. I am pretty pleased with the discussions we are having with numerous potential partners. So I stand by my position, that I believe we will have a collaboration done this year, and I believe this drug can be $1 billion-plus drug.

With regard to vancomycin, we have moved away, as you know, from inhaled therapeutics in a very important way. Amikacin inhaled is a great drug, partnered with Bayer. We think it will do very, very well. In the US we have a flat 30% royalty on inhaled amikacin, so that can yield significant dollars potential for Nektar. With regard to vancomycin, the market is much smaller. We are examining the opportunities there, and we are talking to various companies about how we might proceed there.

I don't know at this point that you will see Nektar actually develop, without a partner, vancomycin, or gram positive antibiotic. But we will see how it evolves. There are companies that are interested. There are possibilities. There are some novel opportunities with inhaled vancomycin, but I must say that we are really focusing the company on our polymer conjugate technology platform, and not inhaled therapeutics.

Okay, just a follow-up on the balance sheet, I apologize I don't have that in front of me, were there any additional repurchase of the notes during the quarter?

No, we have not done that this quarter.

Okay, thank you.

Your next question is a follow-up question from the line of Rich Silver with Barclays Capital.

Just back to the operating expenses again, so the roughly $38 million in reducing spending between 30-ish SG&A, and 8 on R&D. What accounts for that difference? What programs have been sort of pushed off, or what on the G&A front are you looking at cutting back?

Yes, it is more along the lines of efficiency. So from a standpoint of looking at the clinical programs, we are looking at things we can do in house versus doing with third parties, we are also looking to utilize our resources in India, to do some of the work for us. So it is more from a standpoint of how can we spend our money more efficiently, versus terminating, or forestalling any of the clinical programs we want to do.

Rich, is this Howard. I think you can see that our spending level has gone down. And at the same time, we have greatly expanded our clinical and preclinical programs. So I mean, we are doing a lot, as I said years ago, we are going to learn to do a lot more with less at Nektar, and we are doing that.

There will be variances from quarter-to-quarter. It can't be that precise. I can tell you via our efficiencies, via being wiser on how we spend money, being more cautious on how we spend money, I think we are moving the Company in the right direction. The work that moved to India alone, the kind of analytical analysis that we are putting in India alone, has saved us millions and millions of dollars that were going to outside laboratories.

Overall we are also saving money, for example, because NKTR-118 completed early. We finished the Phase II clinical studies early. We ended them early because of outstanding efficacy that we saw. Overall I think, it is really easy for a CEO to say, I am going to cut costs and I am going to cut programs. That is way too easy. Anybody can cut programs. Anybody can stop working on things. What we are doing at Nektar, is we are being much more efficient. We are being very careful how we spend money. We are being very wise about how we spend money, and we are getting a lot more done. I think that is what you have to look at, when you look at the results of Nektar.

Great. Is the second quarter a good indication of run rate going forward for both of those lines?

No it actually isn't. I think we said that earlier. If you straightline Nektar, you are going to come up with too high a spend. The first two quarters were loaded. There was clinical study loading in the first two quarters, there were Phase II studies. The second two quarters of the year will reflect probably less expensive, and certainly some more revenues.

So the overall burn rate for the last two quarters will be less than the first two quarters. That is why we said our overall operating, our operating cash spend will be about $80 million for the year, and we will end the year with $275 million. If you straightline the first two quarters, you won't get there.

Okay, thanks very much.

(Operator Instructions). Your next question comes from the line of Chris Richard of [Merlin Nexus].

Hello, thank you for taking my call. Howard if you could just remind us what a major, the definition of what a major response is in the 118 study?

That is an excellent question, I am going to ask Lorianne to take you through that.

Thanks for the question. That is right, at the beginning of the study, the study was designed to look at whether or not patients had a really clinically significant response. A responder was defined as some who essentially more than doubled their baseline frequency of bowel movements.

In clinical trials, any time you have 100 or 150% increase of anything from baseline, this is considered really major, or really significant. So we said that to point out the fact that while a very impressive 75 to 92% of patients were classified as having a major degree of response, we believe that virtually everyone in the study has the ability to respond to NKTR-118. We just set the bar very high for how we defined a responder.

A major responder in essence is anyone who has doubled the number of spontaneous bowel movements?

It is more than doubled. On average the patients came in with 1.5 at baseline. A responder had to have an increase of at least two. And of course, because we had an increase of more than 3.5 overall, most of the patients did significantly better than that even.

Okay, great, thank you.

At this time, I am showing there are no further questions in the queue. I would like to hand the call back over to management for closing remarks.

Well, thank you everyone for your questions, and for joining us today. I think Nektar has made significant progress in our transformation to a drug development company. And I wish to thank our employees again for their commitment and dedication to the Company. I look forward to updating you on our continued progress in the months to come. Thanks for joining us today. Good-bye.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Have a great day.