Nektar Therapeutics (NKTR) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics first-quarter 2011 financial results conference call. My name is Amisia and I will be your coordinator today. At this time all participants are on listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions).

I will now like to turn the call over to Ms. Jennifer Ruddock, Vice President of Investor Relations. Please proceed.

Thank you, Amisia. Good afternoon and thank you for joining us.

With us today are Howard Robin, our President and CEO; John Nicholson, our Chief Financial Officer; Doctor Lorianne Masuoka, our Chief Medical Officer; and Doctor Steve Doberstein, our Chief Scientific Officer.

Before we get started, please note that on this call we expect to make forward-looking statements to reflect our current views as to the value and potential of our technology platforms, future plans for our clinical trials, and those of our partners, 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 involves significant risk and uncertainties that are detailed in Nektar's reports and other filings with the SEC, including our Form 10-K Annual Report filed on March 1, 2011 and our Report on Form 8-K filed today.

Actual events could differ materially from these forward-looking statements and 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 IR page of Nektar's website at www.Nektar.com.

With that, I'd like to hand the call over to Howard Robin, our CEO. Howard?

Thank you, Jennifer, and thanks to everyone for joining us. We are very pleased with the progress of our key programs in the first quarter particularly the advancement NKTR-118 into Phase 3, which marks a major milestone for Nektar as we evolve into a late stage drug development company with a robust technology platform.

As you know, within just a few years, we leveraged the diversity of our polymer conjugate technology platform to advance multiple programs to late stage development, each of which represent a substantial commercial opportunity for Nektar. Nektar is highly focused on the rapid advancement of these programs and we continue to drive our preclinical pipeline to enable the introduction of one new IND candidate each year.

So let's start with NKTR-118 for opioid-induced constipation. We are very excited about the comprehensive Phase 3 program launched by AstraZeneca in March that enables AZ to continue on track for planned regulatory filing in 2013.

Many of you may not appreciate how challenging a problem OIC is for both physicians and patients. There are over 250 million opioid prescriptions written for treatment of acute and chronic pain in 2010 in the United States alone and up to half of patients taking opioids experience significant constipation. OIC can significantly impact patient quality-of-life and increase healthcare utilization.

For example, patients with OIC visit physicians significantly more often than patients without OIC. To address this significant medical problem, AZ has launched multiple Phase 3 studies for NKTR-118. Their Phase 3 program features two multinational 12-week randomized placebo-controlled efficacy studies in non-cancer pain patients with approximately 630 patients each.

In addition, a 52-week long-term safety study is also underway that will include patients from the 12-week efficacy studies as well as new patients. One of the 12-week efficacy Phase 3 studies will include a three-month safety extension study. AZ is taking a comprehensive global approach to the development of NKTR-118, including a trial in cancer pain patients and a development program in Japan.

You'll recall that the results from our 208 patient Phase 2 study recognized by the American College of Gastroenterology in 2009 in an oral plenary session demonstrated that oral NKTR-118 effectively reverses opioid-induced constipation without interfering with the desired analgesic effect of the opioid therapy. Oral once-daily doses of NKTR-118 achieves statistically significant results on the primary endpoint of increasing spontaneous bowel movements in both the 25 and 50 mg dose cohorts versus placebo.

The patients in this study were highly constipated with about 1 1/2 bowel movements per week prior to starting the study. After one week of treatment with NKTR-118, patients had between five and six bowel movements per week, a dramatic improvement. The results for these patients in our Phase 2 study were sustained over the entire 28-day treatment period. And the most commonly reported side effect from the phase 2 study of NKTR-118 were gastrointestinal-related effects which were transient.

Most importantly, I can't think of a better partner than AstraZeneca for NKTR-118. AstraZeneca has an outstanding track record of developing new products. It is a world-class marketing organization. We are exceptionally pleased with their comprehensive clinical development plans and highly confident in their abilities to successfully develop and market NKTR-118.

As a reminder, under the terms of our agreement for NKTR-118, we are eligible for up to $235 million in development milestones and up to $375 million in sales milestones at certain commercial sales levels as well as significant and escalating double-digit royalties. AstraZeneca is solely responsible for all clinical development, regulatory CMC commercialization and other costs for NKTR-118.

NKTR-118 was the first world drug design using Nektar's polymer conjugate technology; and it was specifically engineered to stay out of the CNS, to preserve analgesia while antagonizing the mu-opioid receptors in the gut to reverse the constipating effects of opioids. With NKTR-118, we leveraged our technology and our understanding of the interaction of Nektar polymers with the blood brain barrier, which is one of the key elements of our platform that distinguishes our NCEs from those coming out of other technologies.

We have leveraged the knowledge we've gained from the NKTR-118 program to advance from brain exclusion to modulation of brain injury. This progress enabled us to identify multiple new research candidates in the field of pain, including NKTR-181. With NKTR-181, instead of restricting entry into the CNS, we are slowing the rate of entry into the brain to create a highly effective opioid without the CNS side effects associated with rapid brain entry.

As I said earlier, opioids are potent painkillers and are absolutely essential to managing both acute and chronic pain. According to IMS Health approximately $10 billion of opioids were sold in the US alone in 2010. While these drugs are critical, they can also be very dangerous. The FDA is very concerned about the growing health care problem around opioid use.

Nektar is addressing the problems with opioids in a completely unique way with an innovative design in a brand-new opioid molecular structure. This is why we are particularly excited about NKTR-181.

NKTR-181 is specifically designed to enter the brain at a slow rate to effectively treat moderate to severe pain with reduced euphoria and other CNS side effects. One of the main concerns that physicians have with opioid therapy is why they are reluctant to prescribe them to patients with chronic pain is because of the potential for addiction and respiratory death.

By achieving good analgesic efficacy with reduced side effects, we believe NKTR-181 could become a physician's opioid of choice.

Another aspect of NKTR-181 that is very important NKTR-181 that is very important is that we believe it will be extremely difficult to convert it to an opioid with rapid uptake into the brain. Remember that the major problem with reformulations of standard opioids is their conversion into more highly abused products. That is because the active ingredient, the opioid, has a rapid rate of entry into the brain when it is released from its formulation.

NKTR-181 is not a reformulation of an existing opioid. It is a next-generation opioid NCE where the opioid and the polymer are covalently bound. We have found no conditions using either kitchen chemistries or more sophisticated lab chemistries in which NKTR-181 could be altered into a more rapid-acting opiate.

We started our Phase 1 program with NKTR-181 in the first quarter. The first Phase 1 trial for NKTR-181 is a single dose study enrolling approximately 75 healthy subjects. We are looking at identifying an analgesic dose range for NKTR-181 and we are also looking at CNS side effects, such as euphoria, the data potential, and respiratory depression. The Phase 1 study is on track to complete around the end of the year.

Following this first Phase 1 study, we are planning a second Phase 1 multi-dose trial in order to establish a Phase 2 dose range for NKTR-181. Phase 2 studies are planned to start in the first half of 2012.

If NKTR-181 is successful, we believe it could dramatically change the pain market landscape. We look forward to sharing more on NKTR-181's progress this year.

Now I would like to talk about our very exciting oncology program, NKTR-102. Several scientific presentations for NKTR-102 were recently accepted at this year's ASCO meeting that begins June 2 in Chicago. New NKTR-102 breast cancer data from the Phase 2 study will be presented in a poster discussion session.

Additionally, we will present new data from the initial Phase 2 study in ovarian cancer in a subset of women who had prior DOXIL treatments, as well as new population PK data from our clinical studies. Finally, we are planning and investor of it with key thought leaders in ovarian and breast cancer at ASCO and we will share more on that event in the coming weeks.

As we said last month, we are actively designing the protocols for our Phase 3 programs in both ovarian and breast cancer. We have already had our end of Phase 2 meeting for NKTR-102 in ovarian cancer and we have scheduled an end of Phase 2 meeting with the FDA in late June for NKTR-102 in metastatic breast cancer.

As we have said in the past, we plan to work closely with the FDA to finalize the specific elements of our Phase 3 protocols and are planning to be ready for Phase 3 around the end of this year. Of course the exact start of the Phase 3 study will depend on the details of the final development plan after discussions with the agency.

As you will recall, the Phase 2 data for NKTR-102 in both ovarian and in breast cancer demonstrated highly encouraging results in very poor prognosis populations and primarily included patients who are heavily pretreated, or highly chemo-resistant, or had particularly aggressive forms of cancer. So we are very excited about its potential as an important new chemotherapeutic agent.

Our Phase 2 single arm study in women with platinum resistant ovarian cancer, who have had prior treatment with DOXIL, is also continuing. 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. Right now, we expect to have topline data from this study by the first quarter of 2012.

These women represent a small but very difficult to treat population and as you will recall, we have excellent response rates as well as preliminary overall survival in this subset of women from the initial Phase 2 trial.

We are very excited about the growing visibility of NKTR-102 in the oncology community and we look forward to rolling out our Phase 3 program for NKTR-102 at ASCO. We hope to see many of you there in June.

Moving onto (technical difficulties) NKTR-102 and colorectal cancer, we continue to enroll our Phase 2 clinical study evaluating NKTR-102 against irinotecan in second line colorectal cancer patients whose tumors have the KRAS gene mutation, and we are also conducting a Phase 1 study of NKTR-102 in combination with 5FU leucovorin.

Both the Phase 2 study of single agent NKTR-102 in KRAS patients in 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 cancer. We are continuing those studies, and when they are completed we will build our strategy in colorectal cancer based on these results.

Now I like to give you a brief update on amikacin inhale. Both Bayer and Nektar have been working to start the Phase 3 program. Recently Bayer and Nektar successfully completed discussions with the FDA on a special protocol assessment procedure for amikacin inhale. The SPA was initiated by the Bayer and Nektar team in an effort to make certain that the design and analysis of the clinical study would adequately address the objective necessary to support a regulatory submission. We are both pleased that the outcome of the FDA process was that the primary outcome measure of the Phase 3 program will remain clinical response at the test of cure visit.

As you know, Bayer and Nektar are focused on completing a device design that will not only support the Phase 3 clinical program, but also commercial scale manufacturing. Further improvements are also being made through the automated manufacturing of the device prior to starting the Phase 3 clinical trial program. Because of our desire to accomplish these objectives, Bayer and Nektar are now planning to start a Phase 3 trial in the third quarter of 2012.

We are both very committed to advancing this program and we believe amikacin inhale represents a very important potential treatment for gram-negative pneumonia. Bayer is an excellent partner for amikacin inhale and their design of the Phase 3 program is very elegant and straightforward and should proceed well.

Before John reviews financials for the quarter, I will close by saying that Nektar is in a very strong position and I am very pleased with the progress we have made in the past years. We have projected year-end cash of $410 million, multiple high-value partnerships in place, and three extremely promising novel programs either in or headed towards Phase 3 testing. We have initiated the first human studies for NKTR-181, which leverages our expertise in controlling drug entry into the CNS and represents an enormous opportunity in the pain market.

Further, we have a deep pipeline of additional compounds and research that we plan to share more on a new IND candidate with you later this year. All in all, I couldn't be more pleased with our progress.

With that, I will now turn the call over to John for a discussion on financials.

Thank you, Howard, and good afternoon, everyone. I will start with reminding you of our financial guidance for 2011 which remains unchanged from our 2010 year-end call.

Revenue for 2011 is expected to be between $58 million and $62 million. Our R&D expense guidance is still between $152 million and $158 million with approximately $20 million of this as non-cash expenses, such as stock-based compensation and depreciation. 2011 G&A is still anticipated to be between $44 million and $46 million. Included in our 2011 G&A expense are $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. Total revenue in Q1 2011 was $11.3 million versus $33.2 million in Q1 2010. The decrease in revenue quarter over quarter is attributable to the prior year's quarter amortization of approximately $25.3 million of the $125 million payment from AZ for NKTR-118, which was included in the first quarter in 2010.

As I said on last quarter's call, this payment was fully recognized as of December 31, 2010. Total operating costs and expenses in the first quarter of 2011 were $45.2 million versus $36.6 million in the same quarter a year ago. This increase was primarily a result of higher development expenses relating to the advancement of multiple programs and clinical developments.

In Q1 2011, our research and development expenses were $30.2 million as compared to $23.3 million in Q1 2010. In the first quarter of 2011, $4.2 million of R&D expenses were non-cash expenses and stock-based compensation and depreciation. R&D expense in Q1 reflects our continued investment in Nektar's pipeline, including the start of a new Phase 1 study for NKTR-181 and the expansion of our Phase 2 study in platinum-resistant ovarian cancer.

G&A expense was $11.7 million in the first quarter of 2011 as compared to $9 million in the first quarter of 2010. G&A expense is essentially flat compared to our G&A expense of $11.6 million in the fourth quarter of 2010. In the first quarter of 2011, $3 million of our G&A expense was non-cash expenses related to amortization of free rent, stock-based compensation, and depreciation.

Cash, cash equivalents and short-term investments at the end of Q1 were $518.6 million as compared to $315.9 million at December 31, 2010. The increase in cash is primarily related to the equity financing completed in January, which brought in proceeds net of transaction cost of approximately $220 million.

As we said on our last call, we expect to end the year with approximately $400 million to $410 million in cash.

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

(Operator Instructions). Jonathan Aschoff with Brean Murray.

Regarding NKTR-18 how many (technical difficulties).

Jonathan, I'm sorry. You are on a cell phone and you're breaking up. Could you repeat the question?

How many patients for 25 mg dose do you think you will need to show safety for [NKTR-118]?

Lorianne, why don't you try to answer that as best we could hear it.

Okay, thanks. Yes, sorry Jonathan, it was really hard to hear you. We weren't even sure which drug you are talking about initially. So if what you're asking about is what is the size of the safety data package required for NKTR-118, say in an NDA filing, is that what you're asking?

Yes. Yes.

So I can't comment specifically on the numbers that AstraZeneca is putting together. I think the size of the trials are now published in clinical trials.gov. But in general, companies such as AstraZeneca and Nektar are in full compliance with ICH guidelines. So there is a guidance document that indicates you have to have roughly 1,600 or more individuals tested at -- with a specific indication tested at a specified dose and regimen.

And when might we see some Phase 3 data from Astra?

So we believe that the clinical trials are going extremely well and they are on track to be completed, reported, and submitted in a regulatory filing in 2013.

And just to be clear, that was three quarters (technical difficulties) for Bayer? Just start the Phase 3, is that correct?

That's correct. As I said we are in the process of improving the scalability of the device from a manufacturing point of view. We are updating and designing automated processes and we want to make sure, together with Bayer, that we have essentially the final device to go into Phase 3 and that has caused it to delay till third quarter of next year. But we want to make sure that, because these studies are relatively short process in this indication, we want to make sure that the final device is ready to go. Hopefully, when we receive marketing approval.

Okay. Thank you.

Cory Kasimov with JPMorgan.

Good afternoon, thanks for taking the questions. First just want to quickly follow up on that last one with Jonathan with regard to amikacin and the Phase 3 start getting pushed out to third quarter of next year. I thought manufacturing and getting all the devices ready was the reason why it was delayed into 2011. So what's changed on top of that to push it out another year?

Well, it's the same basic concept. It is a unique device. No one else makes any device like this. It is a device that allows airless infusion into the respirator system. And because of that, we want to also make sure that this device can be manufactured at a relatively low cost because it is a one-time use device.

We have lots of new patents that cover this device. It has been engineered in a very unique fashion and we want to all make sure that this can be produced on a regular basis with automated systems and automated controls and not want to change the device after we have already gotten into Phase 3.

So yes, you could have -- there are ways to do this in parallel. You could certainly start your Phase 3 program in parallel with tweaking and updating the device. But we made a decision that we wanted to have final devices. And it has the -- to bring the cost to where we wanted to bring the cost, to bring the automation processes to where we want to bring them, to make to bring the consistency and the robustness of the output of the device to where we wanted it to be, we wanted to make sure that we had the time to do that.

So we've said that we are going to now start the program in the third quarter of next year. Hopefully we can do it sooner. There is always the possibility that we can, but at this point we want to make sure that everybody understands that we are going to go into the clinic with a device that absolutely is perfect.

Now, that said, you understand that these clinical studies are relatively short and the endpoints are very, very well defined. Bayer has done an outstanding job in negotiating an SPA with the agency and I think the clinical design for this program is exceptionally well done. And we want to make sure that because it is so well done and because it is a relatively short program, that we have devices that are absolutely perfect when, hopefully, approval comes.

I've talked with the senior management just recently with Bayer. There is a full commitment to this program. They see it as an important program. Their senior-most management sees it as an important program. We see it as an important program and we want to make sure that it gets done perfectly.

And if that -- unfortunately if that delays it a year, it delays it a year. But I think this program has -- this product has enormous potential. It treats a condition which is very, very difficult to treat. It is a very rational clinical design and again I have to say that Bayer did a superb job in that regard and we are all very, very excited about this program and want to make sure that the device functions perfectly.

Okay, then on NKTR-102, can you comment on when we may see data from the ovarian cohort expansion? And then on that same topic, any regulatory feedback there? You made a statement that regarding the accelerated filing that approval is unlikely based on a single arm study. Is that specific feedback from the FDA with your end of Phase 2 meeting?

Well, look, first of all I did say that in the discussion before that we would have topline data in the first quarter of 2012. My comments regarding and I'll let Lorianne comment on this somewhat further, but my comments regarding the likelihood of success with this strategy is not necessarily based on feedback from the FDA.

I think it is unusual to get an accelerated approval based on single arm data. We attempted this because it is not overly expensive and the data we saw in Phase 2 in patients who had prior DOXIL therapy was quite compelling, both in terms of response rate as well as overall survival. But I want to warn everybody that this would be highly unusual for the FDA to approve a product on that basis. But it would be foolish of us not to make the attempt.

Lorianne, would you like to comment further?

Yes, so when we first started talking about accelerated approval long before we went to the FDA with an end of Phase 2 meeting, we did indicate that accelerated approval based on noncomparative data is very unusual and is not terribly likely to lead to an approval. And our end of Phase 2 meeting didn't change that.

The data that we are getting from that study, including the expansion in women who have not only become chemo-resistant to platinum but are also now resistant to DOXIL, is extremely valuable whether it be in an accelerated approval or in the overall development plan as we start making our plans to go forward into Phase 3. So irrespective of accelerated approval, this trial is extremely valuable to us in our overall development plan.

And then my last question is, what do you guys think is the first important proof of concept data for 181? Is it Phase 1 multidose data or would it be the Phase 2 study that would begin next year?

So the Phase 1 and Phase 2 parts of the program have different objectives in mind. And so by proof of concept there's never really one single proof of concept. We will be able to demonstrate in Phase 1 that we have a product that is safe while tolerated, has a good analgesic dose range and will begin to be able to explore the safety profile in healthy subjects.

Phase 2 then will be of course conducted in patients with various pain conditions where we will be able to determine not only its efficacy as an analgesic, but also the comparative safety profile with respect to other opiates that have rapid entry into the brain.

All right. Thanks for taking the questions.

Ian Sanderson with Cowen and Company.

Good afternoon, thanks for taking the question. First it's a follow-up to Cory's question on 181. What would be the timing of the data from that second Phase 1 trial, the multidose trial? And kind of a follow -- a continuation of what I think he was asking. What would be the partnering plan here?

Well, look, as we've said, we expect to have data on the first part of the Phase 1 plan by middle of this year and then we move into the multidose component. And we said if that goes well by the middle of next year, first quarter, middle -- towards the middle of next year, we'll be starting our Phase 2, so you would expect that sometime in the first half of next year, hopefully sooner rather than later, you would have the information from the Phase 1 program.

And as Lorianne said, will be looking at a lot of things. We are certainly going to look to see that it works as an analgesic. We are going to be looking to see if we have mitigated some of the side effects associated with opioids. It is not necessarily a full proof of concept, but we should feel pretty comfortable based upon the study design. We are also going to be looking at PK data, we look at sustained effect, dosing levels, etc.

So there's a number of things we will be looking at and gathering information on. And we're already doing that.

I think in terms of the partnering, you know, the fact that we -- I want to make it clear to all of our investors, the fact that we decided to keep NKTR-102 for ourselves doesn't mean that we have now made a decision that we are going to keep everything we work on for ourselves. The pain market is an enormous market. It takes a large company who has a very impressive track record in the pain market to market a drug like this.

And this is a drug that, if it works, dramatically changes as I said the landscape in the pain market. And I'm very much open-minded to partnership of a program like this. Now whether there's a vision data at the end of Phase 1 or you need sufficient data at the end of Phase 2, I think the jury is still out on that one, but I'm open to partnering a program like this. There are a number of companies who have already taken notice.

I mean, let's be realistic. This is an MCE. This is a novel opioid molecule. It isn't the formulation.

If it works, it changes the landscape. It becomes a very, very different drug in the opioid pain market. And I think there's a number of companies who are already expressing some level of interest in chatting with us about it.

Now that said, let's look at the Phase 1 data and see where we go. I think there is I wouldn't rule out any -- I wouldn't rule out any method or timing on a partnership. Whether it is phase 1, phase 2, that is all a function of value and that will be driven by the type of data we have.

Okay. And then on NKTR-102, what are the key protocol issues on the NKTR-102 Phase 3 trial? I think on the last call you talked about having a Phase 3 plan in place by around midyear this year and is that timing still in place? And what are the key issues that you have got to get over there?

I will cover that in a summary session, I will let Lorianne comment in more detail. We did say that we will be discussing our Phase 3 plan in detail at ASCO. That is sort of the middle of the year. So I think you should see that in June.

And look, where -- there's a lot of things that we need to evaluate in designing these two trials. There is an ovarian concept. There is a metastatic breast cancer concept. There is overall survival, there is progression-free survival. There are a lot of things that want us to evaluate internally and with the FDA. And at this point we are loath to discuss this publicly before we have our meetings with the agency and discuss it in detail with them.

But I will let Lorianne add a little more commentary to this.

Sure. So with NKTR-102, we have a lot of options. This is a product that seems to have a very wide-ranging activity in a number of different cancers. And I think importantly, it seems to have a good deal of activity with regard to tumor shrinkage in patients who are relatively chemo-resistant. So I think some of the key elements that we need to make sure that we have optimized, not only within Nektar, but also within the academic community, with treating physicians, and last and certainly not least, the regulatory authorities, we need to make sure that when we identify the optimal populations that we want to study the drug in initial Phase 3 programs, that we have concurrence. That this population should be treated with a certain standard of care and that we go up against that standard of care. Because clearly we are interested in developing this drug to be superior to whatever is currently available.

We need to make sure that we have identified dose regimens of those comparator studies that are routinely used in the community and also recognized by the FDA and other regulatory agencies as being standard of care. And we also have to come to agreement regarding key statistical issues such as appropriate primary outcome measures, etc.

Okay. Thank you very much.

Rich Silver with Barclays Capital.

Howard, can you just remind us on amikacin when you mentioned the relatively short development time table once it is in Phase 3, what that means precisely?

Again I will let Lorianne go into more detail because she's more familiar with the specifics of the program. But I can tell you that you are only dosing -- I mean you are treating this is a gram-negative ventilator-associated pneumonia and you are only treating these patients for a short period of time before you see the results. So it is a relative -- this is an acute treatment process.

Lorianne, do you want to comment on the timing a little bit?

That is exactly right. So unlike treatment of chronic conditions that require observation times of patients that can be in the several years range, this is a trial where the observation period in the study is relatively short. And so, the majority of the time needed to conduct the study is actually the enrollment period. So clearly, this will be something where patients are going to be requiring new -- or I should say the sites are going to be requiring new devices as new patients are being enrolled.

So, are we talking possibly if you're starting in late 2012 that we could have an NDA filing by the end of 2013?

I don't think Bayer's commented yet on how long they believe the trial will run and I don't want to go down that path. However, these patients are only treated for measured in days, right? I mean, you are treating them for some period of days and then measuring the results. So as Lorianne said, it's the enrollment process that is the rate limiting step here. The actual treatment process is you can count on both hands, right?

Okay. And then just back to 181 and the Phase 1 studies. I know you mentioned that there is some measurement of analgesia that takes place even though these are Phase 1 studies. What will that really tell us? And I guess, relative to currently market products and other products in development on the essentially a surrogate efficacy endpoint even though it's really a safety study and a PK study?

So, in the initial Phase 1 study, we are actually going to be getting a lot of really important information. Not the least of which is the product safe and well tolerated? Does it have the optimized PK profile that we believe it should have to confer the types of advantages that long-acting opioids have but without the rather strong downside? With regard to assessment of pain, this is actually really important.

So, in healthy volunteers, obviously who do not have chronic painful conditions, they are given certain tests that are a measure of pain and whether or not the experimental agent dampens that pain. With once we move into Phase 2 and we go into patients with actual pain conditions, obviously we can use things like visual analog scales of pain, etc. So the important thing in Phase 1 is to establish an equal analgesic dose. In other words a dose that is as analgesic as referenced opiates and that at that dose the product is well tolerated and potentially safer. It has less of a downside.

So, establishing that analgesic dose is an important component of our -- not only our first Phase 1 study, but our Phase 1 program generally.

Thanks very much.

Shiv Kapoor with Morgan Joseph.

Thanks for taking my questions. First on 118, will we be able to see some of the Phase 3 data when they are available or will we have to wait until the end of the whole program? What is the plan there?

Yes, this is of course a blinded trial and I think AstraZeneca will unlikely release, is unlikely to release any data until the completion of the trial. So I would expect that you are not going to hear any results until 2013.

You mean 2012 because you have data to file then?

Well, yes, but whether they have data at the end of 2012 or the beginning of 2013, I mean, I can't comment on that. It will be entirely up to AZ when they want to release data and if they are filing in 2013, you can assume that they will have data six months before they filed. But I don't think they are going to be in a position to be discussing data in 2012.

However, there are two trials that are 12-week long trials. If their enrollment is complete by the end of this year, they will have data first half of next year. They will still not release that data and wait for the safety trial to complete?

I will let Lorianne give you some background of this. But my sense and my judgment is that AZ is not going to release any data on this study until the completion of the entire process. Lorianne, would you like to comment?

That is exactly right, Howard. So basically the only comment I wanted to make is that completion of the study, meaning the last patient has their last visit is far from the end of the study. The study then goes undergoes and has continued to undergo extensive cleaning and verification. Databases are logged. Tables and listings and figures are checked and so there is a whole month-long process that follows the formal completion of the last patient, last visit. And companies such as AstraZeneca are not going to release data until they have been fully verified and are considered final and, therefore, will not change. The database has been locked and fully reported.

So that is an important component to add to any end of dosing period.

Okay, I just feel the database is for -- independent studies should be independent so they should be available for use. But just in case, anyways my second question. Was that design of the Phase 3 program was that determined at the close of your -- at the close of the AstraZeneca deal or was it mostly designed after the deal?

I would say much of it was designed after the deal and I mean, I think AstraZeneca did a spectacular job in putting together a global comprehensive program and they are very, very committed to this drug and they see it as a very large opportunity for them. And they put together, I think, an extremely and incredibly impressive clinical program for this. And that certainly wasn't done before the deal. That was done after the data was -- the final Phase 2 data was looked at carefully and after a lot of discussion with key opinion leaders and thought leaders in their assessments of the market potential. And again, I will let Lorianne comment on the trial design a little bit, but overall I think they put together a trial design which will clearly make a case for this drug. And I think it's been optimized as much as it can possibly be optimized and we are very, very happy with it. Lorianne?

Yes, I agree with that. The design of the Phase 3 program which encompasses multiple trials, this is not just a single trial or two pivotal trials. There are multiple trials involved with this. These trials are extremely rigorous, robust, well designed. They do follow to some degree relatively standard design for this particular indication has good concurrence.

What we've really enjoyed about this collaboration is that AstraZeneca has been extremely collaborative and so the design of the final Phase 3 program, Nektar was involved with that the entire way through including regulatory discussions, etc. So there is tremendous consensus around the table regarding the rigor and robustness of these trial designs.

Okay, my last question. Of the $235 million in development milestone that you are expected to get from AstraZeneca, are most of these regulatory milestones or are there some Phase 3 milestones as well?

No they are, they are -- out of the $235 million that's principally regulatory milestones.

Okay. Thanks.

Ian Sanderson with Cowen and Company.

Just on NKTR-119, has anything developed there and should we look for that to go into the clinic in 2012?

I think AZ has not been commenting on their plan for NKTR-119. I think they are clearly evaluating it. We've -- NKTR-119 as a physical product has been made, and I think at some point they will comment further on how they plan to proceed with NKTR-119.

Do you think it is their plan to complete the whole development of 118 before they go on to 119 or could these two overlap of it?

Well, I think certainly they are going to want to get some experience with NKTR-118 before they move forward. But at this point they haven't commented, they haven't made that specific decision yet and all I can tell you is that the concept of NKTR-119, which is NKTR-118 combined with an opioid, I think is quite an interesting concept.

And as I said, NKTR-119 as a physical drug has been manufactured and made. And let's -- I have to leave it up to AZ to comment on their timing on that program. But at this point they have not specifically said publicly what they plan to do yet.

Okay. Thank you.

Marko Kozul, Think Equity.

Good afternoon. Thanks for taking the questions. In your recent press release you indicated you might start planning for a NKTR-102 Phase 3 ovarian cancer study. I was wondering if you could discuss this in a little more detail, even possibly some design thoughts, etc.?

Yes. It's a great question and we are working very, very diligently on that. And again, as I said, we are talking to the FDA regularly about what these designs should look like. We are -- we've already pulled together an enormous amount of information from key opinion leaders, various thought leaders, various institutions. And we said we are going to roll out our Phase 3 design at ASCO.

So unfortunately you have to wait another six weeks or so and then we will share the Phase 3 design with everybody.

Just a point of clarification, at ASCO are we talking about breast cancer or ovarian cancer or both?

Well, we are going to share what we planned to do in ovarian and breast cancer at ASCO.

Great. And just a last point of clarification. The topline data that you mentioned would be available in the first quarter of 2012. I guess I wasn't fully -- didn't understand if that was the extension data or more data from the first 70 patient cohort?

No. That is the extension data.

Okay, great. Thanks for taking the questions.

Cory Kasimov with JPMorgan.

Just wanted to quickly get your latest view of the competitive landscape in OIC given that there was some additional data out in the space recently in 1Q. Thanks.

It is a question that we've puzzled over as well because there actually isn't an awful lot of data that is easy to analyze. I think it's difficult to judge what these other programs look like. There hasn't been, in my mind, a very forthcoming discussion on any of this data. I think it is an enormous market size. I'm not going to comment on my judgment whether it's a $1 billion market or a $4 billion market.

I mean you would have to ask around to get different opinions on that. But I think there's certainly enough room for multiple players if there are other drugs that work well here. Remember this is a major, major healthcare problem for patients who take opioid therapy.

That said, I think our program is the most advanced and not only is it the most advanced, it is the most advanced with AstraZeneca. And I think if you think about a company like AstraZeneca putting all their resources, multiple, multiple global clinical programs behind this drug, I think that really separates Nektar from the rest of the pack.

I don't have enough information nor have I seen published enough information to really make a good judgment about what these other compounds look like. I know some of them will have to probably repeat Phase 2. The question on oral bioavailability is open on some of them. Can't judge it, Cory.

I can tell you that I'm very pleased that we have a Phase 3, a global multiple global Phase 3 program running with AstraZeneca. That is the best way I can comment on that.

Okay, thank you.

Ladies and gentlemen, this concludes the question-and-answer session for today's call. I would now like to hand the call over to Howard Robin for closing remarks.

Thanks, everyone, for joining us today. I think 2011 is off to a very strong start, significant advancements already under our belt. And including this startup -- as I just said, including the start of Phase 3 for NKTR-118 and the Phase 1 study for Nektar 181. So I am exceptionally proud of our employees, their continued accomplishments, and we look forward to seeing many of you at ASCO in Chicago. So thank you very much and good afternoon.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.