Welcome to the Nektar Therapeutics Second Quarter 2025 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 Korin Franklin from Nektar Therapeutics Investor Relations to kick things off. Please go ahead.

Thank you, and good afternoon, everyone. Thank you for joining us today. On the call today are Howard Robin, our President and Chief Executive Officer; Dr. Jonathan Zalevsky, our Chief Research and Development Officer; and Sandra Gardiner, our Chief Financial Officer. Dr. Brian Kotzin, our Chief Medical Officer, will also be available during the question-and-answer session. On today's call, we expect to make forward-looking statements regarding our business, including statements regarding the therapeutic potential of and future development and regulatory plans for rezpegaldesleukin and our other drug candidates, the timing and plans for future clinical data presentations and 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 May 9, 2025, and 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, Korin. Good afternoon, everyone. The second quarter of 2025 was transformative for Nektar. In June, we reported highly compelling initial data in atopic dermatitis for our lead clinical program, rezpegaldesleukin, also known as REZPEG. These data establish REZPEG as a potential first-in-class novel T regulatory mechanism for patients suffering from this chronic relapsing inflammatory skin disorder. In 2023, we took the bold step to pursue T regulatory cell science across our pipeline. This science is focused on stimulating Tregs in different ways to restore the proper balance between T effector cells and T regulatory cells and achieve homeostasis in the immune system. And we had the goal at that time to demonstrate that this important pathway could represent a completely new way to treat autoimmune and inflammatory disorders by mimicking the way our own immune system works to resolve inflammation. So in October of 2023, we initiated a 400-patient Phase IIb study for REZPEG in patients with moderate to severe atopic dermatitis, where early proof-of-concept data in patients had shown promise at the time. For our second indication, we chose to run a Phase IIb study in alopecia areata. This is a disease setting where the underlying T regulatory cell deficiency creates a known imbalance between T effector cells and T regulatory cells, leading to hair loss for these patients. The REZOLVE-AD study results we recently reported also validate Nektar's novel approach to access Tregs through the IL-2 pathway with a unique molecular design as compared to the competitive landscape. While other approaches to access IL-2 are focused on the design of muteins, which we believe hindered their development recently and over the years, we instead took a straightforward and elegant approach of accessing Treg biology through a native sequence IL-2 and then applying PEGylation, a proven chemistry…

Thanks, Howard, and thank you to everyone on the call for joining us today. To start, I'd like to remind you of the key takeaways from our June 24th webcast where we announced top line 16-week induction data from the ongoing Phase IIb study known as REZOLVE- AD. REZOLVE-AD enrolled 393 patients and is testing rezpegaldesleukin in biologic-naive patients with moderate to severe atopic dermatitis. The study met its primary endpoint of statistical significance for mean percent change in EASI score from baseline for all rezpegaldesleukin arms versus placebo at week 16. All 3 rezpegaldesleukin arms met significance on the EASI-50, EASI-75 and BSA. The every 2 weeks regimens met significance on VIGA, AD and itch NRS and the high dose of 24 microgram per kilogram every 2 weeks also achieved statistical significance on EASI-90. Both EASI reduction and magnitude of itch improvement were seen after the first few doses of REZPEG, which we think could truly differentiate it from other systemic therapies in terms of a faster onset of action. Also, the safety profile for REZPEG in the Phase IIb study was consistent with previously reported results from other REZPEG clinical studies and there was no increased risk of incidence of conjunctivitis, oral herpes or oral ulcers as is seen with other agents, which are approved or in development. The maintenance period of the study is ongoing and we expect to share the top line results for 52 weeks of dosing for the 36-week Q4- week and Q12-week maintenance regimens as well as the Q2-week escape arm regimen in Q1 2026. As Howard mentioned earlier, we are looking forward to presenting additional differentiating endpoints from the induction phase of the REZOLVE-AD study at a medical meeting in the fall of this year. These include quality of life assessments such…

Thank you, JZ, and good afternoon, everyone. On today's call, I'll briefly review our quarterly financials and share updates to our financial guidance for 2025. We ended the second quarter of 2025 with $175.9 million in cash and investments and with no debt on our balance sheet. As Howard stated earlier, on July 2, 2025, we completed a secondary public offering, resulting in approximately $107.5 million in net proceeds. This fundraising further strengthened our financial position, extending our cash runway into the first quarter of 2027, while also enabling us to invest in our REZPEG program to progress to Phase III and further develop NKTR-0165 and NKTR-0166, our TNFR2 agonist antibody candidates. Our expanded 2025 plan includes REZPEG Phase III clinical start-up activities and securing additional manufacturing for REZPEG. We now expect to end the year with approximately $180 million to $185 million in cash and investments. Turning to the income statement. Our noncash royalty revenue was $11.2 million for the second quarter of 2025. We still expect our noncash royalty revenue to total approximately $40 million for the full year. Our R&D expense was $29.9 million for the second quarter of 2025 and we now anticipate full year R&D expense to range between $125 million and $130 million, including approximately $5 million to $10 million of noncash depreciation and stock-based compensation expense. Our G&A expense was $17.1 million for the second quarter. We now expect G&A for the full year of 2025 to be between $70 million and $75 million, including approximately $5 million to $10 million of noncash depreciation and stock-based compensation expense. This increase in guidance reflects updated estimates for professional services in the second half of the year, including legal and other accounting and consulting services. Noncash interest expense for the second quarter was $5.4 million…

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

This is Cheng on the line for Jay. And just want to congratulations again on the very impressive results you shared recently. Just wondering, first, have you maybe started to engage with regulators with the 16-week data? And since you started some activity to prepare for the Phase III initiation, any color you can share on how are you thinking about the trial design and also maybe the number of trials you are planning for the Phase III program? And maybe separately, just like wondering your thoughts on partnership opportunity for REZPEG in AD. And specifically, when would be the optimal time to bring a partner on board? And any kind of characteristic would you define the partner?

I'll let -- this is Howard. I'll let JZ answer the first part of the question and I'll take the second part. Go ahead, JZ.

Yes. So in terms of your first question was have we began to engage with the regulators. So that's ongoing. So our plan, as I mentioned earlier, is an end of Phase II meeting that we intend to hold before the end of the year. And so at this time, we're basically putting together the meeting request and the briefing package that will go in. And the substrate of what we'll be discussing there is indeed the trial design. And so our basic concept in the trial design is we expect to have 2 monotherapy studies that are basically identical in design as well as a long-term extension study, which enables you to collect long- term safety data. And then for this division, there are a number of additional studies that are required that are typical for every single BLA submission for a new molecule. In terms of the studies, as we mentioned earlier in the call, we understand that there is a significant opportunity for REZPEG in multiple lines in atopic dermatitis. We have very strong data in biologic naive patients and we've shown that, right, in our Phase IIb results that you commented on. And so that will be a substantial portion of our patient population. But our plan is to also include biologic experienced patients in the trial as well. So in that regard or [Technical Difficulty] similar to the kind of studies that Amgen and [ kilvoran ] with [ Roca ] where they combine both naive and experienced patients in the same study, e think that was a very efficient approach. And our goal is to use that same approach and also have both patient populations into our Phase III program, which would enable us to have the broadest label when we move to register REZPEG. So I think that addresses your questions about some of the health authority engagements and trial designs. And Howard, I'll turn it over to you about partnership and timing.

Yes, sure. Look, as we said on the call, we hope to end the year with $180 million to $185 million and we will be prepared to put REZPEG into the clinic in Phase III in 2026. We have a runway that goes into '27. We don't have any plans for additional financing at this point. We have a number of important data catalysts ahead of us. And we're actively talking to partners about the potential to collaborate on REZPEG. And there's including strategics as well as financing partners. There's ways to do this that are a collaboration with another company. There's also ways to do this with nondilutive financial methods. So we also have some -- we also have other sources of nondilutive capital. For example, we own 3% to 4% of dapimab, UCB's drug for -- in Phase III for lupus. So I think there's -- and we're certainly looking at monetizing that asset. So there's a lot of opportunities for us, but I would say that right now, we're engaged in partnership discussions.

Our next question will come from Yasmeen Rahimi from Piper Sandler.

Congrats on all the updates and all the great commentary. I guess my question is as the next near-term data catalyst is the upcoming AA readout, JZ, maybe you could walk us through how your thought process around what is a competitor product profile to advance to a later-stage development and whether also we will see at the time of the top line data, some of the patients who continued into the longer extension? Or should we not expect that? And I'll jump back into the queue.

Yes, sure. So it's a great question. One of the things that's really important to consider about alopecia is that there are currently no approved biologics for alopecia areata. And there's really no therapy that's demonstrated a sustained treatment effect. So JAKs are efficacious and even most recently, Rinvoq posted probably class-leading JAK inhibitor data in the space in the first of their Phase III studies that read out a few weeks ago. And it still has a profile that's well-known. So it's a mechanism that requires continuous dosing. If you stop dosing with the JAK inhibitor, the patients lose the hair that they may have grown. And then also you have to carry the additional safety liability. And it's particularly challenging in this disease as many patients are younger. They have their disease for their entire life and the concept of chronically taking a JAK inhibitor for many, many years is difficult. For us, the way we designed the study for this Phase II is a primary endpoint based on percent change from baseline in SALT scores. And while we don't need to necessarily sort of hit some of the JAK metrics, we still use the JAK metrics. They're very useful as frames of reference as we put together the TPP that we're considering for this indication. And so just as like some kind of benchmarks to keep an eye on for that endpoint, SALT percent change from baseline, low-dose JAK achieves about a 30% reduction in SALT score and high-dose JAK about a 40% reduction in SALT score. So we're looking to be in that range. And ideally, if REZPEG shows the kind of scientific approach that we think is very meaningful for this particular biology, then obviously, our goal is to even push that. And then, of course, we'll also be focusing on the key registrational endpoints as those are very informative as we sort of continue and look beyond the Phase IIb study in alopecia areata. So specifically, the SALT 20 and SALT 10 endpoints are key. SALT 20 is the FDA accepted threshold and SALT 10 is the standard in Europe. And the JAK inhibitors have about a 20% and 10% for SALT 20 and 10 at the low dose and 35% and 25% at the high dose. So again, we're using those as benchmarks along with the data that Rinvoq posted. But we're very excited about the data set that's coming for us later this year. I'm very excited about the opportunity of taking REZPEG forward for yet another dermatological indication, one where we know Tregs plays such an important role in even just the fundamental biology of hair growth and having the chance of being potentially the first biologic in this space.

Our next question will come from Julian Harrison from BTIG.

Congrats on all the recent progress. It's great to hear that you plan to include biologic experience atopic derm in your first registrational program for REZPEG. Can you remind us of what underpins your confidence that REZPEG will be active in the segment?

Yes. Certainly. It's interesting. I mean, we're tending to see that multiple agents are showing activity in bioexperience, right? We've seen that now for a few examples. Lowry had that example. Roca seems to be also having that example. But for us, we have this basic understanding that our mechanism is in no way overlapping or canceled out or contra to any of the post- IL-13 kind of biology. For example, if a patient has a disease that's more mixed in presentation, say, Th2, but additional T helper endotypes that are driving the inflammation, I mean, obviously, if you take a Th2 inhibitory mechanism like an IL-4, IL-13, you leave other parts of the immune system kind of untouched. But we know that we have a breadth of ability to block multiple kinds of polarized T cell inflammation. And there's also really no additional kind of a priori knowledge or scientific reason why there wouldn't be an effect. Also, because we're an agonist and not an antagonist agent and we're a cellular agonist, it gives us confidence that REZPEG should have activity, whether the patient is biologic naive or experienced. And of course, there are multiple ways that patients fail those ages, whether it's tolerability signal or a loss of efficacy signal. Again, in both of those cases, we think REZPEG has potential.

Our next question will come from Arthur He from HCW.

Congrats on the progress during the quarter. So I just had a quick question on the potential pivotal study for the REZPEG for the AD. Regarding the biological experience patient cohort, what's your thoughts around the biological -- trial biological therapy? Would that be heavily focused on the DUPIXENT [indiscernible] patient or going to do kind of the basket patient cohort?

Yes. That's a great question. So our goal is to begin our first Phase III study in the first half of next year. At that time, the major approved mechanisms would be the IL-4 and IL-13 class, right? So that would be DUPIXENT, lebrikizumab, right, Adbry tralokinumab as well. And then nemolizumab is also approved as IL-31 antagonist. That would also be bio-experienced. In our case, while the OX40 class will not yet be approved likely by the time we begin, likely the first entrant will probably reach approval during. Obviously, there aren't as many people that have taken those drugs yet. But again, that would also represent a biologic experienced patient population. I hope that answers your question.

Our next question comes from Mayank Mamtani from B. Riley Securities.

Congrats on a very productive second quarter. As part of the Phase III, I was wondering what your expectation for the induction efficacy primary endpoint duration of therapy would be knowing that you're not getting to the peak EASI and efficacy at 16 weeks? And also the thought you might be putting in to get the relative efficacy signal? And obviously, is there anything to learn from the OX40 trials that are sort of trying to get to a comparable goal? And then I have a couple of follow-ups.

Yes, sure. So one of the things that our Phase IIb study, we think really gave us clear understanding of is the dose level and the regimen that we want to take forward into our Phase III studies. And we've already used since our top line, the results of the study to create a population PK model as well as an exposure response model. As you know, both of those are key components of the end of Phase II meeting package that are used to defend the dose level for the Phase III. So we feel very confident with that. We did mention earlier, right, that the way our study is designed is we have multiple portions of the study where patients are ongoing longer duration of treatment beyond week 16. We're very excited about the data cut that we talked about earlier in our call because that really starts to really sort of drill down, right, into what are those effects and the potential of deepening responses when patients are treated beyond 16 weeks. For example, we know for some contemporary Phase III studies, there's been a trend to move to longer induction endpoints. We also feel like we haven't quite even yet reached or seen the maximum efficacy of REZPEG, right? We think that's ongoing as people take more treatment, there's a strong potential that we can see deepening. So as we move forward into our end of Phase II meeting, we'll also clarify and propose the duration of our induction. And also, of course, the maintenance arms that we're testing in Phase II now. Those are both Q4 and Q12, but we'll also get more information about how we want to take forward maintenance regimen. So both the duration of induction and then the maintenance portion of…

Very helpful, JZ. And maybe just staying in that same topic of learnings from OX40, the alopecia data we've seen so far maybe doesn't get up to the benchmarks you shared for JAK inhibitors, but was just curious, given that you're somewhere in the middle in AD, does that read through to the alopecia trial? And maybe just lastly for Howard, any updates on the Lilly litigation? And if your belief with the REZOLVE-AD results now with you, any changes to your belief in the outcome and the related liabilities that you might be claiming?

JZ, why don't you start, and then I'll take the Lilly question?

Yes, sure. Yes, I'll start with the alopecia. So firstly, remember, we have a 36-week endpoint in alopecia. And remember, we just discussed about longer duration of dosing beyond week 16. So I urge you to keep those 2 things in mind. We think there's an opportunity for a very exciting outcome for us in alopecia areata. And we use the JAK inhibitor as benchmarks. But again, there's really not been a biologic that has established itself in this space and we're very excited with our mechanism to do that. And so we think that, if anything, the read-through that we have from atopic derm is a positive read-through on to alopecia. And Howard, I'll turn it over to you.

Okay. Yes. Let me -- obviously, we're not going to -- we certainly can't comment on the Lilly lawsuit. I think we are very committed to pursuing it. Based upon the REZPEG data that we reported and the data that's developing, I think we believe the potential for this program is significant and will drive a lot of valuation from others. So I think the lawsuit is something that really will -- let me put it this way, the results that we have seen so far from REZPEG, I think, will help us with the lawsuit. And I certainly don't think that we are in any position to comment on the specifics other than to say that we're highly committed to pursuing this and we do believe we were significantly injured by Lilly. In any case, for example, the program was delayed by a few years in the marketplace. So you can calculate out what that means in the long term. So overall, I think we have a strong position. We're going to pursue this lawsuit to its completion. And I think we're pleased with the way it's going.

Our next question will come from Cha Cha Yang from Jefferies.

This is Cha Cha on for Roger Song. I was hoping that you could give us any updates on your studies being done to better understand the ISRs, whether that's from a mechanistic perspective or if you could give us any updates in regards to developing strategies for mitigating them upon commercialization?

Sure. Yes. So in our studies, we have been assessing the biology of ISR using various methods. One that's been quite useful for us is using a primary skin organoid cultures using skin that's obtained from tummy tuck surgery. It's very useful because that's abdominal skin and we inject the abdomen, right? So one of the things that we've learned so far is that this is really, as we've known for a long time, an IL-2 effect. So IL-2 is known to cause injection site reactions and that was discovered in the late '80s and early '90s when subcutaneous studies started being done with the molecule. And so the pathways that we see induced are related to IL-2. And that's actually a great observation for us to be able to model those in the organoid culture. We can study them at the mRNA level and the pathway level. And then that gives us opportunities to be very specific with the kind of mitigation approaches that we can use because we know which pathways are firing and we can even identify the cells that are signaling the most. Another important element for us is that we've been operating the program basically using drug in a vial. And then the drug is drawn up at the study sites and administered to the patient subcutaneously by the health care practitioner. But we'll be launching with product presentation in a prefilled syringe packaged into an auto-injector. And we know that will have a positive effect because that will really standardize the drug administration, the needle depth, the rate, the needle itself will be dry, plus all the things that we're learning from these biological approaches. We'll be doing all of those things while the Phase III program is ongoing and we look to incorporate those into the auto-injector that we'll have at the time of launch.

Yes. Let me also add to that. I think -- look, I think from a marketing point of view, it's not a barrier at all. The patient -- we had, I think, 2 patients drop out of the trial for injection site reactions. Most patients, they were mild to moderate. They self-resolved. They did not stop taking the drug because of them. And while we did have a lot of patients that had an injection site reaction, they may have only had 1 or 2 and they didn't have any further injection site reaction. Sometimes patients went months before they had one and then they had one and then they didn't have any more. So you have to really understand what happened here with injection site reactions. It's not that a large percentage of patients get them on every injection. That is not the case at all. And in any case, they were -- most of them were mild and the patients didn't seem to care. So I think when you look at the problems associated with IL-13 drugs such as conjunctivitis, infections, I think that's actually much more concerning than mild to moderate, self-resolving injection site reactions. And I think JZ made a very excellent point. I think a lot of that will be cleared up by an auto-injector. I think there's a lot of -- I don't want to say sloppiness, but a lot of inconsistency in the way patients administer the drug themselves. They put it in a vial, it's a wet needle, et cetera, et cetera. There's -- an auto-injector should solve a number of those issues. And in any case, the level of ISRs that we saw, I don't think are meaningful from a marketing point of view.

Our next question comes from Alex Ramsey from William Blair.

This is Alex Ramsey on for Andy Hsieh at William Blair. So just going back to the potential remittive effect of REZPEG in atopic derm, that's something that we've been curious about. And so we have the upcoming maintenance data in early next year. And we're just curious about what data points or efficacy bar at this readout could be suggestive of a remittive effect or if we will need to wait until 2027 to get a gauge on this potential advantage of the regimen? So that's part 1. And then part 2 is, do you have a sense of how much you have to blunt disease recurrence to achieve a true remittive effect?

Yes. Those are great questions. So starting with the first one, so with remittive effect, the data in this part of the Phase IIb REZOLVE- AD study is still on treatment data. So the people that exited week 16 induction that had an EASI-50 or better, right, they moved into the maintenance arms. And in the maintenance arms, they stayed on the same dose level that they were on in induction, but they switched to either a once a month or a once every 3-month regimen. And then they were on that regimen for 36 weeks. So the data that we'll be presenting in the first quarter of next year, that will still be on treatment data. So I'll get to your remittive question for part 2 in a second. But just to specify, yes, that first quarter 2026 data set will be treatment data. But we will have a very low frequency treatment component. There will be a number of people, about half of the people that entered into maintenance will be on a Q12-week regimen. So we will be looking at a very low frequency dosing and comparing that to a Q4 week. And earlier in the call, we talked a few times about the potential of deepening responses and the things that we're really interested to look for in the maintenance with ongoing dosing is, for example, the proportion of people that enter that had an EASI-50, but not an EASI-75. So how many of them deepened to 75, how many of the EASI-75 people deepened to 90 and so forth. And also looking at the people that had a response at the week 16 induction, how durable was that in the sense that with ongoing dosing, did they lose or keep that response? So those are…

And our next question comes from Jessica Fye from JPMorgan.

For REZPEG for AD, can you just speak to your comfort level with the powering of the maintenance phase of that trial after the dropouts in the induction portion? I think you had sort of planned for some attrition here. I just want to make sure that you still feel good about the powering for the maintenance phase. And I think when you kind of presented the top line induction data in AD, you're sort of benchmarking off of OX40. Can you just spend a minute talking about why you think that's the right comp for this product?

Sure. Yes. So firstly, as we reported in June, we had 190 people that moved into the maintenance arm. So we think that's a good population. It's actually right in line with what we've modeled that will cross over. And that modeling was based on other Phase II studies and similar Phase II patient populations, similar statistical methods used during induction. And then, of course, heavily driven by our Phase I data and our Phase I results. So we're pretty happy with the number of people that moved into the maintenance portion. And very much to your point, because we wanted to assess 2 regimens, right? You're basically randomizing them 1:1. The people that were on placebo, and there was a handful, right? It was less than 30%. Those stay on placebo, but everyone else is on REZPEG, right? And then they're randomized 1:1 on either once a month or once every 3-month regimen. So we're right in line with how we designed the study, but we feel pretty good about that. And then to your next question about benchmarking to OX40, that -- for us, it was really informative when we started to very closely compare the Phase II studies, the study designs, the patient populations and other elements. And when we looked at that, we saw that -- and kind of the health authority keeps sort of driving you to more and more rigorous statistical designs, right, as you have more and more entrants approaching through later-stage clinical development. And that's common. All regulators like to do that. It really pushes the bar. And so we noticed that our study design, our statistical handling, even our sizes and patient populations and even geographic footprint was really much more similar to the OX40 Phase IIb studies. The other studies like Dupi, I mean, that was done many, many years ago, well over 10 years ago, very different patient population and tralo, which came next, same, a very different patient population. Also, as you looked at new mechanisms, for us, looking at REZPEG as a completely novel and first-in-class mechanism in atopic derm and looking at the OX40 class, which was novel relative to the LL-13s. So we focus that as one of our areas of comparison for those reasons. But of course, you have to consider all of it as well. And that's why we showed all of the agents that are approved, including the ones in Phase III.

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

Well, thank you, Crystal. Before we close, I want to thank the new and existing investors that supported our recent capital raise and we are truly grateful for your support as shareholders. I also want to thank our employees for their dedication and extremely hard work and we look forward to delivering additional data updates later this year and engaging with regulators on our Phase III program. So thank you for joining us today, and please stay tuned.

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