Nektar Therapeutics (NKTR) Earnings Call Transcript & Summary

Let's get started with our next session. Thank you for joining us. My name is Chris Shibutani, member of the Goldman Sachs Healthcare Equity Research team. We are very pleased to have Nektar Therapeutics join us once again for our conference. I think you guys go back with me just many years and I think what's interesting is to think about the resilience of the efforts and the focus, and the company is different from when we first met several years ago. And we'll go into that a little bit in terms of the shift in the focus. And there actually seems to be a lot of progress points that have happened with REZPEG in immunology that there is a path forward, and so hopefully, this is a conversation that we can have that will remind people, a, of the resilience; and b, that there is a path forward. And I think when folks are looking for ideas that are not necessarily at the epicenter of something like obesity, they should be looking at other areas. And you guys have been really doing work in very relevant areas of Oncology, Immunology, et cetera. So very pleased to be joined by 2 members of the C-suite here, Jen Ruddock, and your official suite-B, the B is Chief Business Officer; and Jonathan Zalevsky, who is Chief...

Research and Development Officer.

Really. Okay. I don't even know what the acronym for that is. But okay, you've been wearing quite a few hats, and you bring to bear a lot of experience. So it's great to see you again, JZ and to be here.

Thank you for having us, Chris.

Absolutely.

So let's talk about particularly where we're at. The center of gravity here is REZPEG, maybe JZ. What is REZPEG?

Sure. REZPEG Aldesleukin is a polymer form of interleukin 2, and it shows really great ability to selectively stimulate regulatory T cells, which are a unique population of cells in our bodies that control unwanted autoimmune and auto inflammatory reactions.

And what is the history of the clinical development path? What do we know? And just tell us a little bit about this journey because it's actually got an interesting development stewardship history went with Lilly, we're get into that a little bit just because I think it's a helpful context to think about now in your hands, what you're doing with it. But just remind us from the outset, what's the profile? What's the...

Sure. Yes. So we invented it several years ago when we understood that it would be a way to create a growth factor to access these regulatory T cells in the body. And that, that could have a potential to be a therapeutic avenue to explore for a wide variety of autoimmune diseases, systemic diseases, skin diseases, all manner of different forms of indications. And after we invented it in order to help sort of maximize and expand its development, we formed a collaboration with our former partner, Eli Lilly. And under the umbrella of that collaboration, we completed all of the nonclinical development work. We published that a few years ago. And then we also opened the Phase Ia and the first Phase Ib clinical studies. We conducted all those as Nektar. And then we handed the program over to our partner, Eli Lilly, who then ran 7 additional studies. And that was a combination of studies in healthy volunteers, so it has various kinds of clinical pharmacology features of the molecule. And also, they ran studies in psoriasis, atopic dermatitis, lupus, ulcerative colitis and so on. So in total, there have been 9 clinical studies run over the program over the years. And then most recently, Nektar and [ Eli Lilly ] have terminated our collaboration and Nektar has fully regained the full rights of REZPEG. And we're continuing its development because during the time of the collaboration and particularly in one indication, atopic dermatitis, there was some very exciting data collected in an investigational study where REZPEG showed a dose-dependent efficacy in patients with moderate to severe atopic dermatitis and the efficacy was really compelling. It really pushed the envelope in terms of time of effect, very rapidly efficacious. It pushed the magnitude of response and actually achieved an 83% change from baseline in EASI Score, which is a level of efficacy that is really only touched maybe by JAK inhibitors. And even rarely not all of JAK inhibitors can achieve that. That is a biologic to have that kind of cross of the 80% mark, was quite notable. And then we also saw a very important property, which is really related to the mechanism of the drug, which is when we withdrew dosing, patients maintained efficacy for up to 36 additional weeks, as we followed people all the way through -- after a 12-week dosing period, all the way through week 48 in that study. And we saw the IgA responses maintained in 80% of the people and EASI-75 response is maintained in about 75% of the people. So those were very notable things that we learned during the collaboration with Eli Lilly and afterwards, now that the drug is fully in the rebirth, [ stewardship ] resilience era is now fully within our hands, and we're really aggressively advancing its development in a very large Phase II study in atopic dermatitis, which I'm sure we'll talk more about.

Right. Yes, I think often about immunology directed assets, the construct is that there's a pipeline within the product. And so the extensive number of indications that were being prosecuted earlier totally makes sense. I always think of the skin indications as being more competitive from the efficacy standpoint. When you hear someone say, "I say EASI or PASI score, you're expecting a number that kind of has to start at least with a 5 handle on it and go higher, right? Whereas if someone says, "Oh, we're going after UC and Crohn's, and someone says that they did 20% response went into induction remission, it's high fives all around which actually sort of speaks to how complex those patients and the diseases are, et cetera. So AD is pretty competitive, right? We have a dominant franchise product that is the golden goose there, where do you envision the white space or the opportunity set? Because one of the other wonderful things about the immunology market is that we're still not great at picking who gets what, and patients try stuff and the phrase cycling on and off therapies means multiple players get to play, which is theoretically where I think REZPEG could come in. But frame for me what the mapping out of where you see this could go if things continue to go well?

Sure. Yes. Well, we started off in our Phase Ib study, we ran that study in biologic-naive patients. So that is the same patient population that DUPIXENT, for example, right, we treat. We did get a number in that efficacy category that really is indicative of pushing the bar on efficacy. So as I mentioned, we had an 83% change from baseline, whereas DUPIXENT has a change from baseline in Phase II studies in the low to mid-60s. So that was one of difference that we're looking at. But of course, that was a Phase Ib, little bit of a smaller data set. Now the thing is -- we know that only a small proportion of patients that are eligible to take biologics are actually treated with biologics. And I think one of the estimates that we saw from epidemiological analysis is about 8%. So there is, firstly, a much larger patient population altogether with atopic dermatitis. And for the folks that are not controlled by topicals, there's about 90% of those people are still untreated with the biologic. So there is an addressable patient population. And in addition, as we've seen in fields like rheumatoid arthritis that grew with multiple TNF entrants, it feels like psoriasis that grew when the efficacy bar was pushed by agents like STELARA and then IL-17 inhibitors and IL-23 inhibitors, and convenience was pushed most recently with [ REZI ], which both pushes efficacy and convenience. There are multiple sort of vectors of trajectory that allow you to really establish a very competitive product that has a lot of differentiating potential. So we see in REZPEG totally novel mechanism, a mechanism that you would use effectively, right? You wouldn't cycle through another IL-13 if you failed one, so you need other mechanisms. We see the ability to have a durability and response and in our Phase II we're already exploring Q12 week dosing, possibly it could be even less frequent, right? So you have the convenience, and we have -- over pushing the bar on efficacy. So we really think REZPEG represents a very competitive opportunity and we feel very confident moving it into this biologic-naive patient population. And then when you think about the mechanism, even if you're refractory to other therapies its not a Treg mechanism, so you have the opportunity to consider its use in additional lines. And the last part to just touch on is we know that in children, this disease like atopic dermatitis is really atopic, it's really Th2 dominant. But in adults, presentation of the disease is really mixed. So we have much more of a Th1 infiltrate in some patients, more Th17 in others. And if you have asthma, you might have Th9. So you really start mixing the kinds of presentation. The standard of care right now is really focused on Th2, they're either IL-4/13 or direct IL-13 inhibitors. We're not really going to have the ability to directly engage with anything other than a Th2 inflammatory pathway as the cytokines they block are Th2 only. One of the benefits of a Treg therapy is we know Tregs take subtypes that are skewed to the same helper subtype that the auto inflammatory cell has. Th1-driven inflammation has a Th1/Treg, a Th2 inflammation has a Th2/Treg, Th17 Tregs and so on. So there's also the opportunity to provide more broad biological control for patients that have different kinds of subtypes.

I want to ask a little bit more about the Phase IIb design because you have multiple doses and cohorts of patients, but you did mention something earlier that I'm hoping to get a little bit better biological understanding, and that is that durability of the response was sustained. What's going on there? And how are you navigating that information into it's like, okay, what should the periodicity of dosing be?

What we did see in our preclinical studies that if we gave a mouse like a -- like induced dermatitis to a protein antigen. Like we use this protein called KLH, Keyhole limpet hemocyanin, is a common one. If we treat with REZPEG while we're doing the dermatitis, of course, you can suppress dermatitis as you'd expect. But then what we saw is we can put the animals back in the vivarium, wait for months, bring them out of the vivarium, give them no additional drug treatment. But if you rechallenge them with that antigen, they remain suppressed. If you give them a relevant antigen, they form a massive inflammatory response. But the original antigen from before is blunted, right? So we did see that with REZPEG treatment, we could create a lasting kind of immunity, right? And the animals are maintained with that kind of suppressed date with repeat challenges without no further treatment. So then we saw the results of the Phase Ib study. Now those were amazing, right? And certainly, you never know if a mouse model can predict anything like that. We were extremely excited to see that result. And we were encouraged that it had similarities, right, with some of the preclinical modeling that we had done. And there are theories about memory Tregs, there are theories about the fact that you can continue to prime Tregs to recall antigen, and you could continue to get an inflammatory response. It's possible that something like that is happening. But that would take a lot more translational investigation to investigate this. But right now, we're very obviously excited for the patients and excited for this phenomenon of the drug. And we're leveraging that in the Phase Ib and multiple Phase IIb study in multiple ways. The first is, we're including a Q12-week treatment regimen. And we feel confident to dose once every 3 months because we know we can withdraw. And as I said, 80% of the patient has maintained their response. So we know that we can reduce the frequency dramatically. We also want to keep dosing and maintenance because we think we might have not even mapped out the maximal efficacy for the drug because we've only dosed for 12 weeks and stopped. And of course, many people achieved an EASI 100 over that period, but others could have clearly been treated and dose longer. So we also are excited to map out the full extent of efficacy with the extended dosing. And we know we can step back to low frequency, Q12 weeks. And as we see results from the study that are positive with that, we can explore even lower frequency regimens Phase III.

And remind me, this is IV that we're testing at this stage or subcu?

This is a subcutaneous.

Okay. And then just in terms of thinking about the volume of the inject data across the doses, what are we talking here?

Yes. So...

As we think about and we're already Phase IIb here, so we have to have an eye in the lens towards the commercial profile and...

Yes, exactly. The TPP for the drug is obviously a patient self-administered product. And you would imagine it would be a device like an auto-injector or a pen, that delivery to the dose, right? And the dose volumes and the needle and all of the things are standard and typical, as you find for drugs in this...

A little bit about the history of your experiences in partnerships with big pharma, obviously, with Bristol on the oncology side and then with Lilly there. At the time that you're kind of dating. There's a lot of engagement and opportunity and optimism, there's opportunities for you to sort of see how the sausage gets made once you're sort of in some of those special war rooms, et cetera. What does that make you think about with REZPEG now? Where are you? Maybe this is one for you, Jen, on the strategy side about, is there a critical juncture at which you'd be willing to put yourself out there again, so to speak, and that you would need the capabilities of one of these larger, oh, yes, we've got the commercial regulatory people and well oiled and feet on the ground, et cetera, and all that.

Yes. So obviously, we, as a company, are much smaller now. I'll comment a little on the BMS partnership. And BMS is a great partner. We're really unfortunate that, that drug did not work, right? So I think they were sad, we were sad, but they were very committed to the program during the time that we pushed it forward. They ran a lot of Phase III studies, and they invested heavily into it. So that, I think, was a great experience. I think as we look at REZPEG and we're going into this Phase IIb, we have the resources and the capital to fund the Phase IIb in both atopic dermatitis as well as alopecia. So I think it's very important for us to get to that data. We have optionality once we get there to consider the path forward for Phase III development and approval. So we have been approached about the asset. I think right now, we're fully committed to funding it through the Phase IIb data points, and then we can consider sort of the path forward for that. So I think as a smaller company, you have to consider that optionality for sure.

Okay. No. And then that's very helpful because, again, going back to this pipeline within a product, remind me what happened to the lupus effort. I remember years back that, that was doing KOL calls where people were actually pretty jazzed and they did some of the initial data, but that's obviously its tremendously difficult disease area of patient selection, identification, the chronology, et cetera, any prospects or learnings from lupus and would you ever go back there, and then we will turn to alopecia, but I just want to touch upon lupus?

Yes. So there were a lot of learnings from the lupus study for sure. The first thing that we saw was that we had a kind of a bell-shaped dose response curve in terms of the clinical activity of the drug. Now the study was designed with SLEDAI-4 as the primary endpoint. So not a composite endpoint, but just the people that reached a 4-point reduction in [ SLEDAI ]. And there was a bell-shaped curve. None of the doses reached a p-value in the study, but the middle dose was the most active. And then when we looked at other endpoints, we saw other endpoints that were much more sensitive than the mechanism of action. And in particular, BICLA is the other kind of contemporary composite endpoint and that's based on this other scale called the BILAG and the main difference between BICLA and SLEDAI is the SLEDAI is completely categorical. You only score presence or absence. But in BILAG, you score the degree of disease, so better or going from severe to mild, right, is considered a treatment benefit. Whereas in SLEDAI, that would still be no change. Now what we saw is that when we looked at BICLA, which was the most contemporary endpoint that's of know how? They actually saw the mid-dose level met the prespecified success factor or the green criteria in the study, it had just about a 16.4% separation from the placebo. That was something that was notable and the LLDAS, which is the highest metric of efficacy, also showed a separation from placebo at the mid-dose level. So what we learned from that study is we learned about the dose response. And we also learned a lot about the end points, so should we move to studying lupus in the future? We know the key endpoints that we would design as the primary endpoint. And we know that they are registrational endpoints as BICLA is well approved and accepted registrational endpoint if we were to ever go forward. The other thing that we learned is that from the full safety analysis, we did learn that the high dose showed a little bit worse tolerability in that patient segment. That's something we have to be aware of for that kind of different immunological presentation. But we also saw there was no increase in infection risk with REZPEG treatment. And that we thought was really notable because it's not an immunosuppresive mechanism, right? These are patients that are at risk of opportunistic infection, treating with REZPEG did not exacerbate or increase that risk at all relative to placebo. And then I think the last thing to say is that really, as Jennifer said, I mean we're really focused on what we're doing. We're focused on our resources. We're focused on being the smaller company, really prioritizing the work in atopic dermatitis, alopecia areata. We saw really positive data in Phase I. And our intention is to really focus on replicating that kind of data in the Phase IIb in the larger study of the Phase IIb. There might be a version in the future where we might revisit lupus, but right now we're really focused on those 2 dermatologicals.

So that makes sense. So alopecia areata, tell us a little bit about that data so that we have some context?

Sure, yes. So this is really based on like the kind of well-known mechanistic studies and translational studies about the role of Tregs in maintaining the immune privilege of the hair follicle. So in all of us, we grow hair, our whole lives because our immune system does not think that our hair stem cells are tumors, right? So the immune system is excluded from our hair follicles and we grow hair, and we don't go bald, right? Unfortunately, for some people, the immune system gets confused, infiltrates the hair follicle, starts to kill the stem cells in the bud and starts to actually erode the actual base of the follicle that holds the hair in place. And so that's alopecia areata. And Tregs are critical for maintaining that immune privilege state. We know that if you take a JAK inhibitor and you blunt the inflammation, you can grow hair, right? But we also know that if you discontinue the JAK inhibitor because that immune privilege isn't fixed by a JAK inhibitor treatment, it's just palliative blocks of the inflammation, the patient still loses their hair when they go off of the treatment. But we think that REZPEG could have an effect in alopecia that's very similar to what we saw in atopic dermatitis. So if inducing Tregs sort of pushes back the immune system and rebuilds that immune privilege state, then when the patient goes off of REZPEG, we'll keep their hair and never fall out. So that study is designed very much in that way. It's a 2-period design. The first period has a 36-week induction, where we're taking placebo or 2 dose levels of REZPEG. At the end of 36 weeks, we'll be assessing the primary endpoint, which is a change in SALT score from baseline. And then there's a 24-week off-drug period where we'll be monitoring the durability of the efficacy. So it will be very transformational if we achieve a result that patients keep their hair.

There are some numbers out there that give us some sort of benchmarks for -- everybody wants to know. Is this good? Is this -- what should we expect from an efficacy standpoint? And then just put on the ecosystem, some ranges of numbers of this would be a positive signal for you to continue to move further into development?

Yes. I would just guide there are 2 approved JAK inhibitors, one from Pfizer and one from Lilly. So we use their Phase III data.

And remind for the listeners here, maybe just exactly what those thresholds were in the range of in terms of the alopecia areata, what is the particular endpoint that matters and just a range of numbers that would work there and SALT score?

So in Phase III, you use SALT 20, and so they published the results for patients that achieved SALT 20 in our study, because it's a Phase IIb, we're focusing on the percent change from baseline in SALT. So we're using the continuous endpoint and then SALT 20 is like the secondary endpoint that we're using.

And whenever we think about JAK inhibitors, we often think about pretty rapid onset of some sort of clinical benefit or symptomatology, et cetera, what are the kinetics that you think makes sense as we think about REZPEG from all the work that you've done in other indications so far? What do you think?

So it's really indication specific, right? So in alopecia these drugs do not work quickly, right? So JAK inhibitors. In fact, they've shown that dosing beyond 36 weeks continues to show benefit. And it's for a number of reasons. So one is it takes time to stop the inflammation. But then the other is depending on how far gone the hair stem cells are? Some recover more quickly, some recover more slowly, and then there's the rate of growing hair, right? Because your endpoint is a visual endpoint inspecting your hair, right? And so that takes its own chronology. So in alopecia, it's generally slower. So 36 weeks is the endpoint that was used in the Phase III studies, but even continued treatment with JAK inhibitors can give you more efficacy. In contrast, in atopic dermatitis, you're looking for really rapid. So you're looking for changes within a week, right? And in fact, that was for us why we looked at the 2-week time point, which is 2 weeks after the first dose. We were already looking at people that had a 50% improvement in baseline EASI. And in fact, even if you look at the average of the high dose, in the Phase Ib, it's about 50% for all patients. So there, you're looking for really rapid onset. Some drugs like ADBRY, right? It has like a slower onset. It still gets there. It's not quite as good as DUPIXENT, but it gets there. But I think the fact that it takes longer to work is a disadvantage for a drug like that. So we want a really, really rapid for a disease like atopic.

And we've AD, I think when we talk to doctors and scientists, they look at some of the metrics. And then when you look at more research that's done amongst patients, you get much more of a characterization of what is the bothersome symptom that they care about. And often, it's itch, right, primarily. Can you comment about what some of the patient benefit clinical features that appeared to be part of the potential profile?

Yes. And so when Jonathan Silverberg presented the results of our Phase Ib last year at EADV, he showed the Itch-NRS results, and one of the things that was really striking about that was how fast patients reached a 4-point or better. That's the clinical benefit. And so in fact from the data set, about 40% of patients reach their itch score within 1 to 2 doses. So either from week 2 to week 4, week 2 would have been after 1 dose, week 4 after 2 doses. So the curve is really steep, and then they had like nice plateau. So that was something that was very notable because the patients felt it itch relief very, very rapidly. And I agree with you. I think that's really important because itch besides being annoying it impacts sleep, and when you measure the patient reported outcomes and actually the quality of sleep, sleep benefits and uninterrupted there's a huge component of getting a [indiscernible] result. And so yes, working on [Audio Gap] is really a key feature for our drug.

[indiscernible] cycle which these -- so they end up really caring about, especially if you're not a first-line agent. It's like, okay, I'm one of the 8% or 9%. And we're getting [indiscernible] where my symptoms are [indiscernible] so I think that there's an opportunity in subsequent minds with products that address specific symptomatology. So let's close out here with a discussion about sort of strategy, resources Jennifer did a financing recently talked to us about how that supports your plan up until a certain time point. I think we actually have a pretty good runway now?

Yes, we do. So in the first quarter, we actually did 2 different transactions. We did [indiscernible]. And they actually came to us. So [indiscernible] prefunded warrants at an 80% premium. So we were able to reduce the dilution of that financing. We raised $30 million with that. We also fix an amendment that we have with health care royalty. We sold that back to them for an additional $15 million. So with those 2 transactions, we're able to exit this year with between $200 million and $225 million in cash. And that puts us in really a very strong position going into the data catalysts, right? So atopic dermatitis data will come first. That's the Phase IIb study that JZ has been going over. That will come in the first half, we haven't narrowed that time line at all...

First half of '25?

Yes, first half of '25. And then about 3 to 4 months after that, we'll have the alopecia data. And we wanted to make sure we had that strength of financial position, so we have strategic optionality when the data came. So we're in a great position for that. The other thing that we're doing is we're funding our TNFR2 program. And I think it's worthwhile to talk about that for just a minute. That is going into the clinic next year. It's a bivalent antibody. We're actually presenting data few days [ EULAR ], the first preclinical data for that. And I think it's an interesting program because we've really pivoted into [ I&I ] it's our first antibody program. JZ has a very deep background in antibodies, very successful background in antibodies. And what we're building now with that is really a pipeline in that program. So because of the specific nature of the antibody, we're going to be able to start crafting out a bispecific antibody program from it. So that's exciting. And as we look at the next 1.5 years through the cash runway into the third quarter of 2026, we're also investing in that program. So we have 2 areas of investment that are heavily I&I.

So that runway that you project includes investment in the TNFR2...

Yes, in through the data -- to the data, yes...

[Technical Difficulty] little bit more beyond the preclinical data because that [indiscernible] translating into the clinic is [indiscernible]?

Well, the first thing is, as Jennifer said, in 2 days, EULAR on Wednesday, we'll be presenting the first information from that program. So that's a preclinical data set, but it really highlights the unique differentiating elements of that antibody. And what's really interesting about it is that it was designed by de novo [indiscernible] approach to find very novel binding specificities to TNFR2. Ones that wouldn't normally appear through a traditional immunization. So it's a really novel set of properties, novel selectivity profile. And then a lot of novel uses as Jennifer said, creating other kind of plug-and-play components of that bispecifics and other kinds of opportunities. So -- but then the advancement of the program would enter into the clinic around the middle of next year. So that would be the time that we would start presenting and we're assessing the first set of clinical studies.

And I think you have one other preclinical program, PEG CSF1...

Yes, we do. Yes, exactly. So that's a way of trying to target M2 kind of macrophage populations, right? So the goal with that program is to skew the population of monocytes that could turn into anti-inflammatory macrophages, the ones that specialize in eating and kind of removing debris, removing damage and then eating things in a noninflammatory way, right, but in an immunoregulatory and suppressive way. Yes, we're continuing that program in the preclinical stage.

Okay. So I think actually, this is a really timely conversation because it feels as if a lot more has become settled. And a lot more of the analysts are pointing in a very clear forward direction. You have assets in the clinic. We have timelines for data. There's money in the bank. There's plan, there's optionality. So I really appreciate this opportunity to have this conversation. I think, hopefully, it will be a really helpful update for the investor community to turn some attention here and to keep an eye on you guys. Thanks for being here.

Thank you, Chris, for having us.

Thank you, Chris.

Thanks.