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Good day and thank you for standing by. Welcome to the Nektar Therapeutics Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Vivian Wu. Please go ahead.

Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. With us on the call are Howard Robin, our President and CEO; Dr. Jonathan

Thank you, Vivian, and thank you for all joining us today. The first half of this year has been a pivotal time for us. In April, we implemented a new strategic plan that focuses on our immunology programs and also extends our cash runway through at least the middle of 2026. Our most advanced program is RE

Thank you, Howard. Starting off with our lead immunology program, RE

Thank you, J

Thank you, Mary, and good afternoon, everyone. We ended the second quarter with $409.4 million in cash and investments with no debt on our balance sheet and we still expect to end 2023 with at least $315 million in cash and investments. We rapidly executed our restructuring and strategic plan in April, and because of this, our financial position remains strong with a cash runway that extends at least through the middle of 2026. This will take us through several key value-generating milestones for our pipeline. As discussed in May, we reduced our San Francisco-based workforce by approximately 60% and this personnel reduction represents approximately $30 million a year in operating expense reductions. The costs related to the restructuring were substantially paid in the second quarter and we have begun to realize the cost savings in this third quarter and will fully realize the annual savings in 2024. In Q2, we recorded a $13.3 million non-cash impairment charge for leased assets. For the full year 2023, we now expect to recognize restructuring, impairment and cost of terminated programs of approximately $40 million to $45 million, which includes $27 million of non-cash impairment charges recognized in the first half of 2023. I will now review the remainder of our 2023 financial guidance, which remains unchanged. Our GAAP revenue for the full year 2023 is expected to be between $80 million and $90 million, these revenue includes $65 million to $70 million in non-cash royalties and $15 million to $20 million in product sales. We anticipate full year 2023 GAAP R&D operating expenses will range between $105 million and $115 million, which includes approximately $15 million to $20 million of non-cash depreciation and stock compensation expense. We expect G&A operating expense for full year 2023 to be between $75 million and $80 million, which includes approximately $15 million to $20 million of non-cash depreciation and stock compensation expense. Our full year 2023 non-cash interest expense is expected to be between $20 million and $25 million. As I mentioned earlier, we expect to end 2023 with at least $315 million in cash and investments. We will now open the call for questions. Operator?

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

Oh! Hey. This is Cha [ph] on the line for Jay. Thanks for taking the question. We kind of have a couple of questions on RE

Thank you.

Yeah. Sure.

J

Yeah. Certainly. Yeah. So thank you for the question. So -- and you rightly noted and that you saw in the materials that we released with the press release yesterday, that there is a very rapid and steep drop. And that week four-time point is very interesting, because it’s basically after patients have taken two dose administrations of RE

Got it. Thanks. Yeah. Thanks. Just like with the more robust data now in AD. Just curious how you are thinking about the timing and also interest level in exploring additional opportunity with RE

Yeah. I can answer that. Look, it’s a very good question. I think at this point, given our capital position and our strong financial position, I want -- I would like to focus our company on atopic dermatitis right now. I think RE

Thank you. And our next question will come from Chris Shibutani from Goldman Sachs. Your line is open.

Hi, everyone. Thank you for taking our questions. This is Charlie [ph] on for Chris, and also, I’ll extend my congrats on the corrected RE

Thanks, Charlie. I’m going to ask J

Yeah. Thank you. Thanks for the question. So really, the -- in terms of the data that was excluded, so that was really a judgment that Lilly made. And it was a judgment on using a criteria around topical medications that were permitted by the protocol. And so in reality this is something that all the patient data should have been included from the very beginning as all of that patient data and the use of all of those components are specified in the protocol. Now the next question you asked for was about safety and tolerability. And so those results are the same as they were in the EADV presentation. So in terms of what we did at Nektar is we reviewed everything. We calculated and recalculated all of the components and for the safety information that was presented at EADV from last year, that is the same. Thanks.

Great. That’s very helpful. Thank you so much.

Thank you. Our next question will come from Mara Goldstein from Mizuho. Your line is open.

Great. Thanks so much. I apologize I signed in late, so if this is repetitive, please excuse me. But two questions for you. And one is, given the reanalysis of data and the prior clinical, do you have to approach FDA with this? I mean, obviously, you’re planning on launching a trial, but is this something that they need to be apprised of number one? And then the second question is on the lawsuit understanding that you can’t comment on, because you’re in active litigation. Maybe you can just tell us procedurally what are the next steps here since you have filed that suit?

Yeah. Mary, could you take the first part about FDA and then I’ll ask Howard to comment on the second.

Sure. Regarding the reporting of data to the FDA, we would do that in a clinical study report. At this time, we have not finalized the clinical study report and we will be providing all of the updated and corrected data into the clinical study report, which will be submitted to the FDA. And then I turn it over to Howard for the next question -- next part of the question.

Sure. Look, in regard to the lawsuit, obviously, as you correctly stated, we’re not going to comment on an active litigation. So suffice it to say that we will move forward on this and we take it -- look, we take this lawsuit very seriously. It’s significant, it’s substantial. If you look at the development of RE

Thank you. And our next question comes from Roger Song from Jefferies. Your line is open.

Hi, team. This is Kambiz on for Roger. Why have you decided to move into Phase IIb in specifically bio naïve patients? Any preclinical and mechanism action related reasons, RE

Yeah. Thanks, Kambiz. J

Sure. Thanks, Kambiz. So one of the things that we wanted to do importantly is to build upon the data from the Phase Ib study that we’ve just been speaking about today and for which we released corrected data yesterday. So that study was run in biologic naïve patients. So we wanted to continue the development in the same patient population and the strength of the data that we discussed today, as well as all of the elements of differentiation that RE

Thank you. Our next question will come from Greg Harrison from Bank of America. Your line is open.

Hi. This is Mary [ph] here on for Greg. Thanks for taking my question and going through the programs. I guess looking at the potential with RE

Well, let me try…

Yeah. Go ahead, Howard. Yeah. Okay.

Yeah. I’m not -- when you say are there any precedents for this, I am -- I don’t know of any precedents for companies making this kind of a calculation error. So I can’t comment on that. The path-forward, as you know, is we are -- now that we have what I think is very impressive Phase Ib data in a randomized trial, I believe that we’re certainly very enthusiastic about moving forward into Phase II, where I think we can demonstrate that RE

Thank you. And our next question will come from Boris Peaker from TD Cowen. Your line is open.

Thank you for taking my question. This is Jane [ph] for Boris. So for the -- for RE

Thanks, Jane. And you have a follow-up as well. J

Sure. Yeah. Thank you. So one of the things we discussed today, right, was about the PASI score calculation and sort of the underreporting of the data from EADV, which we’re very pleased to have been able to correct yesterday. In terms of those long-term focus of RE

Thank you. For the next question, just regarding your developing preclinical assets targeting TNFR2 and CSF1. Can you just talk generally regarding the competitive landscape over those two targets and your potential market opportunities there? Thank you.

Thanks.

Sure. That’s…

Yeah.

Okay.

Yeah. Thank you for that question. So they’re early assets, obviously, in the research setting, but I can give you some flavor around the targets and the opportunities. So with TNFR2 that is certainly a very kind of hot target and there are just a couple of companies sort of that are coming up that are studying that target and trying to create agonistic drugs. Some of the companies are focusing on applications for oncology and others are focusing on applications for autoimmune disease. We’re interested in the autoimmune disease applications for the TNFR2 target and our agonistic antibodies. Now it’s a very unique target, because it really controls a lot of tissue protective and tissue regenerative pathways. And it can particularly well act on regulatory T-cells once they move into individual compartments in the body and they undergo different kinds of cytokine pressure. And basically, NF-κB be signaling through the TNF superfamily become much more critical for driving their biological importance. So we can see a lot of application for a TNFR2 agonist antibody in certain kinds of organ and sort of pathology type of inflammatory conditions. So the GI and a family of GI diseases is one, neuronal and neuroinflammatory diseases are another, for example, MS. And so there’s really a range of opportunities for a TNFR2 agonist. In the case of our CSF1 program, that targets a myeloid component of the immune system and it targets it with the goal of creating an immunoregulatory effect. So this is not targeting lymphocytes, not targeting T-cells like the other molecules in our pipeline, but targeting a whole different set of immunoregulating and immunosuppressing cell populations. And we think that could have, again, also a very broad application because the myeloid compartment participates in a large number of diseases from the common rheumatic diseases to even some more rare ones as well. Thanks for the question.

Thank you. [Operator Instructions] And our next question will come from Daina Graybosch from Leerink Partners. Your line is open.

Hi. Thank you. I have two questions. I wonder for the EASI score recalculation, if you could help us by separating out the impact of the two changes, Lilly’s mathematical error and then the inclusion of the additional patients, how much of the additional total benefit and the speed of benefit came from those two changes? And then I’ll have a follow-up after that.

Thanks, Daina. Appreciate it. J

Yeah.

Yeah.

Sorry, Jennifer. Yeah. Hi, Daina. Yeah. Thanks for the question. So, basically, the majority, if not the totality, of the difference in the data that we presented on Monday really comes from the mathematical calculations of the EASI score. So, for example, if you correctly calculate the EASI score and you include all the patient data, the week 12 LS mean results that we presented yesterday were 83% reduction. If you correct the EASI score, but not correct the data that was excluded, then the LS mean results at week 12 are 82%, right? So the two numbers are virtually the same. Really, the majority of the effect and the change, right, in the corrected data that we reported came from the mathematical calculation of the EASI score.

That is very helpful. Thank you. My second one is it seems like they made a mistake and correct me if I’m wrong in setting up their staff. So was the mistake consistent for all patients, meaning a certain column or certain multiplier was consistently left out and does that actually tell us anything about the biology of RE

J

Yeah. Sure.

Yeah.

Yeah. Thank you. Yeah. So, basically, when you calculate the 72-point EASI or PASI score, there are multiple components that make up that -- the mathematics that get you to the 72-point number. So the first set are typically what are kind of known as the severity scores, and so they score components of eczema or components of psoriasis depending on if the EASI or PASI is used, and they score those categorically in four sections of the body. Then the next components of the score really assessed the area and so they assess how much skin in each region is affected by disease. And then they also take into account if you’re scoring the head, that’s less dermis on your body than if you’re scoring lower extremities, which is much more. And so sort of consistently the same error was made across both the EASI and the PASI that didn’t capture all of those severity and area components. And so, consistently, a score was arrived at that was less than the 72-point score and that same mathematical calculation was done for every person and every time point. It was basically like an error kind of like in the code that was used to do the calculation. So a couple of important points to add to that to sort of complete the thought of your question, is that, really for over 20 years, there’s been only one measure used for either atopic derm or psoriasis studies. Not only is it validated, but these are the key endpoints that have been seen in study after study after study, as well as just in use in dermatology clinics. And the only score is a 72-point score, anything other than that is not even an apple-to-apple kind of a comparison. So I hope that answers your question and give some more color around this.

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

Well, thank you, everyone, for joining us today and we remain focused on executing on the development of RE