Nektar Therapeutics (NKTR) 2014 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Nektar Therapeutics first quarter 2014 financial results conference call. At this time all participants are in a listen-only mode. Later we will conduct a Q&A session, and instructions will follow at that time. (Operator Instructions). I would now turn the call over to your host Jennifer Ruddock, Vice President 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 clinical development plans, the timing of future clinical results, potential regulatory filings and commercial launch timing. The economics potential of our collaboration partnerships, the therapeutics and market potential of our drug candidate, and those of our partners, our financial guidance for 2014, which includes potential milestone payments, 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.

Important risks and uncertainties are set forth in our Annual Report on Form 10-K, which was filed with the SEC on February 27th, 2014. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments, or otherwise. A webcast of this call will be available for replay on the IR page of Nektar's website at nektar.com. With that, I would like to hand the call over to Howard. Howard.

Thank you Jennifer. Thanks to everyone for joining us this afternoon for our first quarter 2014 conference call. I would like to first focus on our late stage drug candidate Naloxegol, BAX 855, and NKTR-102, each of which is poised to achieve significant milestones in the near-term. I will also spend some time discussing our plans for NKTR-181, which is being prepared for Phase III. Finally, I will briefly discuss our earlier stage portfolio, we recently completed the first Phase I clinical study for NKTR-171, our new molecule to treat neuropathic pain, and we are also developing several additional drug candidates in the area of pain management, as well as a highly-promising cancer immunotherapy program.

We ended the first quarter of 2014 in a strong cash position, with $309 million in cash and investments. Later in the call John will update you with our specific financial guidance for this year. As you know, Nektar has five highly valuable late stage spanning multiple therapeutics areas, that are either filed or in Phase III clinical testing. Four of which are being developed by our pharmaceutical partners AstraZeneca, Baxter, and Bayer. The economics of our Late Stage programs are significant for Nektar, and so we're excited that three of these programs, Naloxogol, BAX 855, and NKTR-102, and data and regulatory milestones over the coming months. First, we are anticipating approval and commercial launch of Naloxegol for opioid-induced constipation in the US, EU and Canada, which will trigger milestone payments to Nektar of up to $175 million. Second, in the third quarter our partner Baxter plans to announce Phase III data for BAX 855 in hemophilia A, and plans to file a BLA in the US by year-end. And third, Phase III data from the NKTR-102 pivotal study in women with advanced breast cancer is expected in Q1 2015.

I would like to start with a brief update on Naloxegol, as you know the FDA Advisory Committee meeting to discuss OIC drugs has now been tentatively scheduled for June 11th and 12th, with the anesthesia and analgesic drug products advisory committee. AstraZeneca and Nektar are actively working together to prepare for the advisory committee meeting, and we're looking forward to discussing our robust Phase III data set in the context of the other presenting companies. The KODIAK program for Naloxegol is the most comprehensive Phase III program completed in OIC to-date.

It includes four clinical studies designed to investigate the safety and efficacy of once-daily Naloxegol for the treatment of OIC. Two pivotal efficacy studies, KODIAK-04 and 05 enrolled more than 1,300 patients, the 25-milligram dose of Naloxegol achieved statistical significance in both studies for the primary end point of respondering. And more importantly, Naloxegol met all of the secondary endpoints in the study. As a clear demonstration of Naloxegol's efficacy, the median time to first post dose laxation was 5.9 hours for Naloxegol in KODIAK-04 and 12.0 hours for Naloxegol in KODIAK-05, as compared to over 35 hours for placebo in both studies. In addition, the KODIAK studies prospectively evaluated Naloxegol in patients who had an inadequate response to prior laxative therapies, and the 25-milligram dose of Naloxegol also achieved the P value of statistical significance on this very important secondary end point.

AstraZeneca conducted two safety trials. KODIAK-08, a 52-week controlled long-term safety study of once-daily Naloxegol compared to usual care, and KODIAK-07, a 12-week safety extension from one of the efficacy centers. The most common adverse events observed in the Phase III clinical program were abdominal pain, diarrhea, and nausea. This is consistent with what is expected in patients when an Opioid impaired bowel begins functioning again. We observed no differences in mean pain scores, and no differences in mean opioid usage with Naloxegol relative to placebo, which demonstrated that Naloxegol was not reversing analgesia for the patients in the study.

Notably with respect to cardiovascular safety, there were two externally adjudicated MACE events in the 270 patients in the usual care arm, and two externally adjudicated MACE events in the 534 patients in the Naloxegol arm. Both AstraZeneca and Nektar look forward to participating in the advisory committee next month. OIC is the most common side effect caused by chronic administration of prescription opioid pain medicines, it is a major medical problem. There are approximately 69 million patients in five major markets who are being prescribed opioids to treat chronic pain, up to 80% of these patients develop OIC, with up to 50% not getting relief from laxatives. If approved Naloxegol will be the first oral once-daily medicine to address this significant unmet need. The PDUFA date in the US for Naloxegol is September 16th of this year. Filings for Naloxegol have been accepted for review in the EU and Canada as well. Nektar is entitled to substantial milestones upon approval and launch of Naloxegol.

Currently AstraZeneca is preparing to launch Naloxegol in Q1 2015. We will receive $35 million in 2014 if no significant preapproval cardio vascular safety study is required in the US. Then upon commercial launch, we will receive $100 million in the US, and $40 million in Europe. We will also receive significant escalating double-digit royalties on global sales of the product, and sales milestones of up to $375 million in addition to the royalties. Under our collaboration with AstraZeneca, we are also entitled to substantial milestones and royalties for NKTR-119, which is the Naloxegol fixed dose opioid combination. Another reason that we're so excited about Naloxegol is that it could be the first oral small molecule drug approved that uses our proprietary polymer conjugate technology platform. Naloxegol is also the first drug using our technology that specifically targets receptors in the periphery by restricting the drug from the CNS. We are developing new drug candidates, such as NKTR-171 and NKTR-195, which leverage a similar peripheral restriction approach with our technology. I will talk more about these in a moment.

Moving on to another key late stage program, BAX 855, which is planned for BLA filing before year-end by our partner Baxter. BAX 855 is an extended half-life recombinant factor VIII therapy for hemophilia A, which was designed using the full length ADVATE molecule and Nektar's proprietary PEGylation technology. The Phase III PROLONG-ATE study completed enrollment last November with 150 patients. PROLONG-ATE is assessing the efficacy of BAX 855, as well as its ability to reduce annualized bleed rates in both profilactis and on demand treatment schedules. Baxter has reported that BAX 855 has been well tolerated so far, with no inhibitors no or no safety issues occurring in the student. Baxter plans to report top line data from the study in the third quarter of this year, and they plan to file for US regulatory approval by the end of this year. A pediatric study is also being planned in order to support EU filings and approval in 2016.

We are very excited by Baxter's rapid progress with this program, ADVATE is the gold standard hemophilia therapy, with over $2 billion in annual sales, and BAX 855 is positioned to provide an important new therapy in the ADVATE franchise for patients with hemophilia. Under our agreement Nektar will receive significant royalties on net sales, as well as remaining development and sales milestones of over $70 million.

Now moving on to NKTR-102, our proprietary oncology candidate, which is currently being evaluated in a Phase III study in metastatic breast cancer. NKTR-102 is a novel topo 1 inhibitor, designed to concentrate in tumor tissue provide sustained tumor suppression throughout the entire chemotherapy cycle, and reduce the peak exposures that are associated with toxicities of standard chemotherapies. The BEACON Phase III study enrolled 852 patients with metastatic breast cancer, to compare single agent NXTR-102 as a third line or greater therapy to single agent of physician's choice. In January the Independent Data Monitoring Committee for the Phase III BEACON study recommended continuation of the trial, following a planned interim efficacy analysis of the data from the study, which occurred at 50% of the patient events needed to assess the primary endpoint of overall survival. The DMC reviewed both safety and efficacy data, and recommended continuation of the study with no modifications.

We expect top line survival data from the BEACON study in Q1 2015, we plan to submit regulatory filings in both the US and Europe in the second half of 2015. You recall that NKTR-102 was granted Fast Track status for patients with locally recurrent or metastatic breast cancer, which enables us to request priority review and submit a rolling NDA. If we are successful with the BEACON study NKTR-102 could emerge as an important new therapeutic option for women with advanced breast cancer.

Also for NKTR-102 at Stanford University Dr. Lawrence Recht and Dr. Seema Nagpal are conducting a study evaluating NKTR-102 as a single agent in Avastin-resistant high grade glioma. The study enrolled 20 patients who had already received a median of three lines of prior therapy for high grade glioma including Avastin. This study was designed with a primary end point of a 25% progression-free survival at six weeks, based upon the performance of other single agents in these patients. NKTR-102 exceeded the primary end point established for this study, with 55% of patients achieving at least six week progression-free survival.

As of today, there are still two patients receiving NKTR-102 in the study, one patient has been in the study for 20 months and has received 24 treatment cycles of NKTR-102, and another patient has been in the study for almost 12 months, with 14 treatment cycles of NKTR-102. The Stanford investigators will be presenting the findings from the NKTR-102 trial at this year's ASCO Meeting on Saturday, May 31st.

Two other investigator sponsored studies are continuing for NKTR-102. The first is a Phase 2 study in small cell lung cancer Dr. Alex Adjei at Roswell Park Cancer Institute, and the second is in non-small cell lung cancer with Dr. Corey Langer and Dr. Charu Aggarwal at the University of Pennsylvania Abramson Cancer Center. Data from these studies are expected in 2015, and we continue to receive proposals for new investigator sponsored studies, highlighting the interest that NKTR-102 is receiving from the investor community.

Next let's talk about our two anti-infective programs with our partner Bayer. Cipro DPI to treat patients with chronic recurring lung infections as a result of non-cystic fibrosis bronchiectasis, also known as NCFB and Amikacin Inhale to treat gram-negative pneumonias in ventilated patient. Both programs are continuing through Phase III, and the trials are expected to be completed in the latter part of the 2015 and early 2016. Cipro DPI is being evaluated as a chronic intermittent therapy for reducing the frequency of acute exacerbations in NCFB patients over a 48-week treatment period. Our partner Bayer recently announced that Cipro DPI was granted Orphan Drug Status by the FDA for the treatment of NCFB. NCFB is estimated to affect more than 200,000 patients in the US and the EU, with an estimated market of about $750 million annually.

Under our agreement Bayer is responsible for all development costs, and we're entitled to escalating royalties, with an average royalty of approximately 10%. Amikacin Inhale is a hospital-based product that is specifically designed to work within a ventilator system in order to target infections in the lungs directly with a proven and effective antibiotic, the Phase III studies are being conducted under an SPA with the FDA, and are comparing Amikacin Inhale given adjunctively with current standard of care antibiotics, versus placebos given with current standard of care antibiotics. These studies including a primary end point of clinical test of cure. If successful Amikacin Inhale could emerge as the preferred treatment for deadly gram-negative pneumonias, which is one of the leading causes of mortality in the ICU. We estimate the market potential for Amikacin Inhale is approximately $750 million annually. As a reminder, our economics are significant with a 30% flat royalty in the US, and an average 22% royalty in ex-US countries.

Now I would like to move on to discuss our Phase III plans for NXTR-181. NXTR-181 is a novel opioid molecule with anti-abuse properties that are inherent to its molecular structure, and not a result of a formulation. Prescription drug abuse and opioid addiction continue to be front and center as a public health issue, because NKTR-181 is specifically designed as a new molecule to eliminate the euphoria that can lead to addiction with today's opioids, we believe NXTR-181 can be a transformational product in both the treatment of pain, and in addressing this current health epidemic of opioid abuse and addiction.

We're in the process of preparing for an end of Phase 2 meeting with the FDA to discuss our proposed Phase III program for NKTR-181. We plan to start the Phase III in the third quarter of this year. As you know NKTR-181 received Fast Track status from the FDA, currently we have designed the first Phase III trial to include 600 patients with osteoarthritis of the knee. Patients will be randomized one-to-one to either NKTR-181 or placebo with a titration phase in both arms, followed by a 12-week treatment period.

In our Phase 2 study NKTR-181 provided patients with an average 40% reduction from baseline with substantial fewer side effects than would be expected with standard opioids. During the titration phase of the Phase 2 study a total of 213 patients achieved this reduction in pain. Only 3% of patients entering titration were unable to successfully titrate to analgesia with NKTR-181. Only 18% of patients dropped out during titration because of adverse events, which were mostly reports of constipation. Importantly, nearly all of the patients dropping out for AEs experienced significant pain relief while on the drug. After titration patient receiving NKTR-181 continued to show a reduction in pain scores during the randomized phase of the study.

While NKTR-181 clearly provided effective analgesia to the patients in the study, as you know we did not see the expected rebound in pain scores in patients who were crossed over to placebo during the 21 treatment days of the randomization period. We believe this uncharacteristic behavior of the placebo arm is due to several key factors. The most important of which is likely to continue use of background NSAIDs by patients in the study. For example, when we looked at a subset of 25 patients from the Phase 2 study that did not use background NSAIDs during the titration, or maintenance phases of the study, we observed the separation between NKTR-181 and placebo as would be expected. This placebo rebound is similar to what had been observed with the successful EERW studies. Our Phase III study design will take this and other factors into consideration.

So with NKTR-181 we believe that we have a drug that works well as an analgesic as is well tolerated by patients. We have also shown is that NKTR-181 is not attractive to recreational drug users, because it does not produce the euphoria that they are seeking. As a result NKTR-181 has the potential to address a major public health issue. We are focused on bringing this important medicine to patients. If we are successful in the development of NKTR-181, we are confident that it could become the therapy of choice in the $12 billion opioid market for chronic pain. We look forward to getting our final feedback from the FDA at the end of the Phase 2 meeting.

Now I would like to discuss our earlier stage pipeline in pain, which includes four pain candidates with different mechanisms of action. NKTR-171, the peripherally restricted oral sodium channel blocker for neuropathic pain currently in Phase 1, and three programs in pre-clinical development. NKTR-196, a new opioid agonist for acute pain, NKTR-195, a peripherally restricted oral kappa opioid agonist for visceral pain, and NKTR-174, a dual receptor agonist for neuropathic pain. These pre-clinical programs leverage cutting-edge science in the treatment of pain conditions, and we will begin clinical testing of at least one of these in 2015. Starting with NKTR-171, NKTR-171 is a novel sodium channel blocker, that is designed to restrict the molecule's action to the periphery where the pain signal originates. The technology is very similar to what we accomplished with Naloxegol, which demonstrates our ability to exclude drugs from the CNS. Neuropathic pain is characterized by peripheral neurons that are in a hyper-excitable state in an addition to constant burning and pain, even a mild such can end inflicting more pain for patients.

There can be dramatic over expression of sodium channels in these hyper excitable neurons, and sodium channels play a key role in the dysfunctional signaling pathway in these cells. By targeting these channels in the periphery and eliminating exposure in the CNS, NKTR-171 is designed to avoid the severe sedation found with traditional sodium channel blockers that make these agent unsuitable for most patients. We have completed the first Phase 1 dosing study for NKTR-171 that assessed PK and safety for single doses of 171, of up to 500 milligrams in healthy subjects. The data from this first study demonstrates that NKTR-171 was well-tolerated in humans. We are planning to start our multi-dose ascending study in Q3, which will evaluate PK and safety in about 60 healthy subjects. Current drugs to treat neuropathic pain, such as the gabapentinoids, represent a multi-billion dollar market today in spite of their limited efficacy and unwanted side effect profiles. If we are successful with NKTR-171, we could provide a highly effective therapeutics option for patients with neuropathic and peripheral pain.

In the area of the acute pain. we are working on NKTR-196, a new mu-opioid molecule, that not only has a reduced rate of entry into the brain to reduce abuse liability, but will also have a fast onset of action, making it more suitable to treat acute pain conditions. We're looking forward to entering the clinic with an optimized new drug candidate, to complement our work with NKTR-181 in chronic pain. Our next program NKTR-195, uses a similar approach but targets a different class of opioid receptor called the Kappa receptor. These receptors are highly active in states of visceral pain, and are present both in the periphery and in the CNS. Previous attempts by other companies have been unsuccessful in selectively targeting these peripheral Kappa receptors without engaging the CNS receptors.

The CNS effects of Kappa agonism includes dysphoria and sedation, and can be profound for patients, so as you can imagine targeting this receptor just in the periphery to address the source of the visceral pain could be extremely valuable. One of the our other challenges in this area is oral bioavailability, which our technology is capable of solving as well, as we did with Naloxegol. We have some very encouraging preclinical data on NKTR-195, which demonstrates that we have created a series of potent molecules that can relieve pain while at the same time, having dramatic reduced sedative properties, leading to an almost 20-fold increase in the therapeutic index, as compared to other Kappa agonist molecules that have been attempted in the past. We expect to present additional preclinical data on this program this year.

Finally, a new area of research for us in pain is to focus on dual mechanisms of action and create one drug that hits multiple selected targets. To that epidemic NKTR-174 is a molecule that targets two receptors critical in the signaling of pain within the periphery. The first is the mu-opioid receptor, and the second is the NMDA receptor, by targeting both of these simultaneously with the optimal balance of affinities for each receptor, we're exploring whether we can achieve better analgesia in hyper sensitized peripheral neurons. This is earlier research for us, but very exciting in that we are discovering a new way of using our technology to modulate receptor activity with a novel molecule.

We are also using our technology to modulate receptor activity in the field of immunotherapy with NKTR-214, an engineered biologic in preclinical stage, that targets the well understood Interleukin 2 pathway. Our goal here is to increase the activity of tumor killing cells, known as tumor effector T-cells, while at the same time reducing the activity of T-reg cells that suppress the anti-tumor immune response. We have presented positive preclinical data in the past for this molecule as a single agent. However, the field is advancing now towards combining immunotherapies, to attack the tumor in multiple ways at the same time. On this front we have conducted some exciting studies of NKTR-214 in combination with anti CTLA-4 and anti PD1 regimens, and we will be presenting this important research in the Immunotherapy Session at ASCO. With that, I will hand the call over to John for a discussion on our financials and guidance for the remainder of the year.

Thank you Howard, and good afternoon everyone. I will start with reiterating our financial guidance for 2014, which remains unchanged from our 2013 year-end call. For 2014 we still plan to end the year with approximately $225 million in cash and investments, representing a net use of cash of approximately $155 million. We anticipate the launch of Naloxegol in the first quarter of 2015, which would trigger launch milestones to Nektar of $100 million for the US, and $40 million for Europe. As a result our 2014 year-end cash balance does not include these launch milestones. Revenue for full year 2014 is still expected to be between $190 million and $195 million.

This guidance includes the anticipated recognition of two significant milestones in the third quarter of 2014. Pursuant to the agreement with AstraZeneca signed last August, the $70 million milestone payment that we already received from AstraZeneca in Q4 2013, and a potential new $35 million milestone payment from AstraZeneca, both of which are related to FDA confirmation that a significant preapproval cardiovascular safety study for Naloxegol will not be required. In addition in the fourth quarter we expect to recognize additional milestones related to other collaborations in the amount of approximately $12 million to $17 million. The remainder of revenue for the year will be approximately evenly split between the last three quarters of the year, including $20 million of noncash royalty revenue from UCB's CIMZIA and Roche's MIRCERA. Our R&D expense guidance is still between $165 million and $175 million, with approximately $16 million of this as noncash items, such as stock-based compensation and depreciation expense.

2014 G&A is still anticipated to be between $40 million to $42 million, which includes $10 million of noncash expense. Total revenue Q1 2014 was $19.8 million versus $23 million in the first quarter 2013. Revenue for Q1 2014 includes $5.8 million of noncash royalty revenue from UCB's CIMZIA and Roche's MIRCERA, the decrease in revenue for the quarter is due primarily to lower product sales. Total operating costs and expenses in the first quarter of 2014 were $56.2 million versus $68.1 million in the same quarter a year ago. The decrease was driven by lower R&D expense for clinical development, in addition we had lower cost of goods year-over-year related to decreased product sales.

For Q1 2014 our Research & Development expenses were $38.3 million, as compared to $45.6 million in Q1 2013. R&D expense for the quarter included expenses related to our NKTR-102 BEACON Phase III trial, preparation for our NKTR-181 Phase III trial, clinical devices and commercial manufacturing activities for Amikacin Inhale, and the Phase 1 clinical activities for NKTR-171. Research & Development expenses included $4.1 million of noncash stock-based compensation and depreciation expense. For the first quarter of 2014 G&A expense was $9.9 million, compared to $10.8 million in the first quarter of 2013. There was approximately $2.4 million in noncash expense included in G&A expense in the first quarter of 2014. Interest expense this quarter was $4.5 million related to the senior secured notes issued in 2012. Noncash interest expense monetization of UCB's CIMZIA and Roche's MIRCERA royalties was $5.4 million. As Howard stated earlier, cash and investments at March 31, 2014 were $309.1 million, as compared to $262 million at December 31, 2013.

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

Thank you. (Operator Instructions). Our first question comes for from Jonathan Aschoff with Brean Capital. Your line is open.

Thank you. I was wondering what are your thoughts on Pfizer becoming a new owner of Naloxegol potentially, and what are your plans for 102 in glioma, and then I have a couple of others?

Okay. Hi Jonathan. Look, clearly there is a chance that Pfizer acquires AstraZeneca, and then our contract for Naloxegol clearly covers that, and it would become the ownership of Pfizer, and they would be obligated to all of the provisions under the contract. Quite frankly, I think it actually fits very well with Pfizer's portfolio, if you look at what Pfizer is doing in the area of primary care, if you look at what Pfizer is doing in the area of pain management, I think actually Naloxegol fits very well there. So I think they are a company that has excellent marketing skills, I think Ian Read has done a tremendous job in shaping that company, and quite frankly, I would be totally fine with Naloxegol being marketed by Pfizer, just as I would be very fine with Naloxegol being marketed by AstraZeneca.

Thanks. And the 102 in glioma?

Well, we said that we will be presenting data at ASCO on May 31st, based on the results of the work that Dr. Recht and Dr. Nagpal did at Stanford. I have no further comments that I can make at this time. Steve, would you like to say something else about it perhaps?

No. Look, I think it's really exciting what we have seen so far in that program, and clearly it's a devastating disease with a very poor prognosis. I think that our co-investigators on that study I think are excited in discussing what to do next. We have to take a look at the data from ASCO. I think that's going to be grates. With have got a lot of preclinical data that supports the use of NKTR-102 in various brain cancers, as well as metastasis to the brain from non-brain cancers, so I think its and exciting path forward. We're looking forward now to the outcome of the BEACON trial. I think that's where our real attention is focused, but we will be able to talk more about glioma later in the year I would expect.

When do you guys expect to see the Federal register populated with everything for this panel coming up, to get some comfort that it won't be a second delayed panel?

Well, we don't have the exact date, but I would say it's either later this month, early, very early June. It's hard to be precise. I mean the dates that have been scheduled tentatively, and I said tentatively in the discussion earlier, I think those will be the final dates, but we have to wait to see when that publishes. I would say it's in the very near future.

Okay, and what product sales would decrease 1Q 2013 to 1Q 2014 what were those exactly?

Yes. Jonathan, basically why we're having a decrease is as we said a couple of years ago, that our purpose in life was not to be a CMO for major pharmaceutical companies. It was basically to develop our own drugs, and so at this point in time one of the things that our partners have been doing is taking on manufacture of the PEG reagent themselves, so in all reality with the shortfall is, is that basically it's been more than just one product but it's basically partners picking up manufacturing of their own PEG reagent, and us concentrating on specifically our own reagents.

Thanks.

Jonathan, let me and to that. I think, like John said, we're not a contract manufacturer, and we use our manufacturing facilities principally to make at this point for to make our own products, but of course we have contractual obligations with other companies, and we always want to fill the plant as best we can to absorb the overhead. So that will fluctuate at points in time, sometimes we're manufacturing for others, we absorb all of the overhead sometimes we may be making product for ourselves, in which case I can't absorb all of the overhead into revenues, so it's going to vary. I think you have to recognize that one of the strongest assets Nektar has, is that we do have our own in-house CMC programs and manufacturing capabilities for our own programs, and I think that sets us apart in many ways, but I think you will see fluctuations there, because we are not setting up a strategy to be a contract manufacturer. To the extent that we bring in additional business to fill the unused capacity, we will always try to absorb overhead that way, but in many times you will see that we're manufacturing for ourselves as opposed to others.

Okay. Thanks a lot, guys.

Our next question comes from Cory Kasimov with JPMorgan. Your line is open.

Hey. Good afternoon guys. Thanks for I taking the question I really just wanted to ask about your expectations for next month's advisory committee meeting, assuming that it doesn't take place next month. I guess I'm curious in your expectations for how it may be set up, and maybe the types of questions the FDA would be asking the panel, given that there are multiple parties involved. Do you anticipate that there are perhaps voting questions related to individual products, or is it more overall class related?

Well, look it's a very good question, and it's a question that we really can't answer yet, because we don't have the FDA briefing package yet, so how that meeting, what questions they are going to ask we don't know at this point. I can tell you that clearly there are a number of companies there. I think the questions will, each company will have its own time to discuss its own product. There are significant differences between these drugs, of course as you know, mechanistically they are very different, they're all going after the mu-opioid receptor, but they're approaching the mu-opioid receptor in very different ways, so it really a class in that sense, these drugs are all distinct, and I think it will be interesting to see how this unveils itself.

The FDA has to make certain decisions. The advisory panel certainly has to make certain decisions. I believe that AstraZeneca and Nektar have done a great job in pulling together a briefing book, and a set of data that clearly supports the safety of Naloxegol from a cardiovascular point of view, but it is not common that the FDA calls an advisory panel with multiple companies like this, so it's hard to predict how it will go. I do know that each company has its own individual time to be asked questions and to respond. At this point I don't know what questions the FDA will ask.

Okay, and have you found all of the activity taking place between Pfizer and AstraZeneca to be a distraction for AstraZeneca, in terms of their preparation work ahead of the panel?

No. No. Not at all. Not at all actually. The team that has been actively working on the ADCOM preparation is highly focused. I don't see them distracted at all. And I also know that AstraZeneca has been very active in educational activities in OIC, so if you look at the type of groups they are setting up, with the educational materials they're providing at OIC, just in May alone, Digestive, the American Pain Society, Digestive Disease week, SMI's Pain Therapeutics Meeting, I mean they have a major presence in educating about OIC, so I think they're very committed to it. I think the team that's working on the ADCOM has not missed a beat, regardless of what's happening at the corporate level. So I'm pretty pleased with the work product.

Okay. Thanks for taking the questions.

(Operator Instructions). Our next question comes from Steve Byrne with Bank of America. Your line is now open.

Hi. I was curious about that PEG that you put on IL-2 for 214. How does it affect the distribution of that product throughout the body, and particularly partitioning into tumors?

Well, I'm going to have Steve answer that one. One thing that I would like to point out, what is so exciting about it is that we've been able to use our polymer conjugate technology platform in a different way with this molecule, in that we are allowing it to be more active with certain receptors, and less active with other receptors, and that for me has a very significant potential. I will let Steve address your question directly.

Yes. Steve, thanks for the question. I think one of the coolest things about the 214 concept is the fact that it doesn't end up evenly distributed throughout the body. It takes advantage of the same kind of effects that we see with NKTR-102, where we get a much higher tumor exposure to drug than exposure in normal tissues. Now if you couple that difference in exposure which can be quite high, to the receptor selectivity that Howard mentioned, I think you get a cytokine now that has a completely different profile than IL-2 does, which is of course is what we've been looking for. So I think the bio distribution is a really great part of this, of the concept here, and I think the receptor selectivity is the other really important part of the concept, and of course, all of that together also allows us to dose much less frequently in the animal models we've been studying, to put the molecule on more of an antibody type dosing schedule, which I think is critical for being able to use if it effectively in the clinic. Of course Proleukin or IL-2 the way it's currently used, is dosed in an ICU setting several times a day over a week. And this is a molecule we think is much more antibody-like in its pharmacokinetics. So those three things all together are what make the concept work.

And what do you think about timing with respect to getting into human studies, and any thoughts about the types of indications you might pursue with the combo with the checkpoint inhibitors?

Yes. Great question. So I think step one of course is going to be single agent as you would expect, and we could get that as early as late next year, I think. Maybe early the following year. One of the things about Phase 1 for a molecule like this is that you go directly into patients, and if one did that in say patients that had superficial tumors like melanoma patients, one might be able to look into tumor biopsies and find actual, be able to measure the differences in immune cells, and get sort of a proof of concept, mechanistic concept right away. I think of course there is a lot of work going on with the checkpoint inhibitors in all different types of solid tumors, and we will keep a close eye on those developments, but I think of course we already know that the highly immunogenic tumors, like renal cell tumors and melanomas are great targets for immunotherapy, but I think we would want to expand out beyond that, and there I think we will let the science guide us as we see what the mechanism looks like in the first advanced study.

And then just lastly, your acute pain drug this 196, how does it differ from one that I think you had about a year ago 192 I believe it was. I thought it was also for acute pain. Is it functionally similar?

Yes. That's a great question. So from 100,000 feet the concept is similar. The goal here was to have a drug for acute pain that would need to have a very rapid onset of action. That's the critical aspect here and it shares those characteristics with NKTR-192. Now where it differs from 192, it's based on a different molecular scaffold, and it's an entirely different NCE. The scaffold is more metabolically stable than the NKTR-192 molecule, and I think that's going to give it better properties clinically, but what we are seeing in the animal model so far is very rapid onset of action, and very effective analgesia so far preclinically, so we're excited about it.

Thank you.

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

Well, clearly this year could be a transformational one for Nektar, with multiple product candidates advancing to Phase III data, regulatory filing, and potential approval. So I want to thank our dedicated employees for their superb performance, and I want to thank everyone for their time today, and continued support for Nektar. We look forward to seeing many of you at the UBS Conference in a few weeks. Thank you very much. Take care.

Thank you ladies and gentlemen. That does conclude today's conference. You may all disconnect, and everyone have a great day.