Good day and thank you for standing by. Welcome to the Nektar Therapeutics Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Jennifer Ruddock, Head of Corporate Affairs. Please go ahead.

Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. With us on the call are Howard Robin, our President and CEO; and Gil Labrucherie, our COO and CFO; Dr. Jonathan Zalevsky, our Chief of Research and Development; and Dr. Dimitry Nuyten, our new Chief Medical Officer. On today's call, we expect to make forward-looking statements regarding our business, including clinical trial enrollment and clinical trial results, timing and plans for future clinical trials, timing and plans for future clinical data presentations, the therapeutic potential of our drug candidates; outcomes and plans for health authority regulatory actions and decisions; financial guidance and certain other statements regarding the future of our business. Because 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. Our actual results may differ materially from these statements. Important risks and uncertainties are set forth in the Form 10-Q that was filed on May 7, 2021, which 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. Before turning the call over to Howard, I'd like to remind you again that since we're dialing in from different locations, I will moderate the Q&A session for our team, so we can avoid technical issues during the session. We appreciate your patience. With that said, I would like to hand the call over to our President and CEO, Howard Robin. Howard?

Thank you, Jennifer, and thanks, everyone, for joining us on the call today. Since the beginning of this year, we've continued to advance our deep portfolio in immuno-oncology and immunology, setting the stage for a steady cadence of key data readouts starting in the second half of this year and will continue through the first half of 2022. These data sets are poised to provide us with the platform for a series of BLA filings and commercial launches of BEMPEG across multiple frontline solid tumor indications. Each of the investigational candidates in our pipeline, BEMPEG, NKTR-255 and NKTR-358, provide us with our own distinct value and broad development potential. And collectively, our clinical pipeline represents one of the most diverse and leading cytokine portfolios in development, a testament to our pioneering work in targeting cytokine biology and designing cytokine conjugates. Behind our clinical portfolio, we continue to invest in the area of immune science and cytokine biology to drive the next wave of IND candidates. From an operational perspective, we entered the third quarter of 2021 with an exceptionally strong balance sheet with over $1 billion in cash and no debt. Our strategic collaborations offer significant funding support for certain trials. And in the case of our collaboration with BMS, provide for a potential $1.4 billion filing and approval milestones for BEMPEG in the US, Europe and Japan. And as a reminder, these milestones are tied to any approval of BEMPEG, whether the approval is in combination with nivo or not. So let me begin today with BEMPEG, our most advanced clinical program, an IL-2 pathway agonist that is being developed in combination with checkpoint inhibitors nivo and pembro in multiple large frontline and adjuvant tumor settings. Throughout our partnership with BMS, we have five ongoing registrational studies of BEMPEG…

Thank you, Howard, for the kind introduction. To say a few words about my background. I am radiation oncologist and finished my training at the Netherlands Cancer Institute in Amsterdam. I hold PhD in cancer biology from the University of Amsterdam. I started my industry career at Bristol-Myers Squibb in early development in oncology, leading a number of early development programs. I then went on to Pfizer, where I led the clinical development for immuno-oncology, most notably, the BAVENCIO or avelumab program with a number of registrational trials, including RCC and weather cancer. Most recently, I was Chief Medical Officer for Aduro BioTech. I'm very excited to be joining Nektar, a company that has led way in engineering cytokine therapies that address some of the biggest challenges in the treatment of cancer and autoimmune disease. While the potential advantages of IL-2 and IL-15 based therapies are well characterized, the challenges associated with turning these into accessible therapies have hindered the development of agents targeting this pathways. I was particularly impressed with Nektar's expertise in both immune sciences and pulmonary chemistry, the combination of which has allowed to create one of the most impressive pipelines in oncology and immunology today with several late-stage development programs for BEMPEG nearing their completion and the clinical development strategy for NKTR-255 being formed, I look very much forward to working alongside the rest of the program teams an executive team to drive the development of these programs with our goal, of course, of improving the lives of patients. I will provide a quick update on the BEMPEG program and the timing for registrational studies, which remain firmly on track consistent with our prior guidance. First, for the 760 patient Phase 3 first-line metastatic melanoma study, which is being run by our partner, BMS. We and…

Thank you, Dmitry. Let me start with NKTR-255 in agents that engages the full biology of the IL-15 pathway to provide functional activation and homeostatic control of IL-15 response of immune cells, namely natural killer cells, CD8 T cells and immune memory subsets. As an agonist of the full IL-15 pathway, NKTR-255 can therefore be combined with multiple mechanisms ranging from targeted agents to cell therapy and even immunological checkpoints to potentially improve their efficacy. In May, we published our first peer-reviewed manuscript on NKTR-255 in the Journal of Immunotherapy of Cancer, or JITC, The paper presents a head-to-head evaluation of NKTR-255 in comparison to pre-complex IL-15 agonist, which represents the vast majority of competitive IL-15 pipeline. NKTR-255 demonstrated substantial differentiation from pre-complex IL-15 agonist in the NKTR-255 engages the full spectrum of IL-15 biology and has a prolonged pharmacokinetic and pharmacodynamic profile. And collectively, these properties of NKTR-255 promoted elevations and functionally competent cytotoxic NK cells in the tumor microenvironment and overall translated into increased survival rates and superior antitumor activity in the B-cell lymphoma model versus those pre-complex cytokines. And as Howard mentioned, our initial focus is on antibodies that function through an ADCC mechanism of action. And we've developed a clinical strategy to combine with leading targeted antibodies in both the liquid and solid tumor setting. For our Phase 1/2 study in patients with relapsed refractory malignancy, we expect to complete the dose escalation monotherapy portion of the study later this year, and we plan to present the data from these monotherapy dose escalation cohorts at a medical meeting later this year. As the trial continues, we will expand into several arms to approximately 20 patients per arm. The one arm will evaluate NKTR-255 as monotherapy or in combination with rituximab in third-line or greater follicular lymphoma…

Thank you, JZ, and good afternoon, everyone. On this call, I'll review our 2021 financial guidance, which is unchanged for the year. We ended the second quarter with over $1 billion in cash and investments, and we still plan to end the year with at least $750 million in cash and investments and no debt on the balance sheet. As a result, we remain in a very strong financial position. As we approach top line results for the three registrational studies for BEMPEG, beginning early 2022, as you will recall, we also have significant regulatory and approval milestones for BEMPEG under our BMS collaboration. These milestones include $625 million associated with the approval and launch of BEMPEG for the first indication in the US, European Union and Japan and $260 million for each of the next three indication follow-on approvals for BEMPEG. This puts us in a very strong position to prepare for the commercial launch of BEMPEG as early as the second half of 2022 and at the same time, continue to broadly advance our wide array of development programs. As a reminder, our full year GAAP revenue guidance is approximately $100 million and includes $15 million to $20 million of product sales and $80 million to $85 million of non-cash royalties. We expect to recognize the remaining revenue on a fairly ratable basis in the second half of the year. Our GAAP R& D expense guidance remains between $450 million and $500 million. We expect R&D expense to increase in the second half of the year as we continue to enroll patients across our broad clinical development portfolio. As mentioned earlier, we are currently initiating sites for our BEMPEG head and neck study to begin enrollment later this year. We continue to significantly wrap enrollment in the Phase 3 adjuvant study for BEMPEG and the NKTR-255 program. And our partner, Eli Lilly continues to enroll and expand the NKTR-358 development program. Our R&D expense guidance includes approximately $85 million of non-cash expense arising from stock compensation and non-cash depreciation and the SFJ funding of the head and neck cancer study. Our G&A expense guidance is still projected to be between $120 million and $125 million and includes approximately $35 million of non-cash depreciation and stock compensation expense. Our non-cash interest expense is expected to be between $50 million and $60 million arising from the monetization of our royalty streams. Additionally, our non-operating expense includes approximately $15 million for the accounting of the contingent success-based payments to SFJ as a derivative liability. And with that, I will open the call to questions. Operator?

[Operator Instructions] And our first question comes from Chris Shabutani from Goldman Sachs. Your line is open.

Hi. This is CJ on for Chris this evening. I was curious, what's the limiting factor determining when the PROPEL data are going to be available later this year? Has enrollment completed? Or are we just waiting for a follow-up? And then I guess, will we see any of the chemo cohort data in the readout as well? Thanks.

Thanks, CJ. JZ, I'm going to have you take that one. Thank you very much.

Yes. Thank you, CJ, for the question. So as we explained earlier, the enrollment in the PROPEL study has been going very well. We gave guidance at earlier calls that at the very end of the last year, we saw a pretty big rise in enrollment, particularly as we saw COVID wane in Europe and most of our sites for that study are in Europe. And so with the cohort of patients enrolled, we wanted to ensure they'll be provided the most mature and rich and robust data set. And that's why we're targeting the second half of this year for the presentation of that data. Now one of the things you can expect in that data presentation is that we will provide all of the available information that we've collected on the patients that we've been following in those cohorts. The study has three different subgroups of patients distributed between PD-L1 expression levels. Patients in the less than 1% PD-L1 category, the 1% to 49% category and the greater than 50%. And our intention is to provide the full range of observations. So that will include all of the correlations of safety readouts, all of the efficacy information including the ORR as well as the CR, the composite endpoint and any time-to-event events that have also been accumulated in the data. And we're looking forward to presenting that later this year. And to the second part of your question, so the chemo-containing cohorts, which are the newest components of that study, they are open in their enrolling patients. But it's likely too soon to present any of that data as those cohorts are only underway enrolling patients now.

Thank you. Our next question comes from Jay Olson from Oppenheimer. Your line is open.

Hi, thanks for taking the question. Maybe I could ask a big picture question. Since you're doing your BEMPEG studies in combination with nivo and pembro, is there any reason to believe that BEMPEG would have greater synergies with PD-1 antibodies versus PD-L1 antibodies? Or would you expect those combinations to be equally synergistic? Thank you.

JZ, I'm going to go ahead and ask you to address that. Thanks.

Certainly, yes. So thank you for the question, Jay. So that mechanism, obviously, PD-1 is the receptor and PD-L1 is the ligand. And I think you also know that there's a second line and PD-L2 that could also engage with the PD-1 receptor. So there are multiple ligands for the same receptor. I think that we've seen across the kind of pipelines. Like if you look at activity of drugs like durva from AstraZeneca or Atezo from Genentech, Roche or avelumab, BAVENCIO from EMD as well as Pfizer. You see activity of that molecule in a range of different tumor types. That is for sure. But I think what we've also seen is that Merck's pembro or KEYTRUDA has really taken a very, very dominant share. And it's achieved approval really the greatest numbers of different tumor types. So there's definitely many more opportunities where Merck's pembro is the first-line standard of care, whether that be it in a monotherapy or in a combination setting. One of the elements that's so important in our strategy is the combination of BEMPEG with a checkpoint inhibitor. And as you can see from our development strategy, we're really prioritizing indications where the single-agent checkpoint is the standard of care and ideally in the first line. And that happens to just create more opportunities in the PD-1 subclass and the PD-L1. But if you ask me just as a basic scientific question, I can really see the scenario where the mechanism of BEMPEG addition would provide quite a bit of synergy to either a PD-1 or a PD-L1 inhibitor.

Thank you. Our next question comes from Jessica Fye from JPMorgan. Your line is open.

Hey, guys. Good afternoon. Thanks for taking my question. So when we think about the PROPEL data, on the one hand, in order to see what BEMPEG is doing, it seems like it would be worth comparing those combination results to what one would expect from single age pembro. But from a real-world standpoint, it seems like the competitive clinically speaking would be the KEYNOTE-189 data. So with that in mind, is there actually a path you're interested in pursuing for this doublet combo? Or is this a step along the way to ultimately advancing the triplet?

JZ, do you want to address that? Thanks.

Sure. Yes. Jess, that's – thank you for the question. And so I think you've diagnosed like the landscape, I think, really well with your question. So we know that the kind of monotherapy or the chemo sparing use of pembro, it's really both dominant in the greater than 50% PD-L1 population. And that as a global label, right? So KEYTRUDA is used as a monotherapy in pretty much all over where it's approved in that subset. But in the subset of patients that have less than 50% expression, such as 1 to 49 or less than 1, there's quite a bit of difference. In the less than 1, it's always used in the setting of chemo. And in the 1 to 49 subgroup, there's a little bit of a difference between the different health authorities. In the US, pembro is approved in the 1 to 49 population but that's not the case outside of the US, where it's used in the setting with chemo. So there are a number of ways to impact the treatment landscape. So for example, one of the ways is there's a lot of opportunity to improve the overall activity of pembro. And as Howard said earlier in his presentation, we still have effects that peak out around 2 times. And so there are a lot of opportunities in the setting with BEMPEG, for example, to really extend that maintenance period and provide even greater durability of the activity. There are also opportunities to create a chemo-sparing option as well. So there are a number of patients that are ineligible for chemo. So there is an opportunity to address those patients. And then there's always the opportunity to provide an even greater additional treatment opportunity for physicians that they can consider in the setting either with or without chemo. And then, of course, in our long-term planning, with PROPEL, we've also now opened cohorts that include chemo combinations. And that allows us to address BEMPEG plus pembro in the setting of chemo and the different chemos depending on the different histology of the disease. And so with that kind of strategy, BEMPEG plus pembro or BEMPEG plus pembro chemo, it allows us to address all of the different populations and pretty much the entire treatment landscape in non-small cell lung cancer. And we look forward to presenting some of that information later this year and as the chemo-containing cohorts continue to enroll that in the future as well. Thanks for the question.

Thank you. Our next question comes from Difei Yang from Mizuho. Your line is open.

Hi, good afternoon. This is Alex on for Difei. Thanks for taking the question. Just coming back on the lung cancer data here. And – is it fair to say that you'd be in a position to start the registrational study of the combo at some point next year after you see the initial data. And then you do something with the chemo later on? Thanks.

JZ, do you want to talk about how we're thinking about the Phase 3 strategy? Thanks.

Certainly, yes. So the nature of the PROPEL study, right, is it's really designed to create a Phase 3 informing strategy. So that's why these first cohorts evaluate BEMPEG plus pembro, and they evaluate patients segregated by the PD-L1 expression subgroups. As I mentioned earlier, from the less than 1% to 1 to 49 and greater than 50. And so that's really designed to identify areas where there is the greatest signal, and they inform different kinds of Phase 3 design options. So for example, in a chemo-sparing setting, you could consider a Phase 3 study where you evaluate single age pembro versus the doublet of bempeg plus pembro, for example, in an example in greater than 1% PD-L1 expression category. So that's one potential option that could arise. Now certainly, the intention in reporting data later this year is to put Nektar in a position to be able to move through Phase 3 if the data warranted. And then very much to your question, with the chemo additional cohorts that we've added into PROPEL, that gives that additional opportunity to explore even more treatment regimens for BEMPEG plus pembro. And there – in that situation, we would be evaluating a different kind of a comparator in a registrational setting. For example, we would be evaluating pembro plus chemo versus BEMPEG plus pembro plus chemo and targeting a different patient population, now focusing much more on the less than 1%.

Thank you. Our next question comes from Alex Ramsey from William Blair. Your line is open.

Hello. This is [indiscernible] on for Alex Ramsey. Thank you for taking my question. So we've seen some studies that suggest that when NSAIDs are used as prophylactic in the setting, but they can dampen the humoral immune response. And so we're wondering if you could please remind us of the protocol for BEMPEG studies when it comes to NSAID dosing? And specifically NSAID used for BEMPEG to mitigate symptoms?

Great. Thanks, Alex. JZ, do you have the details of the protocols? Thanks.

Yes, certainly. Hey, Alex [ph] thanks for the question. So just first to clarify, this study was not a vaccine study. So we were enrolling patients that had mild COVID-19, and they were already confirmed to be COVID positive by COVID PCR test. So this is in the vaccine study per se. And then your general question or NSAs, can they be used or are they ever used, so we do allow physicians the opportunity to use standard of care. So in the setting of patients that might have had untoward inflammation, if the physician felt the need to use an NSAID or an over-the-counter or Tylenol, for example, those are things that would be a possibility because those things are normal standard of care for the treatment of COVID anyway. Hope that clarifies your question.

Thank you. Our next question comes from Benjamin Burnett from Stifel. Your line is open.

Yes. Good afternoon, guys. This is Neil Carnahan [ph] on for Ben. On the PROPEL study, I was wondering, is there a scenario where 1 PDL expression group looks more favorable versus the others, regardless of combination arm and that to enrich for that patient group in the pivotal study?

JZ, do you want to pick that with that?

Yes. I'm not sure I understand the question. So let me maybe answer what I think you were asking. So the way that study was done as we enroll patients, we enrolled them essentially as and then we collect biopsies, and we use central testing to evaluate their PD-1 – PD-L1 levels. And then they're stratified to the different subgroups depending on their status. And so all the patients are treated with the doublet BEMPEG plus pembro. So we'll be evaluating all the different subgroups. We'll be evaluating all of them at the same time. Maybe what you were also asking is that when we look at the data, in the future, we may see a greater signal in one of the subgroups, for example, over another. So like here are some benchmarks. We know that single agent pembro has about an 8% response rate in the less than 1% population and about a 15% to 17% response rate in the 1% to 49% population. So those are two areas where single agent pembro has a lot less activity, much, much less than it has been greater than 50% population. So it's quite reasonable based on the mechanism of action of BEMPEG that we may see greater activity in those lower PD-L1 expression subgroups. And if that's what we see in the data, then that's the kind of thing that would inform our Phase 3 strategy going forward if the data warrants that. I hope that answers your question because I'm not sure I fully understood.

It does. Thank you. My second part was what I was trying to get at. I appreciate it.

Okay. Sure.

[Operator Instructions] And our next question comes from Daina Graybosch from SVB Leerink. Your line is open.

Hi. Thanks for the question. I have one on the melanoma study in the interim readout. It sounded like, if I heard you correctly, that now the interim will assess our together, was that a change in the interim design? Or are we seeing the impact of the COVID cause similar to what BMS saw with their rolatamab study, where interim fell behind the PFS and actually, we haven't seen it yet is that question. And also, could you confirm where you are with NKTR-26 2, that program still active?

Thanks, Dana. JZ, do you want to take those two questions? Thanks.

Sure. Yes. Thanks, Dana, for the questions. So in regards to the first data analysis, so one of the things that we did is that after the study began, right, because the study began in 2018. As you remember, in 2019, Nektar with BEMPEG achieved Breakthrough Therapy Designation in first-line melanoma. And that was based on the strength of the PIVOT-02 data in first-line melanoma where BEMPEG placebo showed a very high complete response rate, 34%, as well as we recently presented a very, very long progression-free survival of almost 31 months. And so with Breakthrough Therapy Designation, that gives a lot of real kind of firepower in terms of the potential from the regulatory review in the filing. And so BMS and Nektar we've made a decision together that we would conduct the analysis of both the ORR endpoint and the PFS endpoint as soon as the trigger for the PFS events, which is predefined in the statistical analysis plan for the protocol is reached. And so this is a very, very powerful thing. because now we'll be able to present both sets of data and use the Breakthrough Therapy Designation as an opportunity to put that in for a full approval for BEMPEG plus nivo in first-line melanoma. And so that's a very good that we made together with BMS, yes. And as Howard stated earlier, in the first half of 2022 is when we expect the results of that study to read out. Dana, for the second part of your question, you asked about the NKTR-262 program, and that program is still active. In fact, we're looking forward to presenting results from the ongoing REVEAL trial in the future. One of the things that we've been studying in the REVEAL trial are a couple of additional cohorts of 262, One is 262 plus BEMPEG and other is 262 plus BEMPEG plus nivo. And those two cohorts that we evaluated, they've completed enrollment. We're assessing the data, and we'll look forward to present that at a medical meeting in the future

Thank you. Our next question comes from Arlinda Lee from Canaccord. Your line is open.

Hi, guys. Thanks for taking my questions. I have another one on PROPEL, sorry about that. But can you clarify that the data that you have later this year, there won't be that much chemo data? And then, Gil, can you remind us what kind of financial agreements are in place with Merck that might help you with the next steps? And then thirdly, on the 255 data flow, you mentioned that the heme monotherapy dose escalations are done. So will we see the will we see any combination data? And then – that's it. Thank you very much.

JZ, do you want to take a stab at those. Thank you.

Yes, let me -- I'll answer.

You did answer one of them earlier, but JZ can repeat it.

Yes. I'll answer the first and third, and then I'll turn it over to Gil for the middle one about financials. So in terms of PROPEL, so the chemo cohorts have just started enrolling. So we'll not be able to present data from those cohorts later this year. Again, it's just – they're very, very early in their enrollment. And you can see from our -- the clinical trials post and stuff that those cohorts only opened recently. So those will be coming in the future, Arlinda. And then for 255, we're still continuing the dose escalation in monotherapy. We do believe we'll finish that dose escalation later this year. And what we do plan to present at a medical meeting later this year are all the results that we've accumulated from the 255 program to date. So those will be focused on the monotherapy administration of 255, and we'll cover all of the information that we've collected in terms of NK – the pharmacokinetics, all of the pharmacodynamics for NK cell expansion, CD8 T cell expansion, the effect on the memory pool as well as continuing our assessment of patients in the post-CAR-T setting, where we already reported of activity, demonstrating elevations in CAR T cells months after the CAR-T administration. So that's the kind of flavor from 255 that you might expect. And Gil, I'll turn it over to you for the financial question regarding Merck?

Yes. Thanks, JZ. Hi, Arlinda, yes, you remember the partnership that we announced back in February with SFJ and Merck was a key part of our Phase 2.3 head and neck study, both from providing regulatory and design input to help us come to the final design for the study. But importantly, they also are contributing around $60 million in value of pembro to the trial. So that was really an important piece of the whole transaction for us, about 25% to 30% of the total study costs. So they were a key a key piece of that collaboration. And as far as what we might do going forward, obviously, as we've talked about in this call, we'll continue to evaluate Phase 3 strategies in along with BEMPEG, and we'll see what the possibilities are as those lay out.

Thank you. And that does conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to Howard Robin for any closing remarks.

Well, thank you, everyone, for joining us today. And we are certainly approaching a busy and exciting period for Nektar with a number of key data readouts starting later this fall, and we're all highly anticipating seeing melanoma data in the early part of next year. I would like to thank our employees and our efforts and helping us reach these milestones during these challenging times, and I want to thank our shareholders for their continued support. And we look forward to providing you with updates on our progress. Stay tuned. Thank you.

Thank you. This concludes today's conference call. Thank you for your participation, and you may now disconnect. Everyone, have a wonderful day.