Item 1. Business

Overview

We are a biopharmaceutical company that develops and enables differentiated therapeutics with our leading PEGylation and pulmonary drug development technology platforms. Our mission is to create differentiated, innovative products by applying our platform technologies to established or novel medicines. By doing so, we aim to raise the standards of current patient care by improving one or more performance parameters, including efficacy, safety or ease of use. Ten products using these technology platforms have received regulatory approval in the U.S. or Europe. Our two technology platforms are the basis of nearly all of our partnered and proprietary product and product candidates.

We create or enable potential breakthrough products in two ways. First, we develop products in collaboration with pharmaceutical and biotechnology companies that seek to improve and differentiate their products. All of the approved products today that use our technology platforms are a result of collaborations with partners. Second, we develop our own product candidates by applying our technologies to already approved drugs to create and develop our own differentiated, proprietary product candidates that are designed to target serious diseases in novel ways. We currently have two proprietary product candidates in mid-stage clinical development and a number of other candidates in preclinical development.

Our two leading technology platforms enable improved performance of a variety of new and existing molecules. Our PEGylation technology is a chemical process designed to enhance the performance of most drug classes with the potential to improve solubility and stability, increase drug half-life, reduce immune responses to an active drug and improve the efficacy or safety of a molecule in certain instances. Our pulmonary technology makes drugs inhaleable to deliver them to and through the lungs for both systemic and local lung applications.

We were incorporated in California in 1990 and reincorporated in Delaware in 1998. We maintain our executive offices at 201 Industrial Road, San Carlos, California 94070, and our main telephone number is (650) 631-3100.

Our Strategy

The two key elements of our business strategy are described below.

Develop a Portfolio of Proprietary Product Candidates That Leverage Our PEGylation and Pulmonary Technology Platforms

We are developing a portfolio of proprietary product candidates by applying our PEGylation and pulmonary technology platforms and know-how to improving already approved drugs. Our strategy is to identify molecules that would benefit from the application of our technologies and potentially improve one or more performance parameters, including efficacy, safety and ease of use. Our objective is to create value by advancing these product candidates into clinical development and then deciding on a product-by-product basis whether we wish to continue development and commercialize on our own or seek a partner or pursue a combination of these approaches. Our most advanced proprietary product candidates are NKTR-102 (PEG-irinotecan) for the treatment of solid tumors, including colorectal cancer, and NKTR-118 (oral PEG-naloxol) for the treatment of opioid-induced bowel dysfunction, both of which entered Phase 2 clinical development in late 2007.

Create and Maintain Our High-Value Partnerships

We have collaborations or licensing arrangements with a number of pharmaceutical and biotechnology companies. Our partnering strategy enables us to work towards developing a larger and more diversified pipeline of drug products and product candidates using our technologies. As we have shifted our focus away from being a

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drug delivery service provider and have researched and developed our proprietary product pipeline, we expect to engage in selecting high value partnerships in order to optimize revenue potential, probability of success and overall return on investment. Our partnering options range from a comprehensive license to a co-promotion and co-development arrangement with the structure of the partnership depending on factors such as the cost and complexity of development, commercialization needs and therapeutic area focus.

Our Technology Platforms

Our technology platforms are designed to improve the performance of new and existing drugs, including both small and macromolecules. Our two technology platforms are described below.

PEGylation technology. Our PEGylation technology is designed to enhance performance of a variety of drug classes, including macromolecules (i.e., biologics) and small molecules and other drugs. PEGylation is a chemical process where polyethylene glycol chains, also known as PEGs, are attached to active drugs to provide them certain unique properties and create a new biologic or chemical entity with a potentially-improved therapeutic profile to the original drug. These properties may include potentially improved drug solubility and stability, as well as potentially increased drug half-life.

Our PEGylation technology has the potential to offer one or more of the following benefits:

Currently our PEGylation technology is used in seven of our partnered products approved in the U.S. and two approved in the EU and Switzerland. Our two lead proprietary products, NKTR-102 (PEG-irinotecan) and NKTR-118 (oral PEG-naloxol) are also based on our small molecule PEGylation technology platform. In addition, we have a number of pre-clinical programs that utilize our PEGylation technology.

Pulmonary technology. Our pulmonary technology includes technologies for drug formulation, powder processing and powder filling and packaging, as well as dry powder inhaler devices and liquid nebulizer devices. The combination of these technologies creates an integrated drug delivery system that delivers therapeutics to the lung for both local lung and systemic delivery. We also have technology to deliver liquid aerosols to the deep lung in an efficient and reproducible manner to treat infections and diseases of the lung. We are currently working with a variety of different dry powder inhalers and different types of proprietary liquid nebulizers.

We believe our pulmonary technology has the potential to offer one or more of the following benefits:

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Our pulmonary technology is being used in one approved product and six product candidates in clinical development, including:

Approved Products and Clinical Pipeline

The following table summarizes select proprietary and partnered products and product candidates, including product candidates in clinical development, products for which a New Drug Application (NDA) or Biologics License Application (BLA) has been filed and products that have received regulatory approval in one or more jurisdictions. The table includes the type of molecule or drug, the primary indication for the product or product candidate and the status of the program. Approval status applies to the U.S. market unless otherwise noted.

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Approved —regulatory approval to market and sell product obtained in the U.S., EU and other countries.

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 —product in clinical trials to establish dosing and efficacy in patients.

Phase 1— product in clinical trials, typically in healthy subjects, to test safety.

* Product launch is on hold pending patent litigation lawsuit in the U.S.

** On November 9, 2007, we entered into a termination agreement and mutual release with Pfizer for Exubera and the next-generation inhaled insulin (NGI) programs. Under the termination agreement, if a new partner for Exubera and/or NGI is identified subject to certain terms, conditions and limitations, Pfizer has agreed to transfer all of its remaining rights in Exubera and NGI to the new partner without additional consideration except for reimbursement of incremental costs incurred by Pfizer.

Nektar Proprietary Product Development Programs

We develop our own product candidates by applying our technologies to already approved drugs to create and develop our own differentiated, proprietary product candidates that are designed to target serious diseases in novel ways. We currently have two proprietary product candidates in mid-stage clinical development and a number of other candidates in preclinical development. Research and development of proprietary products was a key emphasis for us in 2007 and will be a significant part of our business strategy in the future.

Overview of Selected Proprietary Product Development Programs

NKTR-102 (PEG-Irinotecan)

We are developing NKTR-102, a PEGylated form of irinotecan, which was developed by us using our small molecule PEGylation technology. Irinotecan, also known as Camptosar ^® , is a chemotherapeutic agent used for the treatment of solid tumors, including colorectal and lung cancers. By applying our small molecule PEGylation technology to irinotecan, NKTR-102 has the potential to be a more effective and tolerable anti-tumor agent. NKTR-102 entered Phase 2 clinical development in late 2007.

Preclinical studies demonstrated that treatment with NKTR-102 resulted in significant suppression of tumor growth in an irinotecan-resistant mouse colorectal tumor model. Administration of NKTR-102 in an animal model resulted in a significantly improved time-concentration profile for the active metabolite of irinotecan as compared to treatment with irinotecan. As a result, in addition to its potential anti-tumor activity, NKTR-102 may significantly reduce the neutropenia and severe diarrhea associated with irinotecan.

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The Phase 2 clinical program is designed to evaluate the safety and efficacy of NKTR-102 for the treatment of patients with solid tumors. The first study in the program will investigate NKTR-102 in combination with cetuximab as a second-line colorectal cancer treatment in irinotecan-naive patients as compared to treatment with standard irinotecan in combination with cetuximab. The colorectal study is comprised of two sequential stages. The Phase 2a is an open-label, dose-finding trial in multiple solid tumor types that are refractory to standard curative or palliative therapies. The Phase 2b is an open-label, randomized, double-arm study in patients with second-line metastatic colorectal cancer and study participants will be randomized in one of two arms of the trial (1:1) to receive either NKTR-102 and cetuximab or standard irinotecan and cetuximab. The Phase 2b stage is expected to begin in mid-year 2008 and is planned to be conducted in over 40 centers worldwide. The primary endpoint of the Phase 2b trial is progression-free survival. Secondary endpoints include response rate, response duration, overall survival, standard pharmacokinetics and incidence of toxicities, including diarrhea and neutropenia.

NKTR-118 (oral PEG-naloxol)

NKTR-118 is an oral drug that combines our small molecule PEGylation technology with naloxol, a derivative of the opioid-antagonist drug naloxone. The peripheral opioid antagonist NKTR-118 targets opioid receptors within the enteric nervous system, which mediate opioid-induced bowel dysfunction (OBD), a symptom resulting from opioid use that encompasses constipation, bloating, abdominal cramping and gastroesophageal reflux. Opioid-induced constipation (OIC) is the hallmark of this syndrome and is generally its most prominent component. Currently, there are no specific drugs approved or specifically indicated to treat OBD or OIC. NKTR-118 has been studied in two Phase 1 trials evaluating the safety, tolerability and pharmacokinetics of single and repeated dose administration of the drug. NKTR-118 entered Phase 2 clinical development in late 2007.

In preclinical studies, our PEGylation technology has been shown to prevent oral NKTR-118 from crossing the blood-brain barrier, an important potential advance for this therapy. In a single-dose Phase 1 trial, NKTR-118 was shown to reverse the effects of morphine on gastrointestinal transit time at doses that do not reverse a central opiate effect as measured by pupillometry, demonstrating the potential of the drug to relieve constipation while not reversing central analgesic effects.

The Phase 2 clinical trial for NKTR-118 is a multi-center, placebo-controlled, dose-escalation trial. Patients experiencing OIC will be randomized 1:1 to NKTR-118 or placebo in addition to their opioid treatment. Therapy will be administered orally once-daily (QD) over a five-week treatment period. The primary efficacy endpoint of the clinical trial will be the increase from baseline in spontaneous bowel movements per week. Additional endpoints include monitoring of other symptoms of OBD, which will include the patient assessment of constipation symptoms outcomes tool, and other quality of life measures. Maintenance of opioid analgesic effect will be assessed by measuring changes from baseline in mean daily opioid requirements and daily pain scores. Safety and tolerability will be assessed and pharmacokinetics of NKTR-118 will be evaluated. The trial is planned to be conducted in approximately 50 centers in North America and Europe.

Preclinical and Clinical Proprietary Product Development Programs

We have a number of proprietary product candidates in preclinical stages that use either our PEGylation or pulmonary technology. We are also evaluating various other drug candidates, including generically-available drugs and proprietary third-party drugs.

Our Partnered Product Development Programs

We develop products in collaboration with pharmaceutical and biotechnology companies that seek to improve and differentiate their products. All of the approved products today that use our technology platforms are a result of collaborations with partners.

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In a typical collaboration involving our PEGylation technology, we license our proprietary intellectual property related to our PEGylation technology or proprietary conjugated drug molecules in consideration for upfront payments, development milestone payments and royalties from sales of the resulting commercial product as well as sales milestones. We also manufacture and supply PEG reagents to our partners typically on a cost-plus basis.

In a typical collaboration involving our pulmonary technology, we license our intellectual property and provide our pulmonary expertise through contract research support and our partner funds research and development, obtain regulatory approvals and market and sell the approved commercial product. We may also manufacture and supply the proprietary drug formulation or provide for contract manufacturing of our proprietary inhaler devices. Under the terms of our collaboration agreements, we typically receive reimbursement for research and development, development milestone payments and royalties or profit sharing from commercial product sales as well as sales milestones. In addition, we may receive revenue from the clinical and/or commercial manufacture of specialty drug formulations or manufacture and supply of our proprietary inhaler devices.

Overview of Selected Partnered Product Development Programs

Exubera Product and Next-Generation Inhaled Insulin Development Program (NGI) (Formerly Partnered with Pfizer Inc.)

In 1995, we entered into a collaborative development and licensing agreement with Pfizer to develop and market Exubera ^® and, in 2006 and 2007, we entered into a series of interim letter agreements with Pfizer to develop a next generation form of dry powder inhaled insulin and proprietary inhaler device, also known as NGI. In January 2006, Exubera received marketing approval in the U.S. and EU for the treatment of adults with Type 1 and Type 2 diabetes for the control of hyperglycemia. NGI is currently in Phase 1 clinical development. Our total revenue from Pfizer was $189.1 million and $139.9 million, representing 69% and 64% of total revenue, for the years ending December 31, 2007 and 2006, respectively.

Exubera is rapid-acting powder human insulin that is inhaled normally through the mouth into the lungs prior to eating using a handheld Exubera inhaler. The Exubera inhaler weighs four ounces and, when closed, is about the size of an eyeglass case. The Exubera inhaler produces a cloud of insulin powder in its chamber, which is designed to pass rapidly into the bloodstream to regulate the body’s blood sugar levels. In patients with Type 2 diabetes, Exubera can be used alone or in combination with diabetes pills or longer-acting insulin. In patients with Type 1 diabetes, Exubera is used in combination with longer-acting insulin. We developed both the dry powder insulin formulation and inhaler devices for Exubera using our pulmonary technology. Under the collaborative development and licensing agreement, Pfizer had sole responsibility for marketing and selling Exubera. We performed all of the manufacturing of the Exubera dry powder insulin, and through third party contract manufacturers, we manufacture all the Exubera inhalers. Pfizer filled the blisters of dry powder insulin for use in the Exubera inhalers and also packaged the final Exubera product.

On October 18, 2007, Pfizer announced that it was exiting the Exubera business and gave notice of termination under the collaborative development and licensing agreement. On November 9, 2007, we entered into a termination agreement and mutual release with Pfizer. Under the termination agreement and mutual release, we received a one-time payment of $135.0 million in November 2007 from Pfizer in satisfaction of all outstanding contractual obligations under our then-existing agreements relating to Exubera and NGI. In addition, Pfizer agreed to continue to perform a number of maintenance activities for Exubera and NGI for a limited time and to transfer all of its rights to Exubera and NGI if we find a new marketing and development partner within a certain time period, as described more fully below. All agreements between Pfizer and us, other than the termination agreement and mutual release, terminated on November 9, 2007.

On October 18, 2007, in connection with its Exubera announcement, Pfizer notified doctors prescribing Exubera and patients taking Exubera that Exubera would remain available until January 16, 2008, after which

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time Exubera patients would be required to transition to other available glucose lowering therapies. In January 2008, Pfizer notified doctors and patients that it was providing an extended use program to patients on Exubera for a limited time. Pfizer noted that it had limited supplies of Exubera and that, due to expiration dating, Exubera would only be available through September 2008 unless another company begins marketing and developing Exubera in collaboration with us.

We are currently seeking a new marketing and development partner for Exubera and NGI. Under the termination agreement and mutual release, if we identify a potential new marketing and development partner for Exubera and/or NGI within a certain time period, Pfizer will use commercially reasonable efforts to complete an agreement with the potential new partner pursuant to which Pfizer will transfer all of its rights in Exubera and/or NGI to the potential new partner without additional consideration (including without any prospective economic value, such as a royalty or profit sharing), other than reimbursement of certain out-of-pocket and incremental costs actually incurred by Pfizer in relation to maintenance and transfer activities performed by Pfizer. In addition, Pfizer has agreed to undertake a number of activities designed to continue to transition all of its rights in Exubera and NGI to any new partner for at least three months following completion of an agreement with the new partner, if any, or such longer transition period as regulatory requirements may require. If a new partner is identified, Pfizer has agreed to the following transition obligations subject to reimbursement of certain out-of-pocket and actual incremental costs incurred by Pfizer:

For a designated period in the first half of 2008, prior to the time we identify a new partner, if any, for Exubera and/or NGI, Pfizer has also agreed, subject to certain limitations, to undertake certain Exubera and NGI maintenance activities at Pfizer’s cost, unless otherwise agreed, including: (i) maintaining a compassionate patient access program for Exubera, (ii) continuing Phase 4 clinical studies for Exubera, (iii) completing clinical study reports for certain NGI clinical studies and (iv) continuing certain other clinical studies for the NGI program, as agreed to by Pfizer and us, for which we are responsible for out-of-pocket and incremental costs incurred by Pfizer. In the event that a new partner is not selected in the near term or an agreement is not completed promptly thereafter, Pfizer’s obligation to provide the transition assistance and maintenance activities will terminate. We currently expect to conclude whether or not we will have a new partner for Exubera and/or NGI in the first half of 2008.

NKTR-061(inhaled amikacin) (Partnered with Bayer AG)

In August 2007, we entered into a co-development, license and co-promotion agreement with Bayer AG to develop NKTR-061, a specially-formulated amikacin. NKTR-061 is a potentially innovative therapy that utilizes our proprietary liquid aerosol pulmonary technology to deliver a specially formulated amikacin, an aminoglycoside antibiotic, for inhalation deep into the lung. NKTR-061 is under development for the adjunctive treatment of Gram-negative pneumonias that often lead to significant morbidity and mortality. Pursuant to the

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co-development, license and co-promotion agreement, we are entitled to receive research and development milestone payments, royalty payments and/or profit-sharing on product sales and sales milestones if the product candidate is approved and successfully commercialized.

Currently, NKTR-061 is being studied in Phase 2 trials for the adjunctive therapy of ventilated patients with hospital-acquired, Gram-negative pneumonias. The product is expected to enter Phase 3 clinical development in 2008. These pneumonias are a serious problem afflicting patients even in the world’s most advanced clinical settings and are responsible for a significant number of deaths. Increasingly, multi-drug resistant, Gram-negative bacteria have magnified the problem of hospital-acquired infection. Gram-negative pneumonias are commonly seen in patients receiving immunosuppressive therapy, the elderly and patients undergoing major surgical procedures, aspiration, long hospital stays and prolonged mechanical ventilation. Current treatment involves the administration of systemic antibiotics, which produces significant toxicities and results in marginal benefit to the patient.

The NKTR-061 collaboration is Bayer’s second with Nektar. In 2005, Bayer and Nektar agreed to collaborate on the joint development of inhaled Ciprofloxacin as a potential dry powder therapy for treating pseudomonal infections in patients suffering from cystic fibrosis.

Hemophilia Programs (Partnered with Subsidiaries of Baxter International)

We are party to an exclusive research, development, license and manufacturing and supply agreement with Baxter Healthcare SA and Baxter Healthcare Corporation to develop product candidates to extend the half-life of Hemophilia A and B proteins using our PEGylation technology. In December 2007, we expanded our agreement with Baxter to include the license of our PEGylation technology and proprietary PEGylation methods with the potential to improve the half-life of Baxter’s proprietary treatments for Hemophilia B. These PEGylated hemophilia product candidates are in preclinical development. We are entitled to receive research and development funding and milestone payments, as well as royalty payments on product sales, if the product candidate is successfully approved and commercialized. We will supply, and will receive manufacturing revenue for, the PEG reagents used in the products for preclinical, clinical and commercial purposes.

Tobramycin Inhalation Powder (TIP) Program (Partnered with Novartis Pharma AG)

We are party to a collaborative research, development and commercialization agreement with Novartis Pharma AG to develop Tobramycin inhalation powder (TIP) for the treatment of lung infections caused by the bacterium Pseudomonas aeruginosa in cystic fibrosis patients. Novartis’s existing tobramycin product, TOBI ^® (Tobramycin Inhalation Solution), was introduced in 1998 as the first inhaled antibiotic approved for treating such lung infections in cystic fibrosis patients. We are responsible for the development of the powder formulation and pulmonary inhaler, as well as the clinical and commercial manufacturing of the drug formulation and inhaler. Novartis is responsible for the clinical development and worldwide commercialization of the drug formulation and inhaler combination. We have the right to receive research and development funding and milestone payments, as well as royalty payments and manufacturing revenue if the product candidate is successfully approved and commercialized. Two separate Phase 3 clinical trials for TIP were commenced in October 2005 and are continuing.

Ciproflaxin Inhalation Powder Program (Partnered with Bayer AG)

We are party to a collaborative research, development and commercialization agreement with Bayer AG to develop an inhaled powder formulation of a novel form of Ciprofloxacin to treat chronic lung infections caused by Pseudomonas aeruginosa lung infections in cystic fibrosis patients. We are responsible for formulation of the dry powder drug and development of the inhalation system, as well as clinical and commercial manufacturing of the drug formulation and device combination. Bayer is responsible for the clinical development and worldwide

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commercialization of the system. We are entitled to research and development funding, milestone payments as the program progresses through further clinical testing and royalty payments on product sales and manufacturing revenue if the product is commercialized. This product candidate is currently in Phase 2 clinical trials.

CIMZIA(TM) Program (Partnered with UCB.)

We are party to a license, manufacturing and supply agreement for CIMZIA(TM) (certolizumab pegol, CDP870) with UCB. We have the right to receive milestone payments, manufacturing revenue and royalties on product sales if the product candidate is commercialized. We will share a portion of the royalties on this product with Enzon Pharmaceuticals, Inc. pursuant to a license agreement.

In March 2006, UCB filed a Biologics License Application (BLA) with the FDA for CIMZIA for the treatment of Crohn’s disease. Crohn’s disease is a chronic digestive disorder of the intestines commonly referred to as inflammatory bowel disease that affects an estimated 400,000 to 600,000 individuals in the U.S. On December 21, 2006, UCB received a Complete Response Letter from the FDA regarding its BLA submission for CIMZIA. In March 2007, UCB announced that the FDA had raised no major issues or concerns around the safety of CIMZIA but did question the adequacy of dosing in one study. Further, UCB announced that it would initiate a study to address this concern and that it expects the results from this additional clinical study in the second half of 2008.

In April 2006, UCB submitted a Marketing Authorization Application (MAA) to the European Medicines Agency (EMEA) for CIMZIA for Crohn’s Disease. In November 2007, the Committee for Medicinal Products for Human Use (CHMP) in the EU adopted a negative opinion on the MAA in the EU for the treatment of patients with Crohn’s disease. UCB announced that it plans to utilize the appeal process to request a CHMP re-examination of the submission. UCB also announced that it expects a decision during the first half of 2008.

In December 2007, UCB submitted a BLA to the FDA for CIMZIA for the treatment of rheumatoid arthritis. Rheumatoid arthritis is an autoimmune disease that causes chronic inflammation of the joints. The submission was accepted in February of 2008. UCB is also conducting clinical trials on CIMZIA for psoriasis and other indications. The product is in Phase 2 trials for the treatment of psoriasis.

MIRCERA (C.E.R.A.) (Continuous Erythropoietin Receptor Activator) Program (Partnered with Hoffman-La Roche Ltd.)

We are party to a license, manufacturing, and supply agreement with Hoffman-La Roche Ltd. for the license of our proprietary PEGylation reagent to be used in the manufacture of Roche’s MIRCERA product. Under the terms of the agreement, we are entitled to receive milestone payments and manufacturing revenue during development, as well as royalty payments and certain manufacturing revenue if the product candidate is commercialized.

In April 2006, Roche filed a BLA for MIRCERA with the FDA for the treatment of anemia associated with chronic kidney disease, including patients on dialysis or not on dialysis, and an MAA with the EMEA to treat patients with chronic kidney disease. In May 2007, MIRCERA was approved in the EU and the product was subsequently launched by Roche in the EU in August of 2007. In November 2007, the FDA approved Roche’s BLA application for MIRCERA.

MIRCERA is currently the subject of a significant patent infringement lawsuit brought by Amgen Inc. related to Roche’s patents for the use of MIRCERA to treat chemotherapy anemia in the U.S. Amgen prevailed in this patent infringement lawsuit in U.S. federal district court in the state of Massachusetts and the parties are currently litigating the remedy phase. It is uncertain whether Roche will be prevented from marketing and selling MIRCERA in the U.S. or whether an economic settlement with Amgen will be concluded and approved by the court. If Roche is prevented from marketing and selling MIRCERA in the U.S., it will have a material adverse impact on our revenue from MIRCERA.

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Research and Development

We divide our portfolio of ongoing research and development programs into two categories: (1) partnered programs and (2) proprietary programs and platform technology research and development. The costs associated with these categories are as follows (in millions):

These costs include certain allocations of resources shared across our partner programs, including facilities, current good manufacturing practices (cGMP) quality personnel and other shared resources. We have generally allocated these shared costs based on personnel hours.

Our total research and development expenditures can be disaggregated into the following significant types of expenses (in millions):

In connection with our research and development for partner programs, we earned $85.9 million, $56.3 million, and $81.6 million in contract research revenue in the years ended December 31, 2007, 2006, and 2005, respectively.

Manufacturing and Supply

In our partnerships involving both our PEGylation technology and pulmonary technology, our partners typically supply the drug components to which we apply our technology platforms to create, manufacture and supply the PEG reagents or other proprietary drug formulation. For the drug components necessary for our proprietary product development, we have agreements for the supply of such drug components with drug manufacturers that we believe have sufficient capacity to meet our demands.

In our partnerships involving our pulmonary technology, we have typically provided our technology and manufacturing expertise to formulate, manufacture and package the drug powders and used subcontractors to manufacture our proprietary inhaler devices. Although we will continue to perform clinical manufacturing for our partners and to support our proprietary product development programs, our strategy is to focus on drug development and only perform commercial manufacturing activities where we have an existing contractual obligation or where unique manufacturing competencies give us or our partners a comparative commercial advantage.

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With respect to products using our PEGylation technology, we have two manufacturing facilities in Huntsville, Alabama. One is for the manufacture of PEG-derivatives and the other is for the manufacture of active pharmaceutical ingredients (APIs). The latter facility will be used to produce APIs for clinical development for our proprietary product candidates that utilize our PEGylation technology. Both facilities are designed and operated to be in compliance with the guidelines of the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) applicable to APIs (ICH Q7A guidelines).

With respect to products using our pulmonary technology, we operate a drug powder manufacturing and packaging facility in San Carlos, California capable of producing drug powders in quantities sufficient for clinical trials of product candidates utilizing our pulmonary technology. We have developed a high capacity automated filling technology that fills individual discrete sealed dose containers, known as blisters, which seal drug powder from the environment and reduce caking and contamination. We believe our filling technology is capable of filling drug powder blisters on a commercial production scale. In 2006 and 2007, we operated a commercial-scale dry powder manufacturing operation to manufacture and supply Pfizer with bulk dry powder insulin for Exubera. Until the termination of our Pfizer agreements in November 2007, we had licensed this technology to Pfizer to perform commercial filling of dry powder insulin into blisters to be used with the Exubera inhaler. Depending on the success and structure of our future partnering efforts for Exubera and/or NGI, we may continue commercial-scale manufacturing of dry powder insulin in our San Carlos, California facility. This facility has been inspected and licensed by the State of California and is used to manufacture and package powders under current good manufacturing practices (cGMP). The facility received a pre-approval inspection from U.S. and international regulatory authorities and was found acceptable for commercial manufacturing. Our manufacturing facilities are subject to ongoing routine inspection and a continuing obligation to adhere to cGMP.

In February 2008, we terminated our manufacturing and supply agreement with Bespak Europe Ltd. (now Consort Medical plc) and Tech Group North America, Inc., (now West Pharmaceutical Services) two contract manufacturers that manufactured and supplied us with the Exubera inhalers. We have a 2008 continuation agreement with Tech Group to preserve manufacturing capacity and expertise to support a new marketing partner for the Exubera inhaler if we secure a new marketing partner for Exubera within a certain time period and such partner desires to enter into a new manufacturing and supply agreement with Tech Group. Tech Group had successfully implemented our pulmonary device technology, scaled up the manufacturing process to commercial levels and met the requirements of cGMP. Tech Group also received a preapproval inspection from regulatory authorities and was found acceptable for commercial manufacture.

Government Regulation

The research and development, clinical testing, manufacture and marketing of products using our technologies are subject to regulation by the Food and Drug Administration (FDA) and by comparable regulatory agencies in other countries. These national agencies and other federal, state and local entities regulate, among other things, research and development 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 chemical composition 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 previously approved, the process includes the following:

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If the active chemical ingredient has been previously approved by the FDA, the approval process is similar, except that certain preclinical tests relating to systemic toxicity normally required for the IND and NDA or BLA may not be necessary if the company has a right of reference to such data or is eligible for approval under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act.

Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the safety and efficacy of the product and its chosen formulation. Preclinical safety tests must be conducted by laboratories that comply with FDA good laboratory practices (GLP) regulations. The results of the preclinical 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 Biologics Evaluation and Research (CBER) are submitted to the FDA as part of the IND and are reviewed by the FDA before clinical trials can begin. Clinical trials may begin 30 days after receipt of the IND by the FDA, unless the FDA raises objections or requires clarification 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 according to a protocol submitted in the IND for FDA review. Drug products to be used in clinical trials must be manufactured according to current good manufacturing practices (cGMP). Clinical trials are conducted in accordance with protocols that detail the objectives of the study and the parameters to be used to monitor participant 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 must be 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 in the 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 the trial 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 most cases) and the product generally is tested for tolerability, pharmacokinetics, absorption, metabolism and excretion. Phase 2 involves studies in a limited patient population to:

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 the further clinical efficacy and safety of the drug and formulation within an expanded patient population at geographically dispersed clinical study sites and in large enough trials to provide statistical proof of efficacy and tolerability. The FDA, the clinical trial sponsor, the investigators or the IRB may suspend clinical trials at any 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 may determine that Phase 2 trials are not needed prior to entering Phase 3 trials.

Following a series of formal and informal meetings 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 if such 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 labeling may narrowly limit the conditions of use of the product, including the intended uses, or impose warnings, precautions or

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contraindications which could significantly limit 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 management programs. Product approvals, once obtained, may be withdrawn if compliance with regulatory standards is not maintained or if safety concerns arise after the product reaches the market. The FDA may require additional post-marketing clinical testing and pharmacovigilance programs to monitor the effect of drug products that have been commercialized and has the power to prevent or limit future marketing of the product based on the results of such programs. After approval, there are ongoing reporting obligations concerning adverse reactions associated with the product, including expedited reports for serious and unexpected adverse events.

Each manufacturer of drug product for the U.S. market must be registered with the FDA and typically is inspected by the FDA prior to NDA or BLA approval of a drug product manufactured by such establishment. 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 substance controls, among others.

A number of the drugs we are developing are already approved for marketing by the FDA in another form and using another delivery system. We believe that, when working with drugs approved in other forms, the approval process for products using our alternative drug delivery or formulation technologies may involve less risk and require fewer tests than new chemical entities do. However, we expect that our formulations will often use excipients not currently approved for use. Use of these excipients will require additional toxicological testing that may increase the costs of, or length of time needed to, gain regulatory approval. In addition, as they relate to our products, regulatory procedures may change as regulators gain relevant experience, and any such changes may delay or increase the cost of regulatory approvals.

For product candidates currently under development utilizing our pulmonary technology, our pulmonary inhaler devices are considered to be part of a drug and device combination for deep lung delivery of each specific molecule. The FDA will make a determination as to the most appropriate center and division within the agency that will assume prime responsibility for the review of the applicable applications, which would consist of an IND and an NDA or BLA where CDER or CBER are determined to have primary jurisdiction or an investigational device exemption application and PMA or 510(k) where the Center for Devices and Radiological Health (CDRH) is determined to have primary jurisdiction. In the case of our product candidates, CDER in consultation with CDRH could be involved 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 expertise in 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 into one of three classes—Class I, Class II, or Class III—depending on the degree or risk associated with each medical device and the extent of control needed to ensure 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 a Premarket Notification requesting permission to commercially distribute the device. This process is known as 510(k) clearance. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device are placed in Class III, requiring PMA approval.

To date, our partners have generally been responsible for clinical and regulatory approval procedures, but we may participate in this process by submitting to the FDA a drug master file developed and maintained by us which contains data concerning the manufacturing processes for the inhaler device or drug. For our proprietary products, we prepare and submit an IND and are responsible for additional clinical and regulatory procedures for product candidates being developed under an IND. The clinical and manufacturing development and regulatory review and approval process generally takes a number of years and requires the expenditure of substantial

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resources. Our ability to manufacture and market products, whether developed by us or under collaboration agreements, ultimately depends upon the completion of satisfactory clinical trials and success in obtaining marketing approvals from the FDA and equivalent foreign health authorities.

Sales of our products outside the U.S. are subject to local regulatory requirements governing clinical trials and marketing approval for drugs. Such requirements 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 is generally 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 orphan drug 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 Act provides for protocol assistance, tax credits, research grants and exclusions from user fees for sponsors of orphan products. Once a product receives orphan drug exclusivity, a second product that is considered to be the [same] drug for the same indication may be approved during the exclusivity period only if the second 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 patient care” 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 or condition for which the drug was designated.

In the U.S., the FDA may grant Fast Track designation to a product candidate which allows the FDA to expedite the review of new drugs that are intended for serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs. An important feature of Fast Track designation is that it emphasizes the critical nature of close, early communication between the FDA and the sponsor company to improve the efficiency of product development.

In developing the device components for our pulmonary technology, we have sought to develop our quality systems and design engineering function to adhere to the principles of design control for medical devices as set forth in the applicable regulatory guidance. Although our hybrid drug/device products are expected to be reviewed primarily by CDER/CBER, we have sought to adhere to the design control approach both as a good business practice and because it appears that the drug and biologic centers of the FDA and other worldwide agencies are adopting this policy. In Europe, delivery devices are viewed as separate entities subject to review as such under the medical device directive. In the U.S., it is our intention to comply with FDA regulations for devices.

There can be no assurance that products that we develop, including devices designed by us and built by our contract manufacturers, will be approved or meet approval requirements on a timely basis, the failure of which would have a material adverse effect on our business, results of operations and financial condition. There also can be no assurance that any FDA, European Medicines Agency (EMEA) or other international equivalent approval will not impose significant labeling or other limitations that could have a material adverse effect on the revenue potential of the product involved.

Once a product is approved, the failure of the manufacturer, distributor or marketer to adhere to applicable legal and regulatory requirements can result in enforcement action, including seizure, injunctions, criminal or civil penalties and market withdrawal.

Patents and Proprietary Rights

We routinely apply for patents for our innovations and for improvements to our technology platform. We also rely on our trade secrets and know-how to protect our technologies and our competitive position. We plan to defend our proprietary technologies from infringement, misappropriation and duplication through our issued patents, our proprietary know-how and contracts.

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Our patent portfolio contains patents and patent applications that encompass each of our technologies, including our pulmonary technology and our PEGylation technology platforms. As of December 31, 2007, we owned over 220 U.S. and over 1,200 foreign patents. Currently, we have over 200 patent applications pending in the US and over 1,100 pending in other countries. Our PEGylation technology patents and patent applications cover reactive PEG derivatives, PEG-drug conjugates, PEG-based pro-drugs and PEG-drug delivery vehicles. Our pulmonary technology patents and patent applications cover compositions, methods and apparatus for preparing, packaging and delivering particles for pulmonary delivery of both large and small molecule drugs. Although our early PEGylation technology patent applications were filed in the U.S. only, we routinely file patent applications on innovations and improvements in each of these areas on a worldwide basis. In the U.S. and generally throughout the world, the term of a new patent is twenty years from the date on which the application for the patent was filed or, in certain cases, from an earlier date from which the application claims priority, subject to the payment of maintenance fees. In some instances, a patent term may be extended for a patent the issuance of which is delayed due to patent application examining authorities or for a patent covering a regulated product the market approval of which is delayed due to product reviewing regulatory authorities.

With regard to our PEGylation technology patent portfolio, we have filed patent applications directed to activated PEG reagents having a variety of structures and reactive groups, methods of producing highly pure polymer reagents, PEG pro-drugs having hydrolyzable linkages, PEG-based hydrogels and alternative gel systems and PEG conjugates of certain molecules.

Our pulmonary technology patent portfolio relates to pharmaceutical compositions and reagents, medical devices and equipment and methods for preparation, packaging and delivery of our pharmaceutical compositions. This portfolio includes spray drying solutions, emulsions and suspensions to prepare particles of various morphologies. Patents owned by us in these areas cover inhaler devices, formulations for pulmonary delivery and methods for preparing, packaging and using these formulations and particular active agent formulations for delivery via the respiratory tract.

The patent positions of pharmaceutical, biotechnology, medical device and drug delivery companies, including ours, involve complex legal and factual issues. There can be no assurance that patents we apply for will be issued to us or that patents that are issued to us will be valid and enforceable. Even for patents that are enforceable, we anticipate that any attempt to enforce our patents would be time consuming and costly. Additionally, the coverage claimed in a patent application can be significantly reduced before the patent is issued. As a consequence, we do not know whether any of our pending patent applications will be granted with broad coverage or whether the claims that eventually issue, or those that have issued, will be circumvented. Since publication of discoveries in scientific or patent literature often lag behind actual discoveries, we cannot be certain that we were the first inventor of inventions covered by our patents or patent applications or that we were the first to file patent applications for such inventions. Moreover, we may have to participate in interference proceedings in the U.S. Patent and Trademark Office, which could result in substantial cost to us, even if the eventual outcome is favorable. An adverse outcome 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.

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 with certainty 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 partners against any such claims. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability 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 claim of infringement, we or our partners may

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be required to obtain one or more licenses from third parties. There can be no assurance that we can obtain a license to any technology that we determine we need on reasonable terms, if at all, or that we could develop or otherwise obtain alternative technology. The failure to obtain licenses if needed may have a material adverse effect on our business, results of operations and financial condition.

We also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that we can meaningfully protect our trade secrets. Others may independently develop substantially equivalent confidential and proprietary information or otherwise gain access to, or disclose, our trade secrets.

Our ability to develop and commercialize our technologies will be affected by our or our partners’ access to drugs that are to be formulated. Many biopharmaceutical drugs, including some presently under development by us, are subject to issued and pending U.S. and foreign patent rights that may be owned by competing entities. There can be no assurance that we will have access to drug candidates for formulation or that, if such access is provided, 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 that may not be subject to indemnification. Any such restriction on access or liability for damages would have a material adverse effect on our business, results of operations and financial condition.

It is our policy to require our employees and consultants, outside scientific collaborators, sponsored researchers and other advisors who receive confidential information from us to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that 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 and not disclosed to third parties except in specific circumstances. The agreements provide that all inventions conceived by an employee shall be our property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.

Backlog

In our partner programs where we manufacture and supply our proprietary drug formulations or our proprietary pulmonary delivery devices, sales are made pursuant to customer purchase orders for delivery. The volume of drug formulation or pulmonary delivery devices actually purchased by our customers, as well as shipment schedules, are subject to frequent revisions that reflect changes in both the customers’ needs and product availability. In our partner programs where we provide contract research services, those services are typically provided under a work plan that is subject to frequent revisions that change based on the development needs and status of the program. The backlog at a particular time is affected by a number of factors, including scheduled date of manufacture and delivery 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 indicative of future results.

Competition

Competition in the pharmaceutical and biotechnology industry is intense and characterized by aggressive research and development and rapidly-evolving technology. We frequently compete with pharmaceutical companies and other institutions with greater financial, research and development, marketing and sales, manufacturing and managerial capabilities. We face competition from these companies not just in product development but also in areas such as recruiting employees, acquiring technologies that might enhance our ability to commercialize products, establishing relationships with certain research and academic institutions, enrolling patients in clinical trials and seeking program partnerships and collaborations with larger pharmaceutical companies.

We believe that our proprietary and partnered products will compete with others on the market on the basis of one or more of the following parameters: efficacy, safety, ease of use and cost. Competition is intense in each

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of our technology platforms, including non-invasive, and less invasive, delivery of peptides and proteins and improved formulation and delivery of small molecules through pulmonary, oral and injectable means. A number of the products in our pipeline have direct and indirect competition from both drug delivery and biopharmaceutical companies. For each of our technology platforms, we believe we have competitive advantages relating to factors such as efficacy, safety, ease of use and cost for certain applications and molecules. We constantly monitor the technological and product advancements of our partners and attempt to develop in-house technologies, or license or acquire technologies, to improve and keep our own technology platforms competitive.

In the PEGylation technology field, our competitors include The Dow Chemical Company, Enzon Pharmaceuticals, Inc., SunBio Corporation, Mountain View Pharmaceuticals, Inc., Neose Technologies, Inc., NOF Corporation and Urigen Pharmaceuticals, Inc. Several other chemical, biotechnology and pharmaceutical companies may also be developing PEGylation technologies. Some of these companies license or provide the technology to other companies, while others develop the technology for internal use.

In the pulmonary technology field, our competitors include Alexza Pharmaceuticals, Inc., Alkermes, Inc., Aradigm Corporation, 3M Company, MannKind Corporation, Microdose Technologies, Inc., Pari Pharma, Respironics, Inc., SkyePharma Plc and Vectura Group Plc.

Product and Program Specific Competition

Exubera (dry powder inhaled insulin)

There are currently no approved pulmonary insulin products in the U.S. or the EU other than Exubera, but several direct competitors have development programs underway for inhaled insulin products, including Alkermes, Inc. in collaboration with Eli Lilly and Company, MannKind Corporation, Epic Pharmaceuticals (PTY) LTD, Abbott Laboratories and Baxter Healthcare SA. All of these companies are working on various versions of inhaled insulin products in either a liquid or dry powder form. Any of these products, if approved, could be competitive with Exubera or our next-generation inhaled insulin product (NGI) candidate. Some of our competitors’ products are in Phase 3 clinical development, including Alkermes’ inhalable insulin product (AIR Insulin System™) in collaboration with Eli Lilly and Mannkind’s Technosphere ^® Insulin System. We believe other smaller companies are developing oral or buccal products for insulin delivery, such as Biocon Ltd., Emisphere Technologies, Inc., CoreMed Corporation and Generex Biotechnology Corporation. Inhaled insulin products also compete with approved injectable insulins, including both fast-acting and longer-acting basal insulins, as well as other treatment modalities for diabetes, including oral agents and other injectable products approved for patients with Type 2 diabetes, such as Amylin Pharmaceuticals, Inc.’s Byetta.

NKTR-061(inhaled amikacin)

There are currently no approved drugs on the market for adjunctive treatment or prevention of Gram-negative pneumonias in mechanically ventilated patients which are also administered via the pulmonary route. The current standard of care includes approved intravenous antibiotics which are partially effective for the treatment of either hospital-acquired pneumonia or ventilator-associated pneumonia in patients on mechanical ventilators. These drugs include drugs that fall into the categories of antipseudomonal cephalosporins, antipseudomonal carbepenems, beta-Lactam/beta-lactamase inhibitors, antipseudomonal fluoroquinolones, such as Ciprofloxacin or levofloxacin, and aminoglycosides, such as amikacin, gentamycin or Tobramycin.

NKTR-118 (oral PEG-naloxol)

There are no products approved specifically for the treatment of opioid-induced constipation (OIC) or opioid bowel dysfunction (OBD). Current therapies utilized to treat OIC and OBD include over-the-counter laxatives and stool softeners, such as docusate sodium, senna and milk of magnesia. These therapies do not address the underlying cause of constipation as a result of opioid use and are generally viewed as ineffective or only partially effective to treat the symptoms of OID and OBD.

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There are a number of companies developing potential products which are in various stages of clinical development and are being evaluated for the treatment of OIC and OBD in different patient populations. Potential competitors include Adolor Corporation, GlaxoSmithKline, Progenics Pharmaceuticals, Inc., Wyeth, Mundipharma Int. Limited, Sucampo Pharmaceuticals and Takeda Pharmaceutical Company Limited.

NKTR-102 (PEG-irinotecan)

There are a number of chemotherapies and cancer therapies approved today and in clinical development for the treatment of colorectal cancer. Approved therapies for the treatment of colorectal cancer include Eloxatin, Camptosar, Avastin, Erbitux, Vectibux, Xeloda, Adrucil and Wellcovorin. These therapies are only partially effective in treating the disease. There are a number of drugs in various stages of preclinical and clinical development from companies exploring cancer therapies or improved chemotherapeutic agents to potentially treat colorectal cancer. If these drugs are approved, they could be competitive to NKTR-102. These include products in development from BMS, Pfizer, GlaxoSmithKline, Antigenics, Roche, Novartis, Cell Therapeutics, Neopharm, Meditech Research, Enzon Pharmaceuticals and others.

Environment

As a manufacturer of drug products for the U.S. market, we are subject to inspections by the FDA for compliance with cGMP and other U.S. regulatory requirements, 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 to incur, significant expenditures to ensure we are in compliance with these laws and regulations. We would be subject to significant penalties for failure to comply with these laws and regulations.

Employees and Consultants

As of December 31, 2007, we had 575 employees, of which 469 employees were engaged in research and development, commercial operations and quality activities and 106 employees were engaged in general administration and business development. 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 relations with our employees.

To complement our own expertise, we utilize specialists in regulatory affairs, pulmonary toxicology, process engineering, manufacturing, quality assurance, device design, clinical trial design and business development. These individuals include certain of our scientific advisors as well as independent consultants.

Available Information

Our 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 of charge, on or through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities Exchange Commission (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 contains reports, proxy and information statements and other information regarding our filings at www.sec.gov .

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Howard W. Robin has served as our Director, President and Chief Executive Officer since January 2007 and was appointed as a member of our Board of Directors in February 2007. Mr. Robin served as Chief Executive Officer, President and director of Sirna Therapeutics, Inc., a clinical-stage biotechnology company pioneering RNAi-based therapies for serious diseases and conditions, from July 2001 to November 2006 and served as their Chief Operating Officer, President and Director from January 2001 to June 2001. From 1991 to 2001, Mr. Robin was Corporate Vice President and General Manager at Berlex Laboratories, Inc., the U.S. pharmaceutical subsidiary of the German pharmaceutical firm Schering AG, and, from 1987 to 1991, he served as their Vice President of Finance and Business Development and Chief Financial Officer. From 1984 to 1987, Mr. Robin was Director of Business Planning and Development at Berlex and was a Senior Associate with Arthur Andersen & Co. prior to joining Berlex. Since February 2006, Mr. Robin has served as a member of the Board of Directors of Acologix, Inc., a biopharmaceutical company focused on therapeutic compounds for the treatment of osteo-renal diseases. He received his B.S. in Accounting and Finance from Farleigh Dickinson University in 1974.

John Nicholson has served as our Senior Vice President and Chief Financial Officer since December 2007. Prior to such appointment, since October 2007, Mr. Nicholson served as our Senior Vice President of Corporate Development and Business Operations. Before joining Nektar, Nicholson spent 18 years in various executive roles at Schering Berlin, Inc., the U.S. management holding company of Bayer Schering Pharma AG, a pharmaceutical company. From 1997, he served as Schering Berlin Inc.’s Vice President of Corporate Development and Treasurer. Since 2001, he served concurrently as the President of Schering Berlin Insurance Co., and since 2007, he served concurrently as President of Bayer Pharma Chemicals Co. and Schering Berlin Capital Corp. Mr. Nicholson holds a B.B.A. from the University of Toledo.

Hoyoung Huh, Ph.D has served as the Chief Operating Officer, Head of the PEGylation Business Unit since May 2007, responsible for the Company’s worldwide business development, marketing and manufacturing and leading Nektar’s PEGylation business. From March 2005 to May 2007, he served as our Senior Vice President of Business Development and Marketing. From September 1997 to February 2005, Dr. Huh was a leader in the healthcare and biotechnology practice at McKinsey and Company, a management consulting firm, where he was elected partner in 2003. He currently serves on the Board of BayBio, a biotechnology industry association. Dr. Huh holds an M.D. from Cornell University Medical College, a Ph.D. in Genetics and Cell Biology from the Cornell University/Sloan Kettering Institute and an A.B. in Biochemistry from Dartmouth College. On February 8, 2008, Dr. Huh resigned from his positions with Nektar, effective as of February 29, 2008. On February 11, 2008, the Board of Directors met and appointed Dr. Huh as a new director to fill the vacancy created by resolution of the Board of Directors at the same meeting to increase the authorized number of directors from 10 to 11. Dr. Huh will serve until the 2009 annual meeting of stockholders or until his successor is duly elected and qualified.

Nevan C. Elam has served as our Senior Vice President, Head of the Pulmonary Business Unit since April 2007. Mr. Elam joined Nektar in January 2005 as the Senior Vice President, Corporate Operations, General Counsel and Secretary. From October 2000 to December 2004, Mr. Elam held various senior management and

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advisory positions, including Chief Financial Officer and Vice-President of Business Development at E2open, Inc., a global on-demand enterprise software company. Prior to his management roles at E2open, Mr. Elam was a partner in the corporate practice of the law firm of Wilson Sonsini Goodrich & Rosati, where he worked for eight years. Mr. Elam received his J.D. from Harvard Law School and a B.A. from Howard University.

John S. Patton, Ph.D. , our co-founder, has served as a Director and our Chief Scientific Officer since November 2001 and as a member of our Board of Directors since July 1990. Dr. Patton is also a director of Halozyme Therapeutics, Inc., a biopharmaceutical company. Dr. Patton served as our Vice President, Research from December 1991 to November 2001. He served as our President from our incorporation in July 1990 to December 1991. From 1985 to 1990, Dr. Patton was a Project Team Leader with Genentech, Inc., a biotechnology company, where he headed their non-invasive drug delivery activities. Dr. Patton was on the faculty of the Marine Science and Microbiology Departments at the University of Georgia from 1979 through 1985, where he was granted tenure in 1984. Dr. Patton received a B.S. in Zoology and Biochemistry from Pennsylvania State University, an M.S. from the University of Rhode Island and a Ph.D. in Biology from the University of California, San Diego and completed post doctorate fellowships from Harvard Medical School and the University of Lund, Sweden, both in Biomedicine.

Gil M. Labrucherie has served as our Senior Vice President, General Counsel and Secretary since April 2007, responsible for all aspects of our legal affairs. Mr. Labrucherie served as our Vice President, Corporate Legal from October 2005 through April 2007. From October 2000 to September 2005, Mr. Labrucherie was Vice President of Corporate Development at E2open. While at E2open, Mr. Labrucherie was responsible for global corporate alliances and merger and acquisition activity. Prior to E2open, he was the Senior Director of Corporate Development at AltaVista Company, an Internet search company, where he was responsible for strategic partnerships and mergers and acquisitions. Mr. Labrucherie began his career as an associate in the corporate practice of the law firm of Wilson Sonsini Goodrich & Rosati and Graham & James (DLA Piper Rudnick). Mr. Labrucherie received his J.D. from the University of California Boalt Hall School of Law and a B.A. from the University of California Davis.

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