Nektar Therapeutics (NKTR) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Third Quarter 2016 Financial Results Conference Call. (Operator instructions.) As a reminder, this conference may be recorded. I would now look to introduce your host for today's conference, Miss Jennifer Ruddock, Vice President of Investor Relations. Miss Ruddock, you may begin.

Thank you. Good afternoon everyone, and thank you for joining us today. With us are Howard Robin, our President and CEO; Jon Nicholson, our Chief Operating Officer; Gil Labrucherie, our Chief Financial Officer, Dr. Ivan Gergel, our Chief Medical Officer; Dr. Steve Doberstein, our Chief Scientific Officer. And we also have with us Dr. Jonathan Zalevsky, our Vice President of Biology, and Dr. Mary Tagliaferri, our VP of Clinical Development.

On this call, we expect to make forward-looking statements regarding our business, including potential regulatory approval decisions and commercial launching timings, the timing of future clinical trials, clinical development plans, the economic potential of our collaboration partnerships, the therapeutic and market potential of certain drugs and drug candidates, as well as those of our partners, our financial guidance for 2016 and certain other statements regarding the future of our business. Because these 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, filed on August 4th, 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.

With that, I will now turn the call over to Howard. Howard?

Thank you, Jennifer, and thanks to everyone for joining us today for our third quarter 2016 call. On today's call, we'll discuss our progress over the last quarter and also review the significant upcoming catalysts and milestones for Nektar expected over the next six months.

We had a very successful third quarter. Positive clinical data from our ongoing Phase 1 trial of NKTR-214 led to a broad clinical collaboration with Bristol-Myers Squibb to evaluate combination regimens with their anti-PD-1 agent in five different tumor types and at least seven different indications. This is the first of a number of strategic collaborations we plan for NKTR-214, all of which will allow us to retain ownership of this program and position NKTR-214 to emerge as a keystone in immuno oncology.

I'll talk more about our strategy with NKTR-214 in a moment. We will also continue to make great progress with NKTR-181. We are on track for a proprietary program for autoimmune disease, NKTR-358, to enter the clinic. Ivan will provide some more detail on this later in the call.

First, I'd like to begin with a few comments on Movantik. As of October 21st, over 453,000 total prescriptions for Movantik have been filled in the US. AstraZeneca and Daiichi Sankyo remain very committed to building the market for Movantik. Their efforts to gain primary and preferred reimbursement status for Movantik have been very successful, and as we enter 2017, these accomplishments will continue to drive Movantik's commercial performance. AstraZeneca and Daiichi Sankyo both believe in the blockbuster potential for Movantik, and to that end, they're continuing to execute an unbranded OIC awareness campaign, as well as Movantik-specific DTC advertising, with a new campaign planned to start before the end of this year.

In the US, Movantik prescriptions continue to grow. Weekly prescriptions for the week ended October 21st totaled about 9,600, roughly about a 10% increase from a quarter ago. This translates to an annual run rate of approximately $145 million at the current WAC price of about $290 per monthly prescription.

In Europe, Kyowa Kirin is advancing nicely with country launches and reimbursement for Moventig. Pricing in the UK and Germany are already in place, and those launches are underway. In Q3, Kyowa Kirin received reimbursement for Movantik in Spain, and they expect to receive reimbursement in Italy by year-end, and France in early 2017. Both companies continue to be extremely pleased with the favorable feedback from patients and physicians after experience with Movantik, and the weekly refill rate is a very high 40% to 50%.

Now let's talk about the positive progress of Adynovate for hemophilia A, which was launched in the US in November 2015. The Adynovate launch is progressing with Shire reiterating that they are fully committed to the hemophilia franchise, and that Adynovate clearly fits an unmet need in the marketplace, and they're highly focused on ensuring patient access to Adynovate. Remember that Advate is the gold standard for treating hemophilia A, and Adynovate is the next-generation Advate.

As a reminder, in Baxalta's Phase 3 trial of Adynovate, no patients developed inhibitors in the trial, and there were no treatment-related serious adverse events. A supplemental BLA to expand the use of Adynovate into pediatric patients and surgical settings was filed in February of this year, and these pediatric data also served as one of the registration trials for the European filing of Adynovate this past March.

With Advate sales exceeding $2.5 billion worldwide, the potential for Adynovate as the next-generation Advate is extremely exciting. As a reminder, Nektar is entitled to receive mid-single digit royalties on sales of Adynovate up to $1.2 billion, and a flat 13% royalty on sales exceeding $1.2 billion, as well as an additional $55 million in sales milestones. Clearly, the economic potential for Movantik and Adynovate alone should contribute substantial revenues to Nektar, as they continue to capture market share.

In addition to these two approved and launched medicines, Nektar has four additional partnered programs, which are poised to have Phase 3 data or a potential approval milestone occur in the next several quarters, Onzeald in Europe with Daiichi Sankyo, Bayer's Cipro DPI, Bayer's Amikacin Inhale, and Ophthotech's Fovista. If successful, these partner programs could contribute to our royalty streams as early as the end of 2017.

First, let's start with Onzeald, which has partnered with Daiichi Sankyo Europe and is currently under review in Europe for conditional marketing authorization. In July, the EMA validated and accepted the Onzeald filing. As you'll recall, the filing is based on the data for Onzeald in a pre-specified subgroup of patients in our Phase 3 trial who had advanced breast cancer with a history of brain metastases. You'll recall that Onzeald doubled overall survival in this subset of patients from 4.8 months to 10 months. Since the Onzeald filing was given an accelerated assessment procedure by the CHMP, the review has been shortened to 150 days, and so we expect to have a decision on the conditional approval by March of 2017.

Upon the first sale of Onzeald in Europe, we will receive a $10 million milestone, and we will also receive 20% royalties on all net sales in Europe. The milestone and royalties we receive from Daiichi Sankyo will help to fund the confirmatory trial for final approval in Europe, which will also serve as the registration trial for Onzeald in the US. Importantly, Nektar retains the rights to market Onzeald in the US and the rest of the world. As a reminder, we will also get an additional milestone payment of $25 million from Daiichi upon final approval in Europe.

In the area of anti-infectives, Cipro DPI and Amikacin Inhale, two separate programs being developed by our partner, Bayer, are poised to complete their Phase 3 programs shortly. In Q3, Bayer presented highly positive data from the first respire trial of Cipro DPI in adult patients with non-cystic fibrosis bronchiectasis. These data were presented at the European Respiratory Society International Congress, which was held in London in early September. Both primary endpoints were met in the trial for the 14-day on/off dose regimen of Cipro DPI. You'll recall that two identical respire trials evaluated treatment with Cipro DPI over a 48-week period. In respire 1, Cipro DPI significantly prolonged time to first exacerbation versus placebo with a P value of 0.0005, and significantly reduced frequency of exacerbation versus placebo with a P value of 0.0061. The treatment was also well tolerated, with the frequency of treatment emergent adverse events similar across groups.

As a reminder, Nektar is entitled to receive an average 10% royalty on sales of Cipro DPI. For Amikacin Inhale, we will receive a flat 30% royalty on US sales, and an average 22% royalty on ex-US sales. The data from this Phase 3 program is still on track to report in the first half of 2017. So we look forward to Bayer's announcements with the data from these Phase 3 programs over the next several quarters.

Another key partnered program with an upcoming Phase 3 data catalyst is Ophthotech's Fovista for wet AMD. Ophthotech recently confirmed that they are on track to deliver topline data from their Phase 3 program by the end of the year. With the potential for a priority review in this indication, Fovista's positioned for a potential launch in the fourth quarter of 2017. The current market for therapeutics treating wet AMD is $6 billion. We will get a mid-single digit royalty on net sales of Fovista, which represents a substantial opportunity for Nektar. In addition to earning a royalty, we have an exclusive manufacturing arrangement with Ophthotech to support the commercial supply chain for Fovista, and so we will also recognize revenue from product sales.

So now, let's move on to cover our proprietary pipeline. As you know, Nektar has built an impressive pipeline with four highly valuable, wholly owned drug candidates in the therapeutic areas of immuno oncology, pain, and immunology. In IO, we have NKTR-214 and NKTR-255, which capitalize on the IL-2 and IL-15 pathways to stimulate tumor-killing T cells and memory T cells. In pain, we have NKTR-181, a novel opioid molecule in Phase 3 for chronic pain. And in immunology, we have NKTR-358, our first autoimmune disease candidate, which is planned to enter the clinic in Q1 of 2017.

I'll comment briefly on these pipeline programs, and then Ivan will provide more detail on clinical development plans. Starting with NKTR-214, we really are extremely excited about the initial clinical data for NKTR-214 and the potential of NKTR-214 to transform the immuno oncology landscape. NKTR-214 is the first medicine that has now demonstrated in humans that is can selectively stimulate the in vivo proliferation and accumulation of endogenous tumor-killing lymphocytes within the tumor itself. To date, in the IO field, the only way to accomplish this at all effectively has been through ex vivo techniques, which can be coupled with significant toxicities.

NKTR-214 also has an extremely attractive and accessible profile as a medicine. It has an antibody-like dosing regimen and has now demonstrated a well-tolerated and favorable safety profile in humans. NKTR-214's compelling biologic profile complements not only the existing checkpoint inhibitor class of drugs, but also other mechanisms in development in IO.

The missing medicine in immuno oncology right now is an agent that can activate the immune system and increase the amount of TILs in the tumor microenvironment. This is important because of how agents like checkpoint inhibitors work. Remember, drugs look checkpoint inhibitors target the patient's immune system, not the tumor itself. The immune cells need to be active and abundant in the tumor in order for checkpoint inhibition to work. We have now demonstrated in cancer patients that NKTR-214 grows immune cells in the tumor microenvironment. And because of the clear evidence that we've now demonstrated with NKTR-214's ability to grow TILs in the tumor and turn cold tumors hot, companies are now coming to us to combine NKTR-214 with their various IO mechanisms in development. As we evaluate collaborations for NKTR-214, each partner and development program will be carefully chosen to position NKTR-214 strategically with multiple IO mechanisms within a rapidly evolving landscape.

As our first step forward on this front, we signed a very important clinical collaboration in the third quarter with Bristol-Myers Squibb, which brings together NKTR-214 with Opdivo, the leading anti-PD-1 antibody. The very broad clinical program with BMS will include five different tumor types, and at least seven clinical trials -- most likely more -- in patients with melanoma, kidney, triple negative breast, bladder, and non-small cell lung cancers. As I said earlier, the BMS collaboration is the first of several we plan to enter into with NKTR-214. The BMS collaboration allows us to advance NKTR-214 in combination with checkpoint inhibition more quickly and more comprehensively than if we had conducted this work on our own, and it allows for cost sharing of the trials, with Nektar still retaining full ownership of NKTR-214.

Additional collaborations will allow us to combine NKTR-214 with other IO mechanisms beyond checkpoint inhibition where the biologic rationale is strong, such as cancer vaccines, adoptive cell therapy, small molecules, and other biologics.

I look forward to seeing many of you at the SITC conference next week in Maryland, where new clinical data from the ongoing Phase 1 dose escalation trial of NKTR-214 will be presented by our two lead investigators in the trial, Dr. Adi Diab of MD Anderson Cancer Center, and Dr. Mario Sznol of the Yale Cancer Center, who is also the president-elect of SITC.

We continue to work on our IO portfolio, which includes NKTR-255, our IL-15 candidate. NKTR-255 is a memory T cell agent that plays a complementary role to NKTR-214. Additional targets in our discovery pipeline include ones that directly modulate the immunosuppressive mechanisms in the tumor microenvironment, and also targets that impact myeloid cell biology. Our goal is to file an IND for NKTR-255 or another IO candidate from our research pipeline in 2017. As we continue our research efforts in IO, we are working on small molecule programs, as well as biologics.

Now, turning to our immunology work, we are very excited about NKTR-358, Nektar's new autoimmune disease candidate, which is designed to stimulate the growth of the body's own regulatory T cells. A medicine which directly increased production of T regs in vivo has long been a goal in immunology. With the experience that we gained in the development of NKTR-214, and our ability to develop a medicine which activates the proliferation of FILs, we knew that we could harness the IL-2 pathway in the opposing way, specifically expanding T regulatory cells and limiting T effector cells. Unlike current immunosuppressing agents, which globally suppress the immune system to only address disease symptoms, NKTR-358 could be the first medicine to correct the underlying pathology of autoimmune disease.

The preclinical and nonhuman primate data for NKTR-358 are exceedingly promising and highlight NKTR-358's potential to have a profound effect on a number of autoimmune diseases, including rheumatoid arthritis, Crohn's disease, psoriasis, lupus, and graft versus host disease. We're on track to file an IND for NKTR-358 in the first quarter of 2017.

Finally, we are also on track to have topline data in Q1 of 2017 from the Phase 3 efficacy trial for NKTR-181. NKTR-181 could emerge as an important new pain medicine to treat patients with moderate-to-severe pain. Moreover, as opioid abuse remains a major societal problem, NKTR-181's unique properties, attributable to the molecule's inherent structure, position the drug to address the opioids abuse epidemic. NKTR-181's slow rate of brain injury is uniquely designed to reduce euphoria and likability, in stark contrast to the highly abused opioids and opioid formulations available today. The drug's safety profile may also offer additional advantages over other opioids, with a potential for reduced respiratory depression and sedation. Since NKTR-181's properties are inherent to the molecule itself and not a result of a reformulation of a highly abused rapid-acting opioid, the drug could also address the serious issue of diversion in this country.

With that, I'll now hand the call over to Ivan.

Thank you, Howard. Good afternoon. I'd like to begin by giving you a brief update on NKTR-181. First, as Howard just stated, we plan to report topline efficacy data for NKTR-181 in Q1 of 2017, and we now expect the data will come sometime in February or March. NKTR-181 represents a major step forward in the discovery and development of new pain medicines for patients battling chronic pain. As a new chemical entity with inherent abuse deterrent attributes, NKTR-181 is designed to provide the pain relief of a full new opioid agonist, with significantly less abuse potential, less sedation, and less respiratory depression.

As a reminder, we utilized a standard efficacy trial design, which is used in the development of long-acting opioids for the treatment of chronic pain. This design is known as enriched enrollment randomized withdrawal. The trial is evaluating NKTR-181 in 600 opioid na?ve patients with chronic low-back pain. Patients from the efficacy trial are also rolling over into a 52-week long-term safety study, which is evaluating doses of NKTR-181 up to 600 milligrams twice daily. This study has now enrolled over 600 patients, both rollover patients from the opioid na?ve efficacy trial, and de novo patients who are opioid experienced. Due to a higher than expected rollover rate and lower dropout rate in the safety trial, this study will exceed the requirements for ACH safety exposure guidelines at both 6 months and 12 months.

We're also on track to start the Phase 3 human abuse liability trial, known as a HAL trial, in January of 2017. HAL studies are designed to assess the relative abuse potential of a medicine and are conducted in recreational drug users. Our first Phase 2 HAL trial measured drug liking, feeling high, and sleepiness for 100 milligrams, 200 milligrams, and 400-milligram doses of NKTR-181, as compared to 40 milligrams of oxycodone and placebo. You'll recall that this is the dose range that we are using in the ongoing Phase 3 efficacy trial. The results showed that all three doses of NKTR-181 were statistically significant in their separation from oxycodone on each of these measures, with P values less than 0.0001.

The Phase 3 HAL trial will evaluate the top analgesic dose from the efficacy trial, in addition to multiples of this top dose. Standard opioids have high abuse potential at their therapeutic doses, and also have a narrow therapeutic window. We plan to demonstrate in this Phase 3 HAL trial that NKTR-181, even at multiples of its therapeutic dose, is considerably less liked, relative to standard opioids at their therapeutic doses.

Since NKTR-181 is an MCE and not a formulation, these new HAL data are intended to support both favorable scheduling and abuse deterrent labeling for NKTR-181. The pivotal HAL trial is, of course, much shorter than the efficacy trial, and so we expect to complete it in Q2, 2017. As I stated earlier, the inherent properties of NKTR-181 that differentiate it from existing opioids could be pivotal in addressing the prescription opioid abuse problem, and could be transformative in the treatment of chronic pain.

Now, let's move on to what we're doing in IO, and in particular, the progress that we are making with NKTR-214. As you know, we have two clinical data presentations for NKTR-214 at the upcoming SITC meeting in National Harbor, Maryland, which starts on November 9th. As Howard stated earlier, we will host an investor and analyst event, which includes a comprehensive presentation and discussion of NKTR-214 clinical data by Doctors Diab and Sznol. We're exceptionally pleased to be working closely with Bristol-Myers Squibb on the combination trials of NKTR-214 with Opdivo. BMS is the leader in the development of novel IO therapies. We believe their commitment to pursue at least seven indications in five different tumor types for the combination program underscores their conviction behind the potential of NKTR-214. BMS and Nektar believe that the combination of NKTR-214, the first medicine that grows tumor-killing TILs, with Opdivo, a drug that inhibits PD-1, has tremendous promise in advancing the field of immuno oncology.

Nektar and BMS are already screening patients and initiating additional clinical sites for the dose escalation portion of this program, and we plan to start enrolling to the expansion cohorts in the second half of 2017. The first seven expansion cohorts will include a total of 260 patients in the following indications: First line melanoma; second line melanoma; first line renal cell carcinoma; renal cell carcinoma patients who have relapsed following treatment with a PD-1 inhibitor; second line non-small cell lung cancer, with stratification of this cohort based on patients with tumors that express low and high levels of PDR1; first line bladder cancer; and triple negative breast cancer. We're very excited about this broad clinical development program. We believe the combination of 214 with Opdivo will allow us to bring the tremendous benefits of IO therapy to an even greater number of cancer patients. We look forward to the program advancing and generating data over the next 18 months to 24 months.

With that, I'll turn the call over to Gil for a discussion of our financial results.

Thank you, Ivan. I will start with a brief review of the highlights of our third quarter 2016 financial results, and I will then go over the annual financial guidance for the year. Before I review our Q3 results, I would like to update our year-end cash guidance, as a result of the financing we completed last month. We now plan to end the year with approximately $385 million in cash and investments.

For Q3 2016, total revenue was $36.3 million, compared to $60 million for Q3 2015. Q3 2015 included recognition of a $40 million milestone payment received from AstraZeneca related to the EU launch of Moventig. Excluding this milestone in Q3 2015, revenue increased in Q3 2016 compared to Q3 2015. Product sales and gross margin has substantially increased in 2016 from comparable periods in 2015. These increases are primarily due to higher product sales to Ophthotech under our exclusive manufacturing agreement to supply their ongoing Fovista trials, as well as validation batches for their commercial readiness activities.

Total operating costs and expenses for Q3 2016 were $69.2 million, compared to $59.5 million in the same quarter of 2015, as a result of increased R&D investment. R&D expense was $52 million in the third quarter of 2016, compared to $43.2 million in the same quarter of 2015. This increase was primarily due to investment in our clinical programs, including NKTR-181, NKTR-214, and preparations for NKTR-358 to enter the clinic in Q1 of next year. R&D expenses for the quarter included approximately $5 million of non-cash stock-based compensation and depreciation expense.

G&A expense was $10.3 million in Q3 2016, compared to $9.5 million in the same quarter a year ago. This included approximately $3 million in non-cash, stock-based compensation and depreciation expense.

Cash and investments at September 30, 2016 were $253.5 million, as compared to $308.9 million at the end of 2015. The cash balance at the end of Q3 does not include $189.1 million in net proceeds from our October financing.

I will new review our annual financial guidance for 2016, which other than year-end cash, remains unchanged from our most recent guidance. We continue to expect total GAAP revenue to be between $160 million and $165 million. There is no change in our 2016 revenue guidance, and we still expect to recognize a $5 million Movantik regulatory milestone in the fourth quarter for pricing approval in Italy. There is one remaining $6 million regulatory milestone for Movantik in France, which we now expect to receive and recognize in 2017.

We continue to expect our GAAP R&D expense will range between $200 million and $210 million. R&D expense includes approximately $21 million of non-cash stock-based compensation and depreciation expense. We continue to expect G&A expense to come in between $40 million and $42 million, which includes $12 million of non-cash stock-based compensation and depreciation expense. As I previously mentioned, we now plan to end the year with $385 million in cash and investments.

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

Thank you. (Operator instructions.) Our first question comes from the line of Jessica Fye with JPMorgan. Your line is open.

Hey, guys. Thanks for taking my questions. I have a couple on 214. First, wondering if you can give us any more color on the distribution of the patients' responses in your Phase 1 study, i.e., within that group that had the 2% to 25% shrinkage, was that distribution closer to 2% or closer to 25%? And then, as we extend that to patients who qualified a stable disease but maybe had growth, was that closer to single digit, or was that closer to on the border of progression? Also, wanted to just hear a little bit more detail about your appetite to develop 214 as a single agent, or whether you see more value, ultimately, in combination. Thank you.

Thanks, Jessica. Let me take the second part of your question first, and then I'll turn it over to Mary to give you some more detail. I think, look, I certainly strongly believe that NKTR-214 can be developed and will work as a single agent. I mean, if you look at the biomarker data and you look at the data we have collected to date, there's clear evidence of strong biologic activity. I think it becomes a bit of a challenge to develop it as a single agent, given all the excellent drugs that are available in first and second line therapies. And combining with things like checkpoint inhibitors are probably much more useful, because there's going to be a synergistic effect between checkpoint inhibition and a drug look NKTR-214.

So, while I think we could develop it as a first line agent, I think that in the United States particularly, with the advances that people have made with checkpoint inhibitors, I think that it is most likely going to be developed in combination with other modalities. Now, if you look at checkpoint inhibition as one place, you could look at vaccines, you could look at adoptive T cells. There are small molecule approaches. There are small molecule checkpoint inhibitor approaches. There's lots of things that are being done to use the entire IO pathway, if you will, and I think every one of the modalities being developed needs tumors to be hot. You have to have TILs in the tumors for all of these other modalities to work.

So, while I think NKTR-214 will work on its own, its real great value can come in enhancing the effects of all of these other IO therapies, and I'm going to let Mary tell you a little bit more about that and answer the first part of your question.

(inaudible).

Thank you. Our next question comes from the line of Debjit Chattopadhay with Janney. Your line is open.

Hi, this is Mary Tagliaferri. Thank you, Jessica, for your question. We do plan on updating both the qualitative and quantitative data that we presented on September 26 at SITC next week, and we will have an update on all of the patients who had tumor reductions on trial, as well as all the patients who had stable disease that we previously shared with you on September 26. As well, we will go into the biomarker data and have specific quantitative data regarding the CDA-positive T cells in the tumor microenvironment, and also the changes in the peripheral blood. Last, I'd just look to add, we'll have a comprehensive safety update and provide you with an overview of NKTR-214 and its performance as an outpatient regimen.

Thank you. Our next question comes from the line of Debjit Chattopadhay with Janney. Your line is open.

Thanks for taking my questions. Just a couple of questions. First, on the tumor shrinkage, how can you reliably measure 2% tumor volume decrease? Is that within some sort of a range of error, or 2% reduction is a standard kind of measurement and there shouldn't be any errors in that?

Yes, so it's a great question. First of all, the majority of our patients have been enrolled at MD Anderson Cancer Center, and 100 percent of these patients' scans are read by an independent radiology group that reviews all of the radiology scans for any patient that's in a clinical trial. These radiologists have no idea what treatment the patients are on. They're blinded to the treatment the patients are receiving, and they very specifically calculate the sum of the longest diameter of tumor measurements, and all of those are added up, and then a percent calculation is recorded from baseline to the next scan.

So as you expand within the doses that are (inaudible) tumors (inaudible) right now, do you think with longer term follow-up, you would get even better monotherapy activity, or that should not really be the expectation going forward?

Yes, we certainly still, as we mentioned on September 26, and as you'll see next week, we still have patients on study, and I do believe you can have patients who do respond later in treatment. We've had one patient who's been on therapy for quite some time, as we mentioned on September 26. In addition to looking at a Q three-week dosing regimen, we're also looking at a two-week dosing schedule for NKTR-214, and we've already enrolled patients to our first Q14 dosing regimen. This is --

(inaudible).

I just wanted to say we also have launched and started our combination program, and we're currently open at one clinical site, and we're screening patients actively. And certainly, the Q 14-day dosing regimen is extremely important for our collaboration with BMS, where we'll be combining with nivolumab, which is also a Q 14-day dosing.

Great, and then on the PD-1 expression paradox, obviously the response is not necessarily correlated to PD-1 for expression, which (inaudible) except for maybe lung cancer. So I'm trying to figure out in terms of as NKTR-214 specifically increased PD-1 expression, what's the threshold increase that you would need to see a good combinatorial activity with Optivo?

This is Jonathan Zalevsky. That's a very good question. The important thing that we're seeing is that there is a change from the baseline, so that's important to establish. In addition, as we had talked to in September, we are also seeing a change in the proliferative index of the cells themselves. And one of the things that we think is most important is really aligning those two things together at the same time in the tumor microenvironment. Because we know that when the cells are newly proliferative, it means they've undergone a new round of division. And any of the kind of built-up mechanisms of suppression, such as mechanisms of exhaustion or mechanisms of terminal differentiation, those are all reversed when those cells are newly divided. So those are the things that make us very excited, and being able to see that change is why we're going forward with this combination with [nivo].

Great, and one last question on 181. You guided to [data] sometime in February or March. If my memory serves me right, compared to the Phase 2 study, the majority of the patients have 50% to 60% decline in pain scores from baseline. How often do you see a 50% to 65% decline in pain scores from baseline in other pain studies, especially in lower-back pain?

Yes, thanks, that's a good question; very insightful. In our first study, the Phase 2 study that we conducted a few years ago, we only saw a drop of about 40%. I think if you look at the literature and you look across studies, one would like to see drops of around 50% to 55% or more, and I think we're beyond 55%. I think one of the reasons for this is in the first study, the vast majority of patients were treated with -- sort of didn't get beyond the 100 milligram and the 200 milligram dose. We believe that, while those doses may actually work, clearly, 300 and 400 is a more effective dose, and we're seeing the vast majority of patients actually being titrated to the 300 milligram and 400 milligram dose. So we're actually very encouraged by that.

Great. Thank you for your patience. Thanks for taking my questions.

Thank you. (Operator instructions.) Our next question comes from the line of Michael Higgins with Roth Capital. Your line is open.

Thanks, operator. Good evening, guys. Follow-up question on 181. Can you give us a little more detail on the HAL study that's coming up, specifically, what types of abuse you're testing -- snorting, injecting, et cetera?

I'm sorry, could you repeat the question? I didn't quite hear it. I apologize.

Sure, sorry. On the 181 HAL study, the studies coming up here, what types of abuse do you expect to be testing -- snorting, injecting, et cetera?

Actually, this one will be -- this will be oral. This is an oral super therapeutic study, if you like. We're going to test the drug taken as a tablet, which is at its normal fashion. But we're actually going several multiples, potentially, of the top dose that we're testing in the clinic, and we're comparing that to normal dose of oxycodone.

And one thing (inaudible) do you expect to run tests in inhalation and injecting?

So not at this point, but I think that's something we're clearly going to work with the FDA to put together a full and comprehensive abuse sort of program so we can test that. We're obviously very keen to fully elaborate on our profile, because we believe the drug itself is inherent -- it's an NSAID that inherently enters the brain slowly, and therefore should not be associated with abuse potential.

That's an important point, because the rate of entry from plasma to brain is very, very slow compared to typical opioids. So getting it into plasma rapidly via snorting or via injecting, for example, isn't really -- shouldn't really matter all that much. NKTR-181 gets into the brain, crosses the blood-brain barrier very slowly, and consequently, it shouldn't really matter how you administer it, whether you snort it, whether you inject it, or whether you take it orally. As a matter of fact, in some of our Phase 2 -- in Phase 1 and Phase 2 work, it was originally given as a liquid, and patients just drank it, and we measured it that way. So I think the studies, as Ivan said, have to be done, but I wouldn't expect to see any significant problems with those studies.

Okay, thanks. And just a quick follow-up on the timing for the filing, year-end 2017 or back half of 2017?

You're talking about NKTR-218 -- sorry NKTR-181, I apologize. Yes, look, we'll have the results of the first pivotal efficacy study either in the February/March timeframe, and we'll have the results of the HAL study probably around the end of the second quarter next year. That's our expectation. We'll then obviously want to meet with FDA and discuss with them what we're required to file.

But, look, I think this. Certainly, if we have good data from our first Phase 3 efficacy study, as well as good data from the HAL study, we certainly would talk to the agency about some accelerated process. And you know, I can't comment on whether we'd be successful there, but quite frankly, given the serious epidemic of opioid abuse in the United States, and this drug already having fast-track designation, there ought to be at least some willingness to look at a good data set and think about the benefits to society.

That said, we've also talked publicly many times about the desire to partner NKTR-181. I think a drug look NKTR-214 in immuno oncology, we can bring that to market ourselves, and we've said we're going to keep NKTR-214 for ourselves. But a drug like NKTR-181, which requires an enormous primary care sales effort, is the kind of a molecule, or kind of a drug, that I'd want to partner with another company. So if we have successful Phase 3 efficacy and HAL data from that first program, then I think we would be talking to partners about how do we collaborate to run the second Phase 3 study, and then file the NDA.

Helpful. Very good, thanks, guys.

Thank you. Our next question comes from the line of Matt Phipps with William Blair. Your line is open.

Yes, thanks for taking my call. One quick question on NKTR-214. You mentioned the seven kind of expansion cohorts, and I noticed first line lung non-small cell was not on there. Is there any reason for that? And also, then in second line, will that be chemo failures, some kind of checkpoint failure, or looking at both? Thanks.

Thank you. So our second line lung cancer cohort will be those patients who previously progressed on chemotherapy, and we are internally and with BMS talking about a first line program, and we are collecting data. And obviously, BMS just is recovering from their Checkmate O2 study, and internally, they're doing a lot of work to understand why that trial failed. And we will have ongoing discussions about, as Howard said, expanding this collaboration to additional indications.

Okay, thank you.

Thank you. And our next question comes from the line of Bert Hazlett with BTIG.

Congratulations on the progress. We're looking forward to the data upcoming next week. With regard to NKTR-255 and the other programs that are behind 214, how do you expect development of that molecule to proceed? We're talking a lot about combination therapies and combination utilization with 214. How should we expect 255 to proceed, as single agent initially, or combination with 214? Or what's the rational development look like at this point?

Hey, Bert, thanks for the question. This is J.Z. Yes, so with NKTR-255, we've been studying the impact that it has on the immune system. And I think you understand some of the biology of it. Even though it shares a component of the IL-2 signaling receptor complex, it has a lot of different biological properties that are non-overlapping with IL-2. And so, those take it into the realm of stimulating the impact on memory responses in the immune system, particularly down the central memory, the stem call memory, and the effector memory compartments, and also give it some unique properties on natural killer cells and natural killer cell subsets. So we know that there is an opportunity to use the molecule to take advantage of that arm of the immune system.

And then, when it comes to bringing the molecule forward into the clinic, we're still developing the most optimal way, but it is very important in the first in human experience to really start kind of even with baby steps, even in the immuno oncology space. So evaluating the molecule on its own for our first in human experience would likely be a smart way to begin. But then, very much like we understand with the evolving IO landscape, understanding then how to add the biology that NKTR-255 can bring into other IO modalities will be the important way for the future.

Okay, thank you. We'll look forward to updates there. Two other quick ones. Just I think you'd mentioned small molecule IO programs, as well. Could you confirm, does that use your polymer conjugation technology? And then, secondly, could you remind us of the terms of the manufacturing component that you have with Ophthotech, given that it moved the needle in terms of revenue this quarter?

Yes, Bert, this is Steve. Certainly, everything that we're developing in our proprietary pipeline, be it biologics or small molecules, all utilizes our proprietary polymer conjugation technology. Now, we've talked a couple of times today about the possibly of expanding our combination work with NKTR-214 into some small molecule NKTR-214 combinations, and those might be collaborations with other companies, whose molecules wouldn't necessarily be polymer conjugates. But internally, we've got some really, really good, insightful, I think quite clever ways of using our polymer technology with small molecules in IO, as well, and you'll be hearing more about those later this year, I'm sure.

I'll turn it over to Gil -- or to Howard, to cover the question on Ophthotech.

Yes, look, that's a good question on Ophthotech, and I think, like I said, in addition to a royalty, we are the exclusive manufacturer for the polymer conjugates associated with Fovista. So while we haven't disclosed any dollar amounts, and we can't at this stage, it's basically a volume-based, fixed price -- fixed price based on volume kind of contract, and we are exclusive. All of Fovista, all of the active polymer conjugates associated with Fovista have to be manufactured by Nektar, so I do think it will give us some substantial revenues. But that's about all I can say about it right now.

Terrific, thank you.

Thank you. This concludes today's Q&A session. I would now look to turn the call back over to Howard Robin for any closing comments.

Well, thank you, everyone, for joining us this afternoon. I think NKTR-214 is very exciting, and I really -- if you look at it closely, you will see that it really is the first of its kind. And there are no other drugs that really work in vivo to grow and cause the proliferation of TILs in a tumor microenvironment, and you need that type of mechanism to complete the entire IO landscape. It really is the missing piece in IO, and that's why we're so excited about it. So we'll have good data to share with you at the upcoming SITC conference.

A lot of milestones and catalysts coming over the next several quarters, Phase 3 data for the bio programs, Phase 3 data for NKTR-181, Phase 3 data for Fovista, and the potential approval of Onzeald in Europe. So lots of good things happening. We look forward to seeing many of you at the SITC conference next week for a comprehensive review of NKTR-214. So, thanks for joining us this afternoon.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may now disconnect. Everyone have a great day.