XBiotech Inc (XBIT) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2016 XBiotech Incorporated earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Jonathan Kearney. Sir, you may begin.

Thank you, operator. Before turning the call over to management I would like to make the following remarks.

During this call, forward-looking statements including declarations regarding management's beliefs and expectations will be made. In some cases, you can identify forward-looking statements by terminology such as may, will, should, would, could, expect, plan, contemplate, anticipate, believes, estimates, predicts, projects, intends, or continue, or the negative of such terms or other comparable terminology, although not all forward-looking statements state contain these identifying words.

Thanks, JK, and thank you all for joining us this morning for our first-quarter 2016 update. XBiotech has made significant progress during the quarter, and I'm looking forward to taking you through these exciting accomplishments.

I'm going to review recent research and regulatory developments, then provide an opportunity for Q&A for the audience. At that time our Medical Director, Mike Stecher; our Vice President of Clinical Operations, Dawn McCollough; and our Chief Financial Officer, Scott Whitehurst, will be available to answer your questions, along with myself.

I'd like to start with some recent important highlights. First and foremost our lead candidate, Xilonix, received accelerated review by the European Medicines Agency in April for the treatment of advanced colorectal cancer, and we could receive approval as early as fourth quarter this year. I'm also pleased to report that we will be presenting our Phase III pivotal trial data at the European Society for Medical Oncology conference for Gastrointestinal Medicine, the ESMO GI, on July 1 in Barcelona. The data for this study should be published around the same time.

Xilonix is the first True Human antibody targeting interleukin-1 alpha, or IL-1 alpha. For the past six years we have been undertaking exhaustive clinical analysis of this antibody in clinical trials, and now we are poised for our first drug approval and commercialization in Europe. The ESMO GI conference is an important step for introducing our new candidate therapy and the important new findings to leaders of the European oncology community.

In the US, our pivotal Phase III trial of Xilonix is enrolling on track. And Xilonix, I will remind you, has been Fast Tracked by the FDA for the colorectal cancer indication.

At the same time we continue to advance the rest of our robust pipeline of True Human antibody therapies. We have now been in 10 clinical trials across a range of diseases and medical conditions, including nine that involve the clinical use of anti-IL-1-alpha therapy, and one therapy using the antibody we call 514G3 for the treatment of all forms of Staphylococcus aureus infections. The 514G3 program just completed its Phase I clinical trial, and the Phase II is underway.

In anticipation of the approval and commercialization of Xilonix, we are also intently focused this year on enhancing our manufacturing capacity and quality systems, and are on track to open our state-of-the-art facility in Austin in the third quarter of this year. This will allow us to expand our manufacturing capacity to produce nearly 900,000 units of drug per year for sale in the European Union and other markets around the world.

Finally, we continue to build the XBiotech leadership team with strategic hires. Earlier this month, Scott Whitehurst joined us as Chief Financial Officer. Scott came to us from Amgen, where he had deep operational experience in the business.

Scott will oversee our financial operations and our Investor Relations outreach. Scott joins me on this call, and I am delighted to introduce him to you.

And just this week, Dawn McCollough joined us as Vice President of Clinical Operations. Dawn has extensive experience overseeing all phases of global clinical trials in multiple therapeutic areas. She joins us from Biogen, where she led medical research operations and the company's medical research team. Dawn brings an exceptional level of expertise to our clinical program.

As a team, our primary area of focus is on the success of our lead candidate, Xilonix. The EMA's decision to grant Xilonix an accelerated review for the treatment of advanced colorectal cancer is an important milestone for us, indeed.

As you know, the EMA only grants accelerated review to highly innovative therapies in areas of significant unmet need. In fact, the EMA has taken a high interest in Xilonix, given its unique attributes, and has worked very closely with us on the design of our Phase III trial.

Data continue to emerge from the study, and we are looking forward to presenting a complete picture of these findings at the upcoming ESMO conference. I dare say that I believe these findings will not disappoint.

Advanced colorectal cancer is indeed an area of tremendous unmet medical need. The incidence of advanced symptomatic colorectal cancer is growing globally with economic development and aging demographics. The five-year survival rate for patients diagnosed with advanced colorectal cancer is under 10%, and one in three patients isn't diagnosed until their cancer has advanced to stage IV.

Many patients in this advanced stage of disease have already been through successive rounds of chemotherapy, leaving them so frail that the risk/benefit of further therapy does not make sense. Based on the Phase III findings, we believe Xilonix therapy would represent a valuable treatment strategy for patients with advanced colorectal cancer.

To quickly recap the results of our recently completed Phase III clinical trial in Europe, let me tell you that patients treated with the antibody therapy Xilonix have failed all conventional therapies and have inoperable or metastatic disease. Patients were also required to have multiple debilitating symptoms of disease, each of which correlated with poor prognosis.

In this study, among a patient population with advanced disease Xilonix was able to control tumor-related symptoms associated with morbidity and death. In fact, we found that a 76% relative improvement in response rate occurred in patients treated with Xilonix as compared to placebo.

Furthermore, virtually all secondary measures were significantly improved in the responders to Xilonix compared to placebo, and that included deadly symptoms like paraneoplastic thrombocytosis, systemic inflammation, disease progression, and even serious adverse events. Improvements were found in virtually every measure that we looked at for the responder group.

As noted earlier, we are very pleased that this pivotal Phase III data will be unveiled for the first time during the European Society of Medical Oncology World Congress on GI cancer. It really is the premier event for gastrointestinal cancer, and it's taking place beginning June 29 in Barcelona.

Based on these results that I'm describing in a very cursory way, we have rapidly achieved critical milestones towards commercialization and towards getting this treatment to the patients who need it. In March, we submitted our Marketing Authorization Application to the EMA. The Agency subsequently confirmed eligibility of the application, and only several weeks later the Agency granted us an accelerated review, meaning a decision on Xilonix approval could come as early as the fourth quarter of this year.

So we've had very strong progress toward Xilonix commercialization this quarter. Regarding the US pivotal Phase III study also in colorectal cancer, enrollment there is proceeding on track.

I'd like to briefly mention now the fundamental science that underpins Xilonix. Xilonix is what we call a True Human antibody that was derived from a human being with natural immunity to interleukin-1 alpha. This is quite remarkable, since IL-1 alpha can be produced by cells in the body to promote, in some cases, disease-causing inflammation or, in other cases, the growth and spread of tumors. IL-1 alpha also serves as an alarm signal, mediating symptoms associated with advanced cancer, such as metabolic changes that can cause muscle loss and weight loss, fatigue, and anxiety.

In addition to advanced colorectal cancer we have seen evidence of the activity of this therapeutic antibody in other cancer tumor types. And we firmly believe that the anti-IL-1-alpha therapy could be relevant in a broad range of malignancies.

We are also rapidly advancing anti-IL-1-alpha therapy in other conditions in which inflammation plays a critical role, including diabetes, cardiovascular disease, and in the dermatology space.

If you take a look at our pipeline, everything you see here shaded in gray is the result of our work in IL-1 alpha inhibition. It is indeed a pipeline in an antibody.

We believe we have the opportunity to improve the standards of care and oncology and a number of other diseases where inflammation plays a crucial role in exacerbation of the disease process. In terms of breadth and depth, XBiotech's pipeline rivals those of far larger and longer-established pharmaceutical companies. Not only are we in the clinics in nine indications and have accelerated review for Xilonix in Europe, three of our therapeutic programs have received Fast Track designation from the FDA: in colorectal cancer, peripheral vascular disease, and in Staph aureus bacteremia.

At the same time, we continue our discovery work to find new antibodies and build our library of potential product candidates to treat serious and life-threatening conditions, including infectious diseases like C. difficile or influenza or herpes. All of this exciting work is built upon our proprietary True Human technology.

As you know, all currently approved monoclonal antibodies are engineered -- in other words, created in a test tube. Our therapeutic antibodies are truly human, derived directly from humans with natural immunity to disease, and are not modified to change their targeting or activity.

Because our antibodies are derived from healthy people, they have the potential to not only be efficacious but to be effective without the serious side effects that are often associated with other therapies, including so-called fully human antibodies.

The True Human technology thus forms the basis for our entire discovery program and pipeline, and the possibilities seem endless. We are certainly proud of what we've been able to accomplish in a relatively short amount of time. We believe this speaks to the power of the capabilities we have developed over the last decade to identify, isolate, and manufacture True Human antibodies, which are now demonstrating the potential to improve the lives of millions of people around the world.

That brings us to our important clinical work in infectious disease. Our rapidly advancing antibody 514G3 targets serious, often life-threatening forms of Staphylococcus aureus bacteremia, including methicillin-resistant strains, or MRSA. Staph aureus is the second most common overall cause of healthcare-associated infections, and efforts to develop effective vaccines or other therapeutics have repeatedly failed, due to the bacteria's immune evasion mechanism.

Our 514G3 antibody was developed from a human donor with natural antibodies that proved to be effective at neutralizing MRSA and non-MRSA forms of Staph. 514G3 knocks out the principal immune evasion mechanism of the bacteria and allows white blood cells to detect and destroy it naturally.

In the first quarter of this year, we completed the Phase I dose-escalation study for 514G3, and we saw no dose-limiting toxicities. We also had the notable finding that in the small population of patients we looked at the incidence of serious adverse events was 50% less in the treatment arm as compared to placebo. Now, that means that for all causes of serious adverse events, patients had improved.

We have now begun to enroll patients in the Phase II portion of the study. Patients will be randomized to receive either the highest dose of 514G3, which we had determined in the Phase I portion of the study, plus standard of care of antibiotics, or placebo plus antibiotics. Efficacy measures include time to clearance of bacteremia as measured by blood culture; we are looking at duration of fever, length of hospitalization, and ultimately mortality associated with the infection.

We are excited about advancing this program as quickly as possible to address the urgent need for safe and effective therapies for these life-threatening and dreadful infections.

To be able to fully commercialize Xilonix, or our 514G3 product ultimately, we are looking forward to the completion of a new manufacturing facility that will be the prototype for all future commercial production operations for XBiotech. With this new facility we are nearing completion at our new Austin campus, and we anticipate a move-in date toward the end of the third quarter.

Once we move in and start producing drug, we expect to file for registration of the new facility soon thereafter, as early as the fourth quarter of this year. Review of this registration package for the new facility and approval will follow standard timelines for the EMA, which could take approximately nine to 12 months. At that point we can start using product from the facility for sale in the European Union and other markets around the world.

I'll say a few words now on our financials. From inception through March 31 of this year, the Company has accumulated a deficit of about $141 million. During the past quarter, the Company had about $10.3 million in operating expenses, which was about $2 million more than our expenses during the first quarter of 2015. Additional expenses during the past quarter were mainly attributed to nearly $3 million of capital expenditures relating to new equipment purchases for our commercial production facility.

Nevertheless, as of March (technical difficulty)

Ladies and gentlemen, please stand by. Your conference call will resume momentarily.

Hello. I think we are back live now. We seem to have some electrical activity in the area and we're having trouble with our phone line, but we'll just resume from where we left off.

Additional expenses during the past quarter were mainly attributed to nearly $3 million of capital expenditures relating to new equipment purchases for our commercial production facility. Nevertheless, as of March 31, the Company had cash and cash equivalents of approximately $78.2 million. We are squarely on budget for the quarter, and our cash run rate remains adequate to achieve the major clinical and commercial milestones that we have been discussing.

From a patent portfolio perspective, we are in a strong position, with approximately 50 patents granted or allowed and more than 100 pending applications worldwide. Our strategic approach is to cover products with multiple layers of patent protection through overlapping patent families and aggressive continuation-divisional strategy. Most of these patent families will not expire before 2029.

To sum up, we continue to make significant progress. Xilonix, our extensive pipeline, and our new manufacturing facility are all advancing on schedule and we are expanding our leadership team to help drive this success.

We've got some important milestones ahead: unveiling our Phase III data at ESMO GI; receiving approval by the fourth quarter in Europe this year; completing our Phase II trial in Staph infections; and discovering new candidates for breakthrough therapies in infectious disease. All are on the horizon, and we are very proud of the progress we are making and look forward to bringing our True Human antibody therapies as soon as possible to the patients who need them.

In closing, I'd like to remind you of our overriding vision, which is to become a leading developer of novel breakthrough therapies, creating an entirely new class of medicines that treat diseases with the safety profile of natural immunity -- treating patients the way we would like to be treated as patients.

We are doing this by applying our True Human approach to create a broad portfolio of therapeutic antibodies that have been derived from healthy people. In the near term, we will continue to rapidly advance our lead candidate, Xilonix, as well as product candidates targeting a range of inflammatory and infectious diseases. We are preparing for our first approval, and we are putting the infrastructure in place -- from our leadership team to a new state-of-the-art manufacturing facility -- to succeed.

In the long term, we will leverage the expertise of our current and expanding leadership team to aggressively expand our product portfolio of True Human antibodies. It's an exciting time, and we truly appreciate your interest and support.

I would now like to open the call to questions from the audience. Operator, please go ahead. Thank you.

(Operator Instructions) Kumar Raja, Noble Life Science Partners.

Great; thanks for taking my questions, and congratulations on all the progress that you guys have made. For leading off, what are the next steps in the EMA review process before the CHMP grants their opinion?

Also, what's going on in terms of preparation for a launch? Are you guys planning to launch in Europe on your own, or are you guys looking for any collaborations and partnerships there, and anything you can provide on that?

Mike, you want to talk about next steps?

Sure. The EMA timelines are all published on our website. But basically we submitted our package, it's been validated, and now they're reviewing it. And while that's happening, they're scheduling audits both of us as the sponsor and of the investigative sites.

They will be submitting back to us a list of questions, and then the clock will stop and we'll have an amount of time to answer those questions. Then once they've received those questions, they will take all the information and render their final opinion. So basically we're in the midst of that process right now.

I guess the second question was regarding commercialization. We are working with a contract sales organization that has a full-service capabilities to help us with our regulatory pricing and product launch activities that we are currently planning with them in Europe. So that's all underway and on schedule.

Okay. In terms of pharma partners, are you looking for pharma partners or (inaudible) something?

No, we plan to launch this product together with our sales organization that we're working with directly.

Okay. Okay, great.

It doesn't preclude partnerships in non-EU jurisdictions. But in the EU proper, we have a plan for direct launch, Kumar.

Okay. In terms of (inaudible) development in other cancers and also the potential for combination trials, anything going on in the direction there?

Yes, there is. Mike, you want to talk a little bit about the non-small cell?

Yes, as we mentioned on past calls, we're collaborating right now with the NCIC. We're developing a protocol to use Xilonix in combination with Tarceva, which is an EGFR inhibitor. This is based on some data that we had published last year showing that patients that had failed EGFR inhibitors prior to receiving Xilonix did much better than those who had not: they had longer survival; they had better increases in lean body mass and in symptoms; and bigger reductions in IL-6. So it really showed us that there was a population there that seem to benefit, and there may be a synergy using the two drugs together.

This is based on EGFR inhibition up-regulating class I MHC. But also with the inflammation in the tumor microenvironment, there is an immunosuppressive effect, so a checkpoint inhibition. So we think that by blocking this inflammation we may allow immune surveillance to be more effective against these tumor cells that are already primed for destruction. That study is going to start in the second half of this year.

Okay, great. For the ESMO GI conference, what are data and analysis can we expect there?

Well, we're going to be giving the full analysis of all the endpoints: the primary endpoints, the secondary, and some other very interesting findings that we've had in terms of survival.

Okay, great. Thanks for taking my questions.

Thank you, Kumar, for your interest. Thanks for calling.

(Operator Instructions) Nick Farwell, Arbor Group.

Good morning. I would appreciate it if you could provide us a clinical timeline for 514.

Yes, I'll let you -- I'll direct that question to Dawn, who is only with us a short time, but she's got the bull by the horns and she can give you a little more color on that.

Thank you very much, and good morning to you as well. I'm very pleased to be on board with such an exciting organization.

Phase I, as you've heard, we've reported out that there is no dose-related toxicities. Basically we're also reporting out less than 15% AEs than the placebo group.

That allowed us to proceed to Phase II. We're on time and on timeline for enrollment of the Phase II work.

We'll be starting Phase III, I would say, third quarter to fourth quarter of this year. Thank you for your interest.

Dawn, in terms of third or fourth quarter, meaning you'll provide final data or readout sometime, we'll say September/October, if that's the appropriate timeline. Then what is the timeline for Phase III and when you will have final data?

We haven't planned that study. The powering of that study ultimately is driven by the details of the ongoing program. So that's something that has to be determined yet.

Okay. John, can you provide us some guidance, some cash flow guidance -- or cash burn, however you want to describe it -- for the balance of the year? Especially in the second and third quarter, given the ramp-up in manufacturing.

Well, we are on budget that we've discussed in the past. Our cash runway will take us through 2017 and through these major milestones, so all is according to plan.

Indeed, you're right, Nick, the expenses that we're incurring with the completion of the new facilities is causing an accelerated burn. But we anticipated that, and that's the exposure we had to take to be ready for commercialization here at the end of this year.

So the general being on budget through 2017 includes -- presumably and obviously -- includes your direct marketing effort in Europe presumably started up, we hope, the end of this year or early 2017?

That's correct. One of the fabulous upsides of using an organization like we are in the launch of the product is that it defers a lot of the capital and organizational costs to that organization, and we pay more as an ongoing cost. So they recur their capital outlays over time through a margin that they charge us for the operation.

So it's a great way to defer costs for us and get us revenue without breaking the bank.

Thank you. Appreciate it.

Thanks for calling in, Nick.

(Operator Instructions) I'm showing no further questions at this time. I would now like to turn the call over to Mr. John Simard for closing remarks.

Thank you all for attending this morning. We appreciate that, and we look forward to giving you some more good news in the near future. Stay tuned for our ESMO GI and the publication of this data.

Thanks again, and all the best.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.