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Nektar Therapeutics (NASDAQ:NKTR)

Q1 2013 Earnings Conference Call

May 9, 2013 5:00 PM ET

Executives

Jennifer Ruddock - VP of Investor Relations

Howard Robin - President and CEO

Rob Medve - CMO

John Nicholson - CFO

Steve Doberstein - CSO

Analysts

Josh Schimmer - Lazard Capital Markets

Bert Hazlett – ROTH Capital Partners

Steve Byrne - Bank of America

David Steinberg - Deutsche Bank

Operator

Good day ladies and gentlemen and welcome to the Nektar Therapeutics' First Quarter 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference maybe recorded.

I’ll now turn the call over to your host Jennifer Ruddock, Vice President of Investor Relations. Please go ahead.

Jennifer Ruddock

Thank you. Good afternoon everyone and thank you for joining us. With us today are Howard Robin, our President and CEO; John Nicholson, our Chief Financial Officer; Dr. Robert Medve, our Chief Medical Officer; and Dr. Steve Doberstein, our Chief Scientific Officer.

On this call, we expect to make forward-looking statements regarding our business, including but not limited to clinical development plans, the timing of future clinical results and regulatory filings, the economic potential of our collaboration partnerships, the therapeutic and market potential of our drug candidates and those of our partners, our financial guidance for 2013, which includes potential milestone payments and certain other statements regarding the future of our business.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes that are difficult to predict and many of which are outside of our control. Important risks and uncertainties are set forth n our quarterly report on Form 10-Q filed today.

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 for replay on the Investor Relations page at Nektar’s website at www.nektar.com.

With that I would now like to hand the call over to Howard. Howard?

Howard Robin

Thank you, Jennifer. Thanks to everyone for joining us this afternoon. I’m very pleased with our achievements over this past quarter including the start of two very important clinical studies our Phase 3 study with Amikacin Inhale to treat hospital based pneumonias. And our second Phase 2 study for NKTR-181, which is an human abuse liability study. We expect to have data from this study as well as the efficacy study for NKTR-181. In mid to late summer we will discuss more on NKTR-181 in a moment.

Nektar now as five highly valuable programs spanning multiple therapeutic areas that has completed Phase 3 or in Phase 3. Our pipeline leverages an innovative technology platform that continues to generate new drug candidates in pain and oncology.

As I said before, Nektar is in a unique position within our industry with 5 key Phase 3 programs spanning several distinct therapeutic areas. Naloxegol which has completed Phase 3 by our partner AstraZeneca, Etirinotecan pegol or NKTR-102, our wholly-owned program in metastatic breast cancer, which is in Phase 3, BAX-855 which is in Phase 3 with our partner our Baxter, Amikacin Inhale which is in Phase 3 with our partner Bayer and Cipro Inhale which is also in Phase 3 with our partner Bayer.

In addition to our Phase 3 pipeline, we have two wholly-owned development candidates NKTR-181 and NKTR-192 which position NKTR to capture a significant opportunity in the chronic and acute pain markets.

So let me start first with an update on the Naloxegol, AstraZeneca has met with the FDA and EMA and plans for Naloxegol will be finalized over the coming months incorporating the outcome of ongoing pre-NDA discussions with the FDA.

As you know, AZ and Nektar, reported excellent efficacy and safety data from the KODIAC program which includes two pivotal efficacy studies, a 12-week extension study and a one-year long-term safety study for Naloxegol. Naloxegol 25 mg dose met its primary endpoint and all of its secondary endpoints in the two efficacy studies. The comprehensive well-controlled 52-week safety study of Naloxegol was the first and only long-term comparative study completed OIC to prospectively measure potential symptoms of opioid withdrawal over one-year of dosingand to externally adjudicate for major cardiovascular events or MACE.

In this study called KODIAC 08, there were no reports of opioid withdrawal attributable to Naloxegol over 52-weeks of therapy. Importantly there was no imbalance in MACE events in the study. This study was randomized 2:1 and as I told you on our last call, there were two cardiovascular events in Naloxegol out of 534 patients and two cardiovascular events in the usual care arm out of 270 patients. More than half of the patients entering into the long-term safety study were considered to be at moderate to high baseline cardiovascular risk based on the presence of one or more pre-existing risk factors such as prior history of heart disease, high blood pressure, high cholesterol, obesity, diabetes and smoking.

During the pre-NDA interactions with AZ, the FDA expressed a general safety concern that arose from regulatory reviews of data from other preferably restricted opioid antagonist molecules that are pharmacologically different from Naloxegol. The first concern is related to a theoretical link between opioid withdrawal and cardiovascular events. Although, they have not established that there is a causal relationship. They have also speculated then an opioid antagonist might interact with the delta sub-type of opioid receptor, which is theorized to be involved in cardio protection.

So what I would like to do is walk everyone through these concerns and tell you how these concerns will be addressed with the agency. First is, the FDA is concerned about a drug called alvimopan which as you know conducted a 52-week safety trial in patients taking opioids for chronic pain. The study was very similar in size to the Naloxegol safety trial and was also based on the 2:1 randomization.

In the alvimopan trial it was a clear imbalance in cardiac events in the alvimopan treatment group relative to the placebo. In that study there were 14 MACE events in the 528 patients treated with alvimopan as compared to 0 MACE events in the 267 patients in the placebo group. Their study showed a clear imbalance in MACE events between the two arms as we just told you Naloxegol in the same patient population did not show an imbalance between the two arms. Second, the FDA is concerned about opioid withdrawal precipitating cardiovascular events. Naloxegol has the unique and highly effective mechanism of exclusion from the CNS: polymer conjugation. The KODIAC long-term safety study is the first study in this field to prospectively access opioid withdrawal. We observed no notable differences in mean change from baseline in the withdrawal scale between the Naloxegol and control arms and there were no reports of opioid withdrawal attributable to Naloxegol

Further, there was no connection between opioid withdrawal and any cardiovascular events in the KODIAC program. Third, with respect to the FDA’s concern regarding the delta subtype of opioid receptor, I will point out that Naloxegol has a different finding profile than other opioid antagonists. In particular it has a 30-fold greater selectivity for the mu opioid receptor versus delta receptors.

There were also other aspects in the Naloxegol pharmacological profile that are distinctly different from other opioid antagonists. For example Naloxegol is the only OIC drug that is a neutral antagonist at the mu receptor, meaning it does not have any agonist activity once it binds to the mu receptors, it simply blocks the receptors. To contrast this, alvimopan and methylnaltrexone are both active at the receptor meaning that they both have either positive or negative agonist activity once bound to the mu receptor and their pharmacology is much more active and complex.

So clearly Naloxegol has a distinct pharmacology that distinguishes it from these other compounds. In the recent interactions with the FDA, FDA staff informed AZ that a final determination as to whether a preapproval cardiovascular study will be required for Naloxegol will be a post-submission NDA review decision. However, their current opinion prior to reviewing Naloxegol data package is that based on the FDAs generalized concerns related to other mu opioid antagonist programs a preapproval cardiovascular study will be required.

As we said earlier AZ has met with FDA and EMA and their plans for Naloxegol will be finalized over the coming months incorporating the outcome of ongoing pre-NDA discussions with the FDA. The FDA has informed AstraZeneca that the current Naloxegol clinical data package is sufficient to support an NDA filling.

OIC is a major unmet medical need and Naloxegol has the potential to be the first oral once daily medication to treat opioid induced constipation. AstraZeneca estimates there are up to 35 million patients in the U.S., Canada, UK, France and Germany who take opioids for long term pain relief and also develop fibrillating constipation.

OIC can interfere with adequate pain management and reduce quality of life in an estimated 50% of OIC suffers today, did not receive sufficient relief from conventional laxatives. AZ will be presenting efficacy data from the two KODIAC pivotal studies at DDW on May 21st in Orlando.

As you know, we worked very hard to build the company with multiple Phase 3 programs that spend various therapeutic areas, we have also created a highly valuable development pipelines.

Now I would like to spend some time on NKTR-181 clearly one of the most exciting programs in our pipeline. NKTR-181 is the new mu-opioid molecule that has received fast track designation from the FDA. We are excited that data from the NKTR-181 Phase 2 program which includes both an efficacy study and human abuse liability study are expected this summer. Opioid abuse is a serious public health issue one that the FDA is now directly addressing. Traditionally, the pharmaceutical industry has attempted to address the problem of opioid abuse with formulation approaches that attempt to sequester traditional active opioid drugs such as oxycodone. While the formulation approach helps it is not the solution because at the end of the day, formulation still contain the drug that abusers want. The rapid rate of entry into the CNS of these currently marketed opioids like oxycodone or oxymorphone is well-known to produce a dopamine rush and associated euphoria that would be users crave. As result abusers are highly motivated to manipulate the formulation to extract the active drug.

With NKTR-181 we have uniquely addressed the problem of opioid abuse, with a new long acting opioid molecule that does not require a formulation. This molecule simply can’t be converted into a rapid acting abusable opioid as the formulations can. NKTR 181 is the first, and a new type of opioid molecule being developed by Nektar that has the potential to truly address abuse and transform opioid therapy. The NKTR 181 molecule has been designed to enter the CNS slowly to reduce dopamine rush and associated euphoria. The properties of NKTR 181 molecule should also result in reduced sedation and respiratory depression which would give NKTR-181 an ideal clinical profile to treat chronic pain.

Remember NKTR-181 is a molecule and not a formulation. The properties of NKTR-181 are intrinsic to the molecule itself and no amount of chemical or physical manipulation by our scientists have been able to convert NKTR-181 into a rapid acting abusable opioid.

In March, we started our human abuse liability or HAL study which will allow us to assess the abuse potential of NKTR-181. Our study design is consistent with FDA’s recent draft guidance, which describes the methodology of HAL studies very clearly and we are also able to review our design with the FDA under our fast track designation.

Our HAL study includes about 40 non-dependent recreational drug abusers who will rate the likeability of NKTR 181 versus the standard comparative in these trials, oxycodone. It utilizes a randomized double-blind placebo control and positive comparative control crossover study design. We have evaluated three therapeutic doses of NKTR-181, 100, 200 and 400 mg compared to the standard therapeutic dose of oxycodone in this model 40 mg and also compared to placebo. The study has already completed enrollment, and we look forward to sharing the result this summer.

In addition to the HAL study, our Phase 2 efficacy study of NKTR-181 is also ongoing. This is trial is an enriched enrollment, randomized withdrawal study a design that is preferred by the FDA as a better way to assess analgesic efficacy. We are evaluating the efficacy as NKTR-181 and approximately 200 opioid naïve chronic pain patients with osteoarthritis of the knee. The study includes a titration phase in which patients are titrated to effect on fixed doses of NKTR-181 from 100 mg to 400 mg twice daily. Once patient achieve a pre-specified clinically relevant reduction in their pain score and maintain that level, they are then randomized on a 1-to-1 basis either continue on the therapeutic dose of NKTR-181 or receive placebo.

The primary endpoint is based on the reduction and pain score from each patient’s own baseline scores compared to placebo. We will also be assessing multiple secondary endpoints and analyzing CNS mediated side-effects in order to establish a differentiated profile for NKTR-181 in the treatment of chronic pain. The Phase 2 efficacy study is expected to complete enrollment shortly and we look forward to sharing the results from this study this summer as well. We believe NKTR-181 could become a breakthrough product in the $10 billion opioid market.

Our next novel opioid molecule NKTR-192 has a distinct profile from NKTR-181. It is also designed to have reduced abuse liability and fewer CNS mediated side effects, but it is designed for the treatment of acute pain with a short acting PK profile. A second Phase 1 study is underway to evaluate single ascending doses of NKTR-192 with both PK and pharmacodynamic endpoints. We expect to complete the study in the first half of this year, and we will then begin preparing for the start of Phase 2.

With NKTR-181 and NKTR-192 in our pipeline NKTR can address both the chronic and acute pain markets. We are extremely excited about the advancement of these important new pain molecules, and we look forward to sharing more on them as they advance to the clinic. As I stated earlier, our strategy for the last few years has been to build a portfolio of Phase 3 compounds across multiple therapeutic areas.

We have already discussed Naloxegol, so let me talk about four other valuable Phase 3 programs NKTR has in its pipeline. Amikacin inhale and Cipro Inhale with our partner Bayer, etirinotecan pegol or NKTR-102, our wholly-owned program in metastatic breast cancer, and BAX 855 which is in Phase 3 with our partner Baxter. Earlier this month Bayer announced the first dosing of patients in the phase 3 INHALE program for Amikacin Inhale. The start of these Phase 3 studies as an important milestone for Nektar. Our economics for Amikacin Inhale are very significant with a 30% flat royalty in the U.S. and an average 22% royalty in ex-U.S. countries. The two Phase 3 studies in the INHALE program are being conducted under an SPA with the FDA and we will compare Amikacin Inhale given adjunctively was current standard of care antibiotics versus placebo given with common standard of care antibiotics. These studies will use as primary end points clinical test of cure and will enroll approximately 600 patients each.

Gram-negative bacteria accounts for 70% of all ICU pneumonias and are associated with very high rates of morbidity and mortality. Current IVs standard healthcare therapies are limited by their ability or their inability to achieve effective concentrations in infected lung tissue, and the wide use of IV antibiotics leads to resistance in the hospital setting as well. Designed to target the lungs directly with proven and effective antibiotic, Amikacin Inhale could emerge as the preferred treatment for these deadly pneumonias. We estimate that the market potential for Amikacin Inhale is over $700 million annually.

Amikacin Inhale is one of two Phase 3 programs that we have with our partner Bayer. The other program Cipro Inhale is also in Phase 3 study is being evaluated for non-cystic fibrosis bronchiectasis or NCFB. We estimate that this product could achieve sales of approximately $750 million annually and under our agreement Bayer is responsible for all development cost associated with Cipro Inhale, and we are entitled to escalating royalties within average royalty of approximately 10%.

Next an important update on BAX 855, a pegylated long acting ADVATE product. Baxter recently announced that they now expect to complete enrollment in the phase 3 study of BAX 855 by the end of 2013 which is earlier than expected. The PROLONG-ATE study will enroll more than a 100 patients with hemophilia A and we will assess BAX 855 for prophylactic and on-demand treatment. BAX 855 is designed as a longer acting ADVATE that will retain the proven efficacy and safety profile of ADVATE, the gold standard in treating hemophilia.

Based on the enrollment completing this year, Baxter is planning a BLA filing in 2014 with a planned launch in 2015. Under our agreement Nektar will receive milestone payments as well as significant royalties on net sales of BAX 855 upon commercialization.

Finally, let me update you on NKTR-102 or etirinotecan pegol. We are pleased to inform you that we are ahead of schedule for enrollment in the BEACON Phase 3 study in metastatic breast cancer. We now expect to complete the target enrollments of 840 patients by the end Q3 2013. BEACON is an open label randomized head-to-head trial comparing single agent NKTR-102 to an agent of physician’s choice with a primary endpoint of overall survival.

As the first and only Topo I inhibitor being developed in breast cancer, NKTR-102 offers a much needed distinct mechanism of action. Although there have been great progress made to treat women with HER2 positive disease, the majority of the women with metastatic disease up to 75% have HER2 negative disease and are in desperate need for new treatment options. In addition, all the current therapies for metastatic breast cancer are microtubular inhibitors or disruptors and share a common underlying MOA. As a result, drug resistance and overlapping side effects are huge challenges that will eventually negatively impact most of MOA patient outcomes.

That is why the investigators participating in our study are so excited there is potential for NKTR-102. We expect data from the BEACON study around the end of 2014. In Platinum resistant and refractory ovarian cancer, we plan to meet in the second half of this year with the FDA and EMA to discuss the potential regulatorypath forward for NKTR-102 in ovarian cancer. The data show NKTR-102 clearly has significant activity in platinum resistant and refractory ovarian cancer with a 17% overall response rate and progression free survival of 4.4 months. As a reminder, patients from this study were heavily pretreated with a median of 3 prior treatments. Finally, we also expect to have data this year from the investigator sponsored study of NKTR-102 in glioma which is being conducted by Dr. Larry Recht at Stanford University. Enrollment is going much more quickly expected for this study and we look forward to Dr. Recht sharing the data from the study in the second half of 2013.

With that I will turn the call over to John for discussions on our financials.

John Nicholson

Thank you, Howard and good afternoon everyone.

I will start with reiterating our financial guidance for 2013, which remains unchanged from our 2012 year end call.

For 2013, we expect our cash used in operations including capital expenditures to be between $95 million and $105 million. And we expect to end 2013 with approximately $200 million in cash and investments. Revenue for 2013 is expected to be between $200 million and $210 million. This guidance includes $95 million in milestone payments for the acceptance of regulatory filings for Naloxegol which breaks out as follows,$70 million for the U.S. and $25 million for EU. 2013 revenue guidance also includes $20 million of non-cash royalty revenue from UCB’s Cimzia and Roche’s Mircera. Our R&D expense guidance is still between $200 million and $220 million with approximately $17 million of this is non-cash items such as stock-based compensation and depreciation expense.

2013 G&A is still between $42 million to $44 million, which includes $10 million of non-cash expense. Total revenue in Q1 2013 was $23 million versus $17.9 million the first quarter 2012. Revenue for Q1 2013 includes $4.4 million of non-cash royalty revenue from UCB, Cimzia and Roche’s Mircera. The increase in revenue for the quarter is primarily attributed to higher product sales and non-cash royalty revenue related to UCB Cimzia and Roche Mircera royalty monetization.

Total operating costs and expenses in the first quarter of 2013 were $68.4 million versus $55.9 million in the quarter a year ago. The increase is primarily driven by higher R&D expense for clinical development and higher cost of goods related to increased product sales.

For Q1 2013 our research and development expenses were $45.6 million as compared to $35.1 million in Q1 2012. R&D expense for the quarter included expenses related to our NKTR-102 BEACON Phase 3 trial. The production of Phase 3 devices for Amikacin inhale, the Phase 2 studies for NKTR-181 and the Phase 1 clinical study of NKTR-192. Research and development expenses included $4.2 million of non-cash stock base compensation and depreciation expense.

For the quarter of 2013, G&A expenses $11.1 million compared to $10.4 million in the first quarter of 2012. There were approximately $2.5 million of non-cash expenses included within G&A in the first quarter of 2013. Interest expense this quarter was $4.6 million related to senior secured notes issued in 2012 and non-cash interest expense related to the monetization of UCB, Cimzia and Roche Mircera royalties was $5.5 million.

Cash, cash equivalence and short-term investments at March 31, 2013 were $261.2 million as compared to $302.2 million at December 31, 2012.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Cory Kasimov with JPMorgan. Your line is open.

Unidentified Analyst

(Inaudible) for Cory today. Just a couple of questions on 181 maybe you if could just describe the likeability study in more detail and now you are looking to see less likeability versus a competitor arm and then secondly what the strategy with 181 might be if the data is posted this summer? Thank you.

Howard Robin

Let me have Rob describe the study design to you, I think you will find it quite interesting, great Rob.

Rob Medve

Certainly the HAL study, there is a methodology described in the recent guidance, and our protocol is very closely aligned with that. I have done several of these studies in the course of my career and have a real interest in this area as many of you may know. What we do in these studies, we get recreational users so they are opioid preferring recreational users and they are folks who are not physically dependent upon the drug as a different population. When they come in, they go for a series of tests to assure that they are not physically dependent and that they can distinguish between placebo on a relatively low level of comparative drug. The standard drug for comparison in these trials is always oxycodone and I think that’s pretty telling but oxycodone is a, it’s a standard comparative.

If they pass all those barriers, they go into a multiple randomize phase and this several different orders that they can be randomized to and they access liking using a variety of scales and have a different ways of looking at it. And of those, they search for each of the drug arms and they are given sequentially obviously separated by several days. So, that was also in a great density of data around what their feeling after they get the drug and when they are feeling it.

So, that’s in a nutshell the methodology. When we look at, what we’ve been looking at to see from the results of these trials, you’re looking in part statistically and in part qualitatively what your, what the differences between the various drug arms, placebo, we expect to see at or near base line, we know 40 mg of oxycodone as an immediate release produces a very robust liking affect very early on that persists. And we’ll see what we’re expecting based upon all of the data we generated to-date both in human and preclinical work that the various doses of 181 will be closer to the placebo side and they went to the oxycodone side, certainly the time course is profoundly different in terms of entry into the brain and that’s what really drives the liking is that entry into the brain. So I hope that helps answers your question.

Howard Robin

The second part of the question that I wanted to answer, you asked for strategy I think we said the studies are enrolled, the data should be available this summer and if the data is positive which we are hopeful then we’re going to prepare this, we’re going to prepare the program for Phase 3 studies. And as you know we have fast track designation for this program, so we’re going to try to move it very quickly forward.

Unidentified Analyst

Okay, thank you.

Operator

Our next question comes from Josh Schimmer with Lazard Capital Markets. Your line is open.

Josh Schimmer - Lazard Capital Markets

Hi, thanks for taking the question. Just wondering if you have any indications from AstraZeneca at this point, they would be willing and prepared to fund the outcome study, fund this trial, if they were required, how long you think it might take if that was the path that you have to go down?

Howard Robin

Yeah, look I think, a good question but at this point AstraZeneca is finalizing their plans and I can’t comment as to what direction they’ll go with that. CV outcome study is challenging because one of the nice things we have observed in our Phase 3 trial is that they were no safety signals for naloxegol. So we didn’t see any difference from control arm versus the drug arm in cardiac events. They were quite balanced with 2 and 2 and actually remember it was 2:1 rationalization. So two events at 540 patients and two events that a 270 patient.

So, naloxegol looked extremely good there. A little difficult to even fantasize what a cardiovascular outcome study might look like given the excellent safety profile we have ever observed. That said I can’t comment on what AZ would be willing to do at this point, I think they are assessing what the FDA has discussed with us, they’re looking over the data and I think at some point, they’ll come to conclusion as to how they like to proceed.

Josh Schimmer - Lazard Capital Markets

Do you have any sense on how patients enrolled KODIAC long-term safety study compared to patients in the long-term open label study of Relistor?

Howard Robin

I will let Rob that in more detail, I can tell you as I said in the call, over half of the patients that were in our long term safety study were already at significant cardiovascular risk, baseline risk. So, Rob you want to comment further on that?

Rob Medve

Sure, what we can tell based upon what’s been presented publicly on the long-term safety for methylnaltrexone which of course remind you was just an open label single arm trial. It was not a comparator group in that trial. But overall demographically it appears to be the same, I can’t comment on their level of risk factors that were present typically in this population you would expect to have a presence of risk factors for this type of patients. So, you would expect this patient population to have at least some degree of moderate to high cardiovascular risk base but just this one of the presence of co-existing risk factors. So, it appears from what we can tell from more of public information it’s a similar population in all the demographics that we can see.

Josh Schimmer - Lazard Capital Markets

And, and…

Rob Medve

Go ahead, I’m sorry.

Josh Schimmer - Lazard Capital Markets

But now I’ll let you finish, this is just a follow up…

Rob Medve

Yeah, I would just going to say we, we you know the FDA clearly have to review the Naloxegol filing. They have to review our data. We’ve lots of course individual patient data that has to be looked at by the FDA and as I said earlier, they have told AstraZeneca that they will accept the NDA for filling. So, the current clinical data package is sufficient to support an NDA filling and of course they have to look at the data before they can make any more judgments as well.

Josh Schimmer - Lazard Capital Markets

In that case is, is it your understanding that the FDA’s interest in a preapproval CV outcome study was based on the other drugs experience and not taking into consideration the experience that’s Naloxegol and so do you, you get the impression that the FDA will reevaluate that perspective after they take a look at your data. Or was part of their view towards the CV outcomes trial taking into consideration the fact the KODIAC study long time safety trial showed no imbalance?

Howard Robin

No, I think look clear the FDA is basing their judgment on what they have observed in other programs. As I tried to describe for everyone, the pharmacology is Naloxegol is very, very different than alvimopan and methylnaltrexone. Clearly they haven’t seen our NDA, they haven’t seen the data set. So they have to review that before they can make a judgment. Their concern and I understand their valid concerns are based upon what they’ve seen in other drug but remember Naloxegol was a very different drug than alvimopan a very different drug than methylnaltrexone. They worked very, they all worked very differently. They all have different mechanism, they all approach the receptors in a different fashion.

So, I think we have to provide the information to the FDA and let them make more educated judgment once they see the data but they certainly aren’t making that decision based upon review of the NDA. We haven’t submitted to get all this.

Josh Schimmer - Lazard Capital Markets

Okay. That’s fine. Thank you.

Operator

Our next question comes from Bert Hazlett with ROTH Capital Partners. Your line is open.

Bert Hazlett - ROTH Capital Partners

Yes, thank you. All my questions are just taking largely on the cardiac events thank you for that. But, I guess, BEACON, is there interim data expected for BEACON at any point?

Howard Robin

Bob you want to comments on that?

Rob Medve

Yeah, yeah certainly Bert there is a planned interim analysis and those kind of you build into the beginning of the trial. We deliberately chose to spend very, very little alpha on this planned interim analysis which was to be at about half of events. As Howard mentioned our enrollment has been a very brisk, we’re expecting the complete enrollment, ahead of what we originally projected.

So in fact the interim analyses were probably occurred after we completed enrollment. So, it’s become sort of, I won’t call it a moot point but we are, it wouldn’t be taking any action based upon the outcome of that, if in the event with that low-low alpha it happens to be a positive trial, we have ought to course start moving to prepare a filling based upon that interim and of course continue the trial.

Bert Hazlett - ROTH Capital Partners

Okay. Thank you for the color. Thanks.

Operator

Our next question comes from David Steinberg with Deutsche Bank. Your line is open.

David Steinberg - Deutsche Bank

Thanks. I was wondering if you could expand some of your remarks on NKTR-181, assuming the data is positive and you’ve see some of the benefit of lower opioid abuse addiction as well as the opportunity to reduce CNS adverse events. Any thoughts on this product becoming the step therapy to oxycontin, could you give us more granularity on what you think the demand for this type of non-abuse opioid would be in. I know it’s too early but any initial thoughts on how payers would view drug with this profile? Thanks.

Howard Robin

I’ll let Rob comment on some of the positioning against oxycodone or oxycontin. I can tell you that look the single greatest attribute to a drug like this is that it meets the needs of our public health crisis which is that we have a molecule that provides excellent opioid based analgesia which can’t be converted into any kind of rapid acting or useable form. And I think that in of itself puts in a great position to be very important for patients from point of view of pricing, we haven’t gone through that and we certainly haven’t selected pricing at. I would expect this to be a fairly priced product compared to other opioids. And I don't think, I don't think this product has to grab, its market share via price. In reality, if this drug does provide excellent analgesic results as well as it’s non-abusable as well as another major feature which is less sedation. If you take opioid that has, that is less sedating and non-abusable I don't think you have to capture your market solely on price.

I’ll let Rob to talk about the overall positioning and in-step positioning relative to oxycon.

Rob Medve

Sure, it’s a very good question and one that we spend a lot of time thinking about just add that I’m a mere medic and not a marketing specialist. So but thinking a lot about where a product like 181 assuming the data comes out as we hope where would that fit. I think in a couple of different ways, if you look at the largest populations that use opioids in this country and that’s osteoarthritis and low back pain. That’s anywhere between 40% and 50% of the use of opioids in this country in that market, the natural place for us to be thinking and targeting.

And so I would be certainly looking into that, into that segment as to whether it’s a step, the word use prior oxycodone or oxycon. My thinking is that, is that given the fact that from all observation for 181 got much wider therapeutic index than other drugs. So, meaning, the difference between the efficacy dose and the doses that cause side effects like it reinforcing abuse liability effect and sedation and so on.

It’s quite wide compared to something like say oxycodone. It would, if that profile holds, it makes sense that this would be an appropriate place to start phasing on opioid therapy and so that’s again leading to the OA and low back pain population by and large. So, I hope that gives you a little bit of color as to how we think about approaching the market that will of course be driven about -- driven by the data that we generate in our Phase 2 program.

David Steinberg - Deutsche Bank

Yeah, very helpful, thanks very much.

Operator

(Operator Instructions) Our next question comes from Steve Byrne with Bank of America. Your line is open.

Steve Byrne - Bank of America

Rob, I’d like it if you can drill into this KODIAC data little more particularly in the placebo arm, are there any characteristics of the responders in the placebo arm that you can characterize as why they had a response even on the placebo arm, was it the duration of opioid use or something whatever I was wondering where you could take this, this is just perhaps to subset of this population where you might have a greater response rate relative to placebo.

Rob Medve

It’s an interesting question, of course, when you do a trial, our program like AZ, you generate a large amount of data, the top-line is always presented to simply to intend to treat analysis. And that’s the sort of the most brutal way of looking a data so anybody who doesn’t complete for any reason is a non-responder in that kind of analyze.

So you can slice and dice and really look at populations that and get different response numbers. What you can’t do is, is make Naloxegol suddenly look like it doesn’t work in a particular group. AZ has been very particular to look at the laxative inadequate responders as they powered sub-population in this study. So they constructed their statistical analysis plan very specifically to look at like it’s inadequate responders. And that’s a very important group and just speaking as clinician now and about pain doctors you may know.

You treat patients that they have constipation and unfortunately and you can certainly find this in a literature as well. When they don't get relief from relaxant, they often take medicine to their own hands, if you will, they’ll stop taking the drug. They’ll change the way they are dosing it.

So, take drug holidays and they do that all on unsupervised fashion which is obviously and not the safest thing for patients to be doing. So, this population, OIR population is a very important population and I’m pleased with that AZ has specifically looked at that because they are really in need a mechanism specific treatment.

So I hope that addresses some of your questions Steve.

Steve Byrne - Bank of America

Does it surprise you that 30% of them would respond even without a laxative?

Rob Medve

Well, say 30% of whom? Can you repeat that question for me Steve? Hello?

Steve Byrne - Bank of America

It is 30%, can you hear me –

Rob Medve

I lost the first part of your question.

Steve Byrne - Bank of America

I just said that the – does that, is that surprise you that you would have a 30% response rate in these patients that were non-responders under laxatives but under the placebo arm you had a 30% response rate.

Rob Medve

I have been doing clinical research long enough that does surprise me at all. I don’t know if anyone who has got migraines. But you can do migraines trials, and you have 50% or more in some trials responding to placebo on migraine and that’s got an end point it includes not only the headache pain but nausea, photophobia and phonophobia. So, and you got 50% response rates there. So patients in placebo response rates are – it’s a curious thing and I hope feel the study within clinical trial methodologies. So 30% is not shocking at all to be. It’s hardly surprising at all from kind of what we ballpark placebo response to be. And we often think that intuitively you raise the bar at an end point you are going to change the placebo response. And that’s actually probably not the case. Probably varies the other way because placebo responders can do by and large have a higher responses.

So there is a lot of dynamics that go into placebo response and you can as I say look at multiple layers of data like. Say if you look at patients who are censored for not completing the trial, look at why they didn’t complete the trial. Look at the numbers of patients in a various groups who had inadequate response. And then you will start to see a very different picture emerge. And I obviously can’t share all of that data with you. But that’s a different way to look at numbers like this. So why the patients stop taking the drug.

And there is, again, of course if you look at the data and its top-line, its ITT so it’s the absolutely everybody who enrolled in the trial. So and I’m pleased with the results that we do see here and there is obviously a lot more data and its very encouraging while we look at the responds with this drug.

Steve Byrne - Bank of America

That’s very helpful. And if I could just ask one on your 181 study, each of the 40 patients evaluate, each one of the doses along with the oxycodone and the placebo is that sequentially they worked their way through all of those arms?

Howard Robin

We use a complete William Square design. Since there are five arms there, then five sequences and each – and each dosing period the patients are randomized to one of those five sequences. So it gets to be a – as you could imagine quite a mix. But each patient will receive assuming that they complete the entire trial. Each patient will receive each dose and that’s of course separate the wash out between doses and will evaluate all of the five arms in the trial.

Operator

Our next question comes from Josh Schimmer with Lazard Capital Markets. Your line is open.

Josh Schimmer - Lazard Capital Markets

Thanks for taking the follow-up. Just curious CV riske does the KODIACs study rule out, what’s kind of the upper bound of the hazard ratio that you saw in that trial and where would that stay relative to what the FDA historically, have been looking forward to narrow the risk – the study of cardiovascular risks for drugs pre-approval?

Howard Robin

That’s sort of a very in-depth statistical question, that I’m not – I mean I can’t feel qualified to answer that one. I know AZ has certainly looked at that and is confident that their data represents with no imbalance represents a good look at the cardiovascular safety profile of Naloxegol.

As part of the specifics around confidence intervals and upper bounds, I can’t speak to that.

Josh Schimmer - Lazard Capital Markets

Okay. Thanks.

Operator

And I clear show no further questions at this time. I would now turn the call back over to Howard Robin, CEO.

Howard Robin

Well, thank you for everyone for joining us today. I want to close again by saying thanking our employees for their dedication and hard work to advancing our clinical pipeline and our research efforts. I think we have in our industry one of the most exciting pipelines. And I will see many of you shortly at the UBS conference in New York. We appreciate your support to shareholders. And I will see you in a few weeks. Thank you.

Operator

Thank you. Ladies and gentlemen.

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