Welcome to the Nektar Therapeutics Second Quarter 2025 Financial Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Korin Franklin from Nektar Therapeutics Investor Relations to kick things off. Please go ahead.

Thank you, and good afternoon, everyone. Thank you for joining us today. On the call today are Howard Robin, our President and Chief Executive Officer; Dr. Jonathan Zalevsky, our Chief Research and 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 rezpegaldesleukin 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 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.

Thank you, Korin. 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 REZPEG. These data establish REZPEG 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. And 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. So in October of 2023, we initiated a 400-patient Phase IIb study for REZPEG 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 IIb 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 REZOLVE-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 are 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, 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 are well positioned with a first-in-class novel Treg mechanism that is poised to enter Phase III development in 2026. Now since DUPIXENT was launched 8 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 REZPEG in both biologic naive and biologic experienced patients with atopic dermatitis. And so our goal is to design a Phase III 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 failed 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. So in view of these challenges, there is a significant opportunity for REZPEG. With a fast onset of EASI response and itch relief, REZPEG is poised to take a differentiated position in this landscape. As JZ will explain in more detail, our Phase III strategy is designed to achieve a broad label in both naive and experienced patients, which would allow REZPEG to capture a substantial share of the growing multibillion-dollar atopic dermatitis market. Given the very high correlation between historically positive Phase IIb results and the subsequent approvals in atopic dermatitis, we're highly focused on moving quickly into Phase III 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 III enabling CMC and regulatory planning activities to ensure that REZPEG will be Phase III-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 REZOLVE-AD study will generate additional data in Q1 of 2026, which we expect will further characterize the durability and depth of response for REZPEG 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 received 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 REZPEG beyond the 16-week induction. And I'll let JZ talk more about this key data set in a moment. Now in addition, we're on track to report data from the separate Phase IIb 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 REZPEG 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, REZPEG, could take a very significant share of this market. And now I'll hand it over to JZ for some more details on REZPEG and our earlier programs in our pipeline.

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 IIb study known as REZOLVE-AD. REZOLVE-AD enrolled 393 patients and is testing rezpegaldesleukin in biologic-naive patients with moderate to severe atopic dermatitis. The study met its primary endpoint of statistical significance for mean percent change in EASI score from baseline for all rezpegaldesleukin arms versus placebo at week 16. All three rezpegaldesleukin arms met significance on the EASI-50, EASI-75, and BSA. The every 2 weeks regimens met significance on VIGA, AD, and itch NRS, and the high dose of 24 microgram per kilogram every 2 weeks also achieved statistical significance on EASI-90. Both EASI reduction and magnitude of itch improvement were seen after the first few doses of REZPEG, which we think could truly differentiate it from other systemic therapies in terms of a faster onset of action. Also, the safety profile for REZPEG in the Phase IIb study was consistent with previously reported results from other REZPEG clinical studies, and there was no increased risk of 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 REZOLVE-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 REZPEG, 24 microgram per kilogram Q2 week. You'll recall that our study design allowed patients from induction who had EASI scores of less than 50 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. So with this new upcoming data cut, we are excited to see whether EASI responses can deepen with continued treatment with REZPEG 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. And we are excited about this potential because our reported data of REZPEG at 16 weeks is comparable to 24 weeks of treatment reported with the OX40 agents, but with a faster onset of EASI-75 in its response than what is seen with those agents. As we announced in February of this year, we received Fast Track designation for REZPEG 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 III readiness activities and clinical trial design planning as we prepare for an end of Phase II meeting with the FDA later this year. Our goal is to position REZPEG to enter its first Phase III 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 and biologic experienced. We will finalize the trial design following our end of Phase II meeting with the FDA later this year. With the strong data from REZOLVE-AD confirming the optimal induction dose and target patient population, we're focused on maintaining our momentum to progress REZPEG as quickly as possible in atopic dermatitis. Now moving on to alopecia areata. The Phase IIb REZOLVE-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, REZPEG is being evaluated at doses of 18 microgram per kilogram or 24 microgram per kilogram every 2 weeks versus placebo. A total of 94 patients were enrolled and the week 36 primary endpoint in the study is the mean percent improvement in SALT score. Now 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. So by stimulating T regulatory cells, we are seeking to overcome the pathogenesis of the disease and restore immune homeostasis. In REZOLVE-AA, we will assess a number of secondary endpoints as well, including the proportion of patients with a greater than or equal to 50% reduction in SALT at week 36 and other assessed time points and the regulatory approval endpoints for Phase III studies, SALT 20 and SALT 10 responder analysis. 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. Now turning to type 1 diabetes, another autoimmune disease where REZPEG has great potential as a Treg therapy. We believe REZPEG 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 II clinical trial evaluating REZPEG 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. And 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 stability, 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 multi-specific 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.

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 REZPEG program to progress to Phase III and further develop NKTR-0165 and NKTR-0166, our TNFR2 agonist antibody candidates. Our expanded 2025 plan includes REZPEG Phase III clinical start-up activities and securing additional manufacturing for REZPEG. We now expect to end the year with approximately $180 million to $185 million in cash and investments. Turning to the income statement. Our noncash royalty revenue was $11.2 million for the second quarter of 2025. We still expect our noncash 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 million and $130 million, including approximately $5 million to $10 million of noncash 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 million and $75 million, including approximately $5 million to $10 million of noncash 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 and consulting services. Noncash 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, Gannet BioChem. Under the equity method of accounting, we calculate our noncash gain or loss based on the change in our share of Gannet BioChem's equity each quarter. Our noncash loss from equity method investment was $2.4 million in the second quarter of 2025, and we still expect a noncash loss of approximately $10 million for the full year of 2025 on our income statement. We have no commitments to contribute cash to Gannet 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 noncash 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. And 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. And with that, I will ask the operator to open the lines for Q&A.

And our first question will come from Jay Olson from OpCo.

This is Cheng on the line for Jay. And just want to congratulate you 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 III 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 III program? And maybe separately, just like wondering your thoughts on partnership opportunity for REZPEG in AD. And specifically, when would be the optimal time to bring a partner on board? And any kind of characteristics would you define the partner?

I'll let JZ answer the first part of the question and I'll take the second part. Go ahead, JZ.

Yes. So in terms of your first question, have we begun to engage with the regulators. So that's ongoing. So our plan, as I mentioned earlier, is an end of Phase II meeting that we intend to hold before the end of the year. And so at this time, we're basically putting together the meeting request and the briefing package that will go in. And the substrate of what we'll be discussing there is indeed the trial design. And so 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. And then 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 REZPEG in multiple lines in atopic dermatitis. We have very strong data in biologic naive patients and we've shown that in our Phase IIb results that you commented on. And so that will be a substantial portion of our patient population. But our plan is to also include biologic experienced patients in the trial as well. So in that regard or similar to the kind of studies that Amgen and others have done, which combine 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 III program, which would enable us to have the broadest label when we move to register REZPEG. So I think that addresses your questions about some of the health authority engagements and trial designs. And Howard, I'll turn it over to you about partnership and timing.

Yes, of course. As mentioned during the call, we anticipate concluding the year with between $180 million and $185 million, and we are preparing to initiate the Phase III clinical trial for REZPEG in 2026. Our funding runway extends into 2027, and we currently do not plan for any additional financing. We have several important data catalysts coming up and are actively engaging with potential partners for collaboration on REZPEG, which includes strategic and financing partners. There are various ways to collaborate with other companies, as well as options for non-dilutive financing. Additionally, we have other sources of non-dilutive capital; for instance, we hold a 3% to 4% stake in dapimab, UCB's drug currently in Phase III for lupus, which we are exploring monetizing. There are numerous opportunities available to us, but at this moment, we are focused on partnership discussions.

Our next question will come from Yasmeen Rahimi from Piper Sandler.

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, JZ, maybe you could walk us through how your thought process around what is a competitor 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 the patients who continued into the longer extension? Or should we not expect that? And I'll jump back into the queue.

Yes, sure. So 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. So JAKs are efficacious, and even most recently, Rinvoq posted probably class-leading JAK inhibitor data in the space in the first of their Phase III studies that read out a few weeks ago. And it still has a profile that's well-known. So 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. And then also you have to carry the additional safety liability. And it's particularly challenging in this disease as many patients are younger. They have their disease for their entire life, and the concept of chronically taking a JAK inhibitor for many years is difficult. For us, the way we designed the study for this Phase II is a primary endpoint based on percent change from baseline in SALT scores. And 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 Target Product Profile (TPP) that we're considering for this indication. And so just as like 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. So we're looking to be in that range. And ideally, if REZPEG 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. And then, of course, we'll also be focusing on the key registrational endpoints as those are very informative as we sort of continue and look beyond the Phase IIb study in alopecia areata. So 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. And 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. So again, we're using those as benchmarks along with the data that Rinvoq posted. But 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 REZPEG 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.

Our next question will come from Julian Harrison from BTIG.

Congrats on all the recent progress. It's great to hear that you plan to include biologic experience atopic derm in your first registrational program for REZPEG. Can you remind us of what underpins your confidence that REZPEG will be active in the segment?

Yes, certainly. It's interesting. I mean, we're tending to see that multiple agents are showing activity in bioexperienced patients. We've seen that now for a few examples. Lowry had that example. Others seem to be also having that example. But 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, I mean, obviously, if you take a Th2 inhibitory mechanism like an IL-4, IL-13, you leave other parts of the immune system kind of untouched. But we know that we have a breadth of ability to block multiple kinds of polarized T cell inflammation. And there's also really no additional kind of 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 REZPEG should have activity, whether the patient is biologic naive or experienced. And 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 REZPEG has potential.

Our next question comes from Arthur He from HCW.

Congrats on the progress during the quarter. So I just had a quick question on the potential pivotal study for the REZPEG for AD. Regarding the biological experienced patient cohort, what's your thoughts around the biological trial biological therapy? Would that be heavily focused on the DUPIXENT patient or going to do kind of the basket patient cohort?

Yes, that's a great question. So our goal is to begin our first Phase III 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? So that would be DUPIXENT, lebrikizumab, Adbry, tralokinumab as well. And then nemolizumab is also approved as IL-31 antagonist. That would also be bioexperienced. 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.

Our next question comes from Mayank Mamtani from B. Riley Securities.

Congrats on a very productive second quarter. As part of the Phase III, I 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 efficacy at 16 weeks? And also the thought you might be putting in to get the relative efficacy signal? And obviously, is there anything to learn from the OX40 trials that are sort of trying to get to a comparable goal? And then I have a couple of follow-ups.

Yes, sure. So one of the things that our Phase IIb study really gave us clear understanding of is the dose level and the regimen that we want to take forward into our Phase III studies. And 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 II meeting package that are used to defend the dose level for the Phase III. So we feel very confident with that. We did mention earlier 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 drill down 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 III 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 REZPEG. We think that's ongoing as people take more treatment; there’s a strong potential that we can see deepening. So as we move forward into our end of Phase II 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 II 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. And we're planning 52-week studies in our Phase III program. Your other question was about the remittive potential. And so I want to first just remind everyone that the way the Phase IIb 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. And then there is a 52-week off-drug follow-up. So 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. So our Phase II study is really poised to give us an even richer data set than we obtained after our 12-week induction in the Phase Ib study. So the way that we would be looking to leverage that in our Phase III program is actually going to be similar to what you mentioned, both the amlitelimab and the rocatinlimab programs are doing. You do treatment withdrawal at different points in those studies. And our goal would be to do that kind of an approach. So 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 the remittive potential as well as long-term treatment in a blinded randomized withdrawal fashion.

Very helpful, JZ. And maybe just staying in that same topic of learnings 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 REZOLVE-AD results now with you, any changes to your belief in the outcome and the related liabilities that you might be claiming?

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

We will not comment on the Lilly lawsuit at this time. However, we are fully committed to pursuing it. Based on the REZPEG data we reported and ongoing developments, we believe this program has significant potential that will enhance our valuation in the eyes of others. The results we have gathered from REZPEG so far should support our case in the lawsuit. While we cannot discuss specifics, we are determined to pursue this matter because we believe we have been significantly harmed by Lilly, especially considering that the program was delayed by several years in the marketplace, which has long-term implications. Overall, we feel we have a strong position and are committed to seeing this lawsuit through to its conclusion. We are satisfied with its current progress.

Our next question will come from Cha Cha Yang from Jefferies.

This is Cha Cha on for Roger Song. 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 you could give us any updates in regards to developing strategies for mitigating them upon commercialization?

Sure. Yes. So in our studies, we have been assessing the biology of ISR using various methods. One that's been quite useful for us is using a 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. So 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. So IL-2 is known to cause injection site reactions and that was discovered in the late '80s and early '90s when subcutaneous studies started being done with the molecule. And so the pathways that we see induced are related to IL-2. And 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. And then 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. And then the drug is drawn up at the study sites and administered to the patient subcutaneously by the health care practitioner. But we'll be launching with product presentation in a prefilled syringe packaged into an auto-injector. And 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 III program is ongoing and we look to incorporate those into the auto-injector that we'll have at the time of launch.

Yes. Let me add to that. From a marketing perspective, it's not a barrier at all. We had two patients drop out of the trial due to injection site reactions. Most reactions were mild to moderate and self-resolved, so patients did not stop taking the drug because of them. While a number of patients experienced injection site reactions, they typically had only one or two, and many went months before experiencing any. It’s important to understand that a large percentage of patients do not experience reactions with every injection. Most reactions were mild, and the patients didn't seem to mind. Compared to the issues associated with IL-13 drugs, such as conjunctivitis and infections, mild to moderate, self-resolving injection site reactions are much less concerning. JZ made an excellent point—many problems will be addressed with an auto-injector. There’s a lot of inconsistency in how patients administer the drug themselves, like using a wet needle. An auto-injector should resolve many of those issues. Overall, the instances of injection site reactions we observed are not significant from a marketing standpoint.

Our next question comes from Alex Ramsey from William Blair.

This is Alex Ramsey on for Andy Hsieh at William Blair. So just going back to the potential remittive effect of REZPEG in atopic derm, that's something that we've been curious about. And so 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 remittive effect or if we will need to wait until 2027 to get a gauge on this potential advantage of the regimen? So that's part 1. And then part 2 is, do you have a sense of how much you have to blunt disease recurrence to achieve a true remittive effect?

Yes. Those are great questions. So starting with the first one, so with remittive effect, the data in this part of the Phase IIb REZOLVE-AD study is still on treatment data. So 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. So the data that we'll be presenting in the first quarter of next year will still be on treatment data. So I get to your remittive question for part 2 in a second. But just to specify, yes, 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. So we will be looking at a very low frequency dosing and comparing that to a Q4-week. And 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 is, for example, the proportion of people that entered that had an EASI-50, but not an EASI-75. So how many of them deepened to 75, and how many of the EASI-75 people deepened to 90, and so forth. And 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? So those are the two main buckets of data analyses that we'll be looking at. And in the escape arm, we'll be looking at elements like the crossover population when we move everyone to the high dose. So that next part really addresses duration and 52 weeks treatment. That's a very good marker for us for the overall treatment length. Then the second question you had about the remittive effect is, 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. I mean, 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, 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 I. In the Phase I, 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 kind of 6-month time horizon in the 6-month off-drug period. So that data might hint that there may be a little bit better remittive effect in people that have a deeper disease. But I think we really need a lot more data to really be sure of that. And 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 III programs.

And our next question comes from Jessica Fye from JPMorgan.

For REZPEG 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. I just want to make sure that you still feel good about the powering for the maintenance phase. And I think when you kind of presented the top line induction data in AD, you were sort of benchmarking off of OX40. Can you just spend a minute talking about why you think that's the right comp for this product?

Sure. Firstly, as we reported in June, we had 190 individuals transition into the maintenance phase, which aligns well with our expectations. This modeling was based on other Phase II studies with similar patient populations and statistical methods used during induction. Additionally, our Phase I data significantly influenced this outcome. We're pleased with the number of participants in the maintenance portion. Regarding the assessment of two regimens, we randomized subjects in a 1:1 ratio. Those on placebo, which was less than 30%, remained on it, while the rest were assigned to REZPEG and randomized 1:1 either to a monthly or tri-monthly regimen. This aligns with our study design, and we feel confident about it. Now, concerning the benchmarking to OX40, we found it very insightful to compare our Phase II studies, including study designs and patient populations. We realized that regulatory bodies are pushing for more stringent statistical approaches as more candidates enter late-stage development, which is typical. Our study design, statistical treatment, and patient demographics were notably similar to the OX40 Phase IIb studies. In contrast, studies like Dupi, conducted over a decade ago, had a very different patient population, as did tralo that followed. Additionally, evaluating REZPEG as a novel mechanism in atopic dermatitis against the OX40 class, which was a new contender compared to IL-13s, prompted us to focus on this comparison. However, we also considered other approved agents, including those in Phase III.

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

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

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