Nektar Therapeutics (NKTR) 2016 Q4 法說會逐字稿

Good day ladies and gentlemen. Welcome to the Nektar Therapeutics Q4 and year-end 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 call is being recorded. I would now like to introduce your host for today's conference, Ms. Jennifer Ruddock, Vice President, Investor Relations. Please go ahead.

Thank you Crystal. Good afternoon, and thank you for joining us today. With us are Howard Robin, our President and CEO, Gil Labruherie, our Chief Financial Officer, and 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 Vice President of Clinical Development. On today's call we expect to make forward-looking statements including potential regulatory approval decisions, and commercial launch timing, the timing of future clinical trials and clinical trial results, 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, and our financial guidance for 2017, as well as 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, which was filed today and 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 Investor Relations page at Nektar's website at Nektar.com. With that, I will now turn the call over to Howard. Howard.

Thank you Jennifer. Thank you to everyone for joining us today for our fourth quarter and year-end conference call. On today's call we will discuss our progress over the last quarter and year-to-date, provide financial guidance for 2017, and also review the many upcoming catalysts and milestones for Nektar's pipeline expected in 2017. Nektar had a very successful 2016, during which we advanced multiple Nektar pipeline programs, including an emerging immuno oncology and immunology portfolio. In the fourth quarter, we began the clinical development with our collaborator Bristol Meyer Squibb, to evaluate the combination of our lead I-O program NKTR-214, and BMS' anti-PD-agent, Opdivo, in five different tumor types, and at least eight indications. The BMS collaboration is the first of a number of clinical collaborations for NKTR-214, which are designed to position NKTR-214 as a keystone therapeutic in immuno oncology. We will talk more about our strategy with NKTR-214 on this call, and also about our next I-O development candidate, NKTR-262, a new TLR agonist, which complements NKTR-214, and NKTR-255, our novel IO-15 agonist. Our wholly owned pipeline also includes innovative approaches for the treatment autoimmune disease, NKTR-358, and for the treatment of chronic pain, NKTR-181. We are on track to report top line results from the Phase 3 efficacy trial of NKTR-181 in chronic pain patients later this month, and we have submitted an IND for NKTR-358, and are on track for that molecule to enter the clinic this month.

Nektar's impressive wholly owned R&D pipeline, combined with current and future royalties and milestones, from our partner portfolio really positions Nektar well for excellent growth in 2017. Our partnered portfolio includes existing products, such as MOVENTIG with AstraZeneca, and ADYNOVATE with Shire, and products which could be approved in the next year such as ONZEALD with Daiichi Sankyo, Cipro DPI and Amikacin Inhale with Bayer.

Let's start with MOVENTIG, AstraZeneca and Daiichi Sankyo recently launched a new ad campaign which features MOVENTIG specific commercials and DTC advertising. Chronic pain patients and their physicians continue to give favorable review to MOVENTIG, and the refill rate continues to be as high as 40% to 50% each week. We were very pleased that annual prescriptions grew year-over-year by 270%. And peak weekly prescriptions increased year-over-year by over 75% from 5,900 in 2015, to 10,600 in 2016. Currently the annual run rate is over $160 million from MOVENTIG in the US. Gil will provide some more detail on the financials later in the call. We continue to believe MOVENTIG peak sales can exceed $1 billion annually, so we are enthusiastically continuing to watch MOVENTIG's commercial performance.

For ONZEALD which is partnered with Daiichi Sankyo Europe, the conditional marketing authorization is currently under review in Europe. We believe the review for the ONZEALD filing has gone very well, and we expect a decision on the conditional approval some time in the next couple of months. Cipro DPI and Amikacin Inhale, which are two separate anti-infective programs with our partner Bayer, are on track to complete Phase 3 in the first half of this year as well. The first RESPIRE trial, testing Cipro DPI in NCFB was positive, and if Bayer is successful with the second RESPIRE trial, Cipro DPI will represent a large opportunity to address a critical medical need for patients with recurring lung infections. And for Amikacin Inhale, Bayer will complete the Phase 3 programs in the second quarter of the year, and we will be working with Bayer to announce results from this program in the middle of this year.

So now let's move on to discuss Nektar's growing pipeline. Nektar has built an impressive portfolio, with five highly valuable wholly owned drug candidates in the therapeutic areas immuno oncology, immunology, and chronic pain. In the area of chronic pain, we will unblind the top line data from the Phase 3 SUMMIT 07 efficacy trial for NKTR-181 later this month. As the first novel mu-opioid agonist molecule to be developed in decades, NKTR-181 could emerge as an important new pain medicine to treat patients with moderate to severe chronic pain. Opioid abuse continues to be a major societal problem, and NKTR-181's unique inherent properties of reduced euphoria and likeability, uniquely position the drug to address the opioid abuse epidemic, and to reduce diversion of prescription pain medicine use for the abuse.

The drug safety profile may also offer additional advantages over other opioids, with potential for reduced respiratory depression and sedation. Assuming positive Phase 3 efficacy results from the current SUMMIT 07 trial, we plan to out license NKTR-181 to a company that has a strong presence and long-term commitment in the pain market. As you know, Nektar is developing a broad portfolio in immuno oncology. Our goal is to develop medicines which can target multiple steps in the immune cycle, in order to stimulate the patient's immune system to fight cancer. Two of our I-O candidates NKTR-214 and NKTR-255 are biologics, which capitalize on the important signaling pathways controlled by IL-2 and IL-15 to stimulate tumor killing T-cells, memory T-cells, and natural killer cells.

And we recently introduced NKTR-262, which is a novel small molecule, TLR agonist, designed to complement NKTR-214, which could give Nektar our first wholly owned combination regimen in IO. NKTR-214 as a T-cell growth factor, has the potential to fill a critical gap in the immuno oncology therapeutic regimens. NKTR-214 is a new medicine that can activate the immune system, and increase the amount of TILs in the tumor micro environment, without the corresponding severe toxicities associated with other modalities. By supplying physicians and patients with an effective means to replenish and activate the effector T-cell population, NKTR-214 has the potential to dramatically change the way patients are treated with I-O therapies.

Mary will go into more detail on the NKTR-214 nivo program in a moment, including the continued expansion of indications and trials with our collaborator, Bristol Meyer Squibb. But as you know the dose escalation portion of the NKTR-214 nivolumab trial is well underway. We are excited about the data that is emerging to date from the combo trial, and we expect to present initial results from the dose escalation part of the study at ASCO this year. Now let me share a few additional development activities for NKTR-214 which are underway. We are initiating a trial of NKTR-214 with Roche's TECENTRIQ in the second quarter of this year. As we have said in the past, our strategy is to position NKTR-214 as a keystone in IO, and also demonstrate that NKTR-214 is synergistic with both anti-PD1 and anti-PDL1 agents.

Secondly, as NKTR-214 is a broad-based mechanism, we have recently begun preclinical studies with several collaborators, to evaluate the combination of NKTR-214 with addition mechanisms in IO, beyond anti-PD1 and anti-PDL1. This includes preclinical research with personalized vaccines, to explore a cancer vaccine program in conjunction with NKTR-214, in addition we are conducing preclinical research to explore a combination regimen of NKTR-214 with an oral HDAC inhibitor. We are also assessing other NKTR-214 small molecule combinations and collaborations to determine the best way to prioritize the many opportunities to address multiple molecular pathways in the context of the strong T-cell activity provided by NKTR-214.

As we achieve positive preclinical results for these initiatives, we expect that we can advance some of these programs into the clinic as soon as the second half of this year. Another important landmark for our I-O portfolio, will be the entry into the clinic of our next I-O candidate, NKTR-262. NKTR-262 is our new TLR agonist small molecule, which is designed to activate the innate immune system, and increase tumor antigen presentation. NKTR-262 will complement NKTR-214, and will give Nektar our first wholly owned I-O combination regimen. We anticipate filing an IND for NKTR-262 by the end of 2017. Jonathan will discuss more on the strategy for development of NKTR-262 in combination with NKTR-214 later on the call.

Now turning to our immuno program and in particular NKTR-358. We are very excited about the imminent start of our first-in-human trial of NKTR-358 which is designed to stimulate the growth of the body's own regulatory T-cells. We submitted an IND for NKTR-358 at the end of February, and we expect to initiate the first in-human trial shortly. A medicine that treats autoimmune disease through stimulation of the body's own processes to resolve overactivation of the immune system has long been a goal in immunology. We know that the master cells of the immune system that control this resolution process are regulatory T-cells.

With the experience that we gained in the development of NKTR-214, and our ability to develop a medicine which activates the proliferation of TILs, we knew we could use our technology to harness the IL-2 pathway in the opposing way. Specifically, expanding regulatory T-cells, and limiting the proliferation of T effector cells. Unlike current immunosuppressing agents which globally weaken the immuno system to only address disease symptoms, NKTR-358 could emerge as a First-in-Class resolution therapeutic, to correct the underlying pathology of autoimmune disease. The pre-clinical data for NKTR-358 are exceedingly promising. As you will recall we showed you impressive data in both non-human primates and models of antigen-driven inflammation response.

These data highlight NKTR-358's potential to have a profound effect on a number of immune and inflammatory disorders, including Lupus, Crohn's Disease, ulcerative colitis, rheumatoid arthritis, Type 1 diabetes, Multiple Sclerosis, Psoriasis, allergy, and graft versus host disease. With an asset that has this much broad potential in so many large indications, we believe the right strategy in order to maximize the value of NKTR-358, is to enter into a co-development and co-marketing partnership, with a company that has a strong leadership position in immunology, and shares our vision for the development of NKTR-358. As we advance NKTR-358 in the clinic this year, this will be a key objective for the program. With that I will now the hand the call over to Mary,

Thank you Howard. Good afternoon. Today I would like to review in more detail Nektar's combination programs for NKTR-214 with check point inhibition. This includes the NKTR-214 plus nivolumab development program, known as the PIVOT program, which we are conducting with our clinical collaborator BMS, and NKTR-214 plus atezolizumab trial, known as the PROPEL program, which Nektar is conducting.

I'll also highlight some recent exciting data for NKTR-214 from our single agent trial for patients who came off of the monotherapy study, with stable disease per RECIST to immediately initiate treatment with anti-PD1 based therapy, including nivolumab. The Phase 1 dose-escalation portion of the PIVOT program PIVOT 02 is well underway. BMS and Nektar believe that the combination of Opdivo with NKTR-214, the first medicine that grows tumor-killing TILs, has tremendous promise in advancing the field of immuno oncology. This is why the PIVOT program will pursue eight or more indications in at least five different tumor types.

As a reminder in the dose-escalation portion of the program we plan to enroll approximately 30 to 40 patients with first line melanoma, second line renal cell carcinoma, and second line non-small cell lung cancer. We are looking at a number of two week and three week dosing regimens. We have already completed enrollment to the first dose cohort, and we are simultaneously enrolling patients to the next four combination cohorts in parallel, in order to identify the optimal dosing regimen.

Our current target is to select the combination regimen with the optimal safety and efficacy profile around the middle of the year. Once the recommended Phase 2 dose is established, we will then begin to enroll into the eight expansion cohorts of the PIVOT-02 and PIVOT-04 studies. The expansion part of the program will enroll up to 260 patients, and will include first line melanoma patients, first line or I-O naive populations with non-small cell lung cancer, renal cell carcinoma, triple negative breast cancer, and bladder cancer, as well as I-O relapse or refractory patient populations with melanoma, renal cell carcinoma, and non-small cell lung cancer. The three latter populations provide us with the potential for an accelerated pathway to regulatory approval.

As Howard stated earlier, we are very excited about the efficacy and safety data that are emerging to-date from the ongoing dose-escalation stage of the combo trial. The combination regimen continues to be well tolerated, and to-date we have not observed any grade 3 drug-related adverse events. At ASCO we expect to release the initial safety efficacy and biomarker data for 15 to 20 patients from the dose-escalation part of the study. Bearing in mind that some of these patients will only have had first scans, and others will have been on treatment longer. With enrollment to eight different expansion cohorts, the program will continue to generate data over the next 18 months.

At ASCO we also plan to present new data from the NKTR-214 single agent trial, for four patients who have renal cell carcinoma and were I-O naive at study entry. These patients had stable disease when leaving the NKTR-214 trial, and they went on to receive anti-PD-1 based therapy, including nivolumab shortly thereafter. You will recall that Dr. Adi Diab from M.D. Anderson presented remarkable first scan response data from one of these patients at SITC in November. Dr. Diab explained that even though this patient had experienced a 10% tumor reduction on NKTR-214, his decision to treat this patient with an anti-PD-1 therapy was based upon biomarker data, which showed a dramatic increase in the patient's CD-8 positive T-cells after treatment with NKTR-214. As you know, these types of changes with higher levels of CDA-positive T-cells in the tumor microenvironment can be predictive of response to a check point inhibitor. And in fact this patient started nivolumab with a high TIL count from treatment with NKTR-214, experienced a 60% reduction in tumor burden at their first 8-week scan.

Based on this significant clinical response Dr. Diab went on to place three additional RCC I-O naive patients onto anti-PD-1 treatment who had first received NKTR-214. I am very pleased to provide an update today with some results on this sequential dosing strategy with NKTR-214 followed by anti-PD-1 therapy. To-date radiographic scans since initiating anti-PD-1 treatment are now available for three of these four patients. All three patients have experienced early and deep responses upon first scan, following initiation of anti-PD-1 therapy. The fourth patient just started nivolumab, and we expect to have an update by ASCO. And even more impressive is that the first two of these three patients who experienced first scan responses, including the patient Dr. Diab reported on at SITC have now had second scans which confirmed these responses.

The third patient has not yet had their second scan. This early and significant tumor shrinkage observed with sequential dosing of NKTR-214 followed by treatment with anti-PD-1, is one of the reasons why we are so enthusiastic about the combination strategy of NKTR-214 with check point inhibition. And as I just stated, we're extremely excited about the early data already emerging from the dose-escalation part of the combination trial evaluating NKTR-214 and nivolumab. Nektar and BMS are also co-funding an investigator initiated trial in approximately 60 patients with sarcoma, which will start around the middle of this year, once we have established the recommended Phase 2 dose for NKTR-214 plus nivolumab.

This trial which will be conducted at Memorial Sloan-Kettering and M.D. Anderson will evaluate the combination regimen in six indifferent sarcoma subtypes. As I stated earlier, we're also initiating the PROPEL program, which will evaluate NKTR-214 with Roche's antiPDL-1 agent, TECENTRIQ, which is also known as atezolizumab, or Atezo. This trial will enroll approximately 20 to 30 patients with on label Atezo indications, which include non-small cell lung cancer patients with metastatic disease who have progressed on a platinum regimen, or an EGFR other targeted therapy, and also patients with bladder cancer who have progressed on a platinum regimen. We expect to start this trial by the middle of the year, and we plan to conduct this trial on our own, as it is an important part of our strategy to develop NKTR-214 in combination with all of the approved check point inhibitors. And with that I'll turn the call over to Jonathan.

Thanks Mary. I would like to start with a discussion on NKTR-358. Nektar's program in autoimmune diseases, which will enter the clinic before the end of this month. The notion of a balanced immune systems a critical concept in health and disease. We know that patients with autoimmune and chronic inflammatory disorders live with a state of persistent immune system activity, and have lost the normal regulatory mechanisms that resolve this activation, and balance the immune system. With cancer, we see an imbalance where immune resolution pathways dominate and overtake activation pathways, and the resulting immuno suppression promotes tumor growth and disease progression.

With autoimmune disease we see the opposite. In this setting immune activating pathways dominate, an ineffective counteraction by immune resolving pathways, allows for progressive autoimmune disease. As Howard and Mary have discussed, we have now shown that NKTR-214 can activate the TIL, a T effector arm of the immune system, to overcome immune suppression in the tumor, and create an optimal biological environment for I-O therapy. In essence, NKTR-214 overcomes the imbalance to help treat cancer.

With NKTR-358 we overcome the opposite imbalance to treat autoimmune disease. NKTR-358 is a novel agent that allows for pharmacological control of immune regulatory pathways, by increasing the number and suppressive function of regulatory T-cells. The body's natural mechanism of immune regulation. Patients with autoimmune disease have either an insufficient number and/or insufficient activity of these T regs in their body, and in the case of normal health the T regs control the normal population of self reactive T-cells in the body, and indeed T regs play a key role in peripheral tolerance mechanisms. But when there are insufficient numbers or activity of T-regs it leads to a breakdown of these proliferance mechanisms, and ultimately results in the patient developing autoimmune diseases. So we know that it would be ideal to have a medicine that could potentiate this population of T regs, and that could also be easily administered. This is exactly what we have done with NKTR-358.

We have created a molecule that is selectly stimulates the proliferation, overall number, and functional activity of regulatory T-cells. NKTR-358 has a long duration of action, and works at low dose levels. For example, a single subcutaneous 25 microgram per kilogram dose of NKTR-358 to non-human primates, generated a two week long increase in functional T regs, with levels peaking greater than 7-fold over baseline. Now, NKTR-358 would be dosed once or twice a month subcutaneously in patients with autoimmune disease, to provide the right stimulation and potentiation of regulatory T-cells, to return the body to natural homeostasis. We believe the potential of this product is great to address a number of immune and inflammatory disorders, including Lupus, Crohn's disease, ulcerative colitis, rheumatoid arthritis, Type 1 diabetes, MS, psoriasis, allergy and even graph versus host disease. This breakthrough and the promise of a potential First-in-Class resolution therapeutic is tremendously exciting, not only to us, but also to many others working in immunology.

Based on our development of NKTR-214 and our learnings about the IL-2 pathway, we believe we have created the best molecule to potentiate T-regulatory cell biology. We have submitted an IND, and plan to initiate our first-in-human trial later this month. The first study will be a single ascending dose trial in healthy volunteers, that will measure safety and tolerability, increase in duration of changes in T regs and their function, as well as PK. We should have this completed by the third quarter of this year, and then we plan to go right into a Phase 1b study in Lupus patients.

Now let's switch to immuno oncology, and talk about NKTR-262, a novel toll-like receptor agonist. Toll-like receptors, also known as TLRs, stimulate an inflammatory response that activates the innate immune system, myeloid cell functions, including dendritic cell maturation and antigen presentation, and also stimulation of cytotoxic cell function. In the context of tumor immunity, TLR agonists are known as stimulator range of immune system functions in the tumor microenvironment, hat are beneficial for anticancer therapy. However the problem is using them effectively.

Because TLR agonists when given systematically, generate a powerful and uncontrolled immune response leading to major safety liabilities. Traditionally this is overcome by using intertumoral injection, which as you can imagine is very difficult to do in patients with a large tumor burden, and with tumors at multiple sites, some of which may be undetectable, or not accessible for injection. In essence, direct injection allows a TLR agonist to basically mimic a localized infection, which then overwhelms the local immune suppressive mechanisms of the tumor. Ideally we would combine such a TLR agonist with a powerful T-cell targeting therapeutic, such as NKTR-214, in order to generate an effective combination therapy, for targeting all of the patient's tumors, but with the need for only a single injection of the TLR agonist into one tumor. In fact, we designed NKTR-262 to be used specifically in combination with NKTR-214 in this respect. There is a deep scientific rationale for this combination, because the two agents target key non-overlapping biological mechanisms, that really lend themselves very well for an optimal I-O product.

For example, NKTR-262 targets the innate immune system and myeloid cell pathways, while NKTR-214 targets the adaptive immune system and lymphoid cell pathways, together making for a powerful combination. We have evaluated this combination in numerous pre-clinical studies, where two tumors are implanted into animals, one on each flank, and we treat one of these two tumors with the single intratumoral administration of NKTR-262, and then give systemic NKTR-214. We observed complete regression in both tumors, even the one not injected with NKTR-262. The efficacy of this combination is tremendous, and these complete tumor regressions are durable, and come with complete survival. For example we have evaluated the combination of TLR agonist plus NKTR-214 in hundreds of mice to-date, and we see these complete regressions in greater than 95% of the animals. We are very excited about this program, both in terms of the science, and also because it provides Nektar with a wholly-owned I-O combination opportunity. We expect to have an IND filed for NKTR-262 by the end of 2017.

With that I would like to hands the call to Gil for a discussion on financial results.

Thank you Jonathan. Good afternoon everyone. I will start with a few points on the progress of MOVANTIK, ADYNOVATE and Onzeald, and then I will review our 2017 financial guidance. As Howard mentioned MOVANTIK showed very nice annual growth in US prescriptions, as peak weekly prescriptions increased year-over-year by 75% from 5,900 in 2015, to 10,600 in 2016. Currently the annual run-rate is over $160 million for MOVANTIK in the US. In Europe Kyowa Kirin continues the early launch of MOVANTIG in the UK and Germany, and they recently achieved pricing approvals in Spain and Italy.

We continue to expect pricing approval and launch of MOVANTIG in France in the first half of 2017. In 2016 we recognized $15.5 million in royalty revenue from MOVANTIG sales, and we are including $25 million to $28 million in royalty revenue in our 2017 financial guidance. Remember, we recognize our royalties one quarter in arrears, so our 2017 royalty guidance, includes royalties from sales in Q4 2016, and projected royalties from sales through Q3 2017.

Now turning to ADYNOVATE, the first full year of launch progressed nicely, with Shire reiterating that they are fully committed to their hemophilia franchise. Shire clearly believes that ADYNOVATE fits an unmet need in the marketplace, and they are highly focused on ensuring patient access to this new medicine. The label in the US was recently expanded into pediatric patients and surgical settings, and Shire awaits approval in Europe, which they expect in the first half of 2017.

For ADYNOVATE Nektar is entitled to a 4% royalty on annual sales up to $800 million, a 6% royalty on annual sales between $800 million and $1.2 billion, and a flat 13% royalty on sales exceeding $1.2 billion. We are also entitled to a $10 million milestone on approval of ADYNOVATE in Europe, and an additional $45 million in sales milestones. In 2017 we expect ADYNOVATE royalties of $9 million to $11 million. As with MOVANTIK we recognize our royalties one quarter in arrears, so our 2017 royalty guidance includes our royalties from sales in Q4 2016, and projected royalties in sales through Q3 2017. As Howard stated, we expect an opinion on our conditional approval filing in Europe for Onzeald in the next couple of months.

Upon receipt of EC conditional approval in Europe we will receive a $10 million milestone were Daiichi Sanyo, and we will also receive a 20% royalty on all net sales in Europe. The milestones and royalties that we receive from Daiichi, will help to fund the attained confirmatory trial to obtain final European approval, and to support an NDA filing in the US. Importantly, Nektar retains the rights to market Onzeald in the US and rest of world.

Now on to our 2017 financial guidance. We expect total GAAP revenue to be between $145 million and $155 million. Our revenue guidance includes the royalty and milestone revenue that I just reviewed for MOVANTIK, ADYNOVATE, and Onzeald. 2017 royalty revenue guidance also includes approximately $30 million of noncash royalty revenue, from Cimzia and MIRCERA. We expect our revenue to be fairly ratable across the quarters in 2017 with a few exceptions. In Q2 we expect to recognize approximately half of our annual projected revenue, as a result of the milestone payments for EU approval of ADYNOVATE, and final shipment to [Optotech] to close out binding purchase commitments, and in Q3 we expect to recognize the $10 million milestone for conditional approval of Onzeald.

We anticipate 2017 GAAP R&D expense will range between $230 million and $240 million, which includes approximately $29 million of noncash depreciation and stock compensation expense. In 2017 we plan to make important investments in advancing our pipeline, and I would like to specific highlight a few key investment areas. First, NKTR-214. As Mary reviewed earlier, based on our encouraging data from NKTR-214 to-date, our plan is to continue to expand this program. This includes expanding the nivo combination trials we are co-funding with BMS, into more than the original seven planned indications, as well co-funding with BMS the 60 patient investigator-sponsored trial in sarcoma patients.

It also includes the new trial with NKTR-214 in combination with atezolizumab in patients with bladder and non small cell lung cancer. And we also have existing and planned pre-clinical collaborations evaluating NKTR-214 with other mechanisms, such as vaccines and small molecules. This should lead to additional clinical trial starts for NKTR-214 in the second half of this year.

Second, we have filed the IND for NKTR-358, and we're very excited do start the first-in-human trial for this important drug candidate with broad potential application in immunology. This year we will start the Phase 1 study in healthy volunteers, and then quickly move into the Phase 1b study in patients with Lupus. We are also planning trials in patients with other autoimmune disorders.

Third, we are conducting IND-enabling studies needed to advance NKTR-262 and NKTR-255 into the clinic later this year or early next year. Our 2017 R&D spend also includes final spending on the SUMMIT-07 efficacy trial, and the completion of the NKTR-181 pivotal HAL trial, and the long-term safety study. Commercial manufacturing and scale-up for Amikacin Inhale in connection with the Phase 3 data read out expected in the first half of this year, and the Phase 3 confirmatory trial for Onzeald, in anticipation of EU conditional approval, and as you know we expect this regulatory decision in the next couple of months.

2017 G&A expense is projected to be between $45 million and $47 million, which includes $12 million of noncash depreciation and stock compensation expense. For 2017 interest expense will be approximately $40 million, including $18 million of noncash interest expense related to the Cimzia and MIRCERA royalty monetization. We plan to end 2017 with approximately $225 million in cash and investments. It is important to keep in mind that our 2017 projected ending cash position does not include proceeds from a partnership for NKTR-181, if the SUMMIT-07 and pivotal HAL trial are successful, and it also does not include any potential partnership for NKTR-358, or any other clinical program. With that we'll open the call to questions. Operator.

Thank you. (Operator Instructions). And our first question comes from Bert Hazlett from BTIG. Your line is now open.

Thank you very much. Thank you for the update and congratulations on the progress. So I have a couple of questions. I guess mostly around 214 and the [inaudible] I-O program. With the success you have been seeing with the sequential dosing with the patients you have referred to, what do you think about that boosting regimen, compared to the combination dosing that's under way with BMS, and how are you evaluating that in ongoing trials? And then secondly, you mentioned the potential use of 214 in combination with vaccines, and with other small molecule inhibitors. What do you envision in terms of the structure of those deals should they move forward? Thanks.

Bert, this is Howard. I'll let Mary handle the first part of your question, and J.Z. will take the second part of your question.

Hi Bert. That's a great question that's thought of a lot here at Nektar, and I have been speaking to J.Z. extensively about a number of pre-clinical animal models that he has looked at, with both sequential dosing and concurrent dosing. And truthfully in our animal models we don't see any difference or enhanced efficacy with either dosing regimen, which is why when we built our program with BMS, and we shared the data with BMS, they thought it made a lot of sense to go forward with the concurrent dosing.

The second thing that we learned from our NKTR-214 monotherapy program, is that we see very early at that week three time point on drugs, that we have a very robust immune stimulation, with a high increase in TILs and NK cells, and very quick, short amount of time, and so we knew that the half-life of nivolumab is very long, and so therefore starting those two drugs at the same time, certainly would make a lot of biological sense. And at ASCO this year we look forward to sharing with you both, the total updated data from the monotherapy, as well as the dose-escalation from the combination.

Thanks Mary. And Bert to your other question, definitely as we talked about before, it's very important to explore all of the target space, that we think the NKTR-214 biology can really help in, and when you think about all of the I-O mechanisms, you can really think about things that are clear like immune targets, even modalities, and then even when we bring in the idea of small molecules, it lets us take an even larger sphere of targets that are associated with that, even ones not traditionally thought of as classical immune targets.

So we're really taking a very, very open-minded approach to that. And then specifically to your question, we're approaching these kind of collaborations very much in the same way we approach the BMS clinical collaboration. We're looking to share the responsibilities, and share the resources of advancing these molecules forward, and our thinking is very much in the vein that we would like to begin with pre-clinical evaluation, use that to help us prioritize, identify exciting combinations even unexpected combinations, and then advance those clinically.

And just one follow-up. You mentioned that 60% of reduction seen in tumor burden, [inaudible] was mentioned, was the reduction in tumor burden with the additional patients on that scale? And you will present some granularity later?

Yes. We're going to present the granularity at ASCO, and Dr. Diab is very excited to share the specificity of these patients, because as you know this type of response rate in RCC patients certainly is higher than you would see with single agent nivolumab. So Dr. Diab is very eager to share these data, at SITC and we will provide the specificity, as well as the actual CT scans at ASCO.

All right. Look forward to that. Thank you very much.

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

Great. Thanks for taking my question, guys. Kind of following up on the last one what is the response rate that you see as the bar for single agent nivolumab, i.e., what's the response rate that you're comparing this group of RCC patients to? And is it possible to elaborate a little bit more on the reasons for discontinuation that were not related to progression? Thanks.

Sure. So your first question, Jessica, when you look at the second line setting in RCC for patients who progressed on a prior TKI, the objective response rate with single agent nivolumab was 21.5%. There is also very, very, very low rate of patients who have complete responses with RCC, only 1%. So in our combination program we're looking to see an objective response rate of roughly 40%, and the other things that we're looking at are not just the objective response rate, but we're looking to the time to respond, how quickly do those responses happen, we're looking the depth of the responses, and when I say depth, we are not even, it's not just binary, a partial response versus a complete response, but you see an 80% reduction in tumor burden versus a 31%, and then the duration of that response. The nice part about working with BMS is that they had a lot of unpublished data that we're allowed to tap into, and collaboratively work with them on further understanding those parameters, above and beyond objective response rates.

And the second question that you asked about the discontinuation of those patients, a number of them as we mentioned to you actually went onto an anti-PD-1 based therapy, and Dr. Diab did that intentionally, because he knew from a biological perspective, increasing TILs into the tumor microenvironment was the exact biology that would synergize with a checkpoint inhibitor, and so that was Dr. Diab's strategic decision, and felt like it was the best for the patients. We certainly supported Dr. Diab taking steps that he felt would provide the best possible outcome for his patients, and lo and behold, I think he made the right decision.

Thank you.

Thank you. Our next question comes from Debjit Chattopadhyay from Janney Montgomery. Your line is open.

Hey. Good afternoon. Thanks for taking my is questions, so I just want to follow-up on this RCC once again. I mean do we have a handle on what the baseline TIL was before 214 dosing, and what it was at the point where nivolumab dosing was initiated? And in terms of the deep responses that you are talking about 60% to 80% kind of decrease in tumor burden, what kind of rates do you normally see with nivolumab monotherapy?

I'll begin with the first part of the your question. So what we saw in the biomarker program was we had a chance to look at the biopsy at the three week time point, which was before the time the patients left the trial to go onto the sequential therapy. So that while the timing, we can't answer your question directly in the sense of what the TIL population was at the exact instant, what we do know is that in these patients that Mary described, we saw very large changes in the amount of infiltrating immune cells, both the proliferation status of those immune cells, the intensity of PD-1 positivity within the tumor microenvironment itself, and some of the other parameters that we touched on at SITC, and elaborated a little bit more in detail on at the ASCO GU poster as well. So what we can say is that all of these patients immune profile clearly shifted, and it made them really as Mary said, for the lack of a term like priming or something, it really made their tumor look like it would be the kind that is much more likely to respond, and respond very well to a checkpoint therapy.

Yes. And to address your second question, making a go/no go decision isn't just based on one parameter, and we're looking at a whole myriad of different end points, and specifically in terms of responses, people have not published yet on the quartiles of responses, meaning if you had a partial response, what is the response that the top 25% of patients have had, the next 50%, and so forth, and that's why we very strategically chose to work with BMS, because they actually have a lot of these data that they haven't published. However in collaboration with them, these are the times of information sharing that in sessions that we have with them, to further dissect and understand the value of NKTR-214 in combination with nivolumab. Again at ASCO, we plan to share with you the totality of the Phase 1 data, which would be the safety and the efficacy, and specifically additional information about these four patients, that went on to receive nivolumab after NKTR-214. At that time, we also will have a presentation and we can shed some more light on the quality of these responses.

And then the planned TECENTRIQ study, is that at this point an all comers dose finding study, or are you trying to specifically look at, say an MSI high, or MSS CRC patient population?

Yes. So with TECENTRIQ, what we're going to do is specifically look at two patient populations in our dose-escalation study, and we're going to look specifically in non-small cell lung cancer patients, and bladder cancer patients, and this will give us a better signal of the effect of NKTR-214 with an antiPDL-1 agent. We also feel we have really honed in on our recommended Phase 2 dose for NKTR-214 in combination with Atezo, so we will be able to enroll a number of patients to specific dose cohorts, not just your traditional three patients to a cohort. So we can glean and have a good sense of the safety and efficacy in this setting.

And then in the I-O refractory patient population, obviously there are multiple resistors pathways, how does increasing the TIL population address the acquired resistance to I-Os, which may be totally independent of the T-cell proliferation at that point?

Yes, it's a great question. Just going back, I just want to remind you that the dose-escalation trial, we'll have 15 to 20 patients worth of data to share with you in combination with NKTR-214 and nivolumab. So in terms of the relapse patient population, you're bringing up a really great point, and every conference that we go to, everybody is talking about the unmet need of this group. And one of the things that we have seen, is there is a patient on our monotherapy trial, who actually was a progressed RCC patient, who progressed on high dose IL-2, and then went on to progress on Genentech's OX-40, and then the third treatment that this patient went on nivolumab. After failing all three of those I-O agents, the patient went on NKTR-214, and we did see tumor shrinkage in that patient.

So we believe that we will be able to have an effect in this patient population that has failed prior I-O therapies, which is why BMS and Nektar are collaborating, and have built into our program three different patient populations in the refractory setting, which includes melanoma, renal cell and non-small cell lung cancer, and we all believe that these three patient populations could lead to an accelerated approval, and an accelerated approval even in an open-label single arm study, and that is built into our strategy, and the reason we believe we could have success in these patients, is because we have seen patients who failed 60% of our patients in the monotherapy studies failed a prior I-O, and we have seen that these patients have changes showing increase in TILs. We also have a patient who is still on the trial who has melanoma metastatic disease to the lungs, who failed at [ipolinomab], and then went to fail a BRAF inhibitor, and has been on NKTR-214 longer than any other anticancer therapy that this patient took previously, prior to enrolling in the study.

Thanks. And just one last question. Celgene recently acquired Delinia, and when you think about NKTR-358, could you walk us through the similarities between the programs, and especially on the IP issues? Thank you so much.

Well, I think, good question. I will let J.Z. give you some sense of mechanistically where the differences are. I can tell you that we're probably at least a year ahead of that program, we will be in the clinic this month. And I think we have designed what we believe is the best approach towards causing the proliferation of regulatory T-cells, and I will let J.Z. give you a sense of how we have achieved that.

Thanks Howard. A lot of this came from everything that we learned from NKTR-214. We learned a lot about how the receptor ligand interaction between IL-2 and its receptors is regulated and controlled, the kinetics of the binding. Also we learned an awful lot about the different cellular sensitivities of the IL-2 signal, and in particular, the T reg, which is really tuned to signal to respond to the lowest amounts of IL-2, which is why you see the kind of efficacy you see with low dose IL-2. And we have also had a chance of course in the 214 context, we always compare it against all of the other competing molecules, and we always ask the question of bias versus selectively in that context, and you know the answer to that story, we have talked about it for many months, and now are seeing it in action in the clinic.

And really it's a very similar situation for NKTR-358, by using a polymer the way we do, we can really achieve a much better ability to interact with the receptors, and we have even gone as far as generating surrogates of the mutant versions of IL-2, the same ones that really mimic some of the biological properties of both the Delinia, and the other molecules that are in this class as well. And really when you test it head-to-head, NKTR-358 has a much superior performance in the cellular assays that we test them in. So we're really excited about where we are. We are really excited with the fact that the IND just went in late last month, and that we plan to open our first clinical trial later this month as well. So we're very, very excited about our position and this program.

And I'm glad you raised the issue of Celgene buying Delinia. You can see how important molecule that can stimulate regulatory T-cell production, as opposed to suppressing the entire immune system, and clearly the value that a program like that has in treating numerous diseases. So it's certainly sets a standard for a molecule like NKTR-358, which as J.Z. said, we believe is actually a much better approach to doing this.

Thank you so much.

Thank you. Our next question comes from Difei Yang from Aegis Capital. Your line is open.

Yes. This is [Matt McLaughlin] on for Difei. Just had a few questions in relation to ADYNOVATE. Can you hear me all right?

Yes, we can hear you.

Okay. Good. Yes. So the root of indications of adding indications that was taken in the US, with the initial approval of ages 12 and up, then the ages 12 and under, and then surgical settings. Are there plans to follow that same indication approval route in Japan, whether there are already ages 12 and up, and then as well for Europe where it's currently under review?

Hi. This is Jennifer Ruddock. How are you? So Shire has stated that they do have plans to globally develop hemophilia, and so that would be in all of the same that ADYNOVATE is in. So their idea is to replicate the ADYNOVATE label, with what they have done with the Advate label, so the strategy would be the same.

Yes. And I think clearly, I mean certainly talking from Baxalta's point of view, and now Shire's point of view, they would like to ADYNOVATE be the successor to ADVATE, and it certainly makes sense. It's a better molecule, and we have put a lot of effort into making sure that ADYNOVATE is the exact same molecule as ADVATE, but long-acting. It is full in ADVATE, and that was done intentionally, so that they could eventually switch over patients, and maintain their dominant position in the space.

Great. And then kind of piggybacking on the European aspect of that for ADYNOVATE. How quickly do you really anticipate the launch to ramp-up, once you do receive marketing approval in Europe?

Well, I can't speak for them directly. I imagine they would do it fairly quickly. It's difficult for me to speak for Shire, but I would imagine that they're very interested in getting as many patients on ADYNOVATE as possible, as quickly as possible.

Yes. Great. Nice work on the immuno oncology pipeline. Thanks.

Thanks. Thank you.

Thank you. And I'm showing no further questions from our phone lines. I would now like to turn the conference over to Howard Robin for any closing remarks.

Well thank you everyone for joining us this afternoon. Of course, I want to think all of our employees for their hard work, and their dedication to the Company this past year. As you can see from today's call, we have a number of milestones and catalysts coming up for Nektar over the next several quarters. The potential conditional approval for Onzeald in Europe, the Phase 3 data for the Bayer programs, the Phase 3 data for NKTR-181 efficacy trial, and of course, data from the first 15 to 20 patients in the combination program of NKTR-214 with nivo, and data from the first trial of NKTR-358 in Lupus. So we're very excited about this, and we look forward to seeing many of you at the Cowen conference next week. Thank you very much.

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