Nektar Therapeutics

NASDAQ:NKTR

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Nektar Therapeutics Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' 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.

[Vivian Wu, executive]

Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. With us on the call are Howard Robin, our President and Chief Executive Officer; Dr. Jonathan Zalevsky, our Chief Research and Development Officer; Dr. Mary Tagliaferri, our Chief Medical Officer; and Sandra Gardiner, our Chief Financial 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 initiation of clinical studies and the availability of clinical data for drug candidates, the timing and plans for future clinical data presentations, the formation, future development plans or success of our collaboration agreements, financial guidance and certain other statements regarding the future for business.



Because forward-looking statements relate to the future, they are subject to uncertainties and risks that are difficult to predict, many of which are outside of our control. Our actual results may differ materially from these statements. Important risks and uncertainties are set forth in our Form 10-Q that was filed on May 10, 2024, 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.



With that said, I would like to hand the call over to our President and CEO, Howard Robin. Howard?

[Howard W. Robin, executive]

Thank you, Vivian, and thank you all for joining us today. We've made good progress in the second quarter towards our goal of building a highly promising best-in-class pipeline focused on immunology and inflammation. In this quarter, we continue to make significant advancements with our lead program, Rezpegaldesleukin or REZPEG. REZPEG is designed to both dampen the inflammatory response and simultaneously restore immune balance by directly expanding functional T-reg cells and engaging multiple immunoregulatory pathways in patients with autoimmune disorders.



REZPEG has generated promising data, which supports its potential to become a highly differentiated novel treatment for immune disorders. These data include the Phase Ib efficacy data in atopic dermatitis, which is the most common chronic inflammatory skin disease and is marked by dysregulation of the immune system and specifically excessive activation of autoreactive and inflammatory T-cells. REZPEG is designed to address this route dysfunction, dysregulation by proliferating regulatory T-cells, which can act on multiple inflammatory pathways at once.



REZPEG is a first-in-class agent and the most clinically advanced program of its kind targeting atopic dermatitis, which is traditionally focused on signal pathway antagonists. I'll let JZ talk more about this in a moment, but I'm proud to announce that we have an upcoming paper accepted in Nature Communications and a presentation at the EADV Conference in September, which illustrate REZPEG's mechanism. These publications will feature extensive biomarker analyses from our Phase Ib studies in immune-driven skin-related disorders of atopic dermatitis and psoriasis.



REZPEG is advancing nicely in the Phase IIb studies that Nektar is conducting an ectopic dermatitis and alopecia areata. Enrollment for both studies remains on track. The atopic dermatitis study is enrolling 400 patients throughout approximately 110 clinical investigator sites in the U.S., Canada, Europe and Australia. Patients are enrolling in the study are diagnosed with moderate to severe atopic dermatitis and are also biologic naive and have failed topical treatment options.



Importantly, this is the identical patient population studied in the Phase Ib study of REZPEG. JZ will talk more about the study design later in the call. And as I just stated, enrollment is on track for top line data readout from the study's 16-week induction treatment stage in the first half of 2025. Data from the maintenance stage, which looks at maintenance dosing every 4 weeks and every 12 weeks will be available towards the end of 2025 and early '26.



There's a high unmet need for distinctive new mechanisms to treat atopic dermatitis. With the extent and breadth of studies being conducted right now and the competition for patient recruitment, I am proud that we're achieving our enrollment goals. We believe that this is driven by a combination of the compelling REZPEG Phase Ib data presented at EADV 2023 and, of course, the hard work of our clinical team.



In the U.S., there are approximately 30 million people living with atopic dermatitis, and half of these patients are diagnosed with moderate-to-severe disease. And it's estimated that under 10% of patients who could receive biologics today are actually receiving treatment. We believe that new mechanisms are the key to growing this market and that there's a high unmet medical need for novel treatment options. So we are excited that REZPEG is poised to emerge as a highly differentiated potential treatment for these patients.



Now as you know, we have a second Phase II study for REZPEG that is enrolling 84 patients with alopecia areata. Enrollment for this study opened in March and the enrollment also remains on track for this study. We are looking forward to top line data from this trial in the middle of 2025, which is estimated to be a few months following the top line readout from the Phase II study in atopic dermatitis. We believe there's a significant potential for REZPEG to help people with this devastating disease.



Nearly 7 million people in the U.S. alone have or will develop alopecia areata. This disorder significantly affects the quality of life for patients and the currently available JAK inhibitor therapies are not durable, have high relapse rates and carry significant safety risks. Therefore, there's an urgent unmet medical need for these new therapies. On the preclinical side, we continue to advance NKTR-0165, our novel TNFR2 agonist antibody program.



In June, we reported the first preclinical data on this program at EULAR. These data show that NKTR-0165 is a unique antibody with monomeric activity that selectively binds to TNFR2 on Tregs to enhance their immunoregulatory function. Given the importance of TNFR receptor 2 in certain autoimmune diseases, NKTR-0165 could potentially become a first-in-class treatment for autoimmune diseases such as multiple sclerosis, ulcerative colitis, lupus and Vitiligo. We're currently conducting IND-enabling studies with the goal of preparing for an IFD submission in the middle of 2025.



Next, I'd like to give you an update on NKTR-255, our IL-15 program in oncology. As you know, Nektar is completing a study in large B-cell lymphoma or LBCL and Mary will be discussing this later in the call. In addition to the clinical study we're completing in LBCL, there are clinical studies ongoing for NKTR-255 being funded by our collaborators, Merck KGA and Bladder Cancer and Abel Zeta in non-small cell lung cancer. We also have an IST study ongoing at the Fred Hutchinson Cancer Center and an IST that recently concluded at Stanford.



Stanford University recently published data from their IST and the peer review Journal of the American Society of Hematology, Blood. The online manuscript has been posted and will be in print shortly. Stanford reported data that showed a doubling of recurrence-free survival at 12 months when NKTR-255 was combined with their investigational CD1922 CAR-T therapy compared to historical controls with their investigational therapy alone.



In addition to these studies, Mary will discuss more on the other studies for NKTR-255 and the strength of the data to support combination with cell therapies. As the data emerged this year, we believe that NKTR-255 can become an important component of cell therapy in cancer, and we continue to evaluate strategic partnership opportunities for this program.



Before I hand the call over to JZ, I just want to say that Nektar remains in a strong financial position with a cash runway that extends into the third quarter of 2026, giving us more than a year's cash at the time of REZPEG's top line data results. And with that, I'd like to hand the call over to JZ for an R&D discussion. JZ?

[Jonathan Zalevsky, executive]

Thank you, Howard. I'd like to begin with REZPEG. This program is the most advanced IL-2 T-reg mechanism in the field. We believe there are major opportunities in both atopic dermatitis and alopecia areata that REZPEG could potentially address. Our Phase Ib REZPEG data in atopic dermatitis demonstrated dose-dependent efficacy and encouraging durability observed long after patients completed the 12-week induction period.



Infact for both patient-reported outcome and physician-assessed endpoints, we observed the same trends, rapid onset of effect, dose dependence and long durability of control. The rapid onset of action and the type of extended disease control after the end of dosing rivals or outperform that dupilumab or JAK inhibitors. These promising data have us and KOLs very enthusiastic about the potential for long-lasting responses and in frequent maintenance dosing with REZPEG in atopic dermatitis.



Our Phase IIb study in atopic dermatitis is enrolling roughly 400 patients with 3 different regimens of REZPEG versus placebo, evaluated over a 16-week induction period. After the induction period, patients that meet a threshold to advance from induction to maintenance will be rerandomized into 1 of 2 maintenance regimens at their original dose level to receive that dose level on either a once a month or once every 3-month regimen.



To best position our program for registration, we've recently amended the protocol to extend the time on treatment during the maintenance portion of this study. The maintenance portion of the Phase IIb study was originally designed as a 26-week treatment period, but we have now extended that to 36 weeks, which will, in total, provide 52 weeks of treatment duration for patients in this study. This will strengthen the robustness of our data set with long-term exposure in this disease setting and increase the number of patients in our safety analysis to support registrational trial work following this Phase II study.



We also extended the off-treatment follow-up to be a 1-year period that begins upon the conclusion of the 52-week treatment period in order to allow us to evaluate the potential remitted effect of REZPEG in patients after 1 year of treatment. As Howard stated, we still anticipate top line data from the 16-week induction period of this Phase IIb study in the first half of 2025 and data from the 36-week maintenance period of the study will be available towards the end of 2025 or early 2026.



Now turning to alopecia areata, which is a dermal disease localized to hair follicles. In this disease, the patient's immune system attacks the hair follicle, disrupting its normal ability to keep and grow hair, leading to hair loss. We believe there is strong rationale for REZPEG in this indication based on the role of T-regs on the underlying pathology of this disease. Normal hair follicles exist in a state of immune privilege. So in other words, there are essentially no immune cells, no MHC expression and minimal immune system components inside the hair follicle.



We know this exclusion of the immune system is needed to maintain healthy, long-lived and continuously functioning stem cells to grow hair during our life span. In people with alopecia areata, there is a breakdown of the immune privilege in the hair follicle, infiltration of the immune system, inflammation, and all this leads to hair loss and eventually complete baldness. Biologically speaking, REZPEG, through its central pathway of T-reg rescue is uniquely poised to address the diversity of immunopathology, providing broad potential for targeting treating alopecia areata as well as other dermal diseases.



In published preclinical studies, both in vitro and in mice implanted but human alopecia skin samples, the studies have shown that T-regs are essential for restoring and maintaining immune privilege and therefore, a novel therapeutic strategy for the treatment of this disease. And consequently, we believe the T-reg mechanism of REZPEG can restore immune privilege and could provide durable disease control. There is a high unmet need in this patient population for tolerable treatment options with durable responses that currently available treatments like JAK inhibitors cannot provide.



And we believe there is an opportunity for R REZPEG to become a novel and potentially game-changing biologic therapy and alopecia areata. The Phase IIb study is well underway and plans to recruit 84 patients with severe to very severe disease that will be randomized to REZPEG or placebo. Patients will be treated for a period of 36 weeks and observed up to 60 weeks in total.



Our primary endpoint for the study is mean percent improvement in salt or the severity of alopecia tool at week 36. We will also be looking at a number of other secondary endpoints, including the portion of patients that were observed to have varying degrees of improvement in salt score. We are well underway with enrolling patients into this study and we expect top line data near the middle of 2025, a few months following the top line data readout from our atopic dermatitis study.



Now turning to NKTR-0165, our TNFR2 agonist antibody. TNFR2 is highly expressed on T-regs, myeloid suppressor cells, regulatory B cells, neuronal cells and [indiscernible]. In T-regs, TNFR2 agonism has been shown to potentiate the effector function, suppressive function and maintenance of T-reg linear stability, especially in non-lymphoid tissue compartment. Genetic studies show that if TNFR2 is absent the phenotypic effect is autoimmunity as well as other conditions that resemble FOX-P3 loss of function.



In contrast, its presence and activation of its signaling has been associated with immunoregulatory function and tissue protection effects. The TNS-R2 agonist program is built upon many years of T-reg experience that we've gained from studying REZPEG. REZPEG is an IL-2 receptor pathway agonist drives JAK-STAT signaling in T-regs, which is critical to drive T-reg proliferation and function in primary and secondary lymphoid organs. TNFR2 is the most abundant TNF superfamily member expressed on T-regs and the key activator of NF-kB, which also controls the FOX-P3 protein expression and is critical to maintain T-reg function, especially in non-lymphoid organs.



Thus, with the REZPEG and TNFR2 agonist programs, Nektar's pipeline provides target rationale for both lymphoid and non-lymphoid T-reg, and this is why we are so excited about NKTR-0165. As Howard mentioned, we presented the first preclinical data for this program at EULAR in June of this year. In the presentation, we demonstrated several novel and innovative properties of the antibodies that we discovered and are developing.



Firstly, the TNFR2 agonist we discovered came from AI-based De Novo design. And consequently, they provide novel TNFR2 binding and cell signaling property. One example of that novelty is a demonstration that these antibodies are able to signal through the TNFR2 multimeric receptor as single-arm monovalent antibot. This is a very novel effect for a TNFR2 agonistic antibody. We grasped these to a regular bivalent antibody format and NKTR-0165 and demonstrated the very high specificity of this antibody for binding and signaling through TNFR2 on T-reg. With little to no binding and signaling in conventional T cells and K cells or monocytes.



NKTRO-165 also drove T-reg proliferation, upregulation of FOX P3 and other activation markers in primary human T-reg. And importantly, NKTR-0165 drove these effects as a single agent without need for CD3 ligation, co-stimulation, cytokine or mitogen support. We also studied NKTR-0165 in a human TNFR2 knock in mouse and use that model to confirm the T-reg selective PK/PD profile of the antibody and also demonstrated single-agent efficacy in a mouse model of KLH-DTH established in the same TNFR2 knock-in mouse stream.



We are very excited with the unique and differentiated profile of the antibodies that were discovered, and we are rapidly advancing NKTR-0165 into the clinic. We expect to initiate first-in-human studies in the middle of 2025. Examples of indications that could be addressed include multiple sclerosis, mucosal immunology conditions, such as ulcerative colitis and GI or other oral mucosal diseases, lupus and even dermal autoimmune diseases like Vitiligo.



We note the growing interest for a novel and selective TNFR2 agonist like NKTR-0165. And as we move forward with our IND-enabling studies, we will continue to be open to the opportunity of working with companies that have interest in these areas to strategizing the best path forward.



And with that, I'll hand the call over to Mary to discuss NKTR-255. Mary?

[Mary Tagliaferri, executive]

Thank you, JZ. And finally, turning to our IL-15-based oncology program, NKTR-255. We believe the IL-15-based mechanism of action has promising potential in combination, particularly with cell therapies. While apologist CAR-T cell therapy transform the management of patients with large B-cell lymphoma after the first cellular therapies were approved, clinical responses were not durable and roughly 60% of patients receiving CAR-T cell therapy for large B-cell lymphoma eventually progress.



In 2017, the NCI and Kite, a month later to Fred Hutch Group published data showing that high serum IL-15 levels were associated with a higher Cmax and AUC of CAR-T cells, both factors correlated with responses in lymphoma. Thus, our initial development strategy aimed to improve the long-term efficacy of CAR-T cell products with the administration of exogenous IL-15 given the wealth of data about this cytokine importance.



Dr. Cameron Turtle from Fred Hutch completed preclinical experiments showing that NKTR-255 enhanced the in vivo persistence and antitumor efficacy of CD19-directed CAR-T cells in a dose-dependent manner. As predicted, mice treated with the CAR-T cell NKTR-255 combination maintained significantly higher CAR-T cell peak levels and continued tumor suppression, translating into durable efficacy. Following Dr. Turtle's published results in Blood Advances, we all shared a strong conviction that NKTR-255 could lead to re-expansion of CAR-T cells when dosed in patients to enhance efficacy.



Fred Hutch began an IST to evaluate NKTR-255 as an adjuvant treatment to CAR-T cells to improve the complete response rate in patients with large B-cell lymphoma. Dr. Crystal Mackall and Dr. Lory Muffly also evaluated NKTR-255 to enhance the efficacy of Stanford's proprietary CD19/22 CAR-T cell for B-cell acute mythoblastic leukemia. Stanford's data was published in Blood last month. Compared to Stanford's control group previously treated with the CAR-T cell therapy, NKTR-255, when added to the CD19/22 CAR-T cell therapy increased the 12-month relapse-free survival from 38% to 67%.



The median RFS for the CAR-T cell only cohort was 3.9 months. And for the cohort treated with NKTR-255 and the proprietary CAR-T cell therapy, it has not been reached with over 14.4 months of follow-up. So why does NKTR-255 work? We've now confirmed in patients the re-expansion of CAR-T cells following NKTR-255 that we saw pre-clinically. In the Stanford study, we observed re-expansion of the CAR-T cells in the CNS following NKTR-255 administration.



At Fred Hutch, where they're combining NKTR-255 with BAVENCIO in patients with large B-cell lymphoma, we have confirmed re-expansion of the CAR-T cells after NKTR-255 as well, leading to a second peak and increase in AUC. An additional observation from Stanford suggests that NKTR-255 also influences lymphocyte trafficking to disease tissues. As you know, we've been running our own trial where we've enrolled 15 patients with large B-cell lymphoma. In this study, NKTR-255 is administered after autologous CD19 CAR-T cell therapy.



We are concluding treatment of the patients randomized in our study, and we have now observed in a third trial, the same re-expansion phenomenon of CAR-T cells following NKTR-255 treatment in these patients, and we look forward to presenting the full data set from this study at a future medical meeting. This compounding effect has the potential to extend beyond CAR-T cell therapies. We continue to collaborate with AbelZeta, a leading cell therapy company to evaluate NKTR-255 in combination with their tumor-infiltrating lymphocytes or TILs in an ongoing Phase I clinical trial in patients with advanced non-small cell lung cancer who do not respond to anti-PD-1 therapy.



Lastly, we are continuing to work with Merck KGaA, who is conducting the Phase II JAVELIN Bladder Medley study, which is evaluating NKTR-255 in combination with BAVENCIO. Merck is projecting the first potential PFS analysis from this study around the end of this year. As a reminder, there are 3 separate combinations being evaluated in this study, each being compared separately to the BAVENCIO monotherapy arm.



And with that, I will turn the call over to Sandra for a review of our financial guidance. Sandra?

[Sandra Gardiner, executive]

Thank you, Mary, and good afternoon, everyone. We ended the second quarter with $290.6 million in cash and investments with no debt on our balance sheet. Our financial position remains strong, and we still plan to end 2024 with $200 million to $225 million in cash and investments. Our cash runway extends into the third quarter of 2026, which will take us through several key data milestones, including top line data for both our Phase IIb REZPEG study.



I'll now briefly review our quarterly financials and reiterate our financial guidance for 2024. Our revenue was $23.5 million for the second quarter of 2024. We still expect our revenue for the full year to be between $75 million and $85 million, which includes $55 million to $65 million in noncash royalties and $20 million to $25 million in product sales. For the second half of the year, we expect the remaining revenue to be weighted more heavily towards the fourth quarter. R&D expense for the second quarter of 2024 was $29.7 million, and we still anticipate full year R&D expense to range between $120 million and $130 million. G&A expense for the second quarter of 2024 was $20.5 million. We continue to expect G&A expense for the full year to be between $70 million and $75 million.



Lastly, our 2024 noncash interest expense remains unchanged and is expected to be between $20 million and $25 million. In Q2, we recorded $13.3 million in noncash impairment charges for our real estate obligations due to the continuous decline of the San Francisco Life Sciences and office real estate markets.



Our net loss for the second quarter of 2024 was $52.4 million or $0.25 basic and diluted loss per share. Excluding the $13.3 million in noncash impairment charges, net loss on a non-GAAP basis was $39.1 million or $0.19 basic and diluted loss per share. And as I mentioned earlier, we still plan to end 2024 with $200 million to $225 million in cash and a runway that extends into the third quarter of 2026.



And with that, I'll now open the call for questions. Crystal?

[Operator]

Thank you. [Operator Instructions] Our first question will come from Jay Olson from Oppenheimer.

[Jay Olson, analyst]

Congrats on all the progress. That NKTR-255 data in collaboration with Stanford looks great. Can you talk about the next steps? And if there's potential synergy for NKTR-255 with CAR-T for autoimmune diseases.

[Howard W. Robin, executive]

Jonathan, you want to take that question?

[Jonathan Zalevsky, executive]

Sure. Yes. So thanks, Jay, for the question. So I'll start off and maybe, Mary, you can add also a little bit of some color on to that. But I think that study with Stanford was a very important study, Jay, for us because it was the first time that the treatment was evaluated very close to the time of the administration of the CAR, right? There was just a short offset of a couple of weeks after the CAR was delivered before NKTR-255 was treated.



And we observed some very exciting findings that were published by the Stanford Group. Those included changes in the cellularity, changes in the migration, including into 1 patient that had a CNS disease with a really large amount of CAR moving into the CNS, really impacting positively that patient. And then, of course, the duration of effect, as Mary described, in terms of the really extent of efficacy that was observed relative to what's known historically for that CAR or durability of the effect.



Mary, maybe if you could talk medically about adding some more of the context and how it fits together with the other studies that are ongoing.

[Mary Tagliaferri, executive]

Yes. Jay, this is Mary. What we were really excited about is in 3 different studies now. We wanted to look at the safety, the feasibility and the efficacy so we could hone in on the recommended Phase III dose. And across all 3 studies, we have not seen a dose-limiting toxicity. We see a consistent safety profile that's highly favorable to patients. And as you can imagine, that's remarkable when you're combining a drug with CAR-T cell treatments. It's also feasible to not only dose this drug in the adjuvant setting right after patients receive CAR-T cells, but they continue to receive NKTR-255 every 3 weeks, which is also highly favorable to patients.



And when we think about next steps and where we can go, I believe, with the combination in aggregate of the data from the 3 trials, we have identified a recommended Phase III dose. The other place where we're developing the drug, as I mentioned, is in combination with TIL therapy. And as you know, right now, Iovance combines their TIL therapy with high-dose IL-2. And that's really fraught with error because it's very difficult to tolerate high-dose IL-2. Patients have to be in the inpatient setting to receive high-dose IL-2 and certainly in the area of non-small cell lung cancer, patients who actually received TILs in high-dose IL-2 in a very small study for patients, there were 2 deaths in that trial conducted by Dr. Scott Antonia and published in Nature.



And so I think that the opportunities here are very broad in the area of cellular therapy, both with autologous and allogeneic and CAR-T cells as well as TILs. And then, again, we're awaiting the data in combination with the checkpoint inhibitor, and it's the data proved to be compelling and strong. There's an additional indication for combining with checkpoint inhibitors.

[Howard W. Robin, executive]

And I would add to that, that, of course, we've shifted over to immune disease and inflammation. But clearly, we have data with IL-15 that demonstrates there's a great potential for it to be used in combination with cell therapies. And I think that's going to -- that may very well play an important role on the future of cell therapy. So we're talking to a number of companies, and I do think we can find an important collaboration there.

[Jonathan Zalevsky, executive]

And Jay, this is JZ. Your other question about autoimmune disease. It's a really good question. It's a kind of a theoretical question at this time. But based on what we saw in the data and we published a Stanford, as Mary described, which from a totality of both safety as well as pharmacodynamic effects would make it feasible to also add this in the setting of autoimmune disease CAR cell therapy use. We're focused on oncology now. But theoretically, first principles, it should be possible.

[Operator]

Our next question will come from Chris Shaw butane from Goldman Sachs.

[Unknown Analyst]

This is Kevin on for Chris. Congrats on the progress. Just wanted to focus on alopecia there. So just for housekeeping, I know that enrollment is on track and there's -- the primary completion is the same on clinicaltrials.gov, but just wondering about the time line to mid-25% versus first half? And then also understanding the value proposition there versus JAK inhibitors, which are approved, it makes sense with the safety profile. How are you talking about efficacy? Are you going to want or need to match the efficacy of JAK inhibitors in alopecia?

[Howard W. Robin, executive]

I want to let Mary answer your question on that.

[Mary Tagliaferri, executive]

Yes. Thank you, Howard. And Kevin, yes, we started the alopecia areata study in March, and we are on track, we will have top line data based on our enrollment today in mid-2025 and I think you asked a great question, which is what the success looks like in alopecia areata and what's the bar for us. And as you know, JAK inhibitors are efficacious for alopecia areata and the clinical trials that were conducted had salt endpoint at 36 weeks of treatment.



And before I go into the efficacy data, there are 2 main issues that the dermatologists share with us. One is there's absolutely no durability of effect with a JAK inhibitor and patients immediately start to lose their hair when they stop taking the JAK inhibitor, and that hair loss is very rapid. The second, of course, is that 80% of patients who have alopecia areata are younger than age 40. And nobody really knows what kind of risks a JAK inhibitor would pose, Obviously, the black box warnings are for serious heart-related events like heart attacks and stroke and blood clots and thrombosis and cancer and serious infections.



So there is just a general worry about exposing a patient to a JAK inhibitor for their entire life. So those are the problem statements. And in terms of efficacy, we believe similar efficacy to say baricitinib would establish a differentiated compound because, one, we don't have an association, Certainly, with our 600 patients we've treated to date with these serious side effects.



And number two, we believe based on the Phase Ib in atopic dermatitis that there's a potential for remitted effect or a maintenance regimen that wouldn't be daily like you see with a JAK inhibitor, but rather we could potentially dose patients after a 36-week induction period with a frequency that's longer than every 2 weeks in the maintenance phase.



We've spoken a lot to doctors about even an induction time period, and their belief is it doesn't even matter if it takes these patients a year to grow their hair back if you actually have a biologic that would provide a remit benefit and not be associated with so many side effects, that would be critically important.



And then specifically for the Phase III trials with baricitinib, the salt change at 36 weeks was less than 10% for placebo, which makes it nice. You can run smaller size studies because the placebo effect is low, is approximately 30% for the low dose of baricitinib, the 2 milligram per day dose and about 49% salt reduction for the high dose of 4 milligrams.

[Operator]

Our next question will come from Roger Song from Jefferies.

[Kambiz Yazdi, analyst]

This is Kambiz on for Roger. Can you provide us an update on your litigation with Lilly?

[Howard W. Robin, executive]

Yes, sure. Look, we're still having discussions with Lilly, as you know. And as you can see from the excellent Phase Ib data, clearly a mathematical mistake was made, and the data is somewhat compelling after we corrected for that math error that we discovered. We're still having discussions with Lilly. We had mediation. The court has ordered us to continue mediation, and we expect to do that in the near future. So obviously, I can't spend a lot of time talk-- I can't discuss in detail on ongoing litigation. But I can say that we are -- we firmly believe that we've been harmed by their behavior. And consequently, we will continue mediation with it.

[Operator]

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

[Tsan-Yu Hsieh, analyst]

So the Nature paper is pretty intriguing. I'm curious about your interpretation of the historical controls. Just given the nonrandomized nature of the study, there's some kind of push and pulls regarding baseline patient characteristics. It seems like the historical control might be a little bit more heavily preceded the dosing is a little bit lower. So I'm just curious, just kind of looking at the baseline characteristics, how would you characterize the similarities and differences? How we like are those 2 populations?

[Howard W. Robin, executive]

It's a good question, Mary, could you give some insight into the Stanford historical controls?

[Mary Tagliaferri, executive]

Yes. So really importantly, Andy so first of all, I just want to talk a little bit about the person who conducted this trial. Crystal Mackall is the Founding Director of the Stanford Center for cancer cell therapy, and she's really one of the godmothers cell therapy. And if you look at Crystal's nature paper, she actually had dosed 17 patients, not 8 that are used as the control patients for this study.



So she actually selected patients that had comparable baseline characteristic traits to be matched with the patients of this second study. So you can imagine with her academic background and her vast experience with treating ALL patients. She was very, very mindful of these baseline characteristic traits as well as a burden of disease. So she very carefully actually selected the control group, which is a subset of the total number of patients he originally reported upon in Nature.

[Operator]

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

[Unknown Analyst]

I just had a quick question on the 165. Obviously, it's very interesting preclinical data. But maybe, JZ, could you give us more color on the 165, the binding to the T-reg REZPEG, but not the other ones on the CD4 cell or most because we know the TNFR2 also expressed on those 2 sales. Just curious about the machan action there.

[Jonathan Zalevsky, executive]

Sure. Thanks, Arthur. Thanks for the question. Yes, so one of the things that we found is that our antibody definitely has some form of confirmational selectivity in terms of the epitope that it recognizes. And in that EULAR poster, there was a panel that showed binding to 2 different forms of TNFR2. So you know that TNFR2 primarily it's a transmembrane receptor like TNF receptor. But it can also be shed by ectodomain shedding through normal metaproteomes ADAM17, CLEs TNFR2. And then that liberates a shed form that can circulate in the blood.



And so we tested the binding of our antibody to the surface receptor and to the shed form. And the antibody balanced the surface receptor much, much higher affinity, much more greatly and is barely interactive with the shed form. So it indicates to us that there's a confirmational specificity or confirmational component to the binding. And to assess that, we're actually doing a lot of biophysical studies right now.



So first of all, we're mapping the epitope and the paratope of the antibodies. So those experiments are ongoing. And we're also doing structural modeling using some of the structural approaches that you could do computationally to assess the epitope. And then we aim to put all that together. We might even possibly go as far as the sole crystal structure of the antibody. But our hypothesis right now is that it's very confirmational.



And that's why we see cellular selectivity because while you're right, the receptor is expressed on multiple cell types, its function is not the same on multiple cell types and also the trap components that signal intracellularly, are also not the same across those cell types. And we think that's the reason. But yes, we're very excited because that's -- it's not like a typical finding, as you can imagine for an antibody, which is why we think this is such an innovative molecule.

[Operator]

Sure. Thank you. And I am showing no further questions on the phone line. I'd now like to turn the conference back over to Howard Robin for any closing remarks.

[Howard W. Robin, executive]

Okay. Well, thank you, everyone, for joining us today. And as you can see, we're making excellent progress in our strategic plan to focus Nektar's efforts on immunology and inflammation. And we're advancing multiple novel and innovative therapies in and towards the clinic.



So I want to thank all of our employees for their hard work, and I want to thank our investors for their continued support, and please stay tuned. Thanks for joining us today.

[Operator]

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