Good day and thank you for standing by. Welcome to the Nektar Therapeutics Third Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Vivian Wu. Please go ahead.

Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. With us on the call are Howard Robin, our President and CEO; Dr. Jonathan Zalevsky, our Chief of Research and Development; Dr. Mary Tagliaferri, our Chief Medical Officer; and Jennifer Ruddock, our Chief Business Officer. Unfortunately, Sandra Gardiner, our acting Chief Financial Officer was not able to make it on today's call due to an unexpected family emergency. On today's call, we expect to make forward-looking statements regarding our business, including statements regarding the therapeutic potential of and future development plans for drug candidates and research programs. The timing of the initiation of clinical studies and the availability of clinical data for drug candidates, the timing and plans for future clinical data presentations, the formation, future development plans or success of our collaboration agreements, the expectations following our corporate restructuring and reorganization, financial guidance and certain other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to uncertainties and risks that are difficult to predict, many of which are outside of our control. Our actual results may differ materially from these statements. Important risks and uncertainties are set forth in our Form 10-Q that was filed on August 9, 2023, which is available at sec.gov. We undertake no obligation to update any of these forward-looking statements, whether as a result of new information, future developments or otherwise. A webcast of this call will be available on the IR page of Nektar's website at nektar.com. With that said, I would like to hand the call over to our President and CEO, Howard Robin. Howard?

Thank you, Vivian, and thank you all for joining us today. In the third quarter, we made substantial progress in advancing our development programs. First, on REZPEG, we're pleased to say that we began initiating our first clinical sites in October for the Phase 2b trial of REZPEG in patients with atopic dermatitis. We expect the first data from this study on the primary endpoint of EASI reduction over the 16-week induction period sometime in the first half of 2025. The strength of our data from the randomized Phase 1b study gives us much optimism that we will be successful in the Phase 2b study. These data were recently presented at the 2023 EADV meeting in an oral late-breaking news plenary session, and JZ will summarize some of the new data presented later on in this call. But importantly, we observed a consistent benefit with monotherapy REZPEG across multiple clinical efficacy endpoints and patient-reported outcomes. As Dr. Silverberg mentioned in his plenary talk, the Phase 1b trial of REZPEG is the first randomized placebo-controlled study to offer an exciting proof of concept for the important role of T regulatory cells in treating autoimmune disease. And it was exciting to see that this benefit was maintained for many patients through 36 weeks after treatment ended. This substantial benefit observed with REZPEG could eliminate the need for frequent maintenance dosing for patients with atopic dermatitis, and it positions REZPEG with its novelty regulatory cell mechanism as a potential new treatment option, which could be highly disruptive in the biologic treatment landscape for atopic dermatitis. The biologic market for atopic dermatitis is a multibillion dollar market and growing. This landscape includes many IL-13-based mechanisms, which overlap with one another. And REZPEG offers the unique promise of a new mechanism in this landscape and…

Thank you, Howard. Starting off with our lead immunology program, REZPEG. As Howard stated earlier, this program is uniquely positioned as the most advanced IL-2-based Treg mechanism in the clinic and has potential in multiple autoimmune diseases, including our current focus areas of atopic dermatitis and alopecia areata. Last month, Dr. Jonathan Silverberg presented compelling data for REZPEG from the Phase 1b trial in atopic dermatitis during a late-breaking abstract session at the 2023 EADV congress. This presentation of the final study results for that trial highlighted the potential of REZPEG for the treatment of atopic dermatitis. Through the 12-week induction period, REZPEG demonstrated dose-dependent efficacy across both physician-assessed and patient-reported efficacy measurements, reaching statistical significance across many of these measures. Importantly, we are encouraged by the extended durability seen for REZPEG, long after the completion of the 12-week induction period. Many patients maintain durable disease control for an additional 36 weeks after the end of dosing. And this type of extended disease control after the end of dosing is not observed for Dupilumab or for JAK inhibitors. Time to response was rapid with over 40% of atopic dermatitis patients, achieving EASI 75 by week three after only two doses of REZPEG at the highest dose level. REZPEG's rapid onset of action, rivals that of JAK inhibitors, which have outperformed Dupilumab in head-to-head studies to date in this regard. Durability of the EASI 75 response was also observed with approximately 70% of EASI 75 responders maintaining their response for 36 weeks after the end of the 12-week induction period. This is a very exciting result and suggests that REZPEG has the potential to be the first immunotherapy for atopic dermatitis. Additionally, REZPEG was well tolerated and treatment with REZPEG did not induce antidrug antibodies in patients, which has been reported…

Thank you, JZ. Moving to NKTR-255, we are continuing our work with NKTR-255 while we evaluate strategic partnering pathways. We believe there is a potential broad application for NKTR-255 to enhance the efficacy of cellular therapies. And to that end, as Howard mentioned earlier, we are pleased to have recently announced our new clinical study collaboration with a leading cell therapy company, Cellular Biomedicine Group to evaluate NKTR-255 in combination with their TIL therapy known as C-TIL051. The study, which is being conducted by and fully funded by CBMG is in advanced non-small cell lung cancer patients who do not respond to anti-PD-1 therapy. With few treatment options for these individuals, we are excited about the potential for this regimen to help patients. Preclinical and early clinical data suggest that IL-15 can improve proliferation and persistence of cellular therapies, such as TIL to increase specific anti-tumor activity. The first investigator site is at Duke University, with a leader in the lung cancer research field, Dr. Scott Antonia. Positive data from this study could lead to exploration of a pathway for accelerated approval by our partner, CBMG. Our other studies are continuing in cell therapy, and we expect that we could see data reported next year from these trials, including the Phase 2 JAVELIN Bladder Medley Study, which is being conducted and funded by our partner, Merck KGaA. Because of its unique potential as a combination agent with cell therapies and other mechanisms, we are exploring the best partnering and development path for continued development of NKTR-255. And with that, I will turn the call over to Jennifer for a review of our financial guidance. Jennifer?

Thank you, Mary, and good afternoon, everyone. We ended the third quarter with $373 million in cash and investments with no debt on our balance sheet. We now expect to end this year with at least $320 million in cash and investments, slightly higher than our prior projection of $315 million. As we had previously announced earlier this year, we reduced our San Francisco-based workforce by approximately 60% and this personnel reduction represents approximately $30 million a year in operating expense reduction. The costs related to the restructuring were substantially paid in June. We will fully realize annual savings in 2024 as a result of this restructuring. And our financial position remains strong with a cash runway that extends into the middle of 2026. Importantly, this runway will take us through several key value-generating milestones for our pipeline. In Q3, we recorded a $10 million non-cash impairment charge for real estate leased assets in San Francisco, which contributed $0.05 to our net loss per share in the quarter. As a result, for the full year, we now expect to recognize restructuring, impairment and costs of terminated programs of approximately $50 million to $55 million, which includes $37 million of non-cash impairment charges recognized through the first nine months of 2023. There is more detail on this in our Form 10-Q, which is being filed this afternoon. We now expect G&A operating expense for the full year of 2023 to be between $80 million and $85 million, which includes approximately $15 million to $20 million of non-cash depreciation and stock comp expense. Our GAAP revenue for full-year 2023 is still expected to be between $80 million and $90 million. This revenue includes $65 million to $70 million in non-cash royalties and $15 million to $20 million in product sales. We anticipate full-year GAAP R&D operating expenses will range between $105 million and $115 million, which includes approximately $15 million to $20 million of non-cash depreciation and stock comp expense. Our full-year non-cash interest expense is expected to be between $20 million and $25 million. As I stated earlier, we expect to end this year with at least $320 million in cash and investments. And with that, we will now open the call for questions. Crystal?

[Operator Instructions] And our first question will come from Jay Olson from Oppenheimer. Your line is open.

Hi, congrats on the progress, and thanks for providing this update. Can you talk about the Phase 2b trial in atopic dermatitis? And congrats on the initiation of that study. Can you just talk about the feedback you're hearing from investigators? When do you expect to provide some guidance on enrollment rates? And when do you expect to complete recruiting for that study?

Yes, Thanks Jay. I'm going to ask Mary as she's been meeting with a lot of these investigators over the past couple of months to comment on that. Mary?

Thank you, Jennifer. And thank you Jay for asking the question. We recently attended EADV in Berlin, and we were able to meet with 30 different investigators, mostly from Europe. And we're going to recruit this trial at 100 different clinical sites in the United States, Canada, Europe and Australia. And I can tell you that the investigators are very excited about REZPEG, the mechanism of action and its application in atopic dermatitis. The presentation that Dr. Jonathan Silverberg made was very well attended and very well received. And Jonathan Silverberg mentioned that for many years, we've known the importance of T regulatory cells, but we had never seen any data from a drug that actually expands T regulatory cells to improve dermal indications such as atopic dermatitis and with an 83% reduction in the mean EASI score from baseline, this was what he calls best in industry. So there is a widespread enthusiasm from the investigators. I will tell you that a couple of other things that are very compelling about our clinical trial are the following. Number one, we have a very good safety profile. Our drug is highly tolerable, and we've now shown that in roughly 600 patients. Number two, they really like the idea in the maintenance setting that we're going to evaluate a monthly and a 3-monthly maintenance regimen. And number three, the fact that their patients are going to be able to continue to receive REZPEG beyond the induction period of 16 weeks is very attractive to their patients and to the investigators as well. So we feel that we will absolutely be able to deliver this trial on track and on time with data -- topline data available in the first half of 2025. I hope that answers your question.

Super helpful. Thank you so much for the details. Yes, and we'll look forward to future updates. On the Phase 2b study of REZPEG and alopecia areata, can you just talk about how you're thinking about dosing? And then what's the bar there to initiate a Phase 3 study? And how will you compare the performance of REZPEG with recently approved oral drugs in alopecia?

Mary or JZ, would you like to take that?

Sure. I'm happy to address that. So the JAK inhibitors, as you know, are efficacious. We see an effect after roughly 36 weeks of treatment. There are, as you know, many problems with JAK inhibitors. One, when you stop taking the JAK inhibitors, patients very rapidly lose their hair. And of course, you're well aware that their black box warning with the JAK inhibitors. We very closely looked at the baricitinib data, and we believe if we have efficacy similar to baricitinib, but don't accompany two things: one, a rapid loss of hair after cessation of treatment or the ability to have, again, just like we're looking at in atopic dermatitis, a maintenance regimen that is far more convenient and favorable for the patient, we believe that a biologic would have great appeal in the area of alopecia areata. We are going to look at two different doses versus placebo and we will evaluate this at 36 weeks. And again, I think, analogous or better efficacy than has been seen with the JAK inhibitors with an improved safety profile, tolerability profile and without accompanying black box warnings would make REZPEG highly competitive in this space.

Great, thank you for the super comprehensive responses, and congrats again on all the progress.

Thank you very much, Jay.

[Operator Instructions] And our next question will come from Chris Shibutani from Goldman Sachs. Your line is open.

Hi, everyone. This is Charlie on for Chris. Thanks so much for taking our questions. Congrats on the progress as well. Just couple of quick ones from us. First, on the NKTR-255 plans for strategic partnership. Wondering if there's any update on the expected time line for that partnership? I know year-end '23 was the previous target, I'm wondering if that was still the case or if we had a new time line in mind at this point? And then on the subsequent pipeline with the TNFR2 IND coming next year, wondering if there's any update on the PEG-CSF1 program and whether we should expect an IND from that program more on the 2025 sort of scale? Thank you.

So I'm going to have Howard take the first part of that question on NKTR-255. And then JZ, will you take the question on the preclinical program.

So, yes, sure. Good question. Look, NKTR-255 is a potentially very exciting program. We're talking to a number of companies. You see that we just completed a collaboration with CBMG in combination with TIL therapy, we have a collaboration with Merck KGaA in bladder cancer. So there's a lot going on with NKTR-255. We also have our own study running at the Fred Hutchinson Cancer Center in cell therapy. So there are companies that are interested. I think as -- we would like to complete a strategic collaboration for NKTR-255. Our focus as a company is in immunology now, although I think this is a very exciting asset. And I can't give you specifics as to when and how a collaboration will get done, but we're making great progress there. And as you can see with the CBMG collaboration, we've just added another exciting potential application for NKTR-255. So we'll keep you posted. I don't know that it's going to be end of this year or next year, can't say for sure. But clearly, we're focused on that, and I do think it will get done. JZ, would you handle the PEG-CSF1 question?

Certainly. Yes. Thanks for the question. So at this time, we've really prioritized our efforts on the TNFR2 program and that's really for a couple of reasons. The first is that TNFR2 builds on a complementary pathway around Treg targeting that's distinct from the IL-2 pathway that REZPEG engages. So, for example, you know that TNFR2 as a TNF superfamily member is really one of the strongest signals that induces NF-kappa B thin cells like Tregs, and it's also one of the strongest signals for controlling FoxP3 expression, which is a critical enzyme for both suppressive and differentiated and strong Treg responses, right? The loss of FoxP3 causes de-differentiation of Tregs. So it's really a target that's very, very hot at this time. It's really built off of what we know and have learned through our deep experience with REZPEG and the Treg field. And it also lets us leverage all that knowledge and advance our prioritized efforts into TNFR2. And so that's where we're really focused at this time. The PEG-CSF program, we will work on in the future, but it's really TNFR2 where we're focused on right now. I'll also say that as we've had the opportunity to discuss that program with some other outside entities, we have received a lot of interest around the program. We're finding many companies like pharmas and large biotechs and others that have really allocated time for TNFR2 into their strategy. So much is known around TNF inhibition with drugs like HUMIRA, golimumab, infliximab, Enbrel and so on that have had such a profound effect on rheumatology. And through that period of time, we've understood about the TNFR1, TNFR2 receptor access and what's missing, when you just block all TNFRs, the signaling, which includes also blocking the TNFR2 pathway. So this is something that we're very excited about. We like all of the interest and where we're really prioritizing our energy. We're very excited that we're on track. We're moving into our cell line stage, paving into the manufacturing setting. And we're on track to be submitting our IND next year in 2024 for that program.

Great. That's helpful. Thank you all so much.

Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Howard Robin for any closing remarks.

Well, thank you, everyone, for joining us today, and we remain focused on executing on the development of REZPEG and our immunology-focused research programs. And I think we have a clearly defined path forward. I'd like to thank all of our employees for their efforts and their hard work, and I want to thank our shareholders for their continued support. So we look forward to providing you with updates on our progress. Stay tuned, and thanks for joining us today.

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