Nektar Therapeutics (NKTR) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Nektar Therapeutics fourth quarter and year end 2014 financial results conference call. (Operator Instructions). As a reminder, this conference 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. Ivan Gergel, 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 potential regulatory approval decisions and commercial launch timings, the timing of future clinical results, clinical development plans, the economic potential of our collaboration partnerships, the therapeutic and market potential of certain drugs and drug candidates and the those of our partners, our financial guidance for 2015, and certain other statements regarding the future of our business. Because forward-looking statements relate to the future they are subject to inherent uncertainties and risks that are difficult to predict and many of which are outside of our control.

Important risks and uncertainties are set forth in our Form 10-Q for the quarter ended September 30, 2014, and a form 8-K filed today which are both available at sec.gov. We undertake no obligation to update any of these forward-looking statements whether as a result of new information, future developments, or otherwise. A webcast of this call will be available on the IR page at nektar.com. With that, I would like to hand the call over Howard. Howard?

Thank you, Jennifer. Thanks to everyone for joining us this afternoon for our fourth quarter and full year 2014 financial results call. 2014 was a landmark year for Nektar with the approval of MOVANTIK in both the US and Europe, and the filing of BAX-855 in the US, Nektar now has two significant partnered programs that are poised to potentially contribute substantial revenues to our Company with no further expenses associated with these revenue streams. I will provide more detail on the economics from these programs later in the call and John will be providing our 2015 financial guidance.

We are tremendously excited about the recent approvals of MOVANTIK in the US and in Europe. Importantly, MOVANTIK is the first approved oral new chemical entity using Nektar's proprietary small molecule polymer chemistry platform. This new medicine demonstrates the powerful nature of our technology to create therapeutics based on both novel small molecules and biologics. MOVANTIK is the first and only oral peripherally acting mu-opioid receptor antagonist, or PAMORA, to be approved to treat opioid-induced constipation, also known as OIC, in adults with chronic non-cancer pain. We believe there is a significant market potential for MOVANTIK in the United States and Europe.

In the US, there are 38 million patients who take daily opioids to manage their chronic pain and in Europe there are 12 million patients. Up to 80% of these patients experience OIC and as the first oral PAMORA, MOVANTIK provides an important new targeted mechanism to address the underlying cause of this condition. Importantly, we believe MOVANTIK is unlikely to face competition from other oral PAMORA therapies for at least two years.

Our partner, AstraZeneca, estimates the sales potential of MOVANTIK to be more than $1 billion annually. With the DEA descheduling process completed last month, AstraZeneca will be launching MOVANTIK in the US this quarter, and launching in Europe in the second half of this year. These two launches will bring Nektar $140 million in milestone payments. The US launch triggers a $100 million milestone payment. The European launch in a major market triggers a $40 million milestone payment.

We will receive escalating royalties on net sales which in the US start at 20%, and in Europe and the rest of the world start at 18%. In addition to these royalties, we will also have the potential receive up to $375 million in sales milestones based on achieving certain annual sales targets. We are pleased to see that AstraZeneca is putting a significant sales and promotional effort behind MOVANTIK, with a large sales force covering primary care and specialty care including pain specialists. They are planning to initiate product sampling with physician detailing, and in addition AstraZeneca is planning branded and unbranded direct to consumer campaigns for MOVANTIK.

We are very positive about the prospects for MOVANTIK as an important new treatment option for patients with OIC, and about it's potential ability to provide Nektar with substantial revenue, moving us towards becoming a cash flow positive company. AstraZeneca's competitive first to market advantage combined with their sales and marketing strength should position MOVANTIK well for success. In addition to the successful approvals of MOVANTIK the December 2014 filing of the BLA for BAX-855 by Baxter positions this biologic to be Nektar's next approved drug.

As I stated earlier the economic potential of MOVANTIK and BAX-855 alone could position Nektar to become cash flow positive and support our next stage of growth as a company. With the BLA now on file, Baxter is planning for potential approval and launch of BAX-855 by the end of this year. This represents another important application of our platform as Nektar invented BAX-855 using our proven large molecule polymer conjugate technology. BAX-855 is based on Baxter's product, ADVATE, which is the current gold-standard treatment for patients with hemophilia-A.

In Phase III clinical trials, BAX-855 was evaluated in a twice weekly prophylaxis dosing regiment as compared to on-demand administration. BAX-855 met its primary efficacy endpoint with patients in the twice weekly prophylaxis arm of the trial experiencing a 95% reduction in median annualized bleed rate as compared to those in the on-demand arm. Importantly, no patients developed inhibitors to BAX-855 and there were no treatment-related serious adverse events reported. BAX-855 is also being evaluated in a pediatric study and a PK-specific dosing study to support both US and European label expansions in regulatory approvals.

Baxter recently presented additional positive Phase III clinical data for BAX-855 at the 8th annual Congress of the European Association for Hemophilia. These data show that BAX-855 was effective in treating bleeding episodes, 96% of which were controlled with one or two infusions. In the study, patients rated their treatment as excellent or good for 96% of all episodes in the treatment arm. Upon the launch of BAX-855 Nektar's is entitled to receive mid-single digit royalties on sales up to $1.2 billion and royalties in the low teens on sales greater than $1.2 billion, as well as an additional $73 million in development and sales milestones.

Again, the economic potential of MOVANTIK and BAX-855 alone could contribute substantial revenues to Nektar and move us towards becoming a cash flow positive company. As you know, we also have a substantially wholly owned pipeline of both late stage and early stage drug candidates. These candidates span multiple therapeutic areas including oncology and pain. The most advanced of these programs is NKTR-102 being studied in metastatic breast cancer. As I told you at the JPMorgan conference in January, we achieved a number of events necessary for the top line analysis of data from the BEACON study and we are currently verifying the blinded data.

We plan to report top line data from the BEACON study in March and we will schedule a conference call to discuss these data at the time of that announcement. We are eagerly waiting for the data readout from BEACON and we are very hopeful that the study will be positive. However, it is important to remind you that the data remain blinded and therefore we do not know the results of the trial. The BEACON study is comparing single agent NKTR-102 to a single agent of physicians choice in patients with advanced breast cancer who have failed anthracycline, taxane, and capecitabine therapies.

The primary endpoint is median overall survival, and the study powered to show survival superiority over the control arm. Secondary endpoints include response rate, PFS, and duration of response. 90% of patients in the BEACON trial had advanced metastatic HER-2 negative breast cancer. The current treatment paradigm is a rotation of single agent chemotherapy drugs most of which share a common mechanism and similar side effects. As a new drug that inhibit topoisomerase I, NKTR-102 could emerge as an important new therapeutic option with a non-overlapping side effect profile to existing therapies.

If the BEACON results are positive, we plan to submit regulatory filings for NKTR-102 in the US and Europe before the end of this year. NKTR-102 has received fast track designation from the FDA so we can file for priority review of the NDA and also submit a rolling NDA. If the BEACON study is successful and NKTR-102 is approved by the FDA, this will provide Nektar with the opportunity to both launch and market our first drug in the US. For the rest of the world, we plan to seek a partner with a strong oncology presence to commercialize NKTR-102

As a next generation topo I inhibitor, NKTR-102 has shown great promise in a number of poor-prognosis tumor types beyond metastatic breast cancer. There are four investigator sponsored trials underway or completed for NKTR-102 including the Stanford glioblastoma trial, the Roswell Park small cell lung cancer study, the university of Pennsylvania non-small cell lung cancer trial, and a second Stanford study in patients with lung cancer and brain metastases. These studies will help guide us in the future development of NKTR-102. Because of its attractive PK and side effect profile, we are also evaluating potential next steps for NKTR-102 in pediatric cancers. On December 11 we participated at a meeting of the Pediatric ODAC. The intent of the meeting was to focus on optimizing the development of oncology and hematology drugs for pediatric use.

The FDA invited Nektar in addition to two other sponsors of products in development for adult cancer indications. The Pediatric ODAC expressed an interest in Nektar developing NKTR-102 in a number of pediatric cancers including Ewing's sarcoma, neuroblastoma, and high grade glioma. Committee members were notably excited about the combination of NKTR-102 with the PARP-inhibitor, rucaparib, based on the pre-clinical data we reported to date. As you know, we have additional pre-clinical studies ongoing for rucaparib at the Mayo Clinic in platinum-resistant ovarian cancer, and we also are currently evaluating potential clinical studies of NKTR-102 in combination with a number of PARP inhibitors that are either in development or on the market. So we're very excited about the future development of NKTR-102.

Nektar's technology has allowed us to develop what I think could emerge as an extraordinarily important drug to address a major societal problem, opioid abuse. NKTR-181 is designed to be a completely new type of pain medicine. While it acts on the mu-opioid receptor, its specific molecular structure leverages Nektar's polymer conjugate technology to slow its rate of entry into the CNS. This slow rate of entry is inherent to the molecule and has been designed to reduce NKTR-181's potential for euphoria and abuse. Our Phase III program for NKTR-181 includes two EERW efficacy studies, a long-term safety trial, as well as human abuse liability, and scheduling support studies.

The first Phase III trial which began enrollment today will compare NKTR-181 versus placebo in opioid naive patients with chronic lower back pain. The study will randomize approximately 200 patients in each arm, and we expect it to be complete in 18 opinion 24 months. Our second Phase III study will enroll opioid experienced patients with chronic low back pain and we are in the process of finalizing the study design with the FDA. We plan to initiate this second trial by the middle of this year.

We are incorporating an interim analysis as part of both Phase III protocols that will confirm or allow to adjustments to the sample size in order to maintain appropriate study power to detect statistically significant differences between NKTR-181 and placebo. Such an analysis is designed to increase the probability of successful outcome. As you know, NKTR-118 received fast track designation from the FDA which has allowed to us closely collaborate with them on the design of the Phase III program. Nektar-181 is the first opioid molecule designed to have anti-abuse properties that are inherent to its molecular structure and not a result of a formulation. So we are excited about the start of the Phase III program today.

I would like to now take moment to discuss our earlier stage clinical candidates. NKTR-171 is our peripherally acting oral sodium channel blocker which is currently in Phase I clinical trial. NKTR-171 is being developed for peripheral nerve pain and was created using Nektar's polymer conjugate technology to selectively restrict the molecules to peripheral pain pathways, thereby avoiding the severe CNS side effects that make standard sodium channel blockers impractical for most patients with neuropathic pain. We expect to have the Phase I data for NKTR-171 in the second half of this year. We are also increasingly enthusiastic about NKTR-214 the first home grown biologic in cancer immunotherapy which we are preparing for Phase I clinical trials in Q4 of this year.

NKTR-214 is a novel cytokine that has been engineered to selectively activate a specific subclass of IL-2 receptors that increase the activity of tumor killing cells while avoiding the activation of T-regulatory cells that suppress the anti-tumor immune response. The activation of T-regulatory cells is considered a major drawback of the mechanism of Proleukin in cancer. The new mechanism of NKTR-214 should result in a highly potent molecule that requires lower and less frequent dosing, and is designed to provide greater efficacy without the side effects that limited the use of Proleukin.

NKTR-214 is also important because it represents the first time that we have engineered selective receptor activity into a new biologic therapy using our polymer conjugate technology. In our pre-clinical work NKTR-214 demonstrated dramatic activity in a dramatic mouse model of melanoma. We have completed a comprehensive GLP toxicology program with NKTR-214 and specifically we undertook a full study in non-human primates where we observed no evidence of vascular leak syndrome or low blood pressure at predicted therapeutic doses based upon pre-clinical models.

Because of its mechanism of action which stimulates the immune system, NKTR-214 has great promise in combination with other immunotherapies such as check point inhibitors. The combination of NKTR-214 and anti-CTLA-4 resulted in a long lasting anti-tumor immune response in our pre-clinical studies which included tumor rechallenge experiments and these responses lasted months after dosing was completed. So we look forward to starting our clinical program with NKTR-214 by the end of this year.

Our programs in partnership with Bayer also advanced during 2014. The two Phase III candidates, Amikacin Inhale and Cipro DPI, are both anti-infectives that have now been granted qualified infectious disease product, or QIDP, status designation by the FDA. This designation makes the two products eligible for fast track status, priority review, and five years of extended market exclusivity. Both products are designed to deliver the antibacterial therapy deep in the lungs in order to achieve both higher concentrations at the site of infection, and also lower systemic exposure therefore significantly reducing the toxicities associated with these agents when administered systemically.

Amikacin Inhale targets gram-negative pneumonia in ventilated patients with a spa in place. The primary endpoint of the Phase III program is clinical response at a test of cure visit following a 10-day treatment period. Bayer expects to complete these trials in the first quarter of 2016. The global market for Amikacin Inhale is estimated to be approximately $700 million. Under the agreement with Bayer, Nektar will receive a flat 30% royalty on US sales and an average 22% royalty on ex-US sales.

Cipro DPI is targeting non-cystic-fibrosis bronchiectasis or NCFB. The Phase III RESPIRE program features 2 48-week, multi-national, randomized, placebo-controled studies with data expected in the second half of 2016. The market for Cipro DPI is estimated to be approximately $750 million and Nektar will receive an average 10% royalty on net sales. With that I will turn the call over to John for discussion of our financial results.

Thank you, Howard. And good afternoon, everyone. I will start with a brief review of Nektar's 2014 financial results and will then discuss 2015 financial guidance. At the end of 2014, cash and investments were $262.8 million. 2014 total revenue was $200.7 million as compared to 2013 revenue of $148.9 million. 2014 revenue includes milestones related to our two lead partner programs. For MOVANTIK we recognized revenue from a $70 million NDA filing milestone that we received in 2013, and a $35 million milestone we received in 2014 following FDA's approval of MOVANTIK.

For BAX-855 we recognized a milestone of $8 million following positive Phase III results. For full year 2014 total operating costs and expenses were $217.2 million, as compared to $269.1 million in 2013. The decrease in total operating costs and expenses were primarily a result of lower R&D expense. Total R&D expense was $147.7 million in 2014 as compared to $190 million in 2013.

R&D expense decreased in 2014 compared to 2013 primarily due to reduced activities in 2014 on our ongoing NKTR-102 BEACON study as the study progresses towards completion. 2014 R&D expense included approximately $15 million of non-cash expenses such as depreciation and stock-based compensation expense.

For full year 2014 G&A expense $40.9 million compared to $40.5 million, in 2013. 2014 G&A expense included approximately $10 million of non-cash expenses such as stock based compensation expense and depreciation. Interest expense was $17.9 million in 2014. Non-cash interest expense was $20.9 million for the monetization of UCB Cimzia and Roche Mircera royalties. Now on to our 2015 financial guidance. Revenues for 2015 expected to be between $225 million and $235 million.

I would like to take a moment to outline for you what our revenue guidance includes and importantly what it does not include. This will also apply to the cash guidance as well. 2015 revenue guidance includes two milestones related to the launch of MOVANTIK in the US and Europe. We expect to recognize the $100 million US launch milestone payment in Q2 following the US launch of MOVANTIK in the first quarter and we expect to recognize the $40 million milestone payment in the second half of 2015 for the European launch.

2015 revenue guidance also includes approximately $21 million of non-cash royalty revenue from UCB Cimsia and Roche's Mircera. We have specifically excluded a number of potential revenue items from our 2015 guidance. As I just stated the items are also being excluded from the 2015 year end cash guidance as well. First, we are not including projections for royalties from net sales of MOVANTIK in the US and Europe as we believe it will be more appropriate to provide guidance once there is an established sales history for the product.

As a reminder, we will recognize quarterly royalties from MOVANTIK one quarter in arrears. With the launch of MOVANTIK that we expect to occur in the first quarter we will begin recognizing the first full quarter of royalties MOVANTIK sales in Q3 of 2015. Second, we are excluding both from our revenue and cash guidance any potential milestone payments of a planned US/ex-US collaboration for NKTR-102. Any potential collaboration will, of course, depend on the outcome of the BEACON study, and we do not intend to provide any specific financial guidance for any collaboration until after we enter into one.

So again, our 2015 revenue guidance of $225 million to $235 million does not include these additional revenue items. Now, on to our R&D expense for 2015. We anticipate GAAP R&D expense for 2015 between $195 million and $205 million. Our 2015 R&D expense includes the advancement of a number of key pipeline programs including final expenses for the BEACON Phase III trial, as well as expenses related to the preparation activities for NKTR-102 NDA filing, which as Howard stated, is planned for the fourth quarter of 2015 pending the results from the BEACON study.

Expenses for the NKTR-181 Phase III program which includes the initiation of two efficacy studies and one long-term safety study. Expenses related to the IND filing for NKTR-214 and initiation of Phase I clinical development. Expenses for the NKTR-171 Phase I clinical development study we expect to complete in the second half of 2015. And finally, expenses related to the commercial manufacturing readiness activities for Amikacin Inhale under our agreement with Bayer. 2015 R&D expense also includes approximately $17 million of non-cash expenses such as depreciation and stock-based compensation.

2015 G&A expenses anticipated to be between $44 million and $46 million. Included in our 2015 G&A expense is approximately $11 million of non-cash items such as depreciation and stock-based compensation. For 2015, interest expense will be approximately $18 million and non-cash interest expense related to the UCB Cimzia and Roche Mircera royalty monetization will be approximately $21 million.

We plan to end 2015 with approximately $200 million in cash and investments, representing net use of cash of approximately $63 million in 2015. As I stated earlier our cash guidance does not include MOVANTIK royalties from AstraZeneca which we expect to begin receiving in Q3 of 2015, or any upfront payments or milestones from our potential NKTR-102 ex-US collaboration agreement. With that, I will now open the call to questions. Operator?

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

Hi, thanks. Hi guys, a really nice cash management I have to say. I was wondering, what specific numbers and details can you tell us about what AstraZeneca will put behind the launch? And by numbers I mean sales force size and what sort of specific DTC advertising do they have in mind?

Thank you, Jonathan. It is a good question. I can't go into specific details, obviously. I know that they are thinking of it as a large product. As a matter of fact, you know I have given you their statement which is they expect this to have sales in excess of $1 billion annually. I know they're going to have significant sales force effort some where in the 800 to 1000 sale reps. I can't be very specific. I know they are going to have unbranded and branded direct to consumer advertising and that will start fairly soon, so I know they are very focused on this drug.

We meet with them with some regularity. I think they are great group, I think they are very talented people when it comes to sales and marketing among other things, and I know that they treat this as a very, very important drug. So we are looking to forward to the launch and I know they are putting a lot of muscle behind it. And like I've said, essentially the first two years in this market they have to themselves. It's the only oral PAMORA available and I think they going to do a great job with it.

With that last thing you said, Howard, when oral RELISTOR is approved how might AZN counter detail that drug?

You know, I -- I can't -- listen, I obviously can't discuss their plans in that regard. I think it will be quite some time before oral RELISTOR is approved, and in any case I think that the position that we have in terms of, just as a quality of MOVANTIK having such great oral bio-availability alone is enough to set it apart. So even if you just look at the bio-availability difference between MOVANTIK and oral RELISTOR, there is a story in and of itself. I am not too worried about that right now and we have got two years to build that market, I think.

Actually, Howard, did you address the part of my question about DTC advertising, the specifics of that or is that something you can't share?

I -- Jonathan, I can't go into the specifics. I know that they will be doing unbranded and branded DTC but I can't share the specifics. We have seen some of the programs but I can't share the specifics with you.

Okay. And the last thing is just given the last result with 181 were there any noteworthy last minute trial design tweaks?

I will let Ivan comment a bit. The answer to that is no. I think we have -- We kept the study design very similar to what we discussed all along. But Ivan, if you would like to comment?

Yes, Jon -- (inaudible - technical difficulties)

It is a bit hard to hear.

Sorry, having some mike problems. Hi, Jonathan. No, as Howard said, no design changes. It is a EERW design, it's in chronic low back pain, there's 200 patients per arm with an interim analysis. And, you know, it is a relatively standard design but we're hopeful -- well, we think it is the optimal type of design to demonstrate efficacy for this.

And we are pleased that we enrolled our first patient today so that study is now running.

Thanks a lot, guys.

Our next question comes from Jessica Fye with JPMorgan. Your line is open.

Hi, this is Ryan in for Jes. Thanks for taking my question. I guess for 102, beyond breast cancer how are you looking at or maybe rather how are you prioritizing additional indications? Thanks.

Well I think that is a great question. I think if you look at the investigator sponsored trials we have either run in glioblastoma, that we have running in small cell lung cancer, non-small cell lung cancer, lung metast -- brain metastasis in lung cancer. I think will be a lot of information there that helps us select the next program to go after. There is an awful lot of opportunities for a great PK, well-behaved topoisomerase I inhibitor. If you think about the combination with PARP-inhibitors, the date there is very, very impressive.

If you look at the safety and tolerability of NKTR-102 makes it very suitable for pediatric tumor settings. And you know that there are many, many pediatric oncologists that would love to treat pediatric patients with a topo I inhibitor but drugs like Irinotecan are simply way too toxic for those patients. So the fact that we an effective -- a potentially effective and well behaved topo I inhibitor says a lot about what we can do in pediatrics.

So I think we're gathering, we are talking with pediatric ODAC about those kinds of opportunities. We are talking with thought leaders in the pediatric community about those opportunities, we're looking at the investigator sponsored studies that we are running in non-small cell and small cell lung cancers as well as glioblastoma. We will be making decisions on how to move this program forward. But I have to say that the combination with PARP-inhibitors is equally exciting. We've seen some tremendously impressive pre-clinical data there, and I know there is a lot of interest in that. A lot of opportunities, as I said, for an effective, well-behaved topo 1 inhibitor.

Great. Thanks, guys.

The next question from Burt Hazlett with Ladenburg. Your line is open.

Thanks for taking the question and congratulations on all of the progress, folks. I have two lines of questions. One is on the AstraZeneca collaboration with MOVANTIK. Given that MOVANTIK appears to be moving forward with some robustness as you mentioned, Howard, can you give us an update as to the status and then the gating items that might be involved with the combinations that are also included in the MOVANTIK deal down the road? And then I have a question on 102 as well.

Well, look, I can't comment on exactly what AZ would like to do in that area. I think my sense is they want to get some experience and some exposure with MOVANTIK before they pursue the combination approach. Realistically, though, the combination approach can be, you know, a combination blister pack with both an opioid as well as a MOVANTIK tablet. It could be an actual combination of both types of drugs in one tablet. There are a number of ways to do it. But at this point they haven't commented on how and when they want to pursue that so I really can't speak for them.

Thank you. Then on 102, just if the program is successful as you just mentioned, the combination is attractive, the brain mets and the additional potential multiple indications are possible. If it is not successful in BEACON, how do you think about that asset? Is it still alive from Nektar's perspective given the relative enthusiasm that you are expressing here now, and how should we think about it?

Well, look, a really good question, I must say. I will tell you, I will answer that -- I must say and I said it during the call, we absolutely have no idea about the results of this study good or bad. The data is blinded. It is being looked at. To my knowledge there is no leaks, certainly I haven't heard anything. So we are completely in the blind regarding the results of that study. To answer your question, I think you have to look at the data to answer that question. Clearly, if it works there is many, many opportunities with NKTR-102. We don't have to decide that.

Your question is a good one in that I think we would all agree that NKTR-102 is a very active anti-cancer agent. I think is probably realistic to say. Now, whether we sufficiently beat physician's choice to show a benefit in overall survival or not, I can't answer that today. I wish I could. But I can't. However, to your point, let's say it doesn't, let's say it misses its primary endpoint. That doesn't mean that because it missed its primary endpoint in metastatic breast cancer, let's make up a scenario, it's only slightly better than physician's choice, it's not a lot better than physician's choice.

It still might be a very active drug which in this case wasn't sufficiently better to warrant meeting its primary endpoint. That doesn't mean it doesn't work exceptionally well glioblastoma, or exceptionally well in non-small cell lung cancer, or exceptionally well in small cell lung cancer. There are so many possibilities. Or the pediatric cancers like Ewing's sarcoma, and neuroblastoma. So there's so many things you do with this. I would say that unless we have some results from the study that show we have a very, very serious problem with NKTR-102, I would say there is a very high likelihood NKTR-102 moves forward in some other way even if we just miss our primary endpoint.

Now, I say that, and I don't want anyone to read into this. I want to make it crystal clear. I answered that question without having a shred of information as to what that study looks like. So I want to make it clear, don't read into body language, don't read into tone of voice. I simply don't know the results of the study. But I think, honestly, unless the study has major issues associated with it, then I think NKTR-102 has a lot of potential in oncology regardless of the results in late stage metastatic breast cancer.

Thank you for that. It clearly appears to be an active molecule and thank you for the additional comments. Just back to the AZ question really quickly, when is there a decision that needs to be made on the combo? Is there some type of timing with regard to the combination, or is that just free floating?

More or less free floating. There is no timeline for that.

Thank you for the color

AZ is a very sophisticated company, they are good group, they are very smart. They are not going let a great opportunity slip by them. I'm certain that if they are happy with MOVANTIK they will be happy with a combination.

Terrific, thank you. Congrats on the progress.

The next question from Debjit Chattopadhyay with ROTH Capital Partners. Your line is open.

Thanks for taking the question. Just on the same lines as the previous question on NKTR-102. Let's assume for the trial does not meet its primary endpoint but it is non-inferior, numerically superior to physician's choice. But given the non-overlapping safety profile isn't there an avenue for another therapeutic modality in breast cancer given that the options are so limited and especially if you have a numerically superior outcome?

Absolutely correct. Now wh -- of course that's a regulatory issue. Certainly it's much less of a regulatory issue Europe compared to the US. So you clearly in that circumstance have a path forward in Europe. And in the US you would have to make an argument you are numerically superior, you have a much more tolerable side effect profile. Don't ever forget that it's also completely different mechanisms. There are -- mechanism. There is no topo I isomerase inhibitor used in metastatic breast cancer. So it is very different than the micro-tubular inhibitor. So a safe and well tolerated drug, a completely different mechanism that could -- that yes, could be numerically superior and still miss its endpoint I think the drug has still potential. I will not comment further than that today. But I think we are thinking the way you are as well in planning for that eventuality as a possibility.

The way I should understand it is in case something does go wrong the contingency plan is if it does show numerical superiority, then some sort of a regulatory path in Europe still remains open, US remains to be decided depending on the feedback from the FDA?

I think that is a fair statement, yes.

The NKTR-102 in all of the other indications that you outlined, in metastatic breast cancer you moved from a relatively uncontrolled Phase II to a large Phase III study. Would you take the same kind of risk if the trial doesn't work? Or would you think of a more regular Phase II kind of a randomized study in either non-small cell or any of the pediatric indications of small cell before you proceed to a Phase III?

Well look, the challenge is if you do -- the challenge is -- and I will let Ivan comment on this further. If you do randomized -- randomized survival trials in Phase II don't provide you with any sufficient information because of the size of the trial that would be required, and I think at that point you are probably better off just doing a Phase III study. You could look -- you could do a comparative trial in Phase II and look at PFS. There is not a great -- there is not always a great correlation between results in Phase II and results in Phase III in any case. The only way to really answer the questions in terms of a survival benefit is a reasonably powered Phase III size comparative trial. Ivan, would you like to comment further?

Yes, thanks, Debjit, for the question. A couple of thoughts on this one. One is, you know what we -- we will be looking carefully at some of the results coming out of our investigator initiated studies. Two, we have to look at -- we've looked at literature where Irinotecan itself has been used and where it shows evidence of sort of promising effect. And I think the biggest piece of information that we will have after we -- is actually the results of BEACON. We will have comparative data, we will have proved or not proved, or seen the effect size as well as got a really good feel for what the side effect profile looks like when we do a head-to-head study. I think we a lot more information, but it as Howard said we will put all that together and it's likely, if we do go forward, it will be a reasonable size, what could potentially be a registration type study.

Let me also add, one thing we've been pretty good about at Nektar in terms of the last number of years has been fairly careful in watching our cash position, fairly careful about having non-dilutive financings even though we have certainly had some. Overall we pay a lot of attention our cash position. We pay a lot of attention to diluting shareholders and we don't like to do that. Whatever we do in the future is also going to depend on the ramp up of MOVANTIK and the ramp -- and how well BAX-855 does. I mean, MOVANTIK and BAX-855 in and of themselves should be able to generate as I said a cash flow that moves us towards cash flow positive. And given the NKTR-102 metastatic breast cancer results, positive or negative, if they're positive, great, if they're negative, how negative were they? There is a lot of moving pieces to this in both the science side and the cash side as well. So I don't want you to think that the first thing we do is in the event of a failed Phase II study, run out and start five Phase III studies in various indications. Of course we're not going to do that. We are very conscious of how we use our cash. But I think there are a lot of opportunities. Ivan, do you want to comment?

I think the other thing we will be looking at is tumor types where there might be a faster pathway to approval, sort of smaller type of studies as well as significant need -- clinical need.

And one last follow-up question on 102. It seems like at least from the literature topoisomerase inhibitors, do have a direct effect -- effect in down regulating HIF1 alpha. But I don't see -- renal cell carcinoma is one of the potential indications that you have looked at or else (inaudible) even talked about it. So just curious your thoughts on RCC, especially the clear cell sub type where HIF1 alpha is usually L-regulated and those patients really don't have anything, and bladder cancer as well.

This is Steve. That is a really interesting question and something that we have been certainly looking at pre-clinically. Obviously topo I inhibitors, Irinotecan is no different, NKTR-102 would have substantial HIF1 alpha activity. I think that it is an interesting path. It is not one that we started yet clinically but certainly pre-clinically we have been doing some thinking there.

Thank you so much.

Our next question comes from David Steinberg with Jefferies. Your line is open.

Thanks very much. I had a question on Baxter's 855 which you previously mentioned. It hasn't been that long, but Eloctate from Biogen has been on the market for a couple of quarters and I was curious from your observations based on what you have seen from that launch any thoughts, you know, on the margin? More a positive, less positive on the outlook for PEG ADVATE given that this seems to be a fairly formidable competitor?

I can only tell you from what I learned from Baxter and what Baxter has said publicly. First of all they say that patients are switching back to ADVATE after going on Eloctate. They haven't given a specific reason why, but they said they are seeing a lot of switching back. I think it is too soon to tell. There's no doubt that ADVATE is the market leader, it's the gold standard. Everybody understands it, everybody understands its long-term usage safety profile. And when we designed BAX-855, when we invented it, we made sure that we kept the underlying molecule the same ADVATE. So this is a longer acting version of ADVATE. We did that for very, very specific safety reasons.

What long acting ADVATE looks like compared to Eloctate, it is going to be -- it's certainly going to be difficult to judge that today. I think that Baxter is in a position of having the gold standard with a PK profile that looks just as good as Biogen's drug, and they tell me that people are switching back. But I don't have any further information -- I don't have any more specific information for you. I think it is a large market.

I think it is a lot of potential. I think there are -- there is -- there is a lot of patient loyalty to these brands and I think it is not necessarily easy to get patients to switch off ADVATE when they have been taking it for all these years. Let's see how the market develops. I believe that long-acting ADVATE is equally formidable to Eloctate, and quite frankly, while I understand your point about various companies, you know, Biogen being a formidable competitor, I think without a doubt Baxter is the powerhouse in the field of hemophilia. There is no debate on that.

Sure. Turning to finances it was great to hear the comment that you are moving towards being cash flow positive, so I thought given than you is have accumulated a lot of NOLs over the years I was curious. Based on your internal forecast how many years would it be once you turn cash flow positive that you wouldn't have to pay taxes?

Well, we -- in terms of how large our NOL's are?

Exactly.

Well, I can't tell you how many years but our NOLs are substantial, John. Would you strike care that further?

Yes, David. Basically our NOLs are in the range of $1.2 billion for federal and somewhere around $700 million for California. But from the standpoint of saying how long would it take you to use them, that all depends on the revenue numbers and our positive bottom line. So you know the real issue is hopefully we get to a point in time where we generate positive EPS before some of them start lapsing on us.

I think -- look, we certainly have, you know, substantial NOLs. I wouldn't expect to have to pay taxes for some time. However, I think the most important takeaway from the message about being cash -- moving towards cash flow positive, you have to look at Nektar and realize we've just got a major drug approved for the US and Europe, MOVANTIK. That is going be in everybody's mind a $1 billion plus drug. And we own essentially a third of it. I mean if you are getting a 20% royalty flat to start with, with no real expenses, that is the same as owning a third of the drug or more in the initial years.

With BAX-855 coming, and I think everybody believes BAX-855 will get approved, that is our second approved drug in a row. So I think Nektar is in the enviable position of now having two, one approved drug, one drug that should be approved this year, that puts us in a tremendous position. And it puts us in a unique position relative to other companies. And I think you know, hopefully that NOL won't last long. That would be my goal. But I think it is nice to see that we that cushion for taxes. Overall, I think Nektar is in a great position. We have two -- we have one approved drug, one drug that should be approved this year and I think considering that we built all of these technologies up in the last seven or eight years it has been a major accomplishment for this Company and I think we have a great future ahead of us.

Excellent. Thank you.

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

Hi. Assuming with the BEACON data are favorable, what are you thinking about the size of the commercial infrastructure that you would likely build in the US?

Yes, that -- look, that is the great thing about oncology, it doesn't require the 800 person, 1000 person sales organization that you need to bring your drug to the large primary care audience. So look, without being specific, I mean you are probably in the neighborhood of 75 sales reps and 25 medical scientific liaisons and 25 marketing people. It is probably less than 150 people to market a drug like that quite successfully in the United States. Now at this point we made it very clear, we don't have any interest in spending resources to build an ex-US sales organization.

I think that is much better off -- we're much better off to have a competent partner market this drug and promote the drug ex-US. But in the United States, Nektar could build a sales and marketing organization capable of marketing a drug that is potentially as exciting as NKTR-102. My background, I have launched a number of drugs, and I think we have an internal skill set that knows to could do this, so I'm not too worried about it.

And a question about 214. Or 214. Do you have data, pre-clinical data that indicates that it down regulates T-regs or it stimulates more cytotoxic T-cells than it does regulatory T- cells?

Yes, hi Steve, Steve Doberstein here. Great question. And so this is all data from mouse models of tumors. And what we find is that in the tumor when you treat with 214 you actually is have a reduction in the number of T-regs relative to placebo treatment, and then a substantial reduction relative to Proleukin treatment. So it actually does look like the balance is tipped even in excess of what would happen if you didn't treat at all. So it's both acceleration of expansion of memory T-cells which are effector cells and then a substantial reduction of T-regs as well.

And given it sounds like it is doing both. Would you see any merit in combining it with some kind of a vaccine to increase the availability of antigen-presenting cells, something to work synergistic with the cytotoxic T cells?

Yes, for sure. I think we have a pretty expansive pre-clinical program going on with 214 right now, that includes answering just those kind of questions not only with vaccine approaches but with CAR T cells and of course the combination with other biologics, check point inhibitors, other cytokines. So I think you -- there Is a lot of ways to combine here and I think that is the future of immuno-oncology, is figuring out the appropriate combination therapies for appropriate tumor types. But I think you are spot on. It is a very interesting type of approach.

And just one more on 181. Do you have any pre-clinical data where you've compared it to an active comparator?

Pre-clinical data? Yes, of course. We have really extensive pre-clinical data for several years now comparing NKTR-181 in animal models of pain to the panoply of traditional old school opioids and other analgesics. We have shown that a lot of different ways.

Okay. Thank you.

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

Thank you again for joining thus afternoon. I want to take this opportunity to thank our employees for their hard work and their devotion. And we couldn't be more pleased with the progress we made here at Nektar across the breadth of our in-house programs and our partnered programs. 2015 is off to a strong start and we look forward to speaking with you next month following our NKTR-102 results. So stay tuned. Thank you very much.

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