Good afternoon, and welcome to the Nektar Therapeutics Second Quarter Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Vivian Wu from Nektar Investor Relations. Please go ahead.

Thank you, Chad, 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; Jill Thomsen, our Chief Financial Officer; and Brian Kotzin, our Chief Medical Officer. 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 intention, initiation of clinical studies and the availability of clinical data for drug candidates; the timing and plans for future clinical data presentations; information, future development plans or success of our collaboration arrangements; the expectations arising from our corporate restructuring and reorganization process; financial guidance and certain other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to inherent uncertainties and risks that are difficult to predict and 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 the Form 10-Q that was filed on May 6, 2022, 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. Before turning the call over to Howard, I'd like to remind you again that since we're dialing in from different locations, I 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, I would like to hand the call over to our President and CEO, Howard Robin. Howard?

Thank you, Vivian. Thanks to everyone for joining us today. Following the new strategic plan and reorganization that we announced in April, I'm pleased to report that we've made great progress in executing the plan over the last several months. Our accomplishments allow us to focus on important biologic therapeutic candidates that we're developing at Nektar, and we believe that they present opportunities to create significant value for our shareholders over the coming years. Our new strategic plan is built upon 3 core R&D pillars that we believe can generate value-enhancing milestones for our company, NKTR-358, our Treg stimulator program partnered with Eli Lilly being developed in multiple autoimmune diseases; NKTR-255, our novel wholly owned IL-15 agonist being developed in multiple liquid tumor settings; and several promising preclinical programs generated from our research in immunology and oncology. Each of these programs represents a distinct and highly promising opportunity to provide patients with scientifically distinct mechanisms across a range of therapeutic areas. Starting with NKTR-358. This novel first-in-class regulatory T-cell stimulator is being developed to treat autoimmune and inflammatory conditions such as lupus and atopic dermatitis. A key focus of our new operating plan is to fund a 25% maximum development participation in this important autoimmune program. This translates into a royalty for Nektar in the low 20% range. The decision was based on our belief in the science and in the promising data generated to date for NKTR-358 as well as the sheer size of the markets that we're pursuing. In the U.S. alone, nearly 160,000 people are battling lupus, and approximately 16 million people are living with atopic dermatitis, with 3 out of 4 of these affected by moderate or severe disease. And in these indications where sales of current agents range from $12 billion to $15 billion, there…

Thank you, Howard. NKTR-358 is a unique molecule, and I am truly excited about the work we are doing on this important first-in-class mechanism in the field of autoimmune disease. Lilly recently received approval for the generic name for NKTR-358, which is respegaldesleukin, or RESPEG for short. We're excited to see Lilly's continued enthusiasm for this program, and I personally look forward to continuing to work with the Lilly team to support the advancement of this program. With 358, we've utilized a completely different approach with our PEGylation chemistry to capture the immune regulating potential of IL-2 by specifically stimulating regulatory T cells, or Tregs. Our goal with this program is to address the underlying Treg abnormalities in autoimmune disease and to develop an IL-2-like molecule that could selectively stimulate Tregs in a more effective manner than low-dose IL-2. The data that emerged from the program in both lupus and in atopic dermatitis have reinforced our conviction in this approach. In the Phase Ib multiple ascending dose study comparing RESPEG to placebo in lupus patients, RESPEG led to a dose-dependent reduction in lupus skin disease activity as measured by the CLASI activity score and the subset of 22 patients with baseline CLASI score greater than or equal to 4. These data, along with the PK, PD and safety information we collected in our Phase Ib lupus trial, led Lilly launching a Phase II dose range binding study in 280 patients. As a reminder, the Phase II study compares several doses of NKTR-358 to placebo for a 24-week treatment period. As Howard mentioned, in May, the interim assessment committee reviewed interim efficacy and safety data from the Phase II lupus study. The committee looked at data from approximately 60% of patients who completed the 24-week treatment period. We were excited to…

Thanks, Brian. Let me begin today with an update on our NKTR-255 program. Our therapeutic candidate NKTR-255 is an agent that engages the full biology of the IL-15 pathway to provide functional activation and homeostatic control of IL-15 responses of immune cells, namely natural killer cells, CD8 T cells and immune memory subsets. Now as a full agonist of the IL-15 pathway, NKTR-255 can be combined with multiple mechanisms ranging from targeted agents to cell therapies, including CAR-Ts, and even immunological checkpoints to potentially improve the efficacy of these agents. In our early dose escalation work with NKTR-255, we have observed a consistent increase of natural killer cells as well as CD8 T cells across multiple tumor types, including multiple myeloma, non-Hodgkin's lymphoma, colorectal cancer and head and neck cancer. We have seen up to a ninefold increase in NK cells and our pharmacokinetic profile is highly predictable, allowing us to dose NKTR-255 every 3 or 4 weeks. And importantly, we see increases in NK and CD8 T cells in even the most difficult-to-treat patients, including multiple myeloma patients with compromised bone marrow, and no increase of T regulatory cells in the peripheral blood, which is another very important attribute of NKTR-255. In April, we unveiled that our new development plan for NKTR-255 is focused on key areas of differentiation and strength for the development of an IL-15 candidate. Additionally, our plan includes leveraging external collaborations with partners to generate proof-of-concept data. The first area of focus for our development work is being conducted by our collaborators, who are combining NKTR-255 with anti-PD-L1 agent. This past quarter, Merck KGaA initiated the JAVELIN Bladder Medley Study. This Phase II randomized, open-label study will compare avelumab combinations with 3 antitumor agents, NKTR-255, Trodelvy, and one of Merck's own anti-TIGIT therapeutic candidates in…

Thank you, JZ, and good afternoon, everyone. As Howard noted earlier, we have made significant progress in executing our restructuring plan and implementing our revised strategic plan. Our 2022 financial guidance, which we provided during our April call, remains unchanged. Our strategic plan is designed to support the advancement of NKTR-358, NKTR-255 and a number of innovative preclinical programs. We ended the quarter with a strong financial position, including approximately $625 million in cash and investments and no debt. The quick action we've taken to resize our programs and workforce to fit our new strategic objectives sets up a cash runway that extends through the first half of 2025, which will take us through several key value-generating milestones for our pipeline. I'd like to summarize the key actions we took during the second quarter to reduce our ongoing operating expenses. We reduced our head count by approximately 70%, from around 735 to 225 employees. On an annual run rate basis, this reduction represents approximately $120 million in annual operating expense savings. We have worked to execute the most efficient operational wind down of the BEMPEG program, consistent with our commitment to patients and their physicians. The studies are being discontinued and patients are being transitioned to standard of care options. We closed our R&D facility in Hyderabad, India and have received strong interest from multiple parties for the purchase of the site. We are also pursuing subleases for a substantial portion of our facilities in the San Francisco Bay Area, while still maintaining sufficient office and laboratory space to allow our team to drive forward our proprietary program. Now I'd like to turn to our second quarter results and remind you of our financial guidance. As I noted earlier, we ended the second quarter with approximately $625 million in cash…

[Operator Instructions] And the first question will come from Chris Shibutani with Goldman Sachs.

It's good to see progress that's being made across the programs here. If I could put my question to 358, upcoming disclosure of additional data in September. To be clear, have we had any information about the psoriasis program? I don't believe that, that had been toplined by Lilly. Should we expect in September, in addition to the AD data that, that would be the case? And with 358, as we contemplate the different kind of immune mediated disease indications, can you help us understand if you feel if that particular compound, this approach, 358 might be advantaged for certain types of indications? We've seen some early promising in lupus. There was, I believe, some disappointment in UC. If you could just help us understand how to think about that and the September readout.

Thanks, Chris. We'll have Brian answer that question.

So yes, thank you for the questions. I think I can take them in order, but you may have to remind me of the third one. The first question was will we be presenting data related to the psoriasis study. And yes, the answer is yes. There will be 2 presentations at EADV in September. One will be directed to the psoriasis study, the Phase Ib study in psoriasis. The second one will be a Phase Ib summary of the Phase Ib in atopic dermatitis. And I just want to emphasize that the data for the presentation in atopic dermatitis will be since we've already presented some interim data, but we'll be presenting -- Lilly will be presenting the full efficacy and -- the full efficacy and safety data set. We've only presented interim data so far. And then -- and in addition, the -- I think it's worth emphasizing that we'll also be presenting additional endpoints that are also used for in studies of atopic dermatitis. What excites us very much about the presentations is you'll be able to see the level of improvement, and as we've emphasized, the durability that we've seen after the drug treatment, after treatment has been stopped. So I know you asked a second question, but I need to be reminded of that one.

First off, for 358, there's some challenges here. What makes this likely to work? Or what have you learned so far, perhaps uniquely mechanistically from the different indications that we're doing early clinical work on?

Yes. So it's a great question. I think that we're unveiling new biology here. So we're pretty much in the lead as we go to these indications, and this mechanism of inducing regulatory T cells to down regulate the immune responses that are driving these diseases, it's new biology. And as you emphasized, we've seen some incredibly encouraging data in both lupus and in certain dermatologic skin diseases, atopic dermatitis. You also mentioned the fact that we had a -- we stopped the study in ulcerative colitis. I think it's important to emphasize that the T cells that drive the disease in these different indications are very different. So the T cell driving force in ulcerative colitis is a very different pathogenic pathway than what we've seen in lupus or what we know is in lupus as well as in the atopic dermatitis and psoriasis. So again, I think that we're looking -- new biology is being uncovered. I would say that the fact that we saw less efficacy in the UC study, that we didn't see the efficacy that we've seen in the other indications, is consistent with what other people have reported that -- and both with this mechanism and with other mechanisms. It just takes either higher doses or it takes other types of therapies to have an impact in ulcerative colitis that is not true in these other indications. So thanks again for that question.

And the next question will be from Jay Olson from Oppenheimer.

This is Cheng on the line for Jay. I guess first for 358, I think you previously indicated that Phase II study start in the atopic dermatitis in third quarter. And now it seems like the trial will be started probably in '23. So just wondering what caused the delay and what are the gating factors? And separately, for 255, just wondering, it seems like you are very excited about the opportunity combining 255 with CAR-T. So what will trigger a Nektar-sponsored study in that setting, and yes, that's all.

Thank you, Cheng. We'll have Brian answer the first part of your question, and then JZ will tackle the second.

So the reason that we're continuing to design -- so the design of the Phase II dose-ranging study in atopic dermatitis is complex, okay? And it's basically the delay. It's just taking us longer to figure out what's the perfect -- perfect, the optimal type of design for the questions. I would say that the landscape in atopic dermatitis is changing. And this has also prompted us to spend more time in the study design. And that's why the study is -- initiation is planned for 2023 rather than the end of this year.

This is JZ. So for your second question, yes, we are definitely very excited about the potential of NKTR-255 combined with CAR-T therapies. And I summarized really a lot of the data that we presented now over the last almost 3 years where we've been studying the combination in kind of more and more complex test systems, right, starting out with simple in vitro studies. The CAR-T cells, for example, have IL-15 receptors, right? You can signal with those receptors, you could make the cells proliferate. You can induce anti-apoptotic markers, very simple studies in vitro, moving to more and more complex in vivo studies and cell models, and ultimately moving into different levels of patient setting. So to clarify, you asked the question of what would get us to trigger a sponsored study. Well, we are, in fact, are indeed doing a sponsored study. So this is the study that I mentioned earlier in the call, where we'll be evaluating placebo with standard of care CAR-T therapies versus 255 added 2 to 3 weeks after CAR-T therapy transplant into the patients. So we're actually going to be doing that study. Nektar will be the sponsor. We're very excited to kick that study off. And we expect to start that study around the end of this year. And as I mentioned earlier, we expect to have data from that study in 2024.

And the next question will be from Jessica Fye from JPMorgan.

This is JL for Jess. So our first question is on the interim analysis of 358 in the Phase II lupus study. So based on the press release, it looks like besides the safety, efficacy also a part of the interim analysis. So we are wondering, does it mean like a futility analysis has been done based on both efficacy and safety? And if safety is part of the interim analysis, what type of safety -- sorry, what type of efficacy data has been considered by the committee? Do they have a look at the primary end point or any of those secondary efficacy endpoints? And our second question is on the cash runway. We understand that you guided your cash runway could be into the first half 2025. But is it based solely on 255 and 358, or does it also take into any consideration that you might announce new clinical assets between now and the first half 2025?

We'll have Brian answer the 358 question and then Jill will answer the financial question.

In order to preserve study integrity and to retain blinding for the study with patients and investigators, we cannot share the data reviewed by the interim assessment committee for the interim analysis. As you know and as we've said, the study is ongoing, and it's really important to maintain the integrity of that study. The interim analysis evaluated both efficacy and safety from approximately 60% of the patients who had completed the 24-week treatment period. And again, the study is continuing as planned based upon the prespecified criteria. Lilly and we do not disclose the prespecified criteria used in the interim analysis. We can say that there was no futility analysis in the study. However, the interim assessment committee had the latitude to stop the study for inadequate efficacy versus placebo. So -- and of course, they had the opportunity to stop the study for any important safety concern. I just want to remind you also to remember that it is a placebo-controlled study, and it compares 3 different doses of RESPEG to placebo. So yes, thanks again for the question.

This is Jill. So for the second question, of course, subject to continued positive data of course in the preclinical programs, our plans include the continued development of those preclinical programs that JZ shared with you. And additionally, as JZ mentioned, we will evaluate a collaboration for NKTR-288 and other opportunities as they present themselves.

The next question is from Greg Harrison with Bank of America.

This is Mary Kate on for Greg. Maybe how are you looking to position NKTR-358 in atopic derm, perhaps maybe what stands out in terms of the nexus of action or response you've seen that could be differentiating here?

Thank you, Mary Kate. We're going to have Brian answer that question.

So I just -- I think that's part of the ongoing discussion at the moment, how we're going to position 358 especially related to the current changing landscape that I mentioned before. Let me emphasize, first of all, that 358 is a completely different mechanism of action compared to the other drugs that are in the atopic dermatitis space, okay? So for example, the standard of care is DUPIXENT, which is in -- blocks the IL-4, IL-13 pathway. And some of the other drugs now introduced are basically blocking the same pathway, the IL-13 pathway, so very closely related. And the other major drugs that are -- have been approved or in treatment -- in studies for atopic dermatitis are the JAK inhibitors, and there's a whole story behind the JAK inhibitors. But the important thing to emphasize right now is that NKTR-358 is a completely different mechanism. So we're looking at -- basically, we're looking at the endpoints that are very similar in these studies. And we realize that there'll be patient subsets that will respond to our mechanism that won't respond to others and vice versa. And that's how we're going to differentiate this drug.

And the next question will come from Mara Goldstein with Mizuho.

This is Jerry Gong on for Mara Goldstein. The first is on potential business development opportunities. I know you've spoken to that on that front beforehand. Have you identified opportunities for other candidates such as like a 255 or other earlier candidates as well? And is there a type of deal that you would make that you may be most interested in, such as front loaded or [ tagged with a ] milestone?

Thank you, Jerry. We're going to have Howard answer that question.

Yes, that good question. Look, we have significant business development efforts centered around NKTR-255, although I don't think at this stage we're looking at licensing it out at all. A lot of collaborations, for sure. We've already been working with a number of companies who have been including NKTR-255 in their programs. And we're seeing some very interesting results and they're seeing very interesting results. So I do think you will see some collaborations around NKTR-255. But I think they will be kind of diverse and because in the area of cell therapy, there are a number of different opportunities. It's actually becoming quite broad. And I would like to see NKTR-255, as I said earlier, become the potentiator of choice in a number of different cell therapies, not just one. So because of that, I see a lot of collaboration potential. I do think Nektar will keep NKTR-255 as a wholly-owned asset for now.

And the next question is from Andy Hsieh with William Blair.

So regarding the CAR-T combination, JZ, obviously, there's a lot of behind-the-scenes logistical things that you have to also figure out, the cost of the therapy, hospital fees. I'm just curious if a buy-in from a partner from a cost perspective is required for you to go ahead and conduct this trial?

Thank you, Andy. We're going to have JZ answer that question.

Andy, thanks for the question. Certainly, you are correct, right? These are expensive therapies. And also, as you know, where a patient takes the CAR T, they have to remain geographically very, very close, right, to the hospital as well, right, because the patients have to be monitored so closely. So they're either in the hospital or literally across the street, if you know what I mean. So all of those things, we weighed in and took into consideration when thinking about how to operationalize and execute the study. And we basically are able to conduct this study on our own. We don't need to partner with another company to execute the study. And that includes the fact that the accessibility to the cell therapy itself, remember, in many cases, it's even covered by insurance reimbursement because this is used in the on-label setting. But either way, we want to make this study as accessible to investigators and as accessible to patients as well. So we took into account logistical considerations, timing considerations. Even as you know, Andy, supply chain for some of these autologous products has even been challenging. In some cases, we've even taken those things into account. We're very confident that we can execute the study. We're working with some of the best centers in the United States, in particular, centers that have a lot of beds that treat many, many CAR-T patients with these approved on-label products. So we feel pretty confident that we can execute the study. And as I mentioned, we expect to kick it off around the end of the year. Thanks for your question, Andy.

And the next question will come from Roger Song from Jefferies.

Great. Maybe just the one on, so for the 2C design in the Phase II for atopic dermatitis and you are reporting the Phase Ib in September, full data, would you consider the results from the Phase Ib as you design the study and/or you will have some go-or-no-go decisions still to be -- decide if you will kind of move forward with the Phase II?

Thank you, Roger. We're going to have Brian answer that question.

No, the phase -- we know the results from the Phase Ib study, and we're going forward with design of the dose-ranging Phase IIb. It's -- we have demonstrated proof-of-concept in this disease indication, and we're moving forward.

And the next question will be from Ben Burnett from Stifel.

This is [ Kelly Brees ] on for Ben Burnett. We just have one question regarding NKTR-255. We were just wondering if using NKTR-255 alongside CAR-T gives you any room to lower or completely omit lymphodepletion?

[indiscernible] answer the question.

Yes, Vivian, and Kelly, thanks for the question. It's a very provocative question. Certainly, as you know, right now, the most standard approach is to use Cy/Flu, right? And that carries a lot of issues with it, both from the patient standpoint as well as availability of some of those components, as you know, if you follow this field closely. Now the thing is, we've always had this suspicion that with 255, you may have the opportunity to indeed approach sort of thinking of a conditioning regimen in a completely different way. Either it doesn't have to be as much of a, for lack of a better term, a sledgehammer on the patient's immune system. There may be different regimens that you could use and you might even be able to omit it all on its own. That would fall into definitely much more exploratory kind of work. Definitely, the investigators that we work with are very, very interested in this question. And many of them have proposed and shared some of their scientific thoughts about it. One of those that's central to all of this is that we do know that one of the most important roles of lymphodepletion is actually to create a cytokine environment in the patient that's really highly associated with an effective transplant of lymphocyte. It's basically a very supportive lymphocyte environment. And it happens by basically depleting lymphocytes and causing the body to want to adaptively replete the immune system. And so that's how you want to transplant into that kind of systemic milieu. And obviously, with a mechanism like 255 and IL-15 pathway agonism, since that's such a critical cytokine, maybe it changed that and our investigators are interested. But all that said, this would follow more into the exploratory work. I think it's a future opportunity. We'll be starting with using the kind of on-label approach to the CAR-T products in our clinical study. So that will be used in the typical way, but one of the long-term potential opportunities for 255 is to indeed change potentially the conditioning regimen. Great question.

And our final question will come from Daina Graybosch with SVB Leerink.

A lot of good ones asked already. So I'm going to go to 2 for NKTR-255 that are related in some of your solid tumor combination. So the first one in the avelumab maintenance for bladder cancer. I think that's a really interesting study. And the biomarkers you talked about are also interesting that the patients with this higher affinity NK cells seem to do better with that. And I wonder specifically, does NKTR-255, have you done work showing that patients of lower affinity CD16 NT cells can be potentiated by NKTR-255? Will you help those patients? Or do you think you'll help the patients with the higher affinity NT cells do better? And then my second question is for the MD Anderson study post-CRT combined with durvalumab. Can you confirm that's a single-arm study? And I know that indication is one where outcomes really vary widely from site to site, and how as a single-arm study you think that you could get a good sense of how the outcomes compared to historical without a randomized arm.

Thank you, Daina. We'll have JZ answer that.

Yes. Thanks, Daina, for the question. So your first question was around the avelumab maintenance and the NK compartment. So Merck actually published a really cool paper in the JAVELIN 100, the registrational study there. And what they showed in the 4 slots and some of the additional analyses, right, is the patients that had the highest levels of NK cell baseline when they were randomized onto the maintenance really did the best. And so if you parsed out the outcomes, they were really in the kind of like high efficacy kind of quartile of what they observed. And so it really crystallized the idea that having an NK-rich environment was very much beneficial. Now they didn't necessarily like do a lot of -- well, the comprehensiveness of the phenotyping, I'm not aware of in that study. But to your specific question, in this case, mechanistically, the CD16-positive NK cell, right, would be the most critical because we do know if there's 56bright, 16dim, 56dim, 16bright, right? And the 16bright ones are the ones that participate in ADCC reaction. They have FCGammaR3A that they express in high levels. What we've seen in our multiple first-in-human studies, both in solid tumors as well as in liquid tumors, is that we elevate CD16-positive NK cells. And that was very important for us to demonstrate as a very early biomarker of NKTR-255 biology because as we advance into ADCC combinations even in the heme setting like as in our studies with daratumumab and rituximab, we want to be certain that we're elevating CD16-positive NK cells. So all that looks really, really promising. Merck also thought all of that was very, very promising. And that's why together, we're very, very excited about having 255 as an arm in the JAVELIN Bladder Medley. It really…

And thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to President and CEO, Howard Robin, for any closing remarks.

Well, thank you, everyone, for joining us today. Lots of really good questions. Today, I think we've outlined our continued progress across our pipeline and partnered programs as part of our strategic reorganization, and we believe these programs have the potential to address the needs of significant patient populations and provide the opportunity to create significant value for our shareholders. We look forward to continuing to execute on these key programs and building upon our core research capabilities and unique competencies. 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, and we look forward to providing you with updates on our progress. So stay tuned. Thanks for joining us.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.