Nektar Therapeutics (NKTR) 2009 Q4 法說會逐字稿

Welcome to the fourth quarter Nektar Therapeutics earnings conference call. I will be your operator for today. At this time, all participants are in listen only mode. Later we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would like to turn the conference over to Miss Jennifer Ruddock, VP Investor Relations. Please proceed.

Thank you, Crystal. Thank you for joining us for Nektar Therapeutics fourth quarter and year end 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 Lorianne Masuoka, our Chief Medical Officer and Steve Doberstein, our Chief Scientific 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 strategy, the value and potential of our technology platform, the progress and potential for our proprietary drug candidates, timing of availability of future clinical data, the future economic potential under our partnership agreements, the potential for new partnership collaborations, our financial guidance for 2010 and other future events relating to the Company. These forward looking statements involve significant risks and uncertainties 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 or about March 3rd, 2010, Our most recent Form 10-Q quarterly report filed November 1st, 2009 and the report on Form 8-K filed today. Actual results 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 developments. A webcast of the call will be available for replay on our Investor Relations page on Nektar's website. Now I would like to hand the call over to our President and CEO Howard Robin.

Thanks to everyone for joining us today. 2009 was a transformative year for Nektar. We achieved positive clinical validation of our advanced polymer conjugate technology platform with small molecules, first with NKTR-118 and more recently with NKTR-102. This was a tremendous breakthrough for Nektar's technology platform. In the past, as many of you know, our platform has enabled block buster therapeutics in the large space. We have now demonstrated that in addition to our well established track record with large molecules, we can also use the next generation of our technology to create proprietary small molecule drugs in areas of high commercial potential, such as pain and oncology, and create significant value for our shareholders.

I'm exceptionally proud of the deep and impressive R&D pipeline that we built over a short period of time with drugs and development raging from early preclinical through drug candidates preparing to enter phase three developments. Nektar has accomplished an enormous amount in the past two years with our technology and the advancement of our pipeline. Our progress is a true reflection of the talent of our team and the potential of our advanced polymer conjugate technology.

Today I am going to review our 2009 achievements and outline our objective for 2010. One of the biggest achievements last year was the impressive phase two data for NKTR-118, which led to a ground breaking partnership with AstraZeneca. With our phase two data for NKTR-118 we demonstrated oral bioavailability with our first small molecule polymer conjugate and also demonstrated the ability of our technology to modulate drug entry into the CNS. NKTR-118 directly addresses a large unmet medical need, opioid induced constipation, by targeting the underlying mechanism of OIC without reversing the analgesic affect of the opioids. The market size for this product is expected to greatly exceed $1 billion. What is truly exciting is that our data for NKTR-118 has validated our scientific approach which led to exciting new pipeline opportunities for Nektar in the pain area, which I will talk about in a minute.

As I have told you a number of times, as the innovator company, we fully expect to retain a significant ownership in our late stage proprietary programs when partnering and this is exactly what we did in our collaboration with AstraZeneca. This new collaboration for NKTR-118 and NKTR-119 illustrates Nektar's ability to retain a significant economic interest in our proprietary programs, benefit from significant milestone payment streams and secure a partner to fund the expensive phase three program and commercialization efforts. The terms of the AstraZeneca deal also highlight how valuable our technology platform is to Nektar. In addition to significant double digit royalties from dollar one on future product sales, we received a $125 million up front payment and have the potential to receive milestone payments of $610 million for NKTR-118 and $770 million for NKTR-119, for total up front and milestone payments of $1.5 billion for these two programs.

As an oral once daily tablet to treat OIC, NKTR-188 has the potential to dramatically improve patient quality of life and allow uninterrupted pain release therapy. In combining NKTR-118 with an opioid, NKTR-119 is designed to provide pain relief without the side effects of constipation found with opioids. While at an earlier stage of development, we believe NKTR-119 could have even greater commercial potential than NKTR-118. AstraZeneca expects to complete the design of the phase three program for NKTR-118 in the near term and we expect them to provide updates on the program throughout the year. Overall the AstraZeneca partnership showcases how we can retain a significant ownership -- economic ownership in our programs and create great value for our shareholders with our strategy of advancing Nektar programs through phase two proof of concept and then seeking strong partners for late stage development and commercialization. This in turn provides Nektar with the financial flexibility to invest in continued research so we can pursue the product opportunities emanating from our proven polymer conjugate technology.

As I mentioned earlier, I would like to spend a moment highlighting the opportunities in the area of pain that stem from our success with our technology approach with NKTR-118. We are currently pursuing three new pain candidates in research. NKTR-171 for neuropathic pain, NKTR-181, a potentially safer opioid with reduced side effects and lower potential for abuse, and NKTR-194, a non scheduled opioid. These three product concepts build on the ability of our polymer conjugation platform to modulate penetration of oral drugs into the CNS, providing Nektar an opportunity to broadly address the pain market which exceeds $10 billion annually in the US alone.

For example, with NKTR-181, we are using our advanced polymer conjugate technology to regulate the rate of entry of an opioid into the CNS. The product is designed to avoid the rapid and high peaks in the CNS and therefore reduce the potential for euphoria, sedation, and respiratory death associated with opioids. Slowing the rate of increase of the drug concentration in the brain can result in less euphoria posing less motivation for abuse and ultimately less potential for drug dependence with NKTR-181. More importantly slowing the rate of entry into the CNS can also address respiratory death. One of the main reasons physicians dislike prescribing opioids for severe pain is the risk of patients dying in their sleep due to opioid induced respiratory depression.

Further, the unique design of NKTR-181 conjugates a polymer in a stable covalent bond to the opioid. This means that the new opioid should be tamper resistant in that you can't physically or chemically separate the polymer conjugate from the opioid, preventing diversion of NKTR-181 for reprocessing into drugs that have a high potential for abuse. Early preclinical studies of NKTR-181 in efficacy, sedation, and abuse liability animal models have shown excellent results. We are hoping that NKTR-181 can address the risks of respiratory death, sedation and drug dependence associated with opioids. The resulting product could become the physician's opioid of choice. A key objective for 2010 is to advance at least one of Nektar's new preclinical pain candidates to INV stage.

Now I would like to talk about our next two lead clinical stage oncology programs, NKTR-102 and NKTR-105. Both of these new anti-cancer compounds use our proprietary multi-arm polymer conjugate technology to reduce the peak plasma concentration of the cytotoxic drug and provide continuous exposure with a greatly improved peak profile. Our goal is to increase exposure to the tumor of the drug while reducing toxicity with the expectation that we can design a cancer treatment with superior efficacy, a greatly improved safety profile and potentially a wider spectrum of activity. There are many cytotoxic agents with dose limiting toxicities related to their peak plasma concentration and short half lives that could potentially benefit from the application of our technology.

Cytotoxics are the most widely prescribed anti-cancer agents today with approximately $12 billion annually in sales. NKTR-102 and NKTR-105 are the first Nektar programs focused on greatly improving these widely used agents. NKTR-102 applies our technology to irinotecan, a topoisomerase I inhibitor. We are currently evaluating it in three phase 2 clinical studies in ovarian, breast and colorectal cancers. The half life of the active metabolite of irinotecan c-cam is approximately 48 hours. So in an irinotecan chemotherapy regimen, tumors are really only getting drug exposure for a relatively short time and then weeks pass before the next dose during which time the tumor's cell division becomes unhampered. The half life of NKTR-102 exceeds 50 days providing continuous exposure of the tumor to drug.

We recently announced exciting preliminary data from the first stage of our phase two study of Nektar 102 with patients with platinum resistant ovarian cancer. Ovarian cancer is the fifth deadliest cancer in women. 21,000 new cases are diagnosed annually and 15,000 women die each year from this disease. Most patients are diagnosed with late stage disease and almost all of these patients become platinum resistant. At that point treatment options are not very effective. Drugs in development for platinum resistant ovarian cancer continue to show similar core outcomes for women. The primary end point of our phase two study of NKTR-102 in women with platinum resistant ovarian cancer was overall response using GCIC, a combination of CA125 and resist. For the 39 women that were a valuable for the efficacy in the first stage of the two stage study, we saw impressive confirmed response rates. GCIC response rates were 32% and 35% for the Q14 and Q21 day dose schedules respectively and the resist response rates were 21% and 22% respectively. These response rates would be impressive in a purely platinum resistant population. However, the most compelling aspect of our initial results is that the women in our study had a particularly poor prognosis. 77% of patients in the first stage have previously progressed within three months of their last platinum dose. Over half of these patients were platinum refractory, meaning they had progressed while still receiving platinum therapy. This is an exceptionally difficult to treat patient population and you would normally expect to see little to no response in these patients. Let me remind you that our response rates in our study with this difficult to treat patient population were 32% and 35%.

Impressive response rates are only part of the story for NKTR-102. The benefit of an improved PK profile and a blunted CMax is that the drug also has a greatly improved side effect profile compared to the parent molecule irinotecan. The grade three or grade four adverse events experienced by about 10% of the patients in the Q21 day dose of NKTR-102 were diarrhea, fatigue and neutropenia all with a 10% incident rate. The side effect profile is in stark contrast to what is observed with irinotecan. NKTR-102 is looking to be a very promising drug for women with platinum resistant ovarian cancer. Enrollment in the phase two study is complete and the study is ongoing. A total of 71 patients are in the study and the study will continue until all patients are off therapy. The phase two investigators from the study are highly influential opinion leaders in ovarian cancer research from the US, UK and Belgium, and they have been incredibly enthusiastic about the potential for this drug for good reasons. We plan to present results from both stages of the study throughout the year as well as at a major medical meeting in 2010. Stay tuned for additional data coming from this trial.

Let's talk about NKTR-102 and metastatic breast cancer. The phase two study is a similar simon two stage trial that will enroll a total of 70 patients with advanced breast cancer who have failed a prior taxane regimen. As we said in January, we have already seen multiple responses in the first stage of the study. We are now near completion in enrollment of the study and many patients are still on drug. Similar to our ovarian cancer study, there is real enthusiasm for this product among the investor community which is resulting in rapid enrollment in the second stage of the trial. We expect to release preliminary near data from the trial around mid year.

We also continue to enroll patients in our randomized 174 patient study of NKTR-102 in colorectal cancer. The study evaluates NKTR-102 head to head against single agent irinotecan and second line colorectal cancer patients with the Kras G mutation. We anticipate that we can see our first preliminary data from this study towards the end of 2010. However, as we have said in the past, the enrollment has been slower in this trial because studies of irinotecan as a single agent are challenging to enroll. Our goal for NKTR-102 is to replace irinotecan in any setting. To that end we are starting a phase one study that will establish the phase two dose of NKTR-102 when used in combination with 5FU. As many of you know, irinotecan in combination with 5FU is the current standard of care in second line colorectal cancer worldwide. In our preclinical studies NKTR-102 in combination with 5FU demonstrated superior anti-tumor activity in mouse xenograft models over a standard combination of irinotecan with 5FU. These preclinical data strongly support pursuing NKTR-102 as a combination agent in the treatment of colorectal cancer. Our phase one study will be conducted by Dr Neil Meropol, Associate Director of Clinical Research at the Case Comprehensive Cancer Center.

With the impressive phase two data so far for NKTR-102 and ovarian cancer, many of you are wondering about the time line will be for partnering NKTR-102. With the results we've seen in ovarian cancer alone, as you might expect, there is significant interest in the data from pharmaceutical companies. Consistent with our corporate strategy, we anticipate entering into a partnership for NKTR-102 this year.

NKTR-105 is our second oncology program. It applies our advanced polymer conjugate technology to Docetaxel, a cell cycle chemotherapeutic approved for use in many solid tumor cancers. As with NKTR-102, by optimizing the PK profile with NKTR-105 we hope to achieve improvements in both efficacy and safety. We applied the same polymer conjugation approach to Docetaxel that we used in NKTR-102 and human PK data from our first phase one trial showed that NKTR-105 achieved the desired profile. Paxil has a half life of approximately 11 hours and is not detectable three to four days after dosing. NKTR-105 exhibited a half life of over 20 days providing continuous exposure of drug to tumor. One of the major questions we wanted to address in designing NKTR-105 was whether our technology approach could be used to achieve improved efficacy and safety with NKTR-102, could be more broadly applicable to different classes of cytotoxic molecules. The preliminary PK data from our phase one study of NKTR-105 demonstrated that we have again achieved our desired PK profile and we strongly believe that we can apply our technology to other important cytotoxins.

We are enrolling approximately 30 patients in our phase one study of NKTR-105. Patients are receiving escalating doses of NKTR-105 and the end points for the trial are safety and PK. To date, there have been no dose limiting toxicities. Enrollment in the study continues to go well and we anticipate reporting data this year.

I want to take a brief moment to update you on amikacin inhale NKTR-061, our inhaled antibiotic product candidate partnered with Bayer, for the treatment of gram negative pneumonias. Both Bayer and Nektar believe the commercial potential of this program is significant. 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. As you recall, this is our one remaining proprietary pulmonary program following the sale of our pulmonary delivery assets to Novartis. Bayer and Nektar have been working together to prepare for the pivotal studies of NKTR-061 in 2010. The program is moving ahead, but is behind schedule. The reason for this is that Bayer and Nektar decided to finalize the design of the device for commercial manufacturing prior to initiating the phase three studies. We continue to manufacturer devices and both Bayer and Nektar are highly committed to initiating the phase three program for amikacin inhale as rapidly as possible.

Lastly, I believe Nektar is poised for tremendous success in 2010. In addition to having a great financial position, we have a powerful and proven advanced polymer conjugate technology platform that is now validated for both large and small molecules. The opportunities with our platform are enormous. This year you are likely to see us explore programs that leverage our proven capabilities in the area of large molecules as well as other cytotoxic programs that could benefit from the application of our small molecule polymer conjugate approach. I'm proud of our Company and excited about our future. I will now turn over the call for John of our review of our fourth quarter and year end financials.

Thank you, Howard, and good afternoon everyone. 2009 was a year of strong financial and operating performance for Nektar. As a result of our continued financial discipline and a partnership for NKTR-118 and NKTR-119, we ended the year with over $396 million in cash. This compares to $379 million at the end of 2008. Revenue for the fourth quarter of 2009 increased to $39 million as compared to $28.4 million in the fourth quarter of 2008. Total revenue in 2009 was $71.9 million versus $90.2 million in 2008. The decrease in revenue year-over-year is a result of lower contract research and manufacturing revenues following the sale of certain pulmonary assets to Novartis. Total operating costs and expenses decreased by 31% or $75 million in 2009 compared to 2008. Net of the gain on the sale of certain pulmonary assets in Q4 2008. In 2009 we invested $95.1 million in research and development. Our continued investment into Nektar's pipeline over the last two years has resulted in one of the most impressive pipelines in our sector. We built this robust pipeline that today has two programs preparing for phase three, three ongoing phase two clinical studies, one phase one study and numerous preclinical programs. At the same time we significantly reduced our operating expenses by $75 million. So as Howard said, we have done more with less at Nektar.

Revenue for 2010 is expected to be between $155 million and $165 million. The revenue projection includes amortization of approximately $100 million from the $125 million up front payment we received from AstroZeneca in 2009. R&D expense for 2010 is anticipated to be between $110 million and $115 million, as compared to $95 million in 2009. 2010 G&A is anticipated to be approximately $41 million, essentially the same as 2009. Included in our 2010 G&A expense is $8 million of non-cash items. We expect our GAAP cash use and operations to be between $85 million and $95 million. Capital expenditures for ongoing operations are expected to be $10 million for 2010. We also anticipate that our new San Francisco R&D center will require approximately $25 million in CapEx this year. As a reminder, under the terms of the lease, we will not pay any rent for this facility until August 2014. We expect to move into the new facility before the end of this year. We plan to end the year with $265 million to $275 million in cash. This anticipated year end cash balance does not include any payments related to any potential NKTR-102 partnerships. With that, I now open the call to questions.

(Operator Instructions) Your first question from the line of Ian Silver. Please proceed. I apologize, Ian Sanderson with Cowen and Company.

Just a quick financial question, can you give us the amortization amount from the AstroZeneca up front payment that was included in Q4? I presume it was right around $25 million.

It was $23 million.

Okay. NKTR-102, as far as the remainder of the platinum resistant ovarian cancer trial, your guidance was that you are going to present it at a medical meeting. Might there be a top line release of those data?

Well, I said we will be presenting more data throughout the year including data at a major medical conference. I think you will start to see more data become available.

Okay. And finely on Peg-Docetaxel, can you repeat the guidance for when we might see the phase 1 PK data and will those simply be PK or will there be any efficacy data there?

In the NKTR-105 study, Peg related Docetaxel, we have already given preliminary information related to the ongoing pharmacokinetic profile for the early cohorts and it demonstrates a very long half life in excess of 20 days with continuous exposure through out a three week interval. With regard to efficacy data, of course the primary intent of the study is to look at safety, tolerability and PK. We will certainly be reporting any responses that we see as we get closer and closer to the recommended phase two dose.

Any color on potential timing?

We have basically are expecting it some time this year. It is hard to predict because at the moment we haven't seen any dose limiting toxicities. We are still in a mode where we are dose escalating.

Thank you .

Your next question comes from the line of Cory Kasimov with JPMorgan. Please proceed.

Good afternoon and thank you for taking the questions. I have three of them for you. First of all, does the recent avastin in phase three data in front line ovarian have any impact on the next steps for 102?

I think it's very difficult to predict what the impact of that study will have on our ongoing program given that we don't know what the results of that study are going to be. However, what I can say is given the mechanism of action of that product and the mechanism of action of the biologic avastin, I don't see any incursion into the work that we are doing. In fact, there may be some interesting opportunities in the future to potentially combine the products.

That's kind of what I thought. Howard, is it possible for you to tell us exactly when in 2010 the Amgen Neulasta agreement expires and how we should be thinking about news flow on that front this year?

We haven't said significantly when the supply agreement ends. We said it ends this year. Of course, we are always willing to enter into supply agreements from time to time if they fit our strategy and I think it is pretty easy to say we are engaged in discussions with Amgen and I think that to what extent Nektar wants to renew manufacturing of Neulasta. Let's observe the process. Both Amgen and Nektar are communicating with each other and I think we will be giving more information on that as time goes on.

And then finally, multiple times during your prepared remarks you mentioned the potential applicability of your technology to other cytotoxics. Are you able to tell us at this point what is highest on your to do list?

I don't think we are ready to disclose what those particular cytotoxics are. However, as I said earlier, there are billions and billions of dollars of sales of cytotoxic agents in the marketplace and they all have relatively short half lives and nasty side effect profiles. To the extent we can apply this technology to many cytotoxics, as we've done successfully now with 102 and appears to be successful with NKTR-105, I think the opportunities for us are enormous. If you look at these small molecules they are very effective anti-cancer agents. The problem is they have very short half lives and very high CMax and because of that they aren't used as effectively as they could be. If you look at what we are able to do in platinum resistant ovarian cancer with a drug such as a modified version of irinotecan, I think you can easily identify two or three or four or five more cytotoxic agents that we can apply this technology to and essentially revitalize the whole field of cytotoxics and we are seriously considering different opportunities there.

Thank you for taking my questions.

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

Hi. On 102 in platinum resistant ovarian cancer, can you give us any sense of which meetings that additional data would be presented at and whether there will be additional top line data separate from meetings or should we expect the data at meetings period?

Rich as I said before, we can't tell you specifically what meeting it will be presented at, accepted at, et cetera. Although I feel very confident that the data will be presented at a major meeting. I also feel confident that prior to that, there will be more top line data. I think -- if you stay tuned to what we are discussing publicly at Nektar, there will be more information coming about NKTR-102 prior to those major medical meetings.

And then the $10 million payment you are expecting 45 days after the amikacin phase three trial begins, when should we expect that?

We don't receive that payment until the initiation of phase three by Bayer. Until Bayer initiates that trial we won't receive it and at this point in time there is not a certain date for that trial to start.

We are not allowed to comment as to when Bayer plans to start the trial. What we did say was we wanted to make sure we finalized the commercial device. We could have started the trial with a device that was not finalized and finalized it in parallel and Bayer Nektar made a decision not to do that. In the process of finalizing the commercial device and Bayer will start the clinical trial, but they haven't said when they will do it. We get that $10 million payment when they start.

So somehow I thought it was March 2010 as a start date, no?

I can't comment on the specific date other than to say our goal is to start this year. I would have to let Bayer give further information than that.

Thank you.

Your next question comes from the line of John Lecroy with Hapoalim.

Thanks for taking my call. In the 105 phase one, how many patients are enrolled in that?

The planned number of patients enrolled is approximate because it depends upon what dose level you need in order to achieve the recommended phase two dose. The tentative number we are planning on is 30.

And right now, how many people are enrolled in that one?

We haven't provided that information at this point in time, but what I can say is that enrollment is going very well and we are right on track. So we should be able to provide some information on this trial this year.

On your plan phase one in combo with 5FU for colorectal cancer, can you give us information on that? It's a non head to head so how would that work exactly?

The intent of this study is to simply establish the dose that one would use in combination with the traditional infusional 5FU regimen. This is a dose ranging study so that were we want to go forward with this agent in combination with 5FU, we would know what the dose would be in phase two.

Patients in that trial would be refractory?

In a typical phase one study these are patients with tumors that are not amenable to treatment with standard approved drugs.

Would they have already been exposed to 5FU probably?

I can't comment further on the specifics of that trial.

What is your target enrollment for that one?

The target enrollment on that one is -- is very similar to the other phase ones. Obviously, we have significantly more information at this point in time as to what the likely doses are in combination with other agents. We haven't disclosed the total number for that study, but we expect it to be smaller but on a similar scale.

Your next question comes from the line of Shiv Kapoor with Morgan Joseph.

I have a couple of questions. On 105, can you remind us what the PK profile of NKTR-102 was and how that compares to 105? What are the differences in the way that you are proceeding with NKTR-105 compared to NKTR-102? In other words, are there some lessons learned in NKTR-102 that you are applying to 105?

The PK profile for NKTR-102 was to prevent the type of saw tooth PK profile you see with irinotecan. So irinotecan has a very high CMax and a half life, or the active metabolite of irinotecan, I should say, has a half life of perhaps 48 hours. What we see with NKTR-102 is a lower CMax and a half life that approaches 50 days. That's what we believe has given us this exceptionally impressive response rate data as well as exceptionally impressive safety profile. If you look at NKTR-105 we set out to do the same thing. It is essentially the same technology and we set out to achieve the same results. As we have said from the phase one data, we have already released the PK data and we have a blunted CMax as well as a half life of 20 days. We would expect that with NKTR-105 we would see the same kind of beneficial affects of applying our polymer conjugate technology platform to that particular molecule. Let's finish the phase one study and I would expect that this drug moves into phase two some time next year. The impressive results we are seeing so far with NKTR-105 are that we have not reached dose limiting toxicity and we are dose escalating as we speak.

With NKTR-102 when do you expect the breast cancer to be reported?

We said we would be giving preliminary results on the breast cancer data by the middle of this year.

Thanks.

Your next question comes from the line of Bert Hazlett with BMO Capital Markets.

Thanks. It is Jim Tumbrink here with Bert. Thanks for taking the question. Just hoping you can comment a little bit on R&D spending next year. I know you said this year you had $50 million in outside investment. How should we think about that next year?

Basically what we spent in 2009 was $95 million in research and this year we plan on spending somewhere in the neighborhood of $110 million to $115 million.

Then the outside investment portion of that last year was 50. What about this year? How are you thinking about that?

Basically this year the outside spending should be in the neighborhood of about $70 million.

Thanks.

Your next question comes from the line of -- it is a follow-up from Ian Sanderson with Cowen and Company.

On NKTR-118 and 119, first of all you mentioned that AstroZeneca will be providing updates throughout the year, does that include advancement of 118 into phase three this year? Secondly, can you refresh our memory, are the development costs do they run through your P&L and you get reimbursed by AstroZeneca? Is that how it works?

I do believe that AstroZeneca will provide information as to when the drug moves into phase three. They will give you updates and I can't speak to the specifics and how much detail they will give. I believe they will keep everybody reasonably well informed as to the progress of the development of that molecule. With regard to your second question, no, those costs do not flow you Nektar's P&L at all. The higher cost of developing the drug in phase three and bringing it to market is born by AstroZeneca and not Nektar.

Will you receive any royalties as it moves through development? Any milestones or is that really -- are all the milestones post filing?

No, there are milestone payments. We haven't disclosed the specifics of the milestone payments, but there are milestone payments that are prior to launch of the drug.

Your next question comes from the line of Tim Lugo with William Blair.

I'm calling for John. Thank you for taking the question. I appreciate that you can't go into too much detail, but broadly can you discuss what is occurring in the patients that did respond to 102 in the first stage of the study and has there been any deepening of response and are patients still on drug?

Repeat the question one more time.

The patients that did respond in the first stage of the ovarian cancer study, has there been any deepening of response? Are patients still on drug?

In terms of the ongoing study in ovarian cancer, there are still patients receiving treatment with NKTR-102 in both stages one and two. With regard to a deepening of response, I'm not really sure what is meant by that? Can you clarify that question?

Potentially there might have been a partial response deepening or maybe some other stable disease patients.

I see.

Moving to a partial response.

When we report the results -- the final results of the study once all the data has been collected, we will report out the best response which means that we will report out the highest degree of response that each patient has achieved. The data that we gave previously was related to preliminary results from stage one and we won't be giving any further information regarding that until we have all the data from the trial.

Let me add, as I have said we will be presenting this at a major medical conference. I think there will be additional data presented before that conference on NKTR-102 preliminary results. I will also tell you that we are still very impressed with the way this drug is performing in the clinic and we are very optimistic about the potential for this program.

Thanks a lot.

(Operator Instructions) Your next question from the line of Rich Silver, it is a follow-up, with Barclays Capital.

On the license collaboration and other revenue line, $28 million, can you give us the breakdown of that X amortization?

Rich, we don't go into details from the standpoint of breaking out product sales versus royalties.

In your 2010 guidance for amortization of the $31 million licensing payment, can you give us some sense of what that is?

Yes, as we have told you in prior calls, the way Nektar handles amortizations of payments they have received is based upon the agreement they set up with the SEC back in, I believe, 2006. The way that works is that as long as Nektar has some sort of performance obligation to the person we do the deal with, we have to amortize that payment over that point in time. For that $31 million, basically that is a six year amortization.

So evenly over six years?

Correct.

And then the product sales gross margin which was 5.3% in the fourth quarter, can you give us some sense of given that does fluctuate quarterly, can you give us some sense, at least for the full year, what we should expect?

I would tend to think that range would be between 10% to 20%. The reason for the wide range is from the standpoint of who requires what reagents and how much reagent they require from us?

What is the range?

It would be somewhere between 10% to 20%.

Thank you.

There are no additional questions. I would like to turn the conference back over to Mr Howard Robin for closing comments.

Thank you for joining us today. Nektar's ability to use our technology and transform it into multiple opportunities with small molecules, antibody fragments and biologics is what I think makes Nektar truly unique in our industry. I want to thank our employees for their hard work and commitment in 2009 and without their contributions our success would not be possible. We look forward to seeing many of you in Boston next week for the Cowen Conference. Stay tuned and you will hear a lot more from Nektar. Thanks

Ladies and gentlemen that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.