Good day ladies and gentlemen, and welcome to the Nektar Therapeutics Fourth Quarter and Year End 2015 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 be given at that time. [Operator Instructions] As a reminder, this call may be recorded. I'd now like to introduce your host for today's conference, Jennifer Ruddock, Vice President of Investor Relations. Please go ahead.

Thank you, Cathy. Good afternoon and thank you everyone for joining us today. With us are Howard Robin, our President and CEO; John Nicholson, our Chief Financial Officer; Dr. Ivan Gergel, our Chief Medical Officer; Dr. Steve Doberstein, our Chief Scientific Officer; and Dr. Jonathan Zalevsky, our VP of Biology. 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 development plans, the economic potential of our collaboration partnerships, the therapeutic and market potential of certain drugs and drug candidates, as well as those of our partners, our financial guidance for 2016, and certain other statements regarding the future of our business. Because these forward-looking statements relate to the future, they are subject to inherent uncertainties and risks, that are difficult to predict, and many of which are outside of our control. Important risks and uncertainties are set forth on our Form 10-K, which was filed on February 29, 2016, and is available at sec.gov. We undertake no obligation to update any of these 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 of Nektar's website at nektar.com. And with that, I would now like to hand the call over to Howard. Howard?

Thank you, Jennifer. And thanks to everyone for joining us today for our fourth quarter and year end 2015 financial results call. On today's call, we will review our achievements over the past year discussing upcoming milestones for Nektar, and provide financial guidance for 2016. Ivan will also provide an update on the trials for NKTR-181 and NKTR-214, both of which are proceeding nicely. As you saw this morning, AstraZeneca announced a European agreement form MOVENTIG with ProStrakan, a subsidiary of Kirin in Japan, which has near-term significant economics to Nektar. Nektar is entitled to 40% of the payment that ProStrakan makes to AstraZeneca under their agreement. In 2016, we estimate that this will translate to over $40 million to Nektar, which is comprised of 40% of the $70 million upfront payment and 40% of the additional milestones we expect to be paid by ProStrakan to AstraZeneca for selected European county pricing approvals in 2016. In addition to these 2016 payments, Nektar will also receive 40% of all sales milestones paid to AstraZeneca by ProStrakan. And we will receive high single-digits to low double-digit royalties on net sales of MOVENTIG in Europe. Our U.S. royalty rate for MOVANTIK which starts at 20% and escalates is unchanged. And we are still entitled to global sales milestones for MOVANTIK. The agreement positions MOVENTIG for continued successful launches across Europe. ProStrakan has deep expertise in the marketing of pain medications in Europe and they have an existing portfolio of medicines to treat breakthrough cancer pain. You will recall that a substantial portion of all opioid prescribing in Europe is for cancer pain, and the label for MOVENTIG in Europe includes both cancer pain and non-cancer pain patients. As stated in AstraZeneca's press release, AstraZeneca and Daiichi Sankyo are committed to building the market…

Thank you, Howard. Good afternoon. I'd like to start by giving an update on NKTR-181. First as we stated last quarter enrollment in our ongoing pivotal study SUMMIT-07 is ahead of schedule. The trial utilizes an enriched enrollment randomized with withdrawal design, and is evaluating NKTR-181 in opioid naive patients with chronic low back pain. We recently passed the 50% mark for patients completing the trial. The NKTR-181 Phase 3 study design included a single interim sample size assessment to be conducted by an independent analysis center after approximately 50% of the initially planned 416 patients completed the study. The protocol for this study defined only two possible outcomes for this pre-planned blinded interim sample size assessment; either an increase in sample size by 200 patients, or no increase in the sample size. The protocol stated that an increase in the sample size should occur if the conditional power at the midpoint of this trial was between 50% to 85%. But if the conditional power fell below 50%, or above 85%, the sample size was not to be changed. Yesterday, the IAC instructed Nektar to increase the sample size by 200 patients. And we're encouraged by this, because again, this means that the conditional power of the trial was determined to be between 50% and 85% at the halfway point. With the current pace of enrollment and with the trial enrolling ahead of schedule, the addition of these 200 patients will only add a few months to the trial and so we now expect to deliver topline data in early 2017, versus our original timeline of the fourth quarter of 2016. Patients from the ongoing SUMMIT-07 study are also rolling over into the 52-week long safety study of NKTR-181 which was initiated last year. Additionally as we stated in the…

Thank you, Ivan, and good afternoon everyone. I will start with a brief review of Nektar's 2015 financial results, and will then discuss 2016 financial guidance. At the end of 2015, cash and investments were $308.9 million, which includes net proceeds from a financing transaction that closed on October 5th, 2015. 2015 total revenue was $230.8 million, as compared to 2014 revenue of $200.7 million. 2000 revenue includes milestones related to MOVANTIK and ADYNOVATE. For MOVANTIK we recognized $90 million of the $100 million milestone payment from AstraZeneca, following the U.S. commercial launch, and we recognized a $40 million milestone payment from AstraZeneca following the first commercial sale of MOVENTIG in the EU. We also recognized a $10 million milestone from Baxalta for the approval of first commercial sale of ADYNOVATE in the U.S. For the full year 2015, total operating costs and expenses $260.2 million as compared to $217.2 million in 2014. The increase in total operating costs and expenses were primarily the result of higher R&D expense. R&D expense was $182.8 million for the full year 2015, compared to $147.7 million in 2014. 2015 R&D expense included the ongoing NKTR-181 Phase 3 program, included SUMMIT-07, a 12-week efficacy study, and SUMMIT-08, the long-term safety study. IND enabling, manufacturing and final preclinical activities for NKTR-214, in addition to the initiation of NKTR-214 Phase 1/2 program in Q4 2015. The commercial scale-up of device production for the Amikacin Inhale program, and ongoing monitoring expense for patients still in the NKTR-102 Phase 3 BEACON study. Research and development expenses included $16 million of stock-based compensation and depreciation expense in 2015. For full year 2015 G&A expense was $43.3 million, compared to $40.9 million in 2014. 2015 G&A expense included approximately $10 million of stock-based compensation expense and depreciation. Now, onto our…

Thank you. [Operator Instructions] Our first question comes from the line of Jonathan Aschoff with Brean Capital. Your line is open. Please go ahead.

Thanks. I'm a little bit confused about something guys. Why would you not have increased the 181 trial size if the powering was below 50%? Wouldn't that have been low and bad? Could you help me understand that a little better?

Yeah. Jonathan that's a good question. I think there's no right or wrong answer to sort of -- where you sort of decide to increase the power. But I think we picked 50% to 85%, because our feeling was that was a good range, and we would be able to increase, not increase -- you would really have to put very large numbers into the trial if it was below 50%. And we didn’t -- we felt if it was below 50% power, and of course it can be anywhere from 50% to 85% power, 50% is the low range, we'd like to hope we're close to the 85%, but anywhere within there, you're going to make a meaningful difference by adding 200 patients to the study. You're going to increase the likelihood of demonstrating statistical significance between the active agent and placebo. Our feeling was that going well below 50%, we'd have to put many, many more patients in, and we didn't feel it was worth the investment.

Okay. But if it was below 50%, you would have stopped the trial if what I'm reading from that, yet you said the only two outcomes were to add or not add patients. So, that's where I am confused?

Yeah, yeah. Sorry. Let me explain that. There are only two outcomes. So, the outcomes are, between 50% and 85% we increase the number of patients. However, if it was below 50% or 85%, we would do nothing. However, we would not have known whether we hadn't added patients, because it was above 85% or because it was below 50%. So, giving us more -- we obviously didn't want to take an alpha hit, and there was no unblinding. So, we preset these criteria. We know nothing else about this study, other than the fact -- we would have known nothing else about this study, other than the fact that it was between 50% and 85%, or essentially it wasn't between 50% and 85%. If it wasn't between 50% and 85% we would have done nothing. We now know it was between 50% and 85%, so clearly we added 200 patients. Does that help?

Okay. So, do you know which arm is outperforming which arm?

Do we know which arm is outperforming which arm? You mean the type 2, but the statistical analysis would indicate the way that this, we designed this, it is clear that the active arm would be outperforming the placebo arm.

You said it was blinded

It was blinded to us, sorry Jonathan; I apologize. We had an independent group doing this. We had an independent group doing this.

All right. Thank you. Did I miss this or did you give the MOVANTIK -- actual MOVANTIK royalty in the fourth quarter that was accrued over the third quarter?

No, Jonathan, we haven't released that as of this point in time.

Okay. So, you're just going to stick with the 2016 guidance on that, in terms of a quantitative sense of where MOVANTIK is headed?

That's correct.

This is Howard. Jonathan, we said that you could look at approximately a 3% weekly growth rate on scripts, so that should give you some guidance as to how we feel the product will do.

Okay. And what is the capture, the IMS capture, how high is that?

Yeah. So, Jonathan, I mean basically where we are at right now is it is as Howard said earlier, basically for the first couple weeks of February, we're averaging around 6,600 scripts, but if you look at it from the standpoint of where we were from the standpoint of at the beginning of the year to where we are today, basically we've seen an increase in scripts of an average of about 4.6%.

Okay. So, I'll just compare to the 6,600. And I was curious the large jump in the product sales and royalties of about $10 million, if I add the royalty pharma stuff to the other product sales and royalties, I'm just wondering why the fourth quarter jumped so much from about $13 million to $23 million?

Basically what that had to do with, Jonathan, was we recognized the $10 million from Baxalta for the ADYNOVATE being launched in the U.S.

I had that in a different line. But I mean I can deal with that later. Thank you very much, guys.

Thank you. Our next question comes from the line of Jessica Fye with JPMorgan. Your line is open. Please go ahead.

Hey guys. This is Ryan on for Jessica. Appreciate you taking our questions. I guess with the increased size of the SUMMIT-07 study, as you think about the long-term safety study, do you expect to rollover more of those patients, and therefore expand that long-term safety study? Or are you going to keep it fixed? I think on clinicaltrials.gov, it said about 600 patients?

Thanks for the question, Ryan. We're going to keep it -- essentially we are going to keep it fixed. We need certain numbers of patients at certain doses, we're trying to satisfy sort of the regulatory criteria for certain amount of safety exposure. So, it's essentially going to remain fixed. It won't have necessarily an impact on the size of that study. We may roll over more patients, as opposed to taking in de novo patients given the study increases. But the reason we wanted to have the safety study well underway, is that when it comes to filing, we clearly don't want to have a safety study delaying the filing dates. So, we like to get that stuff done quite early in the program.

Got it. So, does that mean that you could probably -- you could fill that program and read out, then have those results sooner in hand?

Well, I'd say -- are you talking about the open label safety study?

Yes.

Yeah. Really its more -- it's a safety study per se and it is open label, so we're clearly collecting adverse event reports from that study. We will and likely collate them if you like into a final study report until the study is completed, and there's a good likelihood that if the trials work out successfully, patients will remain in that open label safety study, and we'll take a cut of it when we file the NDA, but we allow patients to continue on the medicine through the filing date and well through the approval date.

Okay. I guess for 214, with the data that's coming in the second half of this year, since it is a Phase 1 and it is the dose escalation part, what is it that you are looking for exactly?

So, essentially four groups of things. Firstly, obviously, safety information. We're collecting that all of the time. And as we said previously if you don't hear anything from us, that's a good sign, because we are not seeing safety signals. The second thing, obviously the design of this study is to identify the dose that we take into the escalation study. Thirdly, we are undertaking a plethora of biomarkers -- looking at a plethora of biomarkers, both blood biomarkers and also tumor tissue biomarkers and we're doing extensive analysis of those. And finally, of course and perhaps most importantly, we're going to be looking for responses based on scans. And there's a large amount of data. As I said, it's going to come to us on an ongoing basis, but we want to have a reasonable amount of it before we publicly talk about it.

Okay, great. Thanks for taking my questions.

Thank you. [Operator Instructions] Our next question comes from the line of Bert Hazlett with Ladenburg. Your line is open. Please go ahead.

Thanks. Thank you for taking the question. Congratulations on the progress. With regard to 181, I guess Ivan, if you'd be so kind, so we're looking at, in terms of timing, a 2017 data readout now for this. How rapidly do you think the additional studies can then be spooled up, and wrapped up for a potential filing? And are they, do you think that they might -- another Phase 3 might be necessary? Is that your understanding here?

Well, certainly plan a second Phase 3 study, Bert. We'll do SUMMIT-07, which is in opioid naive patients. That study we now believe will complete, in other words, will have results early in 2017. We are planning -- assuming it is successful; we're planning to initiate what we call SUMMIT-12, which will be in opioid experience patients pretty much as soon as we have the results from SUMMIT-07. I would envisage that study will take us maybe somewhere in the region of -- I don't know, this one round about over sort of a period of about maybe 18 months to run that study, something like that, and then to collect results and file will potentially be another six months or so. So, I assume that's two years from sort of early 2017. So, one might be looking at a file hopefully in early 2019.

Okay. Thank you. And then I guess shifting gears. Just to continue on then, excuse me. Is there any chance that could study early -- that study that second Phase 3 could start early, knowing what you know now about the powering? I mean you're going to wait to turn over that card, is that a fair assumption?

Yeah, look -- this is Howard. That study is designed; I think it can be started earlier. The question is it's a decision of risk taking and an issue of how much we want to spend without having results in our hand yet. I think it is encouraging that the power, that we know the power is between 50% and 85%. However, as I've said in the past, I don't want to start the second Phase 3 study, which will be in opioid experienced patients, I don't want to start that until I understand the results of the first Phase 3 study. So, when we have those results in early 2017, as soon as that looks positive, we will start the second Phase 3 study. It's already been designed, it will be ready to go by then, and I don't think we will have very many delays in starting it.

Just to add, so we will wait. To add to Howard's point, as I said, we know the power now is between 50% and 85%. Adding 200 patients actually increases the power of the study, increases the likelihood of rejecting the hypothesis.

Okay. Thank you for the clarity. Just shifting to 214. What are the gating items to the combination study with the anti-PD1 later this year? Maybe you touched on this earlier, and if you did, my apologies. A little bit more on that trial design would be helpful? Thank you.

So, you want to -- the gating issues with the combination study was that -- is that the question, Bert? So, I just want to be clear.

Yeah. The gating issues there? And then anything you can provide on the trial design for that would be helpful?

Well, okay. So, we're still designing the trial at this point, so it would be slightly premature to talk about the design of that study. Clearly, we'd see combining NKTR-214 with anti-PD1 therapy, very lightly initially in tumors in which the PD-1s are already approved or indicated for therapy. Regarding the gating, I think one of the things we're looking for -- initially of course, we want to go through at least a couple of cohorts in the monotherapy study and see what the profile looks like, and obviously, we're looking to see that the drug is safe, and then we'll turn to initiating potentially the combination study.

Okay. Thank you. And just on 214, at AACR, do you intend to provide any update or commentary on the current clinical study in abstract 558 in your discussion?

At this point, as we said, we don't intend to provide clinical data until the second half of this year.

Okay. Thank you.

Thank you. Our next question comes from the line of Michael Higgins with ROTH Capital Partners. Your line is open. Please go ahead.

Thanks operator. Hi, guys, nice quarter. A question for you, Ivan seems to be the star of the show tonight, question on 181 for you. After the tumor patients are added on, what does that increase the power of the trial to -- from the 50% to 85% range, up to what kind of a range?

Yeah, Michael that's a great question. I think there's a lot of unknowns here clearly. It's all blinded. So, we're speculating. We don't know variability; we don't know the effect sizes, et cetera, et cetera. However, as a sort of gestalt, if you will allow me that, I think what it takes, our back of the envelope calculations take it from somewhere, the range of 50% to 85%, I think we now look at something in the range of 65% to 95%, that's a sort of slide if you like on the power.

Okay. That assumes the midrange of your assumptions I assume?

No. when I -- so if I start at the bottom at 50%. The extremes are obviously 50% power, with the incremental number of patients, the 50% moves to a 65% number. And if we were at the 85% point at this point, because we clearly don't know where we are, that 85% would move to a 95%. So, we're somewhere between 65% and 95%, so the midpoint of that would be, I'm doing math in my head here, about 80% power.

Sorry, I should ask follow-up a little bit better, my apologies. What I'm asking, is to take it from the 50% to 85%, to 65% to 95%. If you up those, is that assuming the midpoint of the variability midpoint on patient enrollment size, and midpoint of every other assumption going into the trial's overall assumption?

What it's assuming I think are the assumptions are things stay relatively stable from the point of the midpoint conditional power analysis, right. But once again, a huge caveat here. We are dealing with a massive range of uncertainties. We don't know -- all we had is an outcome from an independent group, who said, up the sample size by 200 based on a preset criteria, so that's -- if that helps.

Yes, understood. You definitely have to speculate on a number of things. I assume there are some proxies within theme trials that you can look back to, that used a 50% to 85% or some sort of a range in previous and interim checks. Where are those trials? And what were the outcomes of those trials?

It's very interesting. I don't -- I can't sort of aggregate that information. I think a couple of public caveats at this point. We know that there's huge variability across these types of pain studies. One that I was certainly involved with a few years back was the BELBUCA clinical program where we did an interim analysis on one of the studies and not on the other one.

Right.

And at the end of the study we had very strong results, so -- but that was -- the stronger result came actually in the study which had the interim analysis. They both had interim analysis. One of them increased sample size. That was the one with the stronger results at the end of the study. That obviously doesn't mean that will necessarily be the case here. I think what we've done here is slightly different, because we didn't want to take -- we wanted to avoid taking an alpha hit. And we wanted to avoid unblinding in any way, shape, or form. So, we had to preset numbers that made a lot of sense to us, which was that 50% to 85% range, if you like.

Okay. And I forget was that the opioid naive set of the two was probably that you had the interim?

They both had interims. The one that was increased was actually the opioid experienced.

Okay. Appreciate it. Thanks, guys.

Thank you.

Thank you. And that does conclude today's Q&A portion of the call. I'd like to turn the call back over to Howard Robin, President and CEO for any closing remarks.

Well, thank you all for joining us this afternoon. Again, I'd like to thank our employees for their hard work and dedication to the company. And I think we made some excellent progress and we have an awful lot to look forward to this year. So, I'm very enthusiastic about it. And we look forward to seeing all of you at the upcoming various conferences throughout the spring. Thank you. Have a great evening.