Nektar Therapeutics - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 beat S&P consensus on both revenue and EPS: revenue $11.18M vs $9.42M est (+18.5%); Primary EPS (normalized) $(2.78) vs $(3.03) est (+$0.25). GAAP EPS was $(2.95), with the delta driven by excluding a $2.4M equity-method loss in the non-GAAP figure (S&P Global estimates)*.
• YoY revenue decline (to $11.18M from $23.49M) was expected given the sale of the Huntsville facility—product sales are no longer recognized; total operating expenses fell materially due to elimination of COGS and lower restructuring/impairment.
• Cash and investments were $175.9M at 6/30 (pre-raise); with ~$107.5M net offering proceeds on 7/2, management guides runway into Q1 2027; FY25 exit cash guided to $180–$185M.
• Pipeline momentum is the stock catalyst: Phase 2b AD induction met primary/secondary endpoints with rapid EASI and itch relief; AA Phase 2b topline expected December 2025, 52-week AD maintenance/escape data in Q1 2026, end-of-Phase II FDA meeting before YE25 to enable Phase III in 2026.

What Went Well and What Went Wrong

• What Went Well

  • Clinical validation in AD: “transformative” 16-week induction data with rapid EASI and itch relief, including EASI-75/90 and itch NRS significance at higher doses; safety profile without increased conjunctivitis/oral herpes seen with other agents.
  • Strengthened balance sheet and runway: $115M gross equity raise in July; runway into 2027 enables Phase III readiness and CMC scale-up; FY25 exit cash $180–$185M guided.
  • Regulatory traction: Fast Track designations in AD (Feb) and AA (July), enabling more frequent FDA engagement; end-of-Phase II meeting planned for 2025 to position Phase III start in 2026.

• What Went Wrong

  • Revenue reset YoY: total revenue down to $11.18M from $23.49M due to discontinuation of product sales after the Huntsville divestiture.
  • Equity-method losses: non-cash losses from Gannet BioChem of $2.4M in Q2 and $6.8M YTD pressured GAAP EPS (offset in non-GAAP).
  • Ongoing operating losses: Q2 loss from operations $(36.23)M and net loss $(41.59)M highlight the continued funding needs pending pivotal programs.

Transcript

Speaker 4

Hello and thank you for standing by. Welcome to the Nektar Therapeutics Second Quarter 2025 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Corinne Franklin from Nektar Therapeutics Investor Relations to kick things off. Please go ahead.

Speaker 0

Thank you and good afternoon everyone. Thank you for joining us today. On the call today are Howard W. Robin, our President and Chief Executive Officer, Dr. Jonathan Zalevsky, our Chief Research & Development Officer, and Sandra Gardiner, our Chief Financial Officer. Dr. Brian Kotzin, our Chief Medical Officer, will also be available during the question and answer session. On today's call we expect to make forward-looking statements regarding our business, including statements regarding the therapeutic potential of and future development and regulatory plans for RESPEG, NKTR-0165, and our other drug candidates, the timing and plans for future clinical data presentations, and other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to uncertainties and risks that are difficult to predict, many of which are outside of our control. Our actual results may differ materially from these statements.

Important risks and uncertainties are set forth in our Form 10-Q that was filed on May 9, 2025, and is available at SEC.gov. We undertake no obligation to update any of these forward-looking statements, whether as a result of new information, future development, 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 W. Robin.

Speaker 1

Thank you, Corinne. Good afternoon, everyone. The second quarter of 2025 was transformative for Nektar. In June, we reported highly compelling initial data in atopic dermatitis for our lead clinical program, rezpegaldesleukin, also known as RESPEG. These data establish RESPEG as a potential first-in-class novel T regulatory mechanism for patients suffering from this chronic relapsing inflammatory skin disorder. In 2023, we took the bold step to pursue T regulatory cell science across our pipeline. This science is focused on stimulating Tregs in different ways to restore the proper balance between T effector cells and T regulatory cells and achieve homeostasis in the immune system. We had the goal at that time to demonstrate that this important pathway could represent a completely new way to treat autoimmune and inflammatory disorders by mimicking the way our own immune system works to resolve inflammation.

In October of 2023, we initiated a 400-patient Phase 2b study for RESPEG in patients with moderate to severe atopic dermatitis where early proof-of-concept data in patients had shown promise at the time. For our second indication, we chose to run a Phase 2b study in alopecia areata. This is a disease setting where the underlying T regulatory cell deficiency creates a known imbalance between T effector cells and T regulatory cells, leading to hair loss for these patients. The Resolve AD study results we recently reported also validate Nektar's novel approach to access Tregs through the IL-2 pathway with a unique molecular design as compared to the competitive landscape.

While other approaches to access IL-2 have focused on the design of muteins, which we believe hindered their development recently and over the years, we instead took a straightforward and elegant approach of accessing Treg biology through a native sequence IL-2 and then applying PEGylation, a proven chemistry that has led to the approval of over 30 biologics and small molecules over the last several decades, and many of these are ones in which Nektar played a role. Now that we've been granted FDA Fast Track designation for both atopic dermatitis and alopecia areata, we have the opportunity to move more quickly and align with the FDA to design the most expeditious regulatory pathways.

This underscores that there undoubtedly still remains a large unmet need in the setting of atopic dermatitis and alopecia areata for novel mechanisms of action, and we believe we're well positioned with a first-in-class novel Treg mechanism that is poised to enter Phase 3 development in 2026. Now, since DUPIXENT was launched eight years ago, the atopic dermatitis market has grown to around $15 billion in U.S. sales with expectations that it could reach nearly $30 billion by 2033. Our own recent market research has suggested that physicians would prescribe RESPEG in both biologic-naive and biologic-experienced patients with atopic dermatitis, and our goal is to design a Phase 3 program that captures this unique opportunity in front of us. Currently, IL-13 based therapies dominate the treatment landscape and about 50% of the patients fail to respond to this mechanism.

Moreover, IL-13 based therapies are known to have side effect risks such as conjunctivitis and infection, which can pose a challenge for patients. In view of these challenges, there's a significant opportunity for RESPEG with a fast onset of easy response and itch relief. RESPEG is poised to take a differentiated position in this landscape. As JZ will explain in more detail, our Phase 3 strategy is designed to achieve a broad label in both naive and experienced patients, which would allow RESPEG to capture a substantial share of the growing multibillion dollar atopic dermatitis market. Given the very high correlation between historically positive Phase 2b results and the subsequent approvals in atopic dermatitis, we're highly focused on moving quickly into Phase 3 and our readiness activities are underway.

Our oversubscribed $115 million equity financing in June now puts us in an even stronger financial position to complete important Phase 3 enabling CMC and regulatory planning activities to ensure that RESPEG will be Phase 3 ready in the first half of 2026. In addition, the financing also positions us to extend our cash runway into 2027. Looking ahead, the ongoing Resolve AD study will generate additional data in Q1 of 2026, which we expect will further characterize the durability and depth of response for RESPEG out to week 52. We plan to present patient-reported outcome data including quality of life and symptom assessments from the 16-week induction period at a medical meeting this year. This data presentation will also include a planned data cut for patients who receive placebo in the induction phase and who then crossed over to a treatment escape arm.

With this new upcoming data cut, we're excited to see whether EASI responses deepen with continued treatment with RESPEG beyond the 16-week induction. I'll let Jay Z talk more about this key data set in a moment. In addition, we're on track to report data from the separate Phase 2b study in alopecia areata in December of this year. This is an indication where we are directly addressing the underlying pathology of hair loss in alopecia patients. Another positive outcome here would position RESPEG as a novel mechanism in a dermatological setting where there is only one mechanism approved for patients, JAK inhibitors. These carry multiple well-known black box warnings and are associated with high relapse rates upon discontinuation.

The market for alopecia areata treatments is projected to grow to $2 billion by 2033 and we believe that a new mechanism, RESPEG, could take a very significant share of this market. I'll hand it over to Jay Z for some more details on RESPEG and our earlier programs in our pipeline.

Speaker 3

Thanks Howard, and thank you to everyone on the call for joining us today. To start, I'd like to remind you of the key takeaways from our June 24th webcast where we announced top line 16-week induction data from the ongoing Phase 2b study known as Resolve AD. Resolve AD enrolled 393 patients and is testing RESPEG (rezpegaldesleukin) in biologic-naive patients with moderate to severe atopic dermatitis. The study met its primary endpoint of statistical significance for mean % change in EASI score from baseline for all RESPEG arms versus placebo at week 16. All three RESPEG arms met significance on the EASI-50, EASI-75, and BSA. The every two weeks regimens met significance on vIGA-AD and itch NRS, and the high dose of 24 microgram per kilogram every two weeks also achieved statistical significance on EASI-90.

Both EASI reduction and magnitude of itch improvement were seen after the first few doses of RESPEG, which we think could truly differentiate it from other systemic therapies in terms of a faster onset of action. Also, the safety profile for RESPEG in the Phase 2b setting was consistent with previously reported results from other RESPEG clinical studies, and there was no increased risk or incidence of conjunctivitis, oral herpes, or oral ulcers as is seen with other agents which are approved or in development. The maintenance period of the study is ongoing, and we expect to share the top line results for 52 weeks of dosing for the 36-week Q4 week and Q12 week maintenance regimens as well as the Q2 week escape arm regimen in Q1 2026.

As Howard mentioned earlier, we are looking forward to presenting additional differentiating endpoints from the induction phase of the Resolve AD study at a medical meeting in the fall of this year. These include quality of life assessments such as sleep quality, skin pain reduction, overall patient experience, and other important metrics that are meaningful for patients battling atopic dermatitis. In that presentation, we are also planning a data cut which looks at patients who have received 24 weeks of treatment with the highest dose induction regimen of RESPEG 24 microgram per kg Q2 week. You'll recall that our study design allowed patients from induction who had EASI scores of less than to advance to a treatment escape arm for up to 36 weeks.

As we reported in June, 42 patients who were in the placebo arm during the 16-week induction had a week 16 EASI score worse than EASI 50 and entered into this escape treatment arm. These patients represent a true crossover population for studying the extended duration of rezpegaldesleukin dosing. By this fall, we expect that more than half of the patients in this crossover cohort will have completed 24 weeks of treatment. With this new upcoming data cut, we are excited to see whether EASI responses can deepen with continued treatment with RESPEG beyond week 16 and out to week 24. This is a phenomenon not observed with IL-13 agents, whose treatment effect tends to be capped at the end of induction.

We are excited about this potential because our reported data of RESPEG at 16 weeks is comparable to 24 weeks of treatment reported with the OX40 agents, but with a faster onset of EASI 75 in itch response than what is seen with those agents. As we announced in February of this year, we received Fast Track designation for RESPEG for the treatment of adult and pediatric patients 12 years of age and older with moderate to severe atopic dermatitis whose disease is not adequately controlled with topical prescription therapies or when those therapies are not advisable. As Howard stated, we have already begun Phase 3 readiness activities and clinical trial design planning as we prepare for an end of Phase 2 meeting with the FDA later this year. Our goal is to position RESPEG to enter its first Phase 3 study in the first half of 2026.

We are actively evaluating several design pathways, including those that provide a clear line of sight to approval of rezpegaldesleukin in patients who are both biologic-naive or in biologic-experienced. We will finalize the trial design following our end of Phase 2 meeting with the FDA later this year. With the strong data from Resolve AD confirming the optimal induction dose and target patient population, we're focused on maintaining our momentum to progress RESPEG as quickly as possible in atopic dermatitis. Now moving on to alopecia areata, the Phase 2b Resolve AA trial completed enrollment in February and we're excited to share top-line results in December. In this trial, in patients with severe to very severe alopecia areata, RESPEG is being evaluated at doses of 18 micrograms per kilogram or 24 micrograms per kilogram every two weeks versus placebo.

A total of 94 patients were enrolled and the week 36 primary endpoint in the study is the mean % improvement in SALT score. Keep in mind that alopecia areata is another dermal disease and so our results in atopic dermatitis and also reinforced by an earlier separate study in psoriasis point to this T regulatory cell mechanism having strong signals of efficacy in dermatological settings. Alopecia areata is a disease in which the patient's immune system mistakenly attacks the hair follicle and disrupts the body's normal ability to keep and grow hair, leading to severe hair loss and lack of hair regrowth.

We know the underlying cause here is the imbalance in T effector cells to T regulatory cells around the hair follicle and this imbalance results in the T effector cells attacking and damaging the hair follicle and prohibits Tregs from signaling to and promoting the function of hair stem cells. By stimulating T regulatory cells we are seeking to overcome the pathogenesis of the disease and restore immune homeostasis. In Resolve AA, we will assess a number of secondary endpoints as well, including the proportion of patients with the greater than or equal to 50% reduction in SALT at week 36 and other assessed time points and the regulatory approval endpoints for Phase 3 studies.

SALT 20 and SALT 10 responder analyses following the week 36 assessments, patients who did not achieve a SALT score of less than or equal to 20 but did demonstrate substantial hair regrowth over the 36 weeks are eligible to enroll in a 16-week treatment extension, which allows us to have a subset of patients that will be treated for 52 weeks. Turning to type 1 diabetes, another autoimmune disease where RESPEG has great potential as a Treg therapy, we believe RESPEG can potentially slow the progressive loss of insulin-producing beta cells, which are the target of the patient's overactive immune cells in this disease. As previously announced, TrialNet is sponsoring and conducting an investigator-sponsored Phase 2 clinical trial evaluating RESPEG in 66 patients with new onset type 1 diabetes. With funding from the NIH, we expect TrialNet to begin this study before the end of the year.

Finally, NKTR-0165, our TNFR2 agonist antibody program, is progressing through IND enabling studies with a goal to advance this program into the clinic in 2026. TNFR2 agonism potentiates Treg function as well as maintenance of Treg lineage ability, especially in the non-lymphoid tissue compartments. The first preclinical data from this program was presented last year at EULAR and demonstrated that NKTR-0165 has a very high specificity for signaling through TNFR2 on Tregs and enhancing their immunoregulatory phenotype. It also showed that the agonist we discovered is able to signal through the TNFR2 multimeric receptor as a single-arm monovalent antibody, and we believe this is the only antibody in this class being developed that has this attribute. Since the TNFR2 epitope we discovered can function as a single-arm agonist, we have leveraged this innovation into a platform of bispecific and multispecific assemblies.

The first agent from that pipeline, NKTR-0166, pairs TNFR2 agonism with a well-validated target to create a molecule with a novel mechanism of action and highly innovative properties. We look forward to providing more updates on NKTR-0166 and other agents in the coming quarters. I'll now turn it over to Sandra for the financials.

Speaker 2

Thank you, JZ, and good afternoon, everyone. On today's call, I'll briefly review our quarterly financials and share updates to our financial guidance for 2025. We ended the second quarter of 2025 with $175.9 million in cash and investments and with no debt on our balance sheet. As Howard stated earlier, on July 2, 2025, we completed a secondary public offering resulting in approximately $107.5 million in net proceeds. This fundraising further strengthened our financial position, extending our cash runway into the first quarter of 2027 while also enabling us to invest in our RESPEG program to progress to Phase 3 and further develop NKTR-0165 and NKTR-0166, our TNFR2 agonist antibody candidates. Our expanded 2025 plan includes RESPEG Phase 3 clinical startup activities and securing additional manufacturing for RESPEG. We now expect to end the year with approximately $180 to $185 million in cash and investments.

Turning to the income statement, our non-cash royalty revenue was $11.2 million for the second quarter of 2025. We still expect our non-cash royalty revenue to total approximately $40 million for the full year. Our R&D expense was $29.9 million for the second quarter of 2025, and we now anticipate full-year R&D expense to range between $125 and $130 million, including approximately $5 to $10 million of non-cash depreciation and stock-based compensation expense. Our G&A expense was $17.1 million for the second quarter. We now expect G&A for the full year of 2025 to be between $70 and $75 million, including approximately $5 to $10 million of non-cash depreciation and stock-based compensation expense. This increase in guidance reflects updated estimates for professional services in the second half of the year, including legal and other accounting, consulting services.

Non-cash interest expense for the second quarter was $5.4 million and is expected to remain at a similar level for the remaining two quarters, totaling approximately $20 million for 2025. As a reminder, in the first quarter of 2025, we began accounting for our investment in the new portfolio company Gannett Biochem. Under the equity method of accounting, we calculate our non-cash gain or loss based on the change in our share of Gannett Biochem's equity each quarter. Our non-cash loss from equity method investment was $2.4 million in the second quarter of 2025, and we still expect a non-cash loss of approximately $10 million for the full year of 2025. On our income statement, we have no commitments to contribute cash to Gannett. As an equity investor, our net loss for the second quarter was $41.6 million or $2.95 basic and diluted net loss per share.

Excluding the non-cash loss from our equity method investment, our non-GAAP net loss totaled $39.2 million or $2.78 basic and diluted net loss per share. As I stated earlier, we now expect to end the year with approximately $180 million to $185 million in cash and investments, with our cash runway now extending into the first quarter of 2027. I will ask the operator to open the lines for Q&A.

Speaker 4

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11. Again, in the interest of time, we do ask that you please limit yourself to one question at this time. Please stand by while we compile the Q and A roster, and our first question will come from Jay Olson from Oppenheimer & Co. Inc. Your line is open.

Oh hey, thanks for taking all questions. This is Chung on the line for Jay and just want to congratulate again on the very impressive results you shared recently. Just wondering, first, have you maybe started to engage with regulators with the 16-week data, and since you started some activity to prepare for the Phase 3 initiation, any color you can share on how you are thinking about the trial design and also maybe the number of trials you are planning for the Phase 3 program? Maybe separately, just wondering yourselves on partnership opportunity for RESPEG and specifically when would be the optimal time to bring a partner on board and any kind of characteristic you would define for the partner? Thank you so much.

Speaker 1

This is Howard. I'll let Jay Z answer the first part of the question, and I'll take the second part. Go ahead, Jay Z. Yep.

Speaker 3

Thanks Howard. Thanks John. In terms of your first question, have we begun to engage with the regulators? That is ongoing. Our plan, as I mentioned earlier, is an end of Phase 2 meeting that we intend to hold before the end of the year. At this time, we're basically putting together the meeting request and the briefing package will go in, and the substrate of what we'll be discussing there is indeed the trial design. Our basic concept in the trial design is we expect to have two monotherapy studies that are basically identical in design, as well as a long-term extension study which enables you to collect long-term safety data. For this division, there are a number of additional studies that are required that are typical for every single BLA submission for a new molecule.

In terms of the studies, as we mentioned earlier in the call, we understand that there is a significant opportunity for RESPEG in multiple lines in atopic dermatitis. We have very strong data in biologic-naive patients and we've shown that in our Phase 2b results that you commented on. That will be a substantial portion of our patient population. Our plan is to also include biologic-experienced patients in the trial as well. In that regard, similar to the kind of studies that Amgen and Koa ran with Roca where they combined both naive and experienced patients in the same study, we think that was a very efficient approach and our goal is to use that same approach and also have both patient populations in our Phase 3 program, which would enable us to have the broadest label when we move to register RESPEG.

I think that addresses your questions about some of the health authority engagements and trial designs. Howard, I'll turn it over to you about partnership and timing.

Speaker 1

Yeah, sure. Thanks, Jay Z. Look, as we said on the call, we hope to end the year with $180 to $185 million. We will be prepared to put RESPEG into the clinic in Phase 3 in 2026. We have a runway that goes into 2027. We don't have any plans for an additional financing at this point. We have a number of important data catalysts ahead of us, and we're actively talking to partners about the potential to collaborate on RESPEG, including strategics as well as financing partners. There are ways to do this that are a collaboration with another company. There are also ways to do this with non-dilutive financial methods. We also have other sources of non-dilutive capital. For example, we own 3% to 4% of dapiMab, UCB's drug in Phase 3 for lupus. I think there's, and we're certainly looking at monetizing that asset.

There are a lot of opportunities for us. I would say that right now we're engaged in partnership discussions.

Got it. Thank you so much, and congrats again on progress.

Speaker 4

Thank you.

Speaker 1

Thank you.

Speaker 4

Our next question will come from Yasmeen Rahimi from Piper Sandler & Co. Your line is open.

Speaker 2

Good afternoon, team.

Speaker 0

Congrats on all the updates and all the great commentary. I guess my question is as the next near term data catalyst is the upcoming AA readout. Jay Z, if you could walk us through how your thought process around what is a competitive product profile to advance to a later stage development and whether also we will see at the time of the top line data some of.

Speaker 3

The patients who continued into the longer.

Speaker 0

Extension, or should we not expect that?

Speaker 3

I'll jump back into the queue. Yeah, sure. Thanks, Yaz. It's a great question. One of the things that's really important to consider about alopecia is that there are currently no approved biologics for alopecia areata and there's really no therapy that's demonstrated a sustained treatment effect. JAKs are efficacious. Even most recently, Rinvoak posted probably class-leading JAK inhibitor data in the space in the first of their Phase 3 studies that read out a few weeks ago. It still has a profile that's well known. It's a mechanism that requires continuous dosing. If you stop dosing with the JAK inhibitor, the patients lose the hair that they may have grown. You have to carry the additional safety liability. It's particularly challenging in this disease as many patients are younger, they have their disease for their entire life.

The concept of chronically taking a JAK inhibitor for many, many years is difficult for us. The way we designed the study for this Phase 2 is a primary endpoint based on percent change from baseline in SALT scores. While we don't need to necessarily sort of hit some of the JAK metrics, we still use the JAK metrics. They're very useful as frames of reference as we put together the TPP that we're considering for this indication. Just as some kind of benchmarks to keep an eye on for that endpoint, SALT percent change from baseline, low dose JAK achieves about a 30% reduction in SALT score and high dose JAK about a 40% reduction in SALT score. We're looking to be in that range.

Ideally, if RESPEG shows the kind of scientific approach that we think is very meaningful for this particular biology, then obviously our goal is to even push that. Of course, we'll also be focusing on the key registrational endpoints as those are very informative as we continue and look beyond the Phase 2b study in alopecia areata. Specifically, the SALT 20 and SALT 10 endpoints are key. SALT 20 is the FDA accepted threshold and SALT 10 is the standard in Europe. The JAK inhibitors have about a 20% and 10% for SALT 20 and 10 at the low dose and 35% and 25% at the high dose. We're using those as benchmarks along with the data that Rinvoak posted. We're very excited about the data set that's coming for us later this year.

I'm very excited about the opportunity of taking RESPEG forward for yet another dermatological indication, one where we know Tregs play such an important role in even just the fundamental biology of hair growth and having the chance of being potentially the first biologic in this space.

Speaker 2

Thank you so much, JB.

Speaker 4

Thank you. Our next question will come from Julian Reed Harrison from BTIG LLC. The line is open.

Speaker 3

Hi, thank you for taking the question.

Congratulations on all the recent progress.

Speaker 4

It's great to hear that you plan.

To include biologic-experienced atopic derm in your first registration program for RESPEG, can you remind us of what underpins your confidence that RESPEG will be active in the segment?

Speaker 3

Yep, certainly. Thanks, Julia, for the question. You know, it's interesting, I mean, we're tending to see that multiple agents are showing activity in biologic-experienced. Right, we've seen that. Now for a few examples. Libre had that example. ROCA seems to be also, you know, having that example. For us, we have this basic understanding that our mechanism is in no way overlapping or canceled out or contra to any of the post-IL-13 kind of biology. For example, if a patient has a disease that's more mixed in presentation, say TH2, but additional T helper endotypes that are driving the inflammation. Obviously, if you take a TH2 inhibitory mechanism like an IL-4/IL-13, you leave the other parts of the immune system kind of untouched. We know that we have a breadth of ability to block multiple kinds of polarized T cell inflammation.

There's also really no additional kind of, you know, a priori knowledge or scientific reason why there wouldn't be an effect. Also, because we're an agonist and not an antagonist agent and we're a cellular agonist, it gives us confidence that RESPEG should have activity whether the patient is biologic-naive or experienced. Of course, there are multiple ways that patients fail those agents, whether it's tolerability signal or a loss of efficacy signal. Again, in both of those cases, we think RESPEG has potential. Very helpful. Thank you.

Speaker 4

Thank you. Our next question will come from Arthur He from H.C. Wainwright & Co. LLC. Your line is now open.

Speaker 3

Hey, good afternoon, Howard and team. Congrats on the progress. I just had a quick question on the potential pivotal study for RESPEG for the AD regarding the biologic-experienced patient cohort. What's your thoughts around the biologic, prior biologic therapy? Would that be heavily focused on the new biologic-experienced or are you going to do kind of the basket patient cohort? Yes. Thanks, Arthur. That's a great question. Our goal is to begin our first Phase 3 study in the first half of next year. At that time, the major approved mechanisms would be the IL-4 and IL-13 class. Right. That would be Dupixent, lebrikizumab, right, Adbry, tralokinumab as well. Then nemolizumab is also approved as IL-31 antagonist. That would also be biologic-experienced. In our case, while the OX40 class will not yet be approved, likely by the time we begin, likely the first entrant will probably reach approval during.

Obviously, there aren't as many people that have taken those drugs yet, but again, that would also represent a biologic-experienced patient population. I hope that answers your question. Thanks, Judy.

Speaker 4

Thank you. Our next question comes from Mayank Mamtani from B. Riley Securities Inc. The line is open.

Hi Dean, thanks for taking your questions and congrats on a very productive second quarter as part of the Phase 3. Was wondering what your expectation for the induction efficacy primary endpoint duration of therapy would be, knowing that you're not getting to the peak EASI and itch efficacy at 16 weeks. Also, the thought you might be putting in to get the remedy efficacy signal. Is there anything to learn from the OX40 trials that are sort of trying to get to a comparable goal. I have a couple of follow up.

Speaker 3

Yeah, sure. Thanks, Mike. One of the things that our Phase 2b study we think really gave us clear understanding of is the dose level and the regimen that we want to take forward into our Phase 3 studies. We've already used since our top line the results of the study to create a population PK model as well as an exposure response model. As you know, both of those are key components of the end of Phase 2 meeting package that are used to defend the dose level for the Phase 3. We feel very confident with that. We did mention earlier, right, that the way our study is designed is we have multiple portions of the study where patients are ongoing longer duration of treatment beyond week 16.

We're very excited about the data cut that we talked about earlier in our call because that really starts to really sort of drill down right into what are those effects and the potential of deepening responses when patients are treated beyond 16 weeks. For example, we know for some contemporary Phase 3 studies, there's been a trend to move to longer induction endpoints. We also feel like we haven't quite even yet reached or seen the maximum efficacy of RESPEG. We think that's ongoing. As people take more treatment, there's a strong potential that we could see deepening. As we move forward into our end of Phase 2 meeting, we'll also clarify and propose the duration of our induction and also of course, the maintenance arms that we're testing in Phase 2.

Now those are both Q4 and Q12, but we'll also get more information about how we want to take forward maintenance regimen so both the duration of induction and then the maintenance portion of those studies. We're planning 52 week studies in our Phase 3 program. Your other question was about the remission potential. I want to first, you know, just remind everyone that the way the Phase 2b is designed is we had a 16 week induction that was followed by a 36 week maintenance or escape, depending on how patients ended their 16 week. There is a 52 week off drug follow up. Our intention is to treat people for a year and then follow them for a year off drug to assess remission or assess durability and stability, or at the very least, this prolongation of efficacy after you stop treatment.

Our Phase 2 study is really poised to give us an even richer data set than we obtained after our 12 week induction in the Phase 1b study. The way that we would be looking to leverage that in our Phase 3 program is actually going to be similar to what you mentioned. Both the Enlighten MAB and the rocatlumab programs are doing treatment withdrawal at different points in those studies, and our goal would be to do that kind of an approach. For example, one way we might approach this is that we would do a 52-week treatment and then in our long-term extension we would have a randomized withdrawal component so that we would be assessing both that remitted potential as well as long-term treatment in a blinded randomized withdrawal fashion.

Thanks, very helpful, Jonathan Zalevsky.

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

You want.

Speaker 1

To Jay Z, why don't you start, and then I'll take the Lilly question.

Speaker 3

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

Speaker 1

Okay. Yeah, let me. Obviously we're not going to. We certainly can't comment on the Lilly lawsuit. I think we are very committed to pursuing it based upon the RESPEG data that we reported and the data that's developing. I think we believe the potential for this program is significant and will drive a lot of valuation from others. I think the lawsuit is something that really will. Let me put it this way, the results that we have seen so far from RESPEG I think will help us with the lawsuit. I certainly don't think that we are in any position to comment on the specifics other than to say that we're highly committed to pursuing this and we do believe we were significantly injured by Lilly in any case. For example, the program was delayed by a few years in the marketplace.

You can calculate out what that means in the long term. Overall, I think we have a strong position. We're going to follow or we're going to pursue this lawsuit to its completion. I think we're, you know, we're pleased with the way it's going.

Appreciate the color, Adam.

Speaker 3

Thank you.

Speaker 4

Thank you. Our next question will come from Cha Cha Yang from Jefferies LLC. Your line is open.

Speaker 0

Hi, can you hear me?

Speaker 3

Yes.

Speaker 0

Okay, wonderful. Hi, this is Cha Cha Yang on for Rogersong. I was hoping that you could give us any updates on your studies being.

Done to better understand the ISRs, whether.

That's from a mechanistic perspective or if.

Could you give us any updates?

Regards to developing strategies for mitigating them upon commercialization.

Speaker 3

Sure, yeah. Thanks for the question, Cha Cha. In our studies, we have been assessing the biology of the ISR using various methods. One that's been quite useful for us is using primary skin organoid cultures, using skin that's obtained from tummy tuck surgery. It's very useful because that's abdominal skin and we inject the abdomen. Right. One of the things that we've learned so far is that this is really, as we've known for a long time, an IL-2 effect. IL-2 is known to cause injection site reactions. That was discovered in the late 1980s and early 1990s when subcutaneous studies started being done with the molecule. The pathways that we see induced are related to IL-2. That's actually a great observation for us to be able to model those in the organoid culture. We can study them at the mRNA level and the pathway level.

That gives us opportunities to be very specific with the kind of mitigation approaches that we can use because we know which pathways are firing and we can even identify the cells that are signaling the most. Another important element for us is that we've been operating the program basically using drug in a vial. The drug is drawn up at the study sites and administered to the patient subcutaneously by the healthcare practitioner. We'll be launching with product presentation in a pre-filled syringe packaged into an auto injector. We know that will have a positive effect because that will really standardize the drug administration, the needle depth, the rate, the needle itself will be dry, plus all the things that we're learning from these biological approaches.

We'll be doing all of those things while the Phase 3 program is ongoing, and we look to incorporate those into the auto injector that we'll have at the time of launch.

Speaker 1

Let me also add to that. I think from a marketing point of view, it's not a barrier at all. The patient, we had two patients drop out of the trial for injection site reactions. Most patients, they were mild to moderate. They self resolved, they did not stop taking the drug because of them. While we did have a lot of patients that had an injection site reaction, they may have only had one or two and they didn't have any further injection site reactions. Sometimes patients went months before they had.

Speaker 3

One and then they had one.

Speaker 1

They didn't have any more. You have to really understand what happened here with injection site reactions. It's not that a large % of patients get them on every injection. That is not the case at all. In any case, most of them were mild and the patients didn't seem to care. I think when you look at the problems associated with IL-13 therapies, such as conjunctivitis infections, that's actually much more concerning than mild to moderate self-resolving injection site reactions. I think Dr. Zalevsky made a very excellent point. A lot of that will be cleared up by an auto injector. There's a lot of, I don't want to say sloppiness, but a lot of inconsistency in the way patients administer the drug themselves. They put it in a vial, it's a wet needle, et cetera. Auto injectors should solve a number of those issues.

In any case, the level of ISRs that we saw I don't think are meaningful from a marketing point of view.

Speaker 0

Okay, thank you.

Speaker 4

Thank you. Our next question comes from Alexandra V. Ramsey from William Blair & Company. Your line is now open.

Hi, thanks so much for taking our question. This is Alexandra V. Ramsey on for Andy Shea at William Blair & Company.

Speaker 0

Going back to the potential.

Remitted effect of RESPEG in atopic dermatitis, that's something that we've been curious about. We have the upcoming maintenance data in early next year, and we're just curious about what data points or efficacy bar at this readout could be suggestive of a remitted effect. If you will need to wait until 2027 to get a gauge on this potential advantage of the regimen, that's part one. Part two is, do you have a sense of how much you have to blunt disease recurrence to achieve a true remit of effect?

Speaker 3

Thanks, Alex. Those are great questions. Starting with the first one, with remittive effect, the data in this part of the Phase 2b Resolve AD study is still on treatment data. The people that exited week 16 induction that had an EASI 50 or better, they moved into the maintenance arms and in the maintenance arms they stayed on the same dose level that they were on in induction, but they switched to either a once a month or a once every three month regimen and then they were on that regimen for 36 weeks. The data that we'll be presenting in the first quarter of next year will still be on treatment data. I'll get to your remitted question for part two in a second. Just to specify, that first quarter 2026 data set will be treatment data, but we will have a very low frequency treatment component.

There will be a number of people, about half of the people that entered into maintenance will be on a Q12 week regimen. We will be looking at a very low frequency dosing and comparing that to a Q4 week. Earlier in the call, we talked a few times about the potential of deepening responses and the things that we're really interested to look for in the maintenance with ongoing dosing are, for example, the proportion of people that entered that had an EASI 50 but not an EASI 75. How many of them deepened to 75? How many of the EASI 75 people deepened to 90 and so forth? Also, looking at the people that had a response at the week 16 induction, how durable was that in the sense that with ongoing dosing did they lose or keep that response?

Those are the two main buckets of data analyses that we'll be looking at. In the escape arm, we'll be looking at elements like the crossover population and so on when you move everyone to the high dose. That next part really addresses duration and 52 weeks treatment, that's a very good marker for us for the overall treatment length. The second question you had about the remitter effect was, is there a certain depth of disease that you need to reach before you would have the best durability? I think that's a really great question. Certainly, a person that reaches EASI 75 and a person that reaches EASI 90, those are two different levels of efficacy. It's a really important question to ask. Is there more remission in an EASI 90 person or is it the same as in an EASI 90 and an EASI 75 individual?

The only data that we really have to address that is from our phase one. In the phase one, we saw that people that had an IGA response at week 12 and that had an IGA response at week 48, even though they stopped treatment at week 12, had about 80% IGA maintenance and about 70% EASI 75 maintenance across that six-month time horizon in the six-month off-drug period. That data might hint that there may be a little bit better remitted effect in people that have a deeper disease. I think you'd really need a lot more data to really be sure of that. I'm excited to see some of the other mechanisms that we'll be trying to address that as well, such as the OX40 mechanisms that are both including treatment-free intervals in their phase three programs. Thanks for your question.

Thank you. That is super helpful. Really appreciate the added color.

Speaker 4

Thank you. Our next question comes from Jessica Macomber Fye from JPMorgan Chase & Co. Your line is open.

Speaker 2

Hey guys, good evening. Thanks for taking my questions. For RESPEG for AD, can you just speak to your comfort level with the powering of the maintenance phase of that trial after the dropouts in the induction portion? I think you had sort of planned for some attrition here. Just want to make sure that you still feel good about the powering for the maintenance phase. I think when you kind of presented the top line induction data in AD, you were sort of benchmarking off of AXS-40. Can you spend a minute talking about why you think that's the right comp for this product? Thank you.

Speaker 3

Sure. Yeah. Thanks, Jess. Firstly, as we reported in June, we had 190 people that moved into the maintenance arm. We think that's a good population. It's actually right in line with what we modeled that will cross over. That modeling was based on other Phase 2 studies and similar Phase 2 patient populations, similar statistical methods used during induction, and of course, heavily driven by our Phase 1 data and our Phase 1 results. We're pretty happy with the number of people that moved into the maintenance portion. Very much to your point, because we wanted to assess two regimens, right, you're basically randomizing them one to one. The people that were on placebo, there was a handful, right? It was less than 30%.

Those stay on placebo, but everyone else is on RESPEG, right, and then they're randomized one to one on either once a month or once every three month regimen. We're right in line with how we design the study, but we feel pretty good about that. To your next question about benchmarking to OX40, for us it was really informative when we started to very closely compare the Phase 2 studies, the study design, the patient populations, and other elements. When we looked at that, we saw that the health authority keeps sort of driving you to more and more rigorous statistical designs as you have more and more entrants approaching through later stage clinical development. That's common, all regulators like to do that. It really pushes the bar.

We noticed that our study design, our statistical handling, even our sizes and patient populations and even geographic footprint was really much more similar to the OX40 Phase 2b studies. The other studies like Dupia, I mean that was done many, many years ago, well over 10 years ago. Very different patient population. Trelo, which came next, same. A very different patient population. Also, as you looked at new mechanisms, for us, looking at RESPEG is a completely novel and first-in-class mechanism in atopic derm. Looking at the OX40 class, which was novel relative to the IL-13s. We focused that as one of our areas of comparison for those reasons. Of course, you have to consider all of it as well. That's why we showed all of the agents that are approved, including the ones in Phase 3.

Speaker 2

Thank you.

Speaker 4

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

Speaker 1

Thank you, Crystal. Before we close, I want to thank the new and existing investors that supported our recent capital raise. We are truly grateful for your support as shareholders. I also want to thank our employees for their dedication and extremely hard work. We look forward to delivering additional data updates later this year and engaging with regulators on our Phase 3 program. Thank you for joining us today and please stay tuned.

Speaker 4

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