Nektar Therapeutics Annual Report 2016

Plain-text annual report

NEKTAR THERAPEUTICS FORM 10-K (Annual Report) Filed 03/01/17 for the Period Ending 12/31/16 Address Telephone CIK 455 MISSION BAY BOULEVARD SOUTH SAN FRANCISCO, CA 94158 4154825300 0000906709 Symbol NKTR SIC Code Industry 2834 - Pharmaceutical Preparations Biotechnology & Medical Research Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 Form 10-K ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the fiscal year ended December 31, 2016or☐TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the transition period from toCommission File Number: 0-24006 NEKTAR THERAPEUTICS(Exact name of registrant as specified in its charter) Delaware 94-3134940(State or other jurisdiction ofincorporation or organization) (IRS EmployerIdentification No.)455 Mission Bay Boulevard SouthSan Francisco, California 94158(Address of principal executive offices and zip code)415-482-5300(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, $0.0001 par value nASdAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act:None indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ no ☐indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ no ☒indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days) Yes ☒ no ☐indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes ☒ no ☐indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part iii of this Form 10-K or any amendment to this Form 10-K. ☒indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitionsof “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☒ Accelerated filer ☐ non-accelerated filer ☐ (do not check if a smaller reporting company) Smaller reporting company ☐indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes ☐ no ☒The approximate aggregate market value of voting stock held by non-affiliates of the registrant, based upon the last sale price of the registrant’s common stock on the lastbusiness day of the registrant’s most recently completed second fiscal quarter, June 30, 2016, as reported on the nASdAQ Global Select Market, was approximately$1,935,384,918. This calculation excludes approximately 595,115 shares held by directors and executive officers of the registrant. Exclusion of these shares does not constitute adetermination that each such person is an affiliate of the registrant.As of February 24, 2017, the number of outstanding shares of the registrant’s common stock was 153,831,047.DOCUMENTS INCORPORATED BY REFERENCEPortions of registrant’s definitive Proxy Statement to be filed for its 2017 Annual Meeting of Stockholders are incorporated by reference into Part iii hereof. Such ProxyStatement will be filed with the Securities and Exchange Commission within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. NEKTAR THERAPEUTICS2016 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS Page PART I item 1.business4item 1A.Risk Factors30item 1b.unresolved Staff Comments43item 2.Properties43item 3.Legal Proceedings43item 4.Mine Safety disclosures43 PART II item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and issuer Purchases of Equity Securities44item 6.Selected Financial data46item 7.Management’s discussion and Analysis of Financial Condition and Results of operations47item 7A.Quantitative and Qualitative disclosures About Market Risk58item 8.Financial Statements and Supplementary data59item 9.Changes in and disagreements With Accountants on Accounting and Financial disclosure91item 9A.Controls and Procedures91item 9b.other information92 PART III item 10.directors, Executive officers and Corporate Governance93item 11.Executive Compensation93item 12.Security ownership of Certain beneficial owners and Management and Related Stockholder Matters93item 13.Certain Relationships and Related Transactions and director independence93item 14.Principal Accountant Fees and Services93 PART IV item 15.Exhibits and Financial Statement Schedules94Signatures99 2Forward-Looking StatementsThis report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of this annualreport on Form 10-K, including any projections of earnings, revenue, milestone payments, royalties, sales or other financial items, any statements of the plans andobjectives of management for future operations (including, but not limited to, preclinical development, clinical trials and manufacturing), any statements related toour financial condition and future working capital needs, any statements regarding potential future financing alternatives, any statements concerning proposed drugcandidates, any statements regarding the timing for the start or end of clinical trials or submission of regulatory approval filings, any statements regarding futureeconomic conditions or performance, any statements regarding the success of our collaboration arrangements, timing of commercial launches and product saleslevels by our collaboration partners and future payments that may come due to us under these arrangements, any statements regarding our plans and objectives toinitiate or continue clinical trials, and any statements of assumptions underlying any of the foregoing. in some cases, forward-looking statements can be identifiedby the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential” or “continue,” or the negative thereof or othercomparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, such expectationsor any of the forward-looking statements may prove to be incorrect and actual results could differ materially from those projected or assumed in the forward-looking statements. our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks anduncertainties, including, but not limited to, the risk factors set forth in Part i, item 1A “Risk Factors” below and for the reasons described elsewhere in this annualreport on Form 10-K. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof and we do not intendto update any forward-looking statements except as required by law or applicable regulations. Except where the context otherwise requires, in this annual report onForm 10-K, the “Company,” “nektar,” “we,” “us,” and “our” refer to nektar Therapeutics, a delaware corporation, and, where appropriate, its subsidiaries.TrademarksThe nektar brand and product names, including but not limited to nektar®, contained in this document are trademarks and registered trademarks of nektarTherapeutics in the united States (u.S.) and certain other countries. This document also contains references to trademarks and service marks of other companiesthat are the property of their respective owners. 3PAR T IItem 1.Businessnektar Therapeutics is a research-based biopharmaceutical company that discovers and develops innovative medicines in areas of high unmet medical need.our research and development pipeline of new investigational drugs includes treatments for cancer, auto-immune disease and chronic pain. We leverage ourproprietary and proven chemistry platform to discover and design new drug candidates. These drug candidates utilize our advanced polymer conjugate technologyplatforms, which are designed to enable the development of new molecular entities that target known mechanisms of action. We refer to our drug candidates wherewe retain at least u.S. commercial rights as “proprietary programs” and our other drug candidate programs that we have licensed u.S. and potentially othercommercial rights to collaboration partners as “collaboration partner programs.”Our Proprietary ProgramsImmuno-oncology (I-O)in the area of i-o, we are developing medicines that target biological pathways which stimulate and sustain the body’s immune response in order to fightcancer. We are developing medicines designed to directly or indirectly modulate the activity of key immune cells, such as cytotoxic T cells and natural Killer (nK)cells, to increase their numbers and improve their function to recognize and attack cancer cells.nKTR-214, our lead i-o candidate, is a biologic with biased signaling through one of the iL-2 receptor subunits (Cd 122) that can stimulate proliferationand growth of tumor-killing immune cells in the tumor micro-environment and increase expression of Pd-1 on these immune cells. A Phase 1 trial for nKTR-214as a single-agent in cancer patients with solid tumors has completed recruitment. data was presented at the 2016 Society for immunotherapy of Cancer (SiTC)meeting in november 2016 and the ASCo-Gu meeting in February 2017.on September 21, 2016, we entered into a Clinical Trial Collaboration Agreement (bMS Agreement) with bristol-Myers Squibb Company (bMS), pursuantto which we and bMS are collaborating to conduct Phase 1/2 clinical trials evaluating nKTR-214 and bMS’ human monoclonal antibody that binds Pd-1, knownas opdivo® (nivolumab), as a potential combination treatment regimen in five tumor types and eight potential indications, and such other clinical trials evaluatingthe combined therapy as may be mutually agreed upon by the parties (each, a Combined Therapy Trial). under the bMS Agreement, bMS will supply nivolumaband be responsible for 50% of all out-of-pocket costs reasonably incurred in connection with the Combined Therapy Trials.The first stage of the large Phase 1/2 clinical program for nKTR-214 is underway with bMS and is evaluating a potential combination treatment regimen ofnKTR-214 with bMS’ Pd-1 immune checkpoint inhibitor, opdivo® in up to 260 patients. This clinical program will explore eight potential indications in fivesolid tumor types: melanoma, kidney, triple-negative breast cancer, bladder and non-small cell lung cancer.in addition to the clinical program in collaboration with bMS, we also plan to initiate a broad clinical development program, both on our own or incollaboration with other potential partners, to explore the potential of combining nKTR-214 with therapies such as cancer vaccines, adoptive cell therapy, smallmolecules, and other biological agents in order to generate novel immune-oncology approaches.nKTR-262 is a small molecule agonist that targets toll-like receptors (TLRs) found on innate immune cells in the body. nKTR-262 is designed to stimulatethe innate immune system and promote maturation and activation of antigen-presenting cells (APC), such as dendritic cells, which are critical to induce the body’sadaptive immunity and create antigen-specific cytotoxic T cells. nKTR-262 is being developed as a single intra-tumoral injection in combination with systemicnKTR-214 in order to induce an abscopal response and achieve the goal of complete tumor regression in cancer patients treated with both therapies. nKTR-262 iscurrently advancing through preclinical development. nKTR-255 is a biologic that targets the interleukin-15 pathway in order to activate the body’s innate and adaptive immunity. Signaling of the iL-15pathway induces the proliferation and growth of Cd8 memory T cells so the body’s immune system retains the ability to identify cancer cells if they re-grow in thebody. nKTR-255 has also been shown to stimulate nK cell development. nKTR-255 is currently advancing through preclinical development. ImmunologyWe are developing a new biologic, nKTR-358, which is designed to correct the underlying immune system imbalance in the body which occurs in patientswith auto-immune disease. The breakdown of mechanisms assuring recognition of self and non-self is what underlies all autoimmune diseases. A failure of thebody's self-tolerance mechanisms is known to result from pathogenic auto4reactive T lymphocytes. by increasing the number of T regulatory cells (which are specific immune cells in the body that modul ate the immune system andprevent auto-immune disease by maintaining self-tolerance), these pathogenic auto reactive T cells can be reduced and the proper balance of effector and regulatoryT cells can be achieved to restore the body's self-tolerance mecha nisms. There is consistent evidence that suboptimal T regulatory cell numbers and their lack ofactivity play a significant role in a myriad of autoimmune diseases.nKTR-358 is designed to optimally target the iL-2 receptor complex in order to stimulate proliferation and growth of T regulatory cells. nKTR-358 isbeing developed as a once or twice monthly self-administered injection for a number of auto-immune diseases. in 2017, clinical trials are planned for nKTR-358 inhealthy volunteers and patients with systemic lupus erythematous (SLE) and other indications. We submitted an ind for nKTR-358 with the FdA in February2017. Pain - NKTR-181nKTR-181 is a novel mu-opioid analgesic drug candidate for chronic pain conditions and is currently in Phase 3 clinical development. We enrolled the firstpatient in the first Phase 3 efficacy study, which we call SuMMiT-07 in February 2015 and we completed enrollment in the study in late 2016. We are nowconducting blinded data verification activities and currently plan to un-blind and announce the top-line data from SuMMiT-07 in March 2017. in this study, werandomized patients with chronic low back pain in an enriched enrollment randomized withdrawal design which included a qualifying screening period, an open-label titration period where nKTR-181 is given to all patients, followed by a 12-week double-blind randomized period where subjects were randomized on a 1:1basis to receive either nKTR-181 or placebo. in 2016, we increased the sample size of this trial by approximately 200 patients following a pre-specified samplesize assessment by the independent analysis center (iAC) after approximately fifty percent of the initially planned 416 patients completed the study. in 2013, weconducted a human abuse liability study, or hAL study, for nKTR-181 dose levels that were included in SuMMiT-07. in this study, nKTR-181 had highlystatistically significant lower “drug liking” scores and reduced “feeling high” scores as compared to oxycodone at all doses tested (p < 0.0001). in January 2017,we started enrollment in a second hAL study where we are assessing abuse liability of supra-therapeutic doses of nKTR-181 in order to further evaluate nKTR-181 for labeling and scheduling purposes. The Phase 3 program for nKTR-181 is anticipated to also include a Phase 3 efficacy and safety trial in people who areopioid-experienced. if the top-line data from the SuMMiT-07 study is positive, we plan to seek a collaboration partner for this program to support furtherdevelopment investments and commercialize nKTR-181.Oncology - ONZEALD TMonZEALd TM (also known as nKTR-102, etirinotecan pegol) is our next-generation topoisomerase i inhibitor proprietary drug candidate. on March 17,2015, we announced topline data from a Phase 3 clinical study for onZEALd TM , which we call the bEACon study (brEAst Cancer outcomes with nKTR-102), as a single-agent therapy for women with advanced metastatic breast cancer. The bEACon study compared onZEALd TM to an active control armcomprised of a single chemotherapy agent of physician’s choice (TPC) in patients who were heavily pre-treated with a median of three prior therapies formetastatic disease. in a topline analysis of 852 patients from the trial, onZEALd TM provided a 2.1 month improvement in median overall survival over TPC (12.4months for patients receiving onZEALd TM compared to 10.3 months for patients receiving TPC). based on a stratified log-rank analysis, the primary endpointmeasuring the hazard Ratio (hR) for survival in the onZEALd TM group compared to the active control arm was 0.87 with a p-value of 0.08, which did notachieve statistical significance. Secondary endpoints in the bEACon study included objective response rate and progression-free survival, which did not achievestatistical significance in the study. We also announced that we observed a significant overall survival benefit in two pre-specified subgroup populations—patientswith a history of brain metastases and patients with baseline liver metastases at study entry. We have explored future regulatory and development paths forward for onZEALd TM with the Eu and u.S. health authorities. in Europe, we met with thenational Authorities in Sweden and the united Kingdom, as well as the European Medicines Agency (EMA) to discuss the bEACon data. in June 2016, we filedan MAA for conditional approval of onZEALd TM for adult patients with advanced breast cancer who have brain metastases. on July 14, 2016, we received aletter from the EMA notifying us that the onZEALd TM MAA successfully passed validation to be accepted for review. in connection with our commercializationcollaboration with daiichi Sankyo Europe Gmbh (daiichi Europe) and in connection with MAA filing for onZEALd TM , in the fourth quarter of 2016 weinitiated a randomized Phase 3 confirmatory study to evaluate onZEALd TM as compared to treatment of physician's choice (TPC) in approximately 350 adultpatients with advanced breast cancer who have brain metastases, which we call the ATTAin study. The primary endpoint of the ATTAin study will be overallsurvival (oS) and the ATTAin study will include a pre-specified interim analysis for oS which is to be conducted after 130 events have occurred in the study. inaddition, based on our meetings with the FdA’s oncology division, the FdA staff has indicated that positive results from the ATTAin study could potentiallysupport a new drug Application (ndA) filing in the u.S. where nektar has retained all rights to onZEALd TM .5Collaboration Partner Programsin 2014, we achieved the first approval of one of our proprietary drug candidates, MoVAnTiK ® (naloxegol), under a global license agreement withAstraZeneca Ab (AstraZeneca). MoVAnTiK ® is an oral peripherally-acting opioid antagonist, for the treatment of opioid-induced constipation, or oiC, a sideeffect caused by chronic administration of prescription opioid pain medicines. AstraZeneca markets and sells MoVAnTiK ® in the united States in collaborationwith daiichi Sankyo, inc. (daiichi). Kyowa hakko Kirin Co. Ltd. (Kirin) has exclusive marketing rights to MoVEnTiG ® (the naloxegol brand name in the Eu) inthe Eu, iceland, Liechtenstein, norway and Switzerland.We have a collaboration with baxalta incorporated, (a wholly-owned, indirect subsidiary of Shire plc) to develop and commercialize PEGylated drugcandidates with the objective of providing new long-acting therapies for hemophilia patients. under this collaboration, we worked with baxalta to developAdYnoVATE ® (previously referred to as bAX 855), an extended half-life recombinant factor Viii (rFViii) treatment for hemophilia A based on AdVATE ®[Antihemophilic Factor (Recombinant)]. in november 2015, AdYnoVATE ® was approved by the u.S. Food and drug Administration (FdA) for use in adultsand adolescents, aged 12 years and older, who have hemophilia A. baxalta announced the launch and first shipments of AdYnoVATE ® in the u.S. on november30, 2015. on April 4, 2016, baxalta announced that the Ministry of health, Labour and Welfare in Japan approved AdYnoVATE ® for patients aged 12 years andolder with hemophilia A. on december 27, 2016, Shire plc announced that the FdA approved AdYnoVATE ® for use in surgical settings for both adult andpediatric patients and the FdA also approved AdYnoVATE ® for the treatment for hemophilia A in pediatric patients under 12 years of age. AdYnoVATE ® isalso under regulatory review in the European union, Switzerland and Canada.We also have two significant drug development programs with bayer healthcare LLC (bayer). The first is a collaboration to develop bAY41-6551(Amikacin inhale, formerly known as nKTR-061), which is an inhaled solution of amikacin, an aminoglycoside antibiotic. We originally developed the liquidaerosol inhalation platform and the nKTR-061 drug candidate and entered into a collaboration agreement with bayer to further advance the drug candidate’sdevelopment and potential commercialization. bayer is currently enrolling patients in a Phase 3 clinical study for Amikacin inhale. bayer is conducting this studyunder a Special Protocol Assessment process agreed to with the FdA. The second program is the Cipro dPi (Cipro dry Powder inhaler, previously called Ciproinhale) program with bayer Schering Pharma AG (bayer Schering) that we transferred to novartis as part of the 2008 pulmonary asset divestiture transaction. inAugust 2012, bayer Schering initiated a global Phase 3 program called RESPiRE for the Cipro dPi product candidate in patients with non-cystic fibrosisbronchiectasis. in September 2016, bayer Schering presented data from the first Phase 3 trail (RESPiRE 1) at the 2016 European Respiratory Society AnnualMeeting which showed that the study met its co-primary endpoints for the every 14-day dosing arm of Cipro dPi. The second Phase 3 trial (RESPiRE 2)completed recruitment in September 2016 and bayer Schering has not yet reported the results from RESPiRE 2.We have a license, manufacturing and supply agreement with uCb Pharma for dapirolizumab pegol, a monovalent pegylated Fab antibody fragment againstthe Cd40 ligand (Cd40L), being developed for the treatment of autoimmune diseases, including systemic lupus erythematosus (SLE) for which the candidate isentering Phase 2 development with uCb partner biogen. We also have a number of license, manufacturing and supply agreements with other leadingbiotechnology and pharmaceutical companies, including Amgen inc., Allergan, inc., opthotech Corporation (Fovista), Merck & Co., inc., Pfizer, inc. and F.hoffmann-La Roche Ltd (Roche). A total of ten products using our PEGylation technology have received regulatory approval in the u.S. or Eu. There are also anumber of other products in clinical development that incorporate our advanced polymer conjugate technologies.Corporate InformationWe were incorporated in California in 1990 and reincorporated in delaware in 1998. We maintain our executive offices at 455 Mission bay boulevardSouth, San Francisco, California 94158, and our main telephone number is (415) 482-5300. our website is located at www.nektar.com. The information containedin, or that can be accessed through, our website is not part of, and is not incorporated in, this Annual Report.Our Technology PlatformAs a leader in the polymer conjugation field, we have advanced our technology platform to include new advanced polymer technologies that can be tailoredin specific and customized ways with the objective of optimizing and significantly improving the profile of a wide range of molecules including many classes ofdrugs targeting numerous disease areas. Polymer conjugation or PEGylation has been a highly effective technology platform for the development of therapeuticswith significant commercial success, such as Amgen’s neulasta ® (pegfilgrastim) and Roche’s PEGASYS ® (PEG-interferon alfa-2a). nearly all of the PEGylateddrugs approved over the last fifteen years were enabled with our PEGylation technology through our collaborations and licensing partnerships with a number ofwell-known biotechnology and pharmaceutical companies. PEGylation is a versatile technology as a result of polyethylene glycol (PEG) being a water soluble,amphiphilic, non-toxic, non-immunogenic compound that has been shown to safely clear from the body. its primary use to date has been in currently approvedbiologic drugs to favorably alter their6pharmacokinetic or pharmacodynamic properties. however, in spite of its widespread success in commercial drugs, there are some limitations with the first-generation PEGylation approaches that have been used with biologics. For example, these techniques cannot be used successfully to create small molecule drugswhich could potentially benefit from t he application of the technology. other limitations of the early applications of PEGylation technology include sub-optimalbioavailability and bioactivity, and its limited ability to be used to fine-tune properties of the drug, as well as its inability to be used to create oral drugs.With our expertise and proprietary technology in polymer conjugation, we have created the next generation of PEGylation technology. our advancedpolymer conjugate technology platform is designed to overcome the limitations of the first generation of the technology platform and to allow the platform to beutilized with a broader range of molecules across many therapeutic areas. We have also developed robust manufacturing processes for generating second generationPEGylation reagents that allow us to utilize the full potential of these newer approaches.our advanced polymer conjugate technology platforms have the potential to offer one or more of the following benefits: •improve efficacy or safety of a drug as a result of better pharmacokinetics, pharmacodynamics, longer half-life and sustained exposure of the drug; •improve targeting or binding affinity of a drug to its target receptors with the potential to improve efficacy and reduce toxicity or drug resistance; •improve solubility of a drug; •enable oral administration of parenterally-administered drugs, or drugs that must be administered intravenously or subcutaneously, and increase oralbioavailability of small molecules; •prevent drugs from crossing the blood-brain barrier, or reduce their rate of passage into the brain, thereby limiting undesirable central nervous systemeffects; •reduce first-pass metabolism effects of certain drug classes with the potential to improve efficacy, which could reduce the need for other medicinesand reduce toxicity; •reduce the rates of drug absorption and of elimination or metabolism by improving stability of the drug in the body and providing it with more timeto act on its target; •differentially alter binding affinity of a drug for multiple receptors, improving its selectivity for one receptor over another; and •reduce immune response to certain macromolecules with the potential to prolong their effectiveness with repeated doses.We have a broad range of approaches that we may use when designing our own drug candidates, some of which are further described below.Small Molecule Stable Polymer Conjugatesour customized approach for small molecule polymer conjugates allows for the fine-tuning of the physicochemical and pharmacological properties of smallmolecule oral drugs to potentially increase their therapeutic benefit. in addition, this approach can enable oral administration of subcutaneously or intravenouslydelivered small molecule drugs that have low bioavailability when delivered orally. The benefits of this approach can also include: improved potency, modifiedbiodistribution with enhanced pharmacodynamics, and reduced transport across specific membrane barriers in the body, such as the blood-brain barrier. Anexample of reducing transport across the blood-brain barrier is MoVAnTiK ® , an orally-available peripherally-acting opioid antagonist that is approved in theunited States and European union. An additional example of the application of membrane transport, specifically slowing transport across the blood-brain barrier isnKTR-181, an orally-available mu-opioid analgesic molecule that is currently in Phase 3 clinical development.Small Molecule Pro-Drug Releasable Polymer ConjugatesThe pro-drug polymer conjugation approach can be used to optimize the pharmacokinetics and pharmacodynamics of a small molecule drug to substantiallyincrease its efficacy and improve its side effect profile. We are currently using this platform with oncolytics, which typically have sub-optimal half-lives that canlimit their therapeutic efficacy. With our releasable polymer conjugate technology platform, we believe that these drugs can be modulated for programmed releasewithin the body, optimized bioactivity and increased sustained exposure of active drug to tumor cells in the body. We are using this approach with our leadoncolytic drug candidate, onZEALd TM next-generation topoisomerase i-inhibitor currently in Phase 3 clinical development.7Large Molecul e Polymer Conjugates (Proteins and Peptides)our customized approaches with large molecule polymer conjugates have enabled numerous successful PEGylated biologics on the market today. based onour knowledge of the technology and biologics, our scientists have designed novel hydrolyzable linkers that in many cases can be used to optimize bioactivity.Through rational drug design, a protein or peptide’s pharmacokinetics and pharmacodynamics can be substantially improved and its half-life can be significantlyextended. An example of this is baxalta’s AdYnoVATE ® , a longer-acting (PEGylated) form of a full-length recombinant factor Viii (rFViii) protein, which wasapproved by the FdA in november 2015 for use in adults and adolescents, aged 12 years and older, who have hemophilia A. in december 2016, Shire plcannounced the FdA approved AdYnoVATE ® for use in surgical settings for both adults and pediatric patients, and that the FdA also approved AdYnoVATE ®for the treatment of hemophilia A in pediatric patients under 12 years of age.More recently, our scientists have shown that we can also optimize relative receptor binding characteristics of large molecule conjugates. For instance, thecytokine interleukin-2 (iL-2) has two different receptor complexes in the body that cause opposing effects on the immune system. We have engineered differentnovel conjugates of iL-2 with optimized differential receptor binding to the iL-2 receptor categories in the immune system. by biasing the receptor binding ofthese molecules in complementary ways, we have made two different drug candidates: nKTR-214, which selectively activates effector T-cells, which kill tumors;and nKTR-358, which selectively activates regulatory T-cells, which can reduce the pathological immune activation that underlies many autoimmune diseases. Large Molecule Pro-Drug Releasable Polymer Conjugates (Cytokines)our customized approaches with large molecule polymer conjugates have expanded to include a new approach with biologics, in particular cytokines, whichutilizes the polymer as a means to bias action to a certain receptor or receptor sub-type. in addition, a cytokine’s pharmacokinetics and pharmacodynamics can besubstantially improved and its half-life can be significantly extended. An example of this is nKTR-214, which is a Cd122-biased immune-stimulatory cytokinewith an every two or every three-week dosing schedule.Antibody Fragment Polymer ConjugatesThis approach uses a large molecular weight PEG conjugated to antibody fragments in order to potentially improve their toxicity profile, extend their half-life and allow for ease of synthesis with the antibody. The specially designed PEG replaces the function of the fragment crystallizable (Fc) domain of full lengthantibodies with a branched architecture PEG with either stable or degradable linkage. This approach can be used to reduce antigenicity, reduce glomerular filtrationrate, enhance uptake by inflamed tissues, and retain antigen-binding affinity and recognition. There is currently one approved product on the market that utilizesour technology with an antibody fragment, CiMZiA ® (certoluzimab pegol), which was developed by our partner uCb Pharma and is approved for the treatment ofCrohn’s disease, psoriatic arthritis and ankylosing spondylitis in the u.S. and rheumatoid arthritis in the u.S. and Eu.Our StrategyThe key elements of our business strategy are described below:Advance Our Proprietary Clinical Pipeline of Drug Candidates that Leverage Our Advanced Polymer Conjugate Platformour objective is to create value by advancing our lead drug candidates through various stages of clinical development. To support this strategy, we havesignificantly expanded and added expertise to our internal preclinical, clinical development and regulatory departments. A key component of our developmentstrategy is to potentially reduce the risks and time associated with drug development by capitalizing on the known safety and efficacy of existing drugs and drugcandidates as well as established pharmacologic targets and drugs directed to those targets. For many of our novel drug candidates, we may seek to study the drugcandidates in indications for which the parent drugs have not been studied or approved. We believe that the improved characteristics of our drug candidates willprovide meaningful benefit to patients compared to the existing therapies. in addition, in certain instances we have the opportunity to develop new treatments forpatients for which the parent drugs are not currently approved.Ensure Future Growth of our Proprietary Pipeline through Internal Research Efforts and Advancement of our Preclinical Drug Candidates into ClinicalTrialsWe believe it is important to maintain a diverse pipeline of new drug candidates to continue to build on the value of our business. our discovery researchorganization is continuing to identify new drug candidates by applying our technology platform to a wide range of molecule classes, including small molecules andlarge proteins, peptides and antibodies, across multiple therapeutic areas. We continue to advance our most promising research drug candidates into preclinicaldevelopment with the objective of advancing these early stage research programs to human clinical studies over the next several years.8Enter int o Strategic and High-Value Partnerships to Bring Certain of Our Drug Candidates to MarketWe decide on a drug candidate-by-drug candidate basis how far to advance clinical development (e.g. Phase 1, 2 or 3) and whether to commercializeproducts on our own, or seek a partner, or pursue a combination of these approaches. When we determine to seek a partner, our strategy is to enter intocollaborations with leading pharmaceutical and biotechnology companies to fund further clinical development, manage the global regulatory filing process, andmarket and sell drugs in one or more geographies. The options for future collaboration arrangements range from comprehensive licensing and commercializationarrangements to co-promotion and co-development agreements with the structure of the collaboration depending on factors such as the structure of economic risksharing, the cost and complexity of development, marketing and commercialization needs, therapeutic area and geographic capabilities.Continue to Build a Leading Intellectual Property Estate in the Field of Polymer Conjugate Chemistry across Therapeutic ModalitiesWe are committed to continuing to build on our intellectual property position in the field of polymer conjugate chemistry. To that end, we have acomprehensive patent strategy with the objective of developing a patent estate covering a wide range of novel inventions including among others, polymermaterials, conjugates, formulations, synthesis, therapeutic areas, methods of treatment and methods of manufacture.Nektar Proprietary ProgramsThe following table summarizes our proprietary drugs and drug candidates that have either received regulatory approval or are being developed by us or incollaboration with other pharmaceutical companies or independent investigators. The table includes the type of molecule or drug, the target indications for the drugcandidate, and the status of the clinical development program. Drug Candidate Target Indication Status (1) onZEALd TM (next-generationtopoisomerase i inhibitor) Advanced metastatic breast cancer in patients with brainmetastases Phase 3 Confirmatory Trial (Partnered with daiichiSankyo Europe) nKTR-181 (orally-available mu-opioidanalgesic molecule) Moderate to severe chronic pain Phase 3 nKTR-214 (Cd122-biased immune-stimulatory cytokine) oncology Phase 1/2 in eight potential solid tumor indications nKTR-358 Autoimmune disease ind Filed nKTR-262 Solid Tumors Research/Preclinical nKTR-255 immuno-oncology Research/Preclinical (1)Status definitions are:Phase 3 or Pivotal — product in large-scale clinical trials conducted to obtain regulatory approval to market and sell the drug (these trials are typicallyinitiated following encouraging Phase 2 trial results).Phase 2 — a drug candidate in clinical trials to establish dosing and efficacy in patients.Phase 1 — a drug candidate in clinical trials, typically in healthy subjects, to test safety.Research/Preclinical — a drug candidate is being studied in research by way of in vitro studies and/or animal studies9Overview of Nektar Proprietary ProgramsImmuno-Oncology (I/O)NKTR-214 (cytokine immunostimulatory therapy)nKTR-214 is a Cd122-biased immune-stimulatory cytokine designed for the treatment of solid tumors. nKTR-214 is designed to preferentially activatethe iL-2 beta sub-receptors and gamma sub-units of the iL-2 receptor in order to proliferate tumor-killing T cells within the body (Cd8-positive effector T cells andnatural killer T cells) without stimulating regulatory T cells (Cd4-positive T cells). This receptor selectivity is intended to increase efficacy and improve safetyover existing immunostimulatory cytokine drugs. in June 2015, we and The university of Texas Md Anderson Cancer Center announced a research collaboration that includes a Phase 1/2 clinical study toevaluate nKTR-214 in a variety of tumor types as a monotherapy and in combination with other therapies, including Pd-1 pathway inhibitors. in december 2015,we announced that dosing had commenced in the Phase 1/2 clinical study evaluating the safety, tolerability and efficacy of nKTR-214 in patients with advancedsolid tumors, including melanoma, renal cell carcinoma and non-small cell lung cancer. We are currently conducting a Phase 1/2 clinical study for nKTR-214,which is our engineered immunostimulatory Cd122-biased cytokine designed to preferentially activate the beta and gamma sub-units of the iL-2 receptor with theobjective to induce proliferation and accumulation of tumor-killing lymphocyte cells within the body (Cd8-positive effector T cells and natural killer T cells) withlimited activity on regulatory T cells (Cd4-positive T cells). The study is being conducted initially at three primary investigator sites: the university of Texas MdAnderson Cancer Center, Yale Cancer Center and the Providence Cancer Center in Portland, oregon. The dose-escalation stage of the Phase 1/2 study is designedto evaluate safety and efficacy, and define the recommended Phase 2 dose of nKTR-214 in patients with solid tumors. in addition to a determination of therecommended Phase 2 dose, the study will assess the safety profile of nKTR-214, the immunologic effect of nKTR-214 on tumor-infiltrating lymphocytes andother immune activation markers in both blood and tumor tissue, the pharmacokinetic/pharmacodynamic profile as well as preliminary anti-tumor activity based onobjective response rate. We plan to study nKTR-214 in combination with a number of therapeutic approaches where we believe there is a strong biologic rationale forcomplimentary mechanisms of action. on September 21, 2016, we entered into a Clinical Trial Collaboration Agreement (bMS Agreement) with bristol-MyersSquibb Company (bMS), pursuant to which we and bMS are collaborating to conduct Phase 1/2 clinical trials evaluating nKTR-214 and bMS’ human monoclonalantibody that binds Pd-1, known as opdivo ® (nivolumab), as a potential combination treatment regimen in five tumor types and eight potential indications, andsuch other clinical trials evaluating the combined therapy as may be mutually agreed upon by the parties (each, a Combined Therapy Trial). The dose escalationstage of the Phase 1/2 program evaluating nKTR-214 in combination with opdivo ® , which we call the PiVoT study is currently enrolling patients at multipleclinical sites. in the first phase of the PiVoT study, we expect to evaluate the clinical benefit, safety, and tolerability of combining nKTR-214 with opdivo ® inpatients. The second phase of the expansion cohorts is expected to evaluate the safety and efficacy of combining nKTR-214 with opdivo ® . under the bMSAgreement, bMS is responsible for 50% of all out-of-pocket costs reasonably incurred in connection with third party contract research organization, laboratories,clinical sites and institutional review boards. Each party will otherwise be responsible for its own internal costs, including internal personnel costs, incurred inconnection with each Combined Therapy Trial. nektar and bMS will use commercially reasonable efforts to manufacture and supply its compound for eachCombined Therapy Trial and will bear the costs related thereto.in addition to the clinical trials in collaboration with bMS, we also plan to initiate a broad clinical development program, both on our own or incollaboration with other potential partners, to explore the potential of combining nKTR-214 with therapies such as cancer vaccines, adoptive cell therapy, smallmolecules, and other biological agents in order to generate novel immune-oncology approaches.NKTR-262nKTR-262 is a small molecule agonist that targets toll-like receptors (TLRs) found on innate immune cells in the body. nKTR-262 is designed to overcomethe body’s dysfunction of antigen-presenting cells (APC), such as dendritic cells, which are critical to induce the body’s adaptive immunity and create antigen-specific cytotoxic T cells. nKTR-262 is being developed as a single intra-tumoral injection to be administered at the start of therapy with nKTR-214 in order toinduce an abscopal response and achieve the goal of complete tumor regression in cancer patients treated with both therapies. nKTR-262 is currently advancingthrough preclinical development with the objective of filing an ind and beginning clinical development. NKTR-255nKTR-255 is a memory T cell stimulating cytokine designed to engage the iL-15 pathway to induce long-term T cell activation and improve the quality ofT cell memory response to treat cancer. Through optimal engagement of the iL-15Rα/iL-2Rγ receptor complex, nKTR-255 stimulates proliferation and survival ofCd8+ T cells, natural killer (nK) cells and enhances formation of long-term immunological memory which may lead to sustained anti-tumor immune response.native rhiL-15 is rapidly cleared from the10body and must be administered frequently and in high doses limiting its utility due to toxicity. nKTR-255 is designed with iL-15 receptor alpha specificity tooptimize biological a ctivity and is uniquely engineered to provide optimal exposure and an improved safety profile.Immunology nKTR-358 is designed to correct the underlying immune system imbalance in the body which occurs in patients with auto-immune disease. Currentsystemic treatments for autoimmune disease, including corticosteroids and anti-TnF agents, suppress the immune system broadly and come with severe sideeffects. nKTR-358 targets the Cd25 sub-receptor in the interleukin-2 pathway in order to stimulate proliferation and growth of T regulatory cells, which arespecific immune cells in the body that modulate the immune system and prevent auto-immune disease by maintaining self-tolerance. We plan to evaluate nKTR-358 in clinical studies for the treatment of systemic lupus erythematosus and other indications. We filed an ind for nektar-358 in February 2017. Pain - NKTR-181 (mu-opioid analgesic molecule for chronic pain)nKTR-181 is an orally-available novel mu-opioid analgesic molecule in development as a long-acting analgesic to treat chronic pain. nKTR-181 isdesigned with the objective to address the abuse liability and serious central nervous system (CnS) side effects associated with current opioid therapies. nKTR-181was created using nektar’s proprietary polymer conjugate technology, which provides it with a long-acting profile and slows its entry into the CnS. nKTR-181’sabuse deterrent properties are inherent to its novel molecular structure and do not rely on a formulation approach to prevent its conversion into a more abusableform of an opioid. in May 2012, the FdA granted Fast Track designation for the nKTR-181 development program. in June 2012, we initiated a Phase 2 clinical study to evaluate the efficacy, safety and tolerability of nKTR-181 in patients with moderate to severe chronicpain from osteoarthritis of the knee. The Phase 2 clinical study utilized a double-blind, placebo-controlled, randomized withdrawal, enriched enrollment studydesign. The study enrolled 295 opioid-naïve patients with osteoarthritis of the knee who were not getting adequate pain relief from their current non-opioid painmedication. Patients who qualified during the baseline period entered a titration phase, during which they were titrated on nKTR-181 tablets administered orallytwice-daily until a dose was reached that provided a reduction of at least 20% in the patient’s pain score as compared to the patient’s own baseline. Patients thatachieved this level of analgesia were then randomized on a 1:1 basis to either continue to receive their analgesic dose of nKTR-181 or to receive placebo for up to25 days. The primary endpoint of the study was the average change in a patient’s pain score from baseline to the end of the double-blind, randomized treatmentperiod. in the first half of 2013, we conducted a human abuse liability study, or hAL study, for nKTR-181. in this study, nKTR-181 had highly statisticallysignificant lower "drug liking" scores and reduced "feeling high" scores as compared to oxycodone at all doses tested (p < 0.0001). on June 19, 2013, we presenteddata from the hAL study at the 2013 Annual Meeting of The College on Problems of drug dependence in San diego, California. on September 26, 2013, we announced results from this Phase 2 efficacy study. of the 295 patients that entered the study, only 9 patients (representing 3%of the patient population) were unable to achieve meaningful pain relief with nKTR-181. A total of 213 patients achieved an average 40% reduction in pain andentered the randomized phase of the study. nKTR-181 performed as expected as an opioid analgesic throughout the study with patients continuing to show areduction in pain scores throughout the randomized phase of the study. however, patients who were randomized to placebo did not show the expected increase inpain scores observed in similar enriched enrollment, randomized withdrawal studies. This unusual lack of a placebo rebound caused the Phase 2 study to miss theprimary endpoint in the study.in october 2014, we engaged in an end-of-Phase 2 meeting for nKTR-181 with the FdA, which included discussions of the design of the Phase 3 clinicalstudy program. We enrolled the first patient in the first Phase 3 efficacy study, which we call SuMMiT-07 in February 2015 and we completed enrollment in thestudy in the fourth quarter of 2016. in this study, we randomized patients with chronic low back pain in an enriched enrollment randomized withdrawal designwhich included a qualifying screening period, an open-label titration period where nKTR-181 was given to all patients, followed by a 12-week double-blindrandomized period where subjects were randomized on a 1:1 basis to receive either nKTR-181 or placebo. on February 29, 2016, we increased the sample size ofthis trial by approximately 200 patients following a pre-specified sample size assessment by the independent analysis center (iAC) after approximately fifty percentof the initially planned 416 patients completed the study. The protocol for the nKTR-181 study defined only two possible outcomes for this pre-planned blindedinterim sample size assessment: (1) if the conditional powering at the midpoint of the trial fell between 50-85%, the sample size was to be increased byapproximately 200 patients; or (2) if the conditional powering fell below 50%, or above 85%, the sample size was not to be changed. The iAC’s determination wasnondiscretionary and was based upon our determination of pre-defined acceptable power to detect a statistically significant difference between nKTR-181 andplacebo based on the primary efficacy endpoint. in 2013, we conducted a human abuse liability study, or hAL study, for nKTR-181 dose levels that were includedin SuMMiT-07. in this study, nKTR-181 had highly statistically significant lower “drug liking” scores and reduced “feeling high” scores as compared tooxycodone at all doses tested (p < 0.0001). in January 2017, we started11enrollment in a second hAL study where we are assessing abuse liability of supra-therapeutic doses of nKTR-181 in order to further evaluate nKTR-181 forlabeling and scheduling p urposes. The Phase 3 program for nKTR-181 is anticipated to also include a Phase 3 efficacy and safety trial in people who are opioid-experienced. We are now conducting blinded data verification activities and currently plan to un-blind and announce the top-line data from SuMMiT-07 in March2017.According to a 2011 report from the national Academy of Sciences, chronic pain conditions, such as osteoarthritis, back pain and cancer pain, affect at least100 million adults in the u.S. annually and contribute to over $300 billion a year in lost productivity. opioids are considered to be the most effective therapeuticoption for pain. however, opioids cause significant problems for physicians and patients because of their serious side effects such as respiratory depression andsedation, as well as the risks they pose for addiction, abuse, misuse, and diversion. The FdA has cited prescription opioid analgesics as being at the center of amajor public health crisis of addiction, misuse, abuse, overdose and death. According to the American Society of Addiction Medicine 2016 report, there are 1.9million Americans which have a substance use disorder involving prescription pain relievers. This same report attributes 18,893 overdose deaths in 2015 wererelated to prescription pain relievers.Oncology - ONZEALD TM (next generation, long-acting topoisomerase I inhibitor)onZEALd TM (previously known as nKTR-102 or etirinotecan pegol) is our next-generation topoisomerase i inhibitor proprietary drug candidate. in2015, we announced topline data from a Phase 3 clinical study for onZEALd TM , which we call the bEACon study (brEAst Cancer outcomes with onZEALdTM ), as a single-agent therapy for women with advanced metastatic breast cancer. The bEACon study compared onZEALd TM to an active control armcomprised of a single chemotherapy agent of physician’s choice (TPC) in patients who were heavily pre-treated with a median of three prior therapies formetastatic disease. in a topline analysis of 852 patients from the trial, onZEALd T M provided a 2.1 month improvement in median overall survival over TPC(12.4 months for patients receiving onZEALd TM compared to 10.3 months for patients receiving TPC). based on a stratified log-rank analysis, the primaryendpoint measuring the hazard ratio for survival in the onZEALd TM group compared to the active control arm was 0.87 with a p-value of 0.08, which did notachieve statistical significance. Secondary endpoints in the bEACon study included objective response rate and progression-free survival, which did not achievestatistical significance in the study. We also announced that we observed a significant overall survival benefit in two pre-specified subgroups—patients with ahistory of brain metastases and patients with baseline liver metastases at study entry.We have explored future regulatory and development paths forward for onZEALd TM with the Eu and u.S. health authorities. in Europe, we met with thenational Authorities in Sweden and the united Kingdom, as well as the European Medicines Agency (EMA) to discuss the bEACon data. in June 2016, we filedan MAA for conditional approval of onZEALd TM for adult patients with advanced breast cancer who have brain metastases . on July 14, 2016, we received aletter from the EMA notifying us that the onZEALd TM MAA successfully passed validation to be accepted for review. in 2016 we initiated a randomized Phase3 confirmatory study to evaluate onZEALd TM as compared to treatment of physician’s choice (TPC) in approximately 350 adult patients with advanced breastcancer who have brain metastases (ATTAin Study). The primary endpoint of the ATTAin Study will be overall survival (oS) and the ATTAin Study will includea pre-specified interim analysis for oS which is to be conducted after 130 events have occurred in the study . in addition, based on our meetings with the FdA’soncology division, the FdA staff has indicated that positive results from the ATTAin Study could potentially support a new drug Application (ndA) filing inthe u.S. where nektar has retained all rights to onZEALd TM .According to the American Cancer Society and World health organization, more than 1.4 million women worldwide are diagnosed with breast cancerglobally every year. The chance of developing invasive breast cancer at some time in a woman’s life is a little less than one in eight (approximately 12%). in 2017,the American Cancer Society estimates there will be 252,710 new cases of invasive breast cancer diagnosed in the u.S. and about 40,610 women will die frombreast cancer. Anthracyclines and taxanes are the among the most active and widely used chemotherapeutic agents for breast cancer, but the increased use of theseagents at an early stage of disease often renders tumors resistant to these drugs by the time the disease recurs, thereby reducing the number of treatment options formetastatic disease. There are currently no FdA-approved topoisomerase i inhibitors indicated to treat breast cancer.We have also conducted clinical studies for onZEALd TM in other solid tumor settings. in 2013, we completed a Phase 2 clinical study for onZEALd TMin approximately 170 patients with platinum-resistant/refractory ovarian cancer. We also initiated a Phase 2 clinical study of onZEALd TM monotherapy versusirinotecan in second-line metastatic colorectal cancer patients with the KRAS mutant gene. The Phase 2 clinical study was designed to enroll 174 patients withmetastatic colorectal cancer. in February 2014, we decided to close enrollment in this study after 80 patients were randomized due to challenges in recruiting newpatients because the comparator arm of this study, single-agent irinotecan, is not the common standard of care for second line metastatic colorectal therapy in theu.S. or Eu. We also conducted a Phase 1 dose-escalation clinical study which enrolled 26 patients to evaluate onZEALd TM in combination with 5-Fluorouracil (5-Fu)/leucovorin in refractory solid tumor cancers. The chemotherapy agent 5-Fu is currently used as a part of a combination treatment regimen for colorectalcancer in combination with irinotecan, which is also known as the FoLFiRi regimen.12on January 18, 2014, we presented data from this study at the 2014 Gastrointestinal Cancers Symposium in San Francisco, California. in addition to the clinicalstudy of onZEALd TM being conducted by us, we have also provided support for f our investigator-initiated Phase 2 studies being conducted for onZEALd TM .on August 7, 2012, we announced a Phase 2 investigator-initiated clinical study of onZEALd TM in patients with bevacizumab (Avastin)-resistant high-gradeglioma being conducted at the Stanford Cancer institute. in May 2013, the study completed enrollment of 20 patients with high-grade glioma who had received amedian of three prior lines of therapy before enrolling in the study. A separate investigator-initiated clinical study is also being conducted at Stanford to evaluateonZEALd TM in patients with brain metastasis from primary lung cancer. on February 5, 2013, we announced a Phase 2 investigator-initiated clinical study ofonZEALd TM in patients with metastatic and recurrent non-small cell lung cancer being conducted at the Abramson Cancer Center of the university ofPennsylvania. on october 24, 2013, we announced a Phase 2 investigator-initiated clinical study of onZEALd TM in patients with relapsed or refractory small-cell lung cancer at the Roswell Park Cancer institute.Collaboration Partner ProgramsThe following table outlines our collaborations with a number of pharmaceutical companies that currently license our intellectual property and, in somecases, purchase our proprietary PEGylation materials for their drug products. A total of ten products using our PEGylation technology have received regulatoryapproval in the u.S. or Europe. There are also a number of other candidates that have been filed for approval or are in various stages of clinical development. Thesecollaborations generally contain one or more elements including a license to our intellectual property rights and manufacturing and supply agreements under whichwe may receive manufacturing revenue, milestone payments, and/or royalties on commercial sales of drug products. Drug Primary or TargetIndications DrugMarketer/Partner Status(1) MoVAnTiK ® (naloxegol tablets) opioid-induced constipation in adultpatients with chronic non-cancer pain AstraZeneca Ab Approved MoVEnTiG ® (brand name for MoVAnTiK® in Europe) opioid-induced constipation in adultpatients who have an inadequateresponse to laxatives AstraZeneca Ab Approved AdYnoVATE ® (previously referred to asbAX 855, PEGylated rFViii) hemophilia A Shire plc Approved in u.S. and filed inEuropean union Somavert ® (pegvisomant) Acromegaly Pfizer inc. Approved neulasta ® (pegfilgrastim) neutropenia Amgen inc. Approved PEG-inTRon ® (peginterferon alfa-2b) hepatitis-C Merck (through its acquisitionof Schering-PloughCorporation) Approved Macugen ® (pegaptanib sodium injection) Age-related macular degeneration Valeant Pharmaceuticalsinternational, inc. Approved CiMZiA ® (certolizumab pegol) Rheumatoid arthritis uCb Pharma Approved * CiMZiA ® (certolizumab pegol) Crohn’s disease uCb Pharma Approved * CiMZiA ® (certolizimab pegol) Psoriasis/Ankylosing Spondylitis uCb Pharma Approved * MiRCERA ® (C.E.R.A.) (ContinuousErythropoietin Receptor Activator) Anemia associated with chronic kidneydisease in patients on dialysis andpatients not on dialysis F. hoffmann-La Roche Ltd Approved **SEMPRAnA ® Migraine Allergan, inc. Filed for approval in u.S. bAY41-6551 (Amikacin inhale, formerlynKTR-061) Gram-negative pneumonias bayer healthcare Phase 3 Fovista ® n eovascular age-related maculardegeneration ophthotech Corporation Phase 313Drug Primary or TargetIndications DrugMarketer/Partner Status(1) Cipro dry Powder inhaler (Cipro dPi) non-cystic fibrosis bronchiectasis bayer Schering Pharma AG Phase 3*** dapirolizumab Pegol Systemic Lupus Erythematosus uCb Pharma (biogen) Phase 2 PEGPh20 Pancreatic, non-Small Cell LungCancer, and other multiple tumor types halozyme Therapeutics, inc. Phase 1, 2, and 3 Longer-acting blood clotting proteins hemophilia baxalta Research/Preclinical (1)Status definitions are:Approved — regulatory approval to market and sell product obtained in one or more of the u.S., Eu or other countries.Filed — an application for approval and marketing has been filed with the applicable government health authority.Phase 3 or Pivotal — product in large-scale clinical trials conducted to obtain regulatory approval to market and sell the drug(these trials are typically initiated following encouraging Phase 2 trial results).Phase 2 — a drug candidate in clinical trials to establish dosing and efficacy in patients.Phase 1 — a drug candidate in clinical trials, typically in healthy subjects, to test safety.Research/Preclinical — a drug candidate is being studied in research by way of in vitro studies and/or animal studies*in February 2012, we sold our rights to receive royalties on future worldwide net sales of CiMZiA ® effective as of January 1, 2012.**in February 2012, we sold our rights to receive royalties on future worldwide net sales of MiRCERA ® effective as of January 1, 2012 until the agreementwith Roche is terminated or expires.***This drug candidate was developed using our proprietary pulmonary delivery technology that was transferred by us to novartis in an asset sale transactionthat closed on december 31, 2008. As part of the transaction, novartis assumed our rights and obligations for Cipro dPi (formerly known as Cipro inhale)under our agreements with bayer Schering Pharma AG; however, we maintained the rights to receive royalties on commercial sales of Cipro dPi if the drugcandidate is approved.With respect to all of our collaboration and license agreements with third parties, please refer to item 1A, Risk Factors, including without limitation, “Weare a party to numerous collaboration agreements and other significant agreements which contain complex commercial terms that could result in disputes, litigationor indemnification liability that could adversely affect our business, results of operations and financial condition.”Overview of Collaboration Partner ProgramsWe have a number of product candidates in clinical development and approved products in collaboration with our partners where we invented the drugcandidate or where our collaboration partners have licensed our proprietary intellectual property to enable one of their drug candidates. our agreements withcollaboration partners may involve several elements including a technology license as well as the development, commercialization, and manufacturing and supplyobligations. We typically receive consideration from our collaboration partners in the form of upfront payments, or milestone payment and royalties on sales. incertain cases, we also manufacture and supply our proprietary polymer materials to our partners.MOVANTIK ® and MOVANTIK ® Fixed-Dose Combination Products (MOVANTIK ® previously referred to as naloxegol or NKTR-118 and MOVANTIK® Fixed-Dose Combination Products previously referred to as NKTR-119), License Agreement with AstraZeneca ABin September 2009, we entered into a global license agreement with AstraZeneca Ab (AstraZeneca) pursuant to which we granted AstraZeneca aworldwide, exclusive, perpetual, royalty-bearing license under our patents and other intellectual property to develop, market and sell MoVAnTiK ® andMoVAnTiK ® fixed-dose combination products. MoVAnTiK ® was developed using our oral small molecule polymer conjugate technology and we advancedthis drug through the completion of Phase 2 clinical studies prior to licensing it to AstraZeneca. MoVAnTiK ® is an orally-available peripherally-acting mu-opioid antagonist being investigated for the treatment of opioid-induced constipation (oiC), which is a common side effect of prescription opioid medications.opioids attach to specific proteins called opioid receptors. When the opioids attach to certain opioid receptors in the gastrointestinal tract, constipation may occur.oiC is a result of decreased fluid absorption and lower gastrointestinal motility due to opioid receptor binding in the gastrointestinal tract.14on September 16, 2014, the FdA approved MoVAn TiK ® as the first once-daily oral peripherally-acting mu-opioid receptor antagonist (PAMoRA)medication for the treatment of oiC in adult patients with chronic, non-cancer pain. on december 9, 2014, the European Commission, or EC, granted MarketingAuthor isation to MoVEnTiG ® (the naloxegol brand name in the European union) as the first once-daily oral PAMoRA to be approved in the Eu for thetreatment of oiC in adult patients who have had an inadequate response to laxative(s). The EC’s approval applies to all 28 Eu member countries plus iceland andnorway. AstraZeneca launched the commercial sales of MoVAnTiK ® in the united States in March 2015 and MoVEnTiG ® in Germany, the first Eu membercountry, in August 2015. under the terms of our license agreement with AstraZeneca, AstraZeneca made an initial license payment of $125.0 million to us and hasresponsibility for all activities and bears all costs associated with research, development and commercialization for MoVAnTiK ® and MoVAnTiK ® fixed-dosecombinati on products. We received milestone payments of $70.0 million and $25.0 million upon the acceptance of regulatory approval applications ofMoVAnTiK ® by the FdA and European Medicines Agency (EMA), respectively, in 2013. We received an additional developmen tal milestone payment of $35.0million upon the FdA’s approval of MoVAnTiK ® in 2014 and a total of $140.0 million upon commercial launches in 2015, including $100.0 million forMoVAnTiK ® in the u.S. and $40.0 million for MoVEnTiG ® in Germany. We are also e ntitled to up to $375.0 million in sales milestones for MoVAnTiK ®if the program achieves certain annual commercial sales levels. For the MoVAnTiK ® fixed-dose combination products, we are also eligible to receive significantdevelopment milestones as well as significant sales milestone payments if the program achieves certain annual commercial sales levels. For both MoVAnTiK®and the fixed-dose combination products, we are also entitled to significant double-digit royalty payments starting at 20% of net sa les in the u.S. and 18% of netsales in the Eu and rest of world, varying by country of sale and level of annual net sales. our right to receive royalties (subject to certain adjustments) in anyparticular country will expire upon the later of (a) a specif ied period of time after the first commercial sale of the product in that country or (b) the expiration ofpatent rights in that particular country. AstraZeneca has agreed to use commercially reasonable efforts to develop one MoVAnTiK ® fixed-dose combinati onproduct and has the right to develop multiple products which combine MoVAnTiK ® with opioids.There are a number of patents relevant to MoVAnTiK ® , some of which are listed in the FdA’s “orange book.” The “orange book” currently lists sixpatents for MoVAnTiK ® . Four patents (i.e., u.S. Patent nos. 7,056,500, 7,662,365, 7,786,133 and 9,012,469) are “composition of matter patents” - one of whichhas a patent expiry extending into 2032. in addition, two patents (i.e., u.S. Patent nos. 8,067,431 and 8,617,530) are directed to methods of treatment.ADYNOVATE ® (previously referred to as BAX 855) and Long-Acting Therapies for Hemophilia A, Agreement with Subsidiaries of Baxalta Incorporatedin September 2005, we entered into an exclusive research, development, license, manufacturing and supply agreement with certain subsidiaries of baxalta,formerly baxter before the separation of baxalta from baxter in July 2015, to develop products with an extended half-life for the treatment and prophylaxis ofhemophilia A patients using our proprietary PEGylation technology. The first product in this collaboration, AdYnoVATE ® (previously referred to as bAX 855),is a longer-acting (PEGylated) form of a full-length recombinant factor Viii (rFViii) protein. AdYnoVATE ® is a full-length PEGylated longer-actingrecombinant factor Viii (rFViii) that was developed to increase the half-life of AdVATE ® (Antihemophilic Factor (Recombinant) Plasma/Albumin-FreeMethod). We are entitled to up to $55.0 million in total development and sales milestone payments, as well as royalties on net sales varying by product and countryof sale. The royalties start in the mid-single digits for net sales of AdYnoVATE ® up to $1.2 billion and then in the low teens for net sales exceeding $1.2 billion.our right to receive these royalties in any particular country will expire upon the later of ten years after the first commercial sale of the product in that country orthe expiration of patent rights in certain designated countries or in that particular country.in 2012, baxalta completed a Phase 1 clinical study for AdYnoVATE ® that was a prospective, open-label study assessing the safety, tolerability andpharmacokinetics of AdYnoVATE ® in 19 previously treated patients age 18 years or older with severe hemophilia A. in January 2013, baxalta announced thetop level results from this Phase 1 clinical study. This study demonstrated that the half-life (measuring the duration of activity of the drug in the body) ofAdYnoVATE ® was approximately 1.5-fold higher compared to AdVATE ® . A longer half-life was achieved in all patients in the study using AdYnoVATE ®, no patients developed inhibitors to either base molecule, AdYnoVATE ® or PEG, and no patients had allergic reactions. Eleven adverse events were reported ineight patients across both treatment arms, but none was serious, treatment-related or resulted in withdrawal from the study. baxalta commenced patient enrollmentin a Phase 3 clinical study of AdYnoVATE ® in the u.S. in February 2013 and completed enrollment in november 2013. The Phase 3 clinical study, a multi-center, open-label study called PRoLonG-ATE, enrolled 146 previously treated adult patients with severe hemophilia A in order to assess the efficacy, safety andpharmacokinetics of AdYnoVATE ® for prophylaxis and on-demand treatment of bleeding. in August 2014, baxalta announced positive top-line results from thePRoLonG-ATE clinical study which met the primary endpoint for the control and prevention of bleeding, routine prophylaxis and perioperative management forpatients who were 12 years or older. in december 2014, baxalta announced that it filed a biologic license application with the FdA for AdYnoVATE ® . innovember 2015, AdYnoVATE ® was approved by the FdA for use in adults and adolescents, aged 12 years and older, who have hemophilia A. on november30, 2015, baxalta announced that it had initiated sales of AdYnoVATE ® in the u.S.15in december 2015, baxalta (a wholl y owned, indirect subsidiary of Shire plc) announced positive study results from its prospective, uncontrolled, open-label, multi-center Phase 3 clinical study designed to assess the safety and immunogenicity of AdYnoVATE ® . The study enrolled 73 previously -treatedpatients with severe hemophilia A younger than 12 years of age and assessed the treatment’s hemostatic efficacy in prophylaxis and treatment of bleedingepisodes. All participants received prophylactic AdYnoVATE ® treatment (median 1.9 infusions p er week) and were followed for six months. AdYnoVATE ®met its primary endpoint in the study, as no patients developed inhibitory antibodies to AdYnoVATE ® . in addition, no treatment-related serious adverse eventswere reported. on April 4, 2016, baxalta ann ounced that the Ministry of health, Labour and Welfare in Japan approved AdYnoVATE ® for patients aged 12years and older with hemophilia A. on december 27, 2016, Shire plc announced that the FdA approved AdYnoVATE ® for use in surgical settings for both adult and pediatric patients and that the FdA also approved AdYnoVATE ® for the treatment of hemophilia A in pediatric patients under 12 years of age.AdYnoVATE ® is also under regulatory review in the European union, Canada, and Switzerland.hemophilia A, also called factor Viii (FViii) deficiency or classic hemophilia, is a genetic disorder caused by missing or defective factor Viii, a clottingprotein. According to the uS Centers for disease Control and Prevention, hemophilia occurs in approximately one in 5,000 live births and there are about 20,000people with hemophilia in the uS. All races and ethnic groups are affected. hemophilia A is four times as common as hemophilia b while more than half ofpatients with hemophilia A have the severe form of hemophilia. in 2014, according to the Evaluate Group, sales of FViii replacement products exceeded $6 billionglobally.Amikacin Inhale (BAY41-6551, formerly NKTR-061), Agreement with Bayer Healthcare LLCin August 2007, we entered into a co-development, license and co-promotion agreement with bayer healthcare LLC (bayer) to develop a specially-formulated Amikacin (bAY41-6551, Amikacin inhale, formerly called nKTR-061) for the treatment of gram-negative pneumonias. under the terms of theagreement, bayer is responsible for most future clinical development and commercialization costs, all activities to support worldwide regulatory filings, approvalsand related activities, further development of formulated Amikacin and final product packaging for Amikacin inhale. We are responsible for all futuredevelopment, manufacturing and supply of the nebulizer device for clinical and commercial use. We have engaged third party contract manufacturers to performour device manufacturing activities for this program. We are entitled to up to $50.0 million in development milestone payments as well as sales milestone paymentsupon achievement of certain annual sales targets. We are also entitled to royalties based on annual worldwide net sales of Amikacin inhale. in the u.S., our royaltyon annual net sales is a flat 30% and outside of the u.S. our royalty on annual net sales is an escalating royalty equal to an approximate average of 22%. our rightto receive these royalties in any particular country will expire upon the later of ten years after the first commercial sale of the product in that country or theexpiration of certain patent rights in that particular country, subject to certain exceptions. We share a portion of these royalties with the Research Foundation of theState university of new York under a license agreement. The agreement expires in relation to a particular country upon the expiration of all royalty and paymentobligations between the parties related to such country.Gram-negative pneumonias are often the result of complications of other patient conditions or surgeries. Gram-negative pneumonias carry a mortality riskthat can exceed 50% in mechanically-ventilated patients and accounts for a substantial proportion of the pneumonias in intensive care units today. Amikacin inhaleis designed to be an adjunctive therapy to the current antibiotic therapies administered intravenously as standard of care. The aerosol generator within the nebulizerfor Amikacin inhale delivers a fine aerosol of the antimicrobial agent directly to the site of infection in the lungs. This nebulizer device containing amikacin can beintegrated with conventional mechanical ventilators or used as a hand-held “off-vent” device for patients no longer requiring breathing assistance.in April 2013, bayer initiated enrollment in a global Phase 3 clinical study, which it calls inhALE, to evaluate the efficacy and safety of Amikacin inhaleversus aerosolized placebo in the treatment of intubated and mechanically ventilated patients with Gram-negative pneumonia receiving standard of care intravenousantibiotics. The global inhALE development program is comprised of two prospective, randomized, double-blind, placebo-controlled, large multi-center globalprograms involving centers in north America, South America, Europe, Japan, Australia and Asia. The inhALE development program is being conducted by bayerunder a Special Protocol Assessment agreement with the FdA that is intended to support the submission of an ndA if the inhALE clinical studies aresuccessful. in november 2014, the FdA granted qualified infectious disease product (QidP) designation to Amikacin inhale. Antimicrobial drugs designed to treatserious and life-threatening infections, designated as QidP, are eligible for fast-track designation, priority review by FdA and a five-year extension of marketexclusivity.Cipro DPI (formerly known as Cipro Inhale), Bayer Schering Pharma AGWe were a party to a collaborative research, development and commercialization agreement with bayer Schering Pharma AG (bayer Schering), related tothe development of an inhaled powder formulation of ciprofloxacin delivered by way of a dry powder inhaler, Cipro dPi (formerly known as Cipro inhale) for thetreatment of chronic lung infections caused by Pseudomonas aeruginosa in cystic fibrosis patients. on december 31, 2008, we assigned the agreement to novartisPharma AG in connection with the completion of the pulmonary asset sale transaction. however, we retained our economic interest in the future potential net sales16royalties if Cipro dPi is approved by health authorities and is successfully commercialized by bayer Schering. Cipro dPi has completed Phase 2 clinicaldevelopment for the treatment of chronic lung infections. in August 2012, bayer Scherin g initiated a Phase 3 clinical development program which it callsRESPiRE for Cipro dPi in patients with non-cystic fibrosis bronchiectasis. in patients with bronchiectasis, the bronchial tubes are enlarged, allowing mucus topool and making the area prone to infection. in September 2016, bayer Schering presented data from the first Phase 3 trail (RESPiRE 1) at the 2016 EuropeanRespiratory Society Annual Meeting which showed that the study met its co-primary endpoints for the every 14-day dosing arm of Cip ro dPi. The second Phase 3trial (RESPiRE 2) completed recruitment in September 2016 and bayer Schering has not yet reported the results from RESPiRE 2.FOVISTA ® (Anti-PDGF Therapy), Agreement with Ophthotech Corporationin September 2006, we entered into a license, manufacturing and supply agreement with (oSi) Eyetech, inc. (Eyetech) under which we granted Eyetech aworldwide, exclusive license to certain of our proprietary PEGylation technology to develop, manufacture and commercialize particular products that use ourproprietary PEGylation reagent linked with the active ingredient in Fovista ® . in July 2007, as a result of a divestiture agreement between Eyetech and ophthotechCorporation (ophthotech), ophthotech acquired from Eyetech certain technology rights and other assets owned or controlled by Eyetech relating to particular anti-platelet-derived growth factor aptamers, or anti-PdGFs, including Fovista ® . As a result of this transaction, ophthotech assumed the license, manufacturing andsupply agreement between Eyetech and us. Fovista ® is an anti-PdGF agent administered in combination with anti-vascular endothelial growth factor (anti-VEGF)therapy for the treatment of neovascular age-related macular degeneration (or wet AMd). on May 19, 2014, ophthotech entered into a Licensing andCommercialization Agreement with novartis Pharma AG to develop and commercialize Fovista ® and related combination products in all countries outside of theu.S. under our agreement with ophthotech, we received a $19.75 million payment in June 2014 in connection with this licensing agreement. We are entitled to upto $9.5 million in total development and sales milestone payments, low- to mid- single-digit royalties on net sales that vary by sales levels and are subject toreduction in the absence of patent coverage, and additional consideration if ophthotech grants certain third-party commercialization rights to Fovista ® . our rightto receive royalties in any particular country will expire upon the later of ten years after first commercial sale of the product or expiration of patent rights in theparticular country. We are the exclusive supplier for all of ophthotech’s clinical and future commercial requirements of our proprietary PEGylation materials usedin the manufacture of Fovista ® .in June 2012, ophthotech announced completion of a prospective, randomized, controlled Phase 2b clinical study of 449 patients with wet AMd comparingFovista ® , administered in combination with Lucentis ® (ranibizumab injection) anti-VEGF therapy with Lucentis ® monotherapy. Fovista ® met the pre-specifiedprimary efficacy endpoint of mean vision gain. Patients receiving the combination of Fovista ® (1.5 mg) and Lucentis ® gained a mean of 10.6 letters of vision at24 weeks on the Early Treatment diabetic Retinopathy Study standardized eye chart, compared to 6.5 letters for patients receiving Lucentis monotherapy(p=0.019), representing a statistically significant 62% additional benefit. in September 2013, ophthotech announced the initiation of patient enrollment in the firstof three planned pivotal Phase 3 clinical studies of Fovista ® in combination with anti-VEGF therapy for the treatment of newly diagnosed patients with wetAMd. These three studies were to enroll a total of approximately 1,866 patients to evaluate the efficacy and safety of Fovista ® . in december 2016, ophthotechannounced that the pre-specified primary endpoint of mean change in visual acuity at 12 months was not achieved in its two pivotal Phase 3 clinical trialsinvestigating the superiority of Fovista ® (pegpleranib) anti-PdGF therapy in combination with Lucentis ® (ranibizumab) anti-VEGF therapy compared toLucentis ® monotherapy for the treatment of wet age-related macular degeneration (AMd). The addition of Fovista ® to a monthly Lucentis ® regimen did notresult in benefit as measured by the mean change in visual acuity at the 12 month time point.17PEGPH20, Agreement with Halozyme Therapeutics, Inc.in december 2006, we entered into a license agreement with halozyme pursuant to which we granted halozyme a worldwide, limited exclusive license tocertain of our proprietary PEGylation technology to develop, manufacture and commercialize particular products that use our proprietary PEGylation materialslinked only with certain qualifying hyaluronidase protein molecules including PEGPh20. According to halozyme, certain cancers, including pancreatic, breast,colon and prostate, have been shown to accumulate high levels of hyaluronan (hA). halozyme’s FdA-approved, hYLEnEX ® recombinant human hyaluronidase,rhuPh20, is administered subcutaneously and temporarily and reversibly degrades hA to facilitate the absorption and dispersion of other injected drugs or fluidsand for subcutaneous fluid administration. however, rhuPh20 acts only locally at the injection site, is rapidly inactivated in the body, and does not survive in theblood. PEGPh20 is an investigational PEGylated form of rhuPh20, under development by halozyme to increase the half-life of the compound in the blood andallow for intravenous administration. halozyme is currently evaluating PEGPh20 in a Phase 2 multicenter, randomized clinical trial evaluating PEGPh20 as afirst-line therapy for patients with stage iV metastatic pancreatic cancer. on January 5, 2017 halozyme announced positive topline results from the Phase 2 clinicaltrial of PEGPh20 in combination with AbRAXAnE in stage iV pancreas cancer patients. halozyme is also evaluating PEGPh20 in an on-going Phase 1b/2 multi-center, randomized clinical trial evaluating PEGPh20 as a second-line therapy for patients with locally advanced or metastatic non-small cell lung cancer. onoctober 2, 2014, the FdA granted orphan drug designation for PEGPh20 for the treatment of pancreatic cancer. on november 10, 2016 halozyme announced anagreement with Genentech, a amember of the Roche Group, to collaborate, beginning in 2017, on clinical studies evaluating PEGPh20 in up to eight differenttumor types. We are entitled to future development milestones and royalties on net sales subject to reduction in the absence of patent coverage. our right to receiveroyalties in any particular country will expire upon the later of twelve years after first commercial sale of the product or expiration of patent rights in the particularcountry. We also manufacture and supply halozyme with clinical and future commercial supply of our proprietary PEGylation materials used in the manufacture ofPEGPh20.SEMPRANA ® , Agreement with MAP Pharmaceuticals, Inc. (a wholly-owned subsidiary of Allergan, Inc.)in June 2004, we entered into a license agreement with MAP Pharmaceuticals, inc. (MAP), which includes a worldwide, exclusive license, to certain of ourpatents and other intellectual property rights to develop and commercialize a formulation of dihydroergotamine (dhE) for administration to patients via thepulmonary or nasal delivery route, which resulted in the development of SEMPRAnA ® , formerly known as LEVAdEX ® . in 2006, we amended and restated thisagreement. under the terms of the agreement, we have the right to receive certain milestone payments based on development criteria that are solely theresponsibility of MAP and royalties based on net sales of SEMPRAnA ® . our right to receive royalties for the net sales of SEMPRAnA ® under the licenseagreement in any particular country will expire upon the later of (i) 10 years after first commercial sale in that country, (ii) the date upon which the licensed know-how becomes known to the general public, and (iii) expiration of certain patent claims, each on a country-by-country basis. Either party may terminate theagreement upon a material, uncured default of the other party.SEMPRAnA ® is a self-administered formulation of dhE using an inhaler device that is currently under review by the FdA. on May 26, 2011, MAPsubmitted an ndA to the FdA for SEMPRAnA ® . in March of 2012, the FdA issued a complete response letter to MAP identifying issues relating to chemistry,manufacturing and controls deficiencies of the product at a contracted third party manufacturer. on April 17, 2013, the FdA issued a second complete responseletter identifying issues related to a supplier that provided the canister filling unit for SEMPRAnA ® . in June 2014, Allergan announced that it had received a thirdcomplete response letter from the FdA related to specifications around content uniformity on the improved canister filling process and on standards for deviceactuation. Allergan has responded to the FdA’s latest complete response letter and has stated that it continues to work with the FdA to resolve outstandingChemistry, Manufacturing and Controls (CMC) issues.on January 28, 2011, MAP entered into a Collaboration Agreement with Allergan, inc. pursuant to which Allergan received a co-exclusive license tomarket and promote SEMPRAnA ® to neurologists and pain specialists in the u.S. under this arrangement, Allergan paid MAP an upfront payment of $60 millionand MAP was also entitled to receive up to an additional $97 million in the form of regulatory milestones, which includes milestones for acceptance of filing of theSEMPRAnA ® ndA and first commercial sale associated with the initial acute migraine indication. on March 1, 2013, Allergan, inc. completed a merger andacquisition transaction with MAP pursuant to which MAP become a wholly-owned subsidiary of Allergan. on January 23, 2015, we filed a breach of contractaction against Allergan and MAP in California Superior Court in San Mateo County seeking monetary damages related to MAP’s failure to pay us a certainspecified percentage of $80 million in upfront and milestone payments received to date from Allergan under the 2011 Collaboration Agreement which we believewe were entitled to receive under the terms of our license agreement with MAP.18Dapirolizumab Pegolin 2010, we entered into a license, manufacturing and supply agreement with uCb Pharma S.A., (uCb) under which we granted uCb a worldwide,exclusive license to certain of our proprietary PEGylation technology to develop, manufacture and commercialize an anti-Cd40L PEGylated Fab being developedby uCb and their partner biogen idec, for the treatment of autoimmune disorders, including systemic lupus erythemastosus (SLE). in 2014, uCb and biogencompleted a Phase 1b randomized, double-blind, placebo-controlled clinical study in approximately 24 patients with SLE. data from the study was published inSeptember 2015 at the Annual American College of Rheumatology Meeting and showed that multiple administrations of dapirolizumab pegol given over 12 weekswere well-tolerated and the safety profile supported further development of the compound. Exploratory analyses from the same study showed greater improvementin clinical measures of disease activity in the dapriolizumab pegol group versus placebo. in 2016, uCb initiated a multi-center, randomized, double-blind, placebo-controlled, parallel-group, dose-ranging Phase 2 clinical study followed by an observational period to evaluate the efficacy and safety of patients with moderatelyto severely active SLE receiving stable standard of care medications. This Phase 2 clinical trial is currently recruiting participants.Neulasta ® , Agreement with Amgen, Inc.in July 1995, we entered into a non-exclusive supply and license agreement (the 1995 Agreement) with Amgen, inc., pursuant to which we licensed ourproprietary PEGylation technology to be used in the development and manufacture of neulasta ® . neulasta ® selectively stimulates the production of neutrophilsthat are depleted by cytotoxic chemotherapy, a condition called neutropenia that makes it more difficult for the body to fight infections. on october 29, 2010, weamended and restated the 1995 Agreement by entering into a supply, dedicated suite and manufacturing guarantee agreement (the 2010 Agreement) and anamended and restated license agreement with Amgen inc. and Amgen Manufacturing, Limited (together referred to as Amgen). under the terms of the 2010Agreement, we guarantee the manufacture and supply of our proprietary PEGylation materials (Polymer Materials) to Amgen in an existing manufacturing suite tobe used exclusively for the manufacture of Polymer Materials for Amgen in our manufacturing facility in huntsville, Alabama. This supply arrangement is on anon-exclusive basis (other than the use of the manufacturing suite and certain equipment) whereby we are free to manufacture and supply the Polymer Materials toany other third party and Amgen is free to procure the Polymer Materials from any other third party. under the terms of the 2010 Agreement, we received a$50.0 million upfront payment in return for guaranteeing supply of certain quantities of Polymer Materials to Amgen and the Additional Rights described below,and Amgen will pay manufacturing fees calculated based on fixed and variable components applicable to the Polymer Materials ordered by Amgen and deliveredby us. Amgen has no minimum purchase commitments. if quantities of the Polymer Materials ordered by Amgen exceed specified quantities (with each specifiedquantity representing a small portion of the quantity that we historically supplied to Amgen), significant additional payments become payable to us in return forguaranteeing supply of additional quantities of the Polymer Materials.The term of the 2010 Agreement runs through october 29, 2020. in the event we become subject to a bankruptcy or insolvency proceeding, we cease to ownor control the manufacturing facility in huntsville, Alabama, we fail to manufacture and supply the Polymer Materials or certain other events occur, Amgen or itsdesignated third party will have the right to elect, among certain other options, to take title to the dedicated equipment and access the manufacturing facility tooperate the manufacturing suite solely for the purpose of manufacturing the Polymer Materials (Additional Rights). Amgen may terminate the 2010 Agreement forconvenience or due to an uncured material default by us. Either party may terminate the 2010 Agreement in the event of insolvency or bankruptcy of the otherparty.PEGASYS ® , Agreement with F. Hoffmann-La Roche Ltdin February 1997, we entered into a license, manufacturing and supply agreement with F. hoffmann-La Roche Ltd and hoffmann-La Roche inc. (Roche),under which we granted Roche a worldwide, exclusive license to use certain intellectual property related to our PEGylation materials to manufacture andcommercialize a certain class of products, of which PEGASYS ® is the only product currently commercialized. PEGASYS ® is approved in the u.S., Eu and othercountries for the treatment of hepatitis C and is designed to help the patient’s immune system fight the hepatitis C virus. As a result of Roche exercising a licenseextension option in december 2009, beginning in 2010 Roche has the right to manufacture all of its requirements for our proprietary PEGylation materials forPEGASYS ® and we supply raw materials or perform additional manufacturing, if any, only on a back-up basis. in connection with Roche’s exercise of the licenseextension option in december 2009, we received a payment of $31.0 million. in 2013, we delivered additional quantities of PEGylation materials used by Roche toproduce PEGASYS ® and MiRCERA ® for total consideration of approximately $18.6 million. The agreement expires on the expiration of our last relevant patentcontaining a valid claim. As of december 31, 2015, we no longer have any continuing manufacturing or supply obligations under this PEGASYS ® agreement.19Somave rt ® , Agreement with Pfizer, Inc.in January 2000, we entered into a license, manufacturing and supply agreement with Sensus drug development Corporation (subsequently acquired by PharmaciaCorp. in 2001 and then acquired by Pfizer, inc. in 2003), for the PEGylation of Somavert ® (pegvisomant), a human growth hormone receptor antagonist for thetreatment of acromegaly. We currently manufacture our proprietary PEGylation reagent for Pfizer, inc. on a price per gram basis. in June 2016, nektar terminatedthe license, manufacturing and supply agreement effective as of July 6, 2017. it is anticipated that nektar will continue to supply Pfizer with proprietaryPEGylation reagent under a new agreement.PEG-Intron ® , Agreement with Merck (through its acquisition of Schering-Plough Corporation)in February 2000, we entered into a manufacturing and supply agreement with Schering-Plough Corporation (Schering) for the manufacture and supply ofour proprietary PEGylation materials to be used by Schering in production of a PEGylated recombinant human interferon-alpha (PEG-intron). PEG-intron is atreatment for patients with hepatitis C. Schering was acquired by, and became a wholly-owned subsidiary of, Merck & Co., inc. We currently manufacture ourproprietary PEGylation materials for Schering on a price per gram basis. in december 2010, the parties amended the manufacturing and supply agreement toprovide for a transition plan to an alternative manufacturer and extension of the term through the successful manufacturing transition or december 31, 2018 at thelatest. The amended agreement provided for a one-time payment and milestone payments as well as increased pricing for any future manufacturing performed byus.Macugen ® , Agreement with Valeant Pharmaceuticals International, Inc.in 2002, we entered into a license, manufacturing and supply agreement with Eyetech, inc. (subsequently acquired by Valeant Pharmaceuticalsinternational, inc. or Valeant), pursuant to which we license certain intellectual property related to our proprietary PEGylation technology for the development andcommercialization of Macugen ® , a PEGylated anti-vascular endothelial growth factor aptamer currently approved in the u.S. and Eu for age-related maculardegeneration. We currently manufacture our proprietary PEGylation materials for Valeant on a price per gram basis. under the terms of the agreement, we willreceive royalties on net product sales in any particular country for the longer of ten years from the date of the first commercial sale of the product in that country orthe duration of patent coverage. We share a portion of the payments received under this agreement with Enzon Pharmaceuticals, inc. pursuant to the terms of theCross-License and option Agreement we have with them. our Agreement expires upon the expiration of our last relevant patent containing a valid claim. inaddition, Valeant may terminate the agreement if marketing authorization is withdrawn or marketing is no longer feasible due to certain circumstances, and eitherparty may terminate for cause if certain conditions are met.CIMZIA ® , Agreement with UCB Pharmain december 2000, we entered into a license, manufacturing and supply agreement covering our proprietary PEGylation materials for use in CiMZiA ®(certolizumab pegol) with Celltech Chiroscience Ltd., which was acquired by uCb Pharma (uCb) in 2004. under the terms of the agreement, uCb is responsiblefor all clinical development, regulatory, and commercialization expenses. We also manufacture and supply uCb with our proprietary PEGylation reagent used inthe manufacture of CiMZiA ® on a fixed price per gram. We were also entitled to receive royalties on net sales of the CiMZiA ® product for the longer of ten yearsfrom the first commercial sale of the product anywhere in the world or the expiration of patent rights in a particular country. in February 2012, we sold our rights toreceive royalties on future worldwide net sales of CiMZiA ® effective as of January 1, 2012 until the agreement with uCb is terminated or expires. This sale isfurther discussed in note 7 of item 8, Financial Statements and Supplementary data. We share a portion of the payments we receive from uCb with EnzonPharmaceuticals, inc. pursuant to the terms of the Cross-License and option Agreement we have with them. our agreement with uCb Pharma expires upon theexpiration of all of uCb’s royalty obligations, provided that the agreement can be extended for successive two year renewal periods upon mutual agreement of theparties. in addition, uCb may terminate the agreement should it cease the development and marketing of CiMZiA ® and either party may terminate for cause undercertain conditions.20MIRCERA ® (C.E.R.A.) (Continuous Erythropoietin Receptor Activator), Agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc.in december 2000, we entered into a license, manufacturing and supply agreement with F. hoffmann-La Roche Ltd and hoffmann-La Roche inc. (Roche),which was amended and restated in its entirety in december 2005. Pursuant to the agreement, we license our intellectual property related to our proprietaryPEGylation materials for the manufacture and commercialization of Roche’s MiRCERA ® product. MiRCERA ® is a novel continuous erythropoietin receptoractivator indicated for the treatment of anemia associated with chronic kidney disease in patients on dialysis and patients not on dialysis. As of the end of 2006, wewere no longer required to manufacture and supply our proprietary PEGylation materials for MiRCERA ® under our original agreement. in February 2012, weentered into a toll-manufacturing agreement with Roche under which we manufactured our proprietary PEGylation material for MiRCERA ® . Roche entered intothe toll-manufacturing agreement with the objective of establishing us as a secondary back-up source on a non-exclusive basis through december 31, 2016. underthe terms of this agreement, Roche paid us an up-front payment of $5.0 million plus a total of $22.0 million in performance-based milestone payments upon ourachievement of certain manufacturing readiness, validation and production milestones, including the delivery of specified quantities of PEGylation materials, all ofwhich were successfully completed by the end of January 2013. in 2013, we delivered additional quantities of PEGylation materials used by Roche to producePEGASYS ® and MiRCERA ® for total consideration of approximately $18.6 million. We were also entitled to receive royalties on net sales of the MiRCERA ®product. in February 2012, we sold all of our future rights to receive royalties on future worldwide net sales of MiRCERA ® effective as of January 1, 2012. Thissale is further discussed in note 7 of item 8, Financial Statements and Supplementary data. As of december 31, 2016, we no longer have any continuingmanufacturing or supply obligations under this MiRCERA ® agreement.Government RegulationThe research and development, clinical testing, manufacture and marketing of products using our technologies are subject to regulation by the FdA and bycomparable regulatory agencies in other countries. These national agencies and other federal, state and local entities regulate, among other things, research anddevelopment activities and the testing (in vitro, in animals, and in human clinical trials), manufacture, labeling, storage, recordkeeping, approval, marketing,advertising and promotion of our products.The approval process required by the FdA before a product using any of our technologies may be marketed in the u.S. depends on whether the chemicalcomposition of the product has previously been approved for use in other dosage forms. if the product is a new chemical entity that has not been previouslyapproved, the process includes the following: •extensive preclinical laboratory and animal testing; •submission of an investigational new drug application (ind) prior to commencing clinical trials; •adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for the intended indication; •extensive pharmaceutical development for the characterization of the chemistry, manufacturing process and controls for the active ingredient anddrug product; and •submission to the FdA of a new drug Application (ndA) for approval of a drug, a biological License Application (bLA) for approval of abiological product or a Premarket Approval Application (PMA) or Premarket notification 510(k) for a medical device product (a 510(k)).if the active chemical ingredient has been previously approved by the FdA, the approval process is similar, except that certain preclinical tests, includingthose relating to systemic toxicity normally required for the ind and ndA or bLA, and clinical trials, may not be necessary if the company has a right ofreference to existing preclinical or clinical data under section 505(j) of the Federal Food, drug, and Cosmetic Act (FdCA) or is eligible for approval underSection 505(b)(2) of the FdCA or the biosimilars provisions of the Public health Services Act.21Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the safety and efficacy of the product and its chosenformulation. Preclinical safety tests must be conducted by laboratories that comply with FdA good laboratory practices (GLP) regulations. The results of thepreclinical tests for drugs, biological products and combination products subject to the primary jurisdiction of the FdA’s Center for drug Evaluation and Research(CdER) or Center for biologic s Evaluation and Research (CbER) are submitted to the FdA as part of the ind and are reviewed by the FdA before clinical trialscan begin. Clinical trials may begin 30 days after receipt of the ind by the FdA, unless the FdA raises objections or requires c larification within that period.Clinical trials involve the administration of the drug to healthy volunteers or patients under the supervision of a qualified, identified medical investigator accordingto a protocol submitted in the ind for FdA review. dru g products to be used in clinical trials must be manufactured according to current good manufacturingpractices (cGMP). Clinical trials are conducted in accordance with protocols that detail the objectives of the study and the parameters to be used to moni torparticipant safety and product efficacy as well as other criteria to be evaluated in the study. Each protocol is submitted to the FdA in the ind.Apart from the ind process described above, each clinical study must be reviewed by an independent institutional Review board (iRb) and the iRb mustbe kept current with respect to the status of the clinical study. The iRb considers, among other things, ethical factors, the potential risks to subjects participating inthe trial and the possible liability to the institution where the trial is conducted. The iRb also reviews and approves the informed consent form to be signed by thetrial participants and any significant changes in the clinical study.Clinical trials are typically conducted in three sequential phases. Phase 1 involves the initial introduction of the drug into healthy human subjects (in mostcases) and the product generally is tested for tolerability, pharmacokinetics, absorption, metabolism and excretion. Phase 2 involves studies in a limited patientpopulation to: •determine the preliminary efficacy of the product for specific targeted indications; •determine dosage and regimen of administration; and •identify possible adverse effects and safety risks.if Phase 2 trials demonstrate that a product appears to be effective and to have an acceptable safety profile, Phase 3 trials are undertaken to evaluate thefurther clinical efficacy and safety of the drug and formulation within an expanded patient population at geographically dispersed clinical study sites and in largeenough trials to provide statistical proof of efficacy and tolerability. The FdA, the clinical trial sponsor, the investigators or the iRb may suspend clinical trials atany time if any one of them believes that study participants are being subjected to an unacceptable health risk. in some cases, the FdA and the drug sponsor maydetermine that Phase 2 trials are not needed prior to entering Phase 3 trials.Following a series of formal meetings and communications between the drug sponsor and the regulatory agencies, the results of product development,preclinical studies and clinical studies are submitted to the FdA as an ndA or bLA for approval of the marketing and commercial shipment of the drug product.The FdA may deny approval if applicable regulatory criteria are not satisfied or may require additional clinical or pharmaceutical testing or requirements. Even ifsuch data are submitted, the FdA may ultimately decide that the ndA or bLA does not satisfy all of the criteria for approval. Additionally, the approved labelingmay narrowly limit the conditions of use of the product, including the intended uses, or impose warnings, precautions or contraindications which could significantlylimit the potential market for the product. Further, as a condition of approval, the FdA may impose post-market surveillance, or Phase 4, studies or risk evaluationand mitigation strategies. Product approvals, once obtained, may be withdrawn if compliance with regulatory standards is not maintained or if safety concerns ariseafter the product reaches the market. The FdA may require additional post-marketing clinical testing and pharmacovigilance programs to monitor the effect of drugproducts that have been commercialized and has the power to prevent or limit future marketing of the product based on the results of such programs. Afterapproval, there are ongoing reporting obligations concerning adverse reactions associated with the product, including expedited reports for serious and unexpectedadverse events.Each manufacturing establishment producing the active pharmaceutical ingredient and finished drug product for the u.S. market must be registered with theFdA and typically is inspected by the FdA prior to ndA or bLA approval of a drug product manufactured by such establishment. Such inspections are also heldperiodically after the commercialization. Establishments handling controlled substances must also be licensed by the u.S. drug Enforcement Administration.Manufacturing establishments of u.S. marketed products are subject to inspections by the FdA for compliance with cGMP and other u.S. regulatory requirements.They are also subject to u.S. federal, state, and local regulations regarding workplace safety, environmental protection and hazardous and controlled substancecontrols, among others.22For product candidates currently under development utilizing pulmonary technology, the pulmonary inhaler devices are considered to be part of a drug anddevice combination for deep lung delivery of each specific molec ule. The FdA will make a determination as to the most appropriate center and division within theagency that will assume primary responsibility for the review of the applicable applications, which would consist of an ind and an ndA or bLA where CdER orCbE R are determined to have primary jurisdiction or an investigational device exemption application and PMA or 510(k) where the Center for devices andRadiological health (CdRh) is determined to have primary jurisdiction. in the case of our product candidates , CdER in consultation with CdRh could beinvolved in the review. The assessment of jurisdiction within the FdA is based upon the primary mode of action of the drug or the location of the specific expertisein one of the centers.Where CdRh is determined to have primary jurisdiction over a product, 510(k) clearance or PMA approval is required. Medical devices are classified intoone of three classes — Class i, Class ii, or Class iii — depending on the degree of risk associated with each medical device and the extent of control needed toensure safety and effectiveness. devices deemed to pose lower risks are placed in either Class i or ii, which requires the manufacturer to submit to the FdA aPremarket notification requesting permission to commercially distribute the device. This process is known as 510(k) clearance. Some low risk devices areexempted from this requirement. devices deemed by the FdA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devicesdeemed not substantially equivalent to a previously cleared 510(k) device are placed in Class iii, requiring PMA approval.in situations where our partners are responsible for clinical and regulatory approval procedures, we may still participate in this process by submitting to theFdA a drug master file developed and maintained by us which contains data concerning the manufacturing processes for the inhaler device, polymer conjugationmaterials or drug. For our proprietary products, we prepare and submit an ind and are responsible for additional clinical and regulatory procedures for productcandidates being developed under an ind. The clinical and manufacturing, development and regulatory review and approval process generally takes a number ofyears and requires the expenditure of substantial resources. our ability to manufacture and market products, whether developed by us or under collaborationagreements, ultimately depends upon the completion of satisfactory clinical trials and success in obtaining marketing approvals from the FdA and equivalentforeign health authorities.Sales of our products outside the u.S. are subject to local regulatory requirements governing clinical trials and marketing approval for drugs. Suchrequirements vary widely from country to country.in the u.S., under the orphan drug Act, the FdA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which isgenerally a disease or condition that affects fewer than 200,000 individuals in the u.S. The company that obtains the first FdA approval for a designated orphandrug for a rare disease receives marketing exclusivity for use of that drug for the designated condition for a period of seven years. in addition, the orphan drug Actprovides for protocol assistance, tax credits, research grants, and exclusions from user fees for sponsors of orphan products. once a product receives orphan drugexclusivity, a second product that is considered to be the same drug for the same indication generally may be approved during the exclusivity period only if thesecond product is shown to be “clinically superior” to the original orphan drug in that it is more effective, safer or otherwise makes a “major contribution to patientcare” or the holder of exclusive approval cannot assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease orcondition for which the drug was designated. Similar incentives also are available for orphan drugs in the Eu.in the u.S., the FdA may grant Fast Track or breakthrough Therapy designation to a product candidate, which allows the FdA to expedite the review ofnew drugs that are intended for serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs. important features of FastTrack or breakthrough Therapy designation include a potentially reduced clinical program and close, early communication between the FdA and the sponsorcompany to improve the efficiency of product development.Patents and Proprietary RightsWe own more than 215 u.S. and 750 foreign patents and a number of pending patent applications that cover various aspects of our technologies. We havefiled patent applications, and plan to file additional patent applications, covering various aspects of our advanced polymer conjugate technologies and ourproprietary product candidates. More specifically, our patents and patent applications cover polymer architecture, drug conjugates, formulations, methods ofmaking polymers and polymer conjugates, methods of administering polymer conjugates, and methods of manufacturing polymers and polymer conjugates. ourpatent portfolio contains patents and patent applications that encompass our advanced polymer conjugate technology platforms, some of which we acquired in ouracquisition of Shearwater Corporation in June 2001. our patent strategy is to file patent applications on innovations and improvements to cover a significantmajority of the major pharmaceutical markets in the world. Generally, patents have a term of twenty years from the earliest priority date (assuming all maintenancefees are paid). in some instances, patent terms can be increased or decreased, depending on the laws and regulations of the country or jurisdiction that issued thepatent.23in January 2002, we entered into a Cross-License and option Agreement with Enzon Pharmaceuticals, inc. (Enzon), pursuant to which we and Enzonprovided certain licenses to selected portions of each party’s PEGylation patent portfolio. in certain cases, we have the option to license certain of Enzon’sPEGylation patents for use in our proprietary products or for sublicenses to third parties in each case in exchange for payments to Enzon based on manufacturingprofits, revenue share or royalties on net sa les if a designated product candidate is approved in one or more markets.on december 31, 2008, we completed the sale of certain assets related to our pulmonary business, associated technology and intellectual property tonovartis Pharma AG and novartis Pharmaceuticals Corporation (together referred to as novartis) for a purchase price of $115.0 million in cash (novartisPulmonary Asset Sale). in connection with the novartis Pulmonary Asset Sale, as of december 31, 2008, we entered into an exclusive license agreement withnovartis Pharma AG. Pursuant to the exclusive license agreement, novartis Pharma AG grants back to us an exclusive, irrevocable, perpetual, royalty-free andworldwide license under certain specific patent rights and other related intellectual property rights acquired by novartis from us in the novartis Pulmonary AssetSale, as well as certain improvements or modifications thereto that are made by novartis. Certain of such patent rights and other related intellectual property rightsrelate to our development program for inhaled vancomycin or are necessary for us to satisfy certain continuing contractual obligations to third parties, including inconnection with development, manufacture, sale, and commercialization activities related to bAY41-6551 partnered with bayer healthcare LLC.We also rely on trade secret protection for our confidential and proprietary information. no assurance can be given that we can meaningfully protect ourtrade secrets. others may independently develop substantially equivalent confidential and proprietary information or otherwise gain access to, or disclose, our tradesecrets. Please refer to item 1A, Risk Factors, including but not limited to “We rely on trade secret protection and other unpatented proprietary rights for importantproprietary technologies, and any loss of such rights could harm our business, results of operations and financial condition.” in certain situations in which we workwith drugs covered by one or more patents, our ability to develop and commercialize our technologies may be affected by limitations in our access to theseproprietary drugs. Even if we believe we are free to work with a proprietary drug, we cannot guarantee that we will not be accused of, or determined to be,infringing a third party’s rights and be prohibited from working with the drug or found liable for damages. Any such restriction on access or liability for damageswould have a material adverse effect on our business, results of operations and financial condition.The patent positions of pharmaceutical and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues. There can beno assurance that patents that have issued will be held valid and enforceable in a court of law. Even for patents that are held valid and enforceable, the legal processassociated with obtaining such a judgment is time consuming and costly. Additionally, issued patents can be subject to opposition or other proceedings that canresult in the revocation of the patent or maintenance of the patent in amended form (and potentially in a form that renders the patent without commercially relevantor broad coverage). Further, our competitors may be able to circumvent and otherwise design around our patents. Even if a patent is issued and enforceable,because development and commercialization of pharmaceutical products can be subject to substantial delays, patents may expire early and provide only a shortperiod of protection, if any, following the commercialization of products encompassed by our patent. We may have to participate in interference proceedingsdeclared by the u.S. Patent and Trademark office, which could result in a loss of the patent and/or substantial cost to us. Please refer to item 1A, Risk Factors,including without limitation, “if any of our pending patent applications do not issue, or are deemed invalid following issuance, we may lose valuable intellectualproperty protection.”u.S. and foreign patent rights and other proprietary rights exist that are owned by third parties and relate to pharmaceutical compositions and reagents,medical devices and equipment and methods for preparation, packaging and delivery of pharmaceutical compositions. We cannot predict with any certainty which,if any, of these rights will be considered relevant to our technology by authorities in the various jurisdictions where such rights exist, nor can we predict withcertainty which, if any, of these rights will or may be asserted against us by third parties. We could incur substantial costs in defending ourselves and our partnersagainst any such claims. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which could effectively block ourability to develop or commercialize some or all of our products in the u.S. and abroad and could result in the award of substantial damages. in the event of a claimof infringement, we or our partners may be required to obtain one or more licenses from third parties. There can be no assurance that we can obtain a license to anytechnology that we determine we need on reasonable terms, if at all, or that we could develop or otherwise obtain alternative technology. The failure to obtainlicenses if needed may have a material adverse effect on our business, results of operations and financial condition. Please refer to item 1A, Risk Factors, includingwithout limitation, “We may not be able to obtain intellectual property licenses related to the development of our drug candidates on a commercially reasonablebasis, if at all.”24it is our policy to require our employees and consulta nts, outside scientific collaborators, sponsored researchers and other advisors who receive confidentialinformation from us to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements pro videthat all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential andnot disclosed to third parties except in specific circumstances. The agreements provi de that all inventions conceived by an employee shall be our property. Therecan be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized useor disclosure of such information.Customer Concentrationsour revenue is derived from our collaboration agreements with partners, under which we may receive contract research payments, milestone paymentsbased on clinical progress, regulatory progress or net sales achievements, royalties or product sales revenue. AstraZeneca, uCb, ophthotech and Roche represented29%, 21%, 19% and 11% of our revenue, respectively, for the year ended december 31, 2016. no other collaboration partner accounted for more than 10% of ourtotal revenue during the year ended december 31, 2016.BacklogPursuant to our collaboration agreements, we manufacture and supply our proprietary polymer conjugation materials. inventory is produced and sales aremade pursuant to customer purchase orders for delivery. The volume of our proprietary polymer conjugation materials actually ordered by our customers, as well asshipment schedules, are subject to frequent revisions that reflect changes in both the customers’ needs and our manufacturing capacity. in our partnered programswhere we provide contract research services, those services are typically provided under a work plan that is subject to frequent revisions that change based on thedevelopment needs and status of the program. The backlog at a particular time is affected by a number of factors, including scheduled date of manufacture anddelivery and development program status. in light of industry practice and our own experience, we do not believe that backlog as of any particular date is indicativeof future results.CompetitionCompetition in the pharmaceutical and biotechnology industry is intense and characterized by aggressive research and development and rapidly-evolvingscience, technology, and standards of medical care throughout the world. We frequently compete with pharmaceutical companies and other institutions with greaterfinancial, research and development, marketing and sales, manufacturing and managerial capabilities. We face competition from these companies not just inproduct development but also in areas such as recruiting employees, acquiring technologies that might enhance our ability to commercialize products, establishingrelationships with certain research and academic institutions, enrolling patients in clinical trials and seeking program partnerships and collaborations with largerpharmaceutical companies.Science and Technology CompetitionWe believe that our proprietary and partnered products will compete with others in the market on the basis of one or more of the following parameters:efficacy, safety, ease of use and cost. We face intense science and technology competition from a multitude of technologies seeking to enhance the efficacy, safetyand ease of use of approved drugs and new drug molecule candidates. A number of the drug candidates in our pipeline have direct and indirect competition fromlarge pharmaceutical companies and biopharmaceutical companies. With our advanced polymer conjugate technologies, we believe we have competitiveadvantages relating to factors such as efficacy, safety, ease of use and cost for certain applications and molecules. We constantly monitor scientific and medicaldevelopments in order to improve our current technologies, seek licensing opportunities where appropriate, and determine the best applications for our technologyplatforms.in the fields of advanced polymer conjugate technologies, our competitors include biogen idec inc., Savient Pharmaceuticals, inc., dr. Reddy’sLaboratories, Ltd., Mountain View Pharmaceuticals, inc., Sunbio Corporation, noF Corporation, and novo nordisk A/S (assets formerly held by neoseTechnologies, inc.). Several other chemical, biotechnology and pharmaceutical companies may also be developing advanced polymer conjugate technology ortechnologies intended to deliver similar scientific and medical benefits. Some of these companies license intellectual property or PEGylation materials to othercompanies, while others apply the technology to create their own drug candidates. 25Product and Program Specific Competit ionMOVANTIK ® (previously referred to as naloxegol and NKTR-118) (orally-available peripheral opioid antagonist)There are no other once-daily oral drugs that act specifically to block or reverse the action of opioids on receptors in the gastrointestinal tract which areapproved specifically for the treatment of opioid-induced constipation (oiC) or opioid bowel dysfunction (obd) in patients with chronic, non-cancer pain. Theonly approved oral treatment for opioid-induced constipation in adults with chronic, non-cancer pain is a twice daily oral therapy called AMiTiZA ®(lubiprostone), which acts by specifically activating CiC-2 chloride channels in the gastrointestinal tract to increase secretions. AMiTiZA ® is marketed bySucampo Pharmaceuticals and Takeda. There is also a subcutaneous treatment and an oral treatment known as RELiSToR® which is marketed by ValeantPharmaceuticals, Ltd (formerly Salix) under a license from Progenics Pharmaceuticals, inc. in 2014, RELiSToR ® Subjectaneous injection was approved by theFdA for adult patients with chronic non-cancer pain. on July 22, 2016, Relistor (methylnaltrexone bromide) oral tablets for the treatment of oCi in adult patientswith chronic non-cancer pain was approved by FdA. other therapies used to treat oiC and obd include over-the-counter laxatives and stool softeners, such asdocusate sodium, senna, and milk of magnesia. These therapies do not address the underlying cause of constipation as a result of opioid use and are generallyviewed as ineffective or only partially effective to treat the symptoms of oiC and obd.There are a number of companies developing potential products which are in various stages of clinical development and are being evaluated for thetreatment of oiC and obd in different patient populations. Potential competitors include Merck & Co., inc., GlaxoSmithKline plc, ironwood Pharmaceuticals, inc.in collaboration with Actavis plc, Purdue Pharma L.P. in collaboration with Shionogi & Co., Ltd., Mundipharma int. Limited, Theravance, inc., develco Pharma,Sucampo Pharmaceuticals, inc., and Takeda Pharmaceutical Company Limited.ADYNOVATE ® (previously referred to as BAX 855, PEGylated rFVIII)on June 6, 2014, the FdA approved biogen idec ’s ELoCTATE™ [Antihemophilic Factor (Recombinant), Fc Fusion Protein] for the control andprevention of bleeding episodes, perioperative (surgical) management and routine prophylaxis in adults and children with hemophilia A. ELoCTATE™ isintended to be an extended half-life Factor Viii therapy with prolonged circulation in the body with the potential to extend the interval between prophylacticinfusions. Prior to its 2014 approval, the fusion protein in ELoCTATE™ was not used outside of the clinical trial setting for hemophilia A patients. There areother long-acting Factor Viii programs in late-stage development for hemophilia A patients. bayer healthcare and novo nordisk have ongoing Phase 3 clinicaldevelopment programs for longer acting Factor Viii proteins based on pegylation technology approaches. These programs, if developed successfully and approvedby health authorities, would be competitors in the longer acting Factor Viii market.NKTR-181 (mu-opioid analgesic molecule for chronic pain)There are numerous companies developing pain therapies designed to have less abuse potential primarily through formulation technologies and techniquesapplied to existing pain therapies. Potential competitors include Acura Pharmaceuticals, inc., Cara Therapeutics, inc., Collegium Pharmaceutical, inc., Egalet Ltd,Elite Pharmaceuticals, inc., Endo health Solutions inc., KemPharm, inc., Pfizer, inc., Purdue Pharma L.P., and Teva Pharmaceutical industries Ltd.ONZEALD TM (next-generation, long acting topoisomerase I inhibitor)There are a number of chemotherapies and cancer therapies approved today and in various stages of clinical development for advanced breast cancer. Thesetherapies are only partially effective in treating advanced or metastatic breast cancer and none have a specific indication in either the u.S. or Europe for treatmentof patients with advanced breast cancer and co-existing brain metastases. These therapies include but are not limited to: Abraxane ® (paclitaxel protein-boundparticles for injectable suspension (albumin bound)), Afinitor ® (everolimus), Ellence ® (epirubicin), Gemzar ® (gemcitabine), halaven ® (eribulin), herceptin ®(trastuzumab), ixempra ® (ixabepilone), navelbine ® (vinolrebine), Xeloda ® (capecitabine) and Taxotere ® (docetaxel). Major pharmaceutical or biotechnologycompanies with approved drugs or drugs in development for these cancers include bristol-Myers Squibb Company, Eisai, inc., Roche holding Group (including itsGenentech subsidiary), GlaxoSmithKline plc, Pfizer, inc., Eli Lilly & Co., Sanofi Aventis S.A., and others.BAY41-6551 (Amikacin Inhale, formerly NKTR-061)There are currently no approved drugs on the market for adjunctive treatment or prevention of gram-negative pneumonias in mechanically ventilatedpatients which are also administered via the pulmonary route. The current standard of care includes approved intravenous antibiotics which are partially effectivefor the treatment of either hospital-acquired pneumonia or ventilator-associated pneumonia in patients on mechanical ventilators. These drugs include drugs thatfall into the categories of antipseudomonal cephalosporins, antipseudomonal carbepenems, beta-lactam/beta-lactamase inhibitors, antipseudomonalfluoroquinolones, such as ciprofloxacin or levofloxacin, and aminoglycosides, such as amikacin, gentamycin or tobramycin.26NKTR-214 (immunostimulatory CD122-biased cytokine)There are numerous companies engaged in developing immunotherapies to be used alone, or in combination, to treat a wide range of oncology indicationstargeting both solid and liquid tumors. in particular, we expect to compete with therapies with tumor infiltrating lymphocytes, or TiLS, chimeric antigen receptor-expressing T cells, or CAR-T, cytokine-based therapies, and checkpoint inhibitors. Potential competitors in the TiL and CAR-T space include Kite Pharma/nCi,Adaptimmune LLC, Celgene Corporation, Juno Therapeutics, and novartis, Alkermes, Altor, and Armo in the cytokine-based therapies space, and Tesaro,Macrogenics, Merck, bMS, and Roche in the checkpoint inhibitor space.NKTR-358There are a number of competitors in various stages of clinical development that are working on programs which are designed to correct the underlyingimmune system imbalance in the body due to auto-immune disease. in particular, we expect to compete with therapies that could be cytokine-based therapies(Symbiotix, LLC and Tizona Therapeutics), T regulatory cell therapies (Targazyme, inc., Juno Therapeutics and Tract Therapeutics, inc.), or iL-2-based andtoleragen-based therapies (Celgene Corporation, Amgen inc., Tolera Therapeutics, inc., and Caladrius bioSciences, inc.).Research and Developmentour total research and development expenditures can be disaggregated into the following significant types of expenses (in millions): Year Ended December 31, 2016 2015 2014 Third party and direct materials costs $98.2 $89.3 $57.9 Personnel, overhead and other costs 84.6 77.8 75.6 Stock-based compensation and depreciation 21.0 15.7 14.2 Research and development expense $203.8 $182.8 $147.7 Manufacturing and SupplyWe have a manufacturing facility located in huntsville, Alabama that is capable of manufacturing our proprietary PEGylation materials for activepharmaceutical ingredients (APis). The facility is also used to produce APis and finished drug products to support the early phases of clinical development of ourproprietary drug candidates. The facility and associated equipment are designed and operated to be consistent with all applicable laws and regulations.As we do not maintain the capability to manufacture APis (including biologics) nor finished drug products for all of our development programs, weprimarily utilize contract manufacturers to manufacture active pharmaceutical ingredients and finished drug product for us. We source drug starting materials forour manufacturing activities from one or more suppliers. For the drug starting materials necessary for our proprietary drug candidate development, we haveagreements for the supply of such drug components with drug manufacturers or suppliers that we believe have sufficient capacity to meet our demands. however,from time to time, we source critical raw materials and services from one or a limited number of suppliers and there is a risk that if such supply or services wereinterrupted, it would materially harm our business. in addition, we typically order raw materials and services on a purchase order basis and do not enter into long-term dedicated capacity or minimum supply arrangements. We also utilize the services of contract manufacturers to manufacture APis required for later phases ofclinical development and eventual commercialization for us under all applicable laws and regulations.EnvironmentAs a manufacturer of PEG reagents for the u.S. market, we are subject to inspections by the FdA for compliance with cGMP and other u.S. regulatoryrequirements, including u.S. federal, state and local regulations regarding environmental protection and hazardous and controlled substance controls, among others.Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. We have incurred, and may continue toincur, significant expenditures to ensure we are in compliance with these laws and regulations. We would be subject to significant penalties for failure to complywith these laws and regulations.Employees and ConsultantsAs of december 31, 2016 we had 468 employees, of which 358 employees were engaged in research and development, commercial operations and qualityactivities and 110 employees were engaged in general administration and business development.27of the 468 employees, 392 were located in the u.S. and 76 were located in india. We have a number of employees who hold advanced degrees, such as Ph.d.s .none of our employees are covered by a collective bargaining agreement, and we have experienced no work stoppages. We believe that we maintain good relationswith our employees.To complement our own expert professional staff, we utilize specialists in regulatory affairs, pharmacovigilance, process engineering, manufacturing,quality assurance, clinical development and business development. These individuals include scientific advisors as well as independent consultants.Available Informationour website address is http://www.nektar.com . The information in, or that can be accessed through, our website is not part of this annual report on Form 10-K. our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports are available, free ofcharge, on or through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities ExchangeCommission (SEC). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, nE, Washington, d.C.20549. information on the operation of the Public Reference Room can be obtained by calling 1-800-SEC-0330. The SEC maintains an internet site that containsreports, proxy and information statements and other information regarding our filings at www.sec.gov.EXECUTIVE OFFICERS OF THE REGISTRANTThe following table sets forth the names, ages and positions of our executive officers as of February 13, 2017: Name Age Positionhoward W. Robin 64 director, President and Chief Executive officerJohn nicholson 65 Senior Vice President and Chief operating officerGil M. Labrucherie, J.d. 45 Senior Vice President and Chief Financial officerStephen K. doberstein, Ph.d. 58 Senior Vice President and Chief Scientific officerivan P. Gergel, M.d. 56 Senior Vice President, drug development and Chief Medical officerManinder hora, Ph.d. 63 Senior Vice President, Pharmaceutical development and Manufacturing operationsJillian b. Thomsen 51 Senior Vice President, Finance and Chief Accounting officer Howard W. Robin has served as our President and Chief Executive officer since January 2007 and has served as a member of our board of directors sinceFebruary 2007. Mr. Robin served as Chief Executive officer, President and a director of Sirna Therapeutics, inc., a biotechnology company, from July 2001 tonovember 2006 and from January 2001 to June 2001, served as their Chief operating officer, President and as a director. From 1991 to 2001, Mr. Robin wasCorporate Vice President and General Manager at berlex Laboratories, inc. (berlex), a pharmaceutical products company that is a subsidiary of Schering, AG, andfrom 1987 to 1991 he served as Vice President of Finance and business development and Chief Financial officer of berlex. From 1984 to 1987, Mr. Robin wasdirector of business Planning and development at berlex. he was a Senior Associate with Arthur Andersen & Co. prior to joining berlex. Mr. Robin serves as adirector of the biotechnology industry organization, the world’s largest biotechnology industry trade organization, and also serves as a director of baybio, a non-profit trade association serving the northern California life sciences community. he received his b.S. in Accounting and Finance from Fairleigh dickinsonuniversity in 1974.John Nicholson has served as our Senior Vice President and Chief operating officer since June 2016. Mr. nicholson joined the Company as Senior VicePresident of Corporate development and business operations in october 2007 and was appointed Senior Vice President and Chief Financial officer in december2007 and served as our Chief Financial officer until June 2016 when he was promoted to Senior Vice President and Chief operating officer. before joiningnektar, Mr. nicholson spent 18 years in various executive roles at Schering berlin, inc., the u.S. management holding company of bayer Schering Pharma AG, apharmaceutical company. From 1997 to September 2007, Mr. nicholson served as Schering berlin inc.’s Vice President of Corporate development and Treasurer.From 2001 to September 2007, he concurrently served as President of Schering berlin insurance Co., and from February 2007 through September 2007, he alsoconcurrently served as President of bayer Pharma Chemicals and Schering berlin Capital Corp. Mr. nicholson holds a b.b.A. from the university of Toledo.Gil M. Labrucherie has served as our Senior Vice President and Chief Financial officer since June 2016. Mr. Labrucherie served as our Vice President,Corporate Legal from october 2005 through April 2007 and served as our Senior Vice President, General Counsel and Secretary from April 2007 through June2016 when he was promoted to Senior Vice President and Chief Financial officer. From october 2000 to September 2005, Mr. Labrucherie was Vice President ofCorporate development at E2open. While at E2open, Mr. Labrucherie was responsible for global corporate alliances and merger and acquisitions. Prior to E2open,he was28the Senior director of Corporate development at AltaVista Company, an internet search company, where he was responsible for strategic partnerships and mergersand acquisitions. Mr. Labrucherie began his career as an associate in the corporate practice of the law firm of Wilson Sonsini Goodrich & Rosati, P.C.Mr. Labrucherie received his J.d. from the berkeley Law School and a b.A. from the university of California davis.Stephen K. Doberstein, Ph.D. has served as our Senior Vice President and Chief Scientific officer since January 2010. From october 2008 throughdecember 2009, dr. doberstein served as Vice President, Research at Xoma (uS) LLC, a publicly traded clinical stage biotechnology company. From July 2004until August 2008, he served as Vice President, Research at privately held Five Prime Therapeutics, inc., a clinical stage biotechnology company. From September2001 until July 2004, dr. doberstein was Vice President, Research at privately held Xencor, inc., a clinical stage biotechnology company. From 1997 to 2000, heheld various pharmaceutical research positions at Exelixis, inc. (Exelixis), a publicly traded clinical stage biotechnology company. Prior to working at Exelixis,dr. doberstein was a howard hughes Postdoctoral Fellow and a Muscular dystrophy Association Senior Postdoctoral Fellow at the university of California,berkeley. dr. doberstein received his Ph.d. in biochemistry, Cell and Molecular biology from the Johns hopkins university School of Medicine and received ab.S. in Chemical Engineering from the university of delaware.Ivan P. Gergel, M.D. has served as our Senior Vice President, drug development and Chief Medical officer since May 2014. From April 2008 throughMarch 2014, dr. Gergel served as Executive Vice President, Research & development and Chief Scientific officer of Endo Pharmaceuticals, a pharmaceuticalcompany. Prior to joining Endo Pharmaceuticals, he was Senior Vice President of Scientific Affairs and President of the Forest Research institute of ForestLaboratories inc. Prior to that, dr. Gergel served as Vice President and Chief Medical officer at Forest and Executive Vice President of the Forest Researchinstitute. he joined Forest in 1998 as Executive director of Clinical Research following nine years at SmithKline beecham, and was named Vice President ofClinical development and Clinical Affairs in 1999. dr. Gergel is a member of the board of directors of Corium international, inc., a commercial-stagebiopharmaceutical company. dr. Gergel received his M.d. from the Royal Free Medical School of the university of London and an MbA from the WhartonSchool.Maninder Hora, Ph.D. has served as our Senior Vice President, Pharmaceutical development and Manufacturing operations since August 2010. From July2006 to July 2010, he held various executive positions most recently as Vice President, Product and Quality operations at Facet biotech Corporation (now Abbviebiotherapeutics), a clinical stage biotechnology company, which was acquired in 2010 by Abbvie biotherapeutics (formerly Abbot). From 1986 to 2006, dr. horaheld positions of increasing responsibility with Chiron Corporation (acquired in 2005 by novartis), a pharmaceutical company, serving most recently at Chiron asVice President of Process and Product development. dr. hora has also held positions at Wyeth Pharmaceuticals and GlaxoSmithKline plc prior to joining Chiron.dr. hora served as a key member of various teams that successfully registered ten drugs or vaccines in the u.S. and Europe during his professional career. dr. horacompleted his Ph.d. in bioengineering from the indian institute of Technology, delhi, india, and was a Fulbright Scholar at the university of Washington, andreceived his b.S. in chemistry from the university of Jabalpur.Jillian B. Thomsen has served as our Senior Vice President, Finance and Chief Accounting officer since February 2010. From March 2006 through March2008, Ms. Thomsen served as our Vice President Finance and Corporate Controller and from April 2008 through January 2010 she served as our Vice PresidentFinance and Chief Accounting officer. before joining nektar, Ms. Thomsen was Vice President Finance and deputy Corporate Controller of Calpine Corporationfrom September 2002 to February 2006. Ms. Thomsen is a certified public accountant and previously was a senior manager at Arthur Andersen LLP, where sheworked from 1990 to 2002, and specialized in audits of multinational consumer products, life sciences, manufacturing and energy companies. Ms. Thomsen holds aMasters of Accountancy from the university of denver and a b.A. in business Economics from Colorado College.29Item 1A.Ri sk FactorsWe are providing the following cautionary discussion of risk factors, uncertainties and assumptions that we believe are relevant to our business. These arefactors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results and our forward-looking statements. We note these factors for investors as permitted by Section 21E of the Exchange Act and Section 27A of the Securities Act. You shouldunderstand that it is not possible to predict or identify all such factors. Consequently, you should not consider this section to be a complete discussion of allpotential risks or uncertainties that may substantially impact our business. Moreover, we operate in a competitive and rapidly changing environment. new factorsemerge from time to time and it is not possible to predict the impact of all of these factors on our business, financial condition or results of operations.Risks Related to Our BusinessDrug development is a long and inherently uncertain process with a high risk of failure at every stage of development.We have a number of proprietary drug candidates and partnered drug candidates in research and development ranging from the early discovery researchphase through preclinical testing and clinical trials. Preclinical testing and clinical studies are long, expensive, difficult to design and implement and highlyuncertain as to outcome. it will take us, or our collaborative partners, many years to conduct extensive preclinical tests and clinical trials to demonstrate the safetyand efficacy in humans of our product candidates. The start or end of a clinical study is often delayed or halted due to changing regulatory requirements,manufacturing challenges, required clinical trial administrative actions, slower than anticipated patient enrollment, changing standards of care, availability orprevalence of use of a comparator drug or required prior therapy, clinical outcomes, or our and our partners’ financial constraints.drug development is a highly uncertain scientific and medical endeavor, and failure can unexpectedly occur at any stage of preclinical and clinicaldevelopment. Typically, there is a high rate of attrition for drug candidates in preclinical and clinical trials due to scientific feasibility, safety, efficacy, changingstandards of medical care and other variables. The risk of failure increases for our drug candidates that are based on new technologies, such as the application ofour advanced polymer conjugate technology to onZEALd TM , nKTR-181, nKTR-214 and other drug candidates currently in discovery research or preclinicaldevelopment. For example, while we believe our nKTR-181 Phase 3 clinical program employs the most appropriate clinical trial design, we were unable toidentify a single cause for the Phase 2 study for nKTR-181 not meeting its primary efficacy endpoint, and therefore there is increased risk in effectively designinga Phase 3 clinical program for nKTR-181. The failure of one or more of our drug candidates could have a material adverse effect on our business, financialcondition and results of operations.The risk of clinical failure for any drug candidate remains high prior to regulatory approval.A number of companies have suffered significant unforeseen failures in clinical studies due to factors such as inconclusive efficacy or safety, even afterachieving preclinical proof-of-concept or positive results from earlier clinical studies that were satisfactory both to them and to reviewing regulatory authorities.Clinical study outcomes remain very unpredictable and it is possible that one or more of our clinical studies could fail at any time due to efficacy, safety or otherimportant clinical findings or regulatory requirements. The results from preclinical testing or early clinical trials of a product candidate may not predict the resultsthat will be obtained in later phase clinical trials of the product candidate. We, the FdA, iRb, an independent ethics committee, or other applicable regulatoryauthorities may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects participating in such trials are beingexposed to unacceptable health risks or adverse side effects. Similarly, an iRb or ethics committee may suspend a clinical trial at a particular trial site. if one ormore of our drug candidates fail in clinical studies, it could have a material adverse effect on our business, financial condition and results of operations.Our results of operations and financial condition depend significantly on the ability of our collaboration partners to successfully develop and market drugsand they may fail to do so.under our collaboration agreements with various pharmaceutical or biotechnology companies, our collaboration partner is generally solely responsible for: •designing and conducting large scale clinical studies; •preparing and filing documents necessary to obtain government approvals to sell a given drug candidate; and/or •marketing and selling the drugs when and if they are approved.30our reliance on collaboration partners poses a number of significant risks to our business, including risks that: •we have very little control over the timing and level of resources that our collaboration partners dedicate to commercial marketing efforts such as theamount of investment in sales and marketing personnel, general marketing campaigns, direct-to-consumer advertising, product sampling, pricingagreements and rebate strategies with government and private payers, manufacturing and supply of drug product, and other marketing and sellingactivities that need to be undertaken and well executed for a drug to have the potential to achieve commercial success; •collaboration partners with commercial rights may choose to devote fewer resources to the marketing of our partnered drugs than they devote to theirown drugs or other drugs that they have in-licensed; •we have very little control over the timing and amount of resources our partners devote to development programs in one or more major markets; •disagreements with partners could lead to delays in, or termination of, the research, development or commercialization of product candidates or tolitigation or arbitration proceedings; •disputes may arise or escalate in the future with respect to the ownership of rights to technology or intellectual property developed with partners; •we do not have the ability to unilaterally terminate agreements (or partners may have extension or renewal rights) that we believe are not oncommercially reasonable terms or consistent with our current business strategy; •partners may be unable to pay us as expected; and •partners may terminate their agreements with us unilaterally for any or no reason, in some cases with the payment of a termination fee penalty and inother cases with no termination fee penalty.Given these risks, the success of our current and future collaboration partnerships is highly unpredictable and can have a substantial negative or positiveimpact on our business—in particular, we expect the commercial outcomes of MoVAnTiK ® , MoVEnTiG ® and AdYnoVATE ® (previously referred to asbAX 855) to have a particularly significant impact on our near to mid- term financial results and financial condition. Additionally, there are also several importantdrugs in later stage development with collaboration partners including Amikacin inhale, Cipro dPi, and Fovista ® . if the approved drugs fail to achievecommercial success or the drugs in development fail to have positive late stage clinical outcomes sufficient to support regulatory approval in major markets, itcould significantly impair our access to capital necessary to fund our research and development efforts for our proprietary drug candidates. if we are unable toobtain sufficient capital resources to advance our drug candidate pipeline, it would negatively impact the value of our business, results of operations and financialcondition.We are a party to numerous collaboration agreements and other significant agreements which contain complex commercial terms that could result indisputes, litigation or indemnification liability that could adversely affect our business, results of operations and financial condition.We currently derive, and expect to derive in the foreseeable future, all of our revenue from collaboration agreements with biotechnology and pharmaceuticalcompanies. These collaboration agreements contain complex commercial terms, including: •clinical development and commercialization obligations that are based on certain commercial reasonableness performance standards that can often bedifficult to enforce if disputes arise as to adequacy of our partner’s performance; •research and development performance and reimbursement obligations for our personnel and other resources allocated to partnered drug candidatedevelopment programs; •clinical and commercial manufacturing agreements, some of which are priced on an actual cost basis for products supplied by us to our partners withcomplicated cost allocation formulas and methodologies; •intellectual property ownership allocation between us and our partners for improvements and new inventions developed during the course of thecollaboration; •royalties on drug sales based on a number of complex variables, including net sales calculations, geography, scope of patent claim coverage, patentlife, generic competitors, bundled pricing and other factors; and •indemnity obligations for intellectual property infringement, product liability and certain other claims.We are a party to numerous significant collaboration agreements and other strategic transaction agreements (e.g., financings and asset divestitures) thatcontain complex representations and warranties, covenants and indemnification obligations. if we are found to have materially breached such agreements, it couldsubject us to substantial liabilities and harm our financial condition.31From time to time, we are involved in litigation matters involving the interpretation and application of complex terms and conditions of our agreements. Forexample, in February 2015 we filed a claim against Allergan and MAP seeking monetary damages re lated to a dispute over the economic sharing provisions of ourcollaboration agreement with MAP. on August 14, 2015, Enzon, inc. filed a breach of contract claim for alleged unpaid licensing fees. in 2013, we settled abreach of contract litigation matter with the Research Foundation of the State university of new York (SunY) pursuant to which we paid an aggregate of $12.0million. one or more disputes may arise or escalate in the future regarding our collaboration agreements, transaction documents, or thi rd-party license agreementsthat may ultimately result in costly litigation and unfavorable interpretation of contract terms, which would have a material adverse effect on our business, financialcondition and results of operations.If we or our partners do not obtain regulatory approval for our drug candidates on a timely basis, or at all, or if the terms of any approval imposesignificant restrictions or limitations on use, our business, results of operations and financial condition will be negatively affected.We or our partners may not obtain regulatory approval for drug candidates on a timely basis, or at all, or the terms of any approval (which in some countriesincludes pricing approval) may impose significant restrictions or limitations on use. drug candidates must undergo rigorous animal and human testing and anextensive review process for safety and efficacy by the FdA and equivalent foreign regulatory authorities. The time required for obtaining regulatory decisions isuncertain and difficult to predict. The FdA and other u.S. and foreign regulatory authorities have substantial discretion, at any phase of development, to terminateclinical studies, require additional clinical development or other testing, delay or withhold registration and marketing approval and mandate product withdrawals,including recalls. For example, while data from certain pre-specified subgroups in the bEACon study was positive, the study did not achieve statisticalsignificance for its primary endpoint and the FdA and European Medicines Agency rarely approve drugs on the basis of studies that do not achieve statisticalsignificance on the primary endpoint. Further, regulatory authorities have the discretion to analyze data using their own methodologies that may differ from thoseused by us or our partners which could lead such authorities to arrive at different conclusions regarding the safety or efficacy of a drug candidate. in addition,undesirable side effects caused by our drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a morerestricted label or the delay or denial of regulatory approval by regulatory authorities. For example, AstraZeneca will be conducting a post-marketing, observationalepidemiological study comparing MoVAnTiK ® to other treatments of oiC in patients with chronic, non-cancer pain and the results of this study could at somepoint in the future negatively impact the labeling, regulatory status, and commercial potential of MoVAnTiK ® .Even if we or our partners receive regulatory approval of a product, the approval may limit the indicated uses for which the drug may be marketed. ourpartnered drugs that have obtained regulatory approval, and the manufacturing processes for these products, are subject to continued review and periodicinspections by the FdA and other regulatory authorities. discovery from such review and inspection of previously unknown problems may result in restrictions onmarketed products or on us, including withdrawal or recall of such products from the market, suspension of related manufacturing operations or a more restrictedlabel. The failure to obtain timely regulatory approval of product candidates, any product marketing limitations or a product withdrawal would negatively impactour business, results of operations and financial condition.We have substantial future capital requirements and there is a risk we may not have access to sufficient capital to meet our current business plan. If we donot receive substantial milestone or royalty payments from our existing collaboration agreements, execute new high value collaborations or otherarrangements, or are unable to raise additional capital in one or more financing transactions, we would be unable to continue our current level ofinvestment in research and development.As of december 31, 2016, we had cash and investments in marketable securities valued at approximately $389.1 million. Also, as of december 31, 2016,we had $255.1 million in debt, including $250.0 million in principal of senior secured notes and $5.1 million of capital lease obligations. While we believe that ourcash position will be sufficient to meet our liquidity requirements through at least the next 12 months, our future capital requirements will depend upon numerousunpredictable factors, including: •the cost, timing and outcomes of clinical studies and regulatory reviews of our proprietary drug candidates that we have licensed to our collaborationpartners —important examples include Amikacin inhale and CiPRo inhale licensed to bayer; •the commercial launch and sales levels of products marketed by our collaboration partners for which we are entitled to royalties and sales milestones—importantly, the level of success in marketing and selling MoVAnTiK ® by AstraZeneca in the u.S. and AdYnoVATE ® by baxalta globally,as well as MoVEnTiG ® (the naloxegol brand name in the Eu) by Kirin in the Eu; •if and when we receive potential milestone payments and royalties from our existing collaborations if the drug candidates subject to thosecollaborations achieve clinical, regulatory or commercial success; •the progress, timing, cost and results of our clinical development programs;32 •the success, progress, timing and costs of our efforts to implement new collab orations, licenses and other transactions that increase our current netcash, such as the sale of additional royalty interests held by us, term loan or other debt arrangements, and the issuance of securities; •the number of patients, enrollment criteria, primary and secondary endpoints, and the number of clinical studies required by the regulatory authoritiesin order to consider for approval our drug candidates and those of our collaboration partners; •our general and administrative expenses, capital expenditures and other uses of cash; and •disputes concerning patents, proprietary rights, or license and collaboration agreements that negatively impact our receipt of milestone payments orroyalties or require us to make significant payments arising from licenses, settlements, adverse judgments or ongoing royalties.A significant multi-year capital commitment is required to advance our drug candidates through the various stages of research and development in order togenerate sufficient data to enable high value collaboration partnerships with significant upfront payments or to successfully achieve regulatory approval. in theevent we do not enter into any new collaboration partnerships with significant upfront payments and we choose to continue our later stage research anddevelopment programs, we may need to pursue financing alternatives, including dilutive equity-based financings, such as an offering of convertible debt orcommon stock, which would dilute the percentage ownership of our current common stockholders and could significantly lower the market value of our commonstock. if sufficient capital is not available to us or is not available on commercially reasonable terms, it could require us to delay or reduce one or more of ourresearch and development programs. if we are unable to sufficiently advance our research and development programs, it could substantially impair the value ofsuch programs and result in a material adverse effect on our business, financial condition and results of operations.While we have conducted numerous experiments using laboratory and home-based chemistry techniques that have not been able to convert NKTR-181 intoa rapid-acting and more abusable opioid, there is a risk that a technique could be discovered in the future to convert NKTR-181 into a rapid-acting andmore abusable opioid, which would significantly diminish the value of this drug candidate.An important objective of our nKTR-181 drug development program is to create a unique opioid molecule that does not rapidly enter a patient’s centralnervous system and therefore has the potential to be less susceptible to abuse than alternative opioid therapies. To date, we have conducted numerous experimentsusing laboratory and home-based chemistry techniques that have been unable to convert nKTR-181 into a rapidly-acting, more abusable form of opioid. in thefuture, an alternative chemistry technique, process or method of administration, or combination thereof, may be discovered to enable the conversion of nKTR-181into a more abusable opioid, which could significantly and negatively impact the commercial potential or diminish the value of nKTR-181.The commercial potential of a drug candidate in development is difficult to predict. If the market size for a new drug is significantly smaller than weanticipate, it could significantly and negatively impact our revenue, results of operations and financial condition.it is very difficult to estimate the commercial potential of product candidates due to important factors such as safety and efficacy compared to otheravailable treatments, including potential generic drug alternatives with similar efficacy profiles, changing standards of care, third party payer reimbursementstandards, patient and physician preferences, drug scheduling status, the availability of competitive alternatives that may emerge either during the long drugdevelopment process or after commercial introduction, and the availability of generic versions of our product candidates following approval by regulatoryauthorities based on the expiration of regulatory exclusivity or our inability to prevent generic versions from coming to market by asserting our patents. if due toone or more of these risks the market potential for a drug candidate is lower than we anticipated, it could significantly and negatively impact the commercial termsof any collaboration partnership potential for such drug candidate or, if we have already entered into a collaboration for such drug candidate, the revenue potentialfrom royalty and milestone payments could be significantly diminished and this would negatively impact our business, financial condition and results of operations. We also depend on our relationships with other companies for sales and marketing performance and the commercialization of product candidates. Poorperformance by these companies, or disputes with these companies, could negatively impact our revenue and financial condition. If we are unable to establish and maintain collaboration partnerships on attractive commercial terms, our business, results of operations and financialcondition could suffer.We intend to continue to seek partnerships with pharmaceutical and biotechnology partners to fund a portion of our research and development capitalrequirements. The timing of new collaboration partnerships is difficult to predict due to availability of clinical data, the outcomes from our clinical studies, thenumber of potential partners that need to complete due diligence and approval processes, the definitive agreement negotiation process and numerous otherunpredictable factors that can delay, impede or prevent significant transactions. if we are unable to find suitable partners or negotiate collaboration arrangementswith favorable commercial33terms with respect to our exis ting and future drug candidates or the licensing of our intellectual property, or if any arrangements we negotiate, or have negotiated,are terminated, it could have a material adverse effect on our business, financial condition and results of operations.Preliminary and interim data from our clinical studies that we announce or publish from time to time are subject to audit and verification procedures thatcould result in material changes in the final data and may change as more patient data become available.From time to time, we publish preliminary or interim data from our clinical studies. Preliminary data remain subject to audit confirmation and verificationprocedures that may result in the final data being materially different from the preliminary data we previously published. interim data are also subject to the riskthat one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. As a result, preliminaryand interim data should be viewed with caution until the final data are available. Material adverse changes in the final data could significantly harm our businessprospects.Delays in clinical studies are common and have many causes, and any significant delay in clinical studies being conducted by us or our partners couldresult in delay in regulatory approvals and jeopardize the ability to proceed to commercialization.We or our partners may experience delays in clinical trials of drug candidates. We currently have several ongoing clinical studies for nKTR-181 in patientswith chronic lower back pain and initiated a Phase 1/2 clinical study for nKTR-214 in december 2015. in addition, our collaboration partners have severalongoing Phase 3 clinical programs including baxalta for AdYnoVATE ® (previously referred to as bAX 855) in the Eu, bayer for Amikacin inhale and CiPRoinhale, and ophthotech for Fovista ® . We also have ongoing trials with our partners for the following: halozyme has trials in Pancreatic, non-Small Cell LungCancer and other multiple tumor types in Phase 1, 2, and 3 development. These and other clinical studies may not begin on time, enroll a sufficient number ofpatients or be completed on schedule, if at all. Clinical trials for any of our product candidates could be delayed for a variety of reasons, including: •delays in obtaining regulatory authorization to commence a clinical study; •delays in reaching agreement with applicable regulatory authorities on a clinical study design; •imposition of a clinical hold by the FdA or other health authorities, which may occur at any time including after any inspection of clinical trialoperations or trial sites; •suspension or termination of a clinical study by us, our partners, the FdA or foreign regulatory authorities due to adverse side effects of a drug onsubjects in the trial; •delays in recruiting suitable patients to participate in a trial; •delays in having patients complete participation in a trial or return for post-treatment follow-up; •clinical sites dropping out of a trial to the detriment of enrollment rates; •delays in manufacturing and delivery of sufficient supply of clinical trial materials; and •changes in regulatory authorities policies or guidance applicable to our drug candidates.if the initiation or completion of any of the planned clinical studies for our drug candidates is delayed for any of the above or other reasons, the regulatoryapproval process would be delayed and the ability to commercialize and commence sales of these drug candidates could be materially harmed, which could have amaterial adverse effect on our business, financial condition and results of operations. Clinical study delays could also shorten any periods during which ourproducts have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfullycommercialize our product candidates and may harm our business and results of operations.We may not be able to obtain intellectual property licenses related to the development of our drug candidates on a commercially reasonable basis, if at all.numerous pending and issued u.S. and foreign patent rights and other proprietary rights owned by third parties relate to pharmaceutical compositions,methods of preparation and manufacturing, and methods of use and administration. We cannot predict with any certainty which, if any, patent references will beconsidered relevant to our or our collaboration partners’ technology or drug candidates by authorities in the various jurisdictions where such rights exist, nor can wepredict with certainty which, if any, of these rights will or may be asserted against us by third parties. in certain cases, we have existing licenses or cross-licenseswith third parties; however, the scope and adequacy of these licenses is very uncertain and can change substantially during long development andcommercialization cycles for biotechnology and pharmaceutical products. There can be no assurance that we can obtain a license to any technology that wedetermine we need on reasonable terms, if at all, or that we could develop or otherwise obtain alternate34technology. if we are required to enter into a license with a third party, our potential economic benefit for the products subject to the license will be diminished. if alicense is not available on commercially reasonable terms or at all, we may be prevented from developing and commercializing the drug, which could significantlyharm our business, results of operations, and financial condition.If any of our pending patent applications do not issue, or are deemed invalid following issuance, we may lose valuable intellectual property protection.The patent positions of pharmaceutical and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues. We ownmore than 215 u.S. and 750 foreign patents and a number of pending patent applications that cover various aspects of our technologies. There can be no assurancethat patents that have issued will be held valid and enforceable in a court of law. Even for patents that are held valid and enforceable, the legal process associatedwith obtaining such a judgment is time consuming and costly. Additionally, issued patents can be subject to opposition or other proceedings that can result in therevocation of the patent or maintenance of the patent in amended form (and potentially in a form that renders the patent without commercially relevant and/or broadcoverage). Further, our competitors may be able to circumvent and otherwise design around our patents. Even if a patent is issued and enforceable, becausedevelopment and commercialization of pharmaceutical products can be subject to substantial delays, patents may expire early and provide only a short period ofprotection, if any, following the commercialization of products encompassed by our patents. We may have to participate in interference proceedings declared by theu.S. Patent and Trademark office, which could result in a loss of the patent and/or substantial cost to us.We have filed patent applications, and plan to file additional patent applications, covering various aspects of our PEGylation and advanced polymerconjugate technologies and our proprietary product candidates. There can be no assurance that the patent applications for which we apply would actually issue aspatents, or do so with commercially relevant and/or broad coverage. The coverage claimed in a patent application can be significantly reduced before the patent isissued. The scope of our claim coverage can be critical to our ability to enter into licensing transactions with third parties and our right to receive royalties from ourcollaboration partnerships. Since publication of discoveries in scientific or patent literature often lags behind the date of such discoveries, we cannot be certain thatwe were the first inventor of inventions covered by our patents or patent applications. in addition, there is no guarantee that we will be the first to file a patentapplication directed to an invention.An adverse outcome in any judicial proceeding involving intellectual property, including patents, could subject us to significant liabilities to third parties,require disputed rights to be licensed from or to third parties or require us to cease using the technology in dispute. in those instances where we seek an intellectualproperty license from another, we may not be able to obtain the license on a commercially reasonable basis, if at all, thereby raising concerns on our ability tofreely commercialize our technologies or products.We are involved in legal proceedings and may incur substantial litigation costs and liabilities that will adversely affect our business, financial condition andresults of operations.From time to time, third parties have asserted, and may in the future assert, that we or our partners infringe their proprietary rights, such as patents and tradesecrets, or have otherwise breached our obligations to them. A third party often bases its assertions on a claim that its patents cover our technology platform or drugcandidates or that we have misappropriated its confidential or proprietary information. Similar assertions of infringement could be based on future patents that mayissue to third parties. in certain of our agreements with our partners, we are obligated to indemnify and hold harmless our collaboration partners from intellectualproperty infringement, product liability and certain other claims, which could cause us to incur substantial costs and liability if we are called upon to defendourselves and our partners against any claims. if a third party obtains injunctive or other equitable relief against us or our partners, they could effectively preventus, or our partners, from developing or commercializing, or deriving revenue from, certain drugs or drug candidates in the u.S. and abroad. Costs associated withlitigation, substantial damage claims, indemnification claims or royalties paid for licenses from third parties could have a material adverse effect on our business,financial condition and results of operations.We are involved in legal proceedings where we or other third parties are enforcing or seeking intellectual property rights, invalidating or limiting patentrights that have already been allowed or issued, or otherwise asserting proprietary rights through one or more potential legal remedies. For example, we arecurrently involved in a German litigation proceeding whereby bayer is seeking co-ownership rights in certain of our patent filings pending at the European Patentoffice covering (among other things) PEGylated Factor Viii which we have exclusively licensed to baxalta. The subject matter of our patent filings in thisproceeding relates to bayer’s investigational PEGylated recombinant Factor Viii compound. We believe that bayer’s claim to an ownership interest in these patentfilings is without merit and are vigorously defending sole and exclusive ownership rights to this intellectual property. in addition, bayer has filed a claim in theu.S. against baxalta and nektar in which bayer alleges AdYnoVATE ® infringes a bayer patent. We are also regularly involved in opposition proceedings at theEuropean Patent office where third parties seek to invalidate or limit the scope of our allowed European patent applications covering (among other things) ourdrugs and platform technologies. The cost to us in initiating or defending any litigation or other proceeding, even if resolved in our favor, could be substantial, andlitigation would divert our management’s attention. uncertainties resulting from the initiation and continuation of35patent litigation or other proceedings could delay our research and development efforts or result in financial implications either in terms of seeking licensearrangements or payment of damages or royalties.Our manufacturing operations and those of our contract manufacturers are subject to laws and other governmental regulatory requirements, which, if notmet, would have a material adverse effect on our business, results of operations and financial condition.We and our contract manufacturers are required in certain cases to maintain compliance with current good manufacturing practices (cGMP), includingcGMP guidelines applicable to active pharmaceutical ingredients, and with laws and regulations governing manufacture and distribution of controlled substances,and are subject to inspections by the FdA, the drug Enforcement Administration or comparable agencies in other jurisdictions administering such requirements.We anticipate periodic regulatory inspections of our drug manufacturing facilities and the manufacturing facilities of our contract manufacturers for compliancewith applicable regulatory requirements. Any failure to follow and document our or our contract manufacturers’ adherence to such cGMP and other laws andgovernmental regulations or satisfy other manufacturing and product release regulatory requirements may disrupt our ability to meet our manufacturing obligationsto our customers, lead to significant delays in the availability of products for commercial use or clinical study, result in the termination or hold on a clinical study ordelay or prevent filing or approval of marketing applications for our products. Failure to comply with applicable laws and regulations may also result in sanctionsbeing imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension orwithdrawal of approvals, license revocation, seizures, administrative detention, or recalls of products, operating restrictions and criminal prosecutions, any of whichcould harm our business. Regulatory inspections could result in costly manufacturing changes or facility or capital equipment upgrades to satisfy the FdA that ourmanufacturing and quality control procedures are in substantial compliance with cGMP. Manufacturing delays, for us or our contract manufacturers, pendingresolution of regulatory deficiencies or suspensions could have a material adverse effect on our business, results of operations and financial condition.If we or our contract manufacturers are not able to manufacture drugs or drug substances in sufficient quantities that meet applicable quality standards, itcould delay clinical studies, result in reduced sales or constitute a breach of our contractual obligations, any of which could significantly harm ourbusiness, financial condition and results of operations.if we or our contract manufacturers are not able to manufacture and supply sufficient drug quantities meeting applicable quality standards required tosupport large clinical studies or commercial manufacturing in a timely manner, it could delay our or our collaboration partners’ clinical studies or result in a breachof our contractual obligations, which could in turn reduce the potential commercial sales of our or our collaboration partners’ products. As a result, we could incursubstantial costs and damages and any product sales or royalty revenue that we would otherwise be entitled to receive could be reduced, delayed or eliminated. insome cases, we rely on contract manufacturing organizations to manufacture and supply drug product for our clinical studies and those of our collaborationpartners. Pharmaceutical manufacturing of drugs and devices involves significant risks and uncertainties related to the demonstration of adequate stability,sufficient purification of the drug substance and drug product, the identification and elimination of impurities, optimal formulations, process and analytical methodsvalidations, device performance and challenges in controlling for all of these variables. We have faced and may in the future face significant difficulties, delays andunexpected expenses as we validate third party contract manufacturers required for drug and device supply to support our clinical studies and the clinical studiesand products of our collaboration partners. Failure by us or our contract manufacturers to supply drug product or devices in sufficient quantities that meet allapplicable quality requirements could result in supply shortages for our clinical studies or the clinical studies and commercial activities of our collaborationpartners. Such failures could significantly and materially delay clinical trials and regulatory submissions or result in reduced sales, any of which could significantlyharm our business prospects, results of operations and financial condition.building and validating large scale clinical or commercial-scale manufacturing facilities and processes, recruiting and training qualified personnel andobtaining necessary regulatory approvals is complex, expensive and time consuming. in the past we have encountered challenges in scaling up manufacturing tomeet the requirements of large scale clinical trials without making modifications to the drug formulation, which may cause significant delays in clinicaldevelopment. We experienced repeated significant delays in starting the Phase 3 clinical development program for Amikacin inhale as we sought to finalize andvalidate the device design with a demonstrated capability to be manufactured at commercial scale. drug/device combination products are particularly complex,expensive and time-consuming to develop due to the number of variables involved in the final product design, including ease of patient and doctor use,maintenance of clinical efficacy, reliability and cost of manufacturing, regulatory approval requirements and standards and other important factors. There continuesto be substantial and unpredictable risk and uncertainty related to manufacturing and supply until such time as the commercial supply chain is validated and proven.36Our revenue is exclusively derived from our collaboration agreements, which can result in significant fluctuation in our revenue from period to period, andour past revenue is theref ore not necessarily indicative of our future revenue.our revenue is exclusively derived from our collaboration agreements, from which we receive upfront fees, contract research payments, milestone and othercontingent payments based on clinical progress, regulatory progress or net sales achievements, royalties and manufacturing revenue. Significant variations in thetiming of receipt of cash payments and our recognition of revenue can result from significant payments based on the execution of new collaboration agreements,the timing of clinical outcomes, regulatory approval, commercial launch or the achievement of certain annual sales thresholds. The amount of our revenue derivedfrom collaboration agreements in any given period will depend on a number of unpredictable factors, including our ability to find and maintain suitablecollaboration partners, the timing of the negotiation and conclusion of collaboration agreements with such partners, whether and when we or our collaborationpartners achieve clinical, regulatory and sales milestones, the timing of regulatory approvals in one or more major markets, reimbursement levels by private andgovernment payers, and the market introduction of new drugs or generic versions of the approved drug, as well as other factors. our past revenue generated fromcollaboration agreements is not necessarily indicative of our future revenue. if any of our existing or future collaboration partners fails to develop, obtain regulatoryapproval for, manufacture or ultimately commercialize any product candidate under our collaboration agreement, our business, financial condition, and results ofoperations could be materially and adversely affected.If we are unable either to create sales, marketing and distribution capabilities or to enter into agreements with third parties to perform these functions, wewill be unable to commercialize our product candidates successfully.We currently have no sales, marketing or distribution capabilities. To commercialize any of our drugs that receive regulatory approval forcommercialization, we must either develop internal sales, marketing and distribution capabilities, which would be expensive and time consuming, or enter intocollaboration arrangements with third parties to perform these services. if we decide to market our products directly, we must commit significant financial andmanagerial resources to develop a marketing and sales force with technical expertise and with supporting distribution, administration and compliance capabilities.Factors that may inhibit our efforts to commercialize our products directly or indirectly with our partners include: •our inability to recruit and retain adequate numbers of effective sales and marketing personnel; •the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to use or prescribe our products; •the lack of complementary products or multiple product pricing arrangements may put us at a competitive disadvantage relative to companies withmore extensive product lines; and •unforeseen costs and expenses associated with creating and sustaining an independent sales and marketing organization.If we, or our partners through our collaborations, are not successful in recruiting sales and marketing personnel or in building a sales and marketinginfrastructure, we will have difficulty commercializing our products, which would adversely affect our business, results of operations and financialcondition.To the extent we rely on other pharmaceutical or biotechnology companies with established sales, marketing and distribution systems to market ourproducts, we will need to establish and maintain partnership arrangements, and we may not be able to enter into these arrangements on acceptable terms or at all.To the extent that we enter into co-promotion or other arrangements, any revenue we receive will depend upon the efforts of third parties, which may not besuccessful and over which we have little or no control—important examples of this risk include MoVAnTiK ® partnered with AstraZeneca and AdYnoVATE ®(previously referred to as bAX 855) partnered with baxalta. in the event that we market our products without a partner, we would be required to build a sales andmarketing organization and infrastructure, which would require a significant investment, and we may not be successful in building this organization andinfrastructure in a timely or efficient manner.We purchase some of the starting material for drugs and drug candidates from a single source or a limited number of suppliers, and the partial or completeloss of one of these suppliers could cause production delays, clinical trial delays, substantial loss of revenue and contract liability to third parties.We often face very limited supply of a critical raw material that can only be obtained from a single, or a limited number of, suppliers, which could causeproduction delays, clinical trial delays, substantial lost revenue opportunities or contract liabilities to third parties. For example, there are only a limited number ofqualified suppliers, and in some cases single source suppliers, for the raw materials included in our advanced polymer conjugate drug formulations. Anyinterruption in supply or failure to procure such raw materials on commercially feasible terms could harm our business by delaying our clinical trials, impedingcommercialization of approved drugs or increasing our costs.37We rely on trade secret protection and other unpatented proprietary rights for important proprietary technologies, and any loss of such rights could harmour business, results of operations and financial condition.We rely on trade secret protection for our confidential and proprietary information. no assurance can be given that others will not independently developsubstantially equivalent confidential and proprietary information or otherwise gain access to our trade secrets or disclose such technology, or that we canmeaningfully protect our trade secrets. in addition, unpatented proprietary rights, including trade secrets and know-how, can be difficult to protect and may losetheir value if they are independently developed by a third party or if their secrecy is lost. Any loss of trade secret protection or other unpatented proprietary rightscould harm our business, results of operations and financial condition.We expect to continue to incur substantial losses and negative cash flow from operations and may not achieve or sustain profitability in the future.For the year ended december 31, 2016, we reported a net loss of $153.5 million. if and when we achieve profitability depends upon a number of factors,including the timing and recognition of milestone and other contingent payments and royalties received, the timing of revenue under our collaboration agreements,the amount of investments we make in our proprietary product candidates and the regulatory approval and market success of our product candidates. We may notbe able to achieve and sustain profitability.other factors that will affect whether we achieve and sustain profitability include our ability, alone or together with our partners, to: •develop drugs utilizing our technologies, either independently or in collaboration with other pharmaceutical or biotech companies; •effectively estimate and manage clinical development costs, particularly the cost of the clinical studies for nKTR-181 and nKTR-214; •receive necessary regulatory and marketing approvals; •maintain or expand manufacturing at necessary levels; •achieve market acceptance of our partnered products; •receive royalties on products that have been approved, marketed or submitted for marketing approval with regulatory authorities; and •maintain sufficient funds to finance our activities.If government and private insurance programs do not provide payment or reimbursement for our partnered products or proprietary products, thoseproducts will not be widely accepted, which would have a negative impact on our business, results of operations and financial condition.in both domestic and foreign markets, sales of our partnered and proprietary products that have received regulatory approval will depend in part on marketacceptance among physicians and patients, pricing approvals by government authorities and the availability of payment or reimbursement from third-party payers,such as government health administration authorities, managed care providers, private health insurers and other organizations. Such third-party payers areincreasingly challenging the price and cost effectiveness of medical products and services. Therefore, significant uncertainty exists as to the pricing approvals for,and the payment or reimbursement status of, newly approved healthcare products. Moreover, legislation and regulations affecting the pricing of pharmaceuticalsmay change before regulatory agencies approve our proposed products for marketing and could further limit pricing approvals for, and reimbursement of, ourproducts from government authorities and third-party payers. For example, President Trump has indicated support for possible new measures related to drugpricing. new government legislation or regulations related to pricing or a government or third-party payer decision not to approve pricing for, or provide adequatecoverage and reimbursements of, our products hold the potential to severely limit market opportunities of such products.38We depend on third parties to conduct the clinical trials for our proprietary product candidates and any failure of those parties to fulfill their obl igationscould harm our development and commercialization plans.We depend on independent clinical investigators, contract research organizations and other third-party service providers to conduct clinical trials for ourproprietary product candidates. We rely heavily on these parties for successful execution of our clinical trials. Though we are ultimately responsible for the resultsof their activities, many aspects of their activities are beyond our control. For example, we are responsible for ensuring that each of our clinical trials is conductedin accordance with the general investigational plan and protocols for the trials, but the independent clinical investigators may prioritize other projects over ours orcommunicate issues regarding our products to us in an untimely manner. Third parties may not complete activities on schedule or may not conduct our clinicaltrials in accordance with regulatory requirements or our stated protocols. The early termination of any of our clinical trial arrangements, the failure of third partiesto comply with the regulations and requirements governing clinical trials or the failure of third parties to properly conduct our clinical trials could hinder or delaythe development, approval and commercialization of our product candidates and would adversely affect our business, results of operations and financial condition.Significant competition for our polymer conjugate chemistry technology platforms and our partnered and proprietary products and product candidatescould make our technologies, products or product candidates obsolete or uncompetitive, which would negatively impact our business, results of operationsand financial condition.our advanced polymer conjugate chemistry platforms and our partnered and proprietary products and product candidates compete with variouspharmaceutical and biotechnology companies. Competitors of our polymer conjugate chemistry technologies include biogen inc., Savient Pharmaceuticals, inc.,dr. Reddy’s Laboratories Ltd., Sunbio Corporation, Mountain View Pharmaceuticals, inc., novo nordisk A/S (formerly assets held by neose Technologies, inc.),and noF Corporation. Several other chemical, biotechnology and pharmaceutical companies may also be developing polymer conjugation technologies ortechnologies that have similar impact on target drug molecules. Some of these companies license or provide the technology to other companies, while others aredeveloping the technology for internal use.There are many competitors for our proprietary product candidates currently in development. For Amikacin inhale, the current standard of care includesseveral approved intravenous antibiotics for the treatment of either hospital-acquired pneumonia or ventilator-associated pneumonia in patients on mechanicalventilators. For MoVAnTiK ® , there are currently several alternative therapies used to address opioid-induced constipation (oiC) and opioid-induced boweldysfunction (obd), including RELiSToR ® Subcutaneous injection (methylnaltrexone bromide), oral therapy Amitizia (lubiprostone), and oral and rectal over-the-counter laxatives and stool softeners such as docusate sodium, senna and milk of magnesia. in addition, there are a number of companies developing potentialproducts which are in various stages of clinical development and are being evaluated for the treatment of oiC and obd in different patient populations, includingMerck & Co., inc., Progenics Pharmaceuticals, inc. in collaboration with Salix Pharmaceuticals, Ltd., Purdue Pharma L.P. in collaboration with Shionogi & Co.,Ltd., Mundipharma int. Limited, Sucampo Pharmaceuticals, inc., develco Pharma Gmbh, Alkermes plc, GlaxoSmithKline plc, Theravance, inc., and TakedaPharmaceutical Company Limited. For AdYnoVATE ® , on June 6, 2014, the FdA approved biogen idec’s ELoCTATE™ for the control and prevention ofbleeding episodes, perioperative (surgical) management and routine prophylaxis in adults and children with hemophilia A, and bayer healthcare and novonordisk have ongoing Phase 3 clinical development programs for longer acting Factor Viii proteins based on polymer conjugation technology approaches. FornKTR-181, there are numerous companies developing pain therapies designed to have less abuse potential primarily through formulation technologies andtechniques applied to existing pain therapies. Potential competitors include Acura Pharmaceuticals, inc., Cara Therapeutics, inc., Collegium Pharmaceutical, inc.,Egalet Ltd, Elite Pharmaceuticals, inc., Endo health Solutions inc., KemPharm, inc., Pfizer, inc., Purdue Pharma L.P., and Teva Pharmaceutical industriesLtd. For onZEALd TM there are a number of chemotherapies and cancer therapies approved today and in various stages of clinical development for breast cancer,including, but not limited to: Abraxane ® (paclitaxel protein-bound particles for injectable suspension (albumin bound)), Xeloda ® (capecitabine), Afinitor ®(everolimus), doxil ® (doxorubicin hCl), Ellence ® (epirubicin), Gemzar ® (gemcitabine), halaven ® (eribulin), herceptin ® (trastuzumab), hycamtin ®(topotecan), ibrance ® (palbociclib), ixempra ® (ixabepilone), navelbine ® (vinolrebine), iniparib, Paraplatin ® (carboplatin), Taxol ® (paclitaxel) and Taxotere ®(docetaxel). Major pharmaceutical or biotechnology companies with approved drugs or drugs in development for breast cancers include, but are not limited to,bristol-Myers Squibb Company, Eli Lilly & Co., Roche, GlaxoSmithKline plc, Johnson and Johnson, Pfizer inc., Eisai inc., and Sanofi Aventis S.A. There arenumerous companies engaged in developing immunotherapies to be used alone, or in combination, to treat a wide range of oncology indications targeting both solidand liquid tumors. in particular, we expect to compete with therapies with tumor infiltrating lymphocytes, or TiLS, chimeric antigen receptor-expressing T cells, orCAR-T, cytokine-based therapies, and checkpoint inhibitors. Potential competitors in the TiL and CAR-T space include Kite Pharma/nCi, Adaptimmune LLC,Celgene Corporation, Juno Therapeutics, and novartis, Alkermes, Altor, and Armo in the cytokine-based therapies space, and Tesaro, Macrogenics, Merck, bMS,and Roche in the checkpoint inhibitor space. There can be no assurance that we or our partners will successfully develop, obtain regulatory approvals for and commercialize next-generation or newproducts that will successfully compete with those of our competitors. Many of our competitors have greater financial, research and development, marketing andsales, manufacturing and managerial capabilities. We face competition from these39companies not just in product development but also in areas such as recruiting employees, acquiring technologies that might enhance our ability to commercializeproducts, establishing relation ships with certain research and academic institutions, enrolling patients in clinical trials and seeking program partnerships andcollaborations with larger pharmaceutical companies. As a result, our competitors may succeed in developing competing technolo gies, obtaining regulatoryapproval or gaining market acceptance for products before we do. These developments could make our products or technologies uncompetitive or obsolete.If product liability lawsuits are brought against us, we may incur substantial liabilities.The manufacture, clinical testing, marketing and sale of medical products involve inherent product liability risks. if product liability costs exceed ourproduct liability insurance coverage, we may incur substantial liabilities that could have a severe negative impact on our financial position. Whether or not we areultimately successful in any product liability litigation, such litigation would consume substantial amounts of our financial and managerial resources and mightresult in adverse publicity, all of which would impair our business. Additionally, we may not be able to maintain our clinical trial insurance or product liabilityinsurance at an acceptable cost, if at all, and this insurance may not provide adequate coverage against potential claims or losses.Our internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer security breaches, which could result in amaterial disruption of our product development programs or the theft of our confidential information or patient confidential information.despite the implementation of security measures, our internal computer systems and those of our CRos and other contractors and consultants are vulnerableto damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such events could causeinterruptions of our operations. For instance, the loss of preclinical data or data from any future clinical trial involving our product candidates could result in delaysin our development and regulatory filing efforts and significantly increase our costs. To the extent that any disruption or security breach were to result in a loss of,or damage to, our data, or inappropriate disclosure of confidential or proprietary information of our company or clinical patients, we could incur liability and thedevelopment of our product candidates could be delayed.Our future depends on the proper management of our current and future business operations and their associated expenses.our business strategy requires us to manage our business to provide for the continued development and potential commercialization of our proprietary andpartnered drug candidates. our strategy also calls for us to undertake increased research and development activities and to manage an increasing number ofrelationships with partners and other third parties, while simultaneously managing the capital necessary to support this strategy. if we make a decision to bear amajority or all of the clinical development costs of nKTR-102 this will substantially increase our future capital requirements. if we are unable to manageeffectively our current operations and any growth we may experience, our business, financial condition and results of operations may be adversely affected. if weare unable to effectively manage our expenses, we may find it necessary to reduce our personnel-related costs through reductions in our workforce, which couldharm our operations, employee morale and impair our ability to retain and recruit talent. Furthermore, if adequate funds are not available, we may be required toobtain funds through arrangements with partners or other sources that may require us to relinquish rights to certain of our technologies, products or future economicrights that we would not otherwise relinquish or require us to enter into other financing arrangements on unfavorable terms.We are dependent on our management team and key technical personnel, and the loss of any key manager or employee may impair our ability to developour products effectively and may harm our business, operating results and financial condition.our success largely depends on the continued services of our executive officers and other key personnel. The loss of one or more members of ourmanagement team or other key employees could seriously harm our business, operating results and financial condition. The relationships that our key managershave cultivated within our industry make us particularly dependent upon their continued employment with us. We are also dependent on the continued services ofour technical personnel because of the highly technical nature of our products and the regulatory approval process. because our executive officers and keyemployees are not obligated to provide us with continued services, they could terminate their employment with us at any time without penalty. We do not have anypost-employment noncompetition agreements with any of our employees and do not maintain key person life insurance policies on any of our executive officers orkey employees.Because competition for highly qualified technical personnel is intense, we may not be able to attract and retain the personnel we need to support ouroperations and growth.We must attract and retain experts in the areas of clinical testing, manufacturing, research, regulatory and finance, and may need to attract and retainmarketing and distribution experts and develop additional expertise in our existing personnel. We face intense competition from other biopharmaceuticalcompanies, research and academic institutions and other organizations for qualified personnel. Many of the organizations with which we compete for qualifiedpersonnel have greater resources than we have. because40competition for skilled personnel in our industry is intense, companies such as ours sometimes experience high attrition rates with regard to their skilled employees.Further, in making employment decisions, job candidates often consider the value of the stock options they are to receive in connection with their employment. ourequity incentive plan and employee benefit plans may not be effective in motivating or retaining our employees or attracting new employees, and significantvolatility in the pri ce of our stock may adversely affect our ability to attract or retain qualified personnel. if we fail to attract new personnel or to retain andmotivate our current personnel, our business and future growth prospects could be severely harmed.If earthquakes or other catastrophic events strike, our business may be harmed.our corporate headquarters, including a substantial portion of our research and development operations, are located in the San Francisco bay Area, a regionknown for seismic activity and a potential terrorist target. in addition, we own facilities for the manufacture of products using our advanced polymer conjugatetechnologies in huntsville, Alabama and own and lease offices in hyderabad, india. There are no backup facilities for our manufacturing operations located inhuntsville, Alabama. in the event of an earthquake or other natural disaster, political instability, or terrorist event in any of these locations, our ability tomanufacture and supply materials for drug candidates in development and our ability to meet our manufacturing obligations to our customers would besignificantly disrupted and our business, results of operations and financial condition would be harmed. our collaborative partners may also be subject tocatastrophic events, such as earthquakes, floods, hurricanes and tornadoes, any of which could harm our business, results of operations and financial condition. Wehave not undertaken a systematic analysis of the potential consequences to our business, results of operations and financial condition from a major earthquake orother catastrophic event, such as a fire, sustained loss of power, terrorist activity or other disaster, and do not have a recovery plan for such disasters. in addition,our insurance coverage may not be sufficient to compensate us for actual losses from any interruption of our business that may occur.We have implemented certain anti-takeover measures, which make it more difficult to acquire us, even though such acquisitions may be beneficial to ourstockholders.Provisions of our certificate of incorporation and bylaws, as well as provisions of delaware law, could make it more difficult for a third party to acquire us,even though such acquisitions may be beneficial to our stockholders. These anti-takeover provisions include: •establishment of a classified board of directors such that not all members of the board may be elected at one time; •lack of a provision for cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to electdirector candidates; •the ability of our board to authorize the issuance of “blank check” preferred stock to increase the number of outstanding shares and thwart a takeoverattempt; •prohibition on stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of stockholders; •establishment of advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted uponby stockholders at stockholder meetings; and •limitations on who may call a special meeting of stockholders.Further, provisions of delaware law relating to business combinations with interested stockholders may discourage, delay or prevent a third party fromacquiring us. These provisions may also discourage, delay or prevent a third party from acquiring a large portion of our securities or initiating a tender offer orproxy contest, even if our stockholders might receive a premium for their shares in the acquisition over the then-current market prices. We also have a change ofcontrol severance benefit plan, which provides for certain cash severance, stock award acceleration and other benefits in the event our employees are terminated(or, in some cases, resign for specified reasons) following an acquisition. This severance plan could discourage a third party from acquiring us.41The price of our common stock is expected to remain volatile.our stock price is volatile. during the year ended december 31, 2016, based on closing prices on The nASdAQ Global Select Market, the closing price ofour common stock ranged from $11.00 to $19.68 per share. We expect our stock price to remain volatile. A variety of factors may have a significant effect on themarket price of our common stock, including the risks described in this section titled “Risk Factors” and the following: •announcements of data from, or material developments in, our clinical studies and those of our collaboration partners, including data regardingefficacy and safety, delays in clinical development, regulatory approval or commercial launch; •announcements by collaboration partners as to their plans or expectations related to drug candidates and approved drugs in which we have asubstantial economic interest; •announcements regarding terminations or disputes under our collaboration agreements; •fluctuations in our results of operations; •developments in patent or other proprietary rights, including intellectual property litigation or entering into intellectual property license agreementsand the costs associated with those arrangements; •announcements of technological innovations or new therapeutic products that may compete with our approved products or products underdevelopment; •announcements of changes in governmental regulation affecting us or our competitors; •litigation brought against us or third parties to whom we have indemnification obligations; •public concern as to the safety of drug formulations developed by us or others; •our financing needs and activities; and •general market conditions.At times, our stock price has been volatile even in the absence of significant news or developments. The stock prices of biotechnology companies andsecurities markets generally have been subject to dramatic price swings in recent years.The indenture governing our 7.75% senior secured notes imposes significant operating and financial restrictions on us and our subsidiaries that mayprevent us from pursuing certain business opportunities and restrict our ability to operate our business.on october 5, 2015, we issued $250.0 million in aggregate principal amount of 7.75% senior secured notes due october 2020. The indenture governing thesenior secured notes contains covenants that restrict our and our subsidiaries’ ability to take various actions, including, among other things: •incur or guarantee additional indebtedness or issue disqualified capital stock or cause certain of our subsidiaries to issue preferred stock; •pay dividends or distributions, redeem equity interests or subordinated indebtedness or make certain types of investments; •create or incur liens; •transfer, sell, lease or otherwise dispose of assets and issue or sell equity interests in certain of our subsidiaries; •incur restrictions on certain of our subsidiaries’ ability to pay dividends or other distributions to the Company or to make intercompany loans,advances or asset transfers; •enter into transactions with affiliates; •engage in any business other than businesses which are the same, similar, ancillary or reasonably related to our business as of the date of theindenture; and •consummate a merger, consolidation, reorganization or business combination, sell, lease, convey or otherwise dispose of all or substantially all of ourassets or other change of control transaction.This indenture also requires us to maintain a minimum cash balance of $60.0 million. We have certain reporting obligations under the indenture regardingcash position and royalty revenue. The indenture specifies a number of events of default, some of which are subject to applicable grace or cure periods, including,among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults, non-payment ofmaterial judgments, loss of any material business license, criminal indictment of the Company, and certain civil forfeiture proceedings involving material assets ofthe Company. our42ability to comply with these covenants will likely be affected by many factors, including even ts beyond our control, and we may not satisfy those requirements.our failure to comply with our obligations could result in an event of default under our other indebtedness and the acceleration of our other indebtedness, in wholeor in part, could result in an event of default under the indenture governing the senior secured notes.The restrictions contained in the indenture governing the senior secured notes could also limit our ability to plan for or react to market conditions, meetcapital needs or otherwise restrict our activities or business plans and adversely affect our ability to finance our operations, enter into acquisitions or to engage inother business activities that would be in our interest. Item 1B.Unresolved Staff Commentsnone. Item 2 .PropertiesCaliforniaWe lease a 126,285 square foot facility in the Mission bay Area of San Francisco, California (Mission bay Facility), under an operating lease which expiresin 2020. The Mission bay Facility is our corporate headquarters and also includes our research and development operations. Effective January 1, 2017, we enteredinto a lease amendment for an additional 2,508 square feet within the Mission bay Facility, which also expires in 2020.AlabamaWe currently own four facilities consisting of approximately 165,000 square feet in huntsville, Alabama, which house laboratories as well as administrative,clinical and commercial manufacturing facilities for our PEGylation and advanced polymer conjugate technology operations as well as manufacturing of APis forearly clinical studies.in July 2012, we consolidated our u.S.-based research activities into our Mission bay Facility and ceased use of one of our buildings located in huntsvillethat was dedicated to research activities. We are currently seeking a buyer for the land and building.IndiaWe own a research and development facility consisting of approximately 88,000 square feet, near hyderabad, india. in addition, we lease approximately1,600 square feet of office space in hyderabad, india, under a three-year operating lease that will expire in 2018. Item 3.Legal ProceedingsFrom time to time, we are subject to legal proceedings. We are not currently a party to or aware of any proceedings that we believe will have, individuallyor in the aggregate, a material adverse effect on our business, financial condition or results of operations. Item 4.Mine Safety Disclosuresnot applicable. 43PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securitiesour common stock trades on The nASdAQ Global Select Market under the symbol “nKTR.” The table below sets forth the high and low closing salesprices for our common stock as reported on The nASdAQ Global Select Market during the periods indicated. High Low Year Ended December 31, 2015: 1st Quarter $15.70 $10.91 2nd Quarter 13.84 9.52 3rd Quarter 13.92 9.50 4th Quarter 17.41 9.98 Year Ended December 31, 2016: 1st Quarter $16.20 $11.00 2nd Quarter 16.28 13.09 3rd Quarter 19.68 14.09 4th Quarter 17.48 11.85 Holders of RecordAs of February 24, 2017, there were approximately 189 holders of record of our common stock.Dividend PolicyWe have never declared or paid any cash dividends on our common stock. We currently expect to retain any future earnings for use in the operation andexpansion of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.There were no sales of unregistered securities and there were no common stock repurchases made during the year ended december 31, 2016.Securities Authorized for Issuance Under Equity Compensation Plansinformation regarding our equity compensation plans as of december 31, 2016 is disclosed in item 12 “Security ownership of Certain beneficial ownersand Management and Related Stockholder Matters” of this Annual Report on Form 10-K and is incorporated herein by reference from our proxy statement for our2017 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K.Performance Measurement ComparisonThe material in this section is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwisesubject to the liability of that section, nor shall the material in this section be deemed to be incorporated by reference in any registration statement or otherdocument filed with the SEC under the Securities Act or the Exchange Act, except as otherwise expressly stated in such filing.44The following graph compares, for the five y ear period ended december 31, 2016, the cumulative total stockholder return (change in stock price plusreinvested dividends) of our common stock with (i) the nASdAQ Composite index, (ii) the nASdAQ Pharmaceutical index, (iii) the RdG SmallCapPharmaceutic al index, (iv) the nASdAQ biotechnology index and (v) the RdG SmallCap biotechnology index. Measurement points are the last trading day ofeach of our fiscal years ended december 31, 2012, december 31, 2013, december 31, 2014, december 31, 2015 and decembe r 31, 2016. The graph assumes that$100 was invested on december 31, 2011 in the common stock of the Company, the nASdAQ Composite index, the nasdaq Pharmaceutical index, the RdGSmallCap Pharmaceutical index, the nASdAQ biotechnology index and the RdG Sma llCap biotechnology index and assumes reinvestment of any dividends.The stock price performance in the graph is not intended to forecast or indicate future stock price performance. 45Item 6.Selected Financial DataSELECTED CONSOLIDATED FINANCIAL INFORMATION(In thousands, except per share information)The selected consolidated financial data set forth below should be read together with the consolidated financial statements and related notes,“Management’s discussion and Analysis of Financial Condition and Results of operations,” and the other information contained herein. Year Ended December 31, 2016 2015 2014 2013 2012 Statements of Operations Data: Revenue: Product sales $55,354 $40,155 $25,152 $44,846 $35,399 Royalty revenue 19,542 2,967 329 1,148 4,874 non cash royalty revenue related to sale of future royalties (1) 30,158 22,058 21,937 22,055 10,791 License, collaboration and other revenue 60,382 165,604 153,289 80,872 30,127 Total revenue 165,436 230,784 200,707 148,921 81,191 Total operating costs and expenses 278,291 260,155 217,192 269,051 222,392 Loss from operations (112,855) (29,371) (16,485) (120,130) (141,201)non-cash interest expense on liability related to sale of future royalties (1) (19,712) (20,619) (20,888) (22,309) (18,057)interest income (expense) and other income (expense), net (20,081) (16,602) (17,055) (17,329) (12,191)Loss on extinguishment of debt — (14,079) — — — Provision (benefit) for income taxes 876 506 (512) 2,245 406 net loss $(153,524) $(81,177) $(53,916) $(162,013) $(171,855)basic and diluted net loss per share (2) $(1.10) $(0.61) $(0.42) $(1.40) $(1.50)Weighted average shares outstanding used in computing basic and diluted net loss per share (2) 139,596 132,458 126,783 115,732 114,820 As of December 31, 2016 2015 2014 2013 2012 Balance Sheet Data: Cash, cash equivalents and investments in marketable securities $389,102 $308,944 $262,824 $262,026 $302,194 Working capital $354,030 $288,805 $224,153 $159,661 $236,094 Total assets $568,871 $498,642 $441,621 $434,527 $497,790 deferred revenue $66,239 $83,854 $101,384 $106,048 $118,447 Senior secured notes, net $243,464 $241,699 $125,000 $125,000 $125,000 Liability related to the sale of future royalties (1) $105,950 $116,029 $120,471 $128,520 $131,266 other long-term liabilities (3) $7,223 $10,813 $18,204 $25,775 $20,014 Accumulated deficit $(2,021,010) $(1,867,486) $(1,786,309) $(1,732,393) $(1,570,380)Total stockholders’ equity (deficit) $88,125 $6,429 $36,332 $(89,903) $47,018 (1)in February 2012, we sold all of our rights to receive future royalty payments on net sales of uCb’s CiMZiA ® and Roche’s MiRCERA ® . As described innote 7 to our Consolidated Financial Statements, this royalty sale transaction has been recorded as a liability that amortizes over the estimated royaltypayment period. As a result of this liability accounting, even though the royalties from uCb and Roche are remitted directly to the purchaser of theseroyalty interests starting in the second quarter of 2012, we will continue to record revenue for these royalties.(2)basic and diluted net loss per share is based upon the weighted average number of common shares outstanding.(3)includes capital lease obligations less current portionThe following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from thosediscussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section as well as factors describedin “Part I, Item 1A — Risk Factors.” 46Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsOverviewStrategic Direction of Our Businessnektar Therapeutics is a research-based biopharmaceutical company that discovers and develops innovative new medicines in areas of high unmet medicalneed. our research and development pipeline of new investigational drugs includes treatments for cancer, auto-immune disease and chronic pain. We leverage ourproprietary and proven chemistry platform to discover and design new drug candidates. These drug candidates utilize our advanced polymer conjugate technologyplatforms, which are designed to enable the development of new molecular entities that target known mechanisms of action. We continue to make significant investments in building and advancing our pipeline of proprietary drug candidates as we believe that this is the beststrategy to build shareholder value. in 2017, our plan is to execute a broad clinical development program for nKTR-214 in combination with other immuno-oncology agents including opdivo ® (nivolumab) as part of our broad Phase 1/2 clinical collaboration with bMS in five tumor types and eight potential indications,a dose-escalation study with atezolizumab, and numerous preclinical collaboration programs. in February 2017, we filed an ind for nKTR-358, our auto-immunedisease drug candidate, and plan to start the Phase 1 study for this program in healthy volunteers and then advance the program into Phase 1b in patients withsystemic lupus erythematous (SLE), and other potential immune disease indications. We completed enrollment in the SuMMiT-07 Phase 3 efficacy study fornKTR-181 in late 2016 and expect to announce the top-line data in March 2017. We also have an ongoing pivotal human abuse liability study (hAL) for nKTR-181 that is expected to complete enrollment in the first half of 2017. if the nKTR-181 Phase 3 program is successful, we plan to seek a collaboration partner tosupport future development and commercialization activities. We are also completing preclinical research and ind-enabling work for nKTR-262 and nKTR-255with the goal of advancing those programs into the clinic later this year or in the early part of next year. The level of our future research and developmentinvestment will depend on a number of trends and uncertainties including clinical outcomes, future studies required to advance programs to regulatory approval,and the economics related to potential future collaborations that may include up-front payments, development funding, milestones, and royalties. We have significant milestone and royalty economic interests in approved drugs and drug candidates in late stage development with our collaborationpartners. With AstraZeneca, we have a collaboration for MoVAnTiK ® , an oral peripherally-acting mu-opioid antagonist for the treatment of opioid-inducedconstipation in adult patients with non-cancer pain. We have a collaboration with baxalta (a wholly-owned subsidiary of Shire plc) for AdYnoVATE ® , that wasapproved by the FdA in late 2015 for use in adults and adolescents, aged 12 years and older, who have hemophilia A. The FdA approved recently expanded theapproval of AdYnoVATE ® for the treatment of hemophilia A in patients under 12 years of age, and for the use in surgical settings for both adult and pediatricpatients. AdYnoVATE ® is also under regulatory review in the European union, Switzerland and Canada. We also have significant milestone and royaltyinterests in two drug development programs with bayer. bAY41-6551 (Amikacin inhale), which is an inhaled solution of amikacin, an aminoglycoside antibioticin Phase 3 clinical development to treat ventilated associated pneumonia and we expect topline results from this program in the first half of 2017. The secondprogram with bayer Schering is the Cipro dPi (Cipro dry Powder inhaler, previously called Cipro inhale) which is an inhaled dry powder ciprofloxacin in Phase 3development to treat non-cystic fibrosis bronchiectasis. The first Phase 3 clinical study for CiPRo dPi met its co-primary endpoints for the every 14-day dosingarm of Cipro dPi and we expect top-line results from the second Phase 3 clinical study in 2017. We also have milestone and royalty interests in other collaborationpartner programs including PEGPh20 with halozyme that is in Phase 3 development and dapirolizumab pegol with uCb Pharma that is in Phase 2 developmentfor systemic lupus erythematosus (SLE). The level of sales growth of MoVAnTiK ® and AdYnoVATE ® , together with the future clinical trial results andpotential subsequent approvals of these collaboration partner drug candidates, will have a material impact on our future financial results and financial position. our business is subject to significant risks, including the risks inherent in our development efforts, the results of our clinical trials, the marketing of ourdependence on collaborative parties, uncertainties associated with obtaining and enforcing patents, the lengthy and expensive regulatory approval process andcompetition from other products. For a discussion of these and some of the other risks and uncertainties affecting our business, see item 1A "Risk Factors" of thisAnnual Report on Form 10-K. While the approved drugs and clinical development programs described above are key elements of our future success, we believe it is critically importantthat we continue to make substantial investments in our earlier-stage drug candidate pipeline. We have several drug candidates in earlier stage clinical developmentor being explored in research that we are preparing to advance into the clinic in future years. We are also advancing several other drug candidates in preclinicaldevelopment in the areas of cancer immunotherapy, immunology, and other therapeutic indications. While we believe that our substantial investment in researchand development has the potential to create significant value if one or more of our drug candidates demonstrates positive clinical results, receives regulatoryapproval in one or more major markets and achieves commercial success, drug research and development is an inherently uncertain process and there is a high riskof failure at every stage prior to approval and the timing and outcome of clinical47trial results are extremely difficult to predict. Clinical development successes and failures can have a disproportionately positive or negative impact on ourscientific and medical prospects, financial condition and prospects, results of operations and market value.historically, we have entered into a number of license and supply contracts under which we manufactured and supplied our proprietary polymer reagents ona fixed price or cost-plus basis. our current strategy is to manufacture and supply polymer reagents to support our proprietary drug candidates or our third-partycollaborators where we have a strategic development and commercialization relationship or where we derive substantial economic benefit.Key Developments and Trends in Liquidity and Capital ResourcesWe estimate that we have working capital to fund our current business plans through at least March 1, 2018. At december 31, 2016, we had approximately$389.1 million in cash and investments in marketable securities. Also, as of december 31, 2016, we had $255.1 million in debt, including $250.0 million inprincipal of senior secured notes and $5.1 million of capital lease obligations. As is further described in note 9 to our Consolidated Financial Statements, onoctober 24, 2016, we completed a public offering of common stock with net proceeds of approximately $189.3 million.Results of OperationsYears Ended December 31, 2016, 2015, and 2014Revenue (in thousands, except percentages) Year Ended December 31, Increase/(Decrease) Increase/(Decrease) PercentageIncrease/(Decrease) PercentageIncrease/(Decrease) 2016 2015 2014 2016 vs.2015 2015 vs.2014 2016 vs.2015 2015 vs.2014 Product sales $55,354 $40,155 $25,152 $15,199 $15,003 38% 60%Royalty revenue 19,542 2,967 329 16,575 2,638 > 100% > 100%non cash royalty revenue related to sale of future royalties 30,158 22,058 21,937 8,100 121 37% 1%License, collaboration and other revenue 60,382 165,604 153,289 (105,222) 12,315 (64)% 8%Total revenue $165,436 $230,784 $200,707 $(65,348) $30,077 (28)% 15% our revenue is derived from our collaboration agreements, under which we may receive product sales revenue, royalties, license fees, milestone and othercontingent payments and/or contract research payments. Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery hasoccurred, the price is fixed or determinable, and collection is reasonably assured. The amount of upfront fees received under our license and collaborationagreements allocated to continuing obligations, such as manufacturing and supply commitments, is recognized ratably over our expected performance period underthe arrangement. As a result, there may be significant variations in the timing of receipt of cash payments and our recognition of revenue. We make our bestestimate of the period over which we expect to fulfill our performance obligations. Given the uncertainties in research and development collaborations, significantjudgment is required by us to determine the performance periods.Product salesProduct sales include predominantly fixed price manufacturing and supply agreements with our collaboration partners and are the result of firm purchaseorders from those partners. The timing of shipments is based solely on the demand and requirements of our collaboration partners and is not ratable throughout theyear.Product sales increased for the years ended december 31, 2016 and 2015 compared to the years ended december 31, 2015 and 2014 primarily as a result ofincreased product demand from our collaboration partner ophthotech related to its drug candidate Fovista ® . in the year ended december 31, 2016, product salesto ophthotech totaled $30.1 million. in december 2016, ophthotech announced that two pivotal Phase 3 clinical trials for Fovista ® failed to meet their primaryendpoints although a separate Phase 3 trial for Fovista ® remains ongoing. As a result, other than approximately $10.4 million of product sales to ophthotechrelated to their binding purchase commitments, we currently do not expect any further sales to ophthotech in 2017.48Royalty revenueWe receive royalty revenue from certain of our collaboration partners based on their net sales of commercial products. Royalty revenue received in cashincreased for the years ended december 31, 2016 and 2015 compared to the years ended december 31, 2015 and 2014 due primarily to the commercial launch byAstraZeneca of MoVAnTiK ® in the u.S. in March 2015 and MoVEnTiG ® in the Eu in August 2015 and the launch of AdYnoVATE ® by baxalta in the u.S.in november 2015. We expect royalty revenue in 2017 will increase as compared to 2016 due to royalties we expect to receive from net sales of MoVAnTiK ® ,MoVEnTiG ® and AdYnoVATE ® as a result of sales growth of these partnered products.Non-cash royalty revenue related to sale of future royaltiesin February 2012, we sold all of our rights to receive future royalty payments on CiMZiA ® and MiRCERA ® . As described in note 7 to our ConsolidatedFinancial Statements, this royalty sale transaction has been recorded as a liability that amortizes over the estimated royalty payment period. As a result of thisliability accounting, even though the royalties from uCb and Roche are remitted directly to the purchaser of these royalty interests, we will continue to recordrevenue for these royalties. We expect non-cash royalties from net sales of CiMZiA ® and MiRCERA ® in 2017 to increase marginally compared to 2016.License, collaboration and other revenueLicense, collaboration and other revenue includes the recognition of upfront payments, milestone and other contingent payments received in connectionwith our license and collaboration agreements and reimbursed research and development expenses. The level of license, collaboration and other revenue depends inpart upon the estimated amortization period of the upfront payments, the achievement of milestones and other contingent events, the continuation of existingcollaborations, the amount of reimbursed research and development work, and entering into new collaboration agreements, if any.License, collaboration and other revenue decreased for the year ended december 31, 2016 compared to the year ended december 31, 2015 primarily as aresult of the recognition in March 2015 of the $100.0 million milestone payment received from AstraZeneca as a result of the u.S. commercial launch ofMoVAnTiK ® and the $40.0 million milestone payment received from AstraZeneca in August 2015 as a result of the Eu commercial launch of MoVEnTiG ®partially offset by the recognition of $28.0 million in March 2016 for our 40% share of the $70.0 million sublicense payment received by AstraZeneca from Kirin.License, collaboration and other revenue increased for the year ended december 31, 2015 compared to the year ended december 31, 2014 primarily as aresult of increased revenue from payments received from AstraZeneca in 2015 as compared to 2014. during the year-ended december 31, 2014, we recognized$105.0 million of payments from AstraZeneca as a result of the FdA’s approval of MoVAnTiK ® in September 2014 and recognized $9.0 million of milestonepayments resulting from the transfer of our manufacturing technology to two of our collaboration partners. in addition, in 2014, we recognized $8.0 million ofmilestones received in december 2014 related to positive results from baxalta’s AdYnoVATE ® Phase 3 study. We expect license, collaboration and other revenue in 2017 to decrease compared to 2016.The timing and future success of our drug development programs and those of our collaboration partners are subject to a number of risks and uncertainties.See “Part i, item 1A — Risk Factors” for discussion of the risks associated with the complex nature of our collaboration agreements.Revenue by geography (in thousands)Revenue by geographic area is based on the locations of our partners. The following table sets forth revenue by geographic area: Year Ended December 31, 2016 2015 2014 united States $39,147 $40,400 $32,514 Europe 126,289 190,384 168,193 Total revenue $165,436 $230,784 $200,707 The decrease in revenue attributable to European countries for the year ended december 31, 2016 compared to the year ended december 31, 2015 isprimarily attributable to decreased milestone and other contingent payments from our existing European based collaboration partners, including the recognition in2015 of a total of $140.0 million payments from AstraZeneca in connection with its commercial launches of MoVAnTiK ® described above. The increase inrevenue attributable to European countries for the year ended december 31, 2015 compared to the year ended december 31, 2014 is primarily attributable toincreased milestone and other49contingent payments from our existin g European based collaboration partners, including the recognition of the payments from AstraZeneca in connection with itscommercial launches of MoVAnTiK ® described above. Cost of goods sold (in thousands, except percentages) Year Ended December 31, Increase/(Decrease)2016 vs. Increase/(Decrease)2015 vs. PercentageIncrease/(Decrease)2016 vs. PercentageIncrease/(Decrease)2015 vs. 2016 2015 2014 2015 2014 2015 2014 Cost of goods sold $30,215 $34,102 $28,533 $(3,887) $5,569 (11)% 20%Product gross profit (loss) 25,139 6,053 (3,381) 19,086 9,434 > 100%> 100%Product gross margin 45% 15% (13)% Cost of goods sold decreased during the year ended december 31, 2016 compared to the year ended december 31, 2015 primarily due to the mix of productsales, which resulted in decreases to cost of goods sold even though product sales increased during the same period. Cost of goods sold during the year endeddecember 31, 2015 increased compared to the year ended december 31, 2014 primarily due to the increase in product sales of $15.0 million in the year endeddecember 31, 2015 compared to the year ended december 31, 2014. The improvement in product gross profit and product gross margin during the years ended december 31, 2016 and 2015 compared to the years endeddecember 31, 2015 and 2014, respectively, is primarily due to a more favorable product mix. in particular, the increased demand from our collaboration partners in2016 and 2015 results in product sales where we have a relatively higher gross margin. This increased margin is partially offset by a manufacturing arrangementwith another partner that includes a fixed price which is less than the fully burdened manufacturing cost for the reagent and we expect this situation to continuewith this partner in future years. There were fewer shipments to this partner relative to shipments to other customers during the years ended december 31, 2016 and2015 compared to the years ended december 31, 2015 and 2014, respectively. in addition to product sales from reagent materials supplied to the partner where oursales are less than our fully burdened manufacturing cost, we also receive royalty revenue from this collaboration. in the years ended december 31, 2016, 2015 and2014, the royalty revenue from this collaboration exceeded the related negative gross profit. We expect product gross margin to continue to fluctuate in future periods depending on the level and mix of manufacturing orders from our customers dueto the predominantly fixed cost base associated with our manufacturing activities. We currently expect product gross margin to decrease significantly in 2017 ascompared to 2016 and gross margin may approximate breakeven in 2017 as a result of the anticipated decrease in product sales from our collaboration partnerophthotech as described above.Research and development expense (in thousands, except percentages) Year Ended December 31, Increase/(Decrease)2016 vs. Increase/(Decrease)2015 vs. PercentageIncrease/(Decrease)2016 vs. PercentageIncrease/(Decrease)2015 vs. 2016 2015 2014 2015 2014 2015 2014 Research and development expense $203,801 $182,787 $147,734 $21,014 $35,053 11% 24% Research and development expense consists primarily of clinical study costs, direct costs of outside research, materials, supplies, licenses and fees as well aspersonnel costs (including salaries, benefits, and stock-based compensation). Research and development expense also includes certain overhead allocationsconsisting of support and facilities-related costs.Research and development expense increased during the year ended december 31, 2016 compared to the year ended december 31, 2015 primarily due tocosts incurred in our nKTR-214 clinical and nKTR-358 pre-clinical programs as well as increased headcount costs, partially offset by a decrease to ouronZEALd TM program costs. Research and development expense increased during the year ended december 31, 2015 compared to the year ended december 31,2014 primarily due to the initiation of Phase 3 clinical studies for nKTR-181 in the first quarter of 2015.50We utilize our employee and infrastructure resources across multiple development and research programs. The following table shows expenses incurred forclinical and regulatory services, clinical supplies, and preclinical study support provided by third parties as well as direct materials costs for each of our drugcandidates. The table also presents other costs and overh ead consisting of personnel, facilities and other indirect costs (in thousands): Clinical Year Ended December 31, StudyStatus (1) 2016 2015 2014 nKTR-181 (mu-opioid analgesic molecule for chronic pain) Phase 3 $46,783 $45,307 $10,558 nKTR-214 (cytokine immunostimulatory therapy) Phase 1/2 16,118 8,637 2,427 onZEALd TM (topoisomerase i inhibitor-polymer conjugate) Phase 3 14,940 19,295 21,660 bAY41-6551 (Amikacin inhale) (2) Phase 3 10,995 9,947 14,412 nKTR-358 Pre-clinical 5,695 132 155 other product candidates Various 3,666 5,993 8,664 Total third party and direct materials costs 98,197 89,311 57,876 Personnel, overhead and other costs 84,563 77,752 75,693 Stock-based compensation and depreciation 21,041 15,724 14,165 Research and development expense $203,801 $182,787 $147,734 (1)Clinical Study Status definitions are provided in the chart found in Part i, item 1. business.(2)We partnered this program with bayer healthcare LLC in August 2007. As part of the novartis Pulmonary Asset Sale in 2008, we retained an exclusivelicense to this technology for the development and commercialization of this drug candidate.We expect research and development expense to continue to increase in 2017 compared to 2016. in 2017, we plan to continue and expand a broad Phase 1/2clinical development program for nKTR-214 in combination with other immune-oncology therapies including but not limited to opdivo ® in collaboration withbMS. For nKTR-358, we have filed an ind with the FdA and plan to begin clinical studies in the near-term. The timing and amount of our future clinicalinvestments in nKTR-214 and nKTR-358 will vary significantly based upon our evaluation of ongoing clinical results and the structure, timing, and scope ofpotential collaboration partnerships (if any) for these programs. if our nKTR-181 Phase 3 efficacy study results are positive, we plan to pursue a collaboration tosecure a development and commercialization partner to fund further development for nKTR-181 through direct program funding, up-front payments, milestones,or a combination thereof. in connection with our European union collaboration partnership with daiichi-Sankyo and our filing of a conditional approvalapplication for onZEALd TM with the European Medicines Agency in June 2016, we have initiated a Phase 3 confirmatory study of onZEALd TM to support ourconditional approval application. in addition, we plan to continue to make substantial investments to support the clinical and commercial manufacturingpreparation and scale-up for the nebulizer devices to supply bayer for the Amikacin inhale program. under our collaboration agreement with bayer for Amikacin,we are responsible for all clinical and commercial supply of the nebulizer devices for this drug candidate and we will continue to fund our contractual obligation tosupport manufacturing activities for the Amikacin inhale program.in addition to our drug candidates that we plan to have in clinical development during 2017 and beyond, we believe it is vitally important to continue oursubstantial investment in a diverse pipeline of new drug candidates to continue to build the value of our drug candidate pipeline and our business. our discoveryresearch organization is identifying new drug candidates by applying our polymer conjugation technology platform to a wide range of molecule classes, includingsmall molecules and large proteins, peptides and antibodies, across multiple therapeutic areas. We plan to continue to advance our most promising early researchdrug candidates into preclinical development with the objective to advance these early stage research programs to human clinical studies over the next severalyears.our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost tocompletion. in order to advance our drug candidates through clinical development, each drug candidate must be tested in numerous preclinical safety, toxicologyand efficacy studies. We then conduct clinical studies for our drug candidates that take several years to complete. The cost and time required to complete clinicaltrials may vary significantly over the life of a clinical development program as a result of a variety of factors, including but not limited to: •the number of patients required for a given clinical study design; •the length of time required to enroll clinical study participants; •the number and location of sites included in the clinical studies;51 •the clinical study designs required by the health autho rities (i.e. primary and secondary endpoints as well as the size of the study needed todemonstrate efficacy and safety outcomes); •the potential for changing standards of care for the target patient population; •the competition for patient recruitment from competitive drug candidates being studied in the same clinical setting; •the costs of producing supplies of the product candidates needed for clinical trials and regulatory submissions; •the safety and efficacy profile of the drug candidate; •the use of clinical research organizations to assist with the management of the trials; and •the costs and timing of, and the ability to secure, approvals from government health authorities.Furthermore, our strategy includes the potential of entering into collaborations with third parties to participate in the development and commercialization ofsome of our drug candidates such as those collaborations that we have already completed for MoVAnTiK ® and Amikacin inhale. in these situations, the clinicaldevelopment program and process for a drug candidate and the estimated completion date will largely be under the control of that third party and not under ourcontrol. We cannot forecast with any degree of certainty which of our drug candidates will be subject to future collaborations or how such arrangements wouldaffect our development plans or capital requirements.The risks and uncertainties associated with our research and development projects are discussed more fully in item 1A — Risk Factors. As a result of theuncertainties discussed above, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects,anticipated completion dates or when and to what extent we will receive cash inflows from a collaboration arrangement or the commercialization of a drugcandidate.General and administrative expense (in thousands, except percentages) Year Ended December 31, Increase/(Decrease)2016 vs. Increase/(Decrease)2015 vs. PercentageIncrease/(Decrease)2016 vs. PercentageIncrease/(Decrease)2015 vs. 2016 2015 2014 2015 2014 2015 2014 General and administrative expense $44,275 $43,266 $40,925 $1,009 $2,341 2% 6% General and administrative expense includes the cost of administrative staffing, business development, marketing, finance, and legal activities. General andadministrative expense increased marginally during the year ended december 31, 2016 compared to the year ended december 31, 2015. General and administrativeexpense increased during the year ended december 31, 2015 compared to the year ended december 31, 2014 primarily due to a $3.0 million payment obligationrelated to the settlement of a commercial litigation matter. in 2017, we expect general and administrative expenses to increase compared to 2016. Interest expense (in thousands except percentages) Year Ended December 31, Increase/(Decrease)2016 vs. Increase/(Decrease)2015 vs. PercentageIncrease/(Decrease)2016 vs. PercentageIncrease/(Decrease)2015 vs. 2016 2015 2014 2015 2014 2015 2014 interest expense $22,468 $18,282 $17,869 $4,186 $413 23% 2%non-cash interest expense on liability related to sale of future royalties $19,712 $20,619 $20,888 $(907) $(269) (4)% (1)% interest expense for the year ended december 31, 2016 increased compared to the year ended december 31, 2015 due primarily to our secured notestransaction completed in october 2015. interest expense for the year ended december 31, 2015 increased marginally compared to the year ended december 31,2014. As is further described in note 5 to our Consolidated Financial Statements, on october 5, 2015, we issued $250.0 million in aggregate principal amount of7.75% senior secured notes due october 2020 and used a portion of the proceeds from these notes to redeem the $125.0 million in aggregate principal amount of12.0% senior secured notes due July 2017. interest on the 7.75% senior secured notes is calculated based on actual days outstanding over a 360 day year. Weexpect interest expense in 2017 to be consistent with 2016.52non-cash interest expense on the liability related to sale of future royalties for the years ended december 31, 2016 and 2015 decreased marginally ascompared to the years ended december 31, 2015 and 2014, respectively, due to the decrease in 2016 and 2 015, respectively, of the average balance of the relatedliability as that liability balance amortizes. on February 24, 2012, we sold all of our rights to receive future royalty payments on CiMZiA ® and MiRCERA ® inexchange for $124.0 million. As described in note 7 to our Consolidated Financial Statements, this royalty sale transaction has been recorded as a liability thatamortizes over the estimated royalty payment period as CiMZiA ® and MiRCERA ® royalties are remitted directly to the purchaser. We impute interest on thetransaction and record interest expense at the effective interest rate, which we currently estimate to be approximately 17%. There are a number of factors that couldmaterially af fect the estimated interest rate, in particular, the amount and timing of royalty payments from future net sales of CiMZiA ® and MiRCERA ® , and wewill assess this estimate on a periodic basis. As a result, future interest rates could differ significantly an d any such change in interest rate will be adjustedprospectively. unless we adjust our estimated interest rate, we expect non-cash interest expense on the liability related to sale of future royalties for 2017 todecrease marginally compared with 2016 as a result of the decreasing royalty liability balance.Loss on Extinguishment of DebtAs a result of the secured note financing transaction in october 2015 discussed above, in the year ended december 31, 2015, we recognized a $14.1 millionloss on extinguishment of our 12% notes, which consists of a $11.3 million redemption premium payment, $1.2 million of incremental interest paid at redemptionto the 12% note holders and the write-off of $1.6 million of unamortized issuance costs on the 12% notes.Liquidity and Capital ResourcesWe have financed our operations primarily through revenue from product sales, royalties and strategic collaboration agreements, as well as public offeringand private placements of debt and equity securities. At december 31, 2016, we had approximately $389.1 million in cash and investments in marketablesecurities. Also, as of december 31, 2016, we had $255.1 million in debt, including $250.0 million in principal of senior secured notes and $5.1 million of capitallease obligations. As described in note 9 to our Consolidated Financial Statements, on october 24, 2016, we completed a public offering of common stock with netproceeds of approximately $189.3 million. We estimate that we have working capital to fund our current business plans at least through March 1, 2018. We expect the clinical development of ourproprietary drug candidates including nKTR-181, Amikacin inhale, onZEALd TM , nKTR-214, and nKTR-358, will require significant investment in order tocontinue to advance in clinical development with the objective of entering into a collaboration partnership or obtaining regulatory approval. however, we have nocredit facility or any other sources of committed capital. in the past we have received a number of significant payments from collaboration agreements and othersignificant transactions. in the future, we expect to continue to receive increasing royalties from commercial sales of products such as MoVAnTiK ® ,MoVEnTiG ® and AdYnoVATE ® as they continue to increase sales after their recent product launches and potential substantial payments from futurecollaboration transactions if drug candidates in our pipeline achieve positive clinical or regulatory outcomes. our current business plan is also subject to significantuncertainties and risks as a result of, among other factors, the sales levels of products for which we are entitled to royalties such as MoVAnTiK ® , MoVEnTiG ®and AdYnoVATE ® , clinical program outcomes, whether, when and on what terms we are able to enter into new collaboration transactions, expenses beinghigher than anticipated, unplanned expenses, cash receipts being lower than anticipated, and the need to satisfy contingent liabilities, including litigation mattersand indemnification obligations.The availability and terms of various financing alternatives substantially depend on many factors including the success or failure of drug developmentprograms in our pipeline, including nKTR-181, Amikacin inhale, CiPRo dPi, Fovista ® , onZEALd TM , nKTR-214 and nKTR-358, as well as other early stagedevelopment programs. The availability and terms of financing alternatives and any future significant payments from existing or new collaborations depend on thepositive outcome of ongoing or planned clinical studies, whether we or our partners are successful in obtaining regulatory authority approvals in major markets, andif approved, the commercial success of these drugs, as well as general capital market conditions. We will pursue various financing alternatives as needed tocontinue to fund our research and development activities and to fund the expansion of our business as appropriate.due to the potential for adverse developments in the credit markets in 2017 and thereafter, we may experience reduced liquidity with respect to some of ourinvestments in marketable securities. These investments are generally held to maturity, which, in accordance with our investment policy, is less than two years.however, if the need arises to liquidate such securities before maturity, we may experience losses on liquidation. At december 31, 2016, the average time tomaturity of the investments held in our portfolio was approximately five months and the maturity of any single investment did not exceed one year. To date wehave not experienced any liquidity issues with respect to these securities. We believe that, even allowing for potential liquidity issues with respect to thesesecurities, our remaining cash and investments in marketable securities will be sufficient to meet our anticipated cash needs for at least the next twelve months.53Cash flows from operating activitiesCash flows used in operating activities for the year ended december 31, 2016 totaled $117.0 million, which includes $158.3 million of net operating cashuses as well as $19.7 million for interest payments on our senior secured notes, partially offset by the receipt of $31.0 million of payments from AstraZenecarelated to its sub-license to Kirin, the receipt of a $20.0 million upfront payment in August 2016 from daiichi Sankyo related to our onZEALd TM collaborationarrangement in Europe, as well as the receipt of a $10.0 million milestone in January 2016 from our baxalta collaboration agreement, which was recorded inaccounts receivable in our Consolidated balance Sheet at december 31, 2015. We expect that cash flows used in operating activities, excluding upfront, milestoneand other contingent payments received, if any, will increase in the full year of 2017 compared to 2016 primarily as a result of increased research and developmentexpenses.Cash flows used in operating activities for the year ended december 31, 2015 totaled $73.1 million, which includes $196.3 million of net operating cashuses as well as $18.8 million for interest payments on our senior secured notes, partially offset by the receipt of $142.0 million of milestones and other contingentpayments from collaboration agreements. Cash flows used in operating activities for the year ended december 31, 2014 totaled $142.0 million, which includes $199.0 million of net operating cashuses as well as $15.0 million for interest payments on our senior secured notes, partially offset by the receipt of $72.0 million of milestones and other contingentpayments from collaboration agreements. during the year ended december 31, 2014, we recognized as revenue a $70.0 million payment made to us fromAstraZeneca in november 2013.Cash flows from investing activitiesWe paid $6.4 million, $11.2 million, and $10.0 million to purchase property, plant and equipment in the years ended december 31, 2016, 2015, and 2014,respectively. We expect our capital expenditures in 2017 to increase compared to 2016.Restricted cash of $25.0 million was required to be maintained in a separate account until July 1, 2015 under the terms of our 12% senior secured notes dueJuly 2017. This restriction expired on July 1, 2015 and the restricted funds were returned to us.Cash flows from financing activitieson october 24, 2016, we completed the issuance and sale of 14,950,000 shares of our common stock in an underwritten public offering with total proceedsof approximately $189.7 million after deducting the underwriting commissions and discounts of approximately $12.1 million. in addition, we incurredapproximately $0.4 million in legal and accounting fees, filing fees, and other costs in connection with this offering.on october 5, 2015, we issued $250.0 million in aggregate principal amount of 7.75% senior secured notes due 2020. The notes bear interest at a rate of7.75% per annum payable in cash quarterly in arrears on January 15, April 15, July 15, and october 15 of each year. in connection with the issuance of the notes,we paid $8.7 million of transaction and facility fees paid to the purchasers of the notes and other direct costs, which were capitalized as a debt discount andissuance costs and are recorded as a reduction to the note payable liability. on october 5, 2015, we used a portion of the proceeds from these notes to redeem the$125.0 million in aggregate principal amount of 12.0% senior secured notes due in 2017. in addition, on october 5, 2015, we paid accrued interest of $3.3 millionand made a $12.5 million redemption payment, which includes $1.2 million additional interest paid to the 12% note holders at redemption. on January 28, 2014, we completed the issuance and sale of 9,775,000 shares of our common stock in a public offering with total proceeds of approximately$117.2 million after deducting the underwriting commissions and discounts of approximately $7.5 million. in addition, we incurred approximately $0.6 million inlegal and accounting fees, filing fees, and other costs in connection with this offering.on February 24, 2012, we sold all of our rights to receive future royalty payments on CiMZiA ® and MiRCERA ® in exchange for $124.0 million. duringthe year ended december 31, 2014, we made a payment of $7.0 million to the purchaser of these royalties because a certain minimum MiRCERA ® net salesthreshold was not met. The remaining $108.6 million royalty obligation liability at december 31, 2016 will not be settled in cash.We received proceeds from issuance of common stock related to our employee option and stock purchase plans of $20.3 million, $32.2 million, and$47.0 million in the years ended december 31, 2016, 2015, and 2014, respectively.54Contractual Obligations (in thousands) Payments Due by Period Total <=1 Yr2017 2-3 Yrs2018-2019 4-5 Yrs2020-2021 2022+ Obligations (1) 7.75% senior secured notes due october 2020, including interest $328,576 $19,644 $39,288 $269,644 $— operating leases (2) 16,020 5,037 10,531 452 — Capital leases, including interest (3) 5,610 3,271 2,339 — — Purchase commitments (4) 5,772 5,772 — — — $355,978 $33,724 $52,158 $270,096 $— (1)The above table does not include certain commitments and contingencies which are discussed in note 8 of item 8. Financial Statements and Supplementarydata.(2)in november 2010, we moved into our Mission bay Facility, which includes our corporate headquarters and a research and development center. under theterms of the sublease we entered into with Pfizer inc. on September 30, 2009 for the Mission bay Facility, we began making non-cancelable lease paymentsin 2014. The sublease is discussed in note 6 of item 8. Financial Statements and Supplementary data.(3)These amounts primarily result from our purchase of manufacturing equipment supporting our Amikacin inhale program.(4)Substantially all of this amount was subject to open purchase orders as of december 31, 2016 that were issued under existing contracts. This amount doesnot represent any minimum contract termination liabilities for our existing contracts.Off Balance Sheet ArrangementsWe do not utilize off-balance sheet financing arrangements as a source of liquidity or financing.Critical Accounting PoliciesThe preparation and presentation of financial statements in conformity with u.S. generally accepted accounting principles (GAAP) requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting period.We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results ofwhich form our basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources, and evaluate ourestimates on an ongoing basis. Actual results may differ materially from those estimates under different assumptions or conditions. We have determined that for theperiods in this report, the following accounting policies and estimates are critical in understanding our financial condition and the results of our operations.Revenue RecognitionLicense, collaboration and other research revenue is recognized based on the facts and circumstances of each contractual agreement and includesamortization of upfront fees. We defer income under contractual agreements when we have further obligations that indicate that a separate earnings process has notbeen completed. The amount of upfront fees and other payments received under our license and collaboration agreements that are allocated to our continuingobligations are recognized ratably over our expected performance period under each arrangement. Management makes its best estimate of the period over which weexpect to fulfill our performance obligations, which may include technology transfer assistance, research and development activities, or manufacturing activitiesthrough the completion of clinical development or the termination or expiration of the collaboration agreement. Given the complexities and uncertainties ofcollaboration arrangements, significant judgment is required by management to determine the duration of the performance period.As of december 31, 2016, we had $21.7 million of deferred upfront fees related to two collaboration agreements that include research and developmentobligations that are being amortized over 5 to 22 years, or an average of approximately 13 years. For our collaboration agreements, our performance obligationsmay span the life of the agreement. For these, the shortest reasonable period is the end of the development period (estimated to be 4 to 8 years) and the longestperiod is the contractual life of the agreement, which is generally 10-12 years from the first commercial sale. Given the statistical probability of drug developmentsuccess in the bio-pharmaceutical industry, drug development programs have only a 5% to 10% probability of reaching commercial success. if we had determined alonger or shorter amortization period was appropriate, our annual upfront fee amortization for these agreements could55have been as low as $2 million or as high as $11 million as compared to the approximately $2.0 million recognized in th e year ended december 31, 2016.As of december 31, 2016, we also had $41.3 million of deferred upfront fees related to six license, manufacturing and supply agreements that are beingamortized over periods from 3 to 15 years. our performance obligations for these agreements may include technology transfer assistance and/or back-upmanufacturing and supply services for a specified period of time; therefore, the time estimated to complete the performance obligations related to licenses is eitherspecified or is much shorter than the collaboration agreements. We may experience delays in the execution of technology transfer plans, which may result in alonger amortization period for applicable agreements.our original estimates are periodically evaluated to determine if circumstances have caused the estimates to change and if so, amortization of revenue isadjusted prospectively.in addition, at the inception of each new multiple-element arrangement or the material modification of an existing multiple-element arrangement, weallocate arrangement consideration to all units of accounting based on the relative selling price method, generally based on our best estimate of selling price (ESP).The objective of ESP is to determine the price at which we would transact a sale if the product or service was sold on a stand-alone basis. We determine ESP for theelements in our collaboration arrangements by considering multiple factors including, but not limited to, technical complexity of the performance obligation andsimilarity of elements to those performed under previous arrangements. Since we apply significant judgment in arriving at the ESPs, any material changes wouldsignificantly affect the allocation of the total consideration to the different elements of a multiple element arrangement.Clinical Trial AccrualsWe record accruals for the estimated costs of our clinical study activities performed by third parties. The financial terms of these agreements are subject tonegotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts depend on factors such as theachievement of certain events, successful enrollment of patients and completion of portions of the clinical trial or similar conditions. We generally accrue costsassociated with the start-up and reporting phases of the clinical studies ratably over the estimated duration of the start-up and reporting phases. We generally accruecosts associated with the treatment phase of clinical studies based on the total estimated cost of the treatment phase on a per patient basis and we expense the perpatient cost ratably over the estimated patient treatment period based on patient enrollment in the studies. in specific circumstances, such as for certain time-basedcosts, we recognize clinical trial expenses using a methodology that we consider to be more reflective of the timing of costs incurred. Advance payments for goodsor services that will be used or rendered for future research and development activities are capitalized as prepaid expenses and recognized as expense as the relatedgoods are delivered or the related services are performed. We base our estimates on the best information available at the time. however, additional information maybecome available to us which may allow us to make a more accurate estimate in future periods. in this event, we may be required to record adjustments to researchand development expenses in future periods when the actual level of activity becomes more certain. Such increases or decreases in cost are generally considered tobe changes in estimates and will be reflected in research and development expenses in the period first identified.Stock-Based CompensationWe use the black-Scholes option pricing model for each respective grant to determine the estimated fair value of stock options on the date of grant (grantdate fair value). We expense the estimated fair value of each award, as adjusted by the estimated historical forfeiture rate, ratably over the expected service periodof the award. The black-Scholes option pricing model requires the input of highly subjective assumptions. These variables include, but are not limited to, our stockprice volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. because our employee stock options havecharacteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect fair valueestimates, in management’s opinion, the existing models may not provide a reliable single measure of the fair value of our employee stock options. Managementcontinually assesses the assumptions and methodologies used to calculate the estimated fair value of stock-based compensation. in addition, for awards that vestupon the achievement of performance milestones, we estimate whether the awards will vest and the vesting period based on our evaluation of the probability ofachievement of each respective milestone and the related estimated date of achievement. Circumstances may change and additional data may become availableover time, which could result in changes to the assumptions and methodologies, and which could materially impact our fair value determination, as well as ourstock-based compensation expense.Non-cash Interest Expense on Liability Related to Sale of Future Royaltiesin February 2012, we sold all of our rights to receive future royalty payments from sales of the CiMZiA ® and MiRCERA ® drug products marketed byuCb and Roche, respectively. Although we are required to make payments to the purchaser (RPi) only in certain situations, including the event of our breach of arepresentation, warranty or covenant in the Purchase and Sale Agreement that gives rise to a liability in accordance with the terms and conditions of suchagreement, this royalty sale transaction was recorded as a56liability (Royalty obligation) that we will amortize using the interest method over the estimated life of the Purchase and Sale Agreement. As a result, we imputeinterest on the transaction and record interest expense at the estimated interest rate. our estimate of the interest rate under the agreement is based on the amount ofroyalty payments to be received by RPi over the life of the arrangem ent and payments we are required to make to RPi under the agreement. We will periodicallyassess the expected royalty payments to RPi from uCb and Roche using a combination of historical results and forecasts from market data sources. To the extentsuch pa yments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, we will prospectivelyadjust the amortization of the Royalty obligation. There are a number of factors that could mate rially affect the amount and timing of royalty payments fromCiMZiA ® and MiRCERA ® , most of which are not within our control. Such factors include, but are not limited to, changing standards of care, the introduction ofcompeting products, manufacturing or other delays, biosimilar competition, intellectual property matters, adverse events that result in health authority imposedrestrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to RPi are mad e in u.S. dollars (uSd) whilesignificant portions of the underlying sales of CiMZiA ® and MiRCERA ® are made in currencies other than uSd, and other events or circumstances that result inreduced royalty payments from CiMZiA ® and MiRCERA ® , all of which woul d result in a reduction of non-cash royalty revenue and non-cash interest expenseover the life of the Royalty obligation. Conversely, if sales of CiMZiA ® and MiRCERA ® are higher than expected, non-cash royalty revenue and non-cashinterest expense would b e greater over the term of the Royalty obligation. if we had determined that the interest rate used in 2016 should have been onepercentage point higher than our current estimate of 17%, the non-cash interest expense recognized in the year ended december 3 1, 2016 would have increased by$1.2 million.Recent Accounting Pronouncementsin May 2014, the FASb issued guidance codified in Accounting Standards Codification (ASC) 606, Revenue Recognition — Revenue from Contracts withCustomers, which amends the guidance in former ASC 605, Revenue Recognition, and is effective for public companies for annual and interim periods beginningafter december 15, 2017. numerous updates have been issued subsequent to the initial FASb guidance that provide clarification on a number of specific issues aswell as requiring additional disclosures. We plan to adopt the standard in the first quarter of 2018 using the modified retrospective method. Although we are stillevaluating our contracts and assessing all the potential impacts of the standard on existing arrangements we anticipate the adoption may have a material impact onour consolidated financial statements. Specifically, the new standard differs from the current accounting standard in many respects, such as in the accounting forvariable consideration, including milestone payments or contingent payments from our collaboration partners. under our current accounting policy, we recognizecontingent or milestone payments as revenue in the period that the payment-triggering event occurred or is achieved. The new revenue standard, however, mayrequire us to recognize these payments before the payment-triggering event is completely achieved, subject to management’s assessment of whether it is probablethat the triggering event will be achieved and that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertaintyassociated with the variable consideration is subsequently resolved.in March 2016, the FASb issued guidance to simplify several aspects of employee share-based payment accounting, including income tax consequences,classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance will become effective for us beginning in thefirst quarter of 2017. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.in February 2016, the FASb issued guidance to amend a number of aspects of lease accounting, including requiring lessees to recognize almost all leaseswith a term greater than one year as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. The guidance will becomeeffective for us beginning in the first quarter of 2019 and is required to be adopted using a modified retrospective approach. Early adoption is permitted. We arecurrently evaluating the impact of the adoption of this standard. 57Item 7A.Quantitative and Qualitat ive Disclosures About Market RiskInterest Rate and Market RiskThe primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. Toachieve this objective, we invest in liquid, high quality debt securities. our investments in debt securities are subject to interest rate risk. To minimize the exposuredue to an adverse shift in interest rates, we invest in short-term securities and maintain a weighted average maturity of one year or less.A hypothetical 50 basis point increase in interest rates would result in an approximate $0.8 million decrease, less than 1%, in the fair value of our available-for-sale securities at december 31, 2016. This potential change is based on sensitivity analyses performed on our investment securities at december 31, 2016.Actual results may differ materially. The same hypothetical 50 basis point increase in interest rates would have resulted in an approximate $0.6 million decrease,less than 1%, in the fair value of our available-for-sale securities at december 31, 2015.As of december 31, 2016, we held $329.5 million of available-for-sale investments, excluding money market funds, with an average time to maturity of sixmonths. To date we have not experienced any liquidity issues with respect to these securities, but should such issues arise, we may be required to hold some, or all,of these securities until maturity. We believe that, even allowing for potential liquidity issues with respect to these securities, our remaining cash, cash equivalents,and investments in marketable securities will be sufficient to meet our anticipated cash needs for at least the next twelve months. based on our available cash andour expected operating cash requirements, we currently do not intend to sell these securities prior to maturity and it is more likely than not that we will not berequired to sell these securities before we recover the amortized cost basis. Accordingly, we believe there are no other-than-temporary impairments on thesesecurities and have not recorded any provisions for impairment.Foreign Currency RiskThe majority of our revenue, expense, and capital purchasing activities are transacted in u.S. dollars. however, since a portion of our operations consists ofresearch and development activities outside the united States, we have entered into transactions in other currencies, primarily the indian Rupee, and we thereforeare subject to foreign exchange risk.our international operations are subject to risks typical of international operations, including, but not limited to, differing economic conditions, changes inpolitical climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. We do not utilize derivative financial instrumentsto manage our exchange rate risks. 58Item 8.Financial Statemen ts and Supplementary DataNEKTAR THERAPEUTICSINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReports of independent Registered Public Accounting Firm60Consolidated balance Sheets at december 31, 2016 and 201562Consolidated Statements of operations for each of the years in the three year period ended december 31, 201663Consolidated Statements of Comprehensive Loss for each of the years in the three year period ended december 31, 201664Consolidated Statements of Stockholders’ Equity (deficit) for each of the years in the three year period ended december 31, 201665Consolidated Statements of Cash Flows for each of the years in the three year period ended december 31, 201666notes to Consolidated Financial Statements67 59Report of Independent Regist ered Public Accounting FirmThe board of directors and Shareholders of nektar TherapeuticsWe have audited the accompanying consolidated balance sheets of nektar Therapeutics as of december 31, 2016 and 2015, and the related consolidated statementsof operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended december 31, 2016. These financialstatements are the responsibility of the Company’s management. our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting oversight board (united States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.in our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of nektar Therapeutics atdecember 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended december 31, 2016, inconformity with u.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting oversight board (united States), nektar Therapeutics’ internal controlover financial reporting as of december 31, 2016, based on criteria established in internal Control-integrated Framework issued by the Committee of Sponsoringorganizations of the Treadway Commission (2013 framework) and our report dated March 1, 2017 expressed an unqualified opinion thereon./s/ E RnST & Y ounG LLPRedwood City, CaliforniaMarch 1, 201760Report of Independent Registered Public Accounting FirmThe board of directors and Shareholders of nektar TherapeuticsWe have audited nektar Therapeutics’ internal control over financial reporting as of december 31, 2016, based on criteria established in internal Control-integratedFramework issued by the Committee of Sponsoring organizations of the Treadway Commission (2013 framework) (the CoSo criteria). nektar Therapeutics’management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control overfinancial reporting included in the accompanying Management’s Annual Report on internal Control over Financial Reporting. our responsibility is to express anopinion on the company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting oversight board (united States). Those standards require that we planand perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. ouraudit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.in our opinion, nektar Therapeutics maintained, in all material respects, effective internal control over financial reporting as of december 31, 2016, based on theCoSo criteria.We also have audited, in accordance with the standards of the Public Company Accounting oversight board (united States), the consolidated balance sheets ofnektar Therapeutics as of december 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit),and cash flows for each of the three years in the period ended december 31, 2016 of nektar Therapeutics and our report dated March 1, 2017 expressed anunqualified opinion thereon./s/ E RnST & Y ounG LLPRedwood City, CaliforniaMarch 1, 2017 61NEKTAR THERAPEUTICSCONSOLIDATED BALANCE SHEETS(In thousands, except par value information) December 31, 2016 2015 ASSETS Current assets: Cash and cash equivalents $59,640 $55,570 Short-term investments 329,462 253,374 Accounts receivable, net of allowance of nil at december 31, 2016 and 2015 15,678 19,947 inventory 11,109 11,346 other current assets 10,363 9,814 Total current assets 426,252 350,051 Property, plant and equipment, net 65,601 71,336 Goodwill 76,501 76,501 other assets 517 754 Total assets $568,871 $498,642 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $2,816 $2,363 Accrued compensation 18,280 5,998 Accrued clinical trial expenses 7,958 8,220 other accrued expenses 4,711 4,156 interest payable 4,198 4,198 Capital lease obligations, current portion 2,908 4,756 Liability related to refundable upfront payment 12,500 — deferred revenue, current portion 14,352 21,428 other current liabilities 4,499 10,127 Total current liabilities 72,222 61,246 Senior secured notes, net 243,464 241,699 Capital lease obligations, less current portion 2,223 1,073 Liability related to the sale of future royalties, net 105,950 116,029 deferred revenue, less current portion 51,887 62,426 other long-term liabilities 5,000 9,740 Total liabilities 480,746 492,213 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.0001 par value; 10,000 shares authorized; no shares designated, issued or outstanding at december 31, 2016 or 2015 — — Common stock, $0.0001 par value; 300,000 shares authorized; 153,212 shares and 135,289 shares issued and outstanding at december 31, 2016 and 2015, respectively 15 13 Capital in excess of par value 2,111,483 1,876,072 Accumulated other comprehensive loss (2,363) (2,170)Accumulated deficit (2,021,010) (1,867,486)Total stockholders’ equity 88,125 6,429 Total liabilities and stockholders’ equity $568,871 $498,642 The accompanying notes are an integral part of these consolidated financial statements. 62NEKTAR THERAPEUTICSCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share information) Year Ended December 31, 2016 2015 2014 Revenue: Product sales $55,354 $40,155 $25,152 Royalty revenue 19,542 2,967 329 non-cash royalty revenue related to sale of future royalties 30,158 22,058 21,937 License, collaboration and other revenue 60,382 165,604 153,289 Total revenue 165,436 230,784 200,707 operating costs and expenses: Cost of goods sold 30,215 34,102 28,533 Research and development 203,801 182,787 147,734 General and administrative 44,275 43,266 40,925 Total operating costs and expenses 278,291 260,155 217,192 Loss from operations (112,855) (29,371) (16,485)non-operating income (expense): interest expense (22,468) (18,282) (17,869)non-cash interest expense on liability related to sale of future royalties (19,712) (20,619) (20,888)Loss on extinguishment of debt — (14,079) — interest income and other income (expense), net 2,387 1,680 814 Total non-operating expense, net (39,793) (51,300) (37,943)Loss before provision (benefit) for income taxes (152,648) (80,671) (54,428)Provision (benefit) for income taxes 876 506 (512)net loss $(153,524) $(81,177) $(53,916)basic and diluted net loss per share $(1.10) $(0.61) $(0.42)Weighted average shares outstanding used in computing basic and diluted net loss per share 139,596 132,458 126,873 The accompanying notes are an integral part of these consolidated financial statements. 63NEKTAR THERAPEUTICSCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) Year Ended December 31, 2016 2015 2014 net loss $(153,524) $(81,177) $(53,916)other comprehensive income (loss): net unrealized gain (loss) on available-for-sale investments, net of tax 79 (226) (95)net foreign currency translation loss (272) (377) (291)other comprehensive loss, net of tax (193) (603) (386)Comprehensive loss $(153,717) $(81,780) $(54,302) The accompanying notes are an integral part of these consolidated financial statements. 64NEKTAR THERAPEUTICSCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)(In thousands) CommonShares ParValue Capital inExcess ofPar Value AccumulatedOtherComprehensiveIncome/(Loss) AccumulatedDeficit TotalStockholders’Equity(Deficit) balance at december 31, 2013 116,494 $11 $1,643,660 $(1,181) $(1,732,393) $(89,903)Sale of common stock, net of issuance costs of $617 9,775 1 116,535 — — 116,536 Shares issued under equity compensation plans 4,947 1 46,983 — — 46,984 Stock-based compensation — — 17,017 — — 17,017 other comprehensive loss — — — (386) — (386)net loss — — — — (53,916) (53,916)balance at december 31, 2014 131,216 13 1,824,195 (1,567) (1,786,309) 36,332 Shares issued under equity compensation plans 4,073 — 32,208 — — 32,208 Stock-based compensation — — 19,669 — — 19,669 other comprehensive loss — — — (603) — (603)net loss — — — — (81,177) (81,177)balance at december 31, 2015 135,289 13 1,876,072 (2,170) (1,867,486) 6,429 Sale of common stock, net of issuance costs of $439 14,950 2 189,274 — — 189,276 Shares issued under equity compensation plans 2,973 — 20,287 — — 20,287 Stock-based compensation — — 25,850 — — 25,850 other comprehensive loss — — — (193) — (193)net loss — — — — (153,524) (153,524)balance at december 31, 2016 153,212 $15 $2,111,483 $(2,363) $(2,021,010) $88,125 The accompanying notes are an integral part of these consolidated financial statements. 65NEKTAR THERAPEUTICSCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2016 2015 2014 Cash flows from operating activities: net loss $(153,524) $(81,177) $(53,916)Adjustments to reconcile net loss to net cash used in operating activities: non-cash royalty revenue related to sale of future royalties (30,158) (22,058) (21,937)non-cash interest expense on liability related to sale of future royalties 19,712 20,619 20,888 Stock-based compensation 25,850 19,669 17,017 depreciation and amortization 15,351 12,855 12,927 Loss from redemption premium and incremental interest on 12% senior secured notes — 12,500 — Write-off of deferred financing costs on 12% senior secured notes — 1,579 — other non-cash transactions (2,185) (2,365) (560)Changes in assets and liabilities: Accounts receivable, net 4,269 (16,340) (1,378)inventory 237 1,606 500 other assets (312) (825) (3,294)Accounts payable 518 (412) (6,359)Accrued compensation 12,282 249 (8,505)Accrued clinical trial expenses (262) 512 (9,197)other accrued expenses 191 (2,278) 273 interest payable — (2,719) — Liability related to refundable upfront payment 12,500 — — deferred revenue (17,615) (17,530) (4,664)Liability related to receipt of refundable milestone payment — — (70,000)other liabilities (3,878) 3,032 (13,801)net cash used in operating activities (117,024) (73,083) (142,006)Cash flows from investing activities: Purchases of investments (334,659) (297,608) (297,251)Maturities of investments 253,682 226,923 247,995 Sales of investments 4,969 42,544 21,661 Release of restricted cash — 25,000 — Purchases of property, plant and equipment (6,392) (11,195) (9,976)net cash used in investing activities (82,400) (14,336) (37,571)Cash flows from financing activities: Payment of capital lease obligations (5,945) (5,187) (3,536)issuance of common stock, net of issuance costs 189,276 — 116,536 Proceeds from shares issued under equity compensation plans 20,287 32,208 46,984 Proceeds from issuance of 7.75% senior secured notes, net of issuance costs — 241,262 — Repayment of 12% senior secured notes — (125,000) — Payment of redemption premium and incremental interest on 12% senior secured notes — (12,500) — Repayment of proceeds from sale of future royalties — — (7,000)net cash provided by financing activities 203,618 130,783 152,984 Effect of exchange rates on cash and cash equivalents (124) (159) (109)net increase (decrease) in cash and cash equivalents 4,070 43,205 (26,702)Cash and cash equivalents at beginning of year 55,570 12,365 39,067 Cash and cash equivalents at end of year $59,640 $55,570 $12,365 Supplemental disclosure of cash flow information: Cash paid for interest $20,589 $20,225 $17,445 Cash paid for income taxes $757 $860 $964 Supplemental schedule of non-cash investing and financing activities: Property and equipment acquired through capital leases and other financing $1,568 $93 $5,231 The accompanying notes are an integral part of these consolidated financial statements.66NEKTAR THERAPEUTICSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2016 Note 1 — Organization and Summary of Significant Accounting PoliciesOrganizationWe are a research-based biopharmaceutical company headquartered in San Francisco, California and incorporated in delaware. We are developing apipeline of drug candidates that utilize our advanced polymer conjugate technology platforms, which are designed to enable the development of new molecularentities that target known mechanisms of action. our research and development pipeline of new investigational drugs includes treatments for cancer, auto-immunedisease and chronic pain.our research and development activities have required significant ongoing investment to date and are expected to continue to require significant investment.As a result, we expect to continue to incur substantial losses and negative cash flows from operations in the future. We have financed our operations primarilythrough cash generated from licensing, collaboration and manufacturing agreements and financing transactions. At december 31, 2016, we had approximately$389.1 million in cash and investments in marketable securities. Also, as of december 31, 2016, we had $255.1 million in debt, including $250.0 million inprincipal of senior secured notes and $5.1 million of capital lease obligations, of which $2.9 million is current.Basis of Presentation, Principles of Consolidation and Use of Estimatesour consolidated financial statements include the financial position, results of operations and cash flows of our wholly-owned subsidiaries: nektarTherapeutics (india) Private Limited (nektar india) and nektar Therapeutics uK Limited. All intercompany accounts and transactions have been eliminated inconsolidation.our Consolidated Financial Statements are denominated in u.S. dollars. Accordingly, changes in exchange rates between the applicable foreign currencyand the u.S. dollar will affect the translation of each foreign subsidiary’s financial results into u.S. dollars for purposes of reporting our consolidated financialresults. Translation gains and losses are included in accumulated other comprehensive income (loss) in the stockholders’ equity section of the Consolidated balanceSheets. To date, such cumulative translation adjustments have not been significant to our consolidated financial position. Aggregate gross foreign currencytransaction gains (losses) recorded in operations for the years ended december 31, 2016, 2015, and 2014 were not significant.The preparation of consolidated financial statements in conformity with u.S. generally accepted accounting principles (GAAP) requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Accounting estimates and assumptions areinherently uncertain. Actual results could differ materially from those estimates and assumptions. our estimates include those related to estimated selling prices ofdeliverables in collaboration agreements, estimated periods of performance, the net realizable value of inventory, the impairment of investments, the impairment ofgoodwill and long-lived assets, contingencies, accrued clinical trial expenses, estimated non-cash royalty revenue and non-cash interest expense from our liabilityrelated to our sale of future royalties, stock-based compensation, and ongoing litigation, among other estimates. We base our estimates on historical experience andon other assumptions that management believes are reasonable under the circumstances. These estimates form the basis for making judgments about the carryingvalues of assets and liabilities when these values are not readily apparent from other sources. As appropriate, estimates are assessed each period and updated toreflect current information and any changes in estimates will generally be reflected in the period first identified.ReclassificationsCertain items previously reported in specific financial statement captions have been reclassified to conform to the current period presentation, including as aresult of the adoption of new accounting guidance related to the classification of debt issuance costs described below. Such reclassifications do not materiallyimpact previously reported revenue, operating loss, net loss, total assets, liabilities or stockholders’ equity.Cash, Cash Equivalents, and Investments, and Fair Value of Financial InstrumentsWe consider all investments in marketable securities with an original maturity of three months or less when purchased to be cash equivalents. investments insecurities with remaining maturities of less than one year, or where our intent is to use the investments to fund current operations or to make them available forcurrent operations, are classified as short-term investments.67investments are designated as availa ble-for-sale and are carried at fair value, with unrealized gains and losses reported in stockholders’ equity asaccumulated other comprehensive income (loss). The disclosed fair value related to our cash equivalents and investments is based primarily on t he reported fairvalues in our period-end brokerage statements, which are based on market prices from a variety of industry standard data providers and generally represent quotedprices for similar assets in active markets or have been derived from observa ble market data. We independently validate these fair values using available marketquotes and other information.interest and dividends on securities classified as available-for-sale, as well as amortization of premiums and accretion of discounts to maturity, are includedin interest income. Realized gains and losses and declines in value of available-for-sale securities judged to be other-than-temporary, if any, are included in otherincome (expense). The cost of securities sold is based on the specific identification method.our cash, cash equivalents, and short-term investments are exposed to credit risk in the event of default by the third parties that hold or issue such assets.our cash, cash equivalents, and short-term investments are held by financial institutions that management believes are of high credit quality. our investment policylimits investments to fixed income securities denominated and payable in u.S. dollars such as u.S. government obligations, money market instruments and funds,and corporate bonds and places restrictions on maturities and concentrations by type and issuer. Accounts Receivable and Significant Customer Concentrationsour customers are primarily pharmaceutical and biotechnology companies that are located in the u.S. and Europe. our accounts receivable balance containsbilled and unbilled trade receivables from product sales, milestones, other contingent payments and royalties, as well as time and materials based billings fromcollaborative research and development agreements. When appropriate, we provide for an allowance for doubtful accounts by reserving for specifically identifieddoubtful accounts. We generally do not require collateral from our customers. We perform a regular review of our customers’ credit risk and payment histories,including payments made subsequent to year-end. We have not experienced significant credit losses from our accounts receivable. At december 31, 2016, threedifferent customers represented 39%, 32%, and 13%, respectively, of our accounts receivable. At december 31, 2015, three different customers represented 50%,35%, and 10%, respectively, of our accounts receivable.Inventory and Significant Supplier Concentrationsinventory is generally manufactured upon receipt of firm purchase orders from our collaboration partners. inventory includes direct materials, direct labor,and manufacturing overhead and cost is determined on a first-in, first-out basis. inventory is valued at the lower of cost or market and defective or excess inventoryis written down to net realizable value based on historical experience or projected usage. inventory related to our research and development activities is expensedwhen purchased.We are dependent on our suppliers and contract manufacturers to provide raw materials, drugs and devices of appropriate quality and reliability and to meetapplicable contract and regulatory requirements. in certain cases, we rely on single sources of supply of one or more critical materials. Consequently, in the eventthat supplies are delayed or interrupted for any reason, our ability to develop and produce our drug candidates or our ability to meet our supply obligations could besignificantly impaired, which could have a material adverse effect on our business, financial condition and results of operations.Long-Lived AssetsProperty, plant and equipment are stated at cost. Major improvements are capitalized, while maintenance and repairs are expensed when incurred.Manufacturing, laboratory and other equipment are depreciated using the straight-line method generally over estimated useful lives of three to ten years. buildingsare depreciated using the straight-line method generally over the estimated useful life of twenty years. Leasehold improvements and buildings recorded undercapital leases are depreciated using the straight-line method over the shorter of the estimated useful life or the remaining term of the lease.Goodwill represents the excess of the price paid for another entity over the fair value of the assets acquired and liabilities assumed in a businesscombination. We are organized in one reporting unit and evaluate the goodwill for the Company as a whole. Goodwill has an indefinite useful life and is notamortized, but instead tested for impairment at least annually in the fourth quarter of each year using an october 1 measurement date.68We assess the impairment of long-lived assets, primarily property, plant and equipment and goodwill, whenever events or changes in businesscircumstances indicate that the carrying a mounts of the assets may not be fully recoverable. When such events occur, we determine whether there has been animpairment in value by comparing the carrying value of the asset with its fair value, as measured by the anticipated undiscounted net cash flo ws associated withthe asset. in the case of goodwill impairment, market capitalization is generally used as the measure of fair value. if an impairment in value exists, the asset iswritten down to its estimated fair value. Revenue Recognitionour revenue is derived from our arrangements with pharmaceutical and biotechnology collaboration partners and may result from one or more of thefollowing: upfront and license fees, payments for contract research and development, milestone and other contingent payments, manufacturing and supplypayments, and royalties. our performance obligations under our collaborations may include licensing our intellectual property, manufacturing and supplyobligations, and research and development obligations. in order to account for the multiple-element arrangements, we identify the deliverables included within thearrangement and evaluate which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use ofjudgment, and each deliverable may be an obligation to deliver goods or services, a right or license to use an asset, or another performance obligation. Revenue isrecognized separately for each identified unit of accounting when the basic revenue recognition criteria are met: there is persuasive evidence that an arrangementexists, delivery has occurred, the price is fixed or determinable, and collection is reasonably assured.At the inception of each new multiple-element arrangement or the material modification of an existing multiple-element arrangement, we allocate allconsideration received under multiple-element arrangements to all units of accounting based on the relative selling price method, generally based on our bestestimate of selling price (ESP). The objective of ESP is to determine the price at which we would transact a sale if the product or service was sold on a stand-alonebasis. We determine ESP for the elements in our collaboration arrangements by considering multiple factors including, but not limited to, technical complexity ofthe performance obligation and similarity of elements to those performed under previous arrangements. Since we apply significant judgment in arriving at theESPs, any material change in our estimates would significantly affect the allocation of the total consideration to the different elements of a multiple elementarrangement.Product salesProduct sales are primarily derived from fixed price manufacturing and supply agreements with our collaboration partners. We have not experienced anysignificant returns from our customers.Royalty revenueGenerally, we are entitled to royalties from our collaboration partners based on the net sales of their approved drugs that are marketed and sold in one ormore countries where we hold royalty rights. We recognize royalty revenue when the cash is received or when the royalty amount to be received is estimable andcollection is reasonably assured. With respect to the non-cash royalties related to sale of future royalties described in note 7, revenue is recognized when estimable,otherwise, revenue is recognized during the period in which the related royalty report is received, which generally occurs in the quarter after the applicable productsales are made.License, collaboration and other revenueThe amount of upfront fees and other payments received by us in license and collaboration arrangements that are allocated to continuing performanceobligations, such as manufacturing and supply obligations, is deferred and generally recognized ratably over our expected performance period under eachrespective arrangement. We make our best estimate of the period over which we expect to fulfill our performance obligations, which may include technologytransfer assistance, research activities, clinical development activities, and manufacturing activities from research and development through the commercializationof the product. Given the uncertainties of these collaboration arrangements, significant judgment is required to determine the duration of the performance periodand this estimate is periodically re-evaluated.69Contingent consideration received from the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone isachieved, which we believe is con sistent with the substance of our performance under our various license and collaboration agreements. A milestone is defined asan event (i) that can only be achieved based in whole or in part either on the entity’s performance or on the occurrence of a sp ecific outcome resulting from theentity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that wouldresult in additional payments being due to the entity. A milestone is substantive if the consideration earned from the achievement of the milestone is consistent withour performance required to achieve the milestone or the increase in value to the collaboration resulting from our performance, relates solely to our pastperformance, and is reasonable relative to all of the other deliverables and payments within the arrangement.our license and collaboration agreements with our partners provide for payments to us upon the achievement of development milestones, such as thecompletion of clinical trials or regulatory submissions, approvals by regulatory authorities, and commercial launches of drugs. Given the challenges inherent indeveloping and obtaining regulatory approval for drug products and in achieving commercial launches, there was substantial uncertainty whether any suchmilestones would be achieved at the time of execution of these licensing and collaboration agreements. in addition, we evaluated whether the developmentmilestones met the remaining criteria to be considered substantive. As a result of our analysis, we consider our remaining development milestones under all of ourlicense and collaboration agreements to be substantive and, accordingly, we expect to recognize as revenue future payments received from each milestone only ifand as such milestone is achieved.our license and collaboration agreements with certain partners also provide for contingent payments to us based solely upon the performance of therespective partner. For such contingent amounts, we expect to recognize the payments as revenue when earned under the applicable contract, which is generallyupon completion of performance by the respective partner, provided that collection is reasonably assured.our license and collaboration agreements with our partners also provide for payments to us upon the achievement of specified sales volumes of approveddrugs. We consider these payments to be similar to royalty payments and we will recognize such sales-based payments upon achievement of such sales volumes,provided that collection is reasonably assured.Shipping and Handling CostsWe recognize costs related to shipping and handling of product to customers in cost of goods sold.Research and Development ExpenseResearch and development costs are expensed as incurred and include salaries, benefits and other operating costs such as outside services, supplies andallocated overhead costs. We perform research and development for our proprietary drug candidates and technology development and for certain third parties undercollaboration agreements. For our proprietary drug candidates and our internal technology development programs, we invest our own funds without reimbursementfrom a third party.We record accruals for the estimated costs of our clinical trial activities performed by third parties. The financial terms of these agreements are subject tonegotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts depend on factors such as theachievement of certain events, successful enrollment of patients, and completion of certain clinical trial activities. We generally accrue costs associated with thestart-up and reporting phases of the clinical trials ratably over the estimated duration of the start-up and reporting phases. We generally accrue costs associated withthe treatment phase of clinical trials based on the total estimated cost of the treatment phase on a per patient basis and we expense the per patient cost ratably overthe estimated patient treatment period based on patient enrollment in the trials. in specific circumstances, such as for certain time-based costs, we recognize clinicaltrial expenses using a methodology that we consider to be more reflective of the timing of costs incurred. Advance payments for goods or services that will be usedor rendered for future research and development activities are capitalized as prepaid expenses and recognized as expense as the related goods are delivered or therelated services are performed. We base our estimates on the best information available at the time. however, additional information may become available to uswhich may allow us to make a more accurate estimate in future periods. in this event, we may be required to record adjustments to research and developmentexpenses in future periods when the actual level of activity becomes more certain. Such increases or decreases in cost are generally considered to be changes inestimates and will be reflected in research and development expenses in the period identified.Stock-Based CompensationStock-based compensation arrangements include stock option grants and restricted stock unit (RSu) awards under our equity incentive plans, as well asshares issued under our Employee Stock Purchase Plan (ESPP), through which employees may purchase our common stock at a discount to the market price.70We use the black-Scholes option pricing model for the respective grant to determine the estimated fair value of the option on the date of grant (grant datefair value) and the estimated fair value of common stock purchased under the ESPP. The black-Scholes option pricing model requires the input of highly subjectiveassumptions. These variables include, but are not limited to, our stock price vola tility over the term of the awards, and actual and projected employee stock optionexercise behaviors. because our employee stock options have characteristics significantly different from those of traded options, and because changes in thesubjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models may not provide a reliable single measureof the fair value of our employee stock options or common stock purchased under the ESPP. Management will con tinue to assess the assumptions andmethodologies used to calculate the estimated fair value of stock-based compensation. Circumstances may change and additional data may become available overtime, which could result in changes to these assumptions and me thodologies, and which could materially impact our fair value determination.We expense the value of the portion of the option or award that is ultimately expected to vest based on the historical forfeiture rate on a straight line basisover the requisite service periods in our Consolidated Statements of operations. For options and awards that vest upon the achievement of performance milestones,we estimate the vesting period based on our evaluation of the probability of achievement of each respective milestone and the related estimated date ofachievement. Stock-based compensation expense for purchases under the ESPP is recognized over the respective six-month purchase period. Expense amounts arerecorded in cost of goods sold, research and development expense, and general and administrative expense based on the function of the applicable employee. Stock-based compensation charges are non-cash charges and as such have no impact on our reported cash flows.Net Loss Per Sharebasic net loss per share is calculated based on the weighted-average number of common shares outstanding during the periods presented. For all periodspresented in the Consolidated Statements of operations, the net loss available to common stockholders is equal to the reported net loss. basic and diluted net lossper share are the same due to our historical net losses and the requirement to exclude potentially dilutive securities which would have an anti-dilutive effect on netloss per share. during 2016, 2015 and 2014, potentially dilutive securities consisted of common shares underlying outstanding stock options and RSus. There wereweighted average outstanding stock options and RSus of 19.9 million, 21.1 million and 21.9 million during the years ended december 31, 2016, 2015 and 2014,respectively. Income TaxesWe account for income taxes under the liability method. under this method, deferred tax assets and liabilities are determined based on differences betweenthe financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when thedifferences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. We record avaluation allowance against deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized. When we establish or reducethe valuation allowance related to the deferred tax assets, our provision for income taxes will increase or decrease, respectively, in the period such determination ismade.We utilize a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determiningif the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution ofrelated appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realizedupon ultimate settlement.Comprehensive lossComprehensive loss is the change in stockholders’ equity from transactions and other events and circumstances other than those resulting from investmentsby stockholders and distributions to stockholders. our other comprehensive income (loss) is comprised of net loss, gains and losses from the foreign currencytranslation of the assets and liabilities of our india and uK subsidiaries, and unrealized gains and losses on investments in available-for-sale securities.71Adoption of New Accounting Principlein April 2015, the Financial Accounting Standards board (FASb) issued guidance to simplify the presentation of debt issuance costs by requiring debtissuance costs to be presented as a deduction from the corresponding debt liability. This guidance is effective for our interim and annual periods beginning January1, 2016. upon adoption, the new guidance must be applied retrospectively to all periods presented. Accordingly, as of January 1, 2016, we reclassified $0.4 millionand $3.0 million of capitalized debt issuance costs to senior secured notes, net, and liability related to the sale of future royalties, net, respectively, from our otherassets balance. This reclassification has also been applied retrospectively to these balances in our Consolidated balance Sheet as of december 31, 2015.Recent Accounting Pronouncementsin May 2014, the FASb issued guidance codified in Accounting Standards Codification (ASC) 606, Revenue Recognition — Revenue from Contracts withCustomers, which amends the guidance in former ASC 605, Revenue Recognition, and is effective for public companies for annual and interim periods beginningafter december 15, 2017. numerous updates have been issued subsequent to the initial FASb guidance that provide clarification on a number of specific issues aswell as requiring additional disclosures. We plan to adopt the standard in the first quarter of 2018 using the modified retrospective method. Although we are stillevaluating our contracts and assessing all the potential impacts of the standard on existing arrangements we anticipate the adoption may have a material impact onour consolidated financial statements. Specifically, the new standard differs from the current accounting standard in many respects, such as in the accounting forvariable consideration, including milestone payments or contingent payments from our collaboration partners. under our current accounting policy, we recognizecontingent or milestone payments as revenue in the period that the payment-triggering event occurred or is achieved. The new revenue standard, however, mayrequire us to recognize these payments before the payment-triggering event is completely achieved, subject to management’s assessment of whether it is probablethat the triggering event will be achieved and that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertaintyassociated with the variable consideration is subsequently resolved.in March 2016, the FASb issued guidance to simplify several aspects of employee share-based payment accounting, including income tax consequences,classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance will become effective for us beginning in thefirst quarter of 2017. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.in February 2016, the FASb issued guidance to amend a number of aspects of lease accounting, including requiring lessees to recognize almost all leaseswith a term greater than one year as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. The guidance will becomeeffective for us beginning in the first quarter of 2019 and is required to be adopted using a modified retrospective approach. Early adoption is permitted. We arecurrently evaluating the impact of the adoption of this standard. Note 2 — Cash and Investments in Marketable SecuritiesCash and investments in marketable securities, including cash equivalents and restricted cash, are as follows (in thousands). Estimated Fair Value at December 31,2016 December 31,2015 Cash and cash equivalents $59,640 $55,570 Short-term investments 329,462 253,374 Total cash and investments in marketable securities $389,102 $308,944 We invest in liquid, high quality debt securities. our investments in debt securities are subject to interest rate risk. To minimize the exposure due to anadverse shift in interest rates, we invest in securities with maturities of two years or less and maintain a weighted average maturity of one year or less. Asdecember 31, 2016 and 2015, all of our investments had maturities of one year or less.Gross unrealized gains and losses were not significant at either december 31, 2016 or 2015. during the years ended december 31, 2016, 2015 and 2014, wesold available-for-sale securities totaling $5.0 million, $42.5 million, and $21.7 million, respectively, and realized gains and losses were not significant in any ofthose periods.under the terms of our 7.75% senior secured notes due october 2020, we are required to maintain a minimum cash and investments in marketable securitiesbalance of $60.0 million. 72our portfolio of cash and investments in marketable securities includes (in thousands): Estimated Fair Value at Fair ValueHierarchyLevel December 31,2016 December 31,2015 Corporate commercial paper 2 $160,920 $61,150 Corporate notes and bonds 2 156,044 181,969 obligations of u.S. government agencies 2 13,749 7,325 Available-for-sale investments 330,713 250,444 Money market funds 1 51,104 53,728 Certificate of deposit n/A 2,930 2,930 Cash n/A 4,355 1,842 Total cash and investments in marketable securities $389,102 $308,944 Level 1 —Quoted prices in active markets for identical assets or liabilities.Level 2 —inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices inmarkets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of theassets or liabilities.Level 3 —unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.All of our investments are categorized as Level 1 or Level 2, as explained in the table above. during the years ended december 31, 2016, 2015 and 2014there were no transfers between Level 1 and Level 2 of the fair value hierarchy.At december 31, 2016 and 2015, we had letter of credit arrangements in favor of a landlord and certain vendors totaling $2.4 million. These letters of creditare secured by investments of similar amounts. Note 3 — Inventoryinventory consists of the following (in thousands): December 31, 2016 2015 Raw materials $2,055 $3,236 Work-in-process 7,311 6,087 Finished goods 1,743 2,023 Total inventory $11,109 $11,346 Note 4 — Property, Plant and EquipmentProperty, plant and equipment consists of the following (in thousands): December 31, 2016 2015 building and leasehold improvements $75,137 $77,665 Manufacturing equipment 44,237 35,631 Laboratory equipment 27,424 27,309 Furniture, fixtures and other equipment 26,590 24,987 depreciable property, plant and equipment at cost 173,388 165,592 Less: accumulated depreciation (111,243) (102,712)depreciable property, plant and equipment, net 62,145 62,880 Construction-in-progress 3,456 8,456 Property, plant and equipment, net $65,601 $71,336 building and leasehold improvements include our manufacturing, research and development and administrative facilities and the related improvements tothese facilities. Laboratory and manufacturing equipment include assets that support both our manufacturing73and resear ch and development efforts. Construction-in-progress includes assets being built to enhance our manufacturing and research and development efforts.depreciation expense, including depreciation of assets acquired through capital leases, for the years ended december 31, 2016, 2015, and 2014 was $13.2million, $11.4 million, and $11.7 million, respectively. Note 5 — Senior Secured Noteson September 30, 2015, we entered into a purchase agreement with TC Lending, LLC and TAo Fund, LLC for the sale of $250.0 million in aggregateprincipal amount of 7.75% senior secured notes due 2020 (the “notes”). on october 5, 2015, we completed the sale and issuance of the notes. The notes aresecured by a first-priority lien on substantially all of our assets. The notes bear interest at a rate of 7.75% per annum payable in cash quarterly in arrears on January15, April 15, July 15, and october 15 of each year. interest is calculated based on actual days outstanding over a 360 day year. The notes will mature on october 5,2020, at which time the outstanding principal will be due and payable.in connection with the issuance of the notes, we paid fees and expenses of $8.9 million, of which $8.7 million of transaction and facility fees paid directlyto the purchasers of the notes and other direct issuance costs were capitalized as a debt discount and issuance costs and are recorded as a reduction to the seniorsecured notes, net liability balance in our Consolidated balance Sheet. The unamortized balance of these costs is $6.5 million at december 31, 2016 and will beamortized to interest expense over the remainder of the five year term of the notes. on october 5, 2015, we used a portion of the proceeds from the notes to redeem the $125.0 million in aggregate principal amount of 12.0% senior securednotes due in 2017 (12% notes). in addition, on october 5, 2015, we paid $3.3 million of accrued interest on the 12% notes and made a $12.5 million redemptionpayment, which includes $1.2 million of additional interest paid to the note holders at redemption. As a result, we received $100.3 million in net proceeds inconnection with these transactions. in addition, as a result of these transactions, in the year ended december 31, 2015, we recognized a $14.1 million loss onextinguishment of our 12% notes, which consists of the $11.3 million redemption premium and $1.2 million of incremental interest paid to the note holders and thewrite-off of $1.6 million of unamortized issuance costs.The agreement, pursuant to which the notes were issued, contains customary covenants, including covenants that limit or restrict our ability to incur liens,incur indebtedness, declare or pay dividends, redeem stock, issue preferred stock, make certain investments, merge or consolidate, make dispositions of assets, orenter into certain new businesses or transactions with affiliates, but do not contain covenants related to future financial performance. in particular, the notesagreement requires us to maintain a minimum cash and investments in marketable securities balance of $60.0 million during the term of the notes. The notesagreement provides that, beginning on october 5, 2017, we may redeem some or all of the notes, subject to certain prepayment premiums and conditions. if weexperience certain change of control events, the holders of the notes will have the right to require us to purchase all or a portion of the notes at a purchase price incash equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. in addition, upon certain asset sales, we may berequired to offer to use the net proceeds thereof to purchase some of the notes at 100% of the principal amount thereof, plus accrued and unpaid interest to the dateof purchase.As of december 31, 2016, based on a discounted cash flow analysis using Level 3 inputs including financial discount rates, we believe the $250.0 million inprincipal amount of the notes is consistent with its fair value. Note 6 — LeasesCapital LeasesWe have purchased certain manufacturing and office equipment under capital leases. As of december 31, 2016 and 2015, the gross amount of assetsrecorded under capital leases was $8.2 million and $5.1 million, respectively, and the recorded value of these assets, net of depreciation, was $7.4 million and $3.2million, respectively.We previously leased office space at 201 industrial Road in San Carlos, California under a capital lease arrangement. This lease and related subleases endedon october 5, 2016. 74Future minimum payments for our capital leases at december 31, 2016 are as follows (in thousands): Year ending december 31, 2017 $3,270 2018 2,339 Total minimum payments required 5,609 Less: amount representing interest (478)Present value of future minimum lease payments 5,131 Less: current portion (2,908)Capital lease obligation, less current portion $2,223 Operating Leaseson September 30, 2009, we entered into an operating sublease (Sublease) with Pfizer, inc. for a 126,285 square foot facility located in San Francisco,California (Mission bay Facility). The Sublease term is 114 months, commencing in August 2010 and terminating on January 31, 2020 and we began making non-cancelable lease payments in 2014, after the expiration of our free rent period on August 1, 2014. Monthly base rent will escalate over the term of the sublease atvarious intervals. in addition, throughout the term of the Sublease, we are responsible for paying certain costs and expenses specified in the Sublease, includinginsurance costs and a pro rata share of operating expenses and applicable taxes for the Mission bay Facility.We recognize rent expense on a straight-line basis over the lease period. For the years ended december 31, 2016, 2015, and 2014, rent expense wasapproximately $3.2 million in each year. As of december 31, 2016 and 2015, we had total deferred rent balances of $6.6 million and $8.5 million, respectively,which are recorded in other current and other long-term liabilities in our Consolidated balance Sheets.our future minimum lease payments for our operating leases at december 31, 2016 are as follows (in thousands): Year ending december 31, 2017 $5,037 2018 5,187 2019 5,344 2020 452 Total future minimum lease payments $16,020 Note 7 — Liability Related to the Sale of Future Royaltieson February 24, 2012, we entered into a Purchase and Sale Agreement (the Purchase and Sale Agreement) with RPi Finance Trust (RPi), an affiliate ofRoyalty Pharma, pursuant to which we sold, and RPi purchased, our right to receive royalty payments (the Royalty Entitlement) arising from the worldwide netsales, from and after January 1, 2012, of (a) CiMZiA ® , under our license, manufacturing and supply agreement with uCb Pharma (uCb), and (b) MiRCERA ® ,under our license, manufacturing and supply agreement with F. hoffmann-La Roche Ltd and hoffmann-La Roche inc. (together referred to as Roche). We receivedaggregate cash proceeds of $124.0 million for the Royalty Entitlement. As part of this sale, we incurred approximately $4.4 million in transaction costs, which willbe amortized to interest expense over the estimated life of the Purchase and Sale Agreement. Although we sold all of our rights to receive royalties from theCiMZiA ® and MiRCERA ® products, as a result of our ongoing manufacturing and supply obligations related to the generation of these royalties, we willcontinue to account for these royalties as revenue and we recorded the $124.0 million in proceeds from this transaction as a liability (Royalty obligation) that willbe amortized using the interest method over the estimated life of the Purchase and Sale Agreement.75The following table shows the activity within the liability account during the year en ded december 31, 2016 and for the period from the inception of theroyalty transaction on February 24, 2012 (inception) to december 31, 2016 (in thousands): Year endedDecember 31,2016 Period frominception toDecember 31,2016 Liability related to the sale of future royalties—beginning balance $119,032 $— Proceeds from sale of future royalties — 124,000 Payments from nektar to RPi — (10,000)non-cash CiMZiA ® and MiRCERA ® royalty revenue (30,158) (106,999)non-cash interest expense recognized 19,712 101,585 Liability related to the sale of future royalties – ending balance 108,586 108,586 Less: unamortized transaction costs (2,636) (2,636)Liability related to the sale of future royalties, net $105,950 $105,950 Pursuant to the Purchase and Sale Agreement, in March 2014 and March 2013, we were required to pay RPi $7.0 million and $3.0 million, respectively, as aresult of worldwide net sales of MiRCERA ® for the 12 month periods ended december 31, 2013 and 2012 not reaching certain minimum thresholds. The Purchaseand Sale Agreement does not include any other potential payments related to minimum net sales thresholds and, therefore, we do not expect to make any furtherpayments to RPi related to this agreement.during the years ended december 31, 2016, 2015 and 2014, we recognized $30.2 million, $22.1 million, and $21.9 million, respectively, in non-cashroyalties from net sales of CiMZiA ® and MiRCERA ® and we recorded $19.7 million, $20.6 million and $20.9 million, respectively, of related non-cash interestexpense.As royalties are remitted to RPi from Roche and uCb, the balance of the Royalty obligation will be effectively repaid over the life of the agreement. inorder to determine the amortization of the Royalty obligation, we are required to estimate the total amount of future royalty payments to be received by RPi. Thesum of these amounts less the $124.0 million proceeds we received will be recorded as interest expense over the life of the Royalty obligation. Since inception, ourestimate of this total interest expense resulted in an effective annual interest rate of approximately 17%. We periodically assess the estimated royalty payments toRPi from uCb and Roche and to the extent the amount or timing of such payments is materially different than our original estimates, we will prospectively adjustthe amortization of the Royalty obligation. There are a number of factors that could materially affect the amount and timing of royalty payments from CiMZiA ®and MiRCERA ® , most of which are not within our control. Such factors include, but are not limited to, changing standards of care, the introduction of competingproducts, manufacturing or other delays, biosimilar competition, intellectual property matters, adverse events that result in governmental health authority imposedrestrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to RPi are made in u.S. dollars (uSd) whilesignificant portions of the underlying sales of CiMZiA ® and MiRCERA ® are made in currencies other than uSd, and other events or circumstances that couldresult in reduced royalty payments from CiMZiA ® and MiRCERA ® , all of which would result in a reduction of non-cash royalty revenues and the non-cashinterest expense over the life of the Royalty obligation. Conversely, if sales of CiMZiA ® and MiRCERA ® are more than expected, the non-cash royalty revenuesand the non-cash interest expense recorded by us would be greater over the term of the Royalty obligation.in addition, the Purchase and Sale Agreement grants RPi the right to receive certain reports and other information relating to the Royalty Entitlement andcontains other representations and warranties, covenants and indemnification obligations that are customary for a transaction of this nature. To our knowledge, weare currently in compliance with these provisions of the Purchase and Sale Agreement; however, if we were to breach our obligations, we could be required to paydamages to RPi that are not limited to the purchase price we received in the sale transaction. Note 8 — Commitments and ContingenciesRoyalty ExpenseWe have third party licenses that require us to pay royalties based on our sales of certain products and/or on our recognition of royalty revenue under certainof our collaboration agreements. Royalty expense, which is reflected in cost of goods sold in our Consolidated Statements of operations, was approximately$3.7 million, $2.8 million, and $3.4 million for the years ended december 31, 2016, 2015, and 2014, respectively. The overall maximum amount of theseobligations is based upon sales of the applicable products by our collaboration partners and cannot be reasonably estimated.76Purchase Commitmentsin the normal course of business, we enter into various firm purchase commitments related to contract manufacturing, clinical development and certain otheritems. As of december 31, 2016, these commitments were approximately $5.8 million, all of which are expected to be paid in 2017.Legal MattersFrom time to time, we are involved in lawsuits, arbitrations, claims, investigations and proceedings, consisting of intellectual property, commercial,employment and other matters, which arise in the ordinary course of business. We make provisions for liabilities when it is both probable that a liability has beenincurred and the amount of the loss can be reasonably estimated. Such provisions are reviewed at least quarterly and adjusted to reflect the impact of settlementnegotiations, judicial and administrative rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherentlyunpredictable. if any unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse impact on the results of ouroperations of that period and on our cash flows and liquidity. on August 14, 2015, Enzon, inc. filed a breach of contract complaint in the Supreme Court of the State of new York (Court) claiming damages of $1.5million (plus interest) for unpaid licensing fees through the date of the complaint. Enzon alleged that we failed to pay a post-patent expiration immunity fee relatedto one of the licenses. Following a hearing held on december 21, 2015, the Court granted nektar’s motion to dismiss the Enzon complaint. Enzon filed an appeal tothe Court’s dismissal decision. on october 25, 2016 the Supreme Court of the State of new York, Appellate division, reversed the earlier decision by the Courtgranting nektar’s motion to dismiss the Enzon complaint. As a result, the case has been remanded to the Court for further proceedings. no liability has beenrecorded for this matter on our Consolidated balance Sheets as of december 31, 2016 or 2015.Foreign OperationsWe operate in a number of foreign countries. As a result, we are subject to numerous local laws and regulations that can result in claims made by foreigngovernment agencies or other third parties that are often difficult to predict even after the application of good faith compliance efforts.Indemnification Obligationsduring the course of our normal operating activities, we have agreed to certain contingent indemnification obligations as further described below. The termof our indemnification obligations is generally perpetual. There is generally no limitation on the potential amount of future payments we could be required to makeunder these indemnification obligations. To date, we have not incurred significant costs to defend lawsuits or settle claims based on our indemnificationobligations. if any of our indemnification obligations is triggered, we may incur substantial liabilities. because the aggregate amount of any potentialindemnification obligation is not a stated amount, the overall maximum amount of any such obligations cannot be reasonably estimated. no liabilities have beenrecorded for these obligations on our Consolidated balance Sheets as of december 31, 2016 or 2015.Indemnifications in Connection with Commercial AgreementsAs part of our collaboration agreements with our partners related to the license, development, manufacture and supply of drugs based on our proprietarytechnologies and drug candidates, we generally agree to defend, indemnify and hold harmless our partners from and against third party liabilities arising out of theagreement, including product liability (with respect to our activities) and infringement of intellectual property to the extent the intellectual property is developed byus and licensed to our partners.As part of the sale of our royalty interest in the CiMZiA ® and MiRCERA ® products, we and RPi made representations and warranties and entered intocertain covenants and ancillary agreements which are supported by indemnity obligations. Additionally, as part of our pulmonary asset sale to novartis in 2008, weand novartis made representations and warranties and entered into certain covenants and ancillary agreements which are supported by an indemnity obligation. inthe event it is determined that we breached certain of the representations and warranties or covenants and agreements made by us in any such agreements, we couldincur substantial indemnification liabilities depending on the timing, nature, and amount of any such claims.Indemnification of Underwriters and Initial Purchasers of our Securitiesin connection with our sale of equity and senior secured debt securities, we have agreed to defend, indemnify and hold harmless our underwriters or initialpurchasers, as applicable, as well as certain related parties from and against certain liabilities, including liabilities under the Securities Act of 1933, as amended.77Director and Officer IndemnificationsAs permitted under delaware law, and as set forth in our Certificate of incorporation and our bylaws, we indemnify our directors, executive officers, otherofficers, employees, and other agents for certain events or occurrences that may arise while in such capacity. The maximum potential amount of future paymentswe could be required to make under this indemnification is unlimited; however, we have insurance policies that may limit our exposure and may enable us torecover a portion of any future amounts paid. Assuming the applicability of coverage, the willingness of the insurer to assume coverage, and subject to certainretention, loss limits and other policy provisions, we believe any obligations under this indemnification would not be material, other than an initial $1.5 million perincident for merger and acquisition related claims, $1.3 million per incident for securities related claims and $0.5 million per incident for non-securities relatedclaims retention deductible per our insurance policy. however, no assurances can be given that the covering insurers will not attempt to dispute the validity,applicability, or amount of coverage without expensive litigation against these insurers, in which case we may incur substantial liabilities as a result of theseindemnification obligations. Note 9 — Stockholders’ EquityPreferred StockWe have authorized 10,000,000 shares of Preferred Stock with each share having a par value of $0.0001. As of december 31, 2016 and 2015, no preferredshares are designated, issued or outstanding.Common Stockon october 24, 2016, we completed the issuance and sale of 14,950,000 shares of our common stock in an underwritten public offering with total proceedsof approximately $189.7 million after deducting the underwriting commissions and discounts of approximately $12.1 million. in addition, we incurredapproximately $0.4 million in legal and accounting fees, filing fees, and other costs in connection with this offering.on January 28, 2014, we completed the issuance and sale of 9,775,000 shares of our common stock in a public offering with total proceeds of approximately$117.2 million after deducting the underwriting commissions and discounts of approximately $7.5 million. in addition, we incurred approximately $0.6 million inlegal and accounting fees, filing fees, and other costs in connection with this offering.Equity Compensation PlansAt december 31, 2016, we had 24,772,837 reserved shares of common stock, all of which are reserved for issuance under our equity compensation plans assummarized in the following table (share numbers in thousands): Plan Category Number ofSecurities tobe IssuedUpon Exerciseof OutstandingOptions &Vesting of RSUs(a) Weighted-AverageExercise Priceof OutstandingOptions(b) Number ofSecuritiesRemainingAvailable forIssuance UnderEquityCompensationPlans(ExcludingSecuritiesReflectedin Column(a)(c) Equity compensation plans approved by security holders(1) 20,218 $12.08 3,113 Equity compensation plans not approved by security holders 1,442 $11.18 — Total 21,660 $12.01 3,113 (1)includes shares of common stock available for future issuance under our ESPP as of december 31, 2016.2012 Performance Incentive Planour 2012 Performance incentive Plan (2012 Plan) was adopted by the board of directors on April 4, 2012 and was approved by our stockholders onJune 28, 2012. on the date of approval, any shares of our common stock that were available for issuance under all other previously existing stock plans (the 2008Equity incentive Plan, the 2000 Equity incentive Plan, and the 2000 non-officer Equity incentive Plan) became available for issuance under the 2012 Plan. inaddition, 5,300,000 new shares were made available for award grants under the 2012 Plan. no new awards were granted under any of the previous stock plans afterJune 28, 2012. Any shares78of common stock subject to outstanding awards under the previous stock plans that expire, are cancelled, or otherwise te rminate at any time after december 31,2011 are also available for award grant purposes under the 2012 Plan. on June 16, 2015, our stockholders approved an amendment to the 2012 Plan whereby7,000,000 additional shares were made available for award grants under the 2012 Plan.The purpose of the 2012 Plan and our other incentive plans is to attract, motivate, retain, and reward directors, officers, employees, and other eligiblepersons through the grant of awards and incentives for high levels of individual performance and increasing the value of our business, as well as to further align theinterests of award recipients and our stockholders. The 2012 Plan authorizes stock options, stock appreciation rights, restricted stock, performance stock, stockunits, stock bonuses, dividend equivalents, other similar rights to purchase or acquire shares, and other forms of awards granted or denominated in our commonstock or units of the Company’s common stock, as well as cash bonus awards. directors, officers, or employees, and certain consultants and advisors may receiveawards under the 2012 Plan. Pursuant to the 2012 Plan, we granted or issued incentive stock options to officers and non-qualified stock options and RSus toemployees, officers, and non-employee directors. The requisite service period for stock options granted to our employees under the 2012 Plan as well as all otherpreviously existing stock plans is generally four years; the requisite service period for stock options granted to our directors is generally one year. The requisiteservice period for RSus granted under the 2012 Plan is generally three years for employees and one year for directors. The maximum number of shares of our common stock that may be issued or transferred pursuant to awards under the 2012 Plan is 19,936,433 shares, plusany shares subject to outstanding awards under the previous stock plans that expire, are cancelled, or otherwise terminate for any reason. Generally, shares that aresubject to or underlie awards which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason (except for sharesexchanged by a participant or withheld to pay the exercise price of an award granted and related tax withholding obligations) are not paid or delivered under the2012 Plan will again be available for subsequent awards under the 2012 Plan. Shares issued in respect of any award, other than a stock option or stock appreciationright, granted under the 2012 Plan will be counted against the plan’s share limit as 1.5 shares for every one share actually issued in connection with the award.The 2012 Plan will terminate on April 3, 2022, unless earlier terminated by the board of directors. The maximum term of a stock option or stockappreciation right under the 2012 Plan is eight years from the date of grant. The per share exercise price of an option generally may not be less than the fair marketvalue of a share of the Company’s common stock on the nASdAQ Global Select Market on the date of grant.Other Equity Incentive Plansin addition to the 2012 Plan, we have other equity incentive plans under which options granted remain outstanding but no new options may be granted eitheras a result of the approval of the 2012 Plan or plan expiration. These plans include: (i) the 2008 Equity incentive Plan (2008 Plan) which was adopted by the boardof directors on March 20, 2008 and approved by our stockholders on June 6, 2008; (ii) the 2000 Equity incentive Plan (2000 Plan) which was adopted by the boardof directors on April 19, 2000 by amending and restating our 1994 Equity incentive Plan, and which expired on February 9, 2010; and (iii) the 1998 non-officerEquity incentive Plan which was adopted by our board of directors on August 18, 1998, and which was amended and restated in its entirety and renamed the 2000non-officer Equity incentive Plan on June 6, 2000 (2000 non-officer Plan).Pursuant to the 2008 Plan and the 2000 Plan, we previously granted or issued incentive stock options to employees and officers and non-qualified stockoptions, rights to acquire restricted stock, restricted stock units, and stock bonuses to employees, officers, non-employee directors, and consultants. Pursuant to the2000 non-officer Plan, we previously granted or issued non-qualified stock options, rights to acquire restricted stock and stock bonuses to employees andconsultants who are neither officers nor directors of nektar. The maximum term of a stock option under all of these plans is eight years.Employee Stock Purchase Planin February 1994, our board of directors adopted the Employee Stock Purchase Plan (ESPP) pursuant to section 423(b) of the internal Revenue Code of1986. under the ESPP, 2,500,000 shares of our common stock have been authorized for issuance. The terms of the ESPP provide eligible employees with theopportunity to acquire an ownership interest in nektar through participation in a program of periodic payroll deductions for the purchase of our common stock.Employees may elect to enroll or re-enroll in the ESPP on a semi-annual basis. Stock is purchased at 85% of the lower of the closing price on the first day of theenrollment period or the last day of the enrollment period.401(k) Retirement PlanWe sponsor a 401(k) retirement plan whereby eligible employees may elect to contribute up to the lesser of 60% of their annual compensation or thestatutorily prescribed annual limit allowable under internal Revenue Service regulations. The 401(k) plan permits79us to make matching contributions on behalf of all participan ts, up to a maximum of $3,000 per participant. For the years ended december 31, 2016, 2015, and2014, we recognized $1.1 million, $0.9 million, and $0.9 million, respectively, of compensation expense in connection with our 401(k) retirement plan.Change in Control Severance Planon december 6, 2006, our board of directors approved a Change of Control Severance benefit Plan (CiC Plan). This CiC Plan has subsequently beenamended a number of times by our board of directors with the most recent amendment occurring on April 5, 2011. The CiC Plan is designed to make certainbenefits available to our eligible employees in the event of a change of control of nektar and, following such change of control, an employee’s employment with usor a successor company is terminated in certain specified circumstances. We adopted the CiC Plan to support the continuity of the business in the context of achange of control transaction. The CiC Plan was not adopted in contemplation of any specific change of control transaction.under the CiC Plan, in the event of a change of control of nektar and a subsequent termination of employment initiated by us or a successor company otherthan for Cause (as defined in the CiC Plan) or initiated by the employee for a Good Reason Resignation (as defined in the CiC Plan) in each case within twelvemonths following a change of control transaction, (i) the Chief Executive officer would be entitled to receive cash severance pay equal to 24 months base salaryplus annual target incentive pay, the extension of employee benefits over this severance period and the full acceleration of unvested outstanding equity awards, and(ii) our Senior Vice Presidents and Vice Presidents (including Principal Fellows) would each be entitled to receive cash severance pay equal to twelve months basesalary plus annual target incentive pay, the extension of employee benefits over this severance period and the full acceleration of unvested outstanding equityawards. in the event of a change of control of nektar and a subsequent termination of employment initiated by the Company or a successor company other than forCause within twelve months following a change of control transaction, all other employees would each be entitled to receive cash severance pay equal to 6 monthsbase salary plus a pro-rata portion of annual target incentive pay, the extension of employee benefits over this severance period and the full acceleration of eachsuch employee’s unvested outstanding equity awards. under the CiC Plan, as amended, non-employee directors would also be entitled to full acceleration ofvesting of all outstanding stock awards in the event of a change of control transaction. Note 10 — License and Collaboration AgreementsWe have entered into various collaboration agreements including license agreements and collaborative research, development and commercializationagreements with various pharmaceutical and biotechnology companies. under these collaboration arrangements, we are entitled to receive license fees, upfrontpayments, milestone and other contingent payments, royalties, sales milestones, and payments for the manufacture and supply of our proprietary PEGylationmaterials and/or reimbursement for research and development activities. All of our collaboration agreements are generally cancelable by our partners withoutsignificant financial penalty. our costs of performing these services are generally included in research and development expense, except that costs for product salesto our collaboration partners are included in cost of goods sold.in accordance with our collaboration agreements, we recognized license, collaboration and other revenue as follows (in thousands): Year Ended December 31, Partner Agreement 2016 2015 2014 AstraZeneca Ab MoVAnTiK ® andMoVAnTiK ® fixed-dosecombination program $33,000 $130,000 $105,001 Roche PEGASYS ® andMiRCERA ® 7,685 12,816 12,845 Amgen, inc. neulasta ® 5,000 5,000 5,000 daiichi Sankyo Europe Gmbh onZEALd TM (nKTR-102) 3,690 — — bayer healthcare LLC bAY41-6551 (Amikacininhale) 1,429 1,919 4,717 baxalta incorporated AdYnoVATE ® 650 10,694 10,258 other 8,928 5,175 15,468 License, collaboration and other revenue $60,382 $165,604 $153,289 80As of december 31, 2016, our collaboration agreements with partners included potential future payments for development milestones totalingapproximately $147.0 million, including amounts from our agreements with daiichi, bayer, baxalta and ophthotech described below. in addition, under ourcollaboration agreements we are entitled to receive contingent development payments and contingent sales milestones and royalty payments, including thoserelated to MoVAnTiK ® and the MoVAnTiK ® fixed-dose combination drug development programs, as described below.AstraZeneca AB : MOVANTIK ® (naloxegol oxalate), previously referred to as naloxegol and NKTR-118, and MOVANTIK ® fixed-dose combination program,previously referred to as NKTR-119We are a party to an agreement with AstraZeneca Ab (AstraZeneca) under which we granted AstraZeneca a worldwide, exclusive license under our patentsand other intellectual property to develop, market, and sell MoVAnTiK ® and MoVAnTiK ® fixed-dose combination program. AstraZeneca is responsible for allresearch, development and commercialization and is responsible for all drug development and commercialization decisions for MoVAnTiK ® and theMoVAnTiK ® fixed-dose combination program. AstraZeneca paid us an upfront payment of $125.0 million, which we received in the fourth quarter of 2009 andwhich was fully recognized as of december 31, 2010. in addition, we have received the payments described further below based on development events related toMoVAnTiK ® completed solely by AstraZeneca. We are entitled to receive up to $75.0 million of commercial launch contingent payments related to theMoVAnTiK ® fixed-dose combination program, based on development events to be pursued and completed solely by AstraZeneca. in addition, we are entitled tosignificant and escalating double-digit royalty payments and sales milestone payments based on annual worldwide net sales of MoVAnTiK ® and MoVAnTiK ®fixed-dose combination products.on September 16, 2014, the united States Food and drug Administration (FdA) approved MoVAnTiK ® for the treatment of opioid-induced constipation(oiC) in adult patients with chronic, non-cancer pain. As a result of the FdA’s approval, in 2014 we recognized a total of $105.0 million of payments receivedfrom AstraZeneca. on december 9, 2014, AstraZeneca announced that MoVEnTiG ® (the naloxegol brand name in the European union or Eu) had been grantedMarketing Authorisation by the European Commission (EC) for the treatment of opioid-induced constipation (oiC) in adult patients who have had an inadequateresponse to laxative(s). in March 2015, AstraZeneca announced that MoVAnTiK ® launched in the united States which resulted in our receipt and recognition ofa $100.0 million non-refundable commercial launch payment in March 2015. in March 2015, we agreed to pay AstraZeneca a total of $10.0 million to fund u.S.television advertising in consideration for certain additional commercial information rights. We recorded this $10.0 million obligation as a liability and made theinitial $5.0 million payment to AstraZeneca in July 2015 and the remaining $5.0 million payment in July 2016. We determined that this $10.0 million obligationshould be recorded as a reduction of revenue, which we recorded in 2015. in August 2015, we received and recognized as revenue an additional $40.0 million non-refundable payment triggered by the first commercial sale of MoVEnTiG ® in Germany.on March 1, 2016, AstraZeneca announced that it had entered into an agreement with ProStrakan Group plc, a subsidiary of Kyowa hakko Kirin Co. Ltd.(Kirin), granting Kirin exclusive marketing rights to MoVEnTiG ® in the Eu, iceland, Liechtenstein, norway and Switzerland. under the terms of AstraZeneca’sagreement with Kirin, Kirin made a $70.0 million upfront payment to AstraZeneca and will make additional payments based on achieving market accessmilestones, tiered net sales royalties, as well as sales milestones. under our license agreement with AstraZeneca, AstraZeneca and we will share the upfrontpayment, market access milestones, royalties and sales milestones from Kirin with AstraZeneca receiving 60% and nektar receiving 40%. This payment sharingarrangement is in lieu of other royalties payable by AstraZeneca to us and a portion of the sales milestones as described below. our 40% share of royalty paymentsmade by Kirin to AstraZeneca will be financially equivalent to us receiving high single-digit to low double-digit royalties dependent on the level of Kirin’s netsales. Kirin’s MoVEnTiG ® net sales will be included for purposes of achieving the annual global sales milestones payable to us by AstraZeneca and will also beincluded for purposes of determining the applicable ex-u.S. royalty rate, from the tier schedule in our AstraZeneca license agreement, that will be applied to ex-u.S. sales outside of the Kirin territory. The global sales milestones under our license agreement with AstraZeneca will be reduced in relation to the amount ofKirin MoVEnTiG ® net sales that contribute to any given annual sales milestone target. As a result, in April 2016, we received 40% (or $28.0 million) of the$70.0 million payment received by AstraZeneca from Kirin. in addition, in the year ended december 31, 2016, we recognized another $5.0 million related to ourshare of similar payments made to AstraZeneca in 2016. As of december 31, 2016, we do not have deferred revenue related to our agreement with AstraZeneca.81in general, other than as described above and in this paragraph, AstraZeneca has full responsibility for all research, development and commercializationcosts under our license agreement. As part of its approval of MoVAnTiK ® , the FdA required AstraZeneca to perform a post-marketing, observationalepidemiological study comparing MoVAnTiK ® to other treatments of oiC in patients with chronic, non-cancer pain . As a result, the royalty rate payable to usfrom net sales of MoVAnTiK ® in the u.S. by AstraZeneca will be reduced by up to two percentage points to fund 33% of the external costs incurred byAstraZeneca to fund such post approval study, subject to a $35 .0 million aggregate cap. Any costs incurred by AstraZeneca can only be recovered by the reductionof the royalty paid to us. in no case can amounts be recovered by the reduction of a contingent payment due from AstraZeneca to us or through a payment from usto AstraZeneca.Daiichi Sankyo Europe GmbH : ONZEALD TM (etirinotecan pegol), also referred to as NKTR-102Effective May 30, 2016, we entered into a collaboration and license agreement with daiichi Sankyo Europe Gmbh, a German limited liability company(daiichi), under which we granted daiichi exclusive commercialization rights in the European Economic Area, Switzerland, and Turkey (collectively, theEuropean Territory) to our proprietary product candidate onZEALd TM (etirinotecan pegol), which is also known as nKTR-102, a long-acting topoisomerase iinhibitor in clinical development for the treatment of adult patients with advanced breast cancer who have brain metastases (bCbM). nektar retains all rights toonZEALd TM in all countries outside the European Territory including the united States.under the terms of the agreement and in consideration for the exclusive commercialization rights in the European Territory, daiichi paid us a $20.0 millionup-front payment in August 2016 and we will be eligible to receive up to an aggregate of $60.0 million in regulatory and commercial milestones, including a $10.0million payment upon the first commercial sale of onZEALd TM following conditional marketing approval by the European Commission (EC), a $25.0 millionpayment upon the first commercial sale following final marketing authorization approval of onZEALd TM by the EC, and a $25.0 million sales milestone upondaiichi’s first achievement of a certain specified annual net sales target. We are also eligible to receive a 20% royalty on net sales of onZEALd TM by daiichi inall countries in the European Territory except for net sales in Turkey where nektar is eligible to receive a 15% royalty. The parties will enter into a supplyagreement whereby we will be responsible for supplying daiichi with its requirements for onZEALd TM on a fully burdened reimbursed cost basis. daiichi willbe responsible for all commercialization activities for onZEALd TM in the European Territory and will bear all associated costs. in addition, we are responsiblefor funding and conducting a Phase 3 confirmatory trial in patients with bCbM which we call the ATTAin study, which was initiated in the fourth quarter of 2016.daiichi may terminate the agreement in the event that the EC does not grant conditional marketing approval for onZEALd TM based on existing clinicaldata for onZEALd TM or the conditional marketing approval for onZEALd TM is not granted prior to a pre-specified future date (daiichi Pre-ConditionalApproval Termination). We may terminate the Agreement in the event that the EC requires changes in the ATTAin study that materially increase the costs of suchtrial and daiichi elects not to reimburse us for such incremental costs (nektar Pre-Conditional Approval Termination). in the event of a daiichi Pre-ConditionalApproval Termination or a nektar Pre-Conditional Approval Termination, we would be obligated to pay daiichi a $12.5 million termination payment. Followingconditional marketing approval of onZEALd TM by the EC, we would no longer have such termination payment obligation. Each party has certain othertermination rights based on the safety or efficacy findings including the outcome of the ATTAin study and any material uncured breaches of the Agreement. The$12.5 million contingent termination payment from us to daiichi is recorded in our liability related to refundable upfront payment balance in our Consolidatedbalance Sheet at december 31, 2016.We identified our grant of the exclusive license to daiichi on May 30, 2016 and our ongoing clinical and regulatory development service obligations as thesignificant, non-contingent deliverables under the agreement and determined that each represents a separate unit of accounting. We made our best estimate of theselling price for the license grant based on a discounted cash flow analysis of projected onZEALd TM sales and estimated the selling price for the developmentservices based on our experience with the costs of similar clinical studies and regulatory activities. based on these estimates, we allocated the $7.5 million non-refundable portion of the $20.0 million upfront payment from daiichi to these items based on their relative selling prices. As a result, we recognized $3.7 million ofrevenue in 2016 from this arrangement, primarily related to the delivery of the license. As of december 31, 2016, we have deferred revenue of approximately $3.8million related to our development service obligations under this agreement, which we expect to recognize through May 2021, the estimated end of ourdevelopment obligations. if and when the remaining $12.5 million portion of the upfront payment becomes non-refundable, we expect to allocate this amountbetween the license and development service obligation consistent with the estimated selling prices of these deliverables. The license related amount will berecognized immediately and the development service related amount will be recorded as deferred revenue and recognized ratably over the remaining obligationperiod. We determined that the milestones noted above payable to us by daiichi upon the first commercial sale of onZEALd TM following conditional marketingapproval and following final marketing authorization approval of onZEALd TM by the EC are substantive milestones that will be recognized if and whenachieved. in addition, we determined that the sales milestone due to us82upon daiichi’s first achievement of a certain specified annual net sales target should be consider ed a contingent payment and will be recognized if and whenachieved.Baxalta Incorporated: HemophiliaWe are a party to an exclusive research, development, license and manufacturing and supply agreement with baxalta incorporated (baxalta), a subsidiary ofShire Plc, entered into in September 2005 to develop products designed to improve therapies for hemophilia A patients using our PEGylation technology. underthe terms of the agreement, we are entitled to research and development funding and are responsible for supplying baxalta with its requirements for our proprietarymaterials. baxalta is responsible for all clinical development, regulatory, and commercialization expenses. The agreement is terminable by the parties undercustomary conditions.This hemophilia A program includes AdYnoVATE ® , which was approved by the FdA in november 2015 for use in adults and adolescents, aged 12years and older, who have hemophilia A, and is now marketed in the u.S. As a result of the FdA’s approval, we earned a $10.0 million development milestone innovember 2015, which was received in January 2016. in September 2014, as a result of baxalta’s Phase 3 clinical trial results, we earned development milestonestotaling $8.0 million. in addition, under the terms of this agreement, we are entitled to a $10.0 million development milestone due upon marketing authorization inthe Eu, as well as sales milestones upon achievement of annual sales targets and royalties based on annual worldwide net sales of products resulting from thisagreement. As of december 31, 2016, we do not have deferred revenue related to this agreement. Roche: PEGASYS ® and MIRCERA ®in February 2012, we entered into a toll-manufacturing agreement with Roche under which we agreed to manufacture the proprietary PEGylation materialused by Roche to produce MiRCERA ® . Roche entered into the toll-manufacturing agreement with the objective of establishing us as a secondary back-up supplysource on a non-exclusive basis. under the terms of our toll-manufacturing agreement, Roche paid us an upfront payment of $5.0 million and an additional $22.0million in performance-based milestone payments upon our achievement of certain manufacturing readiness, validation and production milestones, including thedelivery of specified quantities of PEGylation materials, all of which were completed as of January 2013. in addition, in 2013, we delivered additional quantities ofPEGylation materials used by Roche to produce PEGASYS ® and MiRCERA ® for total consideration of $18.6 million. As of december 31, 2016, we no longerhave any continuing manufacturing or supply obligations under this MiRCERA ® agreement and, therefore, have no deferred revenue related to this agreement.in February 1997, we entered into a license, manufacturing and supply agreement with Roche, under which we granted Roche a worldwide, exclusivelicense to certain intellectual property related to our proprietary PEGylation materials used in the manufacture and commercialization of PEGASYS ® . ourperformance obligations under this PEGASYS ® agreement ended on december 31, 2015.Amgen, Inc. : Neulasta ®in october 2010, we amended and restated an existing supply and license agreement by entering into a supply, dedicated suite and manufacturing guaranteeagreement (the amended and restated agreement) and a license agreement with Amgen inc. and Amgen Manufacturing, Limited (together referred to as Amgen).under the terms of the amended and restated agreement, we guarantee the manufacture and supply of our proprietary PEGylation materials (Polymer Materials) toAmgen in an existing manufacturing suite to be used exclusively for the manufacture of Polymer Materials for Amgen (the Manufacturing Suite) in ourmanufacturing facility in huntsville, Alabama (the Facility). This supply arrangement is on a non-exclusive basis (other than the use of the Manufacturing Suiteand certain equipment) whereby we are free to manufacture and supply the Polymer Materials to any other third party and Amgen is free to procure the PolymerMaterials from any other third party. under the terms of the amended and restated agreement, we received a $50.0 million payment in the fourth quarter of 2010 inreturn for our guaranteeing the supply of certain quantities of Polymer Materials to Amgen including without limitation the Additional Rights described below andmanufacturing fees that are calculated based on fixed and variable components applicable to the Polymer Materials ordered by Amgen and delivered by us. Amgenhas no minimum purchase commitments. if quantities of the Polymer Materials ordered by Amgen exceed specified quantities, significant additional paymentsbecome payable to us in return for our guaranteeing the supply of additional quantities of the Polymer Materials.The term of the amended and restated agreement ends on october 29, 2020. in the event we become subject to a bankruptcy or insolvency proceeding, wecease to own or control the Facility, we fail to manufacture and supply or certain other events, Amgen or its designated third party will have the right to elect,among certain other options, to take title to the dedicated equipment and access the Facility to operate the Manufacturing Suite solely for the purpose ofmanufacturing the Polymer Materials. Amgen may terminate the amended and restated agreement for convenience or due to an uncured material default by us.As of december 31, 2016, we have deferred revenue of approximately $19.2 million related to this agreement, which we expect to recognize throughoctober 2020, the estimated end of our obligations under this agreement.83Bayer Healthcare LLC : BAY41-6551 (Amikacin Inhale)in August 2007, we entered into a co-development, license and co-promotion agreement with bayer healthcare LLC (bayer) to develop a specially-formulated inhaled Amikacin. We are responsible for development and manufacturing and supply of our proprietary nebulizer device included in the Amikacinproduct. bayer is responsible for most future clinical development and commercialization costs, all activities to support worldwide regulatory filings, approvals andrelated activities, further development of Amikacin inhale and final product packaging and distribution. in April 2013, bayer initiated a Phase 3 clinical trial in thetreatment of intubated and mechanically ventilated patients with Gram-negative pneumonia. As of december 31, 2016, we have received an upfront payment of$40.0 million (which was paid to us in 2007) and milestone payments totaling $30.0 million (the last of which was paid to us in 2013). in addition, in June 2013,we made a $10.0 million payment to bayer for the reimbursement of some of its costs of the Phase 3 clinical trial.We are entitled to receive a total of up to an additional $50.0 million of development milestones upon achievement of certain development objectives,including $25.0 million related to a successful regulatory approval filing, as well as sales milestones upon achievement of annual sales targets and royalties basedon annual worldwide net sales of Amikacin inhale. As of december 31, 2016, we have deferred revenue of approximately $17.9 million related to this agreement,which we expect to recognize through June 2029, the estimated end of our obligations under this agreement.Ophthotech Corporation : Fovista ®We are a party to an agreement with ophthotech Corporation (ophthotech), dated September 30, 2006, under which ophthotech received a worldwide,exclusive license to certain of our proprietary PEGylation technology to develop, manufacture and sell Fovista®. under the terms of our agreement, we are theexclusive supplier of all of ophthotech’s clinical and commercial requirements for our proprietary PEGylation reagent used in Fovista ® . on May 19, 2014,ophthotech entered into a Licensing and Commercialization Agreement with novartis Pharma AG for Fovista ® . under our agreement with ophthotech, in June2014, we received a $19.8 million payment in connection with this licensing agreement. on december 12, 2016, ophthotech announced that its two pivotal Phase 3 clinical trials investigating the superiority of Fovista ® therapy in combinationwith Lucentis ® therapy compared to Lucentis ® monotherapy for the treatment of wet AMd had failed to meet their pre-specified primary endpoints. A separatePhase 3 clinical trial evaluating Fovista ® in combination with Eylea ® or Avastin ® compared to Eylea ® or Avastin ® monotherapy for the treatment of wet AMdis fully enrolled and remains ongoing. As of december 31, 2016, our obligations under the ophthotech agreement are ongoing. As of december 31, 2016, we haveaccounts receivable of $6.1 million, which was subsequently collected in January 2017, and deferred revenue of approximately $16.8 million related to thisagreement, which we expect to recognize through March 2029, the estimated end of our obligations under our agreement with ophthotech. our estimatedperformance obligation period is subject to reassessment each quarter and could change significantly based on ophthotech’s pending Phase 3 study results.based on successful clinical study outcomes, we are entitled to additional payments based upon ophthotech’s potential achievement of certain regulatorymilestones. if commercialized, we are also entitled to royalties on net sales of Fovista ® that vary based on sales levels as well as a sales milestone.Bristol-Myers Squibb : NKTR-214on September 21, 2016, we entered into a Clinical Trial Collaboration Agreement (bMS Agreement) with bristol-Myers Squibb Company, a delawarecorporation (bMS), pursuant to which we and bMS will collaborate to conduct Phase 1/2 clinical trials evaluating our iL-2-based Cd122-biased agonist, known asnKTR-214, and bMS’ human monoclonal antibody that binds Pd-1, known as opdivo ® ( nivolumab) , as a potential combination treatment regimen in fivetumor types and eight potential indications, and such other clinical trials evaluating the combined therapy as may be mutually agreed upon by the parties (each, a“Combination Therapy Trial”).We will act as the sponsor of each Combination Therapy Trial. under the bMS Agreement, bMS will be responsible for 50% of all out-of-pocket costsreasonably incurred in connection with third party contract research organizations, laboratories, clinical sites and institutional review boards and we record costreimbursement payments to us from bMS as a reduction to research and development expense. Each party will otherwise be responsible for its own internal costs,including internal personnel costs, incurred in connection with each Combination Therapy Trial. nektar and bMS will use commercially reasonable efforts tomanufacture and supply nKTR-214 and opdivo ® (nivolumab), respectively, for each Combination Therapy Trial with each party bearing its own costs relatedthereto. The parties formed a joint development committee to oversee clinical trial design, regulatory strategy, and other activities necessary to conduct and supportthe Combination Therapy Trials.84ownership of, and global commercial rights to, nKTR-214 r emain solely with us under the bMS Agreement. if we wish to license the right tocommercialize nKTR-214 in one of certain major market territories prior to September 30, 2018 (Exclusivity Expiration date), we must first negotiate with bMS,for a period of three months (negotiation Period), to grant an exclusive license to develop and commercialize nKTR-214 in any of these major market territories. ifwe do not reach an agreement with bMS for an exclusive license within the negotiation Period, we will be fre e to license any right to nKTR-214 to other partiesin any territory worldwide except that in the event that we receive a license offer from a third party during a period of 90 calendar days after the end of thenegotiation Period, we will provide bMS ten business days to match the terms of such third-party offer. After the Exclusivity Expiration date, we are free tolicense nKTR-214 without any further obligation to bMS. Each party grants to the other party a non-exclusive, worldwide (subject to certain ex ceptions in thecase of the license granted by bMS), non-transferable and royalty-free research and development license to such licensing party’s patent rights, technology andregulatory documentation to use its compound solely to the extent necessary to d ischarge its obligations under the bMS Agreement with respect to the conduct ofthe Combination Therapy Trials. Otherin addition, as of december 31, 2016, we have a number of other collaboration agreements, including with our collaboration partner uCb, under which weare entitled to up to a total of $45.5 million of development milestones upon achievement of certain development objectives, as well as sales milestones uponachievement of annual sales targets and royalties based on net sales of commercialized products, if any. however, given the current phase of development of thepotential products under these collaboration agreements, we cannot estimate the probability or timing of achieving these milestones. As of december 31, 2016, wehave deferred revenue of approximately $8.6 million related to these other collaboration agreements, which we expect to recognize through 2020, the estimated endof our obligations under those agreements. Note 11 — Stock-Based CompensationWe issue stock-based awards from our equity incentive plans, which are more fully described in note 9. Stock-based compensation expense was recognizedas follows (in thousands): Year Ended December 31, 2016 2015 2014 Cost of goods sold $1,620 $1,142 $1,161 Research and development 13,093 9,207 7,528 General and administrative 11,137 9,320 8,328 Total stock-based compensation $25,850 $19,669 $17,017 As of december 31, 2016, total unrecognized compensation costs of $71.2 million related to unvested stock-based compensation arrangements are expectedto be recognized as expense over a weighted-average period of 1.8 years.Black-Scholes AssumptionsThe following table lists the black-Scholes option-pricing model assumptions used to calculate the fair value of employee and director stock options. Year Ended December 31, 2016 2015 2014 Average risk-free interest rate 1.4% 1.6% 1.6%dividend yield 0.0% 0.0% 0.0%Average volatility factor 51.7% 50.8% 51.6%Average weighted average expected life 5.3 years 5.3 years 5.2 years The average risk-free interest rate is based on the u.S. treasury yield curve in effect at the time of grant for periods commensurate with the expected life ofthe stock-based award. We have never paid dividends, nor do we expect to pay dividends in the foreseeable future; therefore, we used a dividend yield of 0.0%. ourestimate of expected volatility is based on the daily historical trading data of our common stock at the time of grant over a historical period commensurate with theexpected life of the stock-based award. We estimated the weighted-average expected life based on the contractual and vesting terms of the stock options, as well ashistorical cancellation and exercise data.Stock-based compensation expense resulting from our ESPP was not material in the years ended december 31, 2016, 2015, and 2014.85Summary of Stock Option ActivityThe table below presents a summary of stock option activity under our equity incentive plans (in thousands, except for price per share and contractual lifeinformation): NumberofShares Weighted-AverageExercisePriceper Share Weighted-AverageRemainingContractualLife(in Years) AggregateIntrinsicValue(1) outstanding at december 31, 2015 18,782 $11.22 options granted 3,368 13.92 options exercised (2,337) 8.03 options forfeited & canceled (400) 13.97 outstanding at december 31, 2016 19,413 $12.01 4.61 $26,513 Vested and expected to vest at december 31, 2016 18,970 $11.97 4.55 $26,485 Exercisable at december 31, 2016 12,783 $10.94 3.49 $25,684 (1)Aggregate intrinsic value represents the difference between the exercise price of the option and the closing market price of our common stock ondecember 31, 2016.The weighted-average grant-date fair value per share of options granted during the years ended december 31, 2016, 2015, and 2014 was $6.54, $6.55, and$6.50, respectively. The total intrinsic value of options exercised during the years ended december 31, 2016, 2015, and 2014 was $17.9 million, $20.5 million, and$25.9 million, respectively. The estimated fair value of options vested during the years ended december 31, 2016, 2015, and 2014 was $16.7 million, $16.8 million,and $15.2 million, respectively.Summary of RSU Activityduring the years ended december 31, 2016 and 2015, we granted RSus to officers, employees and non-employee directors. no RSus vested during 2015and no RSus were granted during 2014. Most of our RSu awards have a strictly time-based vesting schedule while some RSu awards vest upon achievement ofpre-determined performance milestones along with a time-based vesting schedule. We expense the grant date fair value of the RSus expected to vest ratably overthe expected service or performance period. The fair value of an RSu is equal to the closing price of our common stock on the grant date. A summary of RSu award activity is as follows (in thousands except for per share amounts): Units Issued Weighted-AverageGrantDate FairValue AggregateIntrinsicValue(1) balance at december 31, 2015 1,306 $ 15.30 Granted 1,493 12.50 Vested and released (491) 14.96 Forfeited and canceled (60) 14.87 balance at december 31, 2016 2,248 $ 13.53 $27,593 (1)Aggregate intrinsic value represents the difference between the grant price of the award, which is zero, and the closing market price of our common stock ondecember 31, 2016. Note 12 — Income TaxesLoss before provision (benefit) for income taxes includes the following components (in thousands): Year Ended December 31, 2016 2015 2014 domestic $(155,375) $(81,931) $(56,414)Foreign 2,727 1,260 1,986 Loss before provision (benefit) for income taxes $(152,648) $(80,671) $(54,428)86 Provision for Income TaxesThe provision (benefit) for income taxes consists of the following (in thousands): Year Ended December 31, 2016 2015 2014 Current: Federal $— $— $— State (1) (1) 1 Foreign 992 529 (482)Total Current 991 528 (481)deferred: Federal — — — State — — — Foreign (115) (22) (31)Total deferred (115) (22) (31)Provision (benefit) for income taxes $876 $506 $(512) The foreign benefit provision in the year ended december 31, 2014 is due to the reduction in taxes related to a favorable determination received from indiaproceedings.income tax provision related to continuing operations differs from the amount computed by applying the statutory income tax rate of 35% to pretax loss asfollows (in thousands): Year Ended December 31, 2016 2015 2014 u.S. federal provision (benefit) At statutory rate $(53,427) $(28,235) $(19,050)Change in valuation allowance 51,981 22,210 11,831 non-cash interest expense on liability related to sale of future royalties 6,899 7,217 7,311 Stock-based compensation 528 674 2,832 Foreign tax deduction — 1,773 — Research credits (4,543) (4,529) (2,933)other (562) 1,396 (503)Provision (benefit) for income taxes $876 $506 $(512) 87Deferred Tax Assets and Liabilitiesdeferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amount of assets andliabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets for federal and stateincome taxes are as follows (in thousands): December 31, 2016 2015 deferred tax assets: net operating loss carryforwards $508,406 $447,761 Research and other credits 74,917 70,258 Stock-based compensation 26,357 22,832 deferred revenue 23,035 29,658 Reserves and accruals 12,269 8,309 Capitalized research expenses 11,587 12,440 Property, plant and equipment 6,882 6,451 Sale of future royalties 1,611 12,319 other 750 3,158 deferred tax assets before valuation allowance 665,814 613,186 Valuation allowance for deferred tax assets (665,514) (612,996)Total deferred tax assets 300 190 Total deferred tax liabilities — — net deferred tax assets $300 $190 Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. because of our lack ofu.S. earnings history, the net u.S. deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $52.5 million and$17.3 million during the years ended december 31, 2016 and 2015, respectively. The valuation allowance includes approximately $35.6 million of income taxbenefit at both december 31, 2016 and december 31, 2015 related to stock-based compensation and exercises prior to the implementation of the accountingguidance for stock-based compensation that will be credited to additional paid in capital when realized.undistributed earnings of our foreign subsidiary in india are considered to be permanently reinvested and accordingly, no deferred u.S. income taxes havebeen provided thereon. upon distribution of those earnings in the form of dividends or otherwise, we would be subject to u.S. income tax. As of december 31,2016, u.S. income taxes have not been provided on a cumulative total of $3.4 million of such earnings. Any incremental tax liability would be insignificant due toforeign tax credits that would be realized upon distribution.Net Operating Loss and Tax Credit CarryforwardsAs of december 31, 2016, we had a net operating loss carryforward for federal income tax purposes of approximately $1,413.3 million, portions of whichwill begin to expire in 2018. As of december 31, 2016, we had a total state net operating loss carryforward of approximately $473.6 million, portions of which willbegin to expire in 2017. utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “changein ownership” provisions of the internal Revenue Code of 1986 and similar state provisions.We have federal research credits of approximately $50.1 million, which will begin to expire in 2019 and state research credits of approximately $25.2million which have no expiration date. We have federal orphan drug credits of $17.7 million which will begin to expire in 2026. These tax credits are subject to thesame limitations discussed above.Unrecognized tax benefitsWe have incurred net operating losses since inception. our policy is to include interest and penalties related to unrecognized tax benefits, if any, within theprovision for income taxes in the consolidated statements of operations. if we are eventually able to recognize our uncertain positions, our effective tax rate may bereduced. We currently have a full valuation allowance against our u.S. net deferred tax asset which would impact the timing of the effective tax rate benefit shouldany of these uncertain tax positions be favorably settled in the future. Any adjustments to our uncertain tax positions would result in an adjustment of our netoperating loss or tax credit carry forwards rather than resulting in a cash outlay. The decrease in the unrecognized tax benefits in 2015 primarily relates to aCalifornia Supreme Court decision relating to the calculation of apportionment of income.88We file income tax returns in the u.S., California, Alabama, and india. because of net operating losses and research credit carryovers, substantially all ofour domestic tax years remain open and s ubject to examination. We are currently under examination in india for the fiscal years ending 2009, 2013 and 2014.We have the following activity relating to unrecognized tax benefits (in thousands): December 31, 2016 2015 2014 beginning balance $17,384 $27,522 $16,363 Tax positions related to current year Additions: Federal 530 529 502 State 499 443 6,141 Reductions — — — Tax positions related to prior year Additions: Federal — — — State — — 5,258 Foreign — — — Reductions — (11,110) (742)Settlements — — — Lapses in statute of limitations — — — Ending balance $18,413 $17,384 $27,522 Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months, we do not anticipate anysignificant changes to unrecognized tax benefits over the next twelve months. during the years ended december 31, 2016, 2015 and 2014, no significant interest orpenalties were recognized relating to unrecognized tax benefits. Note 13 — Segment ReportingWe operate in one business segment which focuses on applying our technology platforms to improve the performance of established and novel medicines.We operate in one segment because our business offerings have similar economics and other characteristics, including the nature of products and manufacturingprocesses, types of customers, distribution methods and regulatory environment. We are comprehensively managed as one business segment by our ChiefExecutive officer. our revenue is derived primarily from clients in the pharmaceutical and biotechnology industries. AstraZeneca, uCb, ophthotech and Roche represented29%, 21%, 19% and 11% of our revenue, respectively, for the year ended december 31, 2016. Revenue from AstraZeneca and uCb represented 57% and 13% ofour revenue, respectively, for the year ended december 31, 2015. Revenue from AstraZeneca, uCb and Roche represented 52%, 16% and 11% of our revenue,respectively, for the year ended december 31, 2014.Revenue by geographic area is based on the locations of our partners. The following table sets forth revenue by geographic area (in thousands): Year Ended December 31, 2016 2015 2014 united States $39,147 $40,400 $32,514 Europe 126,289 190,384 168,193 Total revenue $165,436 $230,784 $200,707 At december 31, 2016, $48.8 million, or approximately 74%, of the net book value of our property, plant and equipment was located in the united States,$10.4 million, or approximately 16% was located at contract manufacturers in Germany and the netherlands, $5.6 million, or approximately 9%, was located inindia, and $0.8 million or approximately 1%, was located in other countries. At december 31, 2015, $54.2 million, or approximately 76%, of the net book value ofour property, plant and equipment was located in the united States, $11.1 million, or approximately 16% was located at contract manufacturers in Germany and thenetherlands, and $6.0 million, or approximately 8%, was located in india. 89Note 14 — Selected Quarterly Financial Data (Unaudited)The following table sets forth certain unaudited quarterly financial data. in our opinion, the unaudited information set forth below has been prepared on thesame basis as our audited information and includes all adjustments necessary to present fairly the information set forth herein. We have experienced fluctuations inour quarterly results and expect these fluctuations to continue in the future. due to these and other factors, we believe that quarter-to-quarter comparisons of ouroperating results will not be meaningful, and you should not rely on our results for any one quarter as an indication of our future performance. Certain itemspreviously reported in specific financial statement captions have been reclassified to conform to the current period presentation. Such reclassifications have notmaterially impacted previously reported total revenues, operating loss or net loss. All data is in thousands except per share information. Year Ended December 31, 2016 Year Ended December 31, 2015 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Product sales $14,099 $12,867 $14,698 $13,690 $7,974 $10,968 $7,240 $13,973 Total revenue $58,882 $32,768 $36,336 $37,450 $108,801 $22,661 $59,952 $39,370 Cost of goods sold $8,870 $7,708 $7,033 $6,604 $8,444 $10,534 $6,760 $8,364 Research and development expenses $49,268 $52,350 $51,951 $50,232 $47,011 $45,412 $43,229 $47,135 operating income (loss) $(9,484) $(38,325) $(32,901) $(32,145) $43,043 $(43,469) $419 $(29,364)net income (loss) $(19,498) $(48,603) $(43,224) $(42,199) $33,820 $(52,657) $(8,203) $(54,137)net income (loss) per share(1) basic $(0.14) $(0.36) $(0.32) $(0.28) $0.26 $(0.40) $(0.06) $(0.40)diluted $(0.14) $(0.36) $(0.32) $(0.28) $0.25 $(0.40) $(0.06) $(0.40) (1)Quarterly loss per share amounts may not total to the year-to-date loss per share due to rounding. 90Item 9.Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosurenone. Item 9A.Controls and ProceduresDisclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934(Exchange Act) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such informationis accumulated and communicated to management, including our Chief Executive officer and Chief Financial officer, as appropriate, to allow timely decisionsregarding required financial disclosure.As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management,including the Chief Executive officer and the Chief Financial officer, of the effectiveness of the design and operation of our disclosure controls and procedurespursuant to Exchange Act Rule 13a-15. based upon, and as of the date of, this evaluation, the Chief Executive officer and the Chief Financial officer concludedthat our disclosure controls and procedures were effective. Accordingly, management believes that the financial statements included in this report fairly present inall material respects our financial condition, results of operations and cash flows for the periods presented.Management’s Annual Report on Internal Control over Financial Reportingour management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRule 13a-15(f). our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with GAAP.our management has assessed the effectiveness of our internal control over financial reporting as of december 31, 2016. in making its assessment ofinternal control over financial reporting, management used the criteria described in Internal Control — Integrated Framework issued by the Committee ofSponsoring organizations of the Treadway Commission (2013 Framework).based on our evaluation under the framework described in Internal Control — Integrated Framework , our management concluded that our internal controlover financial reporting was effective as of december 31, 2016.The effectiveness of our internal control over financial reporting as of december 31, 2016 has been audited by Ernst & Young, LLP, an independentregistered public accounting firm, as stated in their report, which is included herein.Changes in Internal Control Over Financial ReportingWe continuously seek to improve the efficiency and effectiveness of our internal controls. This results in refinements to processes throughout the Company.There was no change in our internal control over financial reporting during the quarter ended december 31, 2016, which was identified in connection with ourmanagement’s evaluation required by Exchange Act Rules 13a-15(f) and 15d-15(f) that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.91Inherent Limitations on the Effectiveness of Controlsour management, including the Chief Executive officer and Chief Financial officer, does not expect that our disclosure controls and procedures or ourinternal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide onlyreasonable, not absolute, assurance that the objectives of the control system are met. because of the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitationsinclude the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls canbe circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system ofcontrols also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achievingits stated goals under all potential future conditions. over time, controls may become inadequate because of changes in conditions, or the degree of compliancewith the policies or procedures may deteriorate. because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud mayoccur and not be detected. Item 9B.Other Informationnone. 92PART III Item 10.Directors, Executive Officers and Corporate Governanceinformation relating to our executive officers required by this item is set forth in Part i — item 1 of this report under the caption “Executive officers of theRegistrant” and is incorporated herein by reference. The other information required by this item is incorporated by reference from the definitive proxy statement forour 2017 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A (Proxy Statement) not later than 120 days after the end of the fiscalyear covered by this Form 10-K under the captions “Corporate Governance and board of directors,” “Proposal 1 — Election of directors” and “Section 16(a)beneficial ownership Reporting Compliance.”information regarding our audit committee financial expert will be set forth in the Proxy Statement under the caption “Audit Committee,” whichinformation is incorporated herein by reference.We have a Code of business Conduct and Ethics applicable to all employees, including the principal executive officer, principal financial officer andprincipal accounting officer or controller, or persons performing similar functions. The Code of business Conduct and Ethics is posted on our website atwww.nektar.com. Amendments to, and waivers from, the Code of business Conduct and Ethics that apply to any of these officers, or persons performing similarfunctions, and that relate to any element of the code of ethics definition enumerated in item 406(b) of Regulation S-K will be disclosed at the website addressprovided above and, to the extent required by applicable regulations, on a current report on Form 8-K.As permitted by SEC Rule 10b5-1, certain of our executive officers, directors and other employees have or may set up a predefined, structured stock tradingprogram with their broker to sell our stock. The stock trading program allows a broker acting on behalf of the executive officer, director or other employee to tradeour stock during blackout periods or while such executive officer, director or other employee may be aware of material, nonpublic information, if the trade isperformed according to a pre-existing contract, instruction or plan that was established with the broker when such executive officer, director or employee was notaware of any material, nonpublic information. our executive officers, directors and other employees may also trade our stock outside of the stock trading programsset up under Rule 10b5-1 subject to our securities trading policy. Item 11.Executive CompensationThe information required by this item is included in the Proxy Statement and incorporated herein by reference. Item 12.Securi ty Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item is included in the Proxy Statement and incorporated herein by reference. Item 13.Certain Relationships and Related Transactions and Director IndependenceThe information required by this item is included in the Proxy Statement and incorporated herein by reference. Item 14.Principal Accountant Fees and ServicesThe information required by this item is included in the Proxy Statement and incorporated herein by reference. 93PART IV Item 15.Exhibits and Financial Statement Schedules (a)The following documents are filed as part of this report: (1)Consolidated Financial Statements:The following financial statements are filed as part of this Annual Report on Form 10-K under item 8 “Financial Statements and Supplementary data.” PageReports of independent Registered Public Accounting Firm 60 Consolidated balance Sheets at december 31, 2016 and 2015 62 Consolidated Statements of operations for each of the three years in the period ended december 31, 2016 63 Consolidated Statements of Comprehensive Loss for each of the three years in the period ended december 31, 2016 64 Consolidated Statements of Stockholders’ Equity (deficit) for each of the three years in the period ended december 31, 2016 65 Consolidated Statements of Cash Flows for each of the three years in the period ended december 31, 2016 66 notes to Consolidated Financial Statements 67 (2)Financial Statement Schedules:All financial statement schedules have been omitted because they are not applicable, or the information required is presented in our consolidated financialstatements and notes thereto under item 8 of this Annual Report on Form 10-K. (3)Exhibits.Except as so indicated in Exhibit 32.1, the following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. ExhibitNumber Description of Documents 2.1(1) Asset Purchase Agreement, dated october 20, 2008, by and between nektar Therapeutics, a delaware corporation, AeroGen, inc., a delawarecorporation and wholly-owned subsidiary of nektar Therapeutics, novartis Pharmaceuticals Corporation, a delaware corporation, and novartisPharma AG, a Swiss corporation.+ 3.1(2) Certificate of incorporation of inhale Therapeutic Systems (delaware), inc. 3.2(3) Certificate of Amendment of the Amended Certificate of incorporation of inhale Therapeutic Systems, inc. 3.3(4) Certificate of ownership and Merger of nektar Therapeutics. 3.4(5) Certificate of ownership and Merger of nektar Therapeutics AL, Corporation with and into nektar Therapeutics. 3.5(6) Amended and Restated bylaws of nektar Therapeutics. 4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, and 3.5. 4.2(4) Specimen Common Stock certificate. 4.3(7) indenture dated october 5, 2015 by and between nektar Therapeutics and Wilmington Trust, national Association, and TC Lending, LLCincluding the form of 7.75% Senior Secured note due 2020. 10.1(9) Employee Stock Purchase Plan, as amended and restated.++ 10.2(10) 2000 non-officer Equity incentive Plan, as amended and restated.++ 10.3(10) 2000 Equity incentive Plan, as amended and restated.++ 10.4(10) 2008 Equity incentive Plan, as amended and restated.++ 10.5(11) 2012 Performance incentive Plan.++94ExhibitNumber Description of Documents 10.6(8) Forms of Stock option Agreement, Performance Stock option Agreement, Restricted Stock unit Agreement and Performance Restricted Stockunit Agreement under the 2012 Performance incentive Plan.++ 10.7(22) Amended and Restated Compensation Plan for non-Employee directors.++ 10.8(12) 401(k) Retirement Plan.++ 10.9(10) discretionary incentive Compensation Policy.++ 10.10(10) Amended and Restated Change of Control Severance benefit Plan.++ 10.11(13) Form of Severance Letter for executive officers of the company.++ 10.12(1) Amended and Restated Letter Agreement, executed effective on december 1, 2008, with howard W. Robin.++ 10.13(1) Amended and Restated Letter Agreement, executed effective on december 1, 2008, with John nicholson.++ 10.14(14) Letter Agreement, executed effective on december 10, 2009, with Stephen K. doberstein, Ph.d.++ 10.15(21) Letter Agreement dated as of May 14, 2014, by and between nektar Therapeutics and ivan Gergel, M.d.++ 10.16(13) Amended and Restated built-to-Suit Lease between nektar Therapeutics and bMR-201 industrial Road LLC, dated August 17, 2004, asamended on January 11, 2005 and July 19, 2007. 10.17(16) Sublease, dated as of September 30, 2009, by and between Pfizer inc. and nektar Therapeutics.+ 10.18(15) Settlement Agreement and General Release, dated June 30, 2006, by and between The board of Trustees of the university of Alabama, Theuniversity of Alabama in huntsville, nektar Therapeutics AL, Corporation (a wholly-owned subsidiary of nektar Therapeutics), nektarTherapeutics and J. Milton harris. 10.19(14) Co-development, License and Co-Promotion Agreement, dated August 1, 2007, between nektar Therapeutics (and its subsidiaries) and bayerhealthcare LLC, as amended.+ 10.20(1) Exclusive Research, development, License and Manufacturing and Supply Agreement, by and among nektar AL Corporation, baxterhealthcare SA, and baxter healthcare Corporation, dated September 26, 2005, as amended.+ 10.21(1) Exclusive License Agreement, dated december 31, 2008, between nektar Therapeutics, a delaware corporation, and novartis Pharma AG, aSwiss corporation.+ 10.22(14) Supply, dedicated Suite and Manufacturing Guarantee Agreement, dated october 29, 2010, by and among nektar Therapeutics, Amgen inc. andAmgen Manufacturing, Limited.+ 10.23(16) License Agreement by and between AstraZeneca Ab and nektar Therapeutics, dated September 20, 2009.+ 10.24 (17) Collaboration and License Agreement dated as of May 30, 2016, by and between daiichi Sankyo Europe Gmbh and nektar Therapeutics. 10.25 (18) Clinical Trial Collaboration Agreement dated as of September 21, 2016, by and between bristol-Myers Squibb Company and nektarTherapeutics 10.26(7) Purchase Agreement dated September 30, 2015 by and among nektar Therapeutics and TC Lending, LLC and TAo Fund, LLC. 10.27(7) Pledge and Security Agreement dated october 5, 2015 by and among nektar Therapeutics and TC Lending, LLC. 10.28(19) Purchase and Sale Agreement, dated as of February 24, 2012, between nektar Therapeutics and RPi Finance Trust.+ 10.29(20) Amendment no. 1 to License Agreement dated as of August 8, 2013, by and between nektar Therapeutics and AstraZeneca Ab.+ 10.30(21) Term Loan and Security Agreement dated as of october 7, 2013, by and between nektar Therapeutics, as borrower, and AstraZeneca Ab, aslender and as agent. 21.1(24) Subsidiaries of nektar Therapeutics. 23.1(24) Consent of independent Registered Public Accounting Firm. 24 Power of Attorney (reference is made to the signature page). 95ExhibitNumber Description of Documents31.1(24) Certification of nektar Therapeutics’ principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a). 31.2(24) Certification of nektar Therapeutics’ principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a). 32.1* Section 1350 Certifications. 101** The following materials from nektar Therapeutics’ Annual Report on Form 10-K for the year ended december 31, 2016, formatted in XbRL(Extensible business Reporting Language): (i) Consolidated balance Sheets, (ii) Consolidated Statements of operations, (iii) ConsolidatedStatements of Comprehensive Loss, (iv) Consolidated Statements of Stockholders’ Equity (deficit), (v) Consolidated Statements of Cash Flows,and (vi) notes to Consolidated Financial Statements. +Confidential treatment with respect to specific portions of this Exhibit has been requested, and such portions are omitted and have been filed separately withthe SEC.++Management contract or compensatory plan or arrangement.*Exhibit 32.1 is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, orotherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or otherdocument filed under the Securities Act of 1933, as amended, or the Securities Exchange Act, except as otherwise stated in such filing.**XbRL information is filed herewith.(1)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Annual Report on Form 10-K for the year ended december 31, 2008.(2)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.(3)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.(4)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on January 23, 2003.(5)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Annual Report on Form 10-K for the year ended december 31, 2009.(6)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on April 15, 2014.(7)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on october 6, 2015.(8)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on december 17, 2015.(9)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on June 27, 2014.(10)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Annual Report on Form 10-K for the year ended december 31, 2011.(11)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on June 17, 2015.(12)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.(13)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.(14)incorporated by reference to the indicated exhibit in nektar Therapeutics Annual Report on Form 10-K for the year ended december 31, 2010.(15)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.(16)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.(17)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.(18)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.(19)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.(20)incorporated by reference to the indicated exhibit in nektar Therapeutics' Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.(21)incorporated by reference to the indicated exhibit in nektar Therapeutics Annual Report on Form 10-K for the year ended december 31, 2012.96(22)incorporated by reference to the indicated exhibit in nektar Therapeutics Annual Report on Form 10-K for the year ended december 31, 2013.(23)incorporated by reference to the indicated exhibit in nektar Therapeutics Annual Report on Form 10-K for the year ended december 31, 2014.(24)Filed herewith.97Item 16.Form 10-K Summarynone.98SIGNA TURESPursuant to the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized, in the City and County of San Francisco, State of California on March 1, 2017. by:/s/ GiL M. LAbRuChERiE Gil M. Labrucherie Senior Vice President and Chief Financial Officer by:/s/ J iLLiAn b. T hoMSEn Jillian B. Thomsen Senior Vice President, Finance and Chief AccountingOfficer 99POWER OF ATTORNEYKnoW ALL PERSon bY ThESE PRESEnTS, that each person whose signature appears below constitutes and appoints Gil M. Labrucherie and Jillianb. Thomsen and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in hisor her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibitsthereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each ofthem, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents andpurposes as he or she might or could do in person, hereby ratify and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or hersubstitute or substitutes, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities andon the dates indicated: Signature Title Date /s/ h oWARd W. R obin Chief Executive officer, President and director March 1, 2017Howard W. Robin (Principal Executive officer) /s/ GiL M. LAbRuChERiE Senior Vice President and Chief Financial officer March 1, 2017Gil M. Labrucherie (Principal Financial officer) /s/ J iLLiAn b. T hoMSEn Senior Vice President, Finance and Chief Accountingofficer March 1, 2017Jillian B. Thomsen (Principal Accounting officer) /s/ R obERT b. C hESS director, Chairman of the board of directors March 1, 2017Robert B. Chess /s/ R. S CoTT G REER director March 1, 2017R. Scott Greer /s/ J oSEPh J. K RiVuLKA director March 1, 2017Joseph J. Krivulka /s/ C hRiSToPhER A. K uEbLER director March 1, 2017Christopher A. Kuebler /s/ L uTZ L inGnAu director March 1, 2017Lutz Lingnau /s/ R oY A. W hiTFiELd director March 1, 2017Roy A. Whitfield /s/ d EnniS L. W inGER director March 1, 2017Dennis L. Winger 100Except as so indicated in Exhibit 32.1, the following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. ExhibitNumber Description of Documents 2.1(1) Asset Purchase Agreement, dated october 20, 2008, by and between nektar Therapeutics, a delaware corporation, AeroGen, inc., a delawarecorporation and wholly-owned subsidiary of nektar Therapeutics, novartis Pharmaceuticals Corporation, a delaware corporation, and novartisPharma AG, a Swiss corporation.+ 3.1(2) Certificate of incorporation of inhale Therapeutic Systems (delaware), inc. 3.2(3) Certificate of Amendment of the Amended Certificate of incorporation of inhale Therapeutic Systems, inc. 3.3(4) Certificate of ownership and Merger of nektar Therapeutics. 3.4(5) Certificate of ownership and Merger of nektar Therapeutics AL, Corporation with and into nektar Therapeutics. 3.5(6) Amended and Restated bylaws of nektar Therapeutics. 4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, and 3.5. 4.2(4) Specimen Common Stock certificate. 4.3(7) indenture dated october 5, 2015 by and between nektar Therapeutics and Wilmington Trust, national Association, and TC Lending, LLCincluding the form of 7.75% Senior Secured note due 2020. 10.1(9) Employee Stock Purchase Plan, as amended and restated.++ 10.2(10) 2000 non-officer Equity incentive Plan, as amended and restated.++ 10.3(10) 2000 Equity incentive Plan, as amended and restated.++ 10.4(10) 2008 Equity incentive Plan, as amended and restated.++ 10.5(11) 2012 Performance incentive Plan.++ 10.6(8) Forms of Stock option Agreement, Performance Stock option Agreement, Restricted Stock unit Agreement and Performance Restricted Stockunit Agreement under the 2012 Performance incentive Plan.++ 10.7(22) Amended and Restated Compensation Plan for non-Employee directors.++ 10.8(12) 401(k) Retirement Plan.++ 10.9(10) discretionary incentive Compensation Policy.++ 10.10(10) Amended and Restated Change of Control Severance benefit Plan.++ 10.11(13) Form of Severance Letter for executive officers of the company.++ 10.12(1) Amended and Restated Letter Agreement, executed effective on december 1, 2008, with howard W. Robin.++ 10.13(1) Amended and Restated Letter Agreement, executed effective on december 1, 2008, with John nicholson.++ 10.14(14) Letter Agreement, executed effective on december 10, 2009, with Stephen K. doberstein, Ph.d.++ 10.15(21) Letter Agreement dated as of May 14, 2014, by and between nektar Therapeutics and ivan Gergel, M.d.++ 10.16(13) Amended and Restated built-to-Suit Lease between nektar Therapeutics and bMR-201 industrial Road LLC, dated August 17, 2004, asamended on January 11, 2005 and July 19, 2007. 10.17(16) Sublease, dated as of September 30, 2009, by and between Pfizer inc. and nektar Therapeutics.+ 10.18(15) Settlement Agreement and General Release, dated June 30, 2006, by and between The board of Trustees of the university of Alabama, Theuniversity of Alabama in huntsville, nektar Therapeutics AL, Corporation (a wholly-owned subsidiary of nektar Therapeutics), nektarTherapeutics and J. Milton harris. 10.19(14) Co-development, License and Co-Promotion Agreement, dated August 1, 2007, between nektar Therapeutics (and its subsidiaries) and bayerhealthcare LLC, as amended.+ 10.20(1) Exclusive Research, development, License and Manufacturing and Supply Agreement, by and among nektar AL Corporation, baxterhealthcare SA, and baxter healthcare Corporation, dated September 26, 2005, as amended.+101ExhibitNumber Description of Documents 10.21(1) Exclusive License Agreement, dated december 31, 2008, between nektar Therapeutics, a delaware corporation, and novartis Pharma AG, aSwiss corporation.+ 10.22(14) Supply, dedicated Suite and Manufacturing Guarantee Agreement, dated october 29, 2010, by and among nektar Therapeutics, Amgen inc. andAmgen Manufacturing, Limited.+ 10.23(16) License Agreement by and between AstraZeneca Ab and nektar Therapeutics, dated September 20, 2009.+ 10.24 (17) Collaboration and License Agreement dated as of May 30, 2016, by and between daiichi Sankyo Europe Gmbh and nektar Therapeutics. 10.25 (18) Clinical Trial Collaboration Agreement dated as of September 21, 2016, by and between bristol-Myers Squibb Company and nektarTherapeutics 10.26(7) Purchase Agreement dated September 30, 2015 by and among nektar Therapeutics and TC Lending, LLC and TAo Fund, LLC. 10.27(7) Pledge and Security Agreement dated october 5, 2015 by and among nektar Therapeutics and TC Lending, LLC. 10.28(19) Purchase and Sale Agreement, dated as of February 24, 2012, between nektar Therapeutics and RPi Finance Trust.+ 10.29(20) Amendment no. 1 to License Agreement dated as of August 8, 2013, by and between nektar Therapeutics and AstraZeneca Ab.+ 10.30(22) Term Loan and Security Agreement dated as of october 7, 2013, by and between nektar Therapeutics, as borrower, and AstraZeneca Ab, aslender and as agent. 21.1(24) Subsidiaries of nektar Therapeutics. 23.1(24) Consent of independent Registered Public Accounting Firm. 24 Power of Attorney (reference is made to the signature page). 31.1(24) Certification of nektar Therapeutics’ principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a). 31.2(24) Certification of nektar Therapeutics’ principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a). 32.1* Section 1350 Certifications. 101** The following materials from nektar Therapeutics’ Annual Report on Form 10-K for the year ended december 31, 2016, formatted in XbRL(Extensible business Reporting Language): (i) Consolidated balance Sheets, (ii) Consolidated Statements of operations, (iii) ConsolidatedStatements of Comprehensive Loss, (iv) Consolidated Statements of Stockholders’ Equity (deficit), (v) Consolidated Statements of Cash Flows,and (vi) notes to Consolidated Financial Statements. +Confidential treatment with respect to specific portions of this Exhibit has been requested, and such portions are omitted and have been filed separately withthe SEC.++Management contract or compensatory plan or arrangement.*Exhibit 32.1 is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, orotherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or otherdocument filed under the Securities Act of 1933, as amended, or the Securities Exchange Act, except as otherwise stated in such filing.**XbRL information is filed herewith.(1)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Annual Report on Form 10-K for the year ended december 31, 2008.(2)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.(3)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.(4)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on January 23, 2003.(5)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Annual Report on Form 10-K for the year ended december 31, 2009.(6)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on April 15, 2014.102(7)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on october 6, 2015.(8)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on december 17, 2015.(9)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on June 27, 2014.(10)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Annual Report on Form 10-K for the year ended december 31, 2011.(11)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Current Report on Form 8-K, filed on June 17, 2015.(12)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.(13)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.(14)incorporated by reference to the indicated exhibit in nektar Therapeutics Annual Report on Form 10-K for the year ended december 31, 2010.(15)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.(16)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.(17)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.(18)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.(19)incorporated by reference to the indicated exhibit in nektar Therapeutics’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.(20)incorporated by reference to the indicated exhibit in nektar Therapeutics' Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.(21)incorporated by reference to the indicated exhibit in nektar Therapeutics Annual Report on Form 10-K for the year ended december 31, 2012.(22)incorporated by reference to the indicated exhibit in nektar Therapeutics Annual Report on Form 10-K for the year ended december 31, 2013.(23)incorporated by reference to the indicated exhibit in nektar Therapeutics Annual Report on Form 10-K for the year ended december 31, 2014.(24)Filed herewith. 103 Exhibit 21.1Subsidiaries of Nektar Therapeutics* Name Jurisdiction ofIncorporation orOrganizationnektar Therapeutics uK, Ltd. united Kingdomnektar Therapeutics (india) Pvt. Ltd india *includes subsidiaries that do not fall under the definition of “Significant Subsidiary” as defined under Rule 1-02(w) of Regulation S-X. Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the following Registration Statements:(1) Registration Statement (Form S-3 no. 333-193454) of nektar Therapeutics, and(2) Registration Statements (Form S-8 nos. 333-54078, 333-71936, 333-76638, 333-98321, 333-103040, 333-117975, 333-136498, 333-145259, 333-153106, 333-170371, 333-183193, 333-197781 and 333-206136) pertaining to the amended and restated 2000 non-officer Equity incentive Plan, the 401(k) Retirement Plan,the Employee Stock Purchase Plan, the amended and restated 2000 Equity incentive Plan, the amended and restated 2008 Equity incentive Plan, and the 2012Performance incentive Plan of nektar Therapeutics; of our reports dated March 1, 2017, with respect to the consolidated financial statements of nektarTherapeutics and the effectiveness of internal control over financial reporting of nektar Therapeutics included in this Annual Report (Form 10-K) of nektarTherapeutics for the year ended december 31, 2016. /s/ ERnST & YounG LLPRedwood City, CaliforniaMarch 1, 2017 Exhibit 31.1CERTIFICATIONSi, howard W. Robin, certify that:1. i have reviewed this Annual Report on Form 10-K of nektar Therapeutics for the year ended december 31, 2016;2. based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and i are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting.5. The registrant’s other certifying officer(s) and i have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.date: March 1, 2017 /s/ h oWARd W. R obinHoward W. RobinChief Executive Officer, President and Director Exhibit 31.2CERTIFICATIONSi, Gil M. Labrucherie, certify that:1. i have reviewed this Annual Report on Form 10-K of nektar Therapeutics for the year ended december 31, 2016;2. based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and i are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting.5. The registrant’s other certifying officer(s) and i have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.date: March 1, 2017 /s/ GiL M. LAbRuChERiEGil M. LabrucherieSenior Vice President and Chief Financial Officer Exhibit 32.1SECTION 1350 CERTIFICATIONS*Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 ofChapter 63 of Title 18 of the united States Code (18 u.S.C. § 1350), howard W. Robin, Chief Executive officer, President and director of nektar Therapeutics(the “Company”), and Gil M. Labrucherie, Senior Vice President and Chief Financial officer of the Company, each hereby certifies that, to the best of hisknowledge:1. The Company’s Annual Report on Form 10-K, for the year ended december 31, 2016, to which this Certification is attached as Exhibit 32.1 (the “AnnualReport”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Companyfor the period covered by the Annual Report.dated: March 1, 2017 /s/ hoWARd W. Robin /s/ GiL M. LAbRuChERiEHoward W. Robin Gil M. LabrucherieChief Executive Officer, President and Director Senior Vice President and Chief Financial Officer *This certification accompanies the Annual Report on Form 10-K, to which it relates, is not deemed filed with the Securities and Exchange Commission andis not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.

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