Nektar Announces Second Quarter 2006 Results

-- Exubera(R) (insulin human (rDNA origin)) Inhalation Powder introduced in U.S. by Pfizer with comprehensive education program; initial supplies available across U.S. in September; studies presented at American Diabetes Association meeting build on previous data

-- Nektar proprietary product, Amphotericin B Inhalation Powder, received U.S. Orphan Drug and Fast Track designation; PEGylated pain-related therapy completes proof-of-concept trial in humans

-- Value of Nektar PEG technology highlighted by $17.6 million payment from Affymax received in July 2006, and Phase II data for new indication for UCB's Cimzia(TM)

-- Nektar closed Bradford UK site as important step to focus company

Nektar Therapeutics (Nasdaq:NKTR) announced today its financialresults for the second quarter ended June 30, 2006.

The company reported revenue of $60.2 million for the three monthsended June 30, 2006, compared to $28.6 million for the three monthsended June 30, 2005. In the second quarter of 2006, product sales androyalty revenue was $44.2 million, including three months of Exuberaproduct sales to Pfizer Inc, compared to $5.5 million for the threemonths ended June 30, 2005, and contract research revenue totaled$14.3 million compared to $19.6 million in the three months ended June30, 2005.

Nektar reported a GAAP net loss of $62.8 million or $(0.70) pershare for the three months ended June 30, 2006 compared to a GAAP netloss of $26.9 million or $(0.32) per share for the three months endedJune 30, 2005.

Nektar also reported a non-GAAP net loss for the second quarter2006 of $24.9 million or $(0.28) per share compared to a non-GAAP netloss for the second quarter 2005 of $26.9 million or $(0.32) pershare. The non-GAAP net loss in the second quarter of 2006 excludes$5.4 million of SFAS 123R non-severance stock based compensationcharges, $11.1 million of severance charges, $3.7 million ofrestructuring charges related to the closing of Nektar UK (Bradford),and a $17.7 million charge for the settlement of litigation with theUniversity of Alabama in Huntsville (UAH). The UAH litigationsettlement charge includes an $11 million payment made by the companyon June 30, 2006 and the present value at an 8% discount rate of tenannual payments of $1 million beginning on July 1, 2007. See thesupplemental table attached to this press release entitled"Reconciliation of GAAP Financial Measures to Non-GAAP FinancialMeasures."

For the six months ended June 30, 2006, Nektar reported totalrevenue of $89.2 million compared to $57.0 million for the six monthsended June 30, 2005. For the six months ended June 30, 2006, productsales and royalty revenue was $56.6 million, including four months ofExubera product sales to Pfizer, compared to $11.9 million for the sixmonths ended June 30, 2005, and contract research revenue totaled$29.1 million compared to $39.1 million for the six months ended June30, 2005.

For the six months ended June 30, 2006, Nektar reported a GAAP netloss of $96.3 million or $(1.08) per share compared to a GAAP net lossfor the six months ended June 30, 2005 of $53.1 million or $(0.63) pershare.

Nektar also reported a non-GAAP net loss for the first six monthsof 2006 of $49.3 million or $(0.55) per share compared to a non-GAAPnet loss for the first six months of 2005 of $53.1 million or $(0.63)per share.

The non-GAAP net loss for the first six months of 2006 excludes$10.4 of SFAS 123R non-severance stock based compensation charges,$14.8 million of severance charges, $4.1 million of restructuringcharges related to the closing of Nektar UK (Bradford), and a $17.7million charge for settlement of litigation of the UAH litigation. Seethe supplemental table attached to this press release entitled"Reconciliation of GAAP Financial Measures to Non-GAAP FinancialMeasures."

As of June 30, 2006, Nektar reported cash, cash equivalents,short-term investments, and investments in marketable securitiestotaling approximately $491.1 million compared to $528.1 million as ofMarch 31, 2006. This cash balance does not include the $17.6 millionpayment made in July by Affymax related to a collaboration between thetwo companies.

"The primary goals for Nektar over the last several months havebeen to meet manufacturing demand for Exubera, refocus the business toposition us to achieve sustainable profitable growth and to buildshareholder value, and advance our proprietary products. We have madestrong progress in each of these areas," said Robert Chess, chairman,and interim president and CEO.

"First, we are pleased with our ability to produce ExuberaInhalers and powdered insulin as ordered by Pfizer. Second, closingour Bradford UK site represents an important step in aligning ourspending with those activities that will drive our business. Third,our inhaled amphotericin product received both US Orphan Drug and FastTrack designation. Further, we concluded a human proof-of-concepttrial for our PEG pain-related product, moving us closer to ourobjective of having four of our proprietary products in human clinicaltrials in 2007," concluded Chess.

Financial Outlook for 2006

Today the company is updating its full year 2006 guidance lastprovided on May 10, 2006 in a press release announcing first quarter2006 results. On July 20, 2006, Nektar increased its Exuberamanufacturing and royalty revenue guidance to a range of $70 to $90million from a range of $60 to $80 million, with most of this revenuebeing generated by manufacturing sales to Pfizer. Changes providedtoday include an increase in the total revenue and GAAP net lossestimates.

"As we stated on our conference call reporting our first quarter2006 financial results on May 10, we continue to evaluate andrestructure the company in order to focus on our core assets. As weemphasized on that call, these activities could increase our net lossestimates for 2006. In the second quarter, these activities along withthe UAH litigation settlement, led to an increase in our GAAP net lossestimates for 2006. However, our estimate of our non-GAAP net loss for2006 is unchanged," said Lou Drapeau, senior vice president offinance, and chief financial officer.

Following is a summary of Nektar's current financial guidance forthe full year 2006:

-- Total revenue in the range of $170 to $200 million, including $70 to $90 million of Exubera manufacturing and royalty revenue, with most of the Exubera related revenue being generated by manufacturing sales to Pfizer.

-- GAAP net loss estimates have increased to $160 to $175 million from $135 to $150 million, primarily due to a $17.7 million charge for the settlement of the UAH litigation and additional severance amounts. The non-GAAP net loss remains at $100 to $115 million. Non-GAAP net loss excludes the $17.7 million settlement of the UAH litigation, $22 million of estimated SFAS 123R non-severance stock based compensation charges, and approximately $20 million of estimated charges related to restructuring and severances. See the supplemental table attached to this press release entitled "Reconciliation of Non-GAAP Projected Financial Guidance for 2006."

-- Cash, cash equivalents, and short-term investments and investments in marketable securities at the end of the year of approximately $415 to $440 million, which remains unchanged.

Recent Highlights

Exubera Progress

Exubera(R) (insulin human (rDNA origin)) Inhalation Powder is aproduct from a developmental collaboration between Pfizer and Nektar;and is marketed by Pfizer. It is approved for adults with type 1 andtype 2 diabetes in the U.S., European Union (EU) and Brazil.

Nektar reported on July 20, 2006, that Pfizer is introducingExubera in the U.S. by commencing a comprehensive physician andpatient education and training program for Exubera to be rolled out inphases beginning July 24, 2006. Further, Pfizer will make initialsupplies of Exubera available across the U.S. in September 2006.Pfizer has already made Exubera available in Germany and Ireland.

"As the first non-injectable insulin in the U.S., Exubera isdesigned to address an important unmet need for diabetes patients,"said Chess. "We look forward to continuing to deliver commercialquantities of Exubera Inhalers and powder to Pfizer according to plan,and will work closely with Pfizer to build sufficient supplies to meetpatient demand."

Recent studies presented by Pfizer in June 2006 build on earlierExubera data. Nektar reported results announced by Pfizer from twoongoing studies that showed adults with type 1 or type 2 diabetestreated with Exubera experienced sustained blood sugar control over atwo-year period and gained about half as much weight as those takinginjected insulin. In addition, Nektar reported that Pfizer announcedresults from two new studies that show many people with type 2diabetes, who should take insulin injections to improve blood sugarcontrol, often choose to avoid injections for at least four years ormore, despite insulin's proven effectiveness. These data werepresented at the 66th Annual Scientific Sessions of the AmericanDiabetes Association, June 10, 2006.

Proprietary Products

Nektar is developing its own products that leverage the company'sdrug delivery capabilities and its portfolio of leading technologies.The company has four proprietary products in development, three ofwhich have already completed or are in early-stage clinical trials.

Nektar announced today that the product under development as apain-related therapy using Nektar's PEGylated technology has completeda proof-of-concept study in humans. The company plans to conduct asecond Phase I trial this year and advance to Phase II in 2007.

Announced May 22, 2006, the FDA granted Fast Track designation toAmphotericin B Inhalation Powder (ABIP) for prevention of pulmonaryfungal infections in patients at risk for aspergillosis due toimmunosuppressive therapy, including those receiving organ or stemcell transplants, or treated with chemotherapy or radiation forhematologic malignancies (leukemias). Amphotericin B Inhalation Powderwas previously granted U.S. orphan drug designation by the FDA for theprevention of pulmonary fungal infections in patients at risk foraspergillosis due to immunosuppressive therapy. Nektar has conductedtwo Phase I trials and has long-term toxicity studies underway for theinhaled amphotericin product.

"The Orphan Drug and Fast Track designation by the Food and DrugAdministration (FDA) for Amphotericin B Inhalation Powder is animportant step toward providing a much-needed medical solution toprotect against life-threatening pulmonary fungal infections," saidDr. David Johnston, Nektar senior vice president of research anddevelopment.

Nektar is also developing an inhaled product for adjunctivetreatment of gram negative pneumonia in mechanically-ventilatedpatients which is in Phase II trials. In addition, the company isworking on a product in the oncology area that uses Nektar AdvancedPEGylation technology.

Partner Pipeline

Nektar PEGylation technology is used in eight marketed productsworldwide and two additional products filed for regulatory approval inboth the U.S. and EU. "Our PEGylation technology has proven itsability to generate breakthrough products and multi-billion dollarmarkets for our partners," said Chess.

$17.6 Million Payment from Affymax Highlights Value of Nektar PEGTechnology

Nektar announced on July 24, 2006 that the company received a cashpayment of $17.6 million under a previously undisclosed collaborationwith Affymax, Inc. triggered by Affymax entering into a globalagreement with Takeda, Inc. to develop and commercialize Affymax'slead product candidate, Hematide(TM). Hematide utilizes NektarAdvanced PEGylation Technology and is in Phase IIb clinical trials forthe treatment of anemia.

Data from Phase II trials of Cimzia(TM) for Psoriasis, a NewIndication

On July 18, 2006, UCB announced significant positive results froma Phase II study of Cimzia(TM) (certolizumab pegol, CDP870) for thetreatment of patients with moderate to severe psoriasis. Nektarprovides its Advanced PEGylation technology for Cimzia(TM).

UCB filed for regulatory approval earlier this year for Cimzia(TM)in both the U.S. (February 2006) and the EU (April 2006) for thetreatment of Crohn's Disease. UCB also stated that it has ongoingPhase III studies to investigate the efficacy and tolerability ofCimzia(TM) for rheumatoid arthritis.

Focusing the Company

Nektar announced on its first quarter financial results conferencecall on May 10, 2006 that the company intended to close its site inBradford UK, which has been substantially completed as of June 30,2006, and is an important step toward focusing the company on its coreassets. Nektar previously announced that Nektar UK was deemed to besignificantly impaired, which resulted in a write-off, reported aspart of the company's 2005 net loss.

"A key goal for my time as interim CEO is to focus the company onthose components of our business that will most increase shareholdervalue while managing our underlying cost structure," said Chess. "Byclosing our Bradford UK operations, we are taking a significant stepto better control our expenses and focus our business on the three keyelements of our stated strategy: (1) developing proprietary productsbased on our drug delivery technology; (2) Exubera and diabeteslife-cycle management products, and (3) high-value partner programs."

Important Safety Information about Exubera

Patients should not take Exubera if they have poorly controlled orunstable lung disease, or if they smoke or have stopped smoking lessthan six months prior to starting Exubera treatment. If a patientstarts smoking or resumes smoking, he or she must stop using Exuberaand see a health care provider about a different treatment.

Before starting treatment with Exubera, a health care providerwill carry out a simple test to check lung function. This will help tofind out if Exubera is the right treatment for individual patients.Once a patient starts treatment, it is recommended that a health careprovider check lung function again at six months and yearlythereafter.

Like all medicines, Exubera can cause side effects. As with allforms of insulin, a possible side effect of Exubera is low blood sugarlevels.

Some patients have reported a mild cough while taking Exubera,which occurred within seconds to minutes after Exubera inhalation.Coughing occurred less frequently as patients continued to useExubera.

In clinical trials, mean treatment group differences betweenExubera and comparator showed that Exubera was associated with small,non-progressive declines in lung function relative to comparatortreatments.

Conference Call Information

Robert Chess will host a conference call for analysts andinvestors today beginning at 2:00 p.m. Pacific time to discuss furtherthe company's performance.

Investors can access a live audio-only webcast through a link thatis posted on the Investor Relations section of Nektar's website athttp://www.nektar.com. The web broadcast of the conference call willbe available for replay through August 17, 2006.

Analysts and investors can also access the conference call livevia telephone by dialing (800) 559-9370 (U.S.); (847) 619-6819(international). The passcode is 15219171 and the host is Mr. RobertChess. An audio replay will be available shortly following the callthrough August 17, 2006 and can be accessed by dialing (877) 213-9653(U.S.); or (630) 652-3041 (international) with a passcode of 15219171.In the event that any non-GAAP financial measure is discussed on theconference call that is not described in the press release, relatedinformation will be made available on the Investor Relations page atthe Nektar website as soon as practical after the conclusion of theconference call.

About Nektar

Nektar Therapeutics is a biopharmaceutical company that developsand enables differentiated therapeutics with its industry-leading drugdelivery technologies, expertise and manufacturing capabilities.Nektar technology and know-how have enabled nine approved products forpartners, which include the world's leading pharmaceutical andbiotechnology companies. Nektar also develops its own products byapplying its drug delivery technologies and expertise to existingmedicines to enhance performance, such as improving efficacy, safetyand compliance.

Non-GAAP Financial Measures

The company provides all information required in accordance withGAAP, but it believes that evaluating its ongoing results ofoperations may be difficult to understand if limited to reviewing onlyGAAP financial results. In managing the company's business, managementreviews non-GAAP net loss and non-GAAP basic and diluted net loss percommon share non-GAAP net loss which excludes as applicable, SFAS 123Rstock-based compensation charges, litigation charges, and severanceand restructuring charges to evaluate the company's ongoing operatingresults.

Nektar management does not itself, nor does it suggest thatinvestors should, consider such non-GAAP financial measures inisolation from, or as a substitute for, GAAP financial measures. Thecompany considers and presents such non-GAAP financial measures inmeasuring, reporting, and forecasting its financial results to providemanagement and investors with an additional tool to evaluate thecompany's operating results in a manner that focuses on whatmanagement believes to be the company's ongoing business operations.Management believes that the inclusion of non-GAAP financial measuresprovides consistency and comparability with past reports of financialresults. Investors should note, however, that the non-GAAP financialmeasures used by the company may not be the same non-GAAP financialmeasures as, and may not be calculated in the same manner as that ofother companies with which investors may compare the financial resultsof the company. Management believes it is useful for the company andinvestors to review both GAAP information that includes the expensesand charges mentioned above and the non-GAAP financial measures thatexclude such special expenses and charges to have a betterunderstanding of the overall performance of the company's business,its allocation of resources and its ability to perform in the future.Investors are encouraged to review the related GAAP financial measuresand the reconciliation of these non-GAAP financial measures to theirmost directly comparable GAAP financial measure.

This press release contains forward-looking statements thatreflect management's current views and expectations as to the Exuberaproduct launch, Exubera manufacturing activities, product andtechnology development plans and funding, current business position ofthe company, clinical plans and expectations for the clinicaladvancement of our proprietary and partner products, the potential fornew product efficacy, safety, compliance, and economic benefits forpatients, the value and risk profile of our proprietary productprograms, and financial projections for the 2006 calendar year. Theseforward-looking statements involve uncertainties and other risks,including but not limited to: (i) the timing and success of theExubera commercial launch (ii) the company's ability to manufactureand supply sufficient quantities of Exubera dry powder insulin andinhalation devices to meet patient demand (iii) the discovery of anynew or more severe side effects or negative efficacy findings forExubera or any product liability claims related thereto (iv)investment in our proprietary products prior to seeking partnercollaborations may adversely impact our results of operations andfinancial condition (v) our success or the success of our partners inobtaining regulatory approvals (vi) a material negative impact on ourresults of operations for future periods as a result of theapplication of SFAS 123R related to expensing of stock-basedcompensation, and (vii) additional charges and expenses that may beincurred as we restructure the company in order to focus on our coreassets. Other important risks and uncertainties are detailed in thecompany's reports and other filings with the SEC, including its mostrecent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, andCurrent Reports on Form 8-K. Actual results could differ materiallyfrom the forward-looking statements contained in this press release.The company undertakes no obligation to update forward-lookingstatements, whether as a result of new information, future events orotherwise.

Exubera is a registered trademark of Pfizer Inc.

Hematide is a trademark of Affymax, Inc.

Cimzia is a trademark of UCB.

NEKTAR THERAPEUTICS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( In thousands, except per share information)


Unaudited Unaudited
------------------- -------------------
Three-Months Ended Six-Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------

Revenue:
Contract research revenue $ 14,322 $ 19,552 $ 29,139 $ 39,081
Product sales and royalty
revenue 44,157 5,470 56,554 11,862
Exubera(R) commercialization
readiness revenue 1,744 3,528 3,489 6,101
--------- --------- --------- ---------
Total revenue 60,223 28,550 89,182 57,044

Operating costs and expenses:
Cost of goods sold 35,731 5,433 43,684 10,688
Exubera(R) commercialization
readiness costs 1,042 2,666 2,084 4,960
Research and development 41,630 35,785 73,031 70,730
General and administrative 26,063 10,135 46,436 19,245
Litigation settlement 17,710 - 17,710 -
Amortization of other
intangible assets 1,259 981 2,623 1,963
--------- --------- --------- ---------
Total operating costs and
expenses 123,435 55,000 185,568 107,586
--------- --------- --------- ---------

Loss from operations (63,212) (26,450) (96,386) (50,542)

Other income (expense), net (1,055) (118) (1,092) (1,403)
Interest income 6,374 2,512 11,256 4,784
Interest expense (4,938) (2,856) (10,080) (5,916)
--------- --------- --------- ---------

Loss before provision for
income taxes (62,831) (26,912) (96,302) (53,077)

Benefit (provision) for income
taxes - - - -
--------- --------- --------- ---------

Net loss $(62,831) $(26,912) $(96,302) $(53,077)
========= ========= ========= =========


Basic and diluted net loss per
common share $ (0.70) $ (0.32) $ (1.08) $ (0.63)

Shares used in computing basic
and diluted net loss per
share 89,697 85,040 89,312 84,875


NEKTAR THERAPEUTICS
Reconciliation of GAAP Financial Measures
to Non-GAAP Financial Measures
( In thousands, except per share information)


Unaudited Unaudited
------------------- -------------------
Three-Months Ended Six-Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------

GAAP net loss $(62,831) $(26,912) $(96,302) $(53,077)

Adjustments to GAAP net loss:

SFAS 123R stock-based
compensation expense,
excluding severance 5,391 - 10,386 -
Litigation settlement 17,710 - 17,710 -
Severance and restructuring
charges 14,820 - 18,883 -
--------- --------- --------- ---------

Non-GAAP net loss (1) $(24,910) $(26,912) $(49,323) $(53,077)
========= ========= ========= =========



GAAP basic and diluted net
loss per common share $ (0.70) $ (0.32) $ (1.08) $ (0.63)

Adjustments to GAAP basic and
diluted net loss per common
share:

SFAS 123R stock-based
compensation expense,
excluding severance $ 0.06 $ - $ 0.12 $ -
Litigation settlement $ 0.20 $ - $ 0.20 $ -
Severance and restructuring
charges $ 0.17 $ - $ 0.21 $ -
--------- --------- --------- ---------

Non-GAAP basic and diluted net
loss per common share (1) $ (0.28) $ (0.32) $ (0.55) $ (0.63)
========= ========= ========= =========

Shares used in computing non-
GAAP basic and diluted net
loss per share 89,697 85,040 89,312 84,875


(1) These non-GAAP financial measures are not presented as a measure
of operating results and should not be construed as an alternative
to either (i) income from operations or (ii) cash flows from
operating activities. The company's management provides these
non-GAAP financial measures to present investors with additional
information that the company's management considers in assessing
the company's results of operations, and to enhance investors'
overall understanding of the company's financial performance.



NEKTAR THERAPEUTICS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)


June 30, December 31,
2006 2005
(unaudited) (2)
----------- ------------

ASSETS

Current assets:
Cash, cash equivalents and short-term
investments $ 475,920 $ 476,201
Inventory 16,247 18,627
Other current assets 80,559 25,015
----------- -----------
Total current assets 572,726 519,843

Investments in marketable securities 15,219 90,222
Property and equipment, net 139,152 142,127
Goodwill 78,431 78,431
Other intangible assets, net 10,539 13,452
Deposits and other assets 11,078 14,479
----------- -----------
$ 827,145 $ 858,554
=========== ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities $ 60,543 $ 53,626
Capital lease obligations - current 562 482
Convertible subordinated notes and
debentures - current 36,026
Deferred revenue - current 17,706 15,487
----------- -----------
Total current liabilities 114,837 69,595

Convertible subordinated notes and
debentures 381,627 417,653
Accrued rent 2,357 2,409
Capital lease obligations 19,975 20,276
Deferred revenue 25,501 8,374
Other long-term liabilities 17,587 13,436

Stockholders' equity:
Preferred stock at par - -
Common stock at par 9 9
Capital in excess of par 1,265,195 1,233,690
Deferred compensation - (2,949)
Accumulated other comprehensive loss (1,409) (1,707)
Accumulated deficit (998,534) (902,232)
----------- -----------
Total stockholders' equity 265,261 326,811
----------- -----------
$ 827,145 $ 858,554
=========== ===========


(2) The balance sheet at December 31, 2005 has been derived from the
audited financial statements at that date but does not include all
of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements.



Supplemental Table

NEKTAR THERAPEUTICS
Reconciliation of Non-GAAP Projected Financial Guidance for 2006
(In millions)


Refer to the discussion of non-GAAP financial measures included in the
accompanying press release for additional information.

2006 Projected
Financial Guidance
--------------------

2006 Exubera-related projected revenue range $ 70 to $ 90
2006 other revenue 100 110
------ ------
2006 projected total revenue range $ 170 to $ 200
====== ======

Projected GAAP net loss $(160) to $(175)

Adjustments to GAAP net loss:

SFAS 123R stock-based compensation expense,
excluding severance related charges 22 22
Litigation settlement 18 18
Severance and restructuring charges 20 20
------ ------

Projected Non-GAAP net loss $(100) to $(115)
====== ======