Nektar Therapeutics (NKTR) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Q4 and Year-End 2017 Financial Results 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. 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 Labrucherie, our Chief Financial Officer; Dr. Steve Doberstein, our Chief R&D Officer; Dr. Jonathan Zalevsky, our Chief Scientific Officer and Dr. Mary Tagliaferri, our Chief Medical Officer.

Several members of our team are joining from different locations so we ask your patience today during Q&A, if there is any lag in our response time.

On this call, we expect to make forward-looking statements regarding our business, including the timing of future clinical trials and clinical trial results, clinical development plans, the economic potential of our collaboration partnerships, the therapeutic potential of certain drugs and drug candidates as well as those of our partners, our financial guidance for 2018 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 the Form 10-K, we filed today, which is available at sec.gov.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future developments or otherwise.

A webcast of this call will be available on the IR page at Nektar's website at nektar.com.

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

Thank you, Jennifer. Thank you to everyone for joining us today for our year-end 2017 conference call.

On today's call, we will review the many upcoming milestones for Nektar's pipeline over the next month, including our planned submission for an NDA for Nektar 181 in the second quarter, and the continued advancement of our I-O portfolio with NKTR-214, NKTR-262 and NKTR-255. We will also provide our financial guidance for 2018.

2017 was a truly transformational year for our company. We achieved major successes on multiple fronts with Nektar-invented medicines across 3 therapeutic areas: pain, immuno-oncology and immunology. This is a singular set of achievements that is truly remarkable and is the culmination of many years of hard work and scientific innovation by the Nektar team.

In the area of chronic pain, all Phase III trials of NKTR-181 were successful; the efficacy study in patients, the long-term safety study in patients and the pivotal human abuse liability study conducted in recreational drug users. This successful and comprehensive Phase III development program will enable us to submit an NDA package for NKTR-181 in the second quarter of this year.

In immuno-oncology, we developed a highly valuable and highly-focused strategy, which resulted in a pipeline of new potential medicines that address the key components of the immune cycle in order to restore immune surveillance and properly harness the body's immune system to fight cancer. We now have a strong pipeline in immuno-oncology NKTR-214, NKTR-262 and NKTR-255. We've had compelling results with our lead I-O program, NKTR-214, in terms of clinical efficacy, safety and supporting translational science, which led to our recent strategic collaboration with Bristol-Myers Squibb. The collaboration enables us to develop NKTR-214 broadly and rapidly, in order to establish it as a backbone of cancer care across multiple indications.

And in immunology, we opened the IND and began clinical development with NKTR-358, a first-in-class T reg targeting resolution therapeutic to treat autoimmune disease.

Our preclinical success with NKTR-358 led to an extensive partnership with Eli Lilly to develop NKTR-358 for a wide range of autoimmune diseases. Based upon the proof of mechanism results observed to date in a single-ascending dose first-in-human trial, NKTR-358 is now advancing into lupus patients in a multiple ascending dose study, which we plan to begin in the second quarter of this year.

I don't know if any other company at our stage of development to have this number of substantial and successful achievements in a single year. And I'm very proud of our employees.

First, let's review the substantial progress we've made with NKTR-181. In the past 2 months, we've had 2 highly productive pre-NDA meetings with the agency to discuss our clinical, nonclinical and CMC data packages that will go into our NDA submission. As you know, our NDA data package includes an extensive amount of efficacy and safety data in over 2,100 patients and healthy subjects. This includes our 600-patient Phase III efficacy trial, our 2 human abuse potential studies and our 630-patient Phase III long-term safety study, which also included long-term measurements of pain control as well as a wide range of PK and PD studies of therapeutic and super therapeutic doses of NKTR-181 in over 450 healthy subjects.

The FDA staff gave us clear and collaborative guidance on the expectations for completion of our NDA submission. An agreement was reached to file the package in the second quarter of this year. The agency further confirmed that Nektar has an adequate abuse potential assessment data package and that together with the safety population, the data appear to be adequate to warrant a discussion of a less restrictive scheduling than Schedule II. As I said earlier, we're on track to submit the NDA for filing in the second quarter of this year.

NKTR-181 has emerged not only as a critically important new potential medicine to treat patients with moderate-to-severe chronic pain, but also as an important component of a solution to address the opioid public health emergency.

This afternoon, Steve and I were invited to and participated in the opioid submit at the White House, which focused on the treatment of addiction in our country and the education, prevention and treatment of pain patients in light of the current opioid epidemic we are facing. A key theme of this event was the importance of providing pain relief to patients without the high risks of abuse and addiction found with today's opioid drugs. As the first new full new 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 to conventional opioids, but also to reduce diversion of prescription pain medications for abuse.

We strongly believe that we could add more value to NKTR-181 through the continuing regulatory process. We believe NKTR-181 is a major building block in the fight against opioid addiction, and we are highly focused on the best way to bring this important new medicine to patients quickly following approval. We are actively evaluating potential licensing to commercial partners or other strategic structural alternatives that -- while we advance the regulatory process.

Finally, we are very pleased to announce today that 2 NKTR-181 abstracts were accepted for oral presentation at the upcoming 2018 Annual Scientific Meeting for the College of Problems of Drug Dependence, which will be held in San Diego the week of June 9. The first presentation will feature results from our dopamine microdialysis animal models, which show that NKTR-181 does not create the same dopamine surge in the brain's reward center as is observed with standard opioids.

The second presentation will review new positive data from our Phase III efficacy study from an important exploratory end point related to assessing the abuse potential of the medicine. The end point used in new measurement tool called Matters, which was developed with the FDA action public-private partnership initiative in order to quantify potential abuse related events in clinical trials. The Matters tool was specifically developed to generate evidence to support approval, labeling and scheduling decisions for new medicines.

Now let's talk about NKTR-214. As you know, we recently entered into a transformative collaboration with Bristol-Myers Squibb, the global leader in immuno-oncology. This new collaboration is a major strategic step forward for our company in order to establish Nektar as a new leader in the immuno-oncology field. The collaboration's broad clinical development program ensures that we could advance this new potential medicine to as many patients as possible, as quickly as possible. As you know, Nektar will book all global revenue, and we will keep 65% of global profits for NKTR-214. We will also receive an upfront payment of $1 billion and a premium equity investment of $850 million at $102.60 per share. We expect the collaboration to commence in the second quarter once the HSR review period ends.

Since we have the flexibility to pursue other combination possibilities, we maintain pricing and distribution control for NKTR-214 and our partner has committed to pay 2/3 of the collaborations development costs. We now have the right foundation in place to maximize the value of NKTR-214. Under the framework of this new collaboration, Bristol-Myers Squibb and Nektar will be initiating over 20 registrational-enabling studies that will enroll approximately 15,000 patients in 9 tumor types. These trials will start within the first 14 months of the collaboration. And the first 2 Phase III studies, which Bristol will start in the middle of this year will be conducted in patients with first-line melanoma and first-line renal cell carcinoma. We plan to share the design of these trials later this year at ASCO.

At ASCO, we will also share our first presentation of data from the second part of the ongoing PIVOT study of NKTR-214 plus Opdivo known as the expansion stage.

At JP Morgan, I provided an update on the patients from the first part of the ongoing PIVOT study, the 38 patients from the dose escalation stage. To remind you, the response rates we reported at JP Morgan were 75% response in second line I-O naïve non-small-cell lung cancer, a 64% response rate in first-line I-O naïve melanoma patients and a 57% response rate in first-line I-O naïve renal cell carcinoma patients.

Further, all of the partial and complete responses observed in the dose escalation stage of the trial has been confirmed, and we see ongoing tumor shrinkage. And all patients with responses from dose escalation continue on treatment. Importantly, there have been no patients with responses who relapsed in any of the tumor types. This highlights that the length of time patients spend on treatment with the combination of NKTR-214 plus nivolumab is correlated with further tumor shrinkage and improved and continued response.

Specifically, I want to take a moment to focus on the improvement in response over time for the 14 patients with the first -- with first-line renal cell carcinoma. When we initially presented the first-line RCC dose escalation data at the SITC Conference in November of last year, the response rate was 46%. As I've just said 2 months later at the time of JP Morgan, the response rate was 57%. Today, we're pleased to report that we have additional patients with stable disease that converted to responders, which means we now have a 71% response rate in first-line RCC with all patients with responses confirmed in ongoing treatment.

There is also one additional patient in the first-line RCC with stable disease who is still on treatment as well. That patient had experienced tumor reduction and also has a potential to convert to respond. Across the entire 38 patients in dose escalation in all tumor types, we now see a confirmed 60% overall response rate in the 20 patients with baseline PD-L1 negative status. In addition, our safety profile across the entire PIVOT population continues to be encouraging with no patients discontinuing because of treatment-related AEs and a low 11% G3 adverse event rate in over 150 patients treated to date.

As I've just stated at ASCO, we will present the first data from the second expansion stage of the study. The PIVOT study continues to enroll patients into the second expansion stage. As you will recall, we plan to enroll 330 patients into 13 different expansion cohorts that spanned 5 different tumor types. We expect to complete enrollment for the first 5 tumor types by the end of the third quarter of 2018. In the second quarter, we will add 3 new expansion cohorts to PIVOT; gastric, colorectal and small cell lung cancer. We will begin enrollment very shortly after the HSR review period.

As we retain the ability to develop NKTR-214 in combination with other anti-cancer agents, we plan to initiate additional development collaborations this year. This will ensure that we maximize our potentials to rapidly establish NKTR-214 as the future backbone of immuno-oncology therapy.

Today, we have several Nektar-214 combination programs underway in nonclinical tumor models, including a collaboration with Takeda with 5 different targets as well as vaccine and other small molecule programs. Based on the positive results from multiple preclinical studies, we expect to advance several new combinations into the clinic this year.

At the upcoming AACR conference in April, we will present 4 separate nonclinical data sets for NKTR-214, including a combination of NKTR-214 with an HDAC inhibitor in models of renal and colon cancer. And a combination of NKTR-214 with an adoptive T cell transplant approach, conducted in collaboration with Dr. Tony Ribas. It is important to note that Bristol-Myers Squibb -- that the Bristol-Myers Squibb collaboration puts us in a very strong financial position and allows us to execute on our vision for Nektar's portfolio in immuno-oncology.

Our pipeline of I-O candidates beyond NKTR-214 includes NKTR-262, a TLR 7/8 agonist and NKTR-255, and IL-15 candidate that can stimulate both NK cells and memory T cells. The preclinical data for the Nektar 214, 262 combination are particularly compelling. And we're on track to dose the first patient in the novel-novel combination trial of NKTR-262 with NKTR-214 this month. The trial will enroll up to 400 patients with 8 different tumor types in first and second line as well as refractory settings.

The first stage of the trial will assess the doublet of NKTR-262 and NKTR-214. In the second stage of the trial, we have the option to evaluate a triplet of NKTR-262 and NKTR-214 plus Opdivo. We expect to have the initial data from this trial sometime in the fourth quarter of this year.

Now let me give you an update on the advancement of NKTR-358 with our partner Eli Lilly. As I stated earlier, with success in the Phase Ia single ascending dose trial of NKTR-358 in healthy volunteers, NKTR-358 is now slated to enter Phase 1b multiple ascending dose trial in patients with lupus in the second quarter of this year. This Phase Ib study will enroll approximately 50 patients and will evaluate safety and biomarkers of NKTR-358. With a 12-week treatment period, we expect the trial duration to be 18 to 24 months with initial data sometime in 2019.

And with that, I will hand the call over to Gil to provide financial guidance for 2018.

Thank you, Howard, and good afternoon, everyone. I'll start with a few points on the progress of MOVANTIK and ADYNOVATE, and then I'll review our 2018 financial guidance.

Our royalty revenue from MOVANTIK and ADYNOVATE continues to grow nicely. And we expect this growth of our royalty revenue to continue in 2018. Our royalty revenue for 2017 was approximately $33.5 million, which represents a 72% increase from 2016.

On January 15, 2018, the European Commission granted marketing authorization for ADYNOVATE as ADYNOVI is known in Europe, enabling patient access to ADYNOVI throughout Europe beginning this year.

As a result of this European approval, we will recognize a $10 million milestone in Q1 of this year.

Now let's turn to our 2018 financial guidance. First, starting with our cash position. Including the upfront payments from the BMS collaboration, we expect to end the year with a cash position of between $1.9 billion and $1.925 billion. For 2018 GAAP revenue, our guidance for revenue outside of the payments from the Bristol collaboration, is between $100 million and $110 million, which we expect to be ratable over the four quarters of 2018, with the exception of the $10 million milestone payment for the European approval of ADYNOVATE that we will recognize this quarter.

With respect to the BMS collaboration, we expect to receive the upfront payments when HSR review period ends, which we estimate will occur in the second quarter of this year. While we currently anticipate that a portion of the upfront payments from the BMS collaboration will likely be recognized in 2018, we are working closely with our independent auditors to determine the new GAAP ASC 606 revenue recognition accounting principle will apply to the BMS collaboration payments.

We expect to complete this analysis and provide our final assessment of revenue recognition for the BMS collaboration on our Q1 quarterly financial results call. In the meantime, we recommend for modeling purposes to include a placeholder of $125 million in revenue to be recognized in Q2 of 2018 for the BMS collaboration.

We anticipate 2017 -- 2018 GAAP R&D expense will range between $400 million and $425 million, which includes approximately $67 million of noncash depreciation and stock compensation expense. We expect to incur R&D expense on a fairly ratable basis over the four quarters of 2018. There are a few key points that I want to highlight for our 2018 R&D investment plan.

Our plans for the NKTR-214 development program include substantially completing enrollment in all of the current PIVOT expansion cohorts by the third quarter of this year, a goal BMS and Nektar were already working towards under our current clinical trial collaboration agreement. In connection with our new collaboration agreement, after the conclusion of the HSR review period, we and BMS plans to start at least 20 registrational trials within 14 months after the collaboration is effective.

Our plan includes the start of Phase III studies in melanoma and renal cell carcinoma by mid-2018 as well as other indications in the second half of 2018. After the collaboration is effective, we will work closely with BMS to continue planning the operational execution activities for the broad joint clinical development campaign that is outlined in our collaboration. Keep in mind, that under our BMS strategic collaboration agreement, our cash outlay is subject to an annual cap of $125 million in GAAP development expenses, which will be pro rated for 2018 from the closing date of the agreement.

While we will continue to recognize GAAP R&D expense for NKTR-214 to the extent such expenses exceed the $125 million annual payment GAAP, BMS will reimburse Nektar for all development cost in excess of the annual cap under our quarterly reconciliation process.

For NKTR-358, our plans include the start of a Phase Ib multiple ascending dose study in lupus patients in the second quarter of 2018. As you will recall, after the conclusion of the Phase Ib study, Eli Lilly will then lead the development program for NKTR-358 from Phase II through regulatory approval with Nektar being a codevelopment partner.

Later this month, we will commence our Phase I clinical study for NKTR-262 in combination with NKTR-214, with an enrollment schedule that should allow us to establish our Phase II recommended dose and share initial data from the study before the end of this year.

We also continue to advance the NKTR-255 program towards an IND filing, which we expect to occur in the first half of 2019. For NKTR-181, we plan to make a significant investment this year to advance NKTR-181 through the FDA approval process, including the planned NDA filing in Q2, drug-drug interaction studies needed to finalize labeling, CMC stability studies as well as manufacturing the initial commercial launch supplies.

G&A expense for 2018 is projected to be between $65 million and $68 million, which includes $28 million of noncash depreciation and stock compensation expense.

For 2018 interest expense will be approximately $40 million, including approximately $19 million of noncash interest expense related to the CIMZIA and MIRCERA royalty monetization. As I stated earlier, we plan to end 2018 with approximately $1.9 billion to $1.925 billion in cash and investments.

With that, I'll open the call for questions operator?

(Operator Instructions) And our first question comes from Chris Shibutani from Cowen.

Great. I wanted to ask some questions about 262, in particular. Can you talk us through how you're thinking about any of the preclinical data that you have? And how that's guiding you're thinking about dosing for the combination with 214?

Okay. I'll let JZ answer that question.

Sure. Chris, so it's a good question. So definitely, the preclinical models that we ran allowed us to understand the nature of the dose administration. And that's both in terms of the frequency, even the dose volume, even the relationship of dose to properties of the tumor, such as the tumor size, the tumor's age and even some of the underlying composition of the cells inside the tumor. So we took all that into consideration when we went and did all of the IND-enabling nonclinical toxicology studies, which then further allowed us to pick a starting dose, which we could justify based on all of those parameters that I just described as well as the overall toxicology assessment that's required by the FDA before you open a first-in-human trial. So all of that was considered to pick our starting dose. And I'll give a little bit more color on that also in the way we've designed the clinical trial, injecting either 1 or 2 tumors on any occasion of intratumoral administration. So this is very different than, say something like TVAC (inaudible) or you could be injecting 10 or more tumors in any given time. So this is very different approach than that. And also, the frequency of that injection is either once or on a 21-day cycle, we have a chance to dose a few times and restage the patients as needed. So it's a very almost minimalistic amount of intratumoral administration, which we think is going to be very key to the overall success of NKTR-262. And then in terms of the combination with NKTR-214, the philosophy there is that we know that any immune action of the immune system has to end with a faithful hand off from the innate -- to the adaptive immune response. And that initial innate response, which is not antigen specific then switches to be antigen-specific at the adaptive level. And so the whole kind of science behind this combination is that when you co-administer the 2 agents, in particular, having NKTR-214 on board after the IV administration it really increases the efficiency of that innate to adaptive handoff. And it actually really increases the number of antigen reactive T cells and then those can go off and give you an abscopal response, really targeting any tumor in the patient, even the tumors that are very far away from the few that were injected.

So then just to be clear then on the 214 dose, do you expect that to be the same dose that you are using, for instance, in PIVOT? Or is it likely to be different to optimize for the 262 combination?

Sure. The same dose we are using in PIVOT.

Chris, we just want to congratulate you. Everyone at Nektar wants to congratulate you on the outstanding performance of your children at the Olympics. So I want to make sure we didn't forget that, that's important.

And our next question comes from Jessica Fye from JP Morgan.

I have a couple related to partnering both with 214 and 181. So first, I was hoping if you could kind of set expectations, when you say that you plan to initiate additional development collaborations this year, should we expect more cash to come into Nektar from those or those more sort of cooperative clinical collaborations without money changing hands? And sort of in the same vein and slightly related or may be against the backdrop of this massive deal you just did, how does that change everything about your priorities for the structure of the future 181 collaboration? And lastly, I just want to confirm one of the data points you said in prepared remarks, the 60% response rate in 20 patients who has PD-L1 negative status, is that just blended across all tumor types?

Okay, so last question first, yes, it's blended across all tumor types. To your first question, it was a good question. Look as you know, there are no other drugs like, in development like NKTR-214. Everybody is now jumping on the IL-2 bandwagon. But the fact of the matter is, there is nothing else in clinical development that looks like NKTR-214. And as you could also imagine, there are many, many companies that are highly interested in combining NKTR-214 with their unique molecules. I don't know that I expect significant upfront money to change hands here. I don't think that's what we are looking for. I don't think that's a priority for us at this moment. I think the most important thing we could do is find the right partners, whether they would be small molecules, whether they be vaccines, there is a range of things. Let's find the right partner with the best potential opportunity, and let's figure out how to work with that partner and combine NKTR-214 with their technology and show that NKTR-214 genuinely is the centerpiece of immuno-oncology. On the second question with regard to NKTR-181, look, again, clearly, I don't want to suggest that money is not important. It is very, very important. Cash is very, very important. But at this point, we have -- we are probably in better shape than most biotech companies. And I think we can gain a lot by nurturing NKTR-181 through the regulatory process. And the further it goes through the regulatory process, the more likely it is that we can build even value on top of what we've already built. We've had -- our pre-NDA meeting with the FDA were excellent. The FDA is very supportive and has been extremely collaborative in helping us move NKTR-181 forward. And as I said, we have agreement with them that we'll be filing NKTR-181 in the second quarter of this year. And they're taking a very close look at what it would be to give it a scheduling that's better than Schedule II. So we are very happy about that we expect to do the filing. And at this point, we are talking to companies and we are evaluating other possibilities and other strategic structures that could bring NKTR 181 to patients. I can tell you that Nektar Therapeutics has no intention of marketing NKTR-181. That is not our expertise. We are immuno-oncology, immunology company and that's where we're going to focus our efforts. But there are all kind of strategic structures, there is all kinds of potential collaborations with companies that we are discussing. And I'm hopeful that we will get this patient -- destructed patients rather rapidly. As I said, Steve and I were invited to and we attended the opioid summit at the White House today. We are actually in Washington, right now, that's why we are in different locations. And there is no doubt that a drug like NKTR-181 has the potential to be a major component of the solution for the opioid crisis. No doubt about that. So we're looking at all the possibilities. And I think we're going to be very proud of the results in the end.

Howard, just to make sure I'm hearing you correctly, I mean, I was sort of asking about, like, can you maximize your royalties since you don't necessarily need the upfront, but you are saying that also you now have more of the luxury of time with this cash infusion to kind of capture better value by just getting the product closer to market?

You know what, it's a very good question, it's both, Jessica. So first of all, absolutely right. I would much rather get a back end on NKTR-181 that an additional whatever upfront. I don't think that's our driver now. So in the context of whatever we do with 181, the back-end, because I believe it's going to be very, very important drug in the marketplace. The back-end is very important to us. However, what you said, the second part of your comment was also true. I think the longer we take it through the regulatory process and the more we get FDA buy-in on Nektar-181, it makes it even more and more valuable to somebody. So it also gives us the ability to talk to different companies, to look at different strategic structures. There is no time crunch on it. I just want to make sure that when it does get approved, it's ready to be marketed.

Our next question comes from Bert Hazlett from BTIG.

So just continuing along the lines of some of what's been asked, with regard to your appetite to explore additional combinations of additional I-O therapies outside of Nektar, you've got 262, 255, you've got who knows what in the covered that your team is working on, are we hearing that there is the potential for material in-licensing or potentially even acquisition of additional technologies now with the cover is full in terms of the cash position there? Or is that just more exploratory development types of deals? I would really love to pin you down on a little bit of the specifics there?

Look, again, an excellent question and I should just start by saying we are very, very conscious of how we use our cash. So I don't want you to think that now that we have very, very nice hoard of cash that we are going to use it in an inappropriate fashion. We are very, very frugal here at Nektar, I can tell you that. Now that said, we are looking at a number of different collaborations where it's genuinely, we put NKTR-214, the company puts in their molecule and we see how that develops. But I would not rule out the possibility of acquiring something if it made sense. But we would have to -- you don't get many shots at that. You have to do it very carefully and very cleverly. And you have to make sure that whatever you do acquire is something you really want to put your stake in the ground with. So while I wouldn't rule out the acquisition of the technology to combine with NKTR-214, I will tell you that we are going to be very, very judicious on doing that.

Okay. And just a little bit more, again, on the -- on your language with regard to less restrictive scheduling for 181. it's -- it would be a very intriguing development if it were to happen, but I'd love to understand a little bit better what gives you the thought that the regulatory agencies might be willing to consider that?

I'm going to let the Steve handle that question.

Hi, Bert, now just to be clear about that, what Howard said in his remarks was absolutely correct, is that the agency has given us guidance in that. Our VIII factor analysis, which is what underlies the pharmacology part of the scheduling decision and our safety database are sufficient to consider better scheduling, less restrictive scheduling than C2 that, of course, isn't a scheduling decision. It's just that they like what they've seen so far. And now, that is a very big discussion that happens within FDA during review of the NDA between the division and the controlled substances staff. They then make a recommendation that comes out of CSS to the Drug Enforcement Administration, DEA. And that happens around the time immediately after approval. So it's actually quite a while before we understand what the scheduling is really going to be for NKTR-181. At least we have the data in place now that makes that discussion relevant within FDA. That's the guidance we've been given.

Okay. And then just one other quick one on 358, could you remind us of your involvement on a day-to-day and week-to-week basis in terms of the development of that program?

JZ, you want to cover that?

Hey, Bert. Yes, so we have a very, very strong relationship closely with Eli Lilly. Now formally, the way that the deal is structured, Nektar is the responsible party up until Phase II. So we're the sponsor in running both the Phase Ia study, that's ongoing now, as well as the Phase Ib study that will begin in the second quarter, the multiple ascending dose trial in lupus patients. So we have the front and the leadership and the responsibility for executing. But the great thing is that Lilly is not a passive partner. Now we don't want them to be. In fact, one of the goals of this whole collaboration was they have extensive experience in the immuno science and immunology space. So we really wanted to leverage that expertise and work together very closely. So the project teams are joint. They communicate regularly. We have phone calls together multiple times a week, multiple even face-to-face meeting. So it's a very, very healthy and extremely collaborative group.

Our next question comes from Difei Yang from Mizuho Securities.

After all these questions, I have a very easy one. A PROPEL study, where would you plan to share the results? Is it at a conference? Or should we be expecting a conference call, specifically for the results?

Difei, this is Mary Tagliaferri. We have had a long-standing tradition of sharing our clinical data at conferences and medical conferences with our participating investigators. And we anticipate in the second half of this year, we'll be able to present some PROPEL data. And so we can expect to see that at a medical conference.

But we're always open to providing data when we think it's appropriate for investors. For example, we just told you on today's call that in first-line and renal cell carcinoma, our response rate is now 71%. That's a new piece of information that no one has seen before. So we'll always be able to provide information on a reasonably timely basis, but we generally try to hold things for major medical meetings.

And our next question comes from Andy Hsieh from William Blair.

But I've got 2 questions. One has to do with, I guess, the market potential for 262, it's a intratumoral injection and obviously not tumors are palpable. So just wondering your thoughts on what type of tumors can you target there? The second question has to do with the safety of 214. So you said there, if I heard correctly and correct me if I'm wrong, grade III adverse events happened in 11% of the patients among what over 100 patients tested. Do you mind sharing what types of AEs have you seen? Is it different from what we've seen at 50?

Okay, sure. I'll -- first, let me touch on the first part of your question which is, how do you -- what's the market for a drug that dosed just a few times. I think look, if you have an important drug like NKTR-262, I think everybody understands that TLR 7/8 agonist is potentially very, very important in immuno-oncology but of course, it can be delivered systemically. If you give it systematically, I think the side effect profile would be significantly problematic. On the other hand, when you combine it with 214, you do get the abscopal affects and that's I think is very, very important program. Now I don't want to talk about what the market potential is because you have to talk about pricing and I don't think we are ready to do that yet, given the early stage of development. But clearly, what this allows us to have is a Nektar wholly-owned combination. So it means that we have NKTR-214 and NKTR-262, of course, I said 262 and 214, because 262 theoretically comes first in the cascade. So with that wholly-owned combination, maybe there is no need for a checkpoint inhibitor with that combination. So we have to see how that plays out. We have to see how that evolves. And depending on the efficacy that we see from that and how valuable that combination is, it'll create a market for itself. With regard to the safety profile, I'll let Mary go into some detail. But I think, it's very important to note, no one has dropped off of NKTR-214 studies because of safety issues. Not a single patient has stopped therapy because of safety. That's an important distinction. Please follow through, Mary.

Yes, thank you. As you know, we have this very convenient outpatient dosing regimen that's every 3 weeks. And that NKTR-214 can be dosed antibody like schedule. And we're seeing an incredibly well treatment related AE grade 3 rate of 11%. And really, no one treatment-related AE stands out. And as we shared many times with our hypothesis of increasing Tregs in the periphery, but not intra-tumorally, we don't see a high rate of treatment-related AEs like you would see in a single-lesion checkpoint inhibitors. The most common symptoms that we see are flu-like symptoms tend to occur in the first cycle. And as patients are treated with subsequent cycle, patients really become more tolarized and -- to the cytokine and do not have flu-like symptoms as they progress through treatment. The physicians really appreciate this because it is easy to manage the patients. About 24 to 48 hours after dosing, patients can expect to have fever and they take Tylenol or NSAID and it's resolved very quickly in a couple of days. And the predictability of the side effect profile is very much appreciated by both the physicians and patients alike. Again, we don't have discontinuations. Discontinuation rate is as high as 20% in these clinical trials with checkpoint inhibitors. And so we are very pleased that patients can tolerate treatment, as Howard said.

And we think, again, and also, let's not forget the efficacy component. As I said earlier, that every patient that has responded has stayed on drug, there had been no relapses for any patient who has responded. And if you look at it, as I talked about renal cell carcinoma as an example, we reported there is a 40% -- 46% response rate, few months later, 57% response rate, now few months later, it is 71% response rate. So responses get better over time with this therapy. And on top of that, not a single patient who has responded has relapsed.

Yes. And I think differentiating in the world of renal cell carcinoma, when some approaches are combining, say, pembro with TKI, the grade 3 or higher AEs rate is as high as 65%. And you have high dropout rate, almost 20% of the patients discontinued treatment because they can't tolerate the combination. So having a highly tolerable regimen with a very high objective response rate is certainly what is desirable today in the landscape of immuno-oncology.

And our next question comes from David Steinberg from Jefferies.

I just had some questions on some of the finer points of your Bristol-Myers collaboration. So first, is the profit split on -- with Bristol on all the 214 sales, is it only after Yervoy or all sales? And then secondly, how is the profit calculated for the purpose determining the 35-65 split? Is it operating profit ex-R&D or other calculation? And third, how will you treat SG&A? Is SG&A associated with the partnership? Will that -- is that what will appear on your income statement?

Okay, I'll leave the last question to Gil. Let me take the first 2. They're entitled to 35% of the profits on NKTR-214, regardless on how it's used. We are certainly free to develop it with other combinations outside of Opdivo. But they are still entitled to 35% of the profits on NKTR-214. They also have to pay a percentage of the development costs, even if it's not with Opdivo. So we were to do a development program with someone in collaboration with some other company, whether it is a vaccine or small molecule, they have to pay their share of that development cost as well, even though it doesn't involve Opdivo. So that is how that works. I think your second question was, refresh my memory again, David, what your second question was?

Howard, his second question...

(inaudible) the operating question was last to second part of it was what goes into the profit split. So in U.S., if research and development goes into the profit, well, it does not. We pay approximately 1/3, a little that less than 1/3 of the development costs. They pay a little more than 2/3 of the development cost. That has nothing to do with the profit split. So in that sense, Nektar pays approximately 1/3 of the R&D expenses that has nothing to do with the profit split. I'll let Gil explain how G&A works in.

Yes. So the P&L for 214 is just what you would imagine. There is a cost line, and there is a allocable commercial expenses for the direct efforts of Nektar and BMS to promote NKTR-214, resulting in operating margin, operating profit that will be split between NKTR and BMS; so 65% going to NKTR and 35% going to BMS.

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

Okay. Well, thank you for joining us this evening. And again, I want to thank our investors for supporting Nektar for all these years. I think we finally achieved tremendous success, and I expect that it continues. And I, of course, want to thank all the employees for doing such a spectacular job, which really puts us at the forefront of immuno-oncology and the forefront of biotech. So we're very proud of everyone. So thank you very much. I appreciate your time today.

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.