Nektar Therapeutics (NKTR) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics fourth-quarter and year-end 2012 financial results conference call. At this time all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this call may be recorded. I will now turn the call over to your host, Jennifer Ruddock, Vice President of Investor Relations. Please go ahead.

Thank you, Stephanie. Good afternoon and thank you for joining us. With us today are Howard Robin, our President and CEO; John Nicholson, our Chief Financial Officer; Dr. Robert Medve, our Chief Medical Officer; and Dr. Steve Doberstein, our Chief Scientific Officer.

On this call, we expect to make forward-looking statements regarding our business. Including, but not limited to, clinical development plans and expectations; the timing of future clinical results and regulatory filings by us or our collaboration partners; the economic potential of collaboration partnerships, including potential future milestone payments; the therapeutic and market potential of our drug candidates, and those of our partners; our financial guidance for 2013. And certain other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes that are difficult to predict, and many of which are outside of our control. You should refer to certain important risks and uncertainties that are detailed in our SEC reports, including our Form 10-Q filed on November 9, 2012, and our Form 10-K to be filed no later than tomorrow. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments, or otherwise.

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

Thank you, Jennifer. And thanks to everyone for joining us this afternoon. I'm exceptionally proud of Nektar's transformation and significant progress over the past several years. And as we begin 2013, we have never been in a stronger position. Nektar now has five highly valuable programs, spanning multiple therapeutic areas, that have either completed Phase 3, in Phase 3, or starting Phase 3. And we have a key Phase 2 program which has been given fast-track status by the FDA, and for which we will have Phase 2 data this year. Our pipeline leverages an innovative technology platform that continues to generate new drug candidates.

We're very excited that our partner, AstraZeneca, reported excellent results from the long-term safety study of naloxegol this week. Naloxegol has now completed Phase 3 development, and is being prepared for regulatory filings in the third quarter of this year. We are exceptionally pleased with all of the data from the four KODIAC studies for naloxegol. And I will talk more about the positive results for naloxegol in a moment.

But in addition to naloxegol, we are in a unique position within our industry, with four key Phase 3 programs. Etirinotecan pegol, or NKTR-102, our wholly-owned program in metastatic breast cancer, which is in Phase 3. Cipro Inhale, which is in Phase 3 with our partner Bayer. BAX 855, which is in Phase 3 with our partner Baxter. And Amikacin Inhale with Bayer, which is scheduled to start Phase 3 within the next few weeks. Our partnered portfolio of naloxegol, BAX 855, Cipro Inhale and Amikacin Inhale represent significant economic potential for Nektar. The future royalties alone associated with these programs, not including any milestones or other payments, could total up to $750 million annually.

Today I will share with you some additional detail on these programs and our proprietary development pipeline. So, as I just mentioned, AstraZeneca announced on Tuesday positive high-level results from the long-term safety study for naloxegol, known as the KODIAC-08 study. The KODIAC-08 study was a very large 52-week, well-controlled, chronic administration safety study, which compared 25 milligrams of naloxegol to usual care in patients with constipation taking opioids for chronic pain. Usual care was defined as the investigator's choice of a laxative treatment regimen. The open-label study enrolled a total of 844 patients who were randomized 2 to 1 naloxegol to usual care. 534 patients received naloxegol once daily for up to 52 weeks, and 270 patients continued usual care.

The results from the KODIAC-08 long-term safety study confirmed the safety profile of naloxegol that was observed in the previously reported studies for naloxegol. In KODIAC-08, the most common adverse events observed more frequently in the naloxegol arm than the usual care arm were abdominal pain, diarrhea, nausea, and headache. Importantly, there was no increase in mean pain scores or mean opioid dose from baseline in either treatment arm. Opioid withdrawal was evaluated through adverse event reporting. And withdrawal signs were prospectively assessed using the modified Himmelsbach scale. There were no opioid withdrawal adverse events attributable to naloxegol in the study. And there was no notable differences in mean change from baseline from modified Himmelsbach scores between usual care and naloxegol.

In addition, there was no imbalance in serious adverse events between the naloxegol arm and the usual care arm. Importantly, there were a low number of major adverse cardiovascular events, or MACE, in the study overall. And there was no imbalance in these events across the naloxegol and the usual care arm. To be more specific, there were two MACE events in the usual care arm, and two MACE events in the naloxegol arm. So that means there were two MACE events out of the 270 patients on usual care, and only two MACE events out of the 534 patients on naloxegol.

These excellent safety results complement the positive efficacy results reported for naloxegol in November of last year. In AstraZeneca's two pivotal studies, KODIAC-04 and KODIAC-05, which were both randomized double-blind, placebo-controlled trials that enrolled more than 600 patients each, patients received naloxegol or placebo once daily for 12 weeks. The 25-milligram naloxegol dose met the primary endpoint with statistical significance in both pivotal studies, with P values of 0.001 and 0.021. All key secondary endpoints in the studies were also met with high statistical significance for the 25-milligram dose. These endpoints included a responder analysis in patients with a previously inadequate response to laxatives, the median time to first spontaneous bowel movement and days per week with at least one bowel movement. Results from KODIAC-04 and KODIAC-05 studies have been accepted for oral presentation at the Annual Digestive Disease Week Conference, which will be held in Orlando this May.

As AstraZeneca stated this week, they are currently preparing registration filings for naloxegol for submission in the US and EU in Q3 of this year, pending a pre-NDA meeting with the FDA. Nektar is entitled to receive $95 million upon acceptance of regulatory filings, of which $70 million is upon acceptance of the US filing and $25 million is upon acceptance of the EU filing. Upon approval and launch in the US and EU, Nektar will receive an additional $140 million in milestone payments. Nektar is also entitled to significant escalating double-digit royalties on product sales for naloxegol, in addition to these royalties, they are up to $375 million in sales milestones at certain commercial sales levels. And AstraZeneca is responsible for all costs of commercialization of naloxegol.

OIC is a major unmet medical need. AstraZeneca estimates that there are up to 35 million patients in the US, Canada, UK, France, and Germany who take opioids for long-term pain relief and also develop debilitating constipation. OIC can interfere with adequate pain management, and reduce quality of life. And an estimated 50% of OIC sufferers today do not receive sufficient relief from conventional laxatives. AstraZeneca, with its global presence, is an ideal partner for the marketing of naloxegol. We look forward to the submissions of the regulatory filings later this year.

Now I would like to update you on another key partnered program in Phase 3 development, BAX 855. BAX 855 combines the gold standard in hemophilia treatment, Baxter's Advate, with Nektar's proprietary PEGylation technology to create a long-acting recombination Factor VIII with a prolonged half life. Advate has fantastic 10-year track record in efficacy, as well as safety. And remains the gold standard of hemophilia A therapy. Our partner Baxter has been the dominant leader for over a decade in this field, with 50% of the global $6 billion market in hemophilia A therapy. BAX 855 is designed as a longer-acting Advate that will retain the proven efficacy and safety profile of this gold standard treatment.

The pivotal Phase 3 multi-center open-label study of BAX 855, called PROLONG-ATE, will enroll more than 100 previously treated adult patients with severe hemophilia A. And will assess the efficacy, safety and PK of BAX 855 for prophylaxis and on-demand treatment. Phase 1 results for BAX 855 demonstrated an increase in half-life of 1.5 fold as compared to Advate. BAX 855 was extremely well tolerated, with no treatment-related adverse events reported. And no inhibitor formation. Baxter is planning a BLA filing for BAX 855 in 2014, with a planned launch in 2015. Under our agreement, Nektar will receive milestone payments, as well as significant royalties on net sales of BAX 855 upon commercialization.

Now I would like to spend a few minutes providing an important update on Amikacin Inhale. We have now successfully completed all testing and stability studies on the final nebulizer devices necessary for the start of the Phase 3 study. Bayer has officially accepted these devices, and will be starting the Phase 3 program within the next month. As a reminder, there are two planned Phase 3 studies for Amikacin Inhale, which will be conducted under an SPA with the FDA. The studies will use a primary endpoint of clinical test of cure, and will enroll approximately 600 patients each. As I just said, the first clinical study, INHALE 1, is scheduled to start within the next month in the US. The second clinical study, INHALE 2, is scheduled to start in May and will be conducted ex-US.

Amikacin Inhale represents considerable economic potential for Nektar. Nektar will receive a flat 30% royalty in the US, and an average ex-US royalty of approximately 20%. The market is estimated to reach at least $700 million a year. And Gram-negative bacteria account for 70% of all ICU pneumonias. And are associated with very high rates of morbidity and mortality. Current IV standard-of-care therapies are limited by their inability to achieve effective concentrations in infected lung tissues. Designed to target the lungs directly with a proven and effective antibiotic, Amikacin Inhale could emerge as the preferred treatment for these deadly pneumonias.

Now moving on to another key Phase 3 program with Bayer, Cipro Inhale. Cipro Inhale is in Phase 3 studies for non cystic fibrosis bronchiectasis, or NCFB, a very serious chronic respiratory condition for which patients currently have no approved therapies. Based on positive Phase 2 data in NCFB patients, Bayer initiated a global Phase 3 clinical program known as the RESPIRE program. The two Phase 3 studies in the RESPIRE program will each enroll about 300 patients. And will evaluate Cipro Inhale as a chronic intermittent therapy for NCFB over 48 weeks, as compared to placebo. We estimate that this product could achieve sales of approximately $750 million annually. Under our agreement, Bayer is responsible for all development costs associated with Cipro Inhale. And we are entitled to escalating royalties, with an average royalty of approximately 10% of peak sales.

Now turning to our proprietary Phase 3 program in oncology, NKTR-102, or Etirinotecan pegol. NKTR-102 is a targeted next-generation Topoisomerase I Inhibitor, currently in Phase 3 development in metastatic breast cancer. The ongoing Phase 3 BEACON study is an open-label, randomized, head-to-head trial comparing single-agent NKTR-102 to an agent of physician's choice, with a primary endpoint of overall survival. Enrollment in BEACON is ahead of schedule, with more than 140 sites up and running out of a target 160. As the first and only Topo-I inhibitor being developed in breast cancer, NKTR-102 offers a much needed and distinct mechanism of action. All of the current therapies for metastatic breast cancer are microtubule inhibitors, or disruptors, and share a common underlying MOA. As a result, drug resistance in overlapping side effects are huge challenges that will eventually negatively impact most, if not all, patient outcomes. Physicians are extremely enthusiastic about working with NKTR-102. And we expect to complete enrollment in the BEACON study by the end of this year. Data from the BEACON study is expected around the end of 2014.

In platinum-resistant and/or refractory ovarian cancer, we completed our Phase 2 study and expansion, enrolling a total of 169 patients. The data show NKTR-102 clearly has significant activity in platinum-resistant and refractory ovarian cancer, with a 17% overall response rate and progression-free survival of 4.4 months. As a reminder, patients in this study were heavily pre-treated with a median of three prior treatments. We plan to meet with the FDA and EMA this year to discuss the potential regulatory path forward for NKTR-102 in ovarian cancer.

Earlier I mentioned the enthusiasm of physicians for the data with NKTR-102 and its potential in other indications. We are pleased that key thought leaders in the field of oncology have recently initiated investigator-sponsored studies for NKTR-102. We have an ongoing Phase 2 study with Dr. Lawrence Recht at Stanford University Cancer Institute, evaluating NKTR-102 for the treatment of high-grade glioma. And we expect to have data from the study available this year.

We have also recently announced a new investigator study sponsored by Dr. Corey Langer and Dr. Charu Aggarwal at the University of Pennsylvania, Abramson Cancer Center, which will evaluate NKTR-102 in non-small cell lung cancer. Again, we're very pleased by the significant and continued interest from clinical thought leaders in evaluating NKTR-102's potential.

Now I would like to talk about NKTR-181, our novel mu-opioid molecule, which is gaining significant visibility as a potential breakthrough in pain management. NKTR-181 has been designed to enter the CNS slowly to reduce the dopamine rush and euphoria associated with opioid abuse and addiction. This slow rate of entry should also result in reduced CNS adverse effects, including sedation and respiratory depression, which would give NKTR-181 an ideal clinical profile to treat chronic pain. Traditionally the pharmaceutical industry has attempted to address the problem of abusive opioids with formulation approaches. While we know the formulation approach helps, it is not a solution. And, in fact, it underscores the need for new thinking and better molecules, not just new ways of delivering old drugs.

NKTR-181 has attracted lots of attention within the medical community because it is a fundamentally different approach. This is a new molecule, not a formulation, and not a pro drug. The properties we see in the clinic are intrinsic to the molecule, and not a result of any formulation. The issue of opioid abuse and misuse is a serious public health problem in this country. Recent FDA advisory panels on rescheduling Hydrocodone, and changing prescribing patterns for current opioids, clearly demonstrate that addressing prescription drug abuse is a top priority for the FDA. NKTR-181 was granted fast-track status by the FDA, which allows us to have a closer interaction with the FDA during development. And should help expedite the drug development process.

Our Phase 2 program for NKTR-181 is well underway, and is designed to demonstrate NKTR-181's analgesic efficacy, and evaluate its potential for abuse deterrents, directly in line with the recent FDA draft guidance. The Phase 2 efficacy study for NKTR-181 is a randomized, double-blind trial in patients with moderate to severe chronic pain from osteoarthritis of the knee. This study will randomize up to 200 patients, with the primary endpoints of efficacy, safety and tolerability. This trial will also enable us to confirm analgesic doses for NKTR-181 in chronic pain patients. We will also be assessing multiple secondary endpoints, in order to establish a differentiated profile for NKTR-181 in the treatment of chronic pain. These endpoints will include analyses of CNS-mediated side effects typically seen with standard opioid therapies.

Our second study in the Phase 2 program is a human abuse liability study. This trial will be a randomized, double-blind, placebo-controlled, and positive comparator-controlled crossover study. Approximately 40 recreational opioid abusers will be enrolled in the study, and it will measure the likability of NKTR-181 as compared to a standard opioid. We have reviewed our HAL study design with the FDA, and we will be starting the study in March. Data from both these Phase 2 studies are expected in mid to late summer of this year.

The chronic pain market is a very large potential commercial opportunity for Nektar. About $12.6 billion of this market come from opioid therapies, and about $6 billion is made up of NSAIDs. For the millions of patients suffering from chronic pain, an effective analgesic, without the associated risk of current therapies, could transform the treatment of chronic pain. We are pleased that NKTR-181 is proceeding in the clinic. And look forward to sharing more on this program later this year.

Our second novel opioid molecule, NKTR-192, has a distinct profile from NKTR-181. It is designed to have reduced abuse liability, and fewer CNS side effects. But is short acting and designed for the treatment of acute pain. We have successfully completed our Phase 1 single ascending dose pharmacokinetic study for NKTR-192, which confirmed the PK profile of NKTR-192 is well suited for the treatment of acute pain. We have a second Phase 1 study underway to evaluate single ascending doses of NKTR-192, with both PK and pharmacodynamic end points. We expect to complete this study in the first half of this year, and begin preparing for the start of Phase 2.

With NKTR-181 and NKT-192 in our pipeline, Nektar can address both the chronic and acute pain markets. We are extremely excited about the advancement of these important new pain candidates. And we look forward to sharing more on NKTR-181 and 192 as they advance through the clinic.

Before I turn the call over to John for a discussion on financials, I would like to briefly discuss two programs we are currently preparing for the clinic. NKTR-171 for neuropathic pain, and NKTR-214, a novel cancer immunotherapy. NKTR-171 is a new sodium channel blocker, that also represents a very interesting use of our technology. And is akin to what we accomplished with naloxegol. Neuropathic pain is a serious and debilitating condition that is not treated effectively with gabapentinoids because of their limited efficacy. Sodium channel blockers were originally developed as anti-seizure medicines, but also work exceptionally well in neuropathic pain. However, because they are CNS drugs, they come with a whole host of CNS side effects, including significant sedation and risk of seizures. Sodium channel blockers have great potential to treat neuropathic pain, if you could limit their CNS exposure.

With NKTR-171, we have used our technology to design a new sodium channel blocker to be kept out of the CNS and act only in the periphery. In our preclinical models, NKTR-171 has demonstrated excellent analgesic activity, with low sedation. Neuropathic pain is another large market opportunity. In spite of the limitations with existing therapies, total US sales for these drugs in 2011 were $2.5 billion. And the patient population and marking size are growing. We expect to file an IND for this compound later this year.

Our next development candidate, NKTR-214, is a novel immunostimulatory therapy. Cancer immunotherapy drugs, such as Yervoy and anti-PD1, have been great advances in the treatment of multiple tumors. However, what has been missing from this field is a highly potent and safe immunostimulatory drug targeting the IL-2 pathway. NKTR-214 is the first molecule in which we have used our proprietary polymer conjugate technology to optimize receptor binding. NKTR-214 is designed to selectively activate tumor-killing T-cells through the IL-2 pathway without activating inhibitory T-cells. Activating the IL-2 pathway has been shown to be curative in renal cancer and melanoma. But the only available IL-2 therapy, Proleukin, has been significantly limited by safety and tolerability concerns related to its frequent and high dosing. Our preclinical data is extremely compelling for NKTR-214. At modest doses, NKTR-214 demonstrated dramatic inhibition of tumor growth, with significantly less toxicity as compared to Proleukin. So we're excited about moving NKTR-214 towards the clinic.

With that, I will turn the call over to John.

Thank you, Howard, and good afternoon, everyone. I will start with a review of Nektar's 2012 financial results. And will then present Nektar's 2013 financial guidance. At the end of 2012, cash and investments were $302.2 million. Total revenue in the fourth quarter of 2012 was $21.1 million, compared to $15.8 million in the fourth quarter of 2011. Total revenue in 2012 was $81.2 million versus $71.5 million in 2011. The increase in revenue for the quarter and the year is primarily attributable to higher product sales and noncash royalty revenue related to the UCB CIMZIA and Roche MIRCERA royalty monetization, for which Nektar received $124 million in February 2012.

Total operating costs and expenses in the fourth quarter of 2012 were $64.5 million, versus $50.3 million in the same quarter a year ago. For the full year 2012, total operating costs and expenses were $222.4 million, as compared to $195.4 million in 2011. Total operating costs and expenses increased primarily due to higher R&D expense for clinical development. And higher cost of goods related to increased product sales.

Research and development expenses were $46.4 million for the fourth quarter of 2012, compared to $33.3 million in the fourth quarter of 2011. For the full year 2012, our research and development expenses were $148.7 million, as compared to $126.8 million in 2011. Our R&D expense in 2012 increased primarily as a result of the advancement in the clinic for our proprietary pipeline candidates, NKTR-102 and NKTR-181. As Howard mentioned earlier, in the past year we have initiated over 140 investigator sites for a Phase 3 program of NKTR-102 in metastatic breast cancer, And we completed the Phase 2 expansion study of NKTR-102 in ovarian cancer. For NKTR-181 we initiated Phase 1 clinical development. And initiated a Phase 2 randomized withdrawal study of NKTR-181 in over 200 patients with chronic pain from osteoarthritis of the knee. In addition, our 2012 R&D expense also included the final production and stability testing of devices for the start of the Amikacin Inhale Phase 3 clinical program, which is planned for March. Of the $148.7 million in the R&D expense in 2012, approximately $16 million were noncash expenses, such as depreciation and stock-based compensation expense.

G&A expense was $10.9 million in the fourth quarter of 2012, compared to $11.5 million in the fourth quarter of 2011. For the full-year 2012, G&A expense was $41.6 million, compared to $46.8 million in 2011. 2012 G&A expense included approximately $10 million of noncash expenses, such as stock-based compensation expense and depreciation. Interest expense was $15.5 million in 2012. And noncash interest expense related to the monetization of UCB's CIMZIA and Roche's MIRCERA royalties was $18.1 million. In the fourth quarter 2012, interest expense was $4.7 million, relating to the senior secured notes we issued in the third quarter of 2012 for $125 million. These notes are due in July of 2017, and callable by Nektar in 2015. As a reminder, in September 2012, we repaid the remainder of the $215 million of convertible debt. We no longer have any convertible debt on our balance sheet.

Now on to our 2013 financial guidance. Revenue for 2013 is expected to be between $200 million and $210 million. 2013 revenue guidance includes anticipated milestone payments totaling $95 million from AstraZeneca, based on planned regulatory filings for naloxegol, as announced this week. As Howard just said, we expect to receive $70 million upon acceptance of the US filing, and $25 million upon acceptance of the EU filing. 2013 revenue guidance also includes $20 million of noncash royalty revenue from UCB's CIMZIA and Roche's MIRCERA. Given the recent situation with OMONTYS, we have not included any royalty revenue from OMONTYS in our 2013 guidance.

R&D expense for 2013 is anticipated to be between $200 million and $220 million. 2013 R&D expense reflects our plans to significantly advance a number of our key pipeline programs in the clinic, including the completion of enrollment in our NKTR-102 BEACON Phase 3 study by the end of 2013, the completion of Phase 2 development program for NKTR-181, and the start of Phase 3 activities for NKTR-181. In addition, R&D expense guidance for 2013 also includes manufacturing costs and commercial manufacturing readiness activities for Amikacin Inhale devices. Our 2013 R&D expense guidance includes approximately $17 million of noncash expenses of depreciation and stock-based compensation.

2013 G&A expense is anticipated to be between $42 million and $44 million. Included in our 2013 G&A expense is approximately $10 million of noncash items of depreciation and stock-based compensation. For 2013 we expect interest expense will be approximately $19 million. And noncash interest expense related to UCB's CIMZIA and Roche MIRCERA royalty monetization will be approximately $22 million. Capital expenditures are expected to be approximately $10 million in 2013. For 2013 we expect our cash used in operations, including CapEx, to be between $95 million and $105 million. And we expect to end 2013 with approximately $200 million in cash and investments.

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

(Operator Instructions)

Jonathan Aschoff from Brean Capital.

Thanks and congrats on the recent safety data that you showed. What were the types of MACE events, if you could tell us that? And what was the rate of abdominal pain that you saw? Was it similar to what you saw in Phase 2?

I can't -- okay, let me take those one by one. First of all, I can't comment on the specific type of MACE events. It's not for us to comment on. I can tell you that it's interesting that when you lookait two events in the usual care arm, and two events on the naloxegol arm, and the randomization was 2 to 1, that means the rate of incidence of MACE events was actually lower on the naloxegol arm. But I can't comment on what those events were. But it's actually, as a rate, less for naloxegol than it was for usual care.

With regard to abdominal pain, if you look at the abdominal pain in KODIAC-04, -05, and -08, at the 25-milligram dose, the abdominal pain was, I think, about 12% in KODIAC-04, 19% in KODIAC-05, 18% in KOCIAC-08. If you look at -- what's very important, though -- so you're looking at abdominal pain that was somewhat less than the Phase 2 study. And I'll let Rob comment a little further. If you look at, what's very interesting for me is if you look at the KODIAC-07 study, which is the rollover study, rate of abdominal pain was about 3%. So what you have is, as you stay on the drug longer, the abdominal pain, of course, disappears. The abdominal pain is temporary. The abdominal pain is associated with a paralyzed bowel starting up again. So the abdominal pain does go away, obviously. And, if you, as I said, look at the patients that were in the KODIAC-07 rollover study, their abdominal pain was fairly low. I'll let Rob comment further.

Okay. But you're definitely only talking about the 25-mg doses in -04 and -05, right?

That's what I just talked about, correct.

Thank you, Howard. And thank you, Jonathan for the questions. To the first part of your question, while not being able to provide details, of course, as AstraZeneca will be presenting this data at a future meeting, the character of these events in the two arms is similar in terms of the MACE events. There's no really difference in the character of the events that were noted. So I really can't provide any more details than that.

And on the abdominal pain, as Howard noted, generally between 10% and 20% is what we see for abdominal pain. And, importantly, as we've stated previously, that these appear to be early events, and are transient. As patients continue on therapy, they actually decrease substantially. In the extension trial, which was the KODIAC-07 trial, you see an incidence of abdominal pain. These are patients who have been on the drug. It drops dramatically. And that's very consistent with what we've been saying. Also, we're actually very pleased to note that this overall incidence of abdominal pain is less than we reported in the Phase 2 trial. So all of this is very comforting. We're very pleased with the data.

And, Jonathan, one more point I would make. I think what's very important to note is that there were no significant adverse events associated withdrawal attributable to naloxegol. So we didn't see any serious adverse events related to withdrawal that was attributable to naloxegol. And I think it's very important to see that even though the number of events were balanced between the usual care arm and the naloxegol arm, as a rate there was actually more in the usual care arm. As Rob said, the types of events we can't discuss. But they're exactly what you would expect to see when you look at 850 patients for a year.

Definitely. Can you tell me -- I have a couple of questions on Amikacin. What's the incidence of gram-negative pneumonias in the hospital setting for Amikacin Inhale? And are there any other nebulized antibiotics approved for hospital use in that setting?

There are about 350,000 patients in the US every year that are mechanically ventilated. There's even a higher incidence in the EU. And we know about 65% of those patients are diagnosed with gram-negative pneumonias. I don't believe there are any effective means of providing Amikacin, which you know is an excellent antibiotic, directly to the lungs. You can give it systemically, but you reach toxic levels systemically before you can deal with the resistant bacteria in the lungs. So this is a fairly large market, and highly under-served. And if you look at current therapies that are used in the ICU and these intense care systems, they're roughly going for $200 a day. So I think this is a very exciting product. I think it's got lots of potential. We get a very large economic return. And I'm very excited that Bayer will be starting the program shortly.

And, lastly, can you tell us the breakdown of the $140 million milestones for approval?

No, we haven't disclosed that. But it is split between US and EU, and it's probably more heavily weighted to the US. That's all I would say.

Thank you very much.

Cory Kasimov from JPMorgan.

Matt Lowe in for Cory today. Just a couple of questions. The first one is, interested to know which PEG is used in OMONTYS? And maybe which other programs share that same PEG. And then if you could help us frame expectations for the Phase 2 data for 181. Quantitatively, what, in your eyes, would be a good result in terms of the endpoints? And if you could just put that into quantitative terms, that would be great. Thank you.

Sure. Let me deal with the first question, then I'll turn it over to Rob. I can't specifically say which PEG that is used, we can't disclose that. But I can tell you that the PEG that's used on OMONTYS is used in a number of other products. It's used in one very significant product that's been on the market for over 10 years. And we have no incidences of allergic reactions or negative side effects with that PEG. And it is, actually, the exact same PEG that is used in OMONTYS, and it's used in a number of other products. Made in the same plant, made in the same facility, shipped as one batch compared to the next batch. So there's absolutely no connection there that we can possibly imagine. And, as I said, the exact same PEG has been on the market in a very significant product for well over 10 years, with no incidents of any adverse events related to the PEG. Let me turn the second part of the call on NKTR-181 of your question to Rob.

Thank you, Howard. The expectations around Phase 2, as you are aware there's two protocols in our Phase 2 program, that include efficacy, and the second one on human abuse liability. On the first around efficacy, generally speaking, without getting into particular end points in this trial, generally speaking, we expect to see about a 30% reduction from baseline pain scores as a clinically significant change. And that's been published in the literature, and it is certainly available. So we would expect, based upon the design of our trial, that we will see that level of effect in our trials. The study is designed and powered and so on to capture that level of effect, at least. On the human abuse liability trial, this is using an active comparator, using a commonly abused compound. So our expectation is that we would see less likability, which is the primary endpoint in these sorts of trials. Less likability compared to a standard comparator of a highly abused drug. So, in general terms, those are the endpoints and the outcomes that we expect.

Okay. That's helpful. Thank you.

John Sonnier from William Blair.

Howard, you touched on this in the prior question. But one of the questions we've received in the aftermath of Affy is whether or not you guys have seen, historically, antibody development against any portion of the PEG. If you could comment on what we know there, and whether or not we need to look more carefully at some of the chronic use PEGylated proteins going forward. Thank you.

Good question. Let me turn that over to Steve, and let him comment on that.

Great. Yes, that's good question. One of the things that's important to distinguish here is the development of anti-drug antibodies, which happens with every single protein drug on the market, whether it's PEGylated or not. Some small number of patients develop anti-drug antibodies. Generally, always upon multiple administrations of the drug. So their immune system is recognizing the drug and adapting for it. Typically what happens in those cases is that, rather than getting a hypersensitivity reaction, you simply see the neutralizing antibodies clear the drug faster than it normally would. So in patients that develop those antibodies, the drug tends to lose its efficacy. It's important to distinguish that from what apparently has happened in the case of OMONTYS, which appears to be an immediate hypersensitivity reaction upon the very first dose. So I think the two issues are quite separate from each other. Immediate hypersensitivity, or allergic-type reactions like that, anaphylaxis reactions upon first dose. A really distinct class of events that really are different than anything you would have seen with development of anti-drug antibodies.

That's helpful, Steve. And have you seen any evidence of tachyphylaxis, on the other side of the equation, where it might specifically attributed to an anti-PEG antibody?

No, none that I'm aware of. PEG is generally regarded as safe. It is nearly ubiquitous in modern consumer products, including cosmetics. Many pharmaceuticals as a formulation excipient. And certainly anyone who has had a colonoscopy is aware of the need to consume large quantities of polyethylene glycol before one has that procedure. So we're not aware of any case in which PEG itself would cause these kind of reactions. I suspect that somewhere there's somebody who might be allergic to PEG, but I certainly haven't heard of them.

Yes. And, as I said earlier, the exact PEG, the exact same PEG, that is used in OMONTYS is used in a number of other well-known drugs. And one of them has got significant sales volumes and has been on the market for well over 10 years. And no incidents of these early allergic reactions. We thought about it and couldn't even conceive of a way this could be associated with a PEG.

That's helpful. Thank you.

Bert Hazlett from ROTH Capital.

I have two of them actually. The first one is on 118. And again, I congratulate you on a successful study there, the safety data. Can you tell us what the 118 success and the potential for the approval means for the 119 combination? There are other elements to that agreement with AstraZeneca. Have you had any discussions there? And what are the plans for 119?

119 is a combination of an opioid with NKTR-118. So, it's in essence like a prophylaxis-type therapy. Certainly I can't discuss all the details of discussions we've had with AstraZeneca. I think clearly there's a high level of interest in 119. And I think, rightly so, they wanted to see what would happen with 118 in the clinic before moving forward with the 119 program. I know we've developed 119 as a tablet. It's prepared. I can't comment on how AstraZeneca might want to move it forward. But I think clearly they rationally wanted to see the results of the 118 clinical process. And now that we have that, I'm hopeful that 119 does move forward.

Is it a full-blown Phase 1 through Phase 3 program that will be required? Or might they be able to bridge some of the 118 and the opioid data together?

It's a very good question. It's always a question that I can't actually answer. I can't speak to AstraZeneca's development plans for that. Certainly the preclinical and toxicology data is all bridgeable.

Thank you. And then on 181, assuming success in the Phase 2 studies you are currently in, the multiple ones, how rapidly would you expect that to move into Phase 3? Maybe you spoke to that but I didn't quite pick that up.

As we said in the guidance, we're planning for the start of Phase 3 the latter part of this year. Now, whether we're dosing patients in December or we're dosing patients in January 2014, I can't be specific on that now. But our goal would be to move to Phase 3 as rapidly as possible, have discussions with the FDA at the end of Phase 2, see what Phase 3 actually looks like. Remember, this does have fast-track status. So let's see what the FDA thinks of it. Let's see how we can accelerate things. And I would move this as rapidly as I possibly could. This is a true breakthrough drug that has enormous potential to change the chronic pain market.

And just one more quick one. In terms of 181 and 171 and the entire pain portfolio, at this point, given what's gone on with 118, are these in-house, are these proprietary products going forward? Or are they candidates for licensing?

No, NKTR -- look, we haven't been absolute about how we would move the business forward with NKTR-181 and 192 and 171. But I think it's sufficient to say that I'm not in any position to -- or I should say I have no great desire to license those programs out at this point. Those are our programs. They're in-house Nektar programs, they're proprietary. And I think it solidly cements Nektar as a major player in the pain business if these drugs work. So at this point they're our drugs.

Thanks so much.

Josh Schimmer from Lazard Capital Markets.

First, on 181, just wondering if, because it has a higher gradient between the brain and the serum concentrations, would it be expected to then have a greater peripheral opioid side effect profile? And if so, does that mean it should likely be co-formulated or co-developed with naloxegol? And then the second one is, if you can remind us on 102, whether there is a futility or interim analysis in DEACON. And if so, when we might see that. Thank you.

I will take those questions, Josh. This is Rob. On the first question around 181, with the relatively greater partitioning into the peripheral compartment, this was designed specifically to address the incidence of central side effects. As far as peripheral side effects, we certainly don't expect that they would be greater than existing opioids in terms of the peripheral effects. So, from that perspective, just changing that gradient is not likely to significantly change what's observed with current opioids.

And on the second question around 102, there is a planned interim analysis in the trial. Very low spend of alpha, but it is planned for 50% of the events. And, of course, since it's an event-based analysis, it is not possible to clearly nail that down. But enrollment has been progressing very well. And if we complete enrollment around the end of this year, one would expect that the interim analysis on 50% of the events, given the usual survival, will probably not be significantly far behind that.

Got it. Thank you.

(Operator Instructions)

Biren Amin from Jefferies.

I had a question on 181. I understand that the Company plans to start Phase 3 trials later this year. Would they plan to start it alone, or would you potentially partner it before starting the Phase 3? Thanks.

That's a great question. No, I have no plans to partner NKTR-181 at this point. If NKTR-181 works, it is a multi-multi-billion-dollar drug, as you can imagine. Which greatly serves a medical need that is on the forefront of every American's and everyone in the world's attention. And the abuse of opioids right now is so significant that, even in the face of a novel opioid, the FDA is willing to grant fast-track status. So, quite frankly, we are going to run with this. In our guidance John has already included the start of our Phase 3 program. And at this point, I do not expect to be licensing out NKTR-181 in the US prior to the end of Phase 3.

Great. Thank you.

If at all, by the way.

I'm currently showing no further questions. I will now turn the call back over to Howard Robin for closing remarks.

Thank you, everyone, for joining us today. And I just want to close by thanking our employees for their dedication and hard work to advance our proprietary pipeline and our research efforts. I also want to thank our partners, AstraZeneca, Bayer, and Baxter, for their strong commitment to the three late-stage programs underway in opioid-induced constipation, hemophilia A, and pneumonia. And Nektar is in a terrific position in 2013, and we look forward to sharing more on our progress with you throughout the year. This month we'll be seeing many of you at the Cowen, ROTH and Barclays conferences. And we look forward to catching up with you then. So we appreciate your support as shareholders of our Company. Thank you very much.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.