Nektar Therapeutics' (NKTR) CEO Howard Robin on Q2 2014 Results - Earnings Call Transcript

Jul.31.14 | About: Nektar Therapeutics (NKTR)

Nektar Therapeutics (NASDAQ:NKTR)

Q2 2014 Earnings Conference Call

July 31, 2014 5:00 PM ET


Jennifer Ruddock – VP, IR

Howard Robin – President and CEO

John Nicholson – SVP and CFO

Ivan Gergel – SVP, Drug Development and Chief Medical Officer


Jonathan Aschoff – Brean Capital

Matt Lowe – JPMorgan

Robert Hazlett – Ladenburg Thalmann

David Steinberg – Jefferies


Good day, ladies and gentlemen, and welcome to the Nektar Therapeutics Second Quarter 2014 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)

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. Ivan Gergel, 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 potential regulatory approval decisions and commercial launch timings, the timing of future clinical results, clinical developments plans, 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, 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 Quarterly Report on Form 10-Q, which is filed with the SEC on May 8, 2014 and our Form 8-K which is filed today, both of which are available at We undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments, or otherwise. A webcast of this call will be available on the IR page at Nektar’s website at

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

Howard Robin

Thank you, Jennifer, and thanks to everyone for joining us this afternoon for our second quarter financial results call. Today I would like to focus on our late-stage programs which have significant upcoming milestones over the next six months. These are Movantik for opioid-induced constipation; BAX 855 for hemophilia A; NKTR-102 for advanced breast cancer; and NKTR-181 for chronic pain.

I will also update you on two of our early-stage candidates, NKTR-171, a peripherally-acting oral sodium channel blocker, which is in Phase 1 studies, and NKTR-214, a cancer immunotherapy, which we are preparing to enter the clinic next year. Then John will review financials and remind you of our financial guidance for the second half of this year.

First, I would like to take the opportunity to introduce Dr. Ivan Gergel, our new Senior Vice President of Drug Development and Chief Medical Officer, who is joining us on today’s call. Many of you have had the opportunity to meet Ivan in the past several weeks. Ivan brings over 25 years of drug development experience to Nektar with an impressive track record.

During his tenure, heading R&D at both, Endo and Forest, Ivan was responsible for a number of late-stage development programs and product approvals. This includes BEMA Buprenorphine, which just achieved successful outcomes in Phase 3 studies for chronic pain and Abuse-Deterrent Opana ER for chronic pain. At Forest, his successful approvals included Celexa and Lexapro for depression, as well as Namenda for Alzheimer’s disease, Combunox for acute pain and Savella for fibromyalgia.

Ivan’s contributions to our clinical strategy will be invaluable, as we advance our pipeline of wholly-owned compounds.

As most of you know, the June FDA Advisory Committee meeting resulted in a highly positive outcome for Movantik. The majority of panel members recommended in a 22 to two vote that there was no need for cardiovascular outcome trials. The majority also agreed that the appropriate path forward would be for sponsors to conduct post-marketing observational studies.

Following the panels, Salix, who participated along with AstraZeneca at the meeting, indicated that FDA has informed them that it would approve their injectable PAMORA for chronic OIC patients with a requirement for post-marketing observational trials only.

As we head towards the September 16, PDUFA date, we are encouraged by the positive vote from the Advisory Panel and the subsequent positive FDA action reported by Salix. On their conference call this morning, AstraZeneca noted that signs were positive for approval on September 16 based on their interactions with the FDA. AstraZeneca also said they were on track for potential EU approval before the year-end as well.

As you will recall, Nektar renegotiated our AstraZeneca agreement in August of 2013 in order to give Movantik the best opportunity to be well positioned in advance of the Advisory Panel and to ensure that the regulatory review clause would start in both the U.S. and the EU.

Clearly this was the right decision for Movantik which is now advanced closer to U.S. approval without delay. Notably, during Movantik’s review cycle in the past 12 months, there have been significant changes to the competitive landscape for OIC. Potential competitors with oral OIC therapies earlier in development delayed their programs in order to wait for the outcome of the Advisory Panel.

So when others reacted to uncertainty by waiting, Nektar and AstraZeneca saw opportunity and took action. Movantik, if approved, would be the first oral once-daily tablet to come to market that specifically targets the new preceptor to treat opioid-induced constipation. And in my opinion, Movantik is not likely to face potential competition from other oral PAMORA therapies for at least two to three years.

In June, the KODIAC efficacy results for Movantik in patients with chronic OIC were published in the New England Journal of Medicine. The studies demonstrated a rapid and sustained improvement for patients taking Movantik without compromising their pain management. There is a tremendous unmet need for an oral therapy like Movantik that directly targets the underlying mechanism of OIC at the receptor level without interfering with analgesic relief.

There are up to 69 million patients in the U.S. and Europe that currently rely on oral opioid therapies to manage their chronic pain. OIC is a debilitating medical condition in these patients with an incident as high as 80%.

AstraZeneca intends to launch Movantik in the U.S. and EU as soon as possible following approval. As AstraZeneca stated this morning, there will be a short gap between approval and launch. So let me remind of why that is.

As we’ve stated in the past, following approval of Movantik in the U.S., it will need to go through a routine de-scheduling process by the DEA. Just like other opioid antagonists such as naloxone and naltrexone, the initial label for naloxegol will have a schedule 2 designation because of the structural similarities of opioid antagonists to opioid agonists.

Therefore AstraZeneca is planning a late Q1 2015 or early Q2 2015 launch in the U.S. based on the anticipated timeline for completing this de-scheduling process. Launch in the EU is planned for Q2 2015.

We’re looking forward to AstraZeneca launch in Movantik. If approved, it would represent the first oral targeted medicine for opioid-induced constipation. Great news for patients with this debilitating condition.

The Movantik agreement with AstraZeneca provides significant potential upside for Nektar. As a reminder, if FDA follows the Advisory Panel recommendation and does not require a pre-approval cardiovascular outcomes trial, we will retain the $70 million NDA filing fee that we received last year, and we will receive an additional $35 million.

We are also entitled to receive $100 million upon the U.S. launch and $40 million upon the EU launch. We have significant and escalating double-digit royalties on sales on Movantik, and in addition to these royalties, potential sales milestones totaling $375 million.

So clearly, Movantik success would benefit Nektar financially. And just as important for Nektar, Movantik would be the first approved novel oral NCE created using our proprietary small molecule polymer chemistry platform. We are looking forward to the next six months as Movantik advances.

Our next development program with significant milestones occurring in the second half of 2014 is BAX 855, a longer-acting ADVATE therapy invented by Nektar and being developed by our partner, Baxter. BAX 855 is based upon the full-length recombinant factor VIII molecule ADVATE, which is the gold standard for treating hemophilia A.

We combine Nektar’s proven PEGylation Technology with ADVATE to create this important new molecule. Nektar’s PEGylation Technology has been used with protein therapeutics for over 15 years to create meaningful medicines that are approved to treat chronic and serious diseases in different therapeutic areas. Hundreds of thousands of patients globally have benefited from these PEGylated medicines which are on the market today.

Baxter recently reported that dosing in the Phase 3 PROLONG-ATE study of BAX 855 is now complete. On their recent financial results call, they announced that they have observed no inhibitors or drug-related serious adverse events in the study to-date.

They are on track to report top line data from the study this quarter. PROLONG-ATE is assessing the annual bleed rate or ABR for both, a twice a week BAX 855 prophylaxis regimen and for an on-demand regimen in previously treated adult patients with hemophilia A.

Baxter is planning to file a BLA for BAX 855 in the U.S. by the end of this year. As you know, Baxter is the global leader in treating patients with hemophilia A, and ADVATE currently generates over $2 billion in annual sales. Under our agreement, Nektar will receive significant royalties on net sales, as well as remaining development in sales milestones of over $70 million.

Now moving onto NKTR-102 or etirinotecan pegol, our wholly-owned Phase 3 oncology candidate. NKTR-102 is a novel Topo I inhibitor, which is designed to concentrate in tumor tissue. Its unique PK profile is designed to provide sustained levels of the drug throughout the entire three-week treatment cycle and reduce the peak exposures that are associated with toxicities of other chemotherapies.

The BEACON Phase 3 study of NKTR-102 enrolled 852 patients with metastatic breast cancer who had failed anthracycline, taxane and capecitabin therapies. This study is comparing single-agent NKTR-102 to a single-agent of physicians’ choice with a primary endpoint of median overall survival.

90% of the patients enrolled in the NKTR-102 BEACON study were HER2-negative. This is important because while there has been tremendous progress in treatments for breast cancer patients were HER2-positive disease, the fact remains that 75% of patients with breast cancer had HER2-negative disease with far fewer treatment options.

In addition, many of these treatments which are single-agent chemotherapies are microtubule-disruptors with overlapping mechanisms and side-effects. As a Topo I inhibitor, NKTR-102 has the potential to offer these patients a different mechanism of action to treat their disease. We estimate top line data from the study will be available in the first quarter of 2015.

If the BEACON study is successful, we plan to submit regulatory filings in both the U.S. and Europe in the second half of 2015. As you may recall, NKTR-102 is granted a fast track designation by the FDA for patients with locally recurrent or metastatic breast cancer. This designation enables us to potentially qualify for priority review and submit a rolling NDA.

If we are successful, NKTR-102 could emerge as an important new therapeutic option for women with advanced breast cancer, particularly for those patients with HER2-negative disease.

At the 2014 ASCO Annual Meeting, Stanford University investigators presented data from one of our ongoing investigator sponsored trials of NKTR-102. The Stanford study evaluated NKTR-102 as a single-agent therapy in patients with Avastin-refractory high-grade glioma including glioblastoma. Dr. Lawrence Recht and Dr. Seema Nagpal of Stanford University conducted the Phase 2 study.

Patients with the Avastin-refractory glioblastoma progressed very quickly, and they currently have no further treatment options to help them manage their disease. Responses to agents in these patients are rarely seen.

The Phase 2 study enrolled 20 patients with Avastin-refractory glioblastoma disease, 55% of patients in this study achieved six-week progression-free survival with single-agent NKTR-102 treatment, exceeding the trial’s threshold expectation of 25%. Three patients or 15% achieved partial responses with NKTR-102 monotherapy seeing marked reductions in tumor size.

Two of the three patients experienced a long duration of response of 14 and 20 months. And additional eight patients or 40% achieved stable disease as best response. NKTR-102 was also well tolerated in spite of the patients being heavily pre-treated in neurologically symptomatic.

As of July 31, there is still one patient in the study who is continuing on NKTR-102 therapy, and she has been on the study for 14 months. Patients with high-grade gliomas who are progressed through Avastin, represent a population in dire need of new therapies. We are currently evaluating the next steps for NKTR-102 development in glioblastoma.

Now I’d like to discuss our Phase 3 program for NKTR-181. As I mentioned earlier, Dr. Ivan Gergel joined us several months ago to lead development in Nektar. His focus initially has been on finalizing our Phase 3 strategy for NKTR-181 in patients with chronic pain.

As we’ve discussed in the past, while NKTR-181 provided evidence of effective analgesia in our Phase 2 study, we did not see the expected rebound in pain scores in patients who were randomized to placebo during the 21-day treatment period. It is our belief that several factors contributed to this lack of rebound and we will be addressing these factors in our Phase 3 study design.

We have decided to use an Enriched Enrollment Randomized Withdrawal study design also known as EERW, because the EERW design has the advantage of allowing titration to the optimal dose for individual patients prior to randomization.

There are several key elements that we plan to incorporate into our Phase 3 design. First as you know, we allowed patients to continue their background medications in our Phase 2 study. For the Phase 3 study, patients will not be permitted to take potentially confounding background medications, and specifically, we will not allow any concomitant non-steroidal anti-inflammatory drugs. Rescue medication will be restricted to acetaminophen.

Second if you recall in the Phase 2 study, we only required patients to have a drop in their pain scores of 20% in order to qualify them for the randomization phase of the study and maintain this drop for four days. Through the Phase 3 study, we will require that patients achieving more significant and sustained response prior to entering the randomization phase.

Third, the Phase 2 study only had a three-week post-randomization treatment period. For the Phase 3 study, we will include a 12-week post-randomization treatment period.

Lastly, we’re evaluating the right chronic pain setting for the Phase 3 trial. Recent successful studies with mu-opioid agonists have been conducted in patients with lower back pain and our review of the data indicates that the effect size is larger in this patient population. Therefore we are seriously considering this setting for our Phase 3 plan.

We have not yet finalized the sample size or statistical plan for the program, but assuming that we could achieve agreement with the FDA, we will incorporate an interim analysis as part of the Phase 3 protocol that will confirm or allow adjustments to the sample size in order to maintain appropriate study power to detect statistically significant differences between NKTR-181 and placebo. Such an analysis is designed to increase the probability of a successful outcome.

We are currently preparing for our end of Phase 2 meeting with the Agency to review the proposed study design for Phase 3. After our meeting with the FDA, which we expect to occur in the next few months, we will update you on the final details for the Phase 3 program. We plan to finalize the protocol and start the IRB approval process by the end of this year.

As you know, NKTR-181 received fast track status from the FDA for the treatment of chronic pain. NKTR-181 is designed to be the first 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 be front and center as public health issues

Because NKTR-181 is specifically designed to avoid the euphoria that leads to abuse with today’s opioids we believe NKTR-181 has the potential to be a transformational product in both the treatment of pain and in addressing this current health epidemic.

Another promising candidate in Nektar’s pipeline of pain therapies is NKTR-171, a novel sodium channel blocker being developed for peripheral nerve pain. NKTR-171 was created using Nektar’s advanced polymer conjugation technology to selectively restrict the molecule to peripheral pain pathways, and thereby avoid the severe sedation and side-effects that makes standard sodium channel blockers impractical for most patients.

In September, we started a multiple ascending dose study of NKTR-171 to assess safety in pharmacokinetics. We have already completed the first Phase 1 dosing study to evaluate single doses of NKTR-171 and the drug was well tolerated.

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 are successful with NKTR-171, we could provide an effective therapeutic option for patients with peripheral neuropathic pain.

Moving on now to a very exciting program in the field of cancer immunotherapy; NKTR-214, a program that many of you were asking about. NKTR-214 is a novel cytokine engineered to selectively activate the IL-2 receptor complex. The aim of NKTR-214 treatment is to increase the activity of tumor killing cells or reducing the activity of few regulatory cells that suppress the anti-tumor immune response.

This is the first application of our technology to modulate receptor activity. In our pre-clinical work, NKTR-214 demonstrated significant activity in an aggressive mouse melanoma model, as well as other aggressive tumor models. The field of immunotherapy is moving towards capitalizing on multiple mechanisms of immune stimulation to achieve durable responses in patients.

What we have shown recently in pre-clinical data presented at AACR and at ASCO is that by combining NKTR-214 with the checkpoint antibodies, anti-CTLA-4 or anti-PD-1, we could eliminate tumors for a majority of the animals tested. But what is even more remarkable is that we now have been able to demonstrate that the combination of NKTR-214 and anti-CTLA-4 produces an anti-tumor immunity that lasts long after the initial treatment response.

Let me explain what I mean by that. 30 days after we stopped dosing, matured mice will re-challenge with the same tumor cells and the tumors were unable to grow in 70% of those mice without any further drug treatment. In other words, their immune systems retained memory of the tumor being formed.

These tumor re-challenge experiments truly exemplify the potential of NKTR-214 combination regimens to mobilize the immune system to recognize and eradicate tumors.

Now efficacy is one part of the equation. One challenge in the field of immunotherapy with all agents is the potential for autoimmune or other severe side-effects. There is particular sensitivity around the activation of the IL-2 receptors, which over the years has limited the development of drugs targeting this important pathway.

Because NKTR-214 was designed to selectively activate the right preceptors in its pathway, we can achieve therapeutic activity at much lower doses than are required by Preludin. We recently completed a comprehensive GLP toxicology program with NKTR-214 in both rodents and in non-human primates.

We found that NKTR-214 is very well tolerated as therapeutically relevant doses with no evidence of vascular weak syndrome, the most detrimental side-effect of activating the IL-2 pathway.

So what we’ve observed so far is a highly effective immune stimulating agent in pre-clinical model that is well tolerated in non-human primates, which combined with its unique mechanism, give us the potential to be combined with multiple other immunotherapies to provide durable responses.

NKTR-214 could be an important advance in the emerging landscape of cancer immunotherapy, and we are excited to be moving this unique molecule towards an IND filing next year.

One last note before I turn the call over to John, a few quick comments on Cipro DPI and Amikacin Inhale, our two Phase 3 anti-infective programs partnered with Bayer, which are continuing to enroll patients. Cipro DPI is being evaluated in non-cystic fibrosis bronchiectasis or NCFB. And Bayer expects Phase 3 results in the later part of 2015.

Under our agreement, Bayer is responsible for all development costs and we are entitled to escalating royalties with an average royalty of approximately 10%.

Amikacin Inhale is being evaluated in gram-negative pneumonias in ventilated patients. And Bayer expects Phase 3 data in early 2016. Our economics for Amikacin are significant with a 30% flat royalty in the U.S. and an average 22% royalty in ex U.S. countries. Both programs are each estimated to have at least $750 million global market potential.

With that, I’ll turn the call over to John for a discussion on the quarter’s financial results, and a reminder of our 2014 guidance.

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 plan to end the year with approximately $225 million in cash and investments, representing a net use of cash of approximately $155 million.

As Howard said, if approved, we anticipate the launch of Movantik both in the U.S. and the EU in the first part of 2015, which would trigger launch milestones to Nektar of $100 million in the U.S. and $40 million in Europe. As a result, our 2014 year-end cash balance projection does not include these $140 million of launch milestones.

Revenue for the full-year 2014 is still expected to be between $190 million and $195 million, including $20 million of non-cash royalty revenue from UCB’s CIMZIA, and Roche’s MIRCERA.

This guidance includes the anticipated recognition of two significant milestones in the third quarter of 2014, pursuant to the agreement with AstraZeneca signed in last August. The $70 million milestone payment that we received from AstraZeneca in Q4 2013 and the potential $35 million milestone payment from AstraZeneca, both of which are related to FDA confirmation that a significant pre-approval cardiovascular safety study for Movantik will not be required.

For the full-year, we expect to recognize additional milestones related to other collaborations of approximately $70 million. We received the recognized $9 million in Q2 and expect the remaining milestones in Q4. Other than the milestones discussed, we expect the remaining revenue for the year will be approximately evenly split between the last two quarters.

Our R&D expense guidance is still between $165 million and $175 million, with 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 Q2 2014 was $28.5 million versus $33.9 million in the second quarter 2013. Revenue for Q2 2014 includes $4.8 million of non-cash royalty revenue from UCB’s CIMZIA, and Roche’s MIRCERA, and $9 million of additional collaboration milestones. The decrease in revenue for the quarter is due primarily to reduced manufacturing activity.

Total operating costs and expenses in the second quarter of 2014 was $51.4 million versus $66.5 million in the same quarter a year ago. The decrease was primarily driven by lower R&D expense.

For Q2 2014, our research and development expenses were $36.7 million, as compared to $52.2 million in Q2 2013. R&D expenses lowered in the second quarter and first half of 2014 as compared to the same period in 2013, primarily because of decreased costs for our NKTR-102 BEACON in metastatic breast cancer, which completed enrollment in third quarter of 2013.

R&D expense in the quarter included expenses related to the NKTR-102 BEACON Phase 3, Amikacin Inhale clinical devices and commercial readiness activities, the Phase 1 study of NKTR-171, appropriation for our NKTR-181 Phase 3 trial. Research and development expenses included $3.9 million of non-cash stock-based compensation and depreciation expense.

For the second quarter of 2014, G&A expense was $9.6 million, compared to $9.2 million in the second quarter of 2013. There were approximately $2.4 million in non-cash expenses included within G&A in the second quarter of 2014.

Interest expense this quarter was $4.5 million, related to the senior secured notes issued in 2012, and non-cash interest expense related to the monetization of UCB’s Cimzia and Roche’s MIRCERA royalties was $5.1 million. Cash and investments at June 30, 2014, were $301.4 million as compared to $309.1 million at March 31, 2014.

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 with Brean Capital. Your line is open.

Jonathan Aschoff – Brean Capital

Thank you. Hi Howard, I was wondering if you could please describe what Astra and/or Nektar has done already to define what it believes is an adequate post-marketing observation study for Movantik including the expecting costs of that. And then secondly on that drug, could you describe what AstraZeneca’s pre-launch commercial activities to-date have been?

Howard Robin

Sure. Hi Jonathan, I think – well, to take your first question, we have not designed that with AstraZeneca yet. And I think AstraZeneca certainly believes that the FDA will provide a lot of guidance on this. And there are certain FDA systems that are currently being put in place that may actually make those observational type studies easier to perform.

I don’t think anybody believes that these observational studies are particularly onerous or complex. I think they are pretty straight forward. And while we don’t have any idea of really what an observational study would cost in detail, I think – we think about this in terms of somewhere in the $10 million to $20 million range for the total cost of the study. So I can also tell you that Nektar is responsible for about a third of that.

So if you look at the cost of the study and observational study being $10 million to $20 million, Nektar’s liability for that study is about a third. You could see that it’s relatively small compared to the cost of the program, and I don’t consider a major obstacle at all.

In terms of what AstraZeneca has been doing to get prepared for the market, I talk to them and the Nektar Group talks to them with some regularity. And they are very, very active in preparing for this launch. I know their commercial organization is meeting regularly to get set-up for the commercial launch, and we are frequently participating in those discussions with them.

I think they are – as I said, they are looking forward to launching this as soon as possible after approval, but of course we all have to wait for the routine DEA de-scheduling process. And I think I can’t tell you whether that is a two month or a five month or six month process. And that’s why AstraZeneca and Nektar have said, look, it will be in the first quarter. It could be early in the second quarter, can’t tell you whether it’s February or April. I mean that would be too difficult to call.

But I can tell you that they are very, very active in preparing to launch this product, and we are frequently having those discussions with them. So I think it’s in very good hands and I think AstraZeneca is quite committed, and my discussions with them make me feel very comfortable.

Jonathan Aschoff – Brean Capital

All right. Great. Thank you, Howard.


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

Matt Lowe – JPMorgan

Hi there. It’s actually Matt Lowe in for Cory today. Just a quick one. I guess if you could just give us some detail on how you see the market opportunity for BAX 855, given the competitive landscape just how you view that, and if you could remind us of Nektar’s economics on that program? Thank you.

Howard Robin

Yes, look I think – as I said, ADVATE is a $2 billion drug. And it is clearly the gold standard and the market leader. And yes, I think certainly Biogen will be out there discussing their product and marketing their product, but I think most people, most physicians, most patients are very, very familiar with ADVATE. And as you know, it is a very, very safe drug. And our PEGylation Technology, which has been in multiple drugs in hundreds of thousands of patients is of course quite proven.

So I think one of the things that will define that market is just how safe Biogen’s drug is, and I don’t think that’s been fully determined in the marketplace yet. So at this point, I think I am very comfortable that Baxter has an important position in the market. They will maintain that position and they will grow that position. And I believe that, should the data be successful and I am hopeful that it will be, they will launch ADVATE – PEGylated ADVATE and become – remain the dominant force in that market.

In terms of our royalty rate, it starts in the mid-single-digits and goes up in range to the low-teens. So you could estimate that in any way you like, but it’s still fairly substantial for Nektar. And if you look at PEGylated ADVATE BAX 855 as a $1 billion drug, then certainly for us the economic potential is significant.

Matt Lowe – JPMorgan

Okay. That’s helpful. Thank you.


Our next question comes from Robert Hazlett with Ladenburg. Your line is open.

Robert Hazlett – Ladenburg Thalmann

Thank you for letting me to take the questions. I actually have a couple, first on NKTR-102. Assuming success with BEACON, Howard, do you intent to keep that program internally or is that an out-of-life candidate? And then when do you make the decision on glioma or other indications?

Howard Robin

Well, a good question. First of all, let’s take the second part first. I think we’re very hopeful that we see positive results in the metastatic breast cancer study, in the BEACON study. However of course these are completely different diseases, and moving the drug forward in treating gliomas is somehow independent of what it looks like in metastatic breast cancer, although I am very hopeful that it shows promising results in both.

To your first point, we haven’t made those strategic decisions yet, but quite frankly, I think there is an awful lot of merit to Nektar moving forward with a drug like NKTR-102 ourselves if we’re successful with the metastatic breast cancer study. And while we’re still having those interesting discussions and they are still partnering discussions that take place, I am looking more and more hopeful to perhaps taking that drug forward ourselves.

Robert Hazlett – Ladenburg Thalmann


Howard Robin

So we’re excited about it. If it works, it’s a very important therapy, because it is a completely different mechanism in treating of HER2-negative disease. And we have to continue to have those discussions, but I’ll keep you posted.

Robert Hazlett – Ladenburg Thalmann

Thank you. And then just on 181, could you – thank you for the solidification of your thoughts regarding Phase 3 and the study design. Could you talk a little bit more about the timing of when will you start the program, and maybe when the Phase 3 will complete? And then this is a fast track molecule I believe, and is there an ability to run one single Phase 3 study here and get it through, or are you contemplating two separate studies? Maybe I missed that.

Howard Robin

Okay. So I think we are certainly having discussions with the FDA around the Phase 3 design. And we do expect to start to have that locked up and start the IRB approval process this year.

Now we also want to design into it, as I said, an interim analysis that allows us to make mid-course corrections, and also give us some information and give the investors information as to how the trial is going.

I think it’s certainly going to require two trials. It’s not going to be a single trial. It’s going to require two trials. And we are currently evaluating how we proceed with that, how we time that. Do we do two trials from the beginning? Do we wait and get some information and then start the second trial, that hasn’t been determined yet.

Let me turn this over to Ivan for a moment. Let him comment on this.

Ivan Gergel

Yes, hi Bert. Look, I absolutely agree with everything Howard said. Essentially, we are going to try and submit to IRB at the end of this year. It looks like it will be a two phase program – two study program, because it is on fast track, but it’s also a NCE. And I think the fact that it’s an NCE and the molecule itself is designed to be abuse resistant is what makes it attractive.

Certainly in the past and going forward, we’ve had great, sort of interactions with FDA, and we envisage that would be very, very collaborative going forward. We know they are keen on this product. So I think it’s going to move quickly once we start and we do intent to be starting the program towards the end of this year.

Robert Hazlett – Ladenburg Thalmann

Thank you for the color. I just have one more quick one, just on R&D expenditures, $75 million for the first half. To get to the low end of the range, John, it looks like you’re going to spend $90 million in the second half. Is that reasonable figure or – I mean that seems like a lot now that BEACON is kind of winding through. Should we be thinking towards the lower end of the range for the R&D expenditure?

John Nicholson

Yes. Well, Bert, the thing you have to remember okay is you have BEACON winding down, right, so which means we will be buying products for the physicians choice for Europe, right. But on the other hand, we’re geared up for the start of the Phase 3 for 181, and we also have the multi-dose that will be going on for NKTR-171.

And on top of that, we’re still spending money on NKTR-061 for the Amikacin program, and we still have amount of work that has to be done for NKTR-181 from a CMC standpoint and also for NKTR-214 from a CMC standpoint. So that’s kind of the reason why we’re guiding the way we are guiding right now.

Robert Hazlett – Ladenburg Thalmann

Okay, thank you.

Howard Robin

Bert, this is Howard again. I want to just also clarify one finally. You asked a very good question about whether Nektar would take NKTR-102 forward commercially. And I said something we’re considering certainly for ex U.S. you would find a partner. And we’re certainly having those discussions and we’ve been having those discussions.

What I should have said more clearly is that for the purposes of United States, this is certainly something that we would consider, although we haven’t made a decision yet as to taking it forward ourselves.

Robert Hazlett – Ladenburg Thalmann

Thanks for that.


(Operator Instructions) Our next question comes from David Steinberg with Jefferies. Your line is open.

David Steinberg – Jefferies

Thanks. I don’t think you touched on it, but given the very significant collaboration with Novartis I think in May, so Fovista has moved more into the limelight. Could you talk a little bit about your collaboration on that product and what’s some of your expectations are? And then I was going to ask question Bert asked, so on commercialization. I’ll just broadening it a little bit which is, if you do decide to market one or two yourself, creating a lot of your products that have been licensed, but what are your general thoughts down the road about marketing more of your proprietary drugs given the value proposition? Thanks.

Howard Robin

Okay, good question. Well first of all on Fovista. All I can comment on Fovista is that we get mid-teens figure. This answer better [ph]. So I think Fovista, it can be a potentially very, very important drug. I think interesting aptamer could, in my mind be a $1 billion drug. And I think it’s especially in used in combination with other drugs like Lucentis, there is lots of potential. We get mid-single-digit royalties on that. So I am actually pretty happy about that.

With regard to how you move forward with a drug like NKTR-102 for a company with size of Nektar? Look, it’s the kind of thing where the market in oncology does not require tremendous commercialization average. Sure you have to have a sales organization or being it could be relatively small, you have to have an organization of scientific liaisons, but I think a company of the size of Nektar could easily handle that, especially if you look at the cash flow that could be coming from drugs like Movantik.

So well I said, we haven’t made the decision yet, I think launching the drug or bringing the drug forward commercially like NKTR-102 is entirely within our capabilities. Now let’s see how the drug look and let’s see what the data looks like and we’ll make some better decisions at a later point.

I think at some point – your question is a very important strategic one. At some point, Nektar has to shift from a royalty company to a product company. And I think we will. And whether that’s with a drug like NKTR-102, whether that’s a drug like NKTR-181 a few years down the road, I don’t think we have to make that decision now, but I don’t think you should be thinking of Nektar as a royalty company, you need to think of Nektar as a company that’s developing proprietary drugs and will eventually market them.

David Steinberg – Jefferies

Helpful. Thank you very much.


Thank you. At this time, this does conclude the Q&A session. I would now turn the call back over to Howard Robin for closing remarks.

Howard Robin

Well, thank you everyone. I mean, clearly this year could be transformational one for Nektar with multiple products advancing to Phase 3 data and beyond. I want to thank our employees for their hard work and dedication. We wouldn’t be here without them. And thank you for your time today and your continued support. I look forward to seeing many of you when we’re in Boston and New York next week. Thank you very much.


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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!