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Nektar Therapeutics (NASDAQ:NKTR)
Q4 2020 Earnings Call
Feb 25, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Nektar Therapeutics Fourth Quarter 2020 Financial Results. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Ms. Jennifer Ruddock, Head of Corporate Affairs. Ma'am, you may begin.

Jennifer Ruddock -- Senior Vice President, Strategy and Corporate Affairs

Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. With us on the call are Howard Robin, our President and CEO; Gil Labrucherie, our COO and CFO; Dr. Jonathan Zalevsky, our Chief of Research and Development; and Dr. Brian Kotzin, our Interim Chief Medical Officer and Head of Development. On today's call, we expect to make forward-looking statements regarding our business, including clinical trial enrollment and clinical trial results; timing and plans for future clinical trials; timing and plans for future clinical data presentations; the therapeutic potential of our drug candidates; outcomes and plans for health authority regulatory actions and decisions; estimates and predictions of the COVID-19 pandemic's impact on our business and clinical trials; financial guidance and certain other statements regarding the future of our business. Because these forward-looking statements relate to the future, they are subject to inherent uncertainties and risks that are difficult to predict and many of which are outside of our control. Important risks and uncertainties are set forth in the Form 10-Q that was filed on November 6, 2020, which is available at sec.gov.

We undertake no obligation to update any of these forward-looking statements, whether as a result of new information, future developments or otherwise. A webcast of this call will be available on the IR page of Nektar's website at nektar.com. Before turning the call over to Howard, I'd like to remind you that I will moderate the Q&A session for our team, as we're all in different locations, so we can avoid technical issues during the session. We appreciate your patience as we work to ensure there are no technology disruptions for those listening on the call today.

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

Howard W. Robin -- Chief Executive Officer and President

Thank you, Jennifer. Thanks to everyone for joining us on the call today. Over the past year, Nektar has made excellent progress positioning our company as a leader in the development of cytokine therapeutics. Importantly, we successfully broadened the registrational program in solid tumors for our lead IL-2 program, BEMPEG, with the addition of multiple registrational trials in adjuvant melanoma, muscle-invasive bladder cancer and most recently, head and neck cancer. We also successfully completed enrollment in the ongoing Nektar-sponsored registrational studies in renal cell carcinoma and bladder cancer, overcoming the challenges presented by the pandemic over the past year. We initiated a new development strategy with our IL-15 program, advancing two separate Phase I/II clinical studies to combine NKTR-255 with leading ADCC compounds rituximab and daratumumab in liquid tumors and cetuximab in solid tumors. And for NKTR-358, our Treg stimulator, we and our partner, Eli Lilly, broadened the clinical program with four mid-stage studies in different autoimmune disorders, including a Phase II in lupus, a Phase II study in ulcerative colitis and two Phase Ib studies, one in psoriasis and the second in atopic dermatitis. We've also bolstered our already strong financial position with a $150 million royalty financing in December and a novel $150 million risk-sharing collaboration, which we just completed with Blackstone Life Sciences and Abingworth through their SFJ entity to fully fund the study for BEMPEG plus PEMBRO in head and neck cancer, and we're working with Merck on this study.

Our deep pipeline of candidates in immuno-oncology and immunology, together with a strong cash balance, position Nektar well as we enter 2021. So let me begin today with BEMPEG, our most advanced late-stage clinical program and IL-2 pathway agonist that is being developed in combination with checkpoint inhibitors nivolumab and pembrolizumab. Our strategy for BEMPEG is focused on pursuing multiple large front-line and adjuvant tumor settings, melanoma, renal cell carcinoma, bladder cancer, non-small cell lung cancer and head and neck cancer. The opportunity for combining BEMPEG with PD-1 inhibitors in these tumor settings is significant. The 2020 sales of PD-1s across these settings were greater than $5 billion. And we were exceptionally proud that we put in place a development program that positions us to capture significant value with BEMPEG. Over the past year, we and BMS initiated two new registrational studies for BEMPEG plus nivolumab, both of which target large patient populations. The first in adjuvant melanoma that Nektar is sponsoring, and the second in muscle-invasive bladder cancer that BMS is sponsored. In addition, BMS also initiated a Phase II study in renal cell carcinoma for BEMPEG plus nivo with a TKI to pave the way for future development of a TKI-inclusive regimen in the setting and first-line RCC. The study is designed to build on their recent successful approval of nivo plus cabo, and we're excited about moving forward in that study.

Separately, Nektar also advanced our own Phase II study, known as PROPEL, in patients with non-small cell lung cancer studying BEMPEG plus PEMBRO. And just last week, we announced two separate collaborations that are designed to fund and advance a new registrational study for BEMPEG plus PEMBRO in first-line head and neck cancer. I'll briefly comment on these recent collaborations. First, we entered into a clinical trial collaboration and drug supply agreement with Merck for a Phase II/III study of BEMPEG plus PEMBRO versus PEMBRO monotherapy in patients with metastatic head and neck cancer whose tumors express PD-L1. The study is designed to allow us to pursue global registration of BEMPEG in this indication. And we are very grateful to collaborate with Merck for the first time on BEMPEG. Merck will provide PEMBRO at no cost for this 500 patient study, and they are also collaborating with us on the protocol and study design. PEMBRO has emerged as the leading checkpoint inhibitor and standard of care in this setting, overtaking the EXTREME regimen and its usage in first-line care and we are excited about the potential of BEMPEG to help these patients.

JZ will talk more about this study and the rationale for an IL-2 agent in this indication. Second, to fund this study in a non-dilutive fashion, we entered into a very innovative agreement with SFJ, an entity backed by Blackstone Life Sciences and Abingworth, with a commitment from them for $150 million. We are pleased that SFJ and its investors showed their conviction in BEMPEG by committing this capital entirely at risk. This underscores their belief that BEMPEG has the potential to be approved in multiple tumor settings. In exchange, following BEMPEG's approval, we have a series of success-based milestone payments that will be made over approximately seven years. Importantly, again, these payments are made only if BEMPEG secures FDA approval and these payments do not start until after the completion of the head and neck study, which is currently projected for 2024, with our projection for a potential first payment of $30 million in 2025. We estimate that this new opportunity in head and neck cancer could be as large as $500 million to $800 million globally each year and so it represents a substantial value addition to the BEMPEG development program. From the onset, we had envisioned BEMPEG to be developed with other checkpoint inhibitors beyond nivolumab. Our original agreement with BMS provided us with the ability to conduct independent studies outside of the indications being pursued by the Nektar BMS joint development plan under way with nivo. For PEMBRO, the two largest metastatic settings with monotherapy labels are non-small cell lung cancer and head and neck cancer.

With this new head and neck study, we now have a strategy to address both of these tumor types and to do so, we are combining with the clear market leader in these settings. To remind you, in the agreement with BMS, we have a $1.43 billion payment in filing and approval milestones for BEMPEG in the U.S., Europe and Japan, and these are tied to any approval of BEMPEG, whether the approval is with nivo or not. We are eligible to receive $625 million for filings and approvals in the first indication and $260 million for each of the next three indications. Again, regardless of whether the filing and approval is in combination with nivo or PEMBRO. With six registrational studies to support potential filings, we have many opportunities to bring in these milestones. At SITC, this past November, we reported new data for the patients in our metastatic melanoma cohort from PIVOT-02. These data illustrated the ability of BEMPEG to help melanoma patients achieve a high reduction in tumor burden and demonstrated the continued benefit of the doublet treatment over time. 90% of patients who responded experienced a 100% reduction in target lesions or a complete response to the investigational doublet treatment. And we know in this setting that depth of response can translate into improved PFS and OS.

The median PFS reported for the BEMPEG plus nivo cohort is 30.9 months, which compares very favorably to the historical PFS of 6.9 months for nivo alone from the CheckMate 067 study. As a reminder, nivo monotherapy is the comparator arm in our ongoing Phase III study in these patients. So the data presented at SITC provides us with an even more confidence in BEMPEG's therapeutic potential. For the first time, we also reported a landmark overall survival figure for BEMPEG plus nivo at two years of 77% and the median overall survival has not yet been reached. The results compare favorably to OS data for nivo alone as well, which recorded landmark OS of 59% at two years. We also recently reported very good enrollment progress with the Nektar-sponsored PROPEL study, which is evaluating BEMPEG plus PEMBRO in patients with first-line non-small cell lung cancer. This study will provide us with key data in order to develop a Phase III strategy in this setting with PEMBRO. As we mentioned at the JPMorgan conference, enrollment in this trial came in well ahead of schedule with a high number of patients enrolled in November and December of last year. We plan to report the initial data from this study in the second half of this year. This will be data in approximately 60 patients spread across three separate PD-L1 expression cohorts. And I'll let JZ share more on PROPEL in a moment and he will also provide an update on our work with BEMPEG in the COVID-19 study.

Turning to NKTR-255, our second major IO cytokine program with a broad-based mechanism that causes the proliferation of natural killer cells and the expansion of CD8+ T cells and memory cells. By combining NKTR-255 with the leading approved ADCC antibodies, which require functional natural killer cells for their mechanism of action, we believe that we can improve the therapeutic potential of these targeted antibody therapies for patients. We reported very encouraging early clinical data at this past SITC conference in patients with multiple myeloma and Non-Hodgkin's Lymphoma, which show that NKTR-255 is increasing NK cells in these patients, and we demonstrated the clinical benefit of NKTR-255 as a single agent in these early dose cohorts. In addition to the ongoing trial in hematological malignancies, we are also enrolling patients in our Phase I solid tumor study. We expect to have additional data from these studies in the second half of this year. The third cytokine in our portfolio is NKTR-358, which is being developed in partnership with Eli Lilly to address a broad range of autoimmune and inflammatory conditions, all of which represent significant patient populations. We're truly excited about Lilly's commitment to this program and Brian will share more of this program later in the call. Following the positive data for NKTR-358 in lupus patients last year, Lilly commenced a 280-patient Phase II study in lupus and is now also initiating a 200-patient Phase II study in ulcerative colitis, and these add to the ongoing separate Phase Ib studies in psoriasis and atopic dermatitis. We enter 2021 with an exceptionally strong balance sheet, with $1.2 billion in cash and no debt.

And I'll now turn the call over to JZ, who will expand on our BEMPEG, NKTR-262 and NKTR-255 programs. JZ?

Jonathan Zalevsky -- Chief Research and Development Officer

Thank you, Howard. Let me begin with a quick review of the BEMPEG data from the PIVOT-02 melanoma cohort presenting at SITC. As Howard noted, we reached a median PFS of 30.9 months. Overall response rate was 53% with 34% of patients achieving a complete response. Importantly, we have also observed a median depth of response of 78.5%. Our results are notable when you look at historical data from published literature for depth of response for single-agent nivo and ipi/nivo, which were 35% and 52%, respectively. As we have discussed before, an FDA meta-analysis of melanoma trials has shown that depth of response in target lesions highly correlates with improved PFS and OS. And indeed, with our median PFS at 30.9 months, we've observed a correlation very consistent with the FDA meta analysis. We have not yet reached a median overall survival for this cohort, but as Howard stated earlier, our landmark OS at two years was substantially better than historical rates reported for the current standards of care in this setting, nivo as well as ipi/nivo. The data reinforce our confidence as we advance our ongoing trials for BEMPEG, including our five ongoing registrational trials, and with the coming study in head and neck cancer, will soon be a total of six registrational studies. Now let me start with an update on the first-line metastatic melanoma study, which is being run by our partner BMS. As a reminder, in 2019, we received a breakthrough therapy designation for BEMPEG plus nivo, based on the high complete response rate we observed in the setting. In the Phase III study, which compares the doublet to single-agent nivo, we had three primary endpoints: Overall response rate or ORR; progression-free survival or PFS; and overall survival or OS.

The ORR endpoint was designed as a potential early submission opportunity for the BEMPEG plus nivo combination and the PFS endpoint is designed to support a potential full approval. As you know, BMS is running the study. And we currently expect that they could have initial data from this trial available sometime in the time frame of late this year or the first part of 2022. PFS is an event-driven analysis and a number of other factors, including the rate of PFS event accumulation, might impact this timing. The original design of the study assumes a median PFS for the nivolumab arm to be comparable to the 6.7 months observed in the CheckMate 067 study. The next study where we expect Phase III data is our first-line renal cell carcinoma study. We have completed enrollment in this study, and based upon our original projections for the study design and modeling of the TKI comparator arm, we project that we could reach our first interim analysis on the primary endpoint of overall survival sometime in the first half of 2022, consistent with our prior guidance. Based upon the early data generated for BEMPEG plus nivo in renal cell carcinoma, BMS and Nektar are taking a comprehensive approach to the development of BEMPEG in this indication. And as Howard stated earlier, BMS also recently initiated a Phase I/II study in RCC, which combines BEMPEG plus nivo with a TKI and allows us to compare this treatment to a nivo TKI regimen to pave the pathway for a TKI-inclusive regimen in RCC for the doublet as well. With respect to the registrational study in first-line cisplatin-ineligible urothelial carcinoma, last summer, we also reached our enrollment goal for this study. The study is designed to serve as a basis for a potential accelerated approval filing.

As a reminder, the primary endpoints in the study are ORR and duration of response as determined by central radiology review for about 110 cis-ineligible urothelial carcinoma patients who have a combined PD-L1 positive baseline score or a CPS score of 10 or lower. The duration of response is a critically important endpoint in this patient population, because this endpoint was the differentiating factor that led to accelerated approvals for single-agent checkpoint inhibitors in the setting as compared to the gemcitabine carboplatin standard of care regimen. And for this study, we are looking to achieve a median follow-up of 18 months to measure duration of response. This brings the timeline for our first data from this study to the middle of 2022. We have two large Phase III studies that build on our other work in urothelial carcinoma and melanoma. First, the muscle-invasive bladder cancer study, which is being run by BMS, is enrolling approximately 540 patients who will receive BEMPEG plus nivo or nivo monotherapy for a 12-month treatment period following surgery. As this study is large, we expect the first data readout to be in 2024. This study is also designed to serve as a confirmatory study for a potential accelerated approval in the cis-ineligible urothelial carcinoma setting. Second, for the adjuvant melanoma trial, we initiated this additional Phase III registrational trial in the third quarter of 2020 and the study is now actively enrolling.

The trial will enroll in 950 patients within a 12-month treatment period post surgery and an endpoint of event-free survival. This study is designed to position BEMPEG as a standard of care for the treatment of melanoma, building on the recent nivo approval as I said. In melanoma, this study increases significantly the number of patients that can benefit from our agents. Initial data from the study is expected in 2024 as well. As Howard stated earlier, for PROPEL, our study in non-small cell lung cancer in combination with PEMBRO, we've had great interest in the study from leading thoracic cancer treatment sites. And as we said at JPMorgan, this allowed us higher-than-expected enrollment in the last two months of 2020, despite COVID site challenges being faced by many companies running early stage studies. We expect to report on the three PD-L1 expresser subgroups from this study, less than 1%, one to 49% and greater than or equal of 50%, in the second half of this year. We anticipate having approximately 60 patients who have had two or more scans spread across these subgroups. The study is designed to show the benefit of the BEMPEG plus PEMBRO doublet compared to historical response rates achieved with single-agent PEMBRO. In non-small cell lung cancer, we know that the quantity of underlying inflammation in the tumor microenvironment has a big impact on the efficacy of single-agent checkpoint inhibitors such as PEMBRO.

And indeed, the clever scientists at Merck knew this very well and created the now-commonplace diagnostic paradigm for defining non-small cell lung cancer based on PD-L1 expression status. The basic stratification of less than 1%, 1% to 49% and greater than or equal to 50% PD-L1 expression in the tumor biopsy essentially defines the scale of inflammation in the tumor microenvironment, with patients in the greater than or equal to 50% having the greatest amount. And consequently, we see the greatest benefit of single-agent PEMBRO in treating this patient subgroup. The mechanism of BEMPEG is very powerful because it targets and increases the inflammatory state in the tumor microenvironment. BEMPEG achieves this by promoting T cell infiltration, increased expression of effector cytokines, including interferon gamma and its downstream genes, as well as increasing expression of PD-1 on lymphocytes and PDL-1 on tumor tissue. We are very excited to add BEMPEG's MOA to that of PEMBRO in non-small cell lung cancer and believe that the synergy of the combined mechanisms could improve the efficacy of the doublet in multiple PD-L1 expression subgroups. We also recently added a chemotherapy combo on to the PROPEL study in order to allow us to potentially include in our Phase III strategy the doublet with chemo option.

The data from PROPEL will allow us to design a Phase III strategy for BEMPEG in non-small cell lung cancer and we are looking forward to presenting this data in the second half of 2021. For our new registrational Phase II/III trial in head and neck cancer, we are sponsoring the study and collaborating with Merck on the protocol. This will be a 500-patient study with overall survival as the primary endpoint. We plan to start the trial in the second half of this year. As Howard stated earlier, SFJ will fund the study and they will also help Nektar operationalize it. The trial is designed to support a potential global registration for the BEMPEG plus PEMBRO doublet. It includes an interim analysis of ORR after the first 200 patients are enrolled. If the ORR passes a prespecified futility boundary, the study will continue and the remaining 300 patients will be enrolled to the Phase III portion of the study and all 500 patients evaluated for the primary endpoint of OS. We are very excited about the potential of this doublet to increase and deepen the response versus PEMBRO alone in this immune sensitive cancer, especially given the data we have seen combining BEMPEG plus nivo in melanoma, another immune sensitive cancer. Historically, IL-2 has shown activity in head and neck cancer with several published studies in both the metastatic and adjuvant setting and we are very excited to develop BEMPEG plus PEMBRO here. Additionally, there are limited late-stage studies going on in this front-line indication. And so we see this as a unique opening for us to establish the BEMPEG backbone as the first-line IL-2 mechanism in head and neck cancer. And lastly, before I turn to NKTR-255 and NKTR-262, I want to briefly touch on our study of BEMPEG in adult patients with mild COVID-19 infection.

We remain on track to report data from the study by the middle of this year. As a reminder, last November, we started this Phase Ib study, which is a randomized, double-blind, placebo-controlled trial to evaluate the safety, tolerability and PK/PD profile of single doses of BEMPEG given to adult patients with mild COVID-19. This initial trial is enrolling up to 30 adult patients with a confirmed COVID-19 infection who have mild symptomology. And we're defining this as oxygen saturation above 93% without supplemental oxygen, a respiratory rate below 20 breaths per minute and a heart rate below 90 beats per minute. The trial will have three cohorts of patients with a maximum of 10 patients in each cohort. Patients are being randomized 1:1 to receive a single dose of BEMPEG or placebo. The primary objectives of this trial are to establish the tolerability of BEMPEG in patients with mild COVID, evaluate the changes in immune activation over time and identify a recommended dose for the next study. As secondary endpoints, we are also tracking the need for supplemental oxygen and monitoring clinical status on a 10-point ordinal scale for 30 days after BEMPEG administration, with additional inclusion of SARS-CoV-2 serology and immune cell profiling over that time interval as well. Following the successful completion of this initial Phase Ib study, our plan is to advance the development of BEMPEG into moderate COVID-19 patients combined with standard of care.

We are considering an approach combining BEMPEG with a single standard of care such as remdesivir, in comparison to standard of care alone. We're hopeful that this unique approach could ultimately lead to a reduction in the severity of disease and increased recovery time as well as reduced hospitalization time for patients with moderate COVID-19 who require hospitalization and have low lymphocyte counts. This would combine an antiviral mechanism with a mechanism that promotes T cell responses, which we believe could help those patients in particular who have an inability to mount a proper T cell response to the virus on their own. And moving on to NKTR-262, our TLR agonist. The study is ongoing with patients being treated at the recommended Phase II dose in combination with BEMPEG or BEMPEG plus nivo. The population here is relapsed/refractory melanoma post checkpoint inhibitor therapy with about 20 patients per arm. The study has completed enrollment of these two cohorts and we look forward to presenting data for the study later this year. Now turning to NKTR-255, our IL-15 agonist program and our next cytokine therapy in clinical development.

As Howard stated earlier, the IL-15 mechanism is well recognized by the scientific community as being a robust means for engaging natural killer cell biology in the treatment of cancer. And we believe there is the potential for an agent like NKTR-255 that engages the full biology of the IL-15 pathway to be combined with a range of mechanisms in different settings. Our first clinical work focuses on ADCC combinations and we've developed a clinical strategy to combine with leading ADCCs in both liquid and solid tumor settings. The first, with our Phase I/II study in patients with relapsed/refractory hematologic malignancies, we reported data from the first set of patients treated with NKTR-255 at SITC 2020. NKTR-255 was shown to be biologically active and demonstrated consistent expansion of lymphocytes with durable and sustained increases in NK and CD8+ T cells in this population of highly refractory patients with myeloma or Non-Hodgkin's Lymphoma. We found that NKTR-255 expanded NK cells by fivefold and CD8+ T cells by threefold. Moreover, proliferative capacity was maintained across multiple cycles of NKTR-255 and peaked around eight to 10 days on each cycle. We also share case studies of two very heavily pretreated patients where disease progression was held at bay over multiple cycles of treatment with NKTR-255.

Of the two patients, one had a metabolic response. In addition, we observed evidence of CD19 CAR-T cell increases in one patient who was treated with NKTR-255 many weeks after CAR-T therapy. We were pleased to see that NKTR-255 was well tolerated, with low-grade cytokine-related AEs that were transient and easily managed. And NKTR-255 exhibited a half-life of approximately 30 hours and there was no evidence of drug accumulation on this every three-week dose administration regimen. We expect to complete the dose escalation monotherapy portion of the study in the first part of 2021, with data to be presented later this year. Once the dose escalation is complete, we will expand into several arms with approximately 20 patients per arm. The first arm will evaluate NKTR-255 as a monotherapy at the recommended Phase II dose for NHL patients that have previously progressed following CD19 CAR-T. The second arm will evaluate NKTR-255 in combination with rituximab in third-line or greater follicular lymphoma or low-grade NHL. And the third arm will evaluate NKTR-255 with DARZALEX FASPRO in third-line or greater multiple myeloma. We entered into a drug supply collaboration with Janssen late last year for the DARZALEX FASPRO supply for the study. The subcutaneous form of DARZALEX continues to take more share of the franchise since its approval in May of last year and we are very pleased to be working with Janssen to include DARZALEX FASPRO in our NKTR-255 study.

Our second Phase I/II study is evaluating NKTR-255 in combination with cetuximab in two distinct groups of highly refractory late-line patients with metastatic colorectal cancer or head and neck cancer. We've already dosed patients in this study and plan to enroll 80 patients in the U.S. and Europe. As you know, cetuximab has a very low response rate, about 10% or 15% in these settings. And so our goal is to improve upon that with the addition of NKTR-255. There is a high unmet need in this later line setting. And if we are able to demonstrate a higher response rate, we will have several potential paths forward with NKTR-255. The trial is beginning with a dose-finding portion for the combination, which will then be expanded into dedicated cohorts for colorectal cancer and head and neck cancer patients. We expect to have some initial data from the dose-finding portion of this study later this year.

I will now turn the call over to Brian to review the NKTR-358 program in more detail.

Brian L. Kotzin -- Interim Chief Medical Officer and Head of Development

Thank you, JZ. As Howard said earlier, we are very pleased with the broadening scope and advancement of the NKTR-358 program by our partner, Eli Lilly. Following positive data in lupus patients last year, Lilly commenced a Phase II study in lupus and now is initiating a Phase II study in ulcerative colitis as well as progressing the two separate Phase Ib studies in psoriasis and atopic dermatitis. The rationale for a T regulatory cell or Treg mechanism in the treatment of autoimmune diseases is compelling and based upon extensive evidence of the role of a malfunctioning imbalanced immune system as the underlying cause of the clinical manifestations in these diseases. Many autoimmune and inflammatory disorders, including systemic lupus and ulcerative colitis, are associated with decreased Treg numbers, reduced Treg function and/or reduced production of IL-2. With NKTR-358, our goal is to address these Treg abnormalities and to develop an IL-2 like molecule that could selectively stimulate Tregs in a more selective manner than native low dose IL-2. In November of last year at the annual American College of Rheumatology meeting, we shared new data from our Phase Ib study evaluating NKTR-358 in patients with mild to moderate lupus. We reported on improvement in lupus skin disease activity with NKTR-358. The study enrolled patients with mild to moderate lupus and patients only received three doses of NKTR-358 every two weeks, so it is not specifically designed to measure efficacy.

However, we were highly encouraged that in one of our exploratory endpoints, NKTR-358 led to a dose-dependent reduction in lupus skin disease activity measured by the CLASI activity score in the subset of 18 patients with a baseline score greater than or equal to 4. Patients experienced an improvement in activity scores while patients in the placebo arm saw no decline in their scores. seven of the 18 patients had a four or more point score reduction, particularly at the two highest doses administered in the study, 12 micrograms and 24 micrograms per kilogram, and this was apparent by day 43 as compared with baseline. To build on what I stated earlier, we know that there are considerable data in the literature to show that in patients with lupus, the number and function of circulating Tregs may be decreased substantially during active disease. Importantly, we saw a dose-dependent and profound increase in Tregs and Treg subsets induced by NKTR-358. So we were pleased to see evidence of this mechanistic rationale emerging with NKTR-358 treatment in the patients in our study. These exciting data led Lilly to initiate a Phase II study in patients with moderate to severe lupus.

In the Phase II study in lupus, 280 patients are being randomized to one of three doses of NKTR-358 or placebo, administered every two weeks for a treatment period of 24 weeks. The primary endpoint in the Phase II study is the percentage of patients achieving at least a 4-point reduction in the SLEDAI-2K scale. Secondary endpoints include the percentage of patients who achieve SRI-4 response, BILAG-based BICLA response and a level of low disease activity as defined by the lupus low disease activity state, or the LLDAS. We will also characterize pharmacokinetics, pharmacodynamics and immunogenicity in treated patients. The endpoints will be measured at week 24 and we expect the study to be completed within 18 to 24 months. Lilly is also initiating this quarter a Phase II randomized placebo-controlled trial in patients with ulcerative colitis. As in lupus, there is considerable evidence in the literature of the role of Tregs in inflammatory bowel disorders such as ulcerative colitis. Reduced numbers and functionality of [Indecipherable] Treg cells has been noted in these patients and there is also evidence that an inappropriate balance between functional Tregs and T effector cells in the intestinal microenvironment contributes to inflammatory lesions. So we are excited to pursue this additional inflammatory disorder with NKTR-358 and expand this program with our partner Lilly. The study will evaluate various dose levels during the initial induction period using an adaptive design. Total enrollment is planned to be 200 patients and the trial endpoint is the percentage of patients achieving clinical remission after induction treatment at 12 weeks.

In addition, we know that Lilly is planning for additional Phase II studies to be initiated within the next 12 to 18 months in as yet undisclosed immune-mediated indications. We are pleased with Lilly's rapid advancement of the program and their desire to develop this agent broadly in inflammatory and autoimmune diseases. Finally, we look forward to the potential presentation from the Phase Ib work ongoing in psoriasis and atopic dermatitis with NKTR-358, with data from at least one of these studies to be presented at a medical meeting in the next 12 to 18 months.

I will now turn the call over to Gil for a review of the financials.

Gil M. Labrucherie -- Chief Financial Officer and Chief Operating Officer

Thank you, Brian, and good afternoon, everyone. This afternoon, we announced our full year financial results for 2020 in our earnings press release. On this call, I will briefly recap our royalty monetization transaction completed at the end of 2020, as well as review our annual financial guidance for 2021. On December 30, 2020, we further fortified our balance sheet through a $150 million royalty monetization with HealthCare Royalty Partners. The royalty interest involved in this transaction were from our license agreement with AstraZeneca for MOVANTIK and the license agreements for our pegylated factor VIII portfolio, which primarily relate to royalties from Takeda for ADYNOVATE. An important feature of this transaction is that after prespecified cash-on-cap return caps are reached, the residual royalties revert back to Nektar. As a result of the $150 million of proceeds we received from this royalty monetization and the repayment of our $250 million in senior notes earlier in the year, we ended 2020 in a strong financial position, including $1.2 billion of cash and investments and no debt. Now turning to our 2021 guidance. We expect to end 2021 with approximately $750 million in cash and investments. After taking into account the repayment of the $250 million in senior debt in 2020, the completion of our royalty monetization in 2020 and the $50 million in milestones received from BMS in 2020 with the start of the MIBC and adjuvant melanoma registrational studies, our cash usage in 2021 is relatively consistent on a year-over-year basis, primarily as a result of the Phase III studies for BEMPEG achieving much higher levels of patient enrollment as well as the ramp-up of our clinical development work for NKTR-255.

Before I go over our annual financial guidance for this year, I wanted to briefly review how we anticipate accounting for the co-development and funding arrangements we announced last week with SFJ Pharmaceuticals, together with its financial backers, Blackstone Life Sciences and Abingworth, and the clinical trial and supply collaboration agreement with Merck. These collaborations are enabling the start this year of a new Phase II/III registrational study of BEMPEG plus pembrolizumab in patients with head and neck cancer. Under the terms of these agreements, SFJ is committed to operationalize and fund $150 million to support the registrational study and Merck will contribute pembrolizumab free of charge. SFJ would be entitled to success payments only on FDA approval of BEMPEG in first-line metastatic melanoma, head and neck cancer or one other BEMPEG indication. As SFJ funds the head and neck cancer study, we will include those amounts in our R&D expense and as part of the derivative liability that I will describe in a moment, but this will be a noncash expense as SFJ is funding that portion of our R&D expense. We anticipate accounting for the contingent success-based payments to SFJ as a derivative liability. Over time, we will assess the probability of SFJ earning the success payments and recognize the expense on our income statement, with a corresponding increase to a derivative liability based on a probability-adjusted and weighted discounted cash flow model that we will examine on a quarterly basis. We are very pleased with the significant support from Merck that substantially reduced the total cost of the head and neck study and a risk-reward financing structure with SFJ that enabled us to add another very large indication opportunity to the BEMPEG portfolio. Our 2021 R&D investment will further advance our deep pipeline and clinical development strategy. We and our partners are now funding six registrational studies for BEMPEG, including the recently announced head and neck study.

We have four studies running with Lilly for NKTR-358 and two broad Phase I/II studies for NKTR-255 in both hematologic and solid tumor settings. Additionally, we will also continue our early research efforts to enable new programs to add to our pipeline through planned IND filings in 2022. Finally, in addition to these important R&D programs, we will continue our stage-appropriate commercial readiness activities with a focus on distribution capability, market access preparation and other necessary activities that would enable a launch of BEMPEG as early as the end of 2022. Now moving on to our GAAP annual financial guidance. Our full year 2021 GAAP revenue guidance is approximately $100 million, including $15 million to $20 million of product sales and $80 million to $85 million of noncash royalty revenue from the 2012 and 2020 royalty monetization transactions. We anticipate 2021 GAAP R&D expense will range between $450 million and $500 million, which includes approximately $55 million of noncash depreciation and stock compensation expense and approximately $30 million of noncash development expenses for the BEMPEG head and neck study. G&A expense for 2021 is projected to be between $120 million and $125 million, which includes approximately $45 million of noncash depreciation and stock compensation expense. Noncash interest expense is expected to be between $50 million and $60 million related to the monetization of our royalty streams. Additionally, we expect to record a quarterly noncash charge with a total of approximately $15 million for the full year related to the derivative liability associated with our funding arrangement with SFJ for the BEMPEG head and neck studies.

And with that, we will now open the call for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Peter Lawson from Barclays. Your line is open.

Peter Lawson -- Barclays -- Analyst

Hi. Thanks so much. I guess on the PROPEL study, that seems as if that was delayed, just wondering if you could kind of talk through that, whether that's kind of good news delayed or just an abundance of caution?

Jennifer Ruddock -- Senior Vice President, Strategy and Corporate Affairs

Yes. Thanks, Peter. I'm going to ask JZ to answer that. JZ, could you update on what we said earlier this year in January?

Jonathan Zalevsky -- Chief Research and Development Officer

Yes, sure thing. Peter, thanks for the question. So one of the good things that happened in that study is as COVID kind of ebbed in Europe, we saw a very fast rate of enrollment from European sites. And what that did is over the last two months of 2020, we saw very, very rapid patient accrual. And we enrolled approximately 60 patients into that trial. And so the situation then is now the patient population is in the study, but they've only enrolled within the last couple of months. And so our intention is to provide the most robust, rich data set that we can. And so given the number of patients that are enrolled, right, it's very important that patients are in the study for a long enough period of time to allow for the duration, of follow-up and the treatment duration to extend. And then for us, when we report data, we want to report a minimum of two scans for all of the patients that we've enrolled into the study.

So the reason why we targeted the second half of the year was really to provide the most comprehensive and complete and mature data set that we can. And in terms of the kind of information that we'll be targeting to provide later this year, so as you know, the study has patients split across the different PD-L1 expression subgroups: the less than 1%, the 1% to 49% and the greater than or equal to 50%. And so we'd be looking to report the response rates as well as the proportion of patients with a deep response, including CRs, the duration of response, any available accumulation of data, not just the ORR, but any longer-term follow-up data that's available as well, as well as the safety profile and additional translational biomarkers. And we're looking forward to presenting that later this year.

Operator

Thank you. Our next question comes from Jay Olson from Oppenheimer.

Jay Olson -- Oppenheimer -- Analyst

Hey, Congrats on the collaboration with Merck for the combination study in squamous cell carcinoma of the head and neck. I was wondering if you could comment on the role of HPV in that disease setting and whether you expect to see different levels of response to BEMPEG in patients who are HPV-positive versus negative? And also maybe if you could talk about how BEMPEG may differentiate from IL-15 in that setting?

Jennifer Ruddock -- Senior Vice President, Strategy and Corporate Affairs

JZ, could you take that?

Jonathan Zalevsky -- Chief Research and Development Officer

Sure. Yes, thanks for the question. Very insightful question. So one of the interesting things about this tumor type is, as you've looked at the presentation of the disease with time, it's kind of changed, right? And so there was a time when the majority of patients were smokers and you saw this associated with lifestyle, but probably within the last one or two decades, you're seeing a much greater increase of patients with HPV involvement, many of them younger and not maybe necessarily smokers, but they present with the disease anyway. So HPV status, right, is an important [Indecipherable] driver. And it's an important component of the patient population in the study. So those patients are definitely included and in terms of their presentation of disease, there are some differences. You're really, really smart to cue in on those. So we know that this is already an immune sensitive tumor type. And we know that there are pretty high mutational burden in these patients. And what you find in HPV patients is they have additional viral antigens, right? And so you actually have the potential of an even greater kind of T cell response for patients that have HPV-positive tumors. And that certainly was in our thought process with the BEMPEG mechanism of action, with the kind of T cell priming that it induces, knowing that HPV-positive patients will have even more tumor-associated antigens that you can prime T cells against. So that's definitely something we're thinking a lot about. And then we're focusing on BEMPEG in this tumor indication. That's -- it's a combination with a checkpoint inhibitor, right, with PD-1 and PEMBRO.

We really think that's much more of BEMPEG guided mechanism than per se for 255. But with 225, right, we're considering other indications, even though we're also using head and neck. In the study where we're combining with cetuximab, there we're targeting the second line or later and we're targeting the refractory population. And the mechanism of 255 in that setting is really to potentiate the ADCC component of tumor targeting associated with cetuximab. So they're kind of two different mechanisms, intended to have two different kinds of combinations because of the different combination partners. And then also, of course, the different line of therapy? Thank you for the question.

Operator

Thank you. Our next question comes from Jessica Fye from JPMorgan. Your line is open.

Jessica Fye -- JPMorgan -- Analyst

Hey, guys. Good evening. Thanks for taking my questions. Did Merck see any of the PROPEL lung data that you're generating with PEMBRO in the context of the talks on the head and neck study? And can you remind us of the PEMBRO monotherapy benchmarks for each of the PD-L1 expression levels in PROPEL?

Jennifer Ruddock -- Senior Vice President, Strategy and Corporate Affairs

Howard, I'll ask you to take the first part of that one and JZ, if you could take the second.

Howard W. Robin -- Chief Executive Officer and President

Yes. Jessica, look, Merck certainly spent a lot of time vetting BEMPEG before they entered into the significant collaboration. I mean, remember, they're going to be providing drug for a 500-patient study, and while you can't be precise on the number of vials or the exact amount, that's somewhere between -- somewhere between, if you ballpark it, $50 million to $70 million worth of drug. So they clearly have vetted BEMPEG very well and I think they strongly believe in the mechanism. I can't tell you that they've looked at the lung data. We haven't disclosed that yet. So I think you'll have to just assume that they've looked at everything they can look at.

Jennifer Ruddock -- Senior Vice President, Strategy and Corporate Affairs

JZ, you want to talk about the benchmarks for PEMBRO for monotherapy?

Jonathan Zalevsky -- Chief Research and Development Officer

Yes. So they're taken from various KEYNOTE studies, Jess. So in the early KEYNOTE-1 study, there was a little bit of data for single-agent PEMBRO in the PDL less than 1%. And there, they saw about a 7% to 8% response rate for single-agent PEMBRO in this setting. And of course, PEMBRO is combined with chemo in that setting, right? So that's what they studied. But for single-agent PEMBRO, there was 7% to 8%. For the 1% to 49%, there's data from KEYNOTE-042 that showed about a 17% response rate for single-agent PEMBRO. And then for the greater than or equal to 50% subgroups, there's both data from KEYNOTE-024 and data from KEYNOTE-042 and they're in the 40% to 45% range for ORR. So those are the kinds of bars or metrics, benchmarks, that we're using to compare the PROPEL data against the single-agent PEMBRO data in each of the different PD-L1 subgroups.

Operator

Our next question comes from Paul Choi from Goldman Sachs. Your line is open.

Paul Choi -- Goldman Sachs -- Analyst

Thank you for taking our questions and Congratulations on all the progress in 2020. I wanted to maybe turn back to your collaboration with Merck in head and neck. And specifically, with regard to your identification of front-line patients, I think the market data currently shows that PD-1 therapy is in excess of 50% already in the front-line setting. So I was wondering if you could maybe first comment on how you think about the recruitment time line for your Phase II and Phase III? And then versus the monotherapy arm that you will include in the trial, how you think about what sort of margin you would look for in your interim futility analysis?

Jennifer Ruddock -- Senior Vice President, Strategy and Corporate Affairs

Thanks, Paul. JZ, I'll ask you to comment a little bit on the plan for the enrollment.

Jonathan Zalevsky -- Chief Research and Development Officer

Sure. Yes. So thanks, Paul. So roughly 80% to 85% of patients with head and neck cancer actually have PD-L1 positivity. They'll have a combined CPS score of greater than or equal to 1. So it is very immune sensitive. And it's a tumor type that already has a pretty high baseline of positivity. And then what we found from earlier Merck's KEYNOTE studies, is that the distribution of patients, the, say, the two categories that Merck used, the one to 19 and the greater than 20 CPS breakdown. That was about 50-50 in that patient population. So there's a pretty high proportion, right? Patients that basically qualify, almost all of them will be -- will have a CPS score for inclusion into the study. So we think there's a really good opportunity to enroll this trial pretty quickly because in addition, every patient will get either the standard of care PEMBRO or the experimental arm, which is PEMBRO plus BEMPEG. So it's the standard of care plus a mechanism that could provide synergy. So this is a very nice option for patients.

And it's a very nice option for physicians, right, because the opportunity to put a patient onto a trial where they're going to get standard of care, or standard of care plus, I mean, that's just a very favorable setting. So we expect this trial could enroll quite quickly. And then I'm sorry, I missed the second part of your question. Do you mind repeating it, Paul?

Paul Choi -- Goldman Sachs -- Analyst

What margin you would look for in terms of your interim or futility analysis?

Jonathan Zalevsky -- Chief Research and Development Officer

Yes. Okay. Sorry I missed that. So yes, so we have a prespecified futility. And it's when 200 patients would be enrolled and followed for a short amount of time and looked at by ORR. We haven't given the kind of guidance on what the futility margin is, but it's something that, obviously, a part of the study design. It's something we discuss with health authorities, something we discuss with Merck as well. And it's obviously a part of the statistical analysis plan for the study. Thanks for the question.

Operator

Thank you. Our next question comes from Difei Yang from Mizuho Securities. Your line is open.

Difei Yang -- Mizuho Securities -- Analyst

Hi, good afternoon and thanks for taking my question. So my question is really around the CMC for 358, do you expect making 358 to be as complicated as BEMPEG a couple of years back?

Jennifer Ruddock -- Senior Vice President, Strategy and Corporate Affairs

JZ, I'm going to ask you to talk a little bit about this.

Jonathan Zalevsky -- Chief Research and Development Officer

Sure. Difei, thank you for the question. So the 358 molecule is quite different than the BEMPEG molecule. So on the one hand, it is also interleukin-2, right? So in terms of the kind of fermentation, that's all the same. But the PEG is completely different. You, for example, you know that the PEG is releasable in BEMPEG, whereas the PEG is stable, it's a stable linkage in 358. And you also know BEMPEG is a prodrug, whereas 358, again, differs in that regard. It's an immediately active molecule. So it's quite different. And it's under a totally different set of controls, both within -- in process as well and totally different set of specifications for release. I also think it's important to mention that the nature of the agreement that we had with -- we have with Eli Lilly, Nektar was responsible for executing Phase I and also we were responsible for manufacture through the early part of Phase II. But after that, Lilly assumed control of the entire program. And so in fact, Lilly is now responsible and executing, not only on the clinical study, but also on the manufacture of NKTR-358. And they're, of course, scaling it and moving it into commercial manufacturing.

Howard W. Robin -- Chief Executive Officer and President

And I -- this is Howard. I would just add one more thing to that. If you look back at the BEMPEG manufacturing issue, which, of course, you're alluding to, I'll remind you that, that was one bad lot of intermediate that unfortunately got its way into two production lots for clinical studies. But that was -- those were bad lots that were made in 2016. So the problem has been resolved and is long behind us. I understand that it has shown up in a terrible way, but the manufacturing problems were associated with a bad lot of intermediate. There are no ongoing manufacturing problems or issues with anything that we make at Nektar. I just wanted to make that clear.

Operator

Thank you. Our next question comes from Andy Hsieh from William Blair. Your line is open.

Andy Hsieh -- William Blair -- Analyst

Great. Thanks for taking my question. So JZ, I think you reminded that kind of the melanoma study and kind of talked about kind of the immune profile a little bit. So just wondering, so for the five patients who had 100% tumor size reduction but did not qualify for CR, in terms of their durability and PFS, did they look more like a CR or like a typical PR? And I've heard this from other investigators, just curious if fever is like an early proxy for response based on across all the BEMPEG trials that you're seeing?

Jonathan Zalevsky -- Chief Research and Development Officer

Yes. Andy, thank you for the questions. So let me take them in two parts. So the first thing that we've noted in the melanoma data set, as we reported at SITC, it was a very long PFS, right, 30.9 months. And actually, when you look at some of that distribution, for patients that had very, very deep responses, either the 100% target lesion clearance or the CRs, they really stratified like the FDA meta analysis indicated. You saw very, very high durability, very long disease control, right? And in fact, for those patients that had those kind of depth of response, right, we've not seen relapse, at all. So they are very much -- yes, like, again, our data is -- it's like a page out of the meta analysis. The depth of response really, really has a very profound effect on both PFS and OS. And when you stratify those kind of curves, that's exactly what you see. Now to your second question, you raised a very interesting kind of comment. And going all the way back to Steve Rosenberg studies at high dose IL-2 in 1980, people have been looking so closely for kind of correlates of immune activation, whether they're AEs or whether they're cell types or others, to see if those kind of AEs or cytokine-related activities that you can measure throughout the clinical manifestation are associated with that. And there isn't really like convincing publications, but people have looked at things like pruritus, things like the cytokine itch and the cytokine skin reactions that you can see. They've looked at eosinophil, right? As we know, they can be induced by the IL-2 pathway. And I do have to say that we don't have like a, like a clear trend in our data sets that we can point to.

But the empirical observations that are made clinically, which is like what the investigators you're speaking to are indicating, they're empirically kind of consistent with that. The patients that have very pronounced cytokine-related AEs, which can manifest like flu-like symptoms, right? They can manifest like fever. They can manifest like different kind of rashes. There may be some trends that link those kind of outward manifestations, but nothing that jumps out at you statistically. They are the kind of trends that particularly really good clinicians that really treat their patients well and really do great diagnoses and do really great bedside patient interactions that can spot, but statistically, it's a lot harder to make those kind of inferences. The things that we're really excited about, if you remember from our SITC presentation, we did find in our data set two on-treatment early detection biomarkers that seem to really correlate with patients that eventually went on to respond. And we reported those in Adi's presentation.

So remember, Adi talked about eosinophilic increases seen in patients after BEMPEG very early on, right in the first cycle, which occur like weeks before the first scan, that those could be a potential predictive biomarker for patients that ultimately go on to respond. And the other biomarker that I think is even more convincing to me was the single cell cytokine data, which showed that in CD8+ T cells, the polyfunctional strength index was really dramatically elevated just a week after the first BEMPEG treatment in patients that ultimately went on to respond and even have a first scan, positive tumor shrinkage. So those were two additional biomarkers that we showed that were really interesting. And especially in the case of the single-cell cytokine, quite novel kind of information that was very prognostic in potentially predicting early responses. Thanks Andy.

Operator

Thank you. And our last question comes from Ben Burnett from Stifel. Your line is open.

Ben Burnett -- Stifel -- Analyst

Hey thank you very much. Just a quick question on the 358 program. I guess as you expand that into -- beyond lupus into these different disease settings, like how do you think about dose, a dose schedule of 358? And is the Phase I informative here?

Jennifer Ruddock -- Senior Vice President, Strategy and Corporate Affairs

Brian, I'm going to ask you to take that question, if you can.

Brian L. Kotzin -- Interim Chief Medical Officer and Head of Development

Sure. Yes. Ben, thanks for the question. Yes. First of all, the Phase I study is indeed informative. It basically gave us a lot of information regarding the relationship of dose to the induction and the degree of induction of regulatory T cells. It also gave us information regarding how high you can go up, where you maintain exquisite selectivity for just simulation of regulatory T cells. And as you know, or I hope you know that it was really very well tolerated. So we had a good feeling for taking all of the doses that we studied in the -- in the Phase I program, taking it into later phase studies. So in the later phase studies, basically, all of them basically were looking to see, which, and we don't know in each of those diseases, which of these doses are most likely to generate the greatest degree of clinical impact. And is it the highest dose that generates the highest number of Tregs? Is it a middle dose that generates just elevated levels? Or is it a low dose that stimulates regulatory cells at a low level? And the exquisite selectivity also perhaps at the highest dose is somewhat less than at the middle dose. So at the moment, that's what we need to find out. And I would say to your question about we don't know whether different diseases might have different dose levels that would maximize the clinical response. I think that's the excitement of doing this broad scope and looking at a number of Phase II studies in a number of different indications. Thank you.

Operator

Thank you. And that does conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to Howard Robin for any closing remarks.

Howard W. Robin -- Chief Executive Officer and President

Well, thank you for everyone for joining us today, and I'd like to especially thank our employees for their continued dedication and consistent efforts during these very challenging times. Their dedication to advancing our clinical studies while keeping our business on track is truly impressive, and I want to thank every one of them. As I stated earlier, we're well-positioned with a strong balance sheet, a maturing portfolio of immuno-oncology and immunology programs. And we thank our shareholders for their ongoing support and look forward to continuing to provide you with updates on our progress. Should be a great year. We hope that you and your families continue to stay safe and healthy. And again, thanks for joining us.

Operator

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Jennifer Ruddock -- Senior Vice President, Strategy and Corporate Affairs

Howard W. Robin -- Chief Executive Officer and President

Jonathan Zalevsky -- Chief Research and Development Officer

Brian L. Kotzin -- Interim Chief Medical Officer and Head of Development

Gil M. Labrucherie -- Chief Financial Officer and Chief Operating Officer

Peter Lawson -- Barclays -- Analyst

Jay Olson -- Oppenheimer -- Analyst

Jessica Fye -- JPMorgan -- Analyst

Paul Choi -- Goldman Sachs -- Analyst

Difei Yang -- Mizuho Securities -- Analyst

Andy Hsieh -- William Blair -- Analyst

Ben Burnett -- Stifel -- Analyst

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