Nektar Therapeutics (NKTR) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics First Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference may be recorded.

I will 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. Ivan Gergel, our Chief Medical Officer; Dr. Steve Doberstein, our Chief Scientific Officer; and Dr. Jonathan Zaleski, our Vice President of Biology.

On this call, we expect to make forward-looking statements regarding our business including potential regulatory approval decisions and commercial launch timing, the timing of future clinical results, clinical development plans, the economic potential of our collaboration partnerships, and therapeutic and market potential of certain drugs and drug candidates and those of our partners, our financial guidance for 2016, 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-K filed on February 29, 2016, which is available at SEC.gov. 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 on the IR page at Nektar's website at Nektar.com.

And, with that, I'll hand the call over to Howard. Howard?

Thank you, Jennifer. Thanks to everyone for joining us today for our First Quarter 2016 call. On today's call, we will briefly discuss our quarterly results and review upcoming milestones for Nektar. Ivan will provide an update on our plans for NKTR-181 and NKTR-214, both of which are advancing on track in the clinic. Jonathan will also give a short summary of the exciting data for NKTR-214 recently presented at the AACR conference.

First, I'll start with a few comments on MOVANTIK. As of mid-April over 220,000 total prescriptions for MOVANTIK have been filled in the US. We are pleased with AstraZeneca and Daiichi's efforts to build the OIC market and the performance of MOVANTIK in its first year.

As many of you have seen, AstraZeneca and Daiichi recently initiated a new branded TV commercial from MOVANTIK, which began airing in the past month, and they are also continuing to run the unbranded OIC educational campaign ad. They continue to focus on raising awareness about the serious medical condition of OIC and patients with chronic pain and encouraging these patients to talk to their physicians about the condition.

Because there's not been a medication to treat OIC effectively, raising awareness of MOVANTIK as a new treatment option is an important component to building the OIC market. Month-over-month US MOVANTIK prescriptions are growing nicely, and weekly prescriptions for the week ended April 22nd, were 7,700. This translates to an annual run rate of approximately $110 million as of today.

AstraZeneca and their marketing partner, Daiichi, continue to be pleased with the favorable reception that the medicine has received, so far, from the medical and patient communities.

We recently received the $28 million payment from AstraZeneca related to Nektar's 40% portion of the up-front payment for the European agreement for MOVANTIK with Prostrakan. We will also receive 40% of the additional milestone payments paid by Prostrakan to AstraZeneca for expected European country pricing approvals in 2016. Prostrakan is highly focused on the success of MOVANTIK Europe, and they have deep expertise in marketing pain medication. We look forward to them building the OIC market in Europe.

Now let's talk about the tremendous progress Baxalta has been making with ADYNOVATE for hemophilia A, which was launched in November of 2015 in the US. Last week, Baxalta provided an update on the ADYNOVATE launch highlighting the blockbuster potential of ADYNOVATE. They noted that they have already achieved 60% penetration at hemophilia treatment centers with positive patient and prescriber response.

In March of this year, Baxalta filed for approval of ADYNOVATE for Europe. In early April, ADYNOVATE was approved in Japan, Baxalta has also filed for approval of ADYNOVATE in Canada and Switzerland. They continue to invest in ADYNOVATE to position this new treatment to grow and lead the global market for hemophilia A. As a reminder, Nektar 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 $55 million in sales milestones.

As we've stated in the past, the economic potential for MOVANTIK and ADYNOVATE alone could contribute substantial revenues to Nektar and move us towards becoming a cash flow-positive company.

In the area of anti-infectives, Amikacin Inhale and Cipro Inhale are being developed by Bayer, and they are also poised to become important new potential medicines that could represent significant revenue for our Company. Bayer expects data readouts from these Phase 3 programs in 2016 or early 2017.

Cipro DPI is targeting non-cystic fibrosis bronchiectasis. The Phase 3 RESPIRE program features two 48-week studies, and Bayer has completed the first trial for Cipro DPI, and the second study is expected to be completed in the second half of this year.

We currently expect that Bayer plans to submit results from these trials for presentation at medical meetings sometime this year. We estimate the market for Cipro DPI to be about $750 million, and Nektar will receive an average 10% royalty on net sales.

Amikacin Inhale targets ventilator-associated gram-negative pneumonia in the ICU setting. Bayer is expected top-line data from the Amikacin Inhale Phase 3 program late this year or early 2017. We estimate the global market for Amikacin Inhale to be approximately $700 million, which could translate into highly significant revenues for Nektar, as we will receive a flat 30% royalty on US sales and an average 22% royalty on ex-US sales.

I'd like to give you a brief update on another significant partnered program for Nektar, Opthotech's Fovista for wet AMD. Opthotech recently confirmed that the two Phase 3 trials combining Fovista with Lucentis are both on track to deliver top-line data in the fourth quarter of this year. Based upon this timing, and if the studies are successful, Opthotech believes that since Fovista has fast-track status at the FDA, they could qualify for priority reviews since other wet AMD drugs have been given priority review.

If that occurs, that would allow them to launch Fovista in the fourth quarter of 2017. In addition to earning a mid single-digit royalty, Nektar's manufacturing will support the commercial supply chain for Fovista. The current market for Therapeutic's treating AMD is approximately $6 billion, so the Fovista product sales and royalties represent a very large opportunity for Opthotech and Nektar.

Our partnered portfolio and our wholly owned pipeline candidates highlight the strategy we've undertaken at Nektar to carefully balance our development risks across multiple drug candidates and different therapeutic areas. The strategy has served us well and has resulted in a deep and valuable portfolio, which includes two approved and launched medicines with partners in MOVANTIK and ADYNOVATE; five Phase 3 partnered programs, which add significantly to our royalty revenue potential, and two highly valuable wholly owned drug candidates, NKTR-181 for chronic pain patients and our first clinical stage immunooncology therapy, NKTR-214.

As a new opioid analgesic molecule with properties that are inherent to its molecular structure, NKTR-181 could emerge as a very important drug to treat patients with moderate to severe chronic pain. Opioid abuse is a major societal problem, which continues to be at the forefront of national news.

NKTR-181's slow rate of entry into the brain is designed to reduce its euphoria and likeability as compared with highly abused opioids and opioid formulations. NKTR-181 is also designed to cause less respiratory depression and sedation, which could dramatically improve its safety profile over other opioids.

Finally, since NKTR-181's properties are inherent to the molecule and are not a result of a formulation, and it is not a precursor to a highly abused rapid-acting opioid, it could also address the very serious issue of diversion in this country.

In immunooncology, NKTR-214 has the potential to bring a new mechanism, direct and selective stimulation of a patient's cancer-fighting T-cells to the next generation of cancer immunotherapies. In essence, NKTR-214 grows tumor-killing T-cells in a way that no other immunotherapy does. We've seen compelling data in our preclinical studies with NKTR-214 including NKTR-214's effect on increasing tumor-killing T-cells within the tumor itself. NKTR-214 has incredibly promising preclinical anti-tumor activity, both as a single agent and in combination with a wide range of other IL therapies such as checkpoint inhibitors, vaccines, and CAR-T therapies.

We are very excited to be working with MD Anderson and Yale on the first clinical study of NKTR-214, and Ivan is going to take you through this study design in a moment.

Given the great potential and excitement around immunooncology, we are very excited to be developing a drug that could become a centerpiece in this evolving landscape. In addition, we are also working on other IL and immunotherapies in research, such as NKTR-255,our IL-15 candidate, which could also play a complementary role to NKTR-214. We will continue to grow our research effort in this area.

We are very excited about the opportunities ahead of us with NKTR-214 and with NKTR-181, and I'll now hand the call over to Ivan to give you a quick update on both programs.

Thanks very much, Howard. I'd like to start by giving you an update on NKTR-181. First, as we stated last quarter, enrollment in our ongoing pivotal efficacy study, SUMMIT-07 is ahead of schedule, and we're on track to have our top-line data from this trial in the first quarter of 2017.

As a reminder, the trial utilizes and enriched enrollment randomized withdrawal design and is evaluating NKTR-181 in approximately 600 opioid-naive patients with chronic low back pain.

Patients from the ongoing SUMMIT-07 are also rolling over into the 52-week long-term safety study of NKTR-181, which was initiated last year as well. We'll also be initiating a human abuse liability trial, which we will design with the FDA's guidance under our fast-track status to support abuse deterrent labeling and scheduling for NKTR-181.

We intend to start this trial in the second half of the year so we can complete it around the same time as SUMMIT-07 is completed.

As Howard stated, NKTR-181 could become important in the fight against opioid abuse. We know that agonism of the new opioid receptor is the best way to treat many chronic pain conditions, but, to date, formulation approaches with opioids have not sufficiently addressed the abuse problem and other concerns with opioid medications. This has left positions with the challenge of treating chronic pain patients effectively while balancing the risks of opioids, the risks of opioid abuse, obviously, but also the concurrent risks of opioid respiratory depression and other side effects like somnolence.

Because NKTR-181's properties are inherent to its molecular structure, and it can't be converted to a more rapidly acting potential dangerous opioid, NKTR-181 would represent a significant advancement in pain medicine for physicians and patients.

Now let's move on to what we're doing in immunooncology and, in particular, the progress we are making with our Phase 1-2 trial for NKTR-214. As Howard mentioned, the dose escalation portion of this study is proceeding on track. We still expect to report preliminary top-line data sometime in the second half of 2016.

This first stage of the trial is evaluating single-agent NKTR-214 given once every three weeks in escalating dose cohorts, and it's being conducted at MD Anderson and Yale Cancer Center.

This dose escalation portion of the trial includes patients with melanoma and patients with renal cell carcinoma amongst others. In addition to evaluating tumor responses and safety, we are also capturing important biomarker data from both plasma samples and tumor biopsies.

As we have stated in the past, although the first stage of this trial is open label, we will wait until we have data from a meaningful number of patients before we provide any results and, as I said, we're on track for that to occur sometime in the second half of this year.

Once we determine the recommended Phase 2 dose from the findings of this first stage of the trial, we plan to expand into specific tumor cohorts to evaluate the efficacy of NKTR-214 as a single agent.

We are also planning a combination dose-escalation trial for NKTR-214 with an anti-PD-1 agent, and we plan to initiate this in the second half of the year.

With that, I am going to hand the call over to Dr. Jonathan Zaleski, who is our Vice President of Biology. He is going to discuss some interesting new findings we recently presented at AACR with respect to T-cell clonality and, in particular, the findings with respect to combination work we've done with NKTR-214 and an anti-PD-1 agent.

Thanks, Ivan. I'd like to spend a few minutes reviewing the very exciting tumor-infiltrating T-cell clonality data, which we presented recently at the AACR conference in New Orleans. As you know, with NKTR-214, we biased receptor subunit binding within the IL-2 receptor complex in order to stimulate the production of tumor-killing cytotoxic T-cells and natural killer cells and minimize the production of regulatory T-cells, which suppress the anti-tumor response.

This unique mechanism of immune system replenishment and stimulation of the tumor microenvironment highly differentiates NKTR-214 from other immunotherapies. The new clonality data at AACR demonstrates how this mechanism translates into highly synergistic activity with the mechanism of checkpoint blockade.

Now, we conducted a T-cell receptor, also known as TCR repertoire analysis, which was designed to assess both anti-tumor T-cell clonality and T-cell tumor infiltration. The sequencing methods we used for TCRs in the tumor leverage the immunoSEQ platform from adaptive biotechnologies.

Now, before we discuss the data and its significance, I'd like to take a moment to describe the concept of TIL clonality from the basic immune system perspective. Antigens that originate from the tumor are engulfed by antigen-presenting cells and presented on the cell's surface in major histocompatiblity complexes. The antigen complexes stimulate the activation and proliferation of T-cells that bear the unique TCR that's specific to that complex.

Now, this is a key feature of the exquisite specificity in the immune system as in this biological program only the T-cell with TCR specific for that antigen proliferate. And with this proliferation comes an increase in the population of T-cells stimulated by that antigen complex and, therefore, the total T-cell diversity will decrease as the tumor environment fills up with large numbers of clonal T-cells. And these cells express the specifically defined TCRs.

And we refer to such a population as oligoclonal meaning that clonality has increased and now a small number of T-cell clones have proliferated and expanded to take up the entire space. Thus, the clonality increase in the tumor suggest an increase in tumor reactive T-cell function. And because of this, total clonality is emerging as a very important biomarker in clinical studies of immunooncology agents.

Many of you may be familiar with the groundbreaking paper that was published in Nature by Wolchok and Reebus (ph), where they closely examined the phenomenon of TIL clonality in order to better understand its correlation to clinical response and survival outcome for cancer patients.

Now, essentially this paper found that the concomitant presence of both TIL clonality and abundance of TIL are significantly correlated with clinical response and better survival outcomes in patients.

So what we saw with NKTR-214 and what was reported at AACR is that NKTR-214 increased both of these parameters within the tumor. In fact, NKTR-214, as a single agent, produced a better TIL clonality profile than either anti-CTLA-4 or anti-PD-1 alone. And this is truly exciting because in this study, the TIL clonality with single-agent anti-PD-1 was low and virtually identical to the vehicle control.

The combination of NKTR-214 and the checkpoint inhibitor resulted in dramatically higher increases for both of these important parameters. TIL clonality and TIL infiltration as compared to dual checkpoint inhibition.

The highest increases in both of the markers occurred when NKTR-214 was added to an anti-PD-1 therapy.

So as Ivan stated earlier, our preclinical research including this new clonality data continued to show NKTR-214 can be an ideal combination drug in the evolving landscape of immunooncology because, in the end, every therapy benefits from an agent that grows T-cells like NKTR-214.

And, with that, I'll turn the call over to John for a discussion of our financial results.

Thank you, Jonathan, and good afternoon, everyone. I will start with a brief review of Nektar's first quarter 2016 financials and then I will go through our annual financial guidance for this year.

Total revenue in Q1 2016 was $58.9 million versus $108.8 million in the first quarter of 2015. This decrease was due to the recognition of the $90 million, one-time milestone in Q1 2015 from AstraZeneca for the US launch of MOVANTIK.

In the first quarter of 2016, we recognized $28 million for our portion of the up-front license payment AstraZeneca received from Prostrakan for exclusive marketing rights to MOVANTIK in Europe. Of note, although we recognized this payment in Q1, we did not receive the cash until April. So our Q1 2016 ending cash balance of $288.3 million does not include this $28 million.

Total operating costs and expenses for the first quarter of 2016 were $68.4 million versus $65.8 million in the same quarter a year ago.

R&D expense was $49.3 million in the first quarter of 2016 compared to $47 million in the first quarter of 2015. The increase is primarily due to NKTR-181 Phase 3 program and the initiation of the NKTR-214 Phase 1-2 clinical studies.

Research and development expense also included approximately $5 million of noncash, stock-based compensation and depreciation expense.

For the first quarter 2016, G&A expense was essentially flat versus the same quarter a year ago at $10.2 million. This included approximately $3 million in noncash expenses.

Cash and investments at March 31, 2016, were $288.3 million as compared to $308.9 million at the end of 2015. Again, the cash balance of $288.3 million at the end of Q1 does not include the $28 million cash payment received from AstraZeneca in April for the Prostrakan agreement.

Our financial guidance for this year is unchanged from the last conference call.

Revenue for 2016 is expected to be between $155 million and $165 million. Our 2016 revenue guidance includes approximately $40 million of up-front and other milestone payments in connection with AstraZeneca's license, MOVANTIK to Prostrakan in the EU. 2016 revenue guidance also includes approximately $22 million of royalty revenue from MOVANTIK representing sales in Q4 2015 through the end of Q3 2016 as we recognize royalties one quarter in arrears.

Our revenue guidance also includes approximately $24 million of noncash royalty revenue from UCB's Cimzia and Roche's Mircera. We expect our 2016 GAAP R&D expense will be roughly consistent with our expense in 2015 with a range of $180 million to $190 million. This includes approximately $19 million of noncash items such as stock-based compensation and depreciation expense.

2016 G&A is anticipated to be between $40 million and $42 million, which includes $11 million of noncash expense. In 2016 we still expect our net use of cash will be less than $110 million and, as a result, we still plan to end 2016 with approximately $200 million in cash and investments.

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

Thank you. (Operator Instructions) Jessica Fye, JP Morgan.

Hey, there. Thanks for taking my questions. I have a couple on Q14 (ph). First, can you remind us of your pre-clinical safety data, and is there any risk that that might not translate into a wide therapeutic window in humans? And in addition to that, can you talk about how you'll select a go-forward dose in the event you don't hit a clear dose-limiting toxicity? Or do you expect to?

Okay, thank you, Jessica. Well, I think, look, a good question. At this point, I can say that we see no evidence of vascular leak syndrome, which was clearly the problem with Proleukin, and we set out to avoid that problem with our new molecule.

I can let Ivan comment somewhat on how we intend to proceed, but at this point we're seeing no evidence of vascular leak syndrome, which gives us great confidence that what we saw in our animal models will translate similarly into humans. And I'll actually let Jonathan comment a little further on that.

Yes, thanks, Jessica. So from the non-clinical perspective, we did a full toxicology assessment in multiple species including small and large mammal species. We mapped out the dose responses associated with effect and also we mapped out a maximum tolerated dose.

And then we did a very standard approach towards picking a maximally recommended starting dose in humans, where we applied a tenfold safety factor on the maximum tolerated dose from the most sensitive species, which was the monkey. And that was used and, of course, approved by the FDA in allowing us to open the clinical trial. So everything looks very consistent from that approach.

And I'll turn it over to Ivan for the clinical.

Hi, Jessica. So, yes, your question was if we don't find an MTD. Well, clearly the Phase 1 study is primarily designed to identify an MTD and to look at safety. So we'll be looking at safety signals.

But, importantly, we have a very comprehensive array of biomarkers included in the study. These include blood biomarkers as well as tissue biopsies, and, clearly, we're going to be doing scans throughout the study, too, so we'll be looking for responses.

And, therefore, I think if we don't see -- clearly define an MTD, we're going to look at the other signals that we get. The biomarker signals, the scan signals that we get to help us define the dose that we'll take into Phase 2. But as we've stated on several times, we will not be sharing any clinical data until the second half of 2016.

Okay, got it. And you alluded to getting to sort of a critical mass of patients before sharing that data, but can you elaborate on how many patients that might be? I think people are trying to, sort of, extrapolate from the response rates we've seen from Proleukin and, I guess, the number of patients and figure out what the bar is for a response rate. But can you, a, address that number of patients' question and, b, you mentioned a bunch of other, sort of, metrics that you'll be evaluating as you think about the potential efficacy. So can you maybe speak to that as well?

So it's a typical 3+3 design, so we plan to go through five or six doses. So that could equate to about 20 patients, but if we want to put more patients in at certain levels, that could increase the number anywhere from 20 to 40 patients.

I can't be specific on other outcomes at this point, but, clearly, in response to your first question, we'll be looking at this somewhat holistically.

Bert Hazlett, Ladenburg.

Thank you. Thank you for taking the question. My question is also on 214, and it's a simple one, but I think the answer may be a little bit more delicate. Could you just describe how you're thinking about the combination of 214 and the checkpoint inhibitors when you're considering dosing? Could you just give us a framework -- how do we think about the interactions of the two types of molecules and how you're looking to optimize that or even explore that initially and over the long term as you consider the types of molecules you're dealing with?

Well, Bert, that's a good question, and I'm going to let Ivan comment a little bit on that, but I'd like to say that it's imperative that those types of studies go on. Because, if you think about it, checkpoint inhibitor, if you don't have sufficient lymphocytes in the tumor, the checkpoint inhibitor is not going to do anything very important in that tumor setting.

So the key is to put sufficient lymphocytes in the tumor, make that cold tumor hot, and then the checkpoint inhibitors can effectively release the brakes. So the combination of something like NKTR-214, which will take a cold tumor and make it hot, then combine that with checkpoint inhibition, I think, is a very, very important combination in immuno- oncology.

I'm going to let Ivan go into a little more detail on how we'll be studying that.

Thanks, Bert. So, clearly, we are thinking about the design of a combination study at this point. It will be very likely a combination with a PD-1 inhibitor. Regarding the dose, there are open questions whether we do these sequentially or give them in combination. Likely, we will start with a low dose of 214, depending on what we define as our dose to monitor be going into Phase 2.

But I think why do we pick a PD-1? Because we have some terrific pre-clinical data that speaks to that, and I'll let JZ speak a bit more to the sort of efficacy we've seen in pre-clinical models.

Sure, thanks, Bert. Certainly, the pre-clinical work that we did, allows us to make some rational approaches to considering dosing because in the pre-clinical model, we had a chance to sequence the agents, whether we evaluated the checkpoint inhibitor given first or NKTR-214 given first.

And then we compared that to the non-overlapping parts of their mechanism. And, certainly, as mentioned by Howard and also by Ivan, we know that there are certain immunological features that we'd like to install into the tumor microenvironment. And when we change that activation state, the increase in TIL the activation of those TILs as well, and then combine that with a checkpoint inhibitor to allow those TILs to not be swayed by the tumor's immunosuppressive mechanisms. That really gives the best therapeutic effect that we observe in the pre-clinical studies. So we can take all of that learning into consideration as we design the combination study.

Thank you. And then so we should not think of, really, the combination studies proceeding with -- how do I put it -- with any materiality or with any urgency until we're really informed by the 214 single-agent study.

No, I don't think so. I think we will be -- I think we have enough pre-clinical data to suggest that the combination is going to be extremely effective, and we will be starting combination studies in the second half of this year before we announce the final readouts on the monotherapy study.

So we are currently designing those combination studies. We'll be commencing them in the second half of this year, and they will be running and I think, hopefully, very effectively when we discuss the single-agent data.

Jonathan Aschoff, Brean Capital.

Thank you. Howard, I was wondering -- how will the upcoming HAL study differ in design from the prior one that you did if by more than just patient number?

Hi, Jonathan. I think -- look, I think it's not just an issue of patient numbers. Of course, it will have a larger number of -- actually, they're not patients, they're recreational drug users -- but in any case, I think the issue will be how high up in dose do we need to go? What will be the therapeutic dose of NKTR-181 and what dose in the HAL study will we have to go to to demonstrate a lesser likeability, if you will?

I think that's an issue of a discussion with the FDA. We're currently designing that study. It will, obviously, have a placebo arm as well as an active opioid arm, and the issue will be how high does the active opioid go? How high does NKTR-181 go in terms of dosage?

But I think that's the issue that has to be worked out with the FDA, and there are pretty clear standards for doing this. So I don't think that this study will have a lot of subjectivity to it.

Okay, so are you saying that the earlier one did not potentially go up high enough in 181 dose?

No. The Phase 2 HAL study went up to 400 mg, and we saw a statistically significant difference between that and 40 mg of oxycodone. But I think in a Phase 3 HAL study you will have to push the NKTR-181 dose higher to comply with FDA regulations. But I don't see that as a particular issue right now, just something we have to do.

Okay. Can you give us any sense of how high?

We haven't worked that out with the agency yet, so I can't comment, Jonathan.

Okay, and another one non 181 -- I was wondering what kind of treatment is that -- do you think you'll need to see to move forward commercially or, perhaps, it might be easier to comment on what level of treatment effect, even if that [sig] in Phase 3 perhaps would disincline you from commercializing it given what else is out there?

I'm going to let Ivan take that one. Go ahead.

Thanks, Jonathan. Well, look, as you know, pain studies are notoriously hard to run. [Everyone] sees enormous ranges in pain studies. So if you look at the literature, you see separation placebo, anyway from the 0.25 range or even lower up to -- above the 1.0, and I'm talking about the delta here.

We've designed this study to demonstrate statistical significant separation from placebo to reject the [now] hypothesis, and I believe it was successful in doing that based on the number of patients we have in each arm of the study, which is currently 300. Then we will have very good reason to take this forward and initiate the second study.

Yes, Jonathan, let me add to that. I mean, clearly, NKTR-181 has to perform as an analgesic, and it has to perform reasonably well as an analgesic, and we'll get that data from the comparative Phase 3 study.

But let's understand what the market really is here. I mean, this is a market that is desperate for a safe opioid. If you look at the euphoria that is caused by current formulations, even they've used the current formulations, you know that almost every one of them can be broken, and it adds to a very, very significant societal problem we have with drug abuse.

And if you look at sedation, and if you look at respiratory depression, I mean, I think you can't pick up a newspaper without reading about the problems associated with traditional opioids. Remember, this is an NCE. This isn't a formulation. It is a new opioid molecule. And as long as it works reasonably well as an analgesic, and it has significantly less euphoria, less sedation, less respiratory depression means it's, overall, a much safer opioid. I think there's an enormous market for a drug like that.

Okay, and, Howard -- how is the appeal resonating? The twice-weekly ADYNOVATE versus, in particular, Biogen's Eloctate?

I can't comment on that. I really don't have that information, but I can tell you that there's no doubt that ADYNOVATE is doing well in the market, so far. They have a 60% penetration already at the hemophilia centers, and you must understand something about ADYNOVATE. When we designed that molecule, we designed it to be a full-length Advate molecule. These patients that are doing well on their hemophilia treatment, and Advate being the most important hemophilia treatment out there, given that they have the largest share of the market, those patients are very stable on that drug. They were looking for a longer-acting Advate.

So when we designed ADYNOVATE, we didn't come up with a completely different molecule. We didn't come up with something that would take the patients off their current therapy. ADYNOVATE is full-length Advate with a much better PK profile. And that's the reason that I believe Baxter is going to do very, very well with it. And the patients are going to be very comfortable with it because they really aren't switching their medication, they're just getting a longer-acting version of the exact same medication.

(Operator Instructions) David Steinberg, Jefferies.

Thanks and good afternoon. On ADYNOVATE, another question. Baxalta had some slides last week. They didn't have a conference call, but they said that its share had stabilized since the launch. It sounds like it's been on the market four or five months. Is there any additional color you can give us on the launch? And, if not, do you think it's still going to reach -- I think they projected 30% to 40% switch rate. I know (inaudible) any comments on if you think that's still the goal, or could it do better than that?

Well, look, they believe that the Advate performance has stabilized. But I think, overall, they see this as a blockbuster drug. Now look at Advate. It sells over $2 billion a year. I can't comment on where they think they'll go specifically with ADYNOVATE, but I think they, over time, expect to gain a large portion of that as ADYNOVATE sales.

So it certainly takes time. There's information that has to be developed. There's patients that have to get comfortable with it, but they clearly look at this as a blockbuster drug. I mean, they see this as a billion-dollar-plus drug without any doubt.

So I think -- you know, it hasn't been on the market long enough to get to that level, but let's watch it, over time. And as I said, the most important thing is that it is full-length Advate, and that is really the advantage here.

It would have been much simpler to make a different molecule. The complexity in designing this drug came from taking Advate, keeping it full-length and making it -- giving it a much better PK profile. That was extremely challenging, but the advantage, in the end, is that in the marketplace, these patients are not really switching medications. They're taking a better version of the same drug. That's why I think it's (background noise) very well.

Right, and just to pick up on that, what you said about PEG Advate in the context of a couple of business questions. So given what you're thinking about PEG Advate and what Baxalta said, and given the launch of MOVANTIK, so far, and given your current royalty stream, do you think those three components are enough to get you to profitability or at least breakeven as you look at your P&L going forward?

Well, look, I think if you look at the potential for MOVANTIK, which Nektar and AstraZeneca both believe is ultimately a billion-dollar-plus drug. If you look at Baxter, who believes that ADYNOVATE is a billion-dollar-plus drug, I think, as I said, both the royalty stream from both of those products could move us towards cash flow positive.

If you look at the other programs we have, such as Fovista with Opthotech and Cipro and Amikacin with Bayer, I think there are enormous revenues associated with partner products, which really put us in a very nice fiscal position.

Now, the real tremendous value for Nektar comes in things like NKTR-181 and NKTR-214, which are wholly owned assets. And you could only imagine if NKTR-214 is successful, and so far we know we have very high hopes, NKTR-214 is successful, you can imagine the blockbuster potential of a drug, which becomes the centerpiece in cancer immunotherapy. That makes checkpoint inhibitors work better.

Just remember, checkpoint inhibitors don't make NKTR-214 work better. NKTR-214 makes checkpoint inhibitors work better. We become the centerpiece in cancer immunotherapy, and I think there's enormous value there. So I think Nektar is on a path towards a very, very successful future.

Right, agreed, though, these are high-risk programs. I'm just curious whether what you're -- you have to balance your R&D with these royalty streams. Roughly, what approximation, in terms of years, do you think you could turn profitable based on these three components. And you can add in inhaled Amikacin, add in inhaled Cipro, Opthotech. What's a rough guideline for when you think profitability will ensue?

It's a great question. We discuss it, of course, all the time, because it's highly relevant. We want to be a cash flow positive company. That's our mission. Companies have to become cash flow positive and profitable. There's no doubt about that.

But we don't -- look, I don't give guidance going out more than a year. I can tell you that we're well poised to get there, and we have a diverse set of programs and opportunities ahead of us, and we have a lot of these opportunities have enormous potential.

So do I think we will become cash flow positive and profitable? I absolutely do. That's our mission. But I can't give you guidance going out more than a year.

Okay. And assuming you do turn profitable, I know that they've been building up, but, perhaps, John, could you update us on how many NOLs you have currently that you can apply against future income?

Yes, so we have a combination of state and federal NOLs. So from a standpoint of the federal, we have $1.2 billion. And then in state we have approximately another $0.5 billion in state NOLs.

Michael Higgins, Roth Capital Partners.

Hi, guys, thanks for taking some questions. Other questions today, but I wanted to talk about 255, if I could. What are the internal gating factors looking for before we see this moving into the clinics? And does it have any impact on what you're seeing from 214 along the way?

You broke up for a second on the first part of the question. Could you just say it one more time?

Sure. On 255, what are the gating factors internally before we see this moving to the clinic? And is there any impact from what we see -- what you see from 214 on what happens with 255?

Well, I think -- look, I think -- IL-15, NKTR-255, has great synergies with IL-2. So, clearly, 255 becomes complementary, and I think we have a goal of moving that into the clinic as well. And we have a number of other immunotherapy programs underway.

I will let Jonathan comment a bit on how he sees the staging of that.

Yes, certainly, So there are certain immunological features of the IL-15 mechanism that are distinct and non-overlapping with IL-2. And those are some of the key centerpieces of how we're positioning and using that molecule. And thinking about it in the overall armament of immunotherapy regimens.

So it has a very, very defined place in maintaining the longevity of T-cell responses. It's a very important feature. And then it's a very actively pursued program. We have a lot of resources in the research and discovery groups supply to it and working on that, and it's a program that's approaching IND.

[Give the sense] before you can get this to IND status?

Yes, we're targeting an IND for this in 2017.

Thank you, and that does conclude the Q&A session. I will now turn the call back over to Howard Robin for closing remarks.

Well, thank all you all for joining us this afternoon, and, of course, I'd like to thank our employees for all their hard work and dedication, as usual, and we've made great progress, I believe, and we look forward to seeing many of you at the various conferences throughout the spring and summer including Deutsche Bank, Roth, Jefferies, and Citibank conferences. So thank you and everyone have a great evening.

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