Nektar Therapeutics' (NKTR) CEO Howard Robin on Q1 2014 Results - Earnings Call Transcript

| About: Nektar Therapeutics (NKTR)

Nektar Therapeutics (NASDAQ:NKTR)

Q1 2014 Earnings Conference Call

May 07, 2014, 5:00 PM ET


Jennifer Ruddock – VP-Investor Relations & Corporate Affairs

Howard W. Robin – President, Chief Executive Officer & Director

John Nicholson – Chief Financial Officer & Senior Vice President


Jonathan M. Aschoff – Brean Capital LLC

Cory W. Kasimov – JPMorgan Securities LLC

Steve Byrne – Bank of America Merrill Lynch


Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics’ First Quarter 2014 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time. (Operator instructions)

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

Jennifer Ruddock

Thank you, Stephanie. Good afternoon, 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 clinical development plans, the timing of future clinical results, potential regulatory filings and commercial launch timing, 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 2014 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 in our Annual Report on form 10-K, which was filed with the SEC on February 27, 2014. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments, or otherwise.

A webcast of this call will be available for replay on the IR page at Nektar’s website at

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

Howard W. Robin

Thank you, Jennifer, and thanks to everyone for joining us this afternoon for our first quarter 2014 conference call. I would like to first focus on our late stage drug candidates Naloxegol, BAX 855 and NKTR-102 each of which is poised to achieve significant milestones in the near-term. I will also spend sometime discussing our plans for NKTR-181, which is being prepared for Phase 3.

Finally, I will briefly discuss our earlier stage portfolio, we recently completed the first Phase 1 clinical study for NKTR-171, our new molecule to treat neuropathic pain and we are also developing several additional drug candidates in the area of pain management, as well as a highly promising cancer immunotherapy program.

We ended the first quarter of 2014 in a strong cash position with $309 million in cash and investments. Later in the call, John will update you with our specific financial guidance for this year. As you know, Nektar has five highly valuable late stage program spanning multiple therapeutic areas that are either filed or in Phase 3 clinical testing, four of which are being developed by our pharmaceutical partners, AstraZeneca, Baxter, and Bayer. The economics of our late stage programs are significant for Nektar, and so we are excited that three of these programs, Naloxegol, BAX 855 and NKTR-102 have data and regulatory milestones over the coming months.

First, we are anticipating approval and commercial launch of Naloxegol for opioid-induced constipation in the U.S., EU, and Canada, which will trigger milestone payments to Nektar of up to $175 million. Second, in the third quarter, our partner Baxter plans to announce Phase 3 data for BAX 855 and hemophilia A and plans to file a BLA in the U.S. by year end. And third, Phase 3 data from the NKTR-102 pivotal study in women with advanced breast cancer is expected in Q1 2015.

I would like to start with a brief update on Naloxegol. As you know, the FDA advisory committee meeting to discuss OIC drug has now been tentatively scheduled for June 11 and 12 with the anaesthetic and analgesic drug products advisory committee. AstraZeneca and Nektar are actively working together to prepare for the advisory committee meeting and we are looking forward to discussing our robust Phase 3 data set in the context of the other presenting companies.

The KODIAC program for Naloxegol is the most comprehensive Phase 3 program completed in OIC to-date. It includes four clinical studies designed to investigate the safety and efficacy of once daily Naloxegol for the treatment of OIC. Two pivotal efficacy studies KODIAC-04 and KODIAC-05 enrolled more than 1,300 patients. The 25 milligram dose of Naloxegol achieved statistical significance in both studies for the primary endpoint of responder rate. And more importantly, Naloxegol met all of the secondary endpoints in the study as a clear demonstration of Naloxegol’s efficacy, the median time to first post dose laxation was 5.9 hours for Naloxegol in KODIAC-04 and 12.0 hours for Naloxegol in KODIAC-05 as compared to over 35 hours for placebo in both studies.

In addition, the KODIAC studies prospectively evaluated Naloxegol in patients who had an inadequate response to prior laxative therapies and the 25 milligram dose of Naloxgel also achieved the p value with statistical significance on this very important secondary endpoint.

AstraZeneca conducted two safety trials KODIAC-08, a 52-week controlled long-term safety study of once daily Naloxegol compared to usual care, and KODIAC-07, a 12-week safety extension from one of the efficacy studies. The most common adverse events observed in the Phase 3 clinical program were abdominal pain, diarrhea and nausea. This is consistent with what is expected in patients when an opioid impaired bowel begins functioning again.

We observed no differences in mean pain scores and no differences in mean opioid usage with Naloxegol relative to placebo, which demonstrated that Naloxegol was not reversing analgesia for patients in the study. Notably with respect to cardiovascular safety, there were two externally adjudicated MACE events in the 270 patients in the usual care arm and two externally adjudicated MACE events in the 534 patients in the Naloxegol arm. Both AstraZeneca and Nektar look forward to participating in the advisory committee next month.

OIC is the most common side effect caused by chronic administration a prescription opioid pain medicine, it is a major medical problem. There are approximately 69 million patients in five major markets who are being prescribed opioids to treat chronic pain, up to 80% of these patients develop OIC with up to 50% not getting relief from laxatives. If approved, Naloxegol will be the first oral once-daily medicine to address this significant unmet need.

The PDUFA date in the U.S. for Naloxegol is September 16 of this year. Filings for Naloxegol have been accepted for review in the EU and Canada as well. Nektar isn’t titled to substantial milestones upon approval and launch of Naloxegol. Currently, AstraZeneca is preparing to launch Naloxegol in Q1 2015. We will receive $35 million in 2014, if no significant pre-approval cardiovascular safety study is required in the U.S. Then upon commercial launch, we will receive $100 million in the U.S. and $40 million in Europe. We will also receive significant escalating double-digit royalties on global sales of the products and sales milestones of up to $375 million in addition to the royalties.

Under our collaboration with AstraZeneca, we are also entitled to substantial milestones and royalties for NKTR-119, which is the Naloxegol fixed dose opioid combination. Another reason that we are so excited about Naloxegol is that, it could be the first oral small molecule drug approved that uses our proprietary polymer conjugate technology platform. Naloxegol is also the first drug using our technology that specifically targets receptors in the periphery by restricting the drug from the CNS.

We are developing new drug candidate such as NKTR-171 and NKTR-195, which leverage a similar peripheral restriction approach with our technology. I will talk more about these in a moment.

Moving on to another key late stage program BAX 855, which is planned for BLA filing before year end by our partner Baxter. BAX 855 is an extended half-life recombinant factor VIII therapy for hemophilia A, which was designed using the full length ADVATE molecule and Nektar’s proprietary PEGylation technology. The Phase 3 PROLONG-ATE study completed enrollment last November with 150 patients. PROLONG-ATE is assessing the efficacy of BAX 855 as well as its ability to reduce annualized bleed rates in both prophylaxis and on-demand treatment schedules.

Baxter has reported that BAX 855 has been well tolerated so far with no inhibitors or no safety issues occurring in the study. Baxter plans to report top line data from this study in the third quarter of this year and they plan to file for U.S. regulatory approval by the end of this year. A pediatric study is also being planned in order to support EU filings and approval in 2016.

We’re very excited by Baxter’s rapid progress with this program. ADVATE is the gold standard hemophilia therapy with over $2 billion annual sales and BAX 855 is positioned to provide an important new therapy in the ADVATE franchise for patients with haemophilia. Under our agreement, Nektar will receive significant royalties on net sales, as well as remaining development and sales milestones of over $70 million.

Now moving onto NKTR-102, our proprietary oncology candidate, which is currently being evaluated in a Phase 3 study in metastatic breast cancer. NKTR-102 is a novel Topo 1 inhibitor designed to concentrate in tumor tissue, provide sustained tumor suppression throughout the entire chemotherapy cycle, and reduce the peak exposures that are associated with toxicities of standard chemotherapies. The BEACON Phase 3 study enrolled 852 patients with metastatic breast cancer to compare single agent NKTR-102 as a third line or greater therapy to single agent of physician’s choice.

In January, the independent data monitoring committee for the Phase 3 BEACON study recommended continuation of the trial following a planned interim efficacy analysis of the data from the study, which occurred at 50% of the patient events needed to assess the primary endpoint of overall survival. The DMC reviewed both safety and efficacy data and recommended continuation of the study with no modifications. We expect top line survival data from the BEACON study in Q1 2015. We plan to submit regulatory filings in both the U.S. and Europe in the second half of 2015.

You will recall that NKTR-102 was granted fast-track status for patients with locally recurrent or metastatic breast cancer, which enables us to request priority review and submit a rolling NDA. If we are successful with the BEACON study, NKTR-102 could emerge as an important new therapeutic option for women with advanced breast cancer.

Also, for NKTR-102, at Stanford University, Dr. Lawrence Recht and Dr. Seema Nagpa are conducting a study evaluating NKTR-102 as a single agent in Avastin resistance high-grade glioma. The study enrolled 20 patients who had already received the median of three lines of prior therapy for high-grade glioma, including Avastin.

The study was designed with a primary endpoint of 25% progression free survival at six weeks based upon the performance of other single agents in these patients. NKTR-102 exceeded the primary endpoint established for the study with 55% of patients achieving at least six-week progression free survival.

As of today there are still two patients receiving NKTR 102 in the study. One patient has been on study for 20 months and has received 24 treatment cycles of NKTR 102 and another patient has been on study for almost 12 months with 14 treatment cycles of NKTR 102. The Stanford investigators will be presenting the findings from the NKTR 102 trial at this year’s ASCO meeting on Saturday May 31.

Two other investigator sponsored studies are continuing for NKTR 102. The first is a Phase 2 study in small cell lung cancer with Dr. Alex Adjei at Roswell Park Cancer Institute and the second study is a non-small cell lung cancer with doctors Corey Langer and Charu Aggarwal at the University of Pennsylvania Abramson Cancer Center. Data from these studies are expected in 2015 and we continue to receive proposals for new investigator sponsored studies highlighting the interest in NKTR 102 is receiving from the investor community.

Next let’s talk about our two anti-infective programs with our partner Bayer. Cipro DPI to treat patients with chronic recurrent lung infections as a result of non-cystic fibrosis bronchiectasis, also known as NCFB and Amikacin inhale to treat gram-negative pneumonias in ventilated patients. Both programs are continuing through Phase 3 and the trials are expected to completed in a later part of 2015 and early 2016. Cipro DPI is being evaluated as a chronic, intermittent therapy for reducing the frequency of acute exacerbations in NCFB patients over a 48 week treatment period.

Our partner Bayer recently announced that Cipro DPI was granted orphan drug status by the FDA for the treatment of NCFB, NCFB is estimated to effect more than 200,000 patients in the US and EU within estimated market of about $750 million annually under our agreement Bayer is responsible for all development costs and we’re entitled to escalating royalties with an average royalty of approximately 10%.

Amikacin inhale is a hospital-based product that is specifically designed to work within a ventilator system in order to target infections in the lung directly with a proven and effective antibiotic. The Phase 3 studies are being conducted under an SPA with the FDA and are comparing amikacin inhale given adjunctively with current standard of care antibiotics versus placebo given adjunctively with current standard of care antibiotics versus placebo given with current standard of care antibiotics.

These studies include primary endpoint of clinical test of cure. If successful, amikacin inhale could emerge as the preferred treatment for deadly gram-negative pneumonias, which is one of the leading causes of mortality in the ICU. We estimated the market potential for Amikacin Inhales approximately $715 million annually. As a reminder, our economics are significant with a 30% flat royalty in the US and an average 22% royalty in ex-US countries.

Now I would like to move on to discuss our Phase 3 plans for NKTR 181. NKTR 181 is a novel opioid molecule with anti-abuse properties that are inherent to its molecular structure and not a result of a formulation. Prescription drug abuse and opioid addiction continue to the front and center as a public health issue, because NKTR 181 is specifically designed as a new molecule to eliminate the euphoria that can lead to addiction with today’s opioids. We believe NKTR 181 can be transformational products in both the treatment of pain and addressing this current help of epidemic of opioid abuse and addiction.

We’re in the process of preparing for and end of Phase 2 meeting with the FDA to discuss our proposed Phase 3 program for NKTR 181. We plan to start the Phase 3 in the third quarter of this year. As you know, NKTR 181 received fast track status from the FDA. Currently, we have designed the first Phase 2 trial to include 600 patients with osteoarthritis of the knee. Patients will be randomized one-to-one to either NKTR-181 or placebo with a titration phase in both arms followed by a 12 week treatment period. In our Phase 2 study NKTR 181 provided the patients with an average 40% reduction from baseline with substantial fewer CNS side effects than would be expected with standard opioids.

During the titration phase of the Phase 2 study, a total 213 patients achieved this reduction in pain. Only 3% of the patients entering titration were unable to successfully titrate in analgesia with NKTR 181, only 18% of the patients dropped out during titration because of adverse events, which were mostly reports of constipation. Importantly, nearly all of the patients dropping out for AEs experienced significant pain relief while on the drug.

After titration, patients receiving NKTR 181 continued to show reduction in pain scores during the randomized phase of the study. While NKTR 181 clearly provided effective analgesia to patients in the study, as you know, we did not see the expected rebound in pain scores in patients who across over to placebo during the 21 treatment days of the randomization period. We believe this uncharacteristic behavior of the placebo arm is due to several key factors. The most important of which is likely to continue use of background NSAIDs by patients in the study.

For example, when we look at a subset of 25 patients from the Phase 2 study that did not use background NSAIDs during the titration are maintenance phases of the study, we observed the separation between NKTR 181 and placebo as would be expected. This placebo rebound is similar to what have been observed with successful EERW study. Our Phase 3 study design will take this and other factors into consideration.

So with NKTR 181, we believe that we have a drug that works well as an analgesic and is well tolerated by patients. We’ve also shown that NKTR 181 is not attractive to recreational drug users because it does not produce the euphoria that they are seeking. As a result, NKTR 181 has the potential to address a major public health issue. We’re focused on bringing this important medicine to patients. If we’re successful in the development of NKTR 181, we are confident that it could become the therapy of choice in the $12 billion opioid market for chronic pain. We’re looking forward to getting our final feedback from the FDA at the end of Phase 2 meeting.

Now, I would like to discuss our earlier stage pipeline in pain, which includes four pain candidates with different mechanisms of actions. NKTR 171 the peripherally restricted oral sodium channel blocker for neuropathic pain currently in Phase 1 and three programs in preclinical development. NKTR 196 mu-opioid agonist for acute pain, NKTR 195 peripherally restricted oral kappa opioid agonist for visceral pain and NKTR 174 a dual- receptor agonist for neuropathic pain.

These pre-clinical programs leverage cutting-edge science in the treatment of pain conditions, and we will begin clinical testing of at least one of these in 2015. Starting with NKTR 171, NKTR 171is a novel opioid, is a novel sodium channel blocker that is designed to restrict the molecules action to the periphery where the pain signal originates.

The technology approach is very similar. So what we accomplish with naloxegol, which demonstrates our ability to exclude drugs from the CNS. Neuropathic pain is characterized by peripheral neuron are in a hyper-excitable state in an addition to constant burning and pain, even a mild such can end inflicting more pain for patients. There can be dramatic over expression of sodium channels in these hyper excitable neurons and sodium channels play a key role in the dysfunctional signaling pathway in these cells. Like targeting these channels in the periphery and eliminating exposure in the CNS, NKTR-171 is designed to avoid the severe sedation found with traditional sodium channel blockers that make these agents unsuitable for most patients.

We’ve completed the first Phase 1 dosing study for NKTR-171 that access PK and safety for single doses of 171 of up to 500 milligrams in healthy subjects. The data from this first study demonstrate that NKTR-171 was well tolerated in humans. We are planning to start our multi-dose ascending study in Q3, which will evaluate PK and safety in about 60 healthy subjects.

Current drugs that treat neuropathic pain, such as the gabapentinoids, represent a multibillion dollar market today in spite of their limited efficacy and unwanted side effect profiles. If we’re successful with NKTR-171, we could provide a highly effective therapeutic option for patients with neuropathic and peripheral pain.

In the area of acute pain, we are working on NKTR-196, a new mu-opioid agonist molecule that not only has reduced rate of entry into the brain to reduce abuse liability, but also have a fast onset of action to make it more suitable to treat acute pain conditions.

We are looking forward to entering the clinic with an optimized new drug candidate to complement our work with NKTR-181 in chronic pain. Our next program NKTR-195 uses the similar approach, but targets a different clients of opioid receptor hold the capital receptors. These receptors are highly active in states of visceral pain and our presence both in the periphery and in the CNS. Previous attempts by other companies have been unsuccessful in selectively targeting these peripheral kappa receptors without engaging the CNS receptors.

The CNS effects of kappa agonism include dysphoria and sedation and can be profound for patients. So as you can imagine targeting this receptor just in the periphery to address the source of the visceral pain could be extremely valuable. One of the other challenges in this area is oral bioavailability, which our technology is capable of solving as well, as we did with Naloxegol.

We have some encouraging preclinical data on NKTR-195, which demonstrates that we have created a series of potent molecule that can relief pain while at the same time having dramatic reduced sedative properties leading to an almost 20-fold increase in the therapeutic index as compared to other kappa agonist molecules that have been attempted in the past. We expect to present additional preclinical data on this program this year.

Finally, a new area of research for us in pain is the focus on dual mechanisms of action and create one drug that hits multiple selected targets. To that end, NKTR-174 is a molecule that targets two receptors critical in the signaling of pain within the peripheral. The first is the mu-opioid receptor and the second is the NMBA receptor. They are targeting both of these simultaneously with the optimal balance of affinities for each receptor, we are exploring whether we can achieve better analgesia in hyper sensitized peripheral neurons.

This is earlier research for us, but very exciting and that we are discovering a new way of using our technology to modulate receptor activity within novel molecule. We are also using our technology to modulate receptor activity in the fields of immunotherapy with NKTR-214 and engineered biologic in preclinical stage, that targets the well understood Interleukin 2 pathways. Our goal here is to increase the activity of tumor-killing cells, there was tumor affected T-cells or at the same time, reducing the activity of Treg cells that suppress the anti-tumor immune response. We presented positive preclinical data in the past for this molecule as a single agent. However, the field of advancing now towards for combining immunotherapies to attack the tumor in multiple ways at the same time.

On this front, we have conducted some exciting studies of NKTR-214 in combination Anti-CTLA-4 or Anti-PD1 regimens, and we will be presenting this important research in the Immunotherapy session at ASCO.

With that, I’ll hand the call over to John for a discussion on our financials and guidance for the remainder of the year.

John Nicholson

Thank you, Howard, and good afternoon, everyone. I will start with reiterating our financial guidance for 2014, which remains unchanged from our 2013 year-end call. For 2014, we still plan to end the year with approximately $225 million in cash and investments, representing a net use of cash of approximately $155 million. We anticipate in the launch of naloxegol in the first quarter of 2015, which would trigger launch milestones to Nektar of $100 million for the U.S. and $40 million for Europe. As a result, for 2014, year-end cash balance does not include these launch milestones.

Revenue for full year 2014 is still expected to be between $190 million, $195 million. This guidance includes the anticipated recognition of two significant milestones in the third quarter of 2014, pursuant to the agreement with AstraZeneca signed with Roche. The $17 million milestone payment that we already received from AstraZeneca in Q4 2013 and a potential new $35 million milestone payment from AstraZeneca, both of which are related to FDA confirmation that a significant pre-approval cardiovascular safety study for naloxegol will not be required.

In addition in the fourth quarter, we expect to recognize additional milestones related to other collaboration, new math of approximately $12 million to $17 million, remain of our revenue for the year-over-year approximately evenly split between the last three quarters of the year including $20 million of non-cash royalty revenue from UCB’s CIMZIA, and Roche’s MIRCERA.

Our R&D expense guidance is still between $165 million and $175 million would approximately $16 million of this is non-cash items such as stock-based compensation and depreciation expense. 2014 G&A is still anticipated to be between $40 million to $42 million, which includes $10 million of non-cash expense.

Total revenue of Q1 2014 was $19.8 million versus $23 million in the first quarter 2013. Revenue for Q1 2014 includes $5.8 million of non-cash royalty revenue from UCB’s CIMZIA, and Roche’s MIRCERA. The decrease in revenue for the quarter is due primarily to lower product sales.

Total operating costs and expenses in the first quarter 2014 with $56.2 million versus $68.1 million in the same quarter a year-ago. The decrease is driven by lower R&D expense with clinical development. in addition, we had lower cost of goods year-over-year related to decreased product sales.

For Q1 2014, our research and development expenses were $38.3 million, as compared to $45.6 million in Q1 2013. R&D expense for the quarter included expenses related to our NKTR-102 BEACON Phase III trial preparation for our NKTR-181 Phase 3 trial, clinical devices in commercial manufacturing activities of Amikacin Inhale and the Phase 1 clinical study of NKTR-171. Research and development expenses included $4.1 million of non-cash stock-based compensation and depreciation expense.

For the first quarter of 2014, G&A expense was $9.9 million, compared to $10.8 million in the first quarter of 2013. There was approximately $2.4 million in non-cash expense including G&A expense in the first quarter of 2014.

Interest expense this quarter was $4.5 million, related to the senior secured notes issued in 2012. Non-cash interest expense related to the monetization of UCB’s Cimzia and Roche’s MIRCERA royalty was $5.4 million. As Howard stated earlier, cash and investments at March 31, 2014, were $309.1 million as compared to $262 million at December 31, 2013.

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

Question-and-Answer Session


Thank you. (Operator Instructions) Our first question comes from Jonathan Aschoff of Brean Capital. Your line is open.

Jonathan M. Aschoff – Brean Capital LLC

Thank you. I was wondering what are your thoughts on Pfizer becoming the new owner of naloxegol potentially, and what are your plans for NKTR-102 in glioma and then have a couple others?

Howard W. Robin

Okay, hi, Jonathan. Look, clearly, there is a chance that Pfizer acquires AstraZeneca, and then our contract for naloxegol clearly covers that, and it would become the ownership of Pfizer and they would be obligated to all the provisions under the contract. Quite frankly, I think it actually fits very well with Pfizer’s portfolio.

If you look at what Pfizer is doing in the area of primary care, if you look at what Pfizer is doing in the area of pain management. I think actually in the lot of it fits very well there. So, I think they are accompanied that has excellent marketing skills. I think you; we’ve done a tremendous job in shaping that company. And quite frankly, I’d be totally fine with naloxegol being marketed by Pfizer, just as I would be very fine with naloxegol being marketed by AstraZeneca.

Jonathan M. Aschoff – Brean Capital LLC

Thanks. And the NKTR-102 in glioma?

Howard W. Robin

Well, we said that we will be presenting at ASCO on May 31, based on the results of the work that Dr. Reck and Dr. Paul did at Stanford. I have no further comments that I can make a response to would you like that to say something else about it perhaps.

Howard W. Robin

No, look I think it’s really exciting what we’ve seen so far in that program. And clearly, it’s a devastating disease and very poor prognosis. I think that our current investigators on that study, I think are excited in discussing what to do next. We have to take a look at the data from ASCO, I think that’s going to be great, we’ve got a lot of preclinical data that supports these effective one or two in various brain captures as well as metastasis to the brain from Mongrain cancers. So I think it’s an exciting path forward. We’re looking forward now to the outcome of the BEACON trial and I think that’s where our real attention is focused that we’ll be able to talk more about glioma later in the year I would expect.

Jonathan M. Aschoff – Brean Capital LLC

When do you guys expect to see the Federal register populated with everything for this panel coming up, to get some comfort that it won’t be a second delayed panel?

Howard W. Robin

Well, we don’t have the exact date. but I would say it’s either later this month very early June it’s hard to be precise, I mean the date that have been schedule tentatively and I said tentatively in the discussion earlier, I think those will be the final dates, but we have to wait and see when that publishes. I would say it’s in the very near future.

Jonathan Aschoff – Brean Murray, Carret & Co.

Okay. And what product sales would decrease 1Q 2013 to 1Q 2014, what were those exactly?

John Nicholson

Yes, Jonathan, basically why we’re having a decrease is, as you know, we started couple of years ago that our purpose in life was not to be a CMO for major pharmaceutical companies, it was basically to develop our own drugs. And so, at this point in time, one of the things that our partners have been doing is taking on manufacture of PEG reagent themselves. So in all reality with the shortfall is, is that basically, it’s been more than just one product, but it’s basically partners picking up manufacturing of their own PEG reagent and that’s concentrating on us specifically our own reagents.

Jonathan Aschoff – Brean Murray, Carret & Co.

Okay, thanks.

Howard W. Robin

Jonathan, let me add to that. I mean, I think like John said, we are not a contract manufacturer. And we use our manufacturing facility principally to make at this point forward to make our own products. But of course, we have contractual obligations with other companies and we always want to fill the plan as best we can to absorb the overhead. So that will fluctuate at a point in time, sometimes we’re manufacturing for others, we absorb all overheads, sometimes we maybe making product for ourselves in which phase I can’t absorb all the overhead into revenues.

So, it’s going to vary. I think you have to recognize that one of the strongest assets Nektar has is that, we do have our own in-house CMC programs and manufacturing capability for our own programs. And I think that sets us apart in many ways. But I think you will see fluctuations there, because, we are not setting up a strategy to be a contract manufacturer. To the extent that we bring in additional business, but still the unused capacity will always try to absorb overhead that way. But in many times, you will see that we are manufacturing for ourselves as opposed to others.

Jonathan Aschoff – Brean Murray, Carret & Co.

Okay. Thanks a lot, guys.


Our next question comes from Cory Kasimov with JPMorgan. Your line is open.

Cory W. Kasimov – JPMorgan Securities LLC

Hey, good afternoon, guys. Thanks for taking the question. I really just wanted to ask about your expectations for next month’s advisory committee meeting, assuming that it doesn’t take place next month. I guess I’m curious in your expectations for how it may be set up, and maybe the types of questions the FDA would be asking the panel, given that there are multiple parties involved. Do you anticipate that there are perhaps voting questions related to individual products, or is it more overall class related?

Howard W. Robin

Well. Look, it’s a very good question, and is the question that we really can’t answer yet, because we don’t have the FDA briefing package yet. So how that meeting, what questions they are going to ask? We don’t know at this point. I can’t tell you that clearly there are number of companies there. I think the questions will – each company will have its own time to discuss its own product. There are significant differences between these drugs, of course, but mechanistically they are very different. They are all going after the new opioid receptor, but they are approaching the mu-opioid receptor in very different ways. So it isn’t really a class in that sense, but these drugs are all distinct, and I think it will be interesting to see how this unveils itself.

The FDA has to make certain decisions. The advisory panel certainly has to make certain decisions. I believe that AstraZeneca and Nektar have done a great job in pulling together a briefing book and a set of data that clearly supports the safety of Naloxegol from a cardiovascular point of view. But it is not common that the FDA closing advisory panel with multiple companies like this. So it’s hard to predict how to go. I do know that each company has its own individual time to be asked questions and to respond. And that’s at this point I don’t know what questions that FDA will ask.

Cory W. Kasimov – JPMorgan Securities LLC

Okay. And have you found all of the activity taking place between Pfizer and AstraZeneca to be a distraction for AstraZeneca, in terms of their preparation work ahead of the panel?

Howard W. Robin

No I don’t know, not at all, not at all actually. The team that has been actively working on the Adcom preparation is highly focused, I don’t see them distracted at all. And I also know that AstraZeneca has been very active in educational activities in OIC. So if you look at the type of booths they’re setting up in the educational materials, they’re providing NOIC just in May alone just the American Pain Society, Digestive Disease week, SMIs, Pain Therapeutics Meeting, I mean they have a major presence in educating about OIC. So I think they are very committed to it, I think the keenness working on the Adcom has not missed the beat regardless of what’s happening at the corporate level. So I’m pretty pleased with the work product.

Cory W. Kasimov – JPMorgan Securities LLC

Okay. Thanks for taking the questions.


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

Steve Byrne – Bank of America Merrill Lynch

I was curious about that tag that you put on IL-2 for 214. How does this effect the distribution of that product throughout the body and particularly partitioning into tumors?

Howard W. Robin

I’m going to let Steve answer that. One thing I’d like to point out is that what’s so exciting about it is that, we’ve been able to use our polymer conjugate technology platform in a different way with this molecule and that we are allowing it to be more active with certain receptors and less active with other receptors. And that is a very significant potential. I’ll let Steve address your question directly.

Stephen K. Doberstein

Yes Steve thanks for the question I think one of the coolest things about the 214 concept is that fact that it doesn’t end up evenly distributed throughout the body, it takes advantage in the same kinds of effects that we see with NKTR-102, where we get a much higher tumor exposure to drug than exposure in normal tissues. Now if you couple that difference in exposure which can be quite high, to the receptors like Howard mentioned. I think you get a Cytokine now that has a completely different profile, than IL-2 does, which of course is what we’ve been looking for.

So I think that bio-distribution is a really great part of this the concept here, and I think the receptors activity is the other really important part of the concept. And of course all of that together also allows us to dose much less frequently in the animal models we’ve been studying to put the molecule on more of an antibody type dosing schedule which I think is critical for being able to use it effectively in the clinic. Of course, Proleukin or IL-2 the way it’s currently used, is dosed in an ICU study several times a day, over a week. And this is a molecule we think of a much antibody like in pharmacokinetics.

So this is, first three things all together really are what make the concept work.

Steve Byrne – Bank of America Merrill Lynch

And what do you think about timing with respect to getting into human study is there any thoughts about the types of indications you might pursue with the combo, with the checkpoint inhibitors?

Stephen K. Doberstein

Yes great question. So I think step one, of course is going to be single agent, as you would expect. We can get that as early as late next year I think maybe earlier the following year. One of the thing without Phase 1 for a molecule like this with that you go directly into patients and if one did that and say patients that had superficial tumors like melanoma patient, one might be able to look into tumor biopsies and find actual if we able to measure the difference was in immune cells and get sort of the proof-of-concept, mechanistic concept right away.

Of course, there is a lot of work going on with the Checkpoint Inhibitors in all different types of solid tumors. And we will keep a close eye on those development, but I think of course we already know that the highly immunogenic tumors, like renal cell tumors and melanomas are great targets for immunotherapy, but I think we want to expand up beyond that. And there I think we will let the science guide us as we what the mechanism looks like in the first of man study.

Steve Byrne – Bank of America Merrill Lynch

And then just lastly, your acute pain drug this NKTR 196, how does it differ from one that I think you had about a year ago NKTR 192 I believe it was. I thought it was also for acute pain. Is it functionally similar?

Howard W. Robin

Yes, great, that’s a great question. So from 100,000 feet, the concept is similar the goal here was to have the drug for acute pain that would need to have a very rapid onset of action that’s critical aspect here. And it shares those characteristics with NKTR 192 now and were difference from NKTR 192, it’s based on a different molecular scaffold and it’s an entirely different MCE. The scaffold is more metabolically stable it’s been NKTR 192 molecule and I think that’s going to give a better properties clinically, but what we are seeing in the animal model so far is very rapid onset of action and very effective analgesia so far preclinically, so we’re excited about it.

Steve Byrne – Bank of America Merrill Lynch

Thank you.


And I’m currently showing no further question. I will now turn the call back over to Howard Robin for closing remarks.

Howard W. Robin

Well, clearly this year to be transformational one for Nektar with multiple product candidates advancing to Phase 3 data, regulatory filing and potential approval. So I want to thank our dedicated employees for their superb performance. And I want to thank everyone for their time today and continued support for Nektar. We look forward to seeing many of you at the UBS conference in few weeks. Thank you very much. Take care.


Thank you ladies and gentlemen that does conclude today’s conference. You may all disconnect and everyone have a great day.

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