Nektar Therapeutics

NASDAQ:NKTR

Earnings Call Analysis

Nektar's Financial and Development Outlook Highlights Major Progress

Nektar Therapeutics reported a strong cash position of $265 million expected by year-end. The company anticipates 2024 revenues between $90-$95 million, mainly from noncash royalties. Key clinical developments include progress in the Phase IIb studies for REZPEG in treating atopic dermatitis and alopecia areata, with top-line data expected in 2025. Notably, NKTR-255 showed promise in enhancing CAR-T therapy and is being evaluated for various cancer treatments. The sale of their Huntsville facility enhances financial stability, extending their cash runway to late 2026.

Financial Strength Positioned for Growth

Nektar Therapeutics has demonstrated a robust financial standing with $249 million in cash and investments as of Q3 2024, complemented by the sale of its Huntsville manufacturing facility for $90 million. This sale enhances their balance sheet, allowing Nektar to extend its cash runway into Q4 2026. The company anticipates finishing 2024 with approximately $265 million in cash, providing ample resources for continued research and development.

Revenue Projections and Performance

In Q3 2024, Nektar reported revenues of $24.1 million. For the full year, they project revenues between $90 million and $95 million, with noncash royalties contributing approximately $60 million to $65 million and product sales expected to generate $30 million to $35 million. However, product sales are running at a negative gross margin, indicating challenges in cost management within this segment.

Development Pipeline Progress

Nektar's lead asset, REZPEG (rezpegaldesleukin), is in advanced development for treating autoimmune diseases such as atopic dermatitis and alopecia areata. The company is on track to deliver top-line data from its Phase IIb study on atopic dermatitis in the first half of 2025, involving 400 patients. Meanwhile, a second Phase II study for alopecia areata, targeting 86 patients, is also expected to yield top-line results by the second half of 2025.

Efficacy Enhancements and Clinical Update

Recent data shared at various medical conferences indicate compelling efficacy for NKTR-255, an IL-15-based therapy that enhances CAR T cell efficacy. Notably, in combination with CAR-T therapies, NKTR-255 has increased 12-month relapse-free survival rates for B-cell leukemia patients from 38% to 67%. This data underscores its potential in oncology and related clinical applications.

Strategic Business Decisions and Market Focus

Nektar is streamlining operations through the sale of its manufacturing facility, allowing the company to focus more on its drug development programs. This divestiture should simplify their operational structure and redirect financial resources to R&D for promising drug candidates like REZPEG and NKTR-255.

Cost Management and Future Expectations

Nektar anticipates total R&D expenses between $120 million and $130 million and general and administrative expenses likely to be between $75 million and $80 million for the full year. There is a notable increase in noncash G&A expenses, which are projected to reach approximately $12 million for the year. Investors should be mindful of these costs as they reflect both the investment in future growth and the impacts on profitability in the short term.

Outlook for Future Clinical Data

With upcoming top-line data readouts expected in the next year, Nektar is positioned to drive significant interest in their stocks. The successful completion of these trials and subsequent data dissemination will be crucial to affirm the efficacy of their leading drug candidates and could correspondingly elevate their market valuation.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Nektar Therapeutics Third Quarter 2024 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 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 and future development plans for drug candidates and research programs. The timing of the initiation of clinical studies and 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 other certain 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 August 9, 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. Thank you all for joining us today. During the third quarter, we made significant progress in advancing our highly promising pipeline focused on immunology and inflammation. Importantly, we are laser focused on advancing our Phase II studies for our lead aspect leased asset, rezpegaldesleukin, also knows REZPEG, which is designed to directly expand functional T-reg cells and engage multiple immunoregulatory pathways in patients with autoimmune disorders. As you know, REZPEG has generated promising early data, which support its potential to become a highly differentiated and new mechanism in the treatment of atopic dermatitis and alopecia.

There are approximately 15 million people living with moderate to severe atopic dermatitis in the USA Today. It is estimated that under 10% of those patients who could receive biologics today are actually receiving treatment. We believe that new mechanisms are the key to growing this underserved biologic market. This is why we're so excited by REZPEG's potential as a first-in-class T regulatory cell mechanism for these patients with critical unmet need.

Enrollment in our Phase II study in atopic dermatitis is on track for a top line data readout in the first half of 2025. We're very pleased with the enrollment pace for this large 400-patient Phase IIb study, and JZ will share more on the ongoing study in a moment. We believe there is also significant potential for REZPEG to help people with alopecia areata.

Nearly 7 million people in the United States alone have or will develop the disease. The 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 new therapies with these patients as well.

Enrollment in our second Phase IIb study of REZPEG in 86 patients with severe to very severe alopecia areata also remains on track for top line data in the second half of 2025. Two weeks ago, we published in Nature Communications, the data from the Phase Ib study of REZPEG atopic dermatitis and psoriasis. These data taken in aggregate bolster our decision to proceed with the clinical plan and advance our 2 Phase IIb studies in atopic dermatitis and alopecia areata and JZ will talk more about the important data from these publications later on in the call.

Turning to our preclinical programs. We continue to advance NKTR-0165, our novel TNFR2 agonist antibody program. Given the importance of TNF receptor 2 NKTR-0165 to potentially become a first-in-class treatment for autoimmune diseases, such as multiple sclerosis, ulcerative colitis and [indiscernible] Earlier this year at EULAR, we presented the first preclinical data for this program showing that NKTR-0165 demonstrated selective enhancement of [ Treg ] cell function, and JZ will discuss more about that later.

We're currently conducting IND-enabling studies with the goal of preparing for an IND submission in the second half of 2025. Now leveraging our learnings from NKTR-0165, we've also designed a pipeline of TNFR2 containing bispecific molecules that pair TNFR2 agonism with other antibody targets. And we look forward to providing more color on this pipeline as development candidates emerge.

In addition to NKTR-0165, we also have our PEG-CFS 1 program, NKTR-422 in preclinical stage that was engineered to selectively modulate resolution processes of inflammation. We're excited to announce that preclinical data spanning multiple animal models, including collagen-induced arthritis, were selected for an oral presentation at the upcoming 2024 ACR Convergence meeting in Washington, D.C.

This will be our first presentation of preclinical data from this program and NKTR-422 has the potential applications in a number of therapeutic indications, including acute and chronic inflammation. Next, I'd like to discuss NKTR-255, our IL-15 program in oncology. We've recently announced multiple sets of data from this program published in blood and at ASH. These data show that NKTR-255 can enhance the activity of CAR-T therapies.

Today, we presented a late-breaking abstract at SITC demonstrating the use of NKTR-255 in a new application. In that abstract, NKTR-255 showed the ability to recover radiation-induced lymphopenia in patients with non-small cell lung cancer and Mary will talk more about that program on the call today.

Now before I hand the call to JZ, I want to briefly discuss our transaction announced this week. Earlier this week, we announced that we signed an agreement to sell our commercial PEGylation reagent manufacturing facility in Huntsville to Ampersand Capital Partners. The PEG reagent facility will be spun out as a stand-alone Ampersand portfolio company, Nektar will receive $90 million in total compensation which is comprised of $70 million in cash and $20 million in equity ownership in the new portfolio company, and we expect the deal to close on December 2.

In addition to serving the plant's existing customers, the new company will continue to serve Nektar's PEG supply needs for REZPEG and our other PEGylated programs in our pipeline. We will retain all rights to royalties and milestones under existing PEG license agreements, including those related to [ Dapipegol ], which has already demonstrated positive Phase III efficacy in lupus.

This strategic divestiture of the plant allows us to streamline our operations and further bolsters Nektar's financial position as we head into top line data readouts in 2025. The proceeds will extend our cash runway into the fourth quarter of 2026. And with that, I'll hand the call over to JZ for an R&D discussion. JZ?

[Jonathan Zalevsky, executive]

Thank you, Howard. Starting with REZPEG, this program is the most advanced IL-2 Treg 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.

In fact, for both patient-reported outcomes and physician-assessed endpoints, we observed the same trends, rapid onset of effect, dose dependence and long-term durability of control. The rapid onset of action and the type of extended disease control after the end of dosing, rivals are outperformed that of dupilumab or JAK inhibitors.

And these promising data have us and physicians very enthusiastic about the potential for long-lasting responses and infrequent maintenance dosing with REZPEG in atopic dermatitis. As Howard mentioned, last month, we published preclinical and clinical REZPEG data in Nature Communications. The manuscript includes results from mouse models and 2 human Phase Ib study in atopic dermatitis and psoriasis all demonstrating the potential of REZPEG for the treatment of inflammatory skin diseases.

The clinical results from these 2 different inflammatory skin conditions show that REZPEG improved position assessed disease activity and patient reported outcomes. And these promising findings clinically validate the Treg hypothesis that [indiscernible] restoring Treg function through a central pathway of IL-2 receptor driven Treg rescue can have therapeutic potential across a variety of chronic skin diseases.

It also demonstrates that REZPEG can act on multiple disease-driving pathways and is uniquely poised to address a diversity of immunopathology. Furthermore, a consistent safety and tolerability profile was observed across the study and in line with previously published data. The exciting cross indication of clinical efficacy we observed is buttressed by Sera biomarker analysis, demonstrating that REZPEG could modulate multiple immunoregulatory pathway to provide rapid onset and duration of efficacy.

In the atopic dermatitis study, we included longitudinal serum proteomic analysis, and it demonstrated the plurality of Treg-mediated pathway with potential effects on tissue resident memory T cell population resulting in sustained efficacy seen in the antigen challenged mouse models and in the clinical trial. These proteomic findings further validate our therapeutic approach of using a Treg stimulator to dampen inflammatory responses and simultaneously restore immune balance in patients with chronic inflammatory skin diseases.

Overall, the totality of the observations, including the biomarker analysis, provide an understanding of how treatment with REZPEG led to dose-dependent efficacy in the Phase Ib study over the 12-week treatment period, including its rapid onset of action, and it also provides insight into pathways that could result in the sustained efficacy that was observed in the study even after treatment was removed.

And all of this supports the design of our ongoing Phase IIb study in atopic dermatitis which is enrolling roughly 400 patients with moderate to severe disease across 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 reduction to maintenance will be re-randomized into 1 of 2 maintenance at their original dose level to receive that dose level on either once a month or once every 3-month regimen.

The maintenance portion of the study is 36 weeks, which will, in total, provide 52 weeks of treatment duration for patients in the study. We will also follow participants for 1 year after the conclusion of the 52-week treatment period, enabling us to evaluate the potential remitted effects of REZPEG. Enrollment is on track and approximately 130 clinical investigator sites are active across the U.S., Canada, Europe and Australia.

As Howard mentioned, we 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 2020. Now turning to alopecia areata which is a dermal disease localized to hair follicle. 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 Red peg in this indication based on the role of Tregs on the underlying pathology of the disease. 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 this study is mean percent improvement in [indiscernible] or the severity of alopecia tool at week 36, and we expect top line data in the second half of 2025. Now turning to NKTR-0165, our TNFR2 agonist antibody. TNFR2 is highly expressed on Tregs, myeloid suppressor cells, regulatory B cells, neuronal cells [indiscernible] in Tregs, TNFR2 agonism has been shown to potentiate the effector functions, suppressive functions and maintenance of Treg lineage stability, especially in the non-lymphoid tissue compartments.

[indiscernible] studies show that a 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.

Our TNFR2 agonist program is built upon many years of Treg experience that we've gained from studying REZPEG. REZPEG, as you know, as an IL-2 receptor pathway agonist drives JAK-STAT signaling in Treg, which is critical to drive Treg proliferation and function in primary and secondary lymphoid organs. TNFR2 on the other hand, is the most abundant TNF superfamily member expressed on Tregs and a key activator of NF-kappaB, which also controls the FOX P3 protein expression and it's critical to maintain Treg function, especially in the non-lymphoid organs. Thus, with the REZPEG and TNFR2 agonist programs, Nektar's pipeline provides target rationale for both lymphoid and non-lymphoid Tregs.

And this is one of the reasons why we are so excited about NKTR-0165. We presented the first preclinical data for this program at EULAR in June of this year. And there were several key takeaways from that presentation. First, the TNFR2 agonists we discovered are able to signal through the TMFR2 multimeric receptor a single-arm monovalent antibodies which is a very novel effect for a TNFR2 agonistic antibody.

Second, the clinical candidate, NKTR0-165 demonstrated very high specificity for binding and signaling through TNFR2 on Tregs with little to no binding and signaling in conventional T cells, NK cells or monocytes. Third, NKTR0-165 is a monotherapy drove Treg proliferation upregulation of FOX P3 and other activation markers primary Tregs.

The fourth, the PK/PD of NKTR-0165 and efficacy in the KLH DTH model were confirmed in a human TNFR2 knocked mouse model. 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 and we expect to submit an IND for this program in the second half of 2025.

Examples of indications that could be addressed include multiple sclerosis, mucosal immunology conditions, such as [indiscernible] colitis and even dermal autoimmune diseases such as vitiligo. Now since the TNFR2 agonist antibody specificities we discovered are active as single arm antibodies. We have leveraged this to design a pipeline of TNFR2 containing bispecific molecules that pair TNFR2 agonism with other specific.

These novel assets take advantage of multiple mechanisms to bring about novel molecules with novel approaches for targeting autoimmune diseases. We look forward to provide more color on this pipeline as development candidates emerge for future clinical entry. Overall, we have observed growing interest for a novel and selective TNFR2 agonists like NKTR-0165.

And as we move forward with our IND-enabling studies, as well as with our progression of the bispecific pipeline, we will continue to be open to the opportunity of working with companies that have interest in these areas to strategize on the best path forward. we have a second preclinical target in the immunology space, PEG-CSF 1 called NKTR-422. This program is a PEG modified hematopoliatic colony stimulating factor protein.

Current standard of care, chronic inflammatory disease therapies are designed to suppress inflammation and are not optimized for inflammation resolution and the restoration of tissue homeostasis tissue function. The goal of NKTR-422 is to stimulate inflammation resolution and tissue repair by targeting the expansion, reprogramming and activation of anti-inflammatory tissue resident macrophages.

An agent that possesses such biological property could create a new class of anti-inflammatory therapeutics, and this is our objective with NKTR-422/. To discover NKTR-422, we use in vitro and in vivo screening of CSF-1 conjugates to identify a CSF1 receptor agonist with a differentiated PK/PD profile compared to the native cytokine. And what we found was in vivo treatment with NKTR-422 shows a significantly reduced target mediated clearance. sustained target engagement, durable signaling on both the ERC and AKT pathways, proliferation and expansion of tissue resident macrophages with minimal off-target effects of monocyte infiltration or production of monocyte-derived macrophage.

Moreover, tissue macrophages induced the expression of inflammation resolution and tissue repair markers including increased IL-4 receptor alpha not receptor alpha cell surface expression aphorocytosis receptor [ MERKregulation ] and metallic protease activation. NKTR 422 monotherapy showed efficacy in the mouse DSS colitis model and combination treatment of NKTR-422 with [ etanercept ] greatly increase the efficacy of TNF alpha blockade on arthritic past swelling after starting treatment at the peak of information in a [indiscernible] collagen-induced arthritis model.

As Howard mentioned, data from our early research of this program has been selected for an oral presentation at this year's ACR Convergence Conference. This program has application in a number of therapeutic indications that span acute and chronic inflammatory diseases, and we're excited to be presenting this first preclinical data next meeting. And with that, I'll hand the call over to Mary to discuss NKTR-255. Mary?

[Mary Tagliaferri, executive]

Thank you, JZ. Now turning to our IL-15-based oncology program. Since October, we have 3 new data disclosures for NKTR-255. All of the publications and presentations can be found on Nektar's website. First, the Journal Blood recently published data from Stanford study evaluating NKTR-255 in combination with their proprietary CD19 22 CAR-T cell for B-cell acute lymphoblastic leukemia.

The results show NKTR-255 added to Stanford's proprietary CAR T cell therapy increased the 12-month relapse-free survival rate from 38% to 67% and when compared to Stanford's historical controls. Also of note, NKTR-255 enhanced lymphocyte trafficking to disease tissue, which further supports the mechanism of action.

Second, the abstract for our ASH poster presentation was made public this week. At the annual conference in December, we will present final data for the 15 patients in our Phase II placebo-controlled trial evaluating NKTR-255 after approved CD19 CAR T cell therapies for large B-cell lymphoma. We're encouraged by the 6-month complete response rate data from this trial which align with the findings from the Stanford trial and further confirm NKTR-255's ability to enhance CAR T cell efficacy.

Third, data presented today at SITC strengthen our belief in NKTR-255's therapeutic potential in a new application as a combination treatment with checkpoint inhibitors. For some background, radiation-induced lymphopenia is a common occurrence after chemoradiation and is associated with a worse overall survival in multiple solid tumors, including lung cancer. The presence of severe lymphopenia at the initiation of consolidated [ dirvolumab ] therapy after definitive [ chemoradiation ] for unresectable, locally advanced non-small cell lung cancer was found to be an independent predictor of shorter progression-free survival and overall survival.

Dr. Stephen Lynn presented interim data from a Phase II study evaluating NKTR-255 to restore lymphocyte counts after chemoradiation for patients with locally advanced non-small cell lung cancer. In comparison to MD Anderson's historical control data, NKTR-255 in combination with durvolumab demonstrated a statistically significant improvement in the 8-week absolute lymphocyte count.

These interim data presented as a late-breaking abstract at SITC today suggests that NKTR-255 has the potential to confer clinical benefits in patients with locally advanced non-small cell lung cancer. Now looking ahead, we're continuing our Phase I trial with ABLZETA to assess NKTR-255 with their TIL for advanced non-small cell lung cancer patients who do not respond to anti-PD-1 therapy. We're also collaborating with [ Merck KGA ] to evaluate NKTR-255 in combination with [ BAVENCIO ] for bladder cancer, with the first potential PFS readout expected either by the end of this year or in the first part of next year, as this is an event-driven analysis.

All in all, the growing body of evidence highlights the broad applicability of our IL-15. As new data emerge, we continue to explore partnering options to continue the NKTR-255 development program. And with that, I'll turn it over to Sandra for our financial guidance. Sandra?

[Sandra Gardiner, executive]

Thank you, Mary, and good afternoon, everyone. We ended the third quarter with $249 million in cash and investments and with no debt on our balance sheet. With the proceeds from the sale of our Huntsville, Alabama commercial peg manufacturing facility for $90 million, which includes $70 million in cash and $20 million in equity ownership, our financial position is further strengthened.

We now expect our cash runway to extend into the fourth quarter of 2026, taking us through several key data milestones including top line data from both of our Phase IIb REZPEG studies. We now expect to end the year with approximately $265 million in cash and investments. I'll briefly review our quarterly financials and share updates to our financial guidance for 2024.

Our revenue was $24.1 million for the third quarter of 2024. We now expect our revenue for the full year to be between $90 million and $95 million, which includes $60 million to $65 million in noncash royalties and $30 million to $35 million in product sales. Our product sales generate a negative gross margin.

We expect to recognize a gain upon the close of the sale of the Huntsville manufacturing facility in the fourth quarter of approximately $40 million to $45 million. We do not expect to owe any taxes on this gain. R&D expense for the third quarter of 2024 was $35 million and we still anticipate full year R&D expense to range between $120 million and $130 million with approximately $10 million of noncash expense.

G&A for the third quarter of 2024 was $19 million. We now expect G&A expense for the full year to be between $75 million and $80 million with an increase in the noncash portion to approximately $12 million from $5 million to $10 million. Lastly, our 2024 noncash interest expense remains unchanged and is expected to be between $20 million and $25 million. Our net loss for the third quarter of 2024 was $37 million or $0.18 basic and diluted loss per share.

And as I mentioned earlier, we plan to end 2024 with approximately $265 million in cash and investments and a runway that extends into the fourth quarter of 2026. And with that, we'll now open the call for questions. Crystal?

[Operator]

[Operator Instructions] And our first question will come from Yasmeen Rahimi from Piper Sandler.

[Yasmeen Rahimi, analyst]

Really informative. I guess one question I think a lot of investors are eagerly waiting the AD and readout and it was really appreciated the color you gave that enrollment is progressing really well and on track for delivering both data readouts. But could you kind of -- is there an opportunity to quantify where -- how close we're getting to bringing both of the studies to finish line?

Do you see -- I think that could be really helpful? And then two, I think the second question that's most often asked is the ability to -- on a positive data, especially from the AV study, how to extrapolate efficacy and biologically experienced patients. And I apologize for asking 2 questions, I'll jump back in the queue.

[Howard W. Robin, executive]

Mary, you want to take that question?

[Mary Tagliaferri, executive]

Yes, sure. Thanks, Yasmeen for the question. So starting with the first one. can we provide more color on enrollment? I can just say, we started this trial last October in 2023, and we have advised that we will have our top line data in the first half of 2025. What we will commit to doing is on clinicaltrials.gov, when we've completed enrollment, we will change the status on clinicaltrials.gov, so people can continue to monitor the progress of our trial there.

In terms of efficacy, our clinical trial in the Phase I study was in biologic-naive patients. and we made the decision to also advance REZPEG into a Phase IIb in biologically naive patients. And so we will be able to have a read-through of our data from the Phase I think today, it's not well understood what the efficacy will be with biologics in biologically experienced patients.

And as we see more data with the OX40 studies and other compounds, we'll have a better sense of what is the response rate in that patient population. I think today, it's too early to say.

[Operator]

Our next question will come from Julian Harrison from BTIG.

[Julian Harrison, analyst]

Congratulations on all the recent progress. First, I'm wondering if you have a good sense for when damages could be publicly specified in your ongoing litigation against UI Lilly?

[Howard W. Robin, executive]

Yes. Look, obviously, we really can't comment on an ongoing lawsuit. I can tell you that we're in the process of mediation. We're talking with each other about how to resolve this. And we're -- Nektar is fully committed to following through and we believe we have a very strong case. And clearly, there were a number of mistakes made during that clinical trial process.

So while I can't comment on when we'll have a damages number. And when we'll get this resolved, I can tell you that we're actively pursuing it. But of course, it's an active lawsuit. And consequently, I really can't get into a lot of discussion on it.

[Julian Harrison, analyst]

Got it. Understood. And one more, if I may. Just on your Phase IIb atopic dermatitis trial, can you remind us of the protocol pertaining to topical steroid use?

[Howard W. Robin, executive]

Mary, do you want to cover that?

[Mary Tagliaferri, executive]

Yes. Yes. So this is not a combination trial. So patients have to wash out the use of topical corticosteroids before they enroll into the study and then they're not permitted to use topical corticosteroids. And if they due after the first 2 weeks of treatment, then that would be the use of rescue medication and those patients would discontinue treatment.

[Julian Harrison, analyst]

Got it. So all bases are considered study discontinuation.

[Mark Wilson, executive]

That's correct. Now one aspect of our trial that I think these patients to stay on the trial and adhere to the rules for no use of topical corticosteroids is after the 16-week induction period, if patients have adhered to the protocol, they have the possibility to rerandomize in the maintenance period. And of course, if they are not responders, then they will go to an escape arm and receive the highest dose of res tag.

So particularly for patients where there's not great access to biologics in Europe, where we're going to enroll roughly 65% of the patients, I think we'll see strong adherence to the protocol.

[Operator]

Our next question will come from Jay Olson from OpCo.

[Cheng Li, analyst]

This is Cheng Li line for Jay. Congrats on progress. Just on the REZPEG trial, it seems to be enrolling patients for some time now. I'm wondering if you can provide some color on the patient plan characteristics we're seeing, for example, the baseline [indiscernible] And also if you can share the split between patients enrolled from U.S. sites versus ex U.S. sites, that will be super helpful.

[Mark Wilson, executive]

Yes. This is Mary. This is a fully blinded study. And we've really meticulously drafted protocols and plans to make sure that we capture data and do so accurately and timely and that we clean our data and that we maintain a blind of the study. I personally have not been looking at those aggregated data in a blinded fashion.

And we promised that we will provide you with very clear baseline characteristic traits as well as very clear top line data for 3 different doses compared to placebo.

[Operator]

And our next question will come from Jessica Fye from JPMorgan.

[Jessica Fye, analyst]

I guess first one, this data at EADV on [indiscernible] biomarkers in AD, I believe it was noted that REZPEG reduced expression of serum proteins on to be elevated in AD. And I was curious if those expression levels stay reduced given after REZPEG therapy was stopped. Kind of trying to get the phenomenon you saw where patients experienced sustained benefit even after stopping REZPEG in the Phase Ib?

[Jonathan Zalevsky, executive]

Jeff, this is JZ. It's a great question. Unfortunately, though, the last time point that was collected in that study was week 12 at the end of induction. So we don't have proteomic results beyond into the drug-free follow-up However, in the Phase II, we are collecting samples all through the maintenance period and also after the 1-year treatment in the 1-year follow-up.

So we'll be able to answer your question very directly in that study but not in the Phase Ib, where collection stopped at week 12.

[Jessica Fye, analyst]

Okay. And then [indiscernible] didn't. But on the alopecia, the timing shift from, I think it used to be first half and mid-25 now back half of '25. Is that like a delay of getting sites up and running? Is it screen failure or something? What's kind of behind that timing shift?

[Mark Wilson, executive]

Yes, this is Mary. So as you know, the trial for atopic dermatitis began in October of 2023, and then it's about 5 months later that we began the alopecia areata study, and those patients are followed for 36 weeks of treatment. And so I don't think we're necessarily far off from our predictions. I think we're very close to what we predicted when we started the study.

We are enrolling in Canada, the United States, and in Europe, it is true that in any trial, these days that you're going to run in immunology and with the globalization process in Europe, it does take longer to bring the European sites on than it is in the U.S. So you certainly start your enrollment earlier in the United States and Canada, but we are on our projected time lines, and we'll have the data in the second half of 2025.

[Operator]

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

[Tsan-Yu Hsieh, analyst]

Just a question on the SITC poster that's presented today. One is, you looked at NK cell plus [ ferations. ] I'm just wondering if there are any other relevant cell populations that you looked at? That's part one. Part 2 is really the control arm. I think Mary, you said that they basically took patients from MD Anderson in the same -- basically the same institution. I'm curious if the lymphocyte count pattern is similar to some of the PACIFIC studies that have been done with sea I'm just curious about the consistency of that trend on the control on.

[Mark Wilson, executive]

Sure. Andy, it's Mary. So in terms of the historical control arms, these are all patients that were treated at MD Anderson there were 39 of them that [ antidated ] the approval of [ dirvolumab. ] So they were only treated with chemoradiation. And then there were 120 patients that were treated with CRT plus durva. And the ALC counts in these patient populations are relatively analogous. And what Dr. Lynn showed today was if you look at cycle 1, day 8, the median increase in ALC was 2.3 fivefold higher and at cycle 2, day 8, it was 3.6 fold higher, and these were statistically significant against his controls.

And what he is astounded by is the persistence of the lymphopenia that he's seen in these patient populations and that it's remarkable that this effect persists for 12 months after completing radiation therapy. I don't know, Andy, if you know the literature, but Steve and Lynn did put in the background information, his data from the study that he did with, again, an analogous patient population.

And there has been a second study that was completed at Johns Hopkins, and it's an offer by the name of [indiscernible] and what he showed was he used a slightly different absolute lymphocyte count than Stephen Lin. Stephen Lin used 0.23x 10 to the ninth leaders for lymphocytes and at the Johns Hopkins Center they use 0.5.

And they showed that the median PFS for those patients with severe lymphopenia was -- and this is on the PACIFIC regimen [ nivolumab ] was only 217 days, which is about 7 months versus 570 days for those patients that didn't have severe lymphopenia. And when you look at what the median PFS was in the PACIFIC trial for patients on placebo, it was 5.6 months.

And so what Stephen Lin's point is when you look at these data, it's astonishing that patients with severe radiation-induced lymphopenia, that various thresholds really don't do well and seem to have very, very little benefit from dirvolumab. And so he has a strong belief that combining NKTR-255 with dirvolumab in this setting, would be a very powerful mechanism to improve the PFS and overall survival of these stations who aren't deriving benefit today of a checkpoint inhibitor.

[Jonathan Zalevsky, executive]

And Andy, I can answer your first question. So what was shown today were NK cell affects but proliferative effects as well as modification of cell surface proteins associated with activity. on the NK cells and some of the phenotypic functions. That was shown that's the target -- one of the targets of the drug. But in the study, there is quite a bit more phenotypic analysis as well as assessing T cell populations and then assessing the overall proportion of the cells in the patients that recovered from lymphopenia, looking at the memory cell pool and also just looking at the overall health.

One of the underlying hypothesis as Mary was also mentioning, is the cells themselves because in the patients that have lymphopenia, they're missing lymphocytes are probably also missing lymphocytes that target the tumor. So also looking at the recovery of specific populations as well. Those are all key objectives that are coming in the study.

[Operator]

[Operator Instructions] And our next question will come from Arthur [indiscernible] he with HCW.

[Unknown Analyst]

I just had a quick question regarding the AD study design. So after the 36-week maintenance period, does -- do the patients have the opportunity to receive the treatment continuously during the follow-up.

[Jonathan Zalevsky, executive]

Yes, I was just going to say, Arthur, that no in this study, so after the 52 weeks of total treatment, which is both the 16-week induction as well as the maintenance periods then the patients will be followed for 52 weeks with no further treatment. So our -- one of our objectives here is treat for a year and then assess the remitted effect after 1 year of treatment.

[Unknown Analyst]

I see. So which means we can get the data regarding how the off-treatment control to control from this study?

[Jonathan Zalevsky, executive]

Yes. So for example, like as the program continues and say, moves into later-stage studies like Phase III, eventually, this Phase II study we have data from both the 1-year treatment as well as the 1-year off-treatment follow-up. That's exactly right.

[Operator]

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

[Howard W. Robin, executive]

Well, thank you, everyone, for joining us today, and we remain focused on advancing our I&I pipeline, and we're very excited about the potential for each of our unique programs. I want to thank all of our employees for their hard work and diligence, and I want to thank our investors for their continued support, and we look forward to providing you with updates on our progress. So stay tuned. Thank you very much.

[Operator]

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