Nektar Therapeutics (NKTR) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Q2 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ms. Jennifer Ruddock, Senior Vice President, Investor Relations. You may begin.

Thank you, Crystal. Good afternoon and thank you to everyone for joining us today. With us are Howard Robin, our President and CEO; Gil Labrucherie, our Chief Financial Officer; Dr. Ivan Gergel, our Chief Medical Officer; Dr. Jonathan Zalevsky, our Senior Vice President of Biology; and Dr. Mary Tagliaferri, our Senior Vice President of Clinical Development.

On the call today, we expect to make forward-looking statements regarding our business, including potential regulatory approval decisions and commercial launch timings, 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, our financial guidance for 2017, 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 most recent Form 10-Q, which is available at sec.gov. We undertake no obligation to update any of these forward-looking statements whether as a result of new information, future developments or otherwise. A webcast of this call will be available on the IR page at Nektar's website at nektar.com. And with that, I will now turn the call over to Howard. Howard?

Thank you, Jennifer, and thank you to everyone for joining us today for our second quarter conference call. On today's call, we will discuss many upcoming milestones for Nektar's pipeline throughout the end of the year, including comprehensive data presentations for NKTR-181 at PAINWeek in early September and for NKTR-214 at SITC. We will also update our financial guidance for the remainder of 2017, which incorporates the recent Lilly collaboration for NKTR-358.

Nektar is having a highly successful 2017 with a number of notable recent accomplishments. First, we announced positive data from our Human Abuse Potential trial for NKTR-181, which builds on the overwhelmingly positive Phase III efficacy and safety data for NKTR-181 that we announced in the first quarter. NKTR-181 is an important potential medicine that is capturing a lot of attention because it's promised to both address the opioid abuse epidemic and advance the treatment of pain. I'll talk more about our excitement for NKTR-181 in our next steps in a moment.

Second, we recently entered into a collaboration with Lilly for NKTR-358, our first-in-class T reg stimulator, which is in development for the treatment of immune and inflammatory disorders, and I'll discuss more about the importance of this new partnership in a moment.

Third, we are very excited about our merging data from the PIVOT study for NKTR-214 in combination with the nivolumab, and I'll update you on our progress with that trial.

I'll start with our new collaboration for NKTR-358 with Lilly. Lilly is a strong leader in immunology and this collaboration enables the broad and parallel development of NKTR-358 in multiple autoimmune conditions, so we can ensure that it reaches its full potential as a first-in-class resolution therapeutic. The collaboration allows Nektar to retain a very significant ownership interest in NKTR-358 with substantial royalties for a program with multibillion-dollar commercial potential, and an option to co-promote. The Phase 1 program for NKTR-358 is underway, and Jonathan will talk more about the development program later. Nektar and Lilly share a broad development vision for NKTR-358, which includes evaluating a minimum of 4 different autoimmune conditions in the clinic. Lilly is paying NKTR an initial upfront payment of $150 million and in addition, we will receive up to $250 million in development and regulatory milestones through various phases of development success and regulatory approval. For Phase II and Phase III, Lilly will cover 75% of development costs and our royalty rates will start in the mid-teens and will reach the low 20s, when NKTR-358 achieves $500 million in annual global sales. So in essence, Nektar is funding a quarter of the development and retaining a 1/3 ownership of the drug. Lily is responsible for all costs of global commercialization. Nektar also has the option to co-promote in the United States.

We're very proud and excited about the scale and breadth of this significant partnership with Lilly. Lilly clearly recognizes that NKTR-358 is a potential breakthrough in treating autoimmune disease and NKTR-358 highlights, both the innovative nature of our research and our demonstrated ability to discover important new medicines.

Moving on to NKTR-214. I'm extremely pleased to announce that Nektar and Bristol recently began enrolling patients into the expansion cohorts in the Phase II stage of the PIVOT trial across multiple tumor indications. I'll let Mary talk more about PIVOT in a moment. As a T-cell growth factor, NKTR-214 provides an important new mechanism in immuno-oncology. We're very excited about the emerging data from the PIVOT trial and we plan to share these data with you at the upcoming SITC meeting in November. As you know, our objective is to position NKTR-214 as a Keystone therapeutic in I-O. It is very important to note that NKTR-214 can be combined with many other agents, having different mechanisms and in different cancer settings with synergistic efficacy and non-overlapping toxicities to improve patient outcomes. Jonathan will discuss the ongoing preclinical work on this front, including the recently announced collaboration with Takeda.

As you know in addition to NKTR-214, Nektar is developing a broad portfolio in immuno-oncology. Our portfolio also includes NKTR-262, a TLR agonist and NKTR-255, an IL-15 candidate, which can stimulate both NK cells and memory T cells. The preclinical data for the NKTR-214, NKTR-262 combo are particularly compelling and we plan to file the IND for the combination trial of NKTR-262 and NKTR-214 this year. As a novel small molecule, TLR agonist, NKTR-262 was designed specifically to be administered with NKTR-214 and most importantly, would give Nektar our first wholly-owned combination regimen in I-O. Jonathan will discuss more on NKTR-262 later in the call.

Importantly, let's now move on to discuss NKTR-181, which is emerging as a critically important new potential medicine to treat patients with moderate to severe chronic pain. The opioid abuse and addiction epidemic has clearly become a central focus of the FDA, Congress and the White House. It is one of the few truly bipartisan issues facing our country and as we've heard from our discussions with all of these stakeholders. As the first new full mu-opioid agonist molecule to be developed in over 50 years, NKTR-181's unique inherent properties position the drug to not only help stem the rate of new addiction with conventional opioids but also to reduce diversion of prescription medicines for abuse. When measuring abuse potential, the analgesic doses established in the SUMMIT-07 study were comparable to placebo and much less liked than oxycodone in 2 separate human abuse studies. We've also established that NKTR-181 has a well-tolerated safety profile in our 52-week long-term safety study.

We now have an extensive amount of efficacy and safety data for NKTR-181 in over 2,000 patients and healthy subjects. NKTR-181 as a new molecule clearly addresses the rapid rate of brain entry, which underlies euphoria as well as many of the negative side effects of conventional opioids. Our extensive pharmacokinetic clinical work with NKTR-181 demonstrates that it has a highly predictable and well characterized 12-hour terminal half-life regardless of formulation, tablet or solution. This unique PK and resulting PD profile's important for 2 reasons: First, it provides full pain relief coverage over a 12-hour period, so there's no need for augmentation with immediate release opioids. And second, it addresses the problem raised by the shorter half-life of some controlled release formulations of conventional opioids, that is, the emergence of withdrawal symptoms several hours before the end of the dosing period. This is sometimes called micro withdrawal and can drive an overwhelming craving to redose ahead of schedule. For conventional opioids, the combination of high likability and euphoria, coupled with micro withdrawal effects prior to taking the next dose can be very strongly reinforcing and therefore, dangerous in the context of generating misuse leading to addiction. At PAINWeek in early September, we plan to present additional data from SUMMIT-07 trial, measuring these metrics of withdrawal. These important new data support that NKTR-181 is a truly unique pain medicine that is not associated with even moderate withdrawal symptoms, either while patients are on treatment or as they come off treatments. The comprehensive NKTR-181 data established the potency of its analgesia, its low abuse potential, its favorable safety and physical dependency profile and the strength of its molecular structure, which can't be tampered with, broken or converted into a rapid acting euphorigenic opioid form.

When we review our data for NKTR-181 with the agency in the fourth quarter of this year to discuss the potential for an NDA filing based upon the data from our single Phase III efficacy trial, our HAP studies and our comprehensive long-term safety study. As a reminder, we have Fast Track Designation for NKTR-181. If we are given the greenlight by the FDA, the Nektar team is prepared to move forward quickly with the rolling NDA submission in the early part of 2018. We also remain committed to establishing a partnership for NKTR-181 this year, in order to allow us to bring this important new medicine to patients as quickly as possible and to maximize value for our shareholders.

Now let me turn the call to Mary to update you on NKTR-214 and the PIVOT program.

Thank you, Howard, and good afternoon. Today I'd like to update you on the clinical development program for NKTR-214. As Howard stated, we are very pleased that the Phase I dose escalation portion of the PIVOT program has completed enrollment and we are particularly pleased that we have determined our optimal Phase II dose and schedule. A total of 35 patients were enrolled to the dose escalation part of the PIVOT trial. The population includes 20 patients with stage 4 renal cell carcinoma, 10 patients with stage 4 of melanoma and 5 patients with locally advanced or metastatic non-small cell lung cancer. All patients enrolled were I-O naive. Our recommended Phase II dose is an every 3-week concurrent dosing schedule of NKTR-214 0.006 mg per kg plus OPDIVO 360 mg. As of today, a total of 22 patients in the dose escalation received this regimen. Our recommended Phase II dose is lower, and we observed strong efficacy signals across each of these patients populations and at all of our investigator sites. And we continue to show no Grade 3 or higher AEs. Moreover, no patient has discontinued treatment in the trial due to an adverse event. As we saw at ASCO, the new mechanism synergy between NKTR-214 and OPDIVO continues to reinforce the ongoing evaluation of the biomarker data. We look forward to presenting updated efficacy, safety and biomarker data from the dose escalation part of the study at SITC in November.

This program is advancing rapidly and we've already dosed our first patients in the expansion cohorts in the Phase II part of the PIVOT. We're in the process of activating an additional 40 clinical sites in the U.S. and Europe, in order to expedite enrollment to the 8 different expansion cohorts, spanning 5 different solid tumor cancers. The expansion cohorts 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 relapsed or refractory patient populations with melanoma, renal cell carcinoma and non-small cell lung cancer. The 3 relapsed refractory patient populations could provide us with the potential for an accelerated pathway to regulatory approval.

We also recently opened our enrollment sites for the PROPEL study which will combine NKTR-214 with Roche's TECENTRIQ. As we've shared in the past, our strategy is to position NKTR-214 as a keystone in immuno-oncology and also demonstrate that NKTR-214 is synergistic with both anti-PD-1 and anti-PD-L1 agents. The PROPEL trial will enroll approximately 30 patients with on-label TECENTRIQ indications, which include non-small cell lung cancer patients with metastatic disease, who have progressed on a platinum regimen or an EGFR or other targeted therapy, and also with patients with bladder cancer who have progressed on a platinum regimen. Patients who opt to forgo first-line treatments with approved therapies are also eligible for the PROPEL study. There have been patients who have consented to participate in the study and we anticipate the first patient will be dosed soon.

The investigator initiated trial in sarcoma, which is been co-funded by BMS has been approved by Memorial Sloan Kettering's IRBs and we expect that the patient dosing will begin as early as September. As a reminder, this is a trial being conducted in approximately 60 patients with sarcoma and the trial will evaluate the combination regimen of NKTR-214 and OPDIVO in 6 different sarcoma subtypes, including osteosarcoma, chondrosarcoma, undifferentiated pleomorphic sarcoma, angiosarcoma, liposarcoma and leiomyosarcoma. Depending on the outcome, any one of these sarcoma subtypes could provide an opportunity for a rapid regulatory pathway for approval. With that, I'll turn the call over to Jonathan for additional discussions on our strategy with NKTR-214.

Thanks, Mary. I'd like to start with NKTR-214 and then I'll cover the other parts of our portfolio, including NKTR-262, NKTR-255 and NKTR-358.

As Howard stated earlier, and to build on Mary's remarks, NKTR-214 is a broad-based mechanism that we intend to establish as a keystone therapeutic in I-O. And to this end, we have ongoing preclinical work with several collaborators, which is designed to evaluate the combination of NKTR-214, with additional mechanisms in I-O beyond checkpoint inhibition. This includes research in mouse tumor models with neoantigen-based vaccines to explore a patient-specific, personalized cancer vaccine program and it also includes preclinical studies with a number of small molecules.

In the second quarter, we announced a new preclinical research program with Takeda to evaluate NKTR-214 with 5 different Takeda clinical compounds targeted for the treatment of liquid and solid tumors. Preclinical work from this collaboration is ongoing. We are evaluating all 5 compounds in 3 different mouse tumor models, testing all combinations of single agents, double combinations and even in the triple combination with anti-PD-1. The emerging data are very encouraging.

As we achieve positive preclinical results for these initiatives, our goal is to advance some of these programs rapidly into the clinic.

As Howard also mentioned, we are moving forward with our own NKTR-214 combination regimen, that includes a wholly-owned TLR 7/8 agonist, NKTR-262. A combination of NKTR-262, which activates the innate immune system and focuses activity against myeloid cell populations, with NKTR-214, which activates the adaptive immune system with focused activity against lymphoid cell populations, constitutes a marriage of 2 highly desirable and complementary mechanisms for immuno-oncology. By targeting these non-overlapping immunological mechanisms, the combination is armed to provide a robust immuno-activation and antitumor activity. The preclinical data we've collected and recently presented at the CHI conference in Boston, support the mechanism of action and demonstrate profound efficacy and abscopal tumor clearance. The NKTR-262 program is now completing IND enabling studies and we plan to submit the IND to the FDA before the end of the year. The opening clinical trial will begin in Q1 2018, and will be a trial evaluating NKTR-262 in combination with NKTR-214. And remember, this gives Nektar its own wholly-owned combination regimen in immuno-oncology.

I'd like to now expand on Howard's discussion on NKTR-358 and provide an update on the status of the program. As Howard mentioned, we're extremely excited about the collaboration we now have with Lilly, which is focused on the comprehensive development of NKTR-358. Nektar and Lilly have a shared vision for NKTR-358, and this shared vision is central to our newly minted partnership. Firstly, we see NKTR-358 as a key resolution therapeutic for the treatment of autoimmune disease. NKTR-358 promotes the proliferation and activation of regulatory T cells, also known as T regs, in the body. And T regs function to block, limit and inhibit immune activation and it's either the absence or loss of function of T regs that drive the underlying pathology of many autoimmune diseases. Unlike today's therapeutics, they broadly block immune activation, NKTR-358 as a resolution therapeutic is designed to restore the body's natural processes of immune resolution and thereby, prevent the inflammation and tissue damage that underlie autoimmune diseases. Since the NKTR-358 MOA does not overlap with other agents, it has the potential to provide patients with a transformational treatment opportunity. In that regard, the second element of Nektar's and Lilly's shared vision is that NKTR-358 should be developed broadly, in multiple indications in parallel, in order to quickly and effectively realize its full potential. We are pleased to share in the development of NKTR-358 and are extremely excited to have Lilly as our partner.

Nektar is responsible for all activities up to the end of Phase I and then Lilly will take the lead from Phase II onwards. To that end, I would like to provide an update on the ongoing development status of NKTR-358. Currently, NKTR-358 is advancing through the Phase I-A, single-ascending dose escalation trial in healthy volunteers. This trial evaluates safety, tolerability and mechanism-based immunological biomarkers, associated with the pharmacodynamics of NKTR-358. We have now dose escalated several times and the trial is progressing very well. We anticipate beginning the Phase I-B trial, a multiple ascending dose escalation study of NKTR-358 around the end of 2017 or early 2018, and the Phase I-B trial will include evaluation of NKTR-358 in patients with autoimmune diseases.

As Howard said, NKTR-358 is a notable program for Nektar. It provides further evidence of our ability to optimize cytokine biology and use our core chemistry to control ligand-receptor interactions to create potential new breakthrough medicines. This expertise has now been recognized by large pharmaceutical partners, such as Bristol and Takeda for NKTR-214, and Lilly for NKTR-358. We are also very proud that our R&D team was able to progress the NKTR-358 program from concept to first in-human dose in only 15 months.

Before closing, I want to briefly build on this theme of Nektar strength in cytokine biology with an update on the NKTR-255 program. NKTR-255 targets IL-15, a cytokine related to IL-2 but with different biological functions. IL-15 receptors signal in a unique way, as dimers or as trimers and when they signal as trimers, all 3 subunits can be on the same cell or can be split between 2 neighboring cells. We have used Nektar chemistry to design NKTR-255 to retain complete binding properties to all the different IL-15 receptor permutations, in order to retain the unique biology of this pathway. This differentiates NKTR-255 from other IL-15-based agonist programs. We recently presented data to show that NKTR-255 has a powerful effect in stimulating NK-cell proliferation, activation and functional activity. In addition, NKTR-255 provides a robust signal that expands both the cell number and function of antigen-experienced T cells. The program is now progressing through toxicology studies and we plan to submit an IND for NKTR-255 next year. And with that, I'd like to hand the call to Gil.

Thank you, Jonathan. On today's call, I will provide a brief update on our partner programs, as well as updated financial guidance for 2017. Starting with MOVANTIK, U.S. sales are currently at $175 million annual run rate, with over 11,000 weekly prescriptions. As a reminder, Nektar receives 20% royalties on sales of MOVANTIK, which are recognized 1 quarter in arrears. Royalties from MOVANTIK grew 13% in the second quarter of 2017, as compared to the first quarter of 2017.

For ADYNOVATE, our partner Shire just noted in their last conference call that ADYNOVATE sales grew to $75 million in Q2 2017, which represents an annual run rate of $300 million. Sales of ADYNOVATE represented more than 10% of Shire's hemophilia sales in Q2, which is a tripling of sales for Shire over Q2 of last year. In addition, ADYNOVI was recently approved and launched in Switzerland and Shire is awaiting potentials -- a potential CHMP opinion and European Commission approval later this year in order to launch ADYNOVI in additional European markets.

With respect to Amikacin Inhale, Bayer's Phase III trials are complete and Bayer expects to have top line results from this program in the fourth quarter of 2017.

For ONZEALD, we have a collaboration in place in Europe with Daiichi Sankyo. As previously announced, we intend to appeal the recent CHMP opinion and seek a reexamination of that opinion. A diagnosis of brain metastasis in women with advanced breast cancer is devastating. And there are no therapies approved to treat this specific patient population. During the appeal process, Nektar and Daiichi Sankyo Europe will continue to collaborate on ONZEALD.

Now on to our updated financial guidance. We are raising our year-end cash position guidance, and now expect to end 2017 with approximately $350 million. This includes the $150 million upfront payment that we expect to receive from Lilly for the NKTR-358 collaboration. Also as a result of this collaboration, we are raising our full year revenue guidance to a range of $215 million to $225 million. Although, we are still finalizing our revenue recognition analysis and conclusions for the NKTR-358 collaboration, we expect to recognize approximately $100 million of the $150 million upfront payment from Lilly in the third quarter. We expect 2017 royalty revenue to be between $55 million and $60 million, which includes $30 million to $35 million in royalties from MOVANTIK and ADYNOVATE, with the remainder coming from noncash CIMZIA and MIRCERA royalties.

Of the $155 million to $165 million in revenue, that we project for the second half of 2017, we expect to recognize approximately 75% of this revenue in the third quarter and 25% in the fourth quarter. We anticipate that GAAP R&D expense will range between $245 million and $255 million, which includes approximately $29 million of noncash depreciation and stock compensation expense. Our full year R&D expense guidance is increasing slightly by about 6%. As a result, the pre-NDA filing for NKTR-181, including pre-commercialization manufacturing activities.

2017 G&A expense is projected to be approximately $50 million. G&A expense includes approximately $12 million of noncash depreciation and stock compensation expense. To reiterate our cash guidance for this year, we plan to end 2017 with approximately $350 million in cash and investments, including the $150 million upfront payment for NKTR-358 that we expect to receive from Lilly. It is important to keep in mind that our 2017 projected ending cash position does not include proceeds from any potential partnerships for NKTR-181. With that, we will now open the call to questions. Operator?

(Operator Instructions) And our first question comes from Jessica Fye from JPMorgan.

This is Ryan on for Jess. I've just got a couple for you. Maybe we can start with NKTR-181. You talked about you'll have some data at the PAINWeek conference coming up here. Maybe can you give us a sense of what additional details you may present there?

Hi, Ryan, this is Ivan. We're going to present some pretty extensive results from our Phase III efficacy study SUMMIT-07. We've also got additional analysis that we have undertaken on withdrawal data, including output from COWs and SOWs and also abuse data up from the MADDERs scale which is part of that too. So it's really quite an extensive amount of data we're presenting.

And my second is on NKTR-214. You have a number of collaborations ongoing. I guess, how do you think about sort of prioritizing the different paths there? And also, given -- sounds like there's some exciting data with the Takeda collaboration, would you present that at some point or would be -- or announce kind of what you're seeing there?

Okay. Good. Well, I'll let Jonathan talk about what we're doing at Takeda. Let me say this, there is an incredible amount of interest in NKTR-214. And as you know, we've said for quite a while now, that we really see it as the centerpiece in immuno-oncology. And if you look at the progress we're making in combination with OPDIVO checkpoint inhibition, it looks fairly remarkable, and we'll be talking about that at SITC. And in terms of using it with other approaches, I think, almost every one of these approaches in immuno-oncology will -- recognizes the need to have tumors with a sufficient immune system to respond to these mechanisms. So we're excited about it. This is not a drug that we're planning to license out, NKTR-214 is Nektar's program and I think we can work with a lot of companies, there's a lot of opportunities here, but NKTR-214 is something that we plan to keep as our own molecule. And I'll let Jonathan talk for a moment about Takeda.

Thanks, Ryan. One of the interesting things in that collaboration is that all 5 the compounds that we are working on with Takeda, all of them were clinical compounds in Takeda's portfolio. And there were opportunities, subsequent of that would be that if we see the kind of results that are very, very encouraging from preclinical models, it would lead to opportunities to move into a combination clinical studies quite rapidly. Now as far as data presentation and so forth, that's something that we have to work out with Takeda because it's a collaboration that we have. But it's something that likely to find in the medical or cancer research meeting to come in the future.

Our next question comes from Bert Hazlett from BTIG.

So I want to follow up on an element or 2. It seems like Mary's characterization of strong efficacy signals in each of these settings is just something that I'd like to have a little bit more clarity on it as much as you can provide it.

Bert, we developed this program to be able to evaluate NKTR-214 and OPDIVO in first line setting of melanoma and first or second line setting with RCC and first or second line setting with non-small cell lung cancer. And we have a fair number of patients we've now enrolled. Our cohort for RCC is 20 patients, our cohort for melanoma is 10 patients and for non-small cell lung cancer, it's 5. And that's just in the dose escalations. And as we mentioned, we've advanced into the Phase II dose escalation. We do -- we have promised our investigators that we would wait until SITC to share the exciting efficacy and safety data. So we're going to do that and so in November, we will provide the response data for this set of 35 patients and we will certainly update our safety data. But as we mentioned, we see no Grade 3 related adverse events, secondary to this regimen. So thank you for your patience, we look forward to seeing you at SITC.

You certainly will. So a question with regard to sarcoma. I want to make sure that I'm understanding -- again, a little bit more about the urgency with which you're considering the various indications around sarcoma. If you could put a little bit -- if you could frame the opportunity and why you're moving into those settings with as much urgency as you are?

Yes. So the optimal treatment strategy for sarcoma has definitely been yet to be defined and Dr. Sandra D'Angelo is really been in the forefront of evaluating immuno-oncology for sarcoma. And she approached both BMS and Nektar about launching this program because certainly, as Howard mentioned, and JZ has repeatedly shared with people driving T cells into the tumor micro environment in sarcoma will be critical to see responses with immuno-oncology. So Dr. D'Angelo actually has a wait list of 35 patients. She believes she'll have the first patient on the study in September and in the second line in relapse of metastatic patients with sarcoma, their response rates are less than 10%. And so you can imagine that if we can see a response rate of 20% or greater in this patient population, this will be very, very exciting to patients, to physicians that we hope that we can have a conversation with the FDA about the potential pathway for accelerated approval should we see these types of responses.

Okay. And just one broader strategy question, I guess to Howard. The $150 million from Eli Lilly is nice and is upfront, does that mean that with all these immuno-oncology assets that you have moving forward, it's your intention to keep them in-house?

Yes. I think, look -- I think, we've talked about the desire to partner NKTR-358 simply because with Lilly, we can move very rapidly into multiple autoimmune disease conditions. With regard to NKTR-181, I think, we have a potential solution for the opioid abuse crisis in the United States, and we want to move that quickly to the market if we can and that's something that we want to find a partner for to help us with as well. When it comes to immuno-oncology, I think, we really are in the forefront of that area, we've got a number of very important programs, if you look at NKTR-214 and NKTR-262 and NKTR-255 and some other things that are coming that we haven't even discussed yet, I think that's an area that where we plan to keep that for ourselves. And I think every company needs to have a core that it focuses on, we have an incredibly powerful immuno-oncology portfolio here, including, the things like combination of NKTR-214 and NKTR-262, which gives us our own combination, which might be just as potent, if not more so than a combination of 214 and a checkpoint inhibitor. So we're in that space, I think, permanently now and we're making excellent progress. And as time goes on, we'll be filling you in on new ideas and new molecules that are coming out of research in that area. You have to think of Nektar now as really focusing its internal capabilities on immuno-oncology and we have great external programs as well and so I think we're in a very good shape there.

And our next question comes from Michael Higgins from Roth Capital Partners.

Couple of questions for you, if I could on NKTR-358. If you could just confirm for us the timing on the Phase II, when you believe that it may be complete? Also these initial patient types, might that be lupus and psoriasis? And then one more here, is there a minimum number of indications that Lilly will be paying the 75% for?

If I get this right, your question was on the timing of Phase I-B, as well as the indications or the patients that would be included in the Phase I-B. And then the range of total indications that Lilly would be paying for collaborating with us, is that correct? I just want to make sure that I...

To start, sure, yes.

So, yes, the timing of Phase I-B, as I mentioned, is for the very end of this year or very early in 2018. And that's happening because the single ascending dose trial is progressing very, very nicely and so we're moving into the MAD portion, imminently around the end of this year or early next. We've talked previously about the inclusion of lupus patients in Phase I-B. And now certainly that we're in collaboration with Eli Lilly, we're taking an approach to look at all of the opportunities for including patients into Phase I-B. And so that could be lupus patients and also you mentioned psoriasis, also that's another category of patients that are being highly considered. So we're still working closely with our partner there to design the study, but we are very certain that we will be including patients in the Phase I-B study. And in terms of the range of indications, as Howard mentioned, there will be at least 4 different indications in Phase II that will be conducted by Eli Lilly. And so around those 4, also from the trials that look very desirable and promising, then a Phase III program will emerge beyond that. So really, it's taking a very compressive approach. When you think about the application of a mechanism such as T reg mobilization, you can see how you could apply that to a range of autoimmune diseases that are typified by T cells that are self-reactive against patient's own tissues. And you can really apply that very, very broadly, and so these 4 indications starting with Phase II is a great opening way to really advance and broadly develop NKTR-358.

Okay. That's very helpful. On ONZEALD, I believe they have an interim look, if you can just remind us, as the number is, I think it's 130 patients and also the potential timing for the interim look for ONZEALD data?

Michael, this is Mary Tagliaferri. We believe that we could have an intern look at the fourth quarter of 2019, with about 130 events for the study and so far, enrollment and site onboarding is going very well.

Okay. And then lastly, on NKTR-181, just a follow-up question, just to confirm if there is any potential for the encapsulation of the oxy tablet to have an impact on the release profile versus the oxy that's available in pharmacies today?

So the question was whether the over encapsulation had an impact on the pharmacokinetics, is that what you're saying? We think the answer to that is, yes, actually. There is a potential for it to have a slight delaying effect on the PK release, relative to giving it in an oral solution.

I think though you have to focus on the HAP study in a different way. If you look at a therapeutic dose of NKTR-181, 400mg and less, down to 100mg, you'll see no liking whatsoever compared to oxycodone, regardless of over encapsulation. Now we were asked, because this is a new molecule, this is an NCE, we were asked to do supratherapeutic doses, and there you still saw something like 10x to 12x the therapeutic dose of NKTR-181 was not liked compared to a typical 40mg, a 60mg dose of oxycodone. So I think, overall, that trial was incredibly successful. And if you look at the data, it looks very much like tramadol. And we know tramadol has Schedule III labeling, it's actually Schedule IV labeling. So we're very happy with the results. You look at the therapeutic dose of NKTR-181 and it simply was not likable, it wasn't interesting at all in these HAL studies or these HAP studies. And we're very hopeful that the FDA sees it that way and we plan to meet with them shortly and discuss an NDA filing.

Just a follow-up on that. Tramadol was Schedule III up until a few years ago and despite the ongoing crisis, it was moved back to IV, and maybe as an alternative, maybe that's what the FDA was thinking. But you continue to expect to go for schedule III or you think you can get IV?

So a couple of thoughts here. One, I think, if you look at the efficacy results we saw in our studies, it's clear that we have a potent opioid, which behaves not just in our efficacy study but if you look at our pupillometry data, it behaves very much like other potent opioids. The difference here is not in efficacy, the difference with our agent is the delay, the slow rate that it gets into the CNS. And the reason that we believe that this is very attractive is because that slow rate of an opioid entering the CNS, a sort of is not associated with the euphoria that you see when you see opioids rapidly entering the CNS space. So we are very hopeful that we can get Schedule III, potentially better. If you look at our HAP data from the recently completed study, which Howard referred to, if you look at the rate of rise, we see very slow rate of rise when you measure liking and when you measure Drug High, and we think that is completely different to what you see with oxycodone and that sort of typical potent opioids.

And I think it's important to use the tramadol supra-analgesic HAP study results as a good model here. Because even at Schedule III, the results that they had with their supra-analgesic doses, looks very, very similar to what we saw with supra-analgesic doses of NKTR-181. So we're very pleased with that and clearly, as I said, at the analgesic doses, NKTR-181 is not really likable at all. And even at the supra-analgesic doses, it looked like the tramadol results, which granted it phase III -- Schedule III and ultimately Schedule IV labeling. So we're very pleased with that and that's what we're shooting for.

Our next question comes from David Steinberg from Jefferies.

Just wanted to touch base a little bit more on NKTR-181. So post the strong efficacy results in Q2, you discussed signing a partnership hopefully by year-end and now that you have the second HAL data, that's been derisked further, and I think, I assume that there are no other milestones before the FDA meeting. So 2 questions, somewhat linked. You've been -- continue to be positive that the (inaudible) need another clinical trial and you could go right to an NDA filing, and if that was your most (inaudible) thought with conversations with your consultants about the PIVOT data. It would be very unusual to do so, on the other hand, it's very unusual situation with opioids right now. And [there and linked], as your partners discuss the potential for the product and (inaudible) efficacy data, and would there be (inaudible) what the FDA had to say, (inaudible) entering into final discussions? Or do you think you would actually find a partnership before that (inaudible)?

You broke up a little bit on your cell phone. I think I got most of your question. We are planning to meet with the FDA agency shortly and we are planning to meet with the agency shortly and I can't predict how they're going to react to our single Phase III efficacy study. The efficacy study, the efficacy study was incredibly successful, met every primary and secondary endpoint and we also know what NKTR-181 is, it's a mu-opioid agonist, there's no debate on what it is as a molecule. And the polymer conjugate chemistry approach that we took is also well understood and well documented. So this is not a molecule that is not well understood and appreciated by the FDA. The HAL study was also -- or the HAP study, was also a tremendous success, and clearly demonstrates that we have a molecule that is not likable.

Thirdly, we have a long-term safety study, which is also incredibly successful and we have over 2,000 patients and healthy volunteers that have taken NKTR-181, that is an incredibly important database. So I can't predict, I can't predict, where the FDA will go with this, we have Fast Track status, we have a major opioid crisis in this country, this is a key solution to that opioid problem. We are not necessarily going to help people that have already become addicted but you have to break the cycle. At some point, you have to break the cycle, you have to provide an opioid for pain relief that doesn't cause people to get addicted to it and it doesn't allow for a diversion and the kind of use that leads to other drug taking. So we have that solution in hand, it's available to us. I can't predict how anyone will react to that. Obviously, this is an immediate solution for the opioid problem, if we go much further, then years are going by before we solve that problem. Now, in terms of collaboration with a company, a partnership, I want to retain some significant ownership in NKTR-181 but I also recognize that Nektar isn't set up right now to sale that -- for the sales and commercialization of an opioid product to primary care physicians. So we're talking to a number of different companies about different ideas on how to approach this. There are just straight license deals, there are joint venture relationships, there's probably a multitude of different ways to do this. I want to make sure that we do it in a way that gives our shareholders their maximum value and it's something that Nektar could afford, given the fact that it was a good question that was asked before, we have this incredible portfolio in immuno-oncology that I want to move forward. So I don't want to impact that negatively and I want to make sure that we can bring that value to our shareholders. So we're looking at what we can do with NKTR-181 to accomplish both those goals. Now whether -- I do hope to get a collaboration done, we've said our goal is to get it done this year, I'm not going to make hardcore commitments on that obviously, there are number of companies we're talking with that are highly interested and entities that are highly interested, let's see how it moves forward. I'm sure, everyone's going to want to understand where we move forward with an NDA, that's probably a reasonable thing but that doesn't mean that we're not actively involved in discussions. So I'm hopeful that NKTR-181 is allowed to move forward, especially as you properly stated, given the very serious concerns that everybody has about opioid abuse in this country. We have a solution here, and it would be hard for me to imagine that anyone wants to ignore it. In any case, let's see how this evolves over the coming couple of months.

Our next question comes from Andy Hsieh from William Blair.

Congrats on a very, very productive quarter. I just have a quick one. I believe, last week, Bristol-Myers submitted a fixed dose of OPDIVO dosing scheme every 4 weeks, 480mg. Just wondering if it's necessary to go back and do some dose escalation in combination with 214? And then move forward to the expansion cohorts, kind of want to just to get your thoughts on that?

Andy, thank you for your question. We looked at 5 different dosing regimens in our dose escalation part of the PIVOT trial. And we do very extensive biomarker analysis, much more so than most early-phase clinical trials. And when we look at the aggregate of our safety data, our response data and the biomarker data, it really drove us to the optimal Phase II dose, which for us is every 3-week dosing regimen. And we've spoken extensively to our clinical investigators about your questions and everybody feels that it is reasonable to have patients to come back to the clinic every 3 weeks. And the optimal effects that we're getting both in terms of response, time to respond, depth to response were all considered. We are also looking to combine our NKTR-214 with other triplets and in those triplets regimens, we are considering the Q4 week dosing cycle. And so we will have an opportunity to see the effect of nivo plus 214 plus third agents in triplets. We can always go back and evaluate new dosing regimens. As we go forward, we feel confident, we did hit a nail at the right recommended Phase II dose and we will be able to share the data with you at SITC. We also think that the 3-week dosing regimen is highly competitive with KEYTRUDA and Atezo and newer triplet combinations, that are coming out. I'll also say, as far as a cytokine goes, there is no other company that has a cytokine that they're dosing every 3 weeks and sees the influx and the robust immune activation that we're seeing with NKTR-214, which we believe is a huge competitive advantage for our own molecule.

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

Well, thank you all for joining us this afternoon on. As always, I would like to thank our employees for their hard work and dedication to the company. And we look forward to seeing many of you at the Morgan Stanley, Canaccord and Wainwright Conferences over the next several months. So thank you everyone, bye-bye.

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