Xenon Pharmaceuticals Inc (XENE) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Xenon Pharmaceuticals 2014 financial results corporate update conference call and webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's program is being recorded. I'd now like to turn the call over to Ian Mortimer. Please go ahead, Mr. Mortimer.

Thank you, operator and thanks, everyone, for joining us on our call and webcast today to discuss our financial results for 2014 and to discuss our corporate progress and milestones for 2015. My name is Ian Mortimer and joining me on today's call is Simon Pimstone, Xenon's President and CEO.

Following this introduction, Simon will provide perspective on the past year and our outlook for 2015 and then I'll review our financial results for 2014 and review our key corporate milestones for 2015. After that, we will open the call up for your questions.

Please be advised that during this call we will make a number of statements that are forward-looking, including statements about the sufficiency of our capital position for future periods, the timing of IND or IND equivalent submissions with regulatory agencies, the initiation of future clinical trials, the timing of and results from ongoing clinical trials and preclinical development activities, the commercial launch of Glybera in the European Union, our achievement of certain milestones under collaboration agreements, the plans of our collaboration partners and their interactions with regulatory agencies and the status and timing of additional product candidates and related development activities.

Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call. We undertake no obligation to publicly update any forward-looking statement. So now let's start the call. I'll turn the call over to Simon.

Many thanks, Ian and good afternoon, everyone and good morning to those of you who might be in Hawaii. Thank you for joining Xenon on our conference call and our webcast today. This is actually our first, as many of you are probably aware, as a public company. It really is a great pleasure therefore to provide a perspective on our Company's progress and plans and as Ian mentioned, we look forward to taking your questions following these prepared remarks.

2014 was a pivotal year for the Company, a year in which we evolved into a publicly traded company and a year in which we made significant progress in advancing our partnered programs, as well as our proprietary pipeline of internally discovered and differentiated product candidates. Certainly one of our key achievements in the past year was our successfully executed initial public offering and listing on NASDAQ through which we both strengthened our balance sheets, as well as expanded our institutional shareholder base and we welcome any of those shareholders who might be on the call today.

With these additional resources, we believe we are well-positioned to continue to advance our pipeline of novel exciting product candidates and further cultivate the potential of our proprietary Extreme Genetics platform and ion channel capabilities in order to identify additional novel targets for future drug discovery.

Before I move into an update specifically on our product pipeline and programs, given this is our first conference call as a public company, I would like to take the liberty and provide some brief perspective on how we got to today, as well as why we believe we are building a differentiated and innovative biopharmaceutical company.

We founded Xenon over a decade ago because we believed that unique insights into human genetics could bring a high degree of validation to drug targets that would provide us and our partners with an opportunity for a competitive advantage. We call this approach Extreme Genetics. It's an approach where we study the extremes of the population, for example, individuals who have extremely high triglyceride concentrations or very low triglyceride concentrations, individuals who feel extreme pain when they should not feel any pain and individuals who feel no pain at all when they should. This approach allows us to identify single genes that can have a profound effect on an individual, genes that when altered by virtue of a genetic mutation results in an extreme phenotype, an extreme perturbation of human biology.

We have been using this approach for many years, as many of you know and we have developed a streamlined and what we believe is effective approach to navigating through patient identification, consent required, genomic sequencing and of course, the critical informatics required to identify these targets or these genes as potential drug targets. This approach and platform has also allowed us to build strong relationships with leading pharmaceutical partners for development and future commercialization in larger therapeutic indications while we as a company continue to focus our internal efforts on orphan diseases.

To augment these genetic capabilities, we have also built core drug discovery capabilities, particularly in the area of ion channel biology and chemistry. We are leveraging these capabilities now to study diseases known as channelopathies, diseases which are caused by mutations in ion channels and where we believe significant medical need exists. We believe that this integrated platform, including our in-house capabilities for human genetics and small molecule ion channel-focused drug discovery, as well as preclinical and clinical development capabilities, are really key assets and differentiators of the Company.

And this approach and platform we believe has been successful. Our discoveries are being used in a commercial stage product, in a number of product candidates in development and in an evolving pipeline of preclinical opportunities. Our Extreme Genetics approach has been well-validated with numerous high-quality partnerships with top tier pharmaceutical companies. We've brought in over $150 million in non-equity funding from these partners in well-structured deals that also give us an opportunity to earn over $1 billion in potential future milestone payments, as well as potential future royalties on sales that will be made by these partners.

Our alliances, including with partners Teva, Genentech and uniQure, provide multiple near to midterm opportunities for our product pipeline and have provided significant funding to date. Together, we believe that these partnered programs diversify our product pipeline, reduce our risks and contribute to our financial flexibility, as well as provide important scientific and market validation for our Company.

Although our business has been growing and evolving over many years, as mentioned earlier, 2014 was a year of very important progress across our pipeline. Starting with our most advanced asset, Glybera. Glybera is the first product whose active ingredient was derived from our platform to receive commercial approval and is currently the only gene therapy product to receive approval in Europe. Glybera was developed by our licensee, uniQure Biopharma. It is specifically indicated for the treatment of a subset of adult patients diagnosed with the orphan lipid disorder known as lipoprotein lipase deficiency, or LPLD, confirmed by genetic testing and these patients suffer from severe or multiple attacks of acute pancreatitis despite their dietary fat restrictions.

LPL deficiency is a severe metabolic disease of inadequate lipid metabolism, impaired breakdown of triglycerides resulting in pancreatitis and in some cases actually in death. UniQure has guided that it expects its commercial partner, Chiesi, to launch Glybera during the first quarter of 2015 in Europe. UniQure is also pursuing a US product approval strategy. We are entitled to receive as a royalty a percentage of what uniQure receives from Chiesi from Glybera sales as those sales occur.

We currently have two partnered product candidates in clinical development for the treatment of pain. One of those is with Teva. The other with Genentech. Our interest in pain stems from certain discoveries we made while researching patients with a remarkable genetic disorder known as congenital indifference to pain, or CIP. These individuals literally feel no pain, no pain with broken bones, no pain during childbirth and no pain with multiple different medical conditions that in you and I should cause pain, conditions such as osteoarthritis or osteomyelitis.

We discovered that some of these unique individuals have a genetic mutation in a specific sodium channel coding for a protein known as Nav1.7. Now Nav1.7 is important in pain sensing. Our product pipeline now includes two development stage, distinct small molecule drugs that inhibit Nav1.7. One of these is a topical product we have in clinical development with Teva. The other is an orally active product we have in clinical development with Genentech.

In our Teva partnership, we are developing the product known as TV-45070, which is a topically applied small molecule inhibitor of the sodium channel, Nav1.7, as well as other sodium channels, including those expressed in the pain sensing nerve endings in the peripheral nervous system. We have observed promising signs of activity for TV-45070 in multiple Phase 2 proof of concept trials that we have completed prior to partnering this product with Teva. Teva is currently conducting a 300 patient randomized double-blind placebo-controlled Phase 2b clinical trial for TV-45070 in osteoarthritis, or OA of the knee. We anticipate top-line data from this study to be available in the third quarter of 2015.

In addition, just last month, we announced that Teva is initiating a second Phase 2b clinical trial. This trial is in neuropathic pain indication called postherpetic neuralgia, or PHN. We are delighted to update that patient screening has begun and enrollment is expected to begin later this month and the trial is expected to complete in and around mid-2016, as previously guided. Both OA and PHN represent potential large market opportunities and our partnership with Teva really exemplifies Xenon's strategy of collaborating on indications that do require significant commercial capabilities.

We are equally excited about the potential of our partnership with Genentech to develop GDC-0276 and other selective orally active small molecule inhibitors of Nav1.7 also for the treatment of pain. GDC-0276 is the first product candidate that was selected for development under this collaboration. Genentech is currently conducting a Phase 1 single, as well as multi-ascending dose clinical trial for GDC-0276 in healthy volunteers. The Phase 1 clinical trial has recently been expanded and is expected to complete its enrollment in the second half of 2015.

With our Teva and Genentech collaborations, we believe we have one of the broadest industry efforts in developing drugs targeting Nav1.7, which we believe is one of the most promising pain targets given its high degree of human validation. In 2014, Xenon and Genentech formed a second collaboration, this time focused on identifying novel genes regulating pain in humans using Xenon's Extreme Genetics strategy. Now the goal of this collaboration is to identify new pain targets for drug discovery in 2015.

In 2014, we also made good progress in advancing our own internal proprietary discovery programs. Our first proprietary product candidate is what we call XEN801, which we expect will enter clinical development later this year. XEN801 is a stearoyl Co-A desaturase, or SCD1 inhibitor for the treatment of acne and potentially also other dermatological indications. XEN801 is currently in IND-enabling studies and we expect to file an IND or IND equivalent application to initiate a Phase 1 clinical trial in the second quarter of 2015. If supported by positive data from the Phase 1 trial, we then plan to initiate a proof of concept Phase 2 clinical trial in the second half of 2015 in patients with moderate to severe acne.

SCD1 is an enzyme involved in lipid synthesis that is expressed in the skin and sebaceous glands. By inhibiting this enzyme, we believe that XEN801 represents a novel approach to treat acne with a dual mechanism of action expected to include both the reduction of sebum production in the skin, as well as a reduction in the size and number of sebaceous glands in the skin.

Our next proprietary product candidate is an inhibitor of the sodium channel Nav16 for the treatment of Dravet Syndrome. Dravet Syndrome is an orphan disease of severe childhood epilepsy; represents a high unmet medical need. We believe that our approach to treating Dravet Syndrome is differentiated and is focused on developing highly selective and potent inhibitors of Nav1.6, a sodium channel that we believe is very important in Dravet Syndrome. We expect to file an IND in this program next year in 2016.

So in summary, 2014 was a very productive year for Xenon. We look forward to building on these achievements in 2015. Before I turn the call over to Ian to review our financial results and to summarize our anticipated milestones for 2015 succinctly for you, I would also like to acknowledge Ian's important contributions at Xenon. I wanted to formerly use this opportunity to congratulate him on his promotion to position of CFO and COO. Ian will be taking on broader functional and operating responsibilities at Xenon as part of his new role and we congratulate Ian for his tremendous work over the past 12 months. So thank you, Ian, and hand over to you.

Great. Thanks, Simon. I'll provide a high-level overview of the 2014 financial payments and then I'll finish off with some comments on upcoming milestones for the remainder of 2015. For the year ended December 31, 2014, we reported total revenue of $28.4 million compared to $27.4 million for the same period in 2013. Our revenue in both periods was primarily derived from our collaboration agreements with Teva and Genentech.

Research and development expenses in 2014 were $11.8 million compared to $12.3 million for the same period in 2013. The decrease of $0.5 million was attributable to the change in foreign exchange between the US and Canadian dollar, as the majority of our R&D expenses are in Canadian dollars. General and administrative expenses in 2014 were $5.5 million compared to $5.3 million for the same period in 2013. The increase of $200,000 is primarily the result of higher finance-related and overhead expenses.

Our net income for the year ended December 31, 2014 was $13 million compared to $12 million for the same period in 2013. The increase was attributable to higher revenue in 2014, lower R&D expenses partially offset by higher G&A costs and a decrease in other income. We ended December 31, 2014 with $84 million in cash, cash equivalents and marketable securities, which we believe puts us in a strong financial position to execute on our key business objectives.

As we look forward to the remainder of 2015, we expect this year to be a productive and eventful year for Xenon. The key milestones we are looking forward to in 2015 include the anticipated launch of Glybera in the EU by our licensee, uniQure's commercial partner Chiesi; Clinical results from the Phase 2b osteoarthritis clinical trial of TV-45070 being conducted by Teva; continued progress in the expansion of TV-45070's clinical development, including the advancement of a Phase 2b clinical trial in PHN by Teva. In our Genentech collaborations, we anticipate enrollment in the GDC-0276 Phase 1 clinical trial will be completed in the second half of 2015 and anticipate identifying novel pain targets emerging from our genetics research collaboration during 2015.

Moving to our proprietary pipeline, we anticipate advancing XEN801 into clinical development and assuming positive Phase 1 clinical data, we expect to initiate a Phase 2 proof of concept trial in the second half of 2015 in moderate to severe acne patients. And lastly, we expect to make continued progress in our Dravet Syndrome Nav1.6 program, as well as identifying our next target for drug discovery and development.

So in summary, we expect to have a busy 2015 advancing our partnered and proprietary product candidates while we continue to manage our business efficiently from a financial perspective. Operator, we will now open the call up for questions.

(Operator Instructions). Brian Abrahams, Wells Fargo.

Congrats on your first earnings call and congrats to Ian on your expanded role. A couple of quick questions on the postherpetic neuralgia study that is kicking off. I'm curious if you can talk a little bit about what in the design of this study maybe as compared to some of the prior work that was done in postherpetic neuralgia with the drug do you believe offers the greatest potential to enhance your ability to show a benefit? Is it the endpoints that you are using, the size of the study, some of the inclusion criteria? And will you be stratifying for R1150W in this trial?

Let me answer your last question first. Yes, we will be stratifying. So similar to the OA trial, we will have equal numbers of subjects, so the plan is to have equal numbers of subjects in each of the arms of the study and the placebo in two active arms. To remind you, approximately 330 subjects expected in this study, so roughly 110 per arm. The general rule of thumb we have used based on the literature and our own work is in and around 20% of the population should carry this genotype. So in and around 20 to 25 subjects would be expected per arm with the genotype.

I'll answer your first question, which what do we see as being different from this study compared to the previous PHN trial. I think I'll make maybe three key points. Firstly, the study is well-powered. It's a large study so the numbers are quite different. Our last study was a total of 70 and here we have 330 subjects. Secondly, it's a longer duration of dosing, so the first study was a three-week dose and we are looking at four-week dosing here. And thirdly, and I think also importantly in the study design, is we aren't running a crossover study. These are parallel arms in the design. The design is up on clintrial.gov as you probably know, but placebo-controlled parallel arms, which I think takes away some of the potential challenge of crossover where we do know very well that particularly in pain study sequence effect has been observed in a number of published studies. So I think those are our three key differentiators. Again, size of study and power, duration of dosing being longer and a parallel design rather than a crossover, which has the potential for sequence period effects.

Just one last comment, Brian, in my comments around length of dosing, it is just important to note, in neuropathic pain, usually longer duration of dosing, one sees greatest effect and so unlike in nociceptive pain where clinical studies are often shorted to see an effect, in neuropathic pain, we like to dose a bit longer and I think that was taken into consideration.

Got it. That makes sense. One more question, if I could. You mentioned that 0276 has been recently expanded. It sounds like the completion is now expected in the back half of this year. I think it's a little bit later than previous. What went into that expansion? Is that just more dose escalation, lengthening the multiple dose portion? Can you give us a little bit more color on that and I'll hop back in the queue. Thanks.

I would love to be able to give you a bit more color. At this point, we are obviously under confidentiality with our partner, Genentech, and so really all we are at liberty of disclosing at this point in time is that the Phase 1 trial is expanding and with that expansion our guidance obviously shifts to the second half of 2015 rather than mid-2015 as was initially guided.

So as soon as we have an ability to communicate a bit more detail around this, I can assure you we will. It's a very competitive area. It's obviously an area of great importance to Genentech, as well as to us and so I'm just not at liberty at this point to go into the details and I apologize for that, but I hope you understand.

Fair enough. Understood. Thanks very much.

Hugo Long, Jefferies.

This is Hugo speaking in for Biren Amin. Thanks for taking my question. Just really quick to follow up on the 0276, so I know just given your relationship with Genentech certain things of what you can disclose; what can we expect in terms of the data once it is released?

Right now, we are really not guiding on that, Hugo. We obviously are developing a plan with our partner, as we do with all of our partners, in what we can communicate and when and our hope is to be able to give guidance that at least allows people to understand where the program is heading and what the next steps are. As I said in my earlier point to Brian, given the competitive nature of this program, we support Genentech's obviously limitation on data release. We also know from our perspective we would like to and need to make certain disclosures and we will obviously work with Genentech to make those. But we don't have yet the communication plan either in terms of what we will say and when we will say it as it relates to the clinical studies outlined yet, but certainly as I said, our expectation is at minimum we should be able to guide what the next steps for the program are and we will certainly update you and others as we have more detail around this issue. We recognize it's an important issue and we have to balance this with obviously how sensitive this data might be given the competitive nature of this program.

Okay. I understand. Thanks much. And just next question then, you talked about how you might initiate a proof of concept Phase 2 trial for 801 for acne. Can you just maybe broadly describe what that trial might look like, what endpoint you might have?

Sure. Absolutely. Thanks for the question. So as I had mentioned earlier, the plan is to kick off a Phase 1 study in quarter three. If that reads out well and patients effectively are tolerating the gel and the pharmacokinetics are adequate, we would move very quickly into what currently looks like about a 100 patient study. I just want to make the point is this design is not finalized. We are still finalizing this with a KOL panel, but I can give you a flavor of what it will look like. I don't think it will deviate too much from this. So we expect this will be a plus minus 100 patient study, double blind, placebo-controlled, parallel group. We are deciding at this point whether we are going to be doing QD or BID dosing, but the Phase 1 study should help that, and this will be in adults with moderate to severe facial acne. So we are estimating about 50 subjects per treatment arm.

The primary efficacy endpoint is expected to be, as is an industry standard with very good guidance from the FDA on this, would be change from baseline in total lesion count and that would be inflammatory and noninflammatory lesions. And there are multiple secondary endpoints. But the primary endpoint is the total lesion count changing from baseline obviously to the end of the study. If I didn't mention it, the dose duration will be 12 weeks and we think we are giving this a really good shot to be able to see efficacy. I think if you look at the acne literature even with a drug like adapalene, the topical retinoids, two to three weeks of dosing just isn't enough. So while we have thought about and would love to get a really early [park] readout, we think that appropriate duration of dosing is very important in this study and so we will be doing a 12-week dosing, which will be also -- which will be in a well-powered cohort or group size as well, as mentioned. So I hope that answers your question?

That does. Thanks a lot, guys.

(Operator Instructions). John Newman, Canaccord.

I just wondered, in terms of new areas that you might be looking at in terms of your Extreme Genetics discovery platform, I just wondered if you could talk a little bit about that and whether or not you will be looking at potassium and calcium channels or other areas? Thanks.

Thanks, John. Nice to have you on the call. John, when we think about our pipeline, we really think of it in two ways. One is where should we be focusing some of our actual new gene discovery using our human genetics approach and the second is what can we do to bring in a new drug discovery program as quickly as possible. In the new genetics area in terms of new gene and target identification, I would say the predominant focus in the Company is in neurological disorders. We have our partnership with Genentech and then we are very interested in other neurological disorders, particularly those that are episodic where the phenotype is episodic and the reason for that is it is likely in our mind that at least a number of those should end up being iron channel-based disorders, meaning mutations in iron channels that cause those disorders. And so we're sort of skewing I would say our genetic strategy towards neurological disorders and skewing them toward more likely identification of channels.

In our drug discovery selection, obviously some of the targets we find and will continue to find are targets we would clearly want to move into discovery and on the expectation that some of them will be druggable. But we are also very interested in looking out there and seeing what current targets may have very good human validation that may make very good new drug programs for the Company and we have really gone through a very exhaustive review of the iron channel space. There are I would say hundreds of reports of channelopathies. These are human phenotypes that have been explained by a naturally occurring variant in an iron channel gene, a gene that encodes an iron channel. And we've really refined that review and have got some very interesting thoughts about the next steps in terms of next drug discovery program for the Company that will follow behind Dravet Syndrome, which as you know is targeting a voltage gated sodium channel.

And as we think about our next drug discovery program, we very much are focused on voltage gated iron channels, including sodium, calcium and potassium, and really this builds on the expertise that we have developed at the Company over many years now, expertise both in biology around iron channels. These are very difficult assays to develop. The screening and electrophysiology around these is not straightforward. We have developed some very interesting humanized animal models with iron channels. We will continue to do that and we have also built obviously very significant know-how and capabilities in the chemistry of drugging iron channels, selectively.

And so we have a number of voltage gated iron channels that we are looking in terms of next-generation programs. We are thinking quite broadly at the moment. We're looking at various neurological conditions. We are looking at cardiac conditions and we expect over the next quarter or two to be moving one of those into a new fully fledged committed drug discovery program and hopefully more as we go forward. But that's the plan.

And the new collaboration that you initiated with Genentech, what would be the financial terms of molecules that will come out of that? Would it be similar to 0276 or would it be different?

Yes, so just to be clear, the collaboration that was announced with Genentech was really a target discovery collaboration, so different from the Nav1.7, which was very much focused on drug discovery and development. This was an earlier stage. And so the terms which have not been disclosed, John, are really focused on the more upstream part of that collaboration. We are obviously hopeful that if we do make progress, we can expand on the partnership, but we don't have at this point negotiated terms for a downstream development. Ian, do you have anything further to add?

The only thing I would add, John, is the way we structured the deal about a year ago was over the collaborative period of a couple of years that we would be paid all of our FTE costs. So we were paid $1.5 million up front. There was another $2 million in milestone payments as we hit some key objectives in the program and importantly, Genentech, as part of that transaction, participated in the IPO. And then as Simon mentioned, the real goal of this program is to identify new targets and then with those new targets, we'd have the opportunity to discuss a discovery program with Genentech.

Okay. And would you expect that Genentech and/or yourself will disclose the indication for 0276 at some point this year?

John, we just don't know. It's hard to say. Again, balancing my earlier point of wanting information and for us we recognize why that is important to be able to communicate to you and the Street, balancing that with just keeping this proprietary. It is of interest to note that as we developed our earlier molecule that is now partnered with Teva, really the initial clinical development program that we ran has -- you can now find others running those exact clinical trials in their programs. So we recognize the need to be careful and cautious in what we disclose to maintain a competitive advantage and I think Genentech recognized that even more acutely. So we will with them obviously look at that. We will balance our disclosure based on where the competition is and what we think we should and shouldn't say. But we don't have a plan yet, John. Again, to my earlier point, at a certain point in time this year, we will be making a certain disclosure. Those communication discussions are underway.

Okay. Great. Thanks a lot.

Thank you. And with no further questions in the queue, I would like to turn the call back over to Ian Mortimer for closing remarks.

Great, thank you, operator and thanks to everyone for joining us on the call today. We look forward to keeping you informed of our progress throughout 2015. We'll now end the call. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Have a good day, everyone.