Nektar Therapeutics (NKTR) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2010 Nektar Therapeutics earnings conference call. My name is Derek and I will be your operator for today.

At this time all participants are in a listen only mode. We will facilitate a question and answer session at the end of the conference. (Operator Instructions).

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Jennifer Ruddock, Vice President of Investor Relations. You may proceed.

Thank you, Derek. Good afternoon and thank you for joining us for Nektar's fourth-quarter and year-end 2010 financial results conference call. With us today are Howard Robin, our President and CEO; John Nicholson, our Chief Financial 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 value and potential of our technology platform, future plans for our clinical trials and those of our partners, including study designs and expected start dates, the clinical potential of our drug candidates, the future economic potential under certain of our partnership agreements, our financial guidance for 2011, and other future events and opportunities 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 and our report on Form 8-K filed today.

Actual events could differ materially from these forward-looking statements. We assume no obligation to update any of these statements as a result of new information, future events or developments.

A webcast of this call will be available for replay on the Investor Relations page of Nektar's website at www.Nektar.com. With that I will now hand the call over to Howard.

Thank you, Jennifer, and thanks to everyone for joining us today. 2010 was a year of great advancement for Nektar. We made noteworthy progress in the development of our pipeline, announced positive Phase 2 data for NKTR-102 in ovarian and breast cancers, collaborated with our partner AstraZeneca to enable initiation of NKTR-118 Phase 3 study, and moved NKTR-181 forward as our next clinical candidate.

As a result of our progress in 2010 we now have a diversified clinical pipeline with strong programs in oncology and pain. I'm very excited about Nektar's prospects as we further expand and develop our portfolio of product candidates based upon our proven technology platform.

On today's call our objective is to lay out a clear path forward for Nektar in 2011. This year our goal is to focus on three key opportunities to create value. First, advance two key partner programs into Phase 3 development, NKTR-118 and NKTR-061.

Second, execute on a Phase 3 development plan for NKTR-102 to maximize its clinical and commercial value. And third, expand Nektar's portfolio of high-value clinical drug candidates developed with our technology platform, including the start of human studies for NKTR-181 and the selection of our next clinical candidates.

Beginning with the NKTR-118 program, AstraZeneca is on target for their planned Phase 3 start this quarter. NKTR-118 is a breakthrough compound for our Company, demonstrating that, in addition to our well-established track record with large molecules, we could also use Nektar's polymer technology platform to create new small molecule drugs.

NKTR-118 addresses a significant unmet need. In the US alone there are over 175 million opioid prescriptions written for long-term use in 2010. Opioid-induced constipation is widely recognized as one of the most common side effects of long-term opioid treatment occurring in 40% to 50% of patients on opioids.

The results from our 208-patient Phase 2 study demonstrated that oral NKTR-118 effectively reverses opioid-induced constipation without interfering with the desired analgesic effect of the opioid therapy.

You'll recall that final Phase 2 results were presented at the 2009 American College of Gastroenterology plenary session. Oral once daily doses of NKTR-118 achieved statistically significant results on the primary endpoint of increasing spontaneous bowel movements in both the 25 and 50 milligram dose cohorts versus placebo.

These results were sustained over the entire 28-day treatment period. The most commonly reported side effects from this Phase 2 study of NKTR-118 were gastrointestinal in nature, which were transient.

To quickly remind you of the economics of our agreement with AstraZeneca for NKTR-118, we are eligible for up to $235 million in development milestones and up to $375 million in additional sales milestones at certain commercial sales levels, as well as significant and escalating double-digit royalties.

We are very excited about the advancement of NKTR-118. With AstraZeneca's strong experience and successful track record in launching and marketing new brands, we are confident in their ability to develop and position NKTR-118. We are very pleased to have an exceptionally strong partner, AstraZeneca, for NKTR-118.

As previously announced, AZ is planning regulatory filings in 2013.

Now moving on to NKTR-061, Amikacin Inhale, Bayer and Nektar are continuing to work together to prepare for pivotal studies in 2011. We are highly focused on producing devices in sufficient quantities to complete the Phase 3 program. Amikacin Inhale would be the first inhaled antibiotic product to treat gram-negative pneumonias in the ICU setting.

These pneumonias represent a substantial portion of all pneumonias reported in intensive care units today. It carries a mortality rate of more than 30% among ventilated patients.

And this market represents a substantial commercial opportunity. Our agreement with Bayer has a 30% flat royalty on net sales in the US and a midpoint of 22% ex-US.

Now moving on to NKTR-102. As I said earlier, we are highly focused on executing a development plan that will maximize the clinical and commercial potential of this great opportunity in oncology. In 2010 we established NKTR-102 as a major new investigational drug in oncology by demonstrating consistently high response rates in both breast and ovarian cancer patients, including the highest risk patient subsets.

The early promise we saw for NKTR-102 in Phase 1, with its notably higher antitumor activity, was confirmed throughout the year in our Phase 2 programs in these tumor settings.

2011 has already been a very busy year for the NKTR-102 team. we have held meetings with leading authorities in the field of gynecologic cancer and breast cancer. These experts hold key leadership positions at major scientific associations, top academic institutions, and MCI-funded cooperative groups.

Three key messages for NKTR-102 have emerged from these meetings. First, NKTR-102 is clearly a very active cancer drug, resulting in complete resolution of target lesions in some breast cancer patients, who progressed right through other therapies.

Second, NKTR-102 maintains its high level of activity in high-risk subsets of patients, where historically agents have had very low response rates and poor outcomes.

Finally, after reviewing the clinical data these leading physicians are highly engaged and committed to bringing NKTR-102 to their institutions. This is perhaps the single biggest factor in creating the momentum we need within the medical community to advance NKTR-102 through late-stage development.

It is clear to us the kinds of trials that gynecologic and breast cancer communities wish to see for NKTR-102. Initially they would like to see NKTR-102 tested in patients whose cancers have progressed despite frontline treatments, as these are the patients for whom options are quite limited.

Our advisors have acknowledged that NKTR-102 is extremely active. And based on our positive data in patients with highly refractory cancers, NKTR-102 has the potential to break through serious chemo resistance.

In addition to collaborating with the medical and patient advocacy communities, we are working closely with key regulatory agencies such as FDA. To that end, we met with FDA last month to discuss the program in ovarian cancer, and we are requesting a meeting this month to discuss our program in breast cancer. These meetings are critical to ensure that we have a comprehensive development plan for NKTR-102, and to obtain general consensus on our programs.

The exceptional results from our Phase 2 clinical trials in second and third line metastatic breast cancer patients made it very clear that NKTR-102 can be developed as a single agent in the metastatic breast cancer setting.

As our top priority for NKTR-102, we are committed to investing in a Phase 3 program in metastatic breast cancer involving approximately 800 patients. We will balance the best combination of the most efficient path to potential regulatory approval with overall development costs.

Because of the need for continued open and productive discussions with FDA, we believe it is important to release details of the Phase 3 breast cancer study only after we have received feedback from the agency.

Let me remind you of our Phase 2 results that led to our decision to invest in the Phase 3 development of NKTR-102. In a rapidly progressing metastatic breast cancer population, single agent NKTR-102 achieved a very high overall response rate of 29%. Importantly, two patients in the study had complete responses, and an additional four patients had near complete responses, with 100% resolution of their target lesions.

The overall clinical benefit rate, which includes complete responses, partial responses and stable disease for greater than six months was 41%. These impressive results were borne out across various subsets as well. In patients with visceral disease we observed a 29% response rate. And perhaps, most notably, in patients with triple negative cancer we saw resist response rates of 39% overall and 50% on the Q-21 day dosing schedule.

In ovarian cancer NKTR-102 also demonstrated very positive Phase 2 results in patients with platinum resistant refractory disease. Typically women who progress after Doxil therapy have little to no response with other agents, and their expected median survival is only 8 to 10 months. With the 21 day regimen of NKTR-102 for patients who progressed after Doxil, the response rate was 21% and median survival was 15 months.

Enrollment is nearly complete for our 50-patient extension of our Phase 2 study of NKTR-102 in women with prior Doxil treatment. While the FDA has not given us specific guidance on minimum acceptable sample size, we believe that further expansion of the Phase 2 study by up to 60 additional patients will increase the strength of our data package for a potential accelerated NDA submission.

Again, as I've said in the past, the bar for accelerated approval remains high, and marketing approval of NKTR-102 based upon a single-arm study is unlikely.

We are also working with our ovarian cancer advisors in FDA to design the Phase 3 randomized study that will be needed for either an accelerated or regular approval pathway for NKTR-102.

Finally, in the colorectal cancer setting, we continue to enroll our Phase 2 clinical trial evaluating NKTR-102 against irinotecan in second line colorectal cancer patients whose tumors have the K-RAS gene mutation. We are also conducting a Phase 1 study of NKTR-102 in combination with 5FU leucovorin.

This study will likely be completed this year and could enable us to consider a randomized study of combination therapy in second line colorectal cancer. Both the Phase 2 study of single-agent NKTR-102 in K-Ras patients and the Phase 1 study of NKTR-102 in combination with 5FU are designed to support our ultimate goal of replacing irinotecan wherever it is used in colorectal cancers.

I am extremely excited about the prospects for NKTR-102. As you know, we recently completed an equity financing that puts us in a strong financial position to take NKTR-102 into late-stage development, while continuing to grow our pipeline.

Let me add that based on our prioritization of NKTR-102 Phase 3 study, we will not be moving NKTR-105 into Phase 2 this year. As I said earlier, we see an important opportunity for NKTR-102 in oncology, and we look forward to moving ahead with Phase 3.

Our third key area of focus in 2011 is to expand our portfolio of high-value clinical drug candidates. To that end, I am particularly pleased to tell you that we will initiate human studies this month for our novel opioid molecule NKTR-181.

NKTR-181 is a new molecular entity specifically designed to provide pain relief without the abuse liability and side effects associated with conventional opioid medications. Approximately 105 million Americans, or 36% of adults, suffer from chronic pain, and opioids are considered the only real option for these patients.

However, current opioid therapies carry tremendous risk from misuse as well as potentially fatal adverse events, including respiratory depression or accidents associated with sedation. As a result, the FDA has grown increasingly vocal about both the need for better drug safety measures and the inadequacy of the pharmaceutical industry's current strategy to address the dangers of opioids.

The unique design and new chemical structure of NKTR-181 results in a slow rate of entry into the brain in preclinical models. This slowed rate is designed to substantially reduce the euphoric effect compared to traditional opioids, and could therefore mitigate the physiological basis for addictive behavior associated with opioid use.

We have tested NKTR-181 extensively in validated preclinical models with excellent results. Our data show that NKTR-181 demonstrates less abuse liability, less sedative potential, greater retention of motor coordination, and reduced respiratory depression.

Because NKTR-181 is a new opioid structure and molecule it is completely different from other approaches in this space, which include reformulations using coatings, gels or antagonist combinations. NKTR-181 is designed to be a next-generation mu-opioid analgesic, and to address the issue of diversion the molecule has been specifically designed and engineered to prevent conversion of NKTR-181 into the parent opioid.

If the preclinical profile of NKTR-181 is proven in the clinic, we strongly believe this compound has the potential to radically alter the prescription analgesic market by finally providing an effective and safe treatment option for pain relief.

This month we will initiate our Phase 1 clinical study of NKTR-181. This single-dose trial will enroll approximately 75 healthy subjects, and is specifically designed to confirm the pharmacologic profile of NKTR-181 by demonstrating an optimized PK profile and reduced CNS side effects and analgesic doses in humans.

The study will be completed in Q2 of this year. And we will then initiate a second Phase 1 study evaluating multiple doses of NKTR-181 in order to advance it into Phase 2 development in the first half of 2012.

Finally, while we are highly focused on our clinical programs, we will continue to invest in expanding our pipeline of drug candidates emerging from our technology platforms. Our goal is to advance one new drug candidate each year into the clinic. As we speak, our scientists are working on over 20 preclinical candidates in research. We are currently in the process of selecting our next critical candidate from this pipeline. We plan to share more in this program with you in the second half of this year.

Before I hand the call to John for a review of financials, I would like to provide updates on a few other key partner programs in development. In January our licensee, MAP Pharmaceuticals, announced a collaboration with Allergan to co-promote any MAP's LEVADEX product in the US, pending product approval.

MAP has completed Phase 3 clinical development of LEVADEX and has stated that they currently anticipate submitting an NDA in the first half of 2011. As a reminder, upon product approval Nektar is entitled to receive royalties on the global sales of LEVADEX.

Our partner Baxter recently announced that they plan to advance their PEGylated factor VIII molecule, or BAX-855, into Phase 1 study this year. As you know, Nektar has two agreements with Baxter to develop PEGylated long-acting forms of blood clotting proteins for patients with hemophilia, including factor VIII. Under these agreements we are entitled to receive milestone payments through development and approval, as well as royalties.

We are excited about BAX-855 and look forward to Baxter's continued advancement of this important therapeutic.

Finally, our partner Affymax had said that they intend to file an NDA for Hematide in the dialysis setting in the first half of 2011. Under our agreement with Affymax we will also receive royalties on net sales of Hematide.

We look forward to the continued advancement of these partner programs in 2011. Now I'll turn it over to John for a review of the financials.

Thank you, Howard, and good afternoon everyone. I will start with a quick review of last year's financials. Total revenue in 2010 was $159 million versus $71.9 million in 2009. This significant increase in revenue year-over-year is attributable to the amortization of approximately $100 million of the $125 million payment from AstraZeneca for NKTR-118. As of December 31, 2010, this payment has now been fully recognized.

Total operating costs and expenses in the fourth-quarter 2010 were $65.9 million versus $44.5 million in the same quarter a year ago. The increase was in large part attributable to a Q4 2010 non-cash impairment charge of $12.6 million. This charge is related to the move to our new San Francisco Mission Bay R&D center from our old San Carlos facility.

This additional increase in total operating expenses in 2010 as compared to 2009 was driven by increased R&D spending. For the full year 2010 our research and development expenses were $108.1 million as compared to $95.1 million in 2009, of which $14.6 million were non-cash expenses of stock-based compensation and depreciation.

This continued investment in Nektar's pipeline over the last year has resulted in a diversified robust pipeline that today has three programs preparing for Phase 3, one program in Phase 2, and multiple early-stage programs.

Now onto guidance. Revenue for 2011 is expected to be between $58 million and $62 million. As I previously mentioned, the amortization of the $125 million AstraZeneca payment that made up a significant portion of revenue in 2010 was completed at December 31, 2010.

In 2011 we will increase our investment in R&D to advance our clinical pipeline. R&D expense is anticipated to be between $152 million and $158 million, including approximately $20 million of non-cash expenses of stock-based compensation and depreciation.

The planned increase in R&D expense is primarily for Phase 3 studies in breast cancer and ovarian cancer for NKTR-102. Commencement of Phase 1 for NKTR-181 and preparing our next clinical candidate for IND filing this year.

The costs related to the start of NKTR-102 Phase 3 studies are expected to begin midyear. These include initial expenses to launch Phase 3, such as engaging our CRO, initiating global investigative sites, and performing CMC activities in support of Phase 3.

2011 G&A is anticipated to be between $44 million and $46 million. Included in our 2011 G&A expense is $12 million of non-cash items, such as amortized free rent on our San Francisco facility, stock-based compensation expense and depreciation.

Capital expenditures for ongoing operations are expected to be $17 million for 2011. As I stated earlier, we ended 2010 with $316 million in cash. The equity financing recently completed brought in proceeds, net of transaction costs, of approximately $220 million. This increased our cash to approximately $536 million.

As Howard mentioned earlier, we are beginning 2011 with a strong cash position, and we expect to end the year with approximately $400 million to $410 million in cash.

With that I will now open to questions to the operator.

Derek, we are ready for questions.

(Operator Instructions). Jonathan Aschoff, Brean Murray.

I have a question for Howard or Lorianne. I was wondering if you can give us any more update on the timing when we will see further Phase 2 data from 102 in breast and ovarian?

For the most part the topline data that are likely to emerge from either the ovarian or the breast cancer data have been previously released. The new data that are likely to come out would be final overall survival data and progression free survival data from both of those studies. And I think the major new tranche of data will come from the expanded cohort, which we have just announced will undergo an additional expansion, which we expect at a later date.

How are (inaudible) potentially accelerated achievable data?

So if I understand your question (multiple speakers). So if I understand your question correctly are you asking about the timing related to the additional 60 patients?

Right. When you will see data from let's say those 110, 50 plus the new 60, the respond [rate] data?

Right, so what we are anticipating is an efficacy data package for the target indication of maybe around 125 patients. Because remember, there were 15 or so patients that fulfilled the criteria from the original cohort. We are currently hitting a very rapid enrollment rate as we broadly predicted a number of months ago.

Once we got through the regulatory approvals, which literally are the most rate limiting step in terms of being able to open up an expansion, enrollment proceeded very quickly. So we expect that that will take an additional maybe four to six months.

Okay, and lastly, [I would] like to understand how you enlarge the Phase 1 to 105, like what did you exactly expand it into?

We actually did not expand the NKTR-105 Phase 1 program. We basically did the standard 3+3 design, which means that you enroll three patients into a given dose level. Which as you may remember, we mentioned this when we first started the study, we started at an extremely low dose, and also a very infrequent dosing schedule compared to the current regimen at the request of the FDA.

So it turned out we had to go through quite a number of dose escalations to get to meaningful doses. We have not expanded that trial. What we are doing is we're very, very close to identifying the recommended Phase 2 dose. And at that point in time we decided that we will not further continue that into Phase 2 at this to the time due to resources.

Okay, thank you very much.

Cory Kasimov, JPMorgan.

It is actually Matt Crowe in for Cory today. Just a couple of quick things. Just wondering if you could let us know when we might see the Phase 2 data in CRC with 102? And also if you could share some more details of the meeting you had with the FDA on ovarian cancer? Thank you.

So with regard to the randomized Phase 2 study of NKTR-102 versus irinotecan, as we have mentioned previously, the main challenge with that study is that, at least in the Western EU and in the United States, doctors aren't really used to using that regimen of single-agent irinotecan. So in order to really make that trial enroll rapidly we would need to greatly expand our presence outside of those areas.

So clearly that trial can enroll, and it is continuing to enroll; however, we really have to decide whether we want to expend considerable resources to greatly accelerating the pace of that study versus using those same resources for the breast cancer Phase 3 study. So clearly we are balancing our resources. And we are not planning to greatly increase the rate at which that study is enrolling.

Now having said that, the trial is going well, and we anticipate that we could provide results from that study as early as sometime next year.

Rich Silver, Barclays Capital.

Just on the additional data on 102 this year, you said final overall survival data and progression free survival as well as the expanded cohort. Can you give us a sense of when during the year we are going to see that data? And more specifically, what at ASCO we should be seeing in terms of new data on 102?

So let me start with ASCO first. As I am sure you know, the deadline for submitting abstracts to ASCO has passed. And in general we really don't release information about what might be presented at certain meetings until, A., we know that a presentation will be made, and B., that certain timelines have passed, because we need to be sensitive to the rules related to data released for scientific meetings.

I think the more important question, and is perhaps the first one. What we are seeing is actually extremely long survivals, including overall survival and progression free survival. As I'm sure it is quite obvious, the longer these durations are, the longer it takes to get to a final result. Because you have to see, I would say, the majority of patients having either had a tumor progression or have died in the study in order to get a mature or final read on these endpoints.

So essentially the longer it takes the more impressive the results are likely to be. And I think you have already seen some preliminary data that looked rather impressive. We are seeing survivals as high as -- preliminary survivals as high as 15 months in populations that really survive considerably less than a year. So that is really what is driving the timeline, which we see as actually a very positive thing.

So the question about -- so it is really very difficult to say, but with some confidence do you think that before the end of the year we will see some of that final survival data?

It is difficult to predict at this point, especially for the breast cancer trial, where we are seeing some very good survival data. It is possible, but at this point it is a bit early to predict the exact timing.

Then just any update on 119, the product -- I don't think it has been mentioned in some time -- the other AstraZeneca partnered product.

Yes, I think -- hey, look, it is difficult to comment for AZ. And at this point it is principally their program, so I think it is probably inappropriate for us to comment.

I think they are moving forward rapidly with NKTR-108 towards the clinic. And I think once they feel comfortable that that is going forward, I am pretty certain that NKTR-119 will come next.

So as I said in our presentation, they will be -- they're planning to enter the clinic this quarter. And I think you will then see more commentary on NKTR-119.

Then just the last one. Of the additional patients in the ovarian study, did you say what the timetable might be for that presentation?

Yes, look, we had planned that we would have data the latter part of this year from the initial 50 patients. But of course, the study won't release data in individual cohorts. So as we expand this study by an additional 60 patients, which we believe is important, I think that as Lorianne said earlier, that will probably add four to six months to the process.

I think the most important things you have to look at from Nektar's point of view this year is that we are expanding the study because we believe that that will give us a stronger data package to go for accelerated approval. And at the same time we are designing the Phase 3 study for ovarian cancer, because you're going to need that, whether you go for accelerated approval or just, as I said, the regular approval pathway.

And we will be commencing a Phase 3 breast cancer study this year. So I think the beauty of having NKTR-102 in multiple Phase 3 settings and even a [shot], although accelerated approval based on a single-arm study doesn't come easily, I think the fact that that is a possibility, as well as engaging in two Phase 3 studies, gives us a good number of programs at the late stage that can build great value for our Company.

So it is difficult, Rich, to project exactly which month we will have data from that expanded study, but I think overall it is still in the reasonable timeframe we talked about.

Great. Thanks very much.

Ian Sanderson, Cowen and Company.

Thanks for taking the questions. The first is on 102. What do you think at this point is the more rapid route to FDA approval for this asset? Would it be ovarian or metastatic breast?

Well, I think it is -- they are very different, and it might take a little longer to get going with -- if you're leaving out the possibility of an accelerated approval based on the expanded Phase 2 study -- leave that off on the side for a moment. You're just looking at Phase 3 study design, it might take a little longer, for example, with cooperative groups to get the ovarian study running, but then it should enroll very, very quickly.

The breast cancer study may actually enroll -- may actually get going sooner and enroll maybe a slight bit slower. But overall I think they run at about -- I think you will see results from them in about the same time frame. It is hard to predict right now.

And as we said earlier, we are engaged in dialogue with the agency to make sure that we design a clinical study that everybody is going to be comfortable with.

Do you think refractory -- it just seems to me that metastatic breast is a somewhat competitive market. We have seen the FDA raise the bar there. Based on your discussion last month with the agency on ovarian, do you think there is an easier route to approval there?

I will let Lorianne take this question.

So, first, the discussion that we had with FDA last month was restricted really to the ovarian cancer part of the program. Now having said that we, of course, did take away some very important messages from that meeting that do apply to the best breast cancer program.

So because of the strength of the data throughout all of the high-risk subsets, i.e., these are the patients that typically don't respond well to chemotherapy or biologic agents, it isn't actually necessary to demonstrate superiority to every available therapy. You simply have to demonstrate superiority to one that you have chosen. If we go further downstream in terms of line of therapy, then it is actually considered appropriate to use a physician's choice as a comparator arm.

So while it is very competitive upstream, I think, there really are very few entities. In fact, in some areas there no good clinical entities that really fully address the needs of patients with some of these more rapidly progressing and more chemo-resistant forms of cancer.

So the fact that we have such robust data in those patient populations, at least at this stage of the game in development, really gives us tremendous flexibility to go into those areas where we potentially could enjoy more efficient and rapid regulatory processes.

Okay. I had another question here on Neulasta. At this stage do you have any better visibility on what Amgen's capacity utilization might be this year?

No, look, as I said, I believe we put together a very, very favorable agreement with Amgen, which provide us a significant amount of upfront cash for the obligation to manufacture a small portion of what we have historically made for them. If they do order more than that small portion, then we will expect additional significant cash payments.

So while I can't disclose the nature of the agreement, it is too soon to see as to what extent they are going to be ordering a product that goes beyond the small portion we have historically made. I can only tell you that if they do go beyond that small portion that we have historically made, then there will be substantial additional payments to Nektar.

Okay, and then finally on 181 a little color on the first Phase 1 trial design, is this simply a safety study?

No, I will let -- no, it is much more than a safety study. I will let Lorianne go through it in some more detail.

Yes, that is actually a really good question. As most First-In-Man studies are typically just simply safety studies and studies focused at PK profile.

It really wasn't lost upon us that because this compound is a highly engineered form of a known entity that we could potentially push the envelope quite a bit more on the First-In-Man study. So we're going to be looking at some very important and useful informative pharmacodynamic measures, not only the kinetics of when we start to see the CNS activity of the opioids. Because remember, this is intended to get into the brain just in a much more regulated and slow fashion.

We can also look at things like reduction in respiratory drive. And we are using a scale, a composite scale, to look at the types of psychic effects that one normally associates with opioids. Obviously, we have been in close dialogue with FDA to make sure that they are in agreement with our plans as well. So we are very excited about this first study. It should be very informative.

Then the second study that you are planning this year, that is a multidose study, will it have efficacy endpoints?

So with both the single-dose as well as the multiple-dose study, we are looking at analgesic effects, because of course we are not intending to demonstrate superior analgesia. Really what we are trying to do is to show that at equivalent analgesia, because of opioids are extremely effective in the area of analgesia, we are really not trying to improve upon that.

But at those doses that give good analgesia we see safer -- we see a safer profile. So with regard to efficacy, if you will, in some ways showing improved safety is demonstrating that the drug is working as it should.

So we should be able to get an inkling of that with the single-dose study. The multiple-dose study is really to do a couple of things. It is to confirm that these effects are not in any way altered upon repeat dosing, and to ensure that we have the appropriate dose moving forward into patient studies.

Jon LeCroy, Hapoalim.

Thanks for taking my call. Can you give us any sort of handle around what the milestones might be for Amikacin and 118 entering Phase 3 this year?

Basically for entering into Phase 3 on 061, basically there is a $10 million milestone that would be due. But on the flip side of that we also have an obligation on our side to pay $10 million towards the initiation of that Phase 3 trial. So from a standpoint of timing, yes, we will have a little bit of a benefit, but from a cash burn standpoint it is basically cancels each one out.

As far as 118 goes, there is no milestone for the initiation of Phase 3 for 118.

Then on 105 is there something about the drug that maybe wasn't satisfactory in the dose escalation study, because I wouldn't think it would be very expensive to, at least, put it in some human solid tumors?

Well, no, look, it is a priority decision, and we did find Nektar -- we did find the drug to be incredibly safe, and we saw very little, if any, neutropenia, which is of course a significant problem with that parent compound.

I think -- I can let Lorianne go into some more detail, but quite frankly, it is an issue of -- when you say not very expensive, I mean, to go into a Phase 2 study does cost $15 million, $20 million. And you can't go into it lightly. If you go into it with 50 patients it means something. If you want to do a 200-patient Phase 2 study, now you're setting yourself up for a $10 million to $20-million expense. At some point one has to make priority decisions, and we made the priority decision to move NKTR-102 forward.

Lorianne, if you want to give a little commentary on NKTR-105.

Yes, what we found is that the dose escalations have gone extremely smoothly. And as I mentioned, we went through quite a number of dose escalations because of the extremely conservative dose and entry point dosing we were required to start at.

We do believe we have a recommended Phase 2 dose at this point. We just simply need to confirm that with a couple more patients. So there really isn't an issue with moving this forward into a Phase 2. It is really more an issue that moving this into Phase 2 it really then becomes a resource decision that is equal in magnitude, more or less, to what we are planning to expand in ovarian cancer. So I think you can see that this was, at least we believe, a very good decision.

One thing that is notable here is -- in one sense these are very difficult decisions to prioritize. On the other hand, you have a Company that has such a proven and broad platform that one of the challenges we are faced with is we have probably more drugs to develop than we can handle. And whether we partner some of them, whether we look to early-stage partnerships, late-stage partnerships, there is all kinds of possibilities here.

But I think one of the real benefits of Nektar is that we are faced with decisions of which programs to move forward because we have a number of them to pick from. It is actually quite a nice luxury to have.

Stan Mann, Mann Family Investments

Am I wrong or is my calculation wrong that with all the work you're doing in clinicals that the burn rate for this year is $126 million to $136 million?

John, would you take that please.

$536 million plus $400 million to $410 million (multiple speakers).

I am sorry, Stan, basically the burn this year will be somewhere in the neighborhood of $110 million to $120 million. And then on top of that we are also talking about additional $17 million of capital expenditures.

Okay, but that is, I think, surprisingly low. Howard, in your best estimate (technical difficulty) would you say that the cash on hand for commercialization of some of these drugs that you are behind now?

I think if you're talking about commercialization of these products, I think you have to go out a number of years. And I think if you look at long-term -- if you look at Nektar in the long term, we have a number of programs that are being funded by partners. I think you will start to see in future years revenues from those programs.

I don't have a mission yet for Nektar to commercialize these drugs. I haven't put in place any strategy yet to bring in a sales organization, a marketing organization and everything it takes to get ready to commercialize the drug ourselves.

I am not sure at this point we made a decision to do that. I think we don't have to make that decision today. And I think it would be premature to decide on the basis of one drug that Nektar is going to launch into a commercial sales organization or make itself a commercial organization.

That said, I think the money we have today would in and of itself not be enough to commercialize a drug. And I think if you look at the cost of clinical studies this year and next year and into the following year for NKTR-102 in both ovarian cancer and breast cancer, and if you look at the cost of NKTR-181 in pain over the course of the next few years, and if you look at our mission of exploiting our pipeline and having one new clinical candidate year, one IND filing, one new human clinical study per year, I think if you look at that math that comes out of our platform technology, I would say that we shouldn't be looking today at a plan for commercializing the drug.

I think that can come based upon what we look like in the future, what our partnered programs look like in the future, what kind of revenue stream we start to see from the partner program. Those are not decisions that have to be made in 2011. I don't (multiple speakers).

Well, I understand that. I understand that. But as we have discussed, you did make several years ago a projection of $400 million in royalty revenue by, I think, 2012, 2013 or 2014. So looking at that vision, are you still confident we are going to get to those levels (technical difficulty) time -- a reasonable time.

Well, look, we don't give up. I understand the question. We don't give -- I can't give guidance on what is going to happen in 2013 or 2014, obviously. We did say that, for example, that AstraZeneca has said that it plans a regulatory filing for NKTR-118 in 2013.

If you look at NKTR-102, whether we commercialize it or ultimately it is partnered with someone else at a later date, if you look at NKTR-102 it could be on the market in that 2014 timeframe.

So if you look at NKTR-061 it could also be -- should be on the market on those time frames. If you look at Cimzia and Hematide, etc., they will also moved towards the market and progressing nicely. Cimzia on the market, Hematide progressing to the market.

So I am not going to give -- I can't give a prediction of what 2014 looks like. That would be inappropriate guidance. I can tell you that if you look at -- if you take a look at all the programs that Nektar has in front of it, NKTR-061, NKTR-118, NKTR-102, Cimzia, Hematide, etc., etc., it is not hard to get to royalty revenues in those -- in that kind of a range in future years. So I'm pretty excited about the prospects of Nektar.

Now whether it happens one year earlier or one year later, those are -- this is an industry that, of course, is challenging and got associated risks with it. But I think the concept of Nektar becoming a successful and major player in that kind of 2014 plus timeframe I think is quite doable. That is why we are all here.

Okay, but it doesn't explain the tremendous negativism on the equity at this point. So obviously that vision is not (inaudible).

Well, I guess there will be some happy people and some sad people in the future.

So you are very positive on the future and the value and the process that you put in place?

Well, look, I think -- I am. Of course I am. And I think the Company is progressing exceptionally well with its strategy. And, look, here we have a Company that in a few short years has three programs planned to move into Phase 3, and programs in Phase 2, and is committed to every year a new clinical candidate moving into IND stage. So I think that is an enormous accomplishment out of a now proven technology platform. So, yes, I think it is exceptionally exciting.

Well, I think you have done a good job. But, anyway, thank you.

[Bert] Hazlett, BMO Capital Markets.

I just have one -- two, excuse me -- one on 19118. Could you just share with us a little bit more about the size and scale of those programs? Can you say anything at this point?

Look, I would love to, but under our agreement with AstraZeneca I am really not allowed to comment on their clinical design. I guess I'm confident that at some point they will talk about it, but at this point it is not up for us to talk about it. As I said, they are planning a Phase 3 start this quarter so I think, hopefully, you'll hear more from them about it.

Then just separately -- thank you for that -- just separately, I know Lorianne talked a bit about this, and she touched on it in a number of ways. But how is the evolving landscape for breast cancer, i.e., the failure of the initial PARP inhibitor in the triple negative setting, how has that affected your decision-making or your thoughts on 102 in that particular indication, if it has it all? Thanks.

Well, to be honest with you, if anything, it makes the landscape a bit simpler potentially. Because we have a very high degree of activity in triple negative breast cancer, at least, at this stage of development -- and by the way, at least some of those patients had received a prior investigational PARP -- our thinking was that you would certainly not combine with the PARP inhibitor at this stage in development, because we really are taking on a single-agent approach initially.

So whether or not the treatment landscape changes by the time of an NDA application for us, that is entirely possible, but I think that we will be studying a patient population for whom there really will be very limited options. So whether the PARP inhibitors are able to recover from this or not in many ways doesn't affect our program going forward.

I know you, again, gave a little bit more clarity, and you have a discussion upcoming with FDA, but is the triple negative setting something that is now more of a focus because of this?

I wouldn't say that is the case. It is certainly something that we are looking at very carefully. But there are other indications that we could go into related to lines of prior therapy that would include triple negative breast cancer patients. So we may or may not choose to focus solely on triple negative breast cancer patients.

The good news for the mechanism of action of our drug if that it is not specific to the type of mechanism of action that you see with triple negative breast cancer, where things that are highly targeted like PARP inhibitors really require certain types of either gene mutations or specific receptor statuses.

So we are not required to just simply focus on that small population. We can certainly include them in the final indication that we go after. And we believe that we are seeing very good responses in those patients, as well as a number of other indications.

Think you very much. I appreciate it.

Shiv Kapoor, Morgan Joseph & Co.

Thanks for taking my question. On NKTR-102 can you talk about what your discussions were with the FDA about, what kind of takeaways you got from them?

And did I read this correctly -- I jumped on a little late into the call -- but are you focused more on the breast cancer indication and less on ovarian cancer? Thanks.

Well, I will take the second part of your question first. No, I don't think we are focused more on breast than ovarian. I think we are focused on both. And I said they may move at slightly different speeds based upon the way enrollment and -- enrollment of sites and enrollment of centers goes in the various breast cancer and ovarian cancer communities. But I think we're very focused on both.

We said that we were going to expand our Phase 2 study by an additional 60 patients to give ourselves a more robust package for accelerated -- for the possibility of accelerated approval. But at the same timeframe we are planning a Phase 3 study, because you need a Phase 3 study underway whether you're going for an accelerated approval route or whether you're going for a traditional approval route.

Now regarding our conversations with the FDA that is -- look, it is very difficult and it is probably inappropriate to have discussions as to what -- to disclose specifically what goes on in our discussions with the agency. I will let Lorianne comment to a certain extent, to the extent she can.

So one comment I really want to make first is that the timing of when we go to the FDA with a specific indication has less to do with how we prioritize our programs and more to do with when the data are available. Because in order to go in front of the FDA for, say, an end of Phase 2 meeting, you have to provide them a briefing package that includes data that are relatively mature and stable from the trial. So ovarian cancer was the one that was ready first, and breast cancer will be the one that is ready second.

So with regard to their feedback, I really can't tell you a lot of the specifics. But what I can tell you generally is that a lot of the feedback we got related to the proposed Phase 3 study was very positive. With regard to the accelerated approval, they gave feedback that was really consistent with the recent ODAC meeting in which accelerated approvals in cancer was discussed.

So it is clear from the public meeting, and as well as our meeting with the FDA, that they have in fact set the bar very high for accelerated approval. But having said that, they clearly still believe that accelerated approval is a legitimate regulatory pathway that serves an important role in regulatory approval.

Okay, thanks a lot.

Marko Kozul, ThinkEquity.

Thanks for taking the question. Mine is on NKTR-102 in ovarian cancer. When you did have data for the 125 patients (inaudible), would you consider partnering the asset at that stage, or at that moment, or are you firmly committed to keeping this in-house and proprietary?

No, no, I think at this point it is an in-house project. We already have outstanding data on NKTR-102 in Phase 2. I tried to summarize some of that data again today for you. And if you have looked at what I presented and what we presented and what we presented, for example, at the San Antonio Breast Cancer Conference, it is hard to get away from the fact that this drug is highly active and it is very well thought of. There is sufficient data today to answer the question of partnership.

I think we made a strategic decision that this program is very, very important. It has tremendous potential. It can change dramatically the course of events for patients who have no other choices.

If you look at patients who have progressed on Doxil, they don't have any other choices. If you look at patients in breast cancer -- triple negative breast cancer, they don't have many other options. So we have a drug here that really extends the toolbox for the oncologist. And we decided to keep that for ourselves.

I doubt that getting positive data on 125 patients is going to want to cause us to partner that program. I think it just makes it even more likely that we take it forward ourselves.

Okay, thanks for answering the question.

Rich Silver, Barclays Capital.

Just back on 181, given that it is characterized as a new molecular entity, can you give us any sense of the development timetable beyond Phase 1, Phase 2, and whether it is more like you would expect with a true molecular entity, or can there be some bridging on some of the safety studies, the parent compound like we see with reformulations and active metabolites and single isomer products?

I will look let Lorianne and Steve get into a little more detail here, but I will tell you that, no, I don't think you can do any bridging studies. This is an NCE, and I think that is very important.

While it does cause additional work, and it does take some additional time, the important thing to remember about NKTR-181 is it is not a gel. It is not a formulation. It is not a composition of a number of different technologies that somehow allow the opioid to be released at a slow rate. This is a molecule. It is the polymer conjugate is covalently bound to the opioid and it can't be separated.

This is the next-generation opioid technology. That is what we believe it is. And while that does prevent us from doing, as you properly described as bridging studies, etc., the good news is this is an NCE, and it gets the full patent protection of an NCE. It gets the recognition of an NCE. And It also means that it isn't something that is going to be easily diverted. I think that is why we designed it this way.

Lorianne, Steve, you want to make any further comments.

Yes, I think the main advantage of NKTR-181 over other types of reformulations of opioids is that we aren't just simply trying to make an opiate that the FDA will approve. Because right now, of course, they are loathe to approve opiates that contain the same safety liabilities that the ones that have already been approved and are causing so much trouble have.

We have is an opportunity with this entity, and obviously working in close collaboration and communication with the FDA, we have the possibility of being able to prove and to make claims around the relative safety profile of our product compared to the parent compound.

So we really wouldn't want to bridge to the safety profile of other opioids, especially not the parent compound, because it is really our intention to prove, to demonstrate in clinical testing that our safety profile is notably better.

Okay, and then just earlier we were talking about spending and obviously allocation of resources, which you discussed when you announced that you were going to retain rather than partner 102. Can you give us an update on some of the preclinical compounds, 194, 171, 140 and 125, and whether those are on hold or whether you are actually doing active work on those compounds?

Well, it is a good question. Look, I said earlier that we have 20 preclinical programs running in research, and we have an active desire to build that pipeline. And you have -- to get to the goal of one IND per year, which is what I have committed to, it is going to take that kind of an active pipeline to get there.

So while we haven't given out specific information on individual compounds, I will let Steve give you some sense of where we are. But remember, there is probably 20 programs. There is probably another 20 programs even earlier than that that we are thinking about. And that is what it takes to generate an IND a year. Steve, you want to comment further?

That's right. I think as Howard said earlier in the call, we have certainly reaffirmed in this phone call our commitment to the early pipeline. In particular, I will just say that all of those program numbers that you mentioned are still the subject of active research here at Nektar. In fact, we are right now in the process of assessing from among those lead candidates what the most valuable one to bring forward as this year's IND candidate is going to be.

So stay tuned, and we will be saying more about that as the year goes on. But I think it is safe to say we have something of an embarrassment of riches in the preclinical pipeline right now.

Look, it would have been too easy to say, look, we are now going to transition our Company to develop NKTR-102 in Phase 3 and abandon all of our great research efforts. That would -- in my mind that is a huge strategic mistake for a Company that has a proven platform technology.

We have a technology platform that, as Steve just said, can generate an embarrassment of riches. Because of that, we had to make sure that we had sufficient funds to move NKTR-102 forward, and at the same time sufficient funds to make sure that we can exploit this technology, generate that one IND a year, and make sure that this platform is as successful as it can possibly be.

So that is one of the reasons why we undertook this equity financing. And it wasn't simply for NKTR-102. It was to make sure that NKTR-102 moved forward in Phase 3, NKTR-181 moved forward in Phase 1 and ultimately Phase 2. And that that research pipeline moves forward in a rate and in a way that generates that one IND a year.

Thank you.

Ian Sanderson, Cowen and Company.

A follow-up question on 102 in ovarian. Any thoughts on what a pivotal Phase 3 trial might look like there, and what the -- if there would be, what the active comparator might be?

Of course, this has been the subject of intense discussion, both with our leading advisors, as well as with FDA as recently as last month. So while I can't tell you exactly what the final design is, because we really would prefer to finalize this with the advisors and the FDA first, what I can tell you is that in those populations that we are looking at, and these are typically patients that are quite chemo-resistant, if there is an available therapy, at least as according to the regulatory definition, is available, which usually means that the drug is approved for that specific indication, then the comparator would be that drug.

But in a number of the indications that we are looking into, including the population that we are currently expanding into with our ongoing Phase 2 study, really the only appropriate comparator for those types of groups would probably be physician choice, because there really is no, quote, available therapy as according to the regulatory definition.

So things like patient numbers are not available yet or you are just not choosing to talk about?

That's right. Obviously, a good deal of discussion has to do with the statistical plan and how you plan to evaluate certain endpoints, and what sample sizes you calculate, that is a major part of those discussions.

Okay, thank you very much.

At this time this concludes the Q&A portion of our conference call. I would now like to hand the call back over to Mr. Howard Robin for closing remarks.

Well, as I said earlier to Stan Mann, we are exceptionally proud of the Company we built in the last few years. Nektar now has three programs with planned Phase 3 studies in 2011.

Importantly, two of these Phase 3 clinical trial programs are funded by our pharmaceutical partners. Each of these late-stage product candidates, if successful, will bring significant economics to Nektar.

We are also initiating our human studies for NKTR-181, and selecting our next clinical candidate from our research pipeline in order to support our goal, as I said before, of advancing at least one program each year towards the clinic.

We are committed to investing our funds wisely, and we are highly focused on advancing and maximizing the value of our Company for our shareholders. I want to thank all of our Nektar employees for their hard work and dedication. We wouldn't be as successful as we are without the hard work and dedication of our great employees.

So thank you again for joining us today and for your support of our Company. And I look forward to seeing many of you at next week's Cowen conference in Boston. Thank you very much.

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