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Nektar Therapeutics (NASDAQ:NKTR)

Q2 2009 Earnings Call

August 04, 2009 5:00 am ET

Executives

Jennifer Ruddock - Senior Director, IR and CA

Howard Robin - President and CEO

John Nicholson - SVP and CFO

Bharatt Chowrira - COO

Lorianne Masuoka - CMO

Analysts

Jonathan Aschoff - Brean Murray

Rich Silver - Barclays Capital

Mona Ashiya - JPMorgan

John Sonnier -William Blair

Ian Sanderson - Cowen and Company

Chris Richard - Merlin Nexus

Operator

Good day ladies and gentlemen and welcome to the second quarter 2009 Nektar Therapeutics Earnings Call. My name is (Novalia) and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference Ms. Jennifer Ruddock, Senior Director of Investor Relations. Please proceed.

Jennifer Ruddock

Thank you. Good afternoon and thank you for joining us for Nektar Therapeutics second quarter 2009 financial results conference call. With us today are Howard Robin, our President and CEO, John Nicholson, our Chief Financial Officer, Bharatt Chowrira, our Chief Operating Officer, Dr. Randall Moreadith, our Chief Drug Development Officer, and Dr. Lorianne Masuoka, our Chief Medical Officer. Before we get started please note that the following presentation contains forward-looking statements that reflects our current views as to the Company's business strategy, the prospects and timing of potential new collaboration partnerships, the value and potential of our technology platform, the clinical and commercial prospects of our proprietary and partnered products.

Our financial guidance for 2009 and other future events relating to the Company. These forward-looking statements involve uncertainties and other risks that are detailed in Nektar's report and other filings with the SEC, including our Form 10-K Annual Report filed with the SEC on March 6, 2009. Our most recent Form 10-Q quarterly report and the report on Form 8-K filed today. Actual events could differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information, future events or development. A webcast of this conference call will be available for replay on the Investor Relations page of Nektar's website at www.nektar.com.

With that, I'd like to hand the call over to Howard. Howard?

Howard Robin

Thank you, Jennifer and thanks to everyone for joining us today. Nektar continues to make excellent progress, advancing our clinical pipeline and executing on our 2009 objectives. This year is an important year for Nektar, because we are seeing the positive results from our transformation to a drug development Company with an impressive pipeline of near, mid and longer-term opportunities.

In 2009 we made a strong commitment to building an advanced clinical pipeline at Nektar with a planned investment of $60 million into clinical developments. And across the board our clinical stage programs are proceeding on track.

We've completed our Phase 2 program for Nektar 118 and by year end, we plan to report preliminary results from our ongoing phase 2 studies for Nektar 102 in ovarian cancer and breast cancer In addition to results from our Phase 1 study of Nektar 105 in solid tumors.

Today, I want to update you on the continued progress of our proprietary clinical pipeline, which I believe is one of the most promising in biotech. I will start with our most advanced proprietary product Nektar 118.

Nektar 118 is an orally peripheral acting opioid antagonist in development to treat opioid induced constipation. The results from our Phase 2, randomized placebo controlled double blind study demonstrates that oral Nektar 118 effectively reverses opioid induced constipation without interfering with the desired CNS analgesic effects of opioid.

Nektar 118 demonstrates how Nektar’s advanced polymer conjugate technology is being used to inhibit small molecule drugs from entering the brain to prevent unwanted CNS effects and to achieve a targeted effect in a specific perhiparal organ.

Nektar 118 is also an excellent example of how our technology can turn an injectible drug into an orally bio available drug dramatically increasing its market potentials.

Final results from the Phase 2 Nektar 118 study have been accepted for presentation at the American Academy of Pain Management Meeting that begins October 8th in Phoenix, Arizona.

In addition new clinical pharmacokinetic data on the tablet formulation data of Nektar 118 will also be presented on presented on September 13th at the American College of Clinical Pharmacology meeting in San Antonio, Texas. Opioid-induced constipation is a debilitating and frequent problem for patients with chronic pains or treated with opioids. More than 230 million prescriptions are written each year with opioids in the US alone. And somewhere between 45% and 90% of patients on opioid therapy will develop this complication.

Now this function is a serious quality of life issue for patients and has the undesired consequence of patients often reducing or interrupting their pain management regimens. None of the currently available therapies adequately restore bell function for the majority of these patients.

As an oral once daily tablet, Nektar 118 has the potential to dramatically improve patient quality of life and allow uninterrupted pain relief therapy.

With robust Phase 2 data in hand, we believe that Nektar 118 is positioned to become the first oral therapy to directly reverse the debilitating problem of OIC. The market opportunity for Nektar 118 is significant. With more than 2.6 [OEM] patient days of opioid used in the US alone, Nektar 118 could generate potentially more than $1 billion in sales per year.

The final results for the primary endpoint from our Phase 2 study were highly statistically significant and clinically meaningful for both the 25 milligram and 50 milligram once daily dose cohorts. With restoration to normal [bal] function after the first week of therapy and over the entire 28 day treatment period. After the first week of treatment, patients taking Nektar 118 improved to between five to six bowel movements per week from an average of approximately 1.5 bowel movements per week at baseline.

Now let me share some new responder data. Over the 28-day treatment period, almost every patient responded to Nektar 118. Further, an impressive 75% of patients in the 25 milligram cohort had a major response to Nektar 118 with P value of 0.0003. At the 50 milligram dose and even more impressive, 92% of patients experienced a major response with a P value of 0.0001.

Importantly, we did not see any increase in pain or increase in opioid use over the course of treatment with Nektar 118, again reinforcing and validating that the drug does not interfere with the CNS analgesic effects of opioids.

Further patients in our Phase 2 study were administered many different types of opioids across a large range of doses. The choice of opioid did not effect the efficacy of Nektar 118 in our study these results suggest that if single daily oral dose of Nektar 118 can restore normal bal function across virtually every class of opioid in across a wide range of doses spending 30 to 1000 morphine equivalent units per day

We are particularly excited about Nektar 119. Our co-formulation product of Nektar 118 with a long-acting opioid. Nektar 119 has been designed to provide pain relief to patients without the serious GI side effects seen with opioids on the market today. Because Nektar 118 is effective over a wide range of opioid doses, we are able to create co-formulated oral product candidate that contain a fixed dose regiment of Nektar 118 combined with a wide variety of opioid types and doses. Nektar 119 represents the next generation of opioid therapies and could have an even larger market potential than Nektar 118. We have developed the Nektar 119 tablets completed the dissolution and stability studies and we are preparing for a Phase 2 proof of concept clinical study of Nektar 119.

Given the robust data we've seen to date for Nektar 118 and the tremendous potential for both Nektar 118 and Nektar 119, we are in active negotiations with prospective partners for global as well as regional development and commercialization collaborations. We are considering all of these options carefully in order to maximize the value of our Nektar 118 and Nektar 119 partnering strategy. As we previously stated we expect to enter into a partnership before the end of the year.

Now I'd like to turn to our novel oncology product candidates. Nektar 102 and Nektar 105. These compounds utilize our advanced polymer conjugate technology to greatly improve efficacy and expand beyond the current usage of our Irinotecan and Docetaxel which are both widely used chemotherapeutic agents.

Nektar 102 is designed to enhance efficacy by extending the half life Irinotecan active metabolites and increasing the exposure of the tumor to the drug. We are conducting clinical studies of Nektar 102 in ovarian, breast, and colorectal cancer. Each of these Phase 2 clinical trials is on track and actively enrolling patients. We expect their preliminary results from our Phase 2 trials in platinum resistant ovarian cancer and metastatic breast cancer by year end. These studies are designed to evaluate objective response rates of single agent Nektar 102 administered at a dose of 145 milligram per miter square every two weeks or every three weeks.

Of note I would like to mention that we've been accepted to present preclinical and Phase I data on Nektar 102 in ovarian cancer on September 22nd at the ECCO – ESMO being held in Berlin. The Phase 2 study of Nektar 102 and second line colorectal cancer is a randomized study comparing single agent Nektar 102 at a 145 milligram per meter square every three weeks, versus the approved single agent regimen of the irinotecan.

This trial is designed to enroll approximately a 174 patients diagnosed with tumors containing the K-Ras gene mutation. The primary endpoint for this trial is progression-free survival. The study compares Nektar 102 to a irinotecan in the treatment of second line colorectal cancer patients and could enable us to position Nektar 102 as the market leader in indications where ever irinotecan is used. Irinotecan is currently is used in over 75% of second line colorectal cancer treatment and so this market opportunity for Nektar is significant. As we told you in the past, data from the study are anticipated in the first half of 2010.

Our second oncology compound, Nektar 105 a conjugated form of docetaxel is proceeding nicely in a Phase 1 clinical study. This dose escalation study is enrolling approximately 30 patients with refractory solid tumors who have previously failed available therapies. Docetaxel is an effective chemotherapeutic agent and is approved for use in many cancers. Its has an annual worldwide sales of more than $2 billion.

However, there are limitations to the use of docetaxel, treatment is frequently associated with dose limiting neutropenia, hypersensitivity reactions and fluid retentions that can limit treatment options and require administration of steroids.

We're monitoring the patients in our Nektar 105 study for the appearance of hypersensitivity reactions in neutropenia To date, patients treated with Nektar 105 have not encountered side effects necessitating the use of corticosteroid or G-CSF.

We are very encouraged by these initial observations and we anticipate reporting data from this Phase 1 study by year-end. I want to take a brief moment to update you on Nektar 061 or Amikacin Inhale. Our Inhales antibiotic product partnered with Bayer for the treatment of Gram-negative pneumonias.

These pneumonias represent a substantial portion of all pneumonias reported in intensive care units today and carry a mortality rate of more than 30% among ventilated patients.

Results from Phase 2 clinical studies of Amikacin Inhale demonstrate that patients achieved more than a 1,000 times the lung exposure with inhaled Amikacin treatments than can be obtained with IV therapy.

Because of this, Amikacin Inhale may increase survival rates for this patient population. The Phase 3 clinical trials for Nektar 061 which are being run by our partner Bayer are slated to begin in the first quarter of 2010. The study design and supportive information for Phase 3 is available on clinicaltrials.gov.

Turning, now to our preclinical research programs. We continue to focus on new product opportunities emanating from our proprietary advanced polymer conjugate technology platform.

Nektar 118 and Nektar 102 demonstrate that our platform can significantly enhance the pharmacokinetic and pharmacodynamic profile of small molecule drugs. Nektar's already the undisputed market leader in the PEGylation of large molecules.

Our current success with Nektar's technology in the area of small molecules is enabling us to explore new problems in peripheral pain, HIV therapy and antihistamines. With our Nektar 171 program we are developing a new drug candidate that acts outside of the brain to treat pain without CNS side effects such as dizziness sedation and memory loss that greatly limit many current treatments.

Its currently being evaluated in preclinical studies and we have observed promising results thus far in our in-vitro and in-vivo models. In the area of HIV research our Nektar 140 program leverages our polymer conjugate technology to avoid the rapid and extensive metabolism that occurs with all available protease inhibitors. Because of the rapid metabolism associated with current protease inhibitors, co-administration of a second protease inhibitor such as a ritonavir is typically required. Eliminating the need for co-administration of a booster would greatly improve both the safety profile in compliance for protease inhibitor therapy.

We are currently conducting preclinical testing to potentially bring forth the candidate into YND enabling studies.

Finally, we are also pursuing a research program for the treatment of allergic rhinitis Nektar 125. Using a conjugation approach similar to Nektar 118, this program combines our advanced polymer technology with a potent antihistamine to enhance anti-inflammatory efficacy while minimizing CNS side effects such as drowsiness.

In closing, I'm pleased with the performance of our Company this year. Nektar now has one of the most robust pipelines in biopharmas today a strong financial position. A dominant intellectual property of state and an exceptionally experienced management and R&D team.

I will now turn the call over to John for a review of the financials.

John Nicholson

Thank you, Howard and good afternoon everyone. We have significantly reduced our operating costs and expenses in the second quarter in the first half of this year as compared to a year-ago. Total operating costs and expenses were down 19% to $43.5 million in the second quarter of 2009, compared to $53.8 million in the second quarter of 2008. For the first half of 2009, total operating costs and expenses were down 28% to $83.5 million as compared to $115.6 million in the first half of 2008.

Our net loss in the second quarter of 2009, declined as well to $32.1 million versus a loss of $33.4 million in the second quarter of 2008. We still expect 2009 revenues to be in the range of $65 million to $75 million. Included in our revenue and cash projections is a forecasted exercise of $31 million license option extension, which is expected to occur in the fourth quarter.

Our cash guidance for 2009 remains unchanged. We expect to end the year with $275 million. As a reminder, we do not expect the quarterly cash usage trend to continue for the remaining two quarter, as our revenue and cash receipts will be more heavily weighted in the second half of the year. Importantly our year-end cash and investment projection of $275 million, does not include potential payments from any new partnerships.

We anticipate our cash used in operations to be approximately $80 million. As Howard mentioned at the beginning of the call, that amount reflects a substantial investment of approximately $60 million in to clinical programs this year and $8 million in to preclinical programs.

As you can clearly see, we have significantly reduced our operating costs and expenses, while building an advanced stage clinical pipeline. Capital expenditures and other expenses still expected to be approximately $20 million to $25 million, which includes the Novartis closing costs of $4 million. Much of this capital outlays represents an investment into our new 90,000 square foot R&D facility in India opening in the fourth quarter of 2009.

This facility will greatly expand the Company's in-house research and preclinical development capability, including our ability to do our own biolytical analysis, analytical development and in-house biology. This investment will enable us to greatly increase our efficiency and significantly reduce future external R&D expenses.

With that, I would now like to turn to open the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Jonathan Aschoff with Brean Murray.

Jonathan Aschoff - Brean Murray

Hi guys. I was wondering if you could shed light actually on another company. Namely why would Savient alter the manufacturing process between the manufacturing of clinical trial material. And it's being your late submission. Basically I was wondering why they would change the amount of PEG? I mean, did they have like variability issues that prompted such a last minute change?

Howard Robin

Jonathan I'm going to let Bharatt Chowrira our Chief Operating Officer handle that question.

Bharatt Chowrira

Thanks, Jonathan. We don't quite know the details, obviously, regarding the decision making process at Savient regarding the manufacturing processes, but all I can comment on is that we have had significant experience in manufacturing PEGylation and PEGylated protein products for a number of our partners.

We have nine products in the market, as you know that our PEGylated proteins that use Nektar technology and we have built this expertise over a number of years. And it's not trivial, as you can imagine to go from a research scale or a clinical scale of PEGylation to a commercial scale of manufacturing.

So, there is a lot of know-how and expertise that goes into that. So, we have a good track record on that. So, not sure exactly what happened with Savient, but I can tell you that Nektar is one of the leaders in this area of making PEGylated proteins and we have the expertise to do that.

Jonathan Aschoff - Brean Murray

Thanks, Bharatt. I was wondering if I could ask something about, Nektar 118. basically as it relates to Sucampo were your potential partners for 118, the ones you are quite down the road with. Did they really think that Sucampo was much of a competitor and they were maybe holding out for that Phase 3 result or was it really (inaudible) thought, was kind of a foregone conclusion?

Bharatt Chowrira

Well, look I mean these drugs work by very, very different mechanisms. And as I said earlier, we are dealing directly with the issues that cause opioid induced constipation. The effect of the opioid paralyzing the bowel. Now the Sucampo product causes a lot more fluid that collects in the bowel and that might have some benefit, but that's a very, very different mechanism and it's sort of a secondary approach to dealing with the problem. Our approach with Nektar 118 is to antagonize the morphine and restore normal bowel movements and I think that's the significant difference here and I think the partners greatly appreciate that.

Jonathan Aschoff - Brean Murray

Okay, thanks a lot.

Operator

Your next question comes from the line of Rich Silver with Barclays Capital.

Rich Silver - Barclays Capital

Yeah, you still expecting a partnership deal by the end of the year? Yes? Correct?

Howard Robin

Yes , I said that is correct.

Rich Silver - Barclays Capital

Okay. Sorry. And just a few pipeline questions. You mentioned that 061, the Bayer's trial will begin in the first quarter of 2010. I guess previously we expected it in the second quarter. Can you elaborate on what's behind the delay?

Howard Robin

Yeah I think look, you can take two different approaches towards starting a clinical trial. One is to have the final product, the final device designed and manufactured or you can take some more of a risk and start your trial early and do the finalization of the device in parallel with the clinical process. Bayer correctly made a decision to wait until we had finalized the device, made sure that it could be scaled up and it was manufactured in a cost-effective manner and that it could be made consistently and they chose to have those devices manufactured and put into inventory before they started the clinical trial. And I think that was a wise decision and we are moving towards that. I have every belief that we will have sufficient devices manufactured. And these are final devices you just scaled up, they are cost effective, they are cost efficient. We'll have those devices made for bio to start in the first quarter of next year.

Rich Silver - Barclays Capital

Okay. And just, couple of other P&L questions. SG&A and R&D guidance, is that also unchanged for the year?

John Nicholson

That's correct. We're still staying with R&D of about 100 million and G&A somewhere in the $45 million range.

Rich Silver - Barclays Capital

Okay. And in terms of cost to goods in the second quarter, it seemed a little bit high, any explanation for that?

John Nicholson

Yeah, basically what it came down to is we had lower production volumes this year than we did last year. And with that, obviously, you have unabsorbed manufacturing overhead that gets put into the course of fewer products that been made. And the other issue is our product mix changed little bit differently than it was this year versus last year.

Rich Silver - Barclays Capital

And what about on a go-forward basis?

Howard Robin

On a going-forward basis, we would expect our gross margins probably to be closer to, I'm just talking about product sales now. Gross margins to be basically closer to where it was in the second quarter of this year.

Rich Silver - Barclays Capital

Where it was in the first quarter or the second quarter?

Howard Robin

Second quarter.

Rich Silver - Barclays Capital

Okay. On 118, any pain conferences where you will be presenting Phase 2 data?

Howard Robin

Yeah. We said that we would be presenting at the, I just want to give you the right date, so we make sure its clear. I have to go back to my notes for a moment. But we said, that we would presenting data on Nektar 118 at the American Academy of Pain Management Meeting on October 8th in Phoenix.

Rich Silver - Barclays Capital

Okay. And the start on 102 in cervical cancer?

Howard Robin

Well, we are ready to proceed, we are ready to enroll sites, however we've made a decision that we want to see the results in our Phase 2 preliminary results in ovarian and breast before we start that study. There is also a limit to how much a small Company can pursue at one point in time.

Rich Silver - Barclays Capital

Okay and then on 119, you said that you were preparing for Phase 2 proof of concept study. When would that begin?

Howard Robin

Well we haven't said the exact date yet. And of course that will likely be a function of what the partnering collaboration looks like. Because Nektar 118 and 119 will likely be partnered with the same company and I think they'll have to have some significant input into exactly when we start that study.

Rich Silver - Barclays Capital

Okay. And just clarification, sorry, again on the R&D and G&A guidance. We thought that previously it was 125 to 135 for R&D and G&A was 50 to 55 and now you're saying 100 for R&D and 45 for G&A?

John Nicholson

Yes, that's correct. The reason for that is from our standpoint because we're trying to come in with our cash guidance of $235 million obviously there is certain things that we thought we were going to be able to do this year that were you know, from a financial discipline standpoint we have to postpone.

Rich Silver - Barclays Capital

So that it was reduced?

John Nicholson

Yes.

Rich Silver - Barclays Capital

Okay, thanks.

Operator

Your next question comes from the line of Mona Ashiya with JPMorgan.

Mona Ashiya - JPMorgan

Hi, guys. Calling in for Cory. Couple of questions, Howard Did I hear you say that you wouldn't start the 119 trial without a partner?

Howard Robin

No. What I said was at this point since we are in active discussions with companies, it makes no sense to start a trial before we consummated a relationship simply because you can imagine that partner would want to have a lot of input into the process of designing that trial. In the absence of a partnership, of course we would be starting Phase 3 trials on Nektar 118 and Phase 2 trials on Nektar 119. But at this point since we are in those discussions, there is no good reason to move into Phase 2 without the partner being an active participant.

Mona Ashiya - JPMorgan

Okay, got you. And then just on 102, I was wondering if you could same expectations for the results that we'll see later this year in ovarian and in breast. What sort of response rate would you be looking forward to make our go decision.

Howard Robin

I'll ask Lorianne Masuoka our Chief Medical Office to answer that.

Lorianne Masuoka

Thanks. The results that we'll be providing to you will be preliminary data from the ovarian and breast cancer trials, both of which are proceeding very well. And at this time, I can't release to you information specifically about the anticipated objective response rate. As you know, patients have to be on therapy for a minimum of a couple months, before you can tell if any individual is a responder, but we believe that we will have significant new information to share with you at the end of the year.

Mona Ashiya - JPMorgan

Okay. And then just a final question for Bharatt, just a housekeeping one. Just wondering what the key patents are or when the key patents for 102 and 105 expire?

Bharatt Chowrira

Okay. So we have multiple families of patents for each of those products and they extend the life of the coverage for each of these products or in a period of a number of years. So we haven't publicly talked about what the expiration is for any one of those products. Needless to say, we have multiple layers of coverage, we have multiple aspects of each of those products that are covered by either issued or pending patent application. So, that's something that…

Mona Ashiya - JPMorgan

Can you provide like a ballpark estimate? Would it extend beyond 2020 or?

Bharatt Chowrira

Yes. So on an average a lot of these patents were filed in the last three to five years and so you can imagine the coverage for each one of those patents is 20 years from the time you file. So, you can do the math for some of these patents. And we continue to file, on each of these products as in when we get new data and that with the aim of extending the coverage for each one of those products.

Mona Ashiya - JPMorgan

Okay, thanks.

Operator

Your next question is a follow-up question from the line of John Sonnier with William Blair.

John Sonnier -William Blair

Hi, it's John Sonnier. Thanks for taking the question and congrats on a lot of good progress over there. How are things for the additional granularity on the 118 trial? I just want to make sure I got that down right. Its in the 25 mega arm, did you say 75% responds to .003?

John Nicholson

That is correct.

John Sonnier - William Blair

And 50 was 92% at .001.

John Nicholson

The first one was .0003.

John Sonnier - William Blair

Thank you and that’s …

John Nicholson

And at the 50 Meg it was 92% at .0001.

John Sonnier - William Blair

This is 28-day data but this is only four doses, is that correct?

Howard Robin

Say that again, I'm sorry.

John Sonnier - William Blair

This was 28-day data was it only four doses?

Howard Robin

Lorianne why don't you go through the specifics for…

Lorianne Masuoka

For this study we had three dosing cohorts, 5, 25 and 50 milligrams. And each patient was dosed on a daily basis for 28 consecutive days.

John Sonnier - William Blair

That is just daily for 28 days.

Lorianne Masuoka

That's right.

John Sonnier - William Blair

Okay. And then in the 119 study, do you think you need a similar structure in terms of the total number of doses to get your proof of concept? Do we envision a trial like this?

Lorianne Masuoka

For the 119 study, this is going to be somewhat different than the 118 study. Because as you know, when we combine 118 with an opioid, we believe that not only will opioid induced bowel dysfunction be ameliorated, but it could potentially be prevented as well. So, the dosing duration may not be exactly the same as for a 118 program. And we'll certainly be able to release further information about this trial. As Howard mentioned as we crystallize the trial going forward with the partner.

John Sonnier - William Blair

So conceptually it'll be shorter, is that correct?

Lorianne Masuoka

So in principle, if you're looking at the prevention of opioid induced constipation, you could potentially identify a pharmacological effect in a somewhat shorter period of time, that's right.

John Sonnier - William Blair

Okay. And then one final question there is a lot of excitement because of the work going on at Gilead with time of your sparing and pharmaco enhancing, when will you guys be in a position to disclose the base compound, which protease inhibitor you are working with? And when will obviously the proof of concept on that compound?

Howard Robin

Look, we haven't said that yet, and we are still doing a number of preclinical models to make sure that we have the right candidate and the right composition to move into the IND stage. So, at this point, I can't project when that will be. I can assure you, as soon as we're ready to put that candidate forward through an IND file, we'll make sure everybody knows it.

John Sonnier - William Blair

Perfect, thanks a lot.

Operator

Your next question comes from the line of Ian Sanderson with Cowen and Company.

Ian Sanderson - Cowen and Company

Good afternoon, thanks for taking the question. First maybe Howard could you give us, given that you've been talking to companies for quite some time on Nektar 118, what the push back has been there if any, and secondly, if there is progress made on the inhaled vancomycin program?

Howard Robin

Okay. Well, first of all there make it easy. There has been no push back on Nektar 118 as a matter of fact I think everybody looks, every potential partner looks at 118 and sees enormous potential. I think the data that we have has been referred to as tremendous and exciting and I'm pretty pleased with the discussions we are having with numerous potential partners. So I stand by my position that I believe we will have a collaboration done this year and I believe this drug can be a billion dollar plus drug.

With regard to vancomycin, we've moved away as you know from inhaled therapeutics in a very important way.

Amikacin inhale is a great drug, it's partnered with Bayer and we think it will do very, very well. In the US we have a flat 30% royalty on inhaled Amikacin, so that can yield significant dollars for potential for Nektar. With regard to vancomycin the market is much smaller and we are examining the opportunities there, we are talking to various companies about how we might proceed there. But I don't know at this point that you'll see Nektar actually develop without a partner, of vancomycin or gram-positive antibiotic, but we'll see how it evolves. There are companies that are interested. There are possibilities. There is some novel opportunities with inhale vancomycin, but I must say that we are really focusing the Company on our polymer conjugate technology platform and not inhale therapeutics.

Ian Sanderson - Cowen and Company

Okay. And just a follow-up on the balance sheet, I apologize I don't have it in front of me, but was there any additional repurchase of that notes during the quarter?

Howard Robin

No, we have not done that this quarter.

Ian Sanderson - Cowen and Company

Okay. Thank you.

Operator

Your next question is a follow up question from the line of Rich Silver with Barclays Capital.

Rich Silver - Barclays Capital

Yeah, just back to the operating expenses again, so the roughly 38 million in reduced spending between 30ish SG&A and paid on R&D what accounts for that difference? What programs have been sort of pushed off or what on the G&A front are you looking at cutting back?

John Nicholson

Yeah, it's, it's more along the lines of efficiency. So, from a standpoint of looking at the clinical programs we are doing, we are looking at things that we can do in house versus doing with third parties. We are also looking to utilize our resources in India to do some of the work for us. So it's more from a standpoint of how can we spend our money more efficiently versus terminating or forestalling any of the clinical programs we want to do.

Howard Robin

Rich, this is Howard. I think you can see that our, our spending level has gone down and at the same time we greatly expanded our clinical and preclinical programs. So, I mean, as I said years ago, we're going to learn to do a lot more with less at Nektar and we are doing that. And there'll be variances from quarter-to-quarter. And it can't be that precise. But I can tell you via our efficiencies, via being wiser on how we spend money, being more cautious on how we spend money, I think we are moving the Company in the right direction. I mean the work that we moved to India alone, the kind of analytical analysis that we're putting in India alone has saved us millions and millions of dollars over going to outside laboratories.

So, I think overall, we are also saving money for example because Nektar 118 completed early. I mean we finished the Phase 2 clinical studies early. We ended them early because of outstanding efficacy that we saw. And that saved some money of us. So, overall I think, it's really easy for a CEO to say, I'm going to cut costs and I'm going to cut programs. That's way too easy. Anybody can cut programs. Anybody could stop working on them. What we're doing at Nektar is we're being much more efficient. We're being very careful how we spend money. We're being very wise about how we spend money and we are getting a lot more done. And I think that's what you have to look at when you look at the results of Nektar.

Rich Silver - Barclays Capital

Great. Is the second quarter a good indication of run rate going forward for both those line?

Howard Robin

No it actually isn't. I think we said that earlier. If you straight line Nektar, you are going to come up with too high a spend. I mean the first two quarters were loaded. There was clinical study loading in the first two quarters. There was Phase 2 study. The second two quarters of the year will reflect probably less expensive and certainly some more revenues.

So, the overall burn rate for the last two quarters will be less than the first two quarters. And that's why we said our overall operating, our operating cash spend will be about $80 million for the year and we will end the year with $275 million. If you straight line the first two quarters, you won't get there.

Rich Silver - Barclays Capital

Okay, thanks very much.

Operator

(Operator Instructions). Your next question comes from the line of Chris Richard with Merlin Nexus.

Chris Richard - Merlin Nexus

Hello, thank you for taking my call. Howard if you could just remind us what a major, the definition of what a major response is in the 118 study?

Howard Robin

That's an excellent question, and I'm going to ask Lorianne Masuoka to take you through that. Go ahead.

Chris Richard - Merlin Nexus

Okay.

Lorianne Masuoka

Great. Thanks for the question. That's right so at the beginning of the study. The study was designed to look at whether or not patients had a really clinically significant response. And so a responder was defined as somebody who essentially more than doubled their baseline frequency as bowel movements.

So, in clinical trials, any time you have a 100% or 150% increase of anything from baseline this is considered really major really significant. So we said that to point out the fact that while a very impressive 75% to 92% of patients were classified as having this major degree of response. We believe that virtually everyone in the study has the ability to respond to Nektar 118. We just set the bar very high for how we defined the responder.

Chris Richard - Merlin Nexus

Okay. So a major responder in essence is anyone who has doubled the number of spontaneous bowel movements?

Lorianne Masuoka

It's actually more than double, because on average the patient came in with 1.5 at baseline. And a responder had to have an increase of at least two. And of course, because we had an increase of more 3.5 overall, most of the patients did significantly better than that even.

Chris Richard - Merlin Nexus

Okay, great. Thank you.

Operator

At this moment, I'm showing there are no further questions in the queue. I'd like to hand the call back over to Management for closing remarks.

Howard Robin

Well, thank you everyone for your questions and for joining us today. I think Nektar has made significant progress and our transformation to a drug development Company. And I wish to thank our employees again for their commitment, dedication to the Company. And I look forward to updating you on our continued progress in the months to come. Thanks for joining us today, bye-bye.

Operator

Thank you for your participation in today's conference. This concludes your presentation and you may now disconnect. Have a great day.

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Source: Nektar Therapeutics Q2 2009 Earnings Call Transcript
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