Good day, and thank you for standing by. Welcome to the Nektar Therapeutics First Quarter 2024 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 Chief Executive Officer; Dr. Jonathan Zalevsky, our Chief Research and Development Officer; 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 for 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-K that was filed on March 5, 2024, which is available at sec.gov. We undertake no obligation to update any of these forward-looking statements, whether as a result of information, future developments or otherwise. A webcast of this call will be available on the IR page of Nektar's website at nektar.com. Before turning over the call to Howard, I would like to note that our team is dialing in for different locations and that Howard will be moderating the Q&A session for our team, so we can avoid technical issues during the session. We appreciate your patience. With that said, I would like to hand the call over to our President and CEO, Howard Robin. Howard? .

Thank you, Vivian, and thank you all for joining us today. We've begun 2024 with positive momentum as we continue to build a best-in-class pipeline focused on immunology and inflammation. One of our key goals is to address the underlying deficiency in regulatory T cells, which underlie a range of serious immune disorders. We have several key immunology targets in first-in-class mechanisms in our pipeline, including our lead program, REZPEG, as well as a new TNFR2 agonist, NKTR-0165, both of which target immune-resolving pathway. In the first quarter, we continued to make significant advancements with our REZPEG program. As you know, we're evaluating REZPEG in a Phase IIb study in moderate to severe atopic dermatitis which started last year, and the study is currently enrolling patients worldwide. I'm pleased to report today that the study enrollment is on track to report topline data from the study's 16-week induction period in the first half of 2025. There are approximately 30 million people in the U.S. alone living with atopic dermatitis, and half of these patients are diagnosed with moderate to severe disease. Biologic treatments in atopic dermatitis represent a multibillion-dollar market that continues to grow. And we're excited that REZPEG could become a highly differentiated treatment for atopic dermatitis a disease that still has a high unmet need for safety and durable treatment options. We believe REZPEG has the potential to be a significant advancement in the treatment of atopic dermatitis. The new and corrected data from the Phase Ib study we reported at the EADV conference last year, showed a dramatic drop of 83% in EASI scores over 12 weeks of treatment. Notably, the study also showed that REZPEG resulted in durable responses, 36 weeks after treatment ended, opening up the potential for REZPEG to have an immunomodulatory effect. This…

Thank you, Howard. Beginning with REZPEG, this program is the most advanced IL-2 T reg mechanism in the field. In the setting of atopic dermatitis, there are 3 important issues that patients with this disease continue to face. First, there is a need for more efficacy, a greater magnitude of response and rapid onset of treatment. For example, only about half of patients treated with IL-13 based biologics achieved a meaningful clinical benefit. Second, patients lack durable responses and therapy free remission. Once current therapies are discontinued, patients rebound rapidly. And third, treatments with tolerable long-term safety profiles are lacking. This is especially important given the chronic nature of the disease and the need for continuous dosing. We believe there are major opportunities in this disease state that REZPEG could potentially address. In our Phase Ib data in atopic dermatitis, REZPEG demonstrated dose-dependent efficacy and encouraging durability seemed long after the patients completed the 12-week induction period. In fact, for both patient-reported outcomes and physician-assessed endpoint, we observed the same trend, rapid onset of effect, dose-dependence and long durability of control. Additionally, REZPEG was well tolerated and treatment with REZPEG did not induce antidrug antibodies in patients, which has been reported with some examples in the IL-2 mutein class. We are looking forward to publishing in a peer review journal this year, new translational biomarker data from the study, along with the clinical and safety data from atopic dermatitis and psoriasis. The rapid onset of action and the type of extended disease control after the end of dosing, rivals are outperformed that of Dupilumab or JAK inhibitors. These promising data have us and KOLs very enthusiastic about the potential for long-lasting responses and infrequent maintenance dosing with REZPEG and atopic dermatitis. Enrollment is progressing on track in our Phase IIb…

Thank you, JZ, and good afternoon, everyone. We ended the quarter with $326 million in cash and investments with no debt on our balance sheet. Our financial position remains strong, and we still plan to end 2024 and with $200 million to $225 million in cash and investments. This cash guidance includes a $30 million private placement of prefunded warrants completed in Q1 and a $15 million cash payment from an amendment of the 2020 agreement with Healthcare Royalty also completed in Q1. Our cash runway now extends well into the third quarter of 2026, which will take us through several key data milestones including, of course, the top line data from the Phase II REZPEG studies. I'll now briefly review our quarterly financials and reiterate our financial guidance for 2024. Our revenue was $21.6 million for the first quarter of 2024. We still expect our revenue for the full year to be between $75 million and $85 million, which includes $55 million to $65 million in noncash royalties and $20 million to $25 million in product sales. R&D expense for the first quarter of 2024 was $27.4 million, and we still anticipate full year R&D expense to range between $120 million and $130 million. G&A expense in Q1 was $20.1 million. We continue to expect G&A expense for the full year to be between $70 million and $75 million. And our 2024 noncash interest expense guidance also remains unchanged and is expected to be between $20 million and $25 million. Our net loss for the first quarter of 2024 was $36.8 million or $0.19 per share. I will note that the loss per share reflects the increase in weighted average shares outstanding during the first quarter as compared to a year ago. The increase is primarily related to the effect of the [ pipe ] financing in March and is partially offset by the effect of the shares we repurchased from Bristol-Myers in February. Both of these items will be fully reflected in the calculation of weighted outstanding shares at the end of the second quarter. And as I mentioned earlier, we still plan to end 2024 with $200 million to $225 million in cash and a runway that extends well into the third quarter of 2026. And with that, we'll now open the call for questions. Crystal?

[Operator Instructions] And our first question will come from Jay Olson from Oppenheimer.

Congrats on all the progress. Can you talk about the enrollment progress for REZPEG in both AD and AAA? And how is the enrollment tracking with your internal projections?

Yes. I'll let Mary answer that in detail. Our enrollment is going perfectly according to plan, but I'll let Mary explain it in a little more detail. Go ahead, Mary.

Thanks, Howard, and thank you, Jay, for the question. So just to remind you, in October of last year, we started our Phase IIb study, where we plan to enroll 400 patients with moderate very atopic dermatitis, and these patients are all biologic naive. And as both Howard and JZ mentioned on this call, we are absolutely on track to have our top line data from the 16-week induction period in the first half 2025. The study is enrolling as expected, and the trial is currently open for enrollment in the United States, Canada, Australia and Europe. The feedback we've received from our investigators is that they're very excited to evaluate REZPEG given the novel mechanism of action to boost T regs. The investigators also like the compelling data in atopic dermatitis that was presented by Dr. Jonathan Silverberg, at EADV last year. As Howard and JZ have mentioned that Phase Ib showed that REZPEG had the 83% reduction in mean percent change in EASI. And with just a small sample size we reached statistical significance compared to placebo. So the doctors are also very excited about the powerful efficacy. They, as practitioners are very familiar with the real world evidence showing the lack of durability when they treat their patients with DUPIXENT. And it's shown in the literature that 79% of patients that discontinue DUPI boost their disease control after an average of 4 months off treatment. So the practicing dermatologists greatly appreciate the remitted effect that JZ was talking about and the durability of responses that we saw off treatment for 9 months in the patients that were dosed in the Phase Ib. 'll just say, finally, the staff at these sites as well as the investigators also really appreciate that REZPEG has a very well-tolerated safety profile. And so moving over to alopecia. It was in March when we started the Phase IIb trial, as JZ mentioned, we're going to evaluate 2 different doses versus placebo with the SALT scores as the primary efficacy end point and the trial is going to be open at roughly 28 sites in the U.S., Canada and Poland. And again, we are absolutely on track with our enrollment to allow us to have data in the first half of 2025.

That's super helpful. I really appreciate the additional color on the promising efficacy REZPEG, especially in atopic dermatitis. Maybe just if I could follow up on your comments about the safety. Since there was a competitor's Phase II atopic study that was recently closed following a clinical hold. Can you just comment on any feedback you're getting from the DSMB on the safety of REZPEG and atopic derm?

Sure. So we have now conducted 9 clinical trials in the REZPEG program and their 592 patients who've been exposed to REZPEG to date, and there were about 150 patients in the program who were randomized to the placebo in our trials. And when we received all the data back from Lilly from these completed trials, our very astute biostatisticians and drug safety team created pooled safety tables, so we could more closely review the safety profile of REZPEG and we plan to publish these data. But from a very high level, there are some really important key takeaways from the integrated safety data. The first is the most common side effect we see is injection site reactions. These tend to be mild to moderate, and they're seen mostly in the first or second cycles and their frequency and duration wane over time. But most importantly, REZPEG is not a classic immunosuppressant and we were very pleased to see there were no increased risk for infections. So we didn't see any increased cases of COVID on the REZPEG arms versus placebo. We don't see any increased risk for reactivation of herpes either Herpes simplex or Herpes Zoster. We don't see conjunctivitis as an increased risk on REZPEG, and we don't see the facial erythema, Red face or arthralgia, but getting to the other hepatotoxicity issue that you're talking about with the other agent of great importance. We do not see any increased risk for hepatotoxicity or AST or ALT increases. We do see that some patients have increases in eosinophilia, but no cases of any kind of symptomatic eosinophilia or tissue damage or organ involvement. And then just finally, we saw that there was a higher incidence of severe treatment emergent AEs and serious AEs only in the placebo group compared to REZPEG. So we're very pleased by the safety profile. And again, our investigators are very happy to move this compound forward in clinical testing, given the well-tolerated safety profile for a biologic. And again, no evidence of increased risk for hepatotoxicity. So thanks for pointing that out Jay.

So much for the comprehensive overview of REZPEG safety. If I could maybe sneak in one more question on the [indiscernible] program. Can you please talk about the preclinical data that you're expecting later this year and the strategy behind clinical development and prioritizing the different indications you're thinking of?

Yes, sure. Jay, this is JZ. So yes, so EULAR is in June, right? So yes, we'll be presenting in roughly a month, and it's in Vienna this year. And so the data that we'll be presenting is we'll present work around the discovery of the antibody. We took a kind of a novel approach in how we identified agonists. So part of that was in definitely came from the AI-based computational engineering. And the other part was how we screened for the agonism. So that will be one element of the presentation. That defines the discovery of antibody specificities and epitopes. And then we've, of course, turned those into preclinical development candidate. So that kind of data is presented there as well. So there'll be binding data, specificity data, cell signaling data, changes in the kind of architecture of the cells that you expect to see when you agonize TNFR2; and also some animal data showing biological activity, clinical efficacy in some animal models. So it will be, for us, an important milestone as the first preclinical presentation of the work that we've been doing in the program in a public forum and they're under the guise of a very important and critical medical meeting as EULAR is a very, very large conference. In terms of indications, so one of the things that's really unique about TNFR2 is that as regulatory T cells move further and further away from either the sinus or the blood or the secondary lymphoid organs, like the lymph nodes, the spleen and so on. As they move into non-lymphoid tissue, they become much more dependent on an NF-kappa B signal and on actions of ligands for TNFR2 as a key transducer event of Kappa B. So we're looking at other indications. And that's why, for example, mucosal immunology kinds of conditions are very high on our list. We know that in the mucosa, T regs have a completely different cytokine environment that they're exposed to very low IL-2 in those kind of environments, right? So they need a different kind of the signal. So ulcerative colitis and indications that impact both the lower or the upper mucosa are ones that we're prioritizing. And then we also know that in the setting of CNS, particularly around the role of myelin and demyelination and the role that TNFR2 plays in controlling some of that biology, which has been really nicely shown in animal preclinical models in mice. The reason why multiple sclerosis also is a high indication for us. So that's just a flavor of how we're thinking about the program. And certainly, the 2 really go together and they're highly complementary. And they kind of between REZPEG and NKTR-0165 they kind of hit the 2 main biological axis of T reg biology.

Our next question will come from Roger Song from Jefferies.

Maybe just a quick one regarding the REZPEG the next step after the Phase IIb results, understanding you need to follow them a bit longer, but at the top line, what will be your next step plan for those 2 indications?

Okay. I'll have Mary answer that. But clearly, we said we'd have data from the initial 16-week induction period by first half of next year. And then, of course, we'll go into looking at the durability of the response, but I will let Mary expand on that.

Yes. Thank you, Howard, and thank you, Roger. So lucky for us, the pathway to approval for an agent that you're developing for atopic dermatitis as well as alopecia is very clear. So for atopic dermatitis, should our Phase IIb trial readout as positive, and we show a statistically significant benefit on the EASI score, then we would start planning for the Phase III program. And in the Phase III program, typically, you have either 1 or 2 doses of your drug versus placebo also the primary efficacy endpoint in these 2 monotherapy trials versus placebo is the 16-week some other agents look at a 24-week induction period. And for the FDA, the primary efficacy endpoint is the VIGA. And in Europe, it's a co-primary endpoint of VIGA plus the EASI 75. In addition to those 2 Phase III monotherapy trials, you typically do a combination trial with topical corticosteroids versus the topical corticosteroids alone. And that is the Phase III program for atopic dermatitis. These trials are pretty easy to enroll to. It generally takes about a year to enroll to those studies. In addition to the efficacy, you need roughly about 600 patients that have been exposed to REZPEG at your highest dose for 12 months. And then in terms of alopecia areata, it would be 2 phase III trials, and it would be REZPEG versus placebo. Again, the induction period is a little bit longer than you see in atopic dermatitis because it takes longer to grow hair. So the induction period tends to be about 36 weeks. There's obviously not a combination trial that would be run. So in contrast atopic dermatitis that requires 2 Phase III trials, in alopecia areata, it would be 2.

And then maybe if you can comment on your ongoing litigation with Lilly for your REZPEG any kind of updates from that end?

Sure. Look, as you know, the court ordered us to go to mediation with Lilly and that's actually scheduled for next week. We're not going to comment on the results of this. We'll comment when we reach a solution with Lilly, but we will be mediating with them. They were clearly responsible for an egregious error that changed the dynamics of REZPEG. And clearly, if you look at the original data and then you look at the corrected data, REZPEG seems to have functioned very, very well in atopic dermatitis. It appears to be highly competitive, very different from their initial calculations. So they filed a -- Lilly filed a counterclaim, which, of course, has very little merits behind it. And certainly, we don't -- we certainly don't expect that to be valued by the court nor do we expect that we will owe Lilly any money, not at all. And I think this will sort itself out over the coming year. I can only tell you that the judge did not dismiss our case against Lilly and ordered us into mediation. We'll see how that goes.

And our next question will come from Jessica Fye from JPMorgan.

This is Nick on for Jess. Maybe just a quick one in revisiting the design of REZPEG. I understand the PEG conjugation part is kind of a differential bias for IL-2, alpha versus beta. But can you remind me exactly where on the IL-2 molecule, the PEG is placed to impart that bias binding?

JZ, do you want to take that? .

Yes. Nick, yes, so we've not shared that level of detail. We have published in our first manuscript in the Journal of translational autoimmunity. A lot of information about the design of REZPEG, but we have not shared, which immuno acids, for example, are PEGylated. What I can tell you is that we have a lot of experience in designing these kinds of molecules. And this kind of a molecule in REZPEG is very similar to some of the original kind of foundational molecule like Pegasys or Neulasta that we've made with many of our partners over the decades. And then in regards to how it works, right, those biological effects from the PEGylation, they impart the right kind of receptor occupancy. They part the right kind of duration of signaling and that's what gives REZPEG this continuous ability to renew regulatory T cells as you continuously dose it. And we have data dosing people for 3 months, for 6 months with the maintenance of that kind of pharmacodynamic effect, that's the goal, right, of that treatment.

Yes. That makes sense. And maybe just a quick follow-up to building on that. I know there's obviously clinical data, there's in human data, but just understanding a bit more. I know there's some observations of NK cell activation higher doses in like other earlier models. Have you seen any instances of that happening in the clinic and at the doses that you're testing? And how would that manifest if so, either [indiscernible] trial?

Yes. Well, we've published that as well. So in our second publication, which captured the results of our Phase Ia and Phase Ib studies. We presented those kind of results. So we do see that in some people, not in all people, but some people have an NK elevation. It seems to build up with time. So REZPEG, for example, caused the T reg instantly elevated from the very first dose. NK cells are sporadic. We don't see them in all people. And when you do see them, they seem to take longer to present themselves. And then one thing that's very curious is we change the skewing of the NK profile right? So as you know, there are 56 bright and 56 DIM NK cells, and those differ in the expression of Fc-gamma R3A CD16. And in normal situation, or will I guess, in one kind of immunological state, you typically have primarily CD56 DIM 16 high. REZPEG doesn't induce those cells. It induces the CD56 bright 16 negative NK cells, which many people have postulated actually have regulatory functions. So it doesn't do NK cells in the sporadically. And when it does, it skews them into that other possibly more regulatory phenotype. And we published those results.

And our next question will come from Andy Hsieh from William Blair. .

Great. Appreciate the update. Just 2 quick ones. One on TNFR2 validation that you mentioned, JZ. Just to clarify, are you referring to kind of human genetic validation on a population basis to derisk the mechanism. And secondarily for 255, so the Phase II JAVELIN bladder Medley study, I think the last time you mentioned that there could be a second half update. So curious about first, the timing for that and also the disclosure. So would that be in conjunction with a partner, would that be kind of Nektar disclosure, just trying to get a sense of the logistics there.

Yes. Let me answer the second part of it first, and I'll let JZ go on. Look, we do expect data from the Medley bladder cancer study in the second half of this year. Don't have an exact date yet. And I certainly -- we will certainly disclose it once the data has been cleaned up and Merck KGaA has looked at the data cleaned it up, discuss it with us, and we go through a normal process. But I would expect that to all happen in the second half of this year.

Sure. Andy, thanks for asking a human generic question, and that's super cool. So TNFR2 validation comes from a number of different sources. And before actually touching on human, let me touch on a few of the critical preclinical findings that I have made. So TNFR2 has both been overexpressed and it's been knocked out. And you see the kind of corollary phenotypes, like when it's gone, animals have a hard time maintaining T reg populations. They also have a hard time amounting any kind of burst of T regs or T reg control, like in the setting of a model like PEG, for example. If you run EAE in TNFR2 knockout, the disease is extremely exacerbated, right? And it's much, much worse than it is. And whether you use [indiscernible] PLP, a similar kind of results. Likewise, when you drive its expression, you could reduce the ability to even insult using various inflammatory agonists. Also studies that have made transmembrane TNF mice -- some of the studies that Jonathan Zedrick did in the early 2000s. Since that's the primary ligand, you really get TNFR2 in as the primary signal model. And again, you had very similar kinds of effects where those animals were driving R2 and they remain highly immunoregulatory. Very hard to create an inflammatory model in that background. And then people, we see a kind of cluster of tips and other kind of polymorphism to go together. So first, like the most canonical sort of T regs like dysfunction is IPEX, right? And IPEX in humans is when you have a FoxP3 loss of function, very severe autoimmune skin type of disease. And actually, TNFR2 [ sniff ] and things modified TNFR2 expression or signaling actually can resemble IPEX is not be as severe because obviously knocking out FoxP3 is much more severe than losing TNFR2. So I hope that answers your question. There are many, many streams of validation of TNFR2 and probably, I guess that one more is actually just sort of coming from the field that's using TNF and inhibition, right? So we know that if you treat with a pan TNF inhibitor like Humira, REMICADE or Belimumab, pick your favorite what, right? They knock out transmembrane and soluble and you see that that's contraindicated in a number of indications. And it's a removal of that transmembrane that takes away the TNFR2 signal that kind of short circuits what you're trying to achieve therapeutically. So all of those roads kind of lead to Rome, and they've really led the field come to understand that the 2 receptors, R2 and R1 are they share very differentiating functions and that R2 is like the natural antagonist to R1 and it seems to turn off that inflammatory pathway that TNFR1 drives, it's highly tissue protective. So to create an agonist to capture that kind of biology could be we really, really therapeutically ideal and that's what we're trying to do.

[Operator Instructions] Our next question will come from [ Arthur He ] from H.C. Wainwright.

Just maybe first question for Mary. So are you guys open to evaluate REZPEG in the patients with biologic experience either with a single agent or in combination with biologic through kind of collaboration or IFT.

Yes. Arthur, it's a good question. So we talk a lot about this internally. Generally speaking, the FDA requires you to ensure that patients who are biologically experienced have a washout period of 5.5 half-lives. And so patients who have previously been exposed to another biologic agent that have to be off treatment for about 12 weeks. So some clinical trials have permitted these patients to be enrolled. But because of the very long washout period, on their prior agent. It ends up being pretty difficult to actually enroll these patients, even though scores of patients have been exposed to, say, DUPIXENT. So it is something that we're considering for the Phase III program, how or potentially if we would include those patients into our study. And then we always JZ and I and Jennifer have spoken many times about whether or not we would ever do a combination trial. Say, REZPEG with an IL-13 inhibitor. And so we've also spoken about that a lot internally, and it's certainly on our list of clinical trials to consider. For us, though, the primary goal is excellent execution of the Phase IIb seen the data? And should that be positive to move very quickly to a program that would allow REZPEG get to patients as quickly as possible.

My second question is for the 165. Just curious, what are the gating IND-enabling study right now for these program moving to the clinic next year.

JZ, do you want to cover that? .

Sure. Arthur, thanks for the question. So the -- we've advanced the program, like as I mentioned earlier, to identifying candidate and then to characterizing it in vitro and it vivo. We've also run large animal studies like a non-GLP toxicology study. We've also moved into -- we made a manufacturing cell line, and we've also moved into the beginnings of manufacturer. So the next big milestones for our IND-enabling package, which is no different than any other IND-enabling package as the GLP toxicology which for us will come at the end of the year, it will start then and then also advancing into GMP manufacture of the Phase 1 supply. But as I said, we've already done a lot of work and a lot of the major work like non-GLP toxicology studies in primates for example, that give us the confidence to move through these IND-enabling studies.

And I am showing no further questions from our phone line. I'd now like to pass the conference back to Howard Robin for any closing remarks.

Okay. Well, thank you, everyone, for joining us today, and we remain focused on executing on the development of REZPEG and of course, our other immunology programs like NKTR-0165. I want to thank all of our employees for their extremely diligent and hard work, and the coming year should be an exciting one, and we look forward to providing you with updates on our progress. So thanks for joining us today. Appreciate it.

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