Xenon Pharmaceuticals Inc (XENE) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2018 Xenon Pharmaceuticals Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the conference over to your host, Ms. Jodi Regts. Ma'am, you may begin.

Thank you. Good afternoon. Thank you for joining us on our call and webcast to discuss our financial and operating results for our second quarter ended June 30, 2018.

Joining me on today's call are Dr. Simon Pimstone, Xenon's Chief Executive Officer; and Ian Mortimer, Xenon's President and Chief Financial Officer. Following this introduction, Simon will provide perspective on Xenon's progress, and then Ian will review our financial results. After that, we will open up the call to 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 cash to fund operations into at least mid-2020; the timing of IND or IND equivalent submissions with regulatory agencies; the initiation of future clinical trials; the efficacy of our clinical trial design and anticipated enrollment; the potential efficacy, safety profile, future development plans, regulatory success and commercial potential of our and our collaborators' product candidates; the timing of and results from ongoing clinical trials and preclinical development activities; our ability to achieve certain milestones, in both our proprietary and partner development programs; the plans of our collaboration partners and their interactions with regulatory agencies; the results of our research and development efforts; the status and timing of the potential addition of new programs to our pipeline and related development activities; and the potential to advance XEN007 or other product candidates into Phase II or later clinical trials.

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.

Today's press release summarizing our second quarter results and the accompanying quarterly report on Form 10-Q will be made available under the Investors section of our website at www.xenon-pharma.com and filed with the SEC and on SEDAR.

Now I'd like to turn the call over to Simon.

Thank you, Jodi, and good afternoon, everyone. As I reflect upon the first half of this year, we achieved a number of important milestones and continue to see exciting advancements in Xenon's clinical stage epilepsy ion channel programs. We entered the second half of the year bolstered by a strong momentum in our clinical stage programs and by significantly strengthened balance sheet. We look forward to exciting catalysts in the near term, including a readout of our Phase Ib TMS pharmacodynamic data from our XEN1101 program, complete Phase I readouts from our XEN1101 and XEN901 epilepsy programs in the fourth quarter of this year and advancing both these programs into Phase II clinical development.

Just briefly I'd like to touch on our ongoing collaboration with Genentech before focusing on our proprietary epilepsy programs. As noted on previous calls, Genentech has completed a Phase I clinical trial for GDC-0310, which is an oral selective Nav1.7 small molecule inhibitor developed for the potential treatment of pain. We look forward to updating you once Genentech's ongoing preclinical studies are completed and the final results are analyzed by Genentech. We have no further update at this time, as this work remains in progress.

Now I will turn my attention to our proprietary pipeline of ion channel modulators. Our pipeline includes 2 proprietary and novel epilepsy product candidates currently in clinical development, XEN1101 and XEN901. Both have unique mechanisms of action, and we believe they contain additional attractive pharmaceutical properties that could yield important therapeutic advances and differentiation from existing antiepileptic drugs.

We also added XEN007, a CNS-acting calcium channel inhibitor containing the active ingredient, flunarizine, to our pipeline earlier this year. We obtained FDA Orphan Drug Designation, or ODD, for XEN007 for the treatment of hemiplegic migraine, an orphan and an often severe disorder associated with migraine. To potentially expedite the development of XEN007, we have entered into certain agreements that provide us with access to clinical and regulatory data as well as manufacturing support, which may allow us to advance this product candidate either on our own or in partnership directly into a Phase II clinical trial.

We continue to examine various development strategies for XEN007 with key opinion leaders and leading clinicians within our strong network in the hemiplegic migraine, or HM, community. In addition to HM, we believe there may be other neurological disorders, where CNS-acting calcium channel inhibitor may be beneficial, and we are considering these future development ideas in both adults as well as pediatric populations. We look forward to updating you on 007 as our plans are finalized.

We also continue to look at other opportunities to expand our pipeline. We recently received FDA Orphan Drug Designation for ezogabine, a potassium channel modulator we are currently evaluating for the treatment of KCNQ2 epileptic encephalopathy, also known as EIEE7.

As per our past practice, once we have identified a new definitive pipeline program with a defined development path and have allocated appropriate resources, we will communicate more details, and we hope to do so for this product in the coming months.

Turning to our clinical stage products, I'll begin by providing an update on XEN1101, 1101, which is a Kv7 potassium channel opener being developed by us for the treatment of epilepsy. In May, we released interim Phase I clinical data, including data from 5 SAD cohorts and 1 MAD cohorts as well as results from a pilot Phase Ia TMS study at the Eilat Conference in Madrid, Spain.

To briefly summarize those encouraging data, pharmacokinetic data confirming a half-life consistent with once-daily dosing, drug exposure levels at doses tested above the EC50 in preclinical models and safety, tolerability data supporting further development of XEN1101.

The TMS Phase Ia pilot study, which included 8 male subjects, where 3 doses of XEN1101 were tested, including 10, 15 and 20 milligrams. When measuring the resting motor threshold, or RMT, in the TMS-EMG assay, the mean change in RMT at 4 hours was 1.5%, 1.33% and 4.33% for the 10-, 15- and 20-milligram doses, respectively. This compares to a literature publication of ezogabine with the lead author Ossemann, where in the double-blind, placebo-controlled crossover study in 15 healthy subjects at a single dose of 400 milligrams, ezogabine increased the resting motor threshold by 2.4%. Within the TMS-EEG portion of the pilot XEN1101 study, all 3 subjects at the 20-milligram dose showed statistically significant modulating activity at 4 hours post dose when compared to baseline. Both TMS-EMG and TMS-EEG evaluations were compared to each of the subject's individual baseline. We have now completed enrollment in the XEN1101 Phase I single and multi-ascending dose clinical trial and the Phase Ib double-blind, placebo-controlled randomized crossover TMS study in 20 healthy subjects.

We will announce the results from the Phase Ib TMS study at the 13th European Congress on Epileptology taking place in Vienna, Austria at the end of this month, where our study is being selected for a podium presentation.

Based on both preclinical and interim clinical evidence, we believe XEN1101 has the potential to be a best-in-class Kv7 modulator that based on our interim Phase I clinical study data has exhibited differentiation and improvements over historical data for ezogabine, an earlier generation Kv7 modulating drug. Importantly, the interim PK data from our Phase I clinical trial supports the possibility of once-daily dosing for XEN1101 versus the 3x daily required for ezogabine and contributes to what we believe should be improved CNS tolerability.

To date, in the Phase I clinical trial, the XEN1101 has performed well in terms of PK, safety, tolerability and with regards to the pharmacodynamic TMS readouts.

We plan to publish the complete XEN1101 Phase I clinical trial results at a scientific meeting in the fourth quarter of this year, and we anticipate initiating a Phase II clinical trial evaluating XEN1101 as a treatment for adult focal seizures by year-end.

While we are in the process of completing our detailed Phase II planning, we expect to be in a position to communicate final trial design plans in the coming months.

We are designing our next trial as a well-powered, randomized, placebo-controlled Phase II study. Overall, we believe the preclinical and clinical dataset to date for XEN1101 clearly supports its future developments, and we look forward to analyzing the full datasets and moving into an efficacy study as quickly as possible.

I'd now like to turn my attention to XEN901, which is a potent, highly selective Nav1.6 sodium channel inhibitor, being developed for the treatment of epilepsy. We presented promising interim XEN901 data, including data from 6 SAD cohorts at the recent Eilat Conference in May. Our presentation included pharmacokinetic data predicting a half-life consistent with once or twice daily dosing and multiple dose levels tested yielded drug exposure levels above the efficacy range for EC70 in the preclinical Maximal Electric Shock, or MES, model. The interim Phase I clinical data also suggests that overall XEN901 is safe and well tolerated. We have generated compelling data that highlights the Nav1.6 channel as the critical sodium channel in regulating cortical hyperexcitability and the mechanism by which nonselective sodium channels appear to be having their effect.

There is strong genetic validation for pursuing this particular target. Children born with gain-of-function mutations in the SCN8A gene, the gene encoding the Nav1.6 channel, developed a very early onset of epilepsy known as EIEE13. We've also generated preclinical data showing that XEN901 is greater than hundredfold more potent on Nav1.6 versus other sodium channels, and is also greater than hundredfold more potent on Nav1.6 when compared to the nonselective sodium channel antiepileptic drugs.

XEN901 was also observed to be highly potent and efficacious in the Maximal Electroshock Seizure, or MES mouse model, a validated translational model for focal seizures. We saw concentration-dependent increase in efficacy with chronic dosing leading to an approximately 10x increase in potency versus single-dose administration. We've made similar observations in our rat MES assay. When compared to phenytoin, carbamazepine and lacosamide in a mouse MES assay, we needed significantly lower plasma exposure for a similar effect, and we observed a markedly improved therapeutic index in preclinical models.

We hypothesized that this high therapeutic index of XEN901 could enable higher levels of efficacy with fewer adverse events in the clinic. Although sodium channel blockers are a mainstay in the treatment of focal epilepsy, utilizing these drugs to the maximal effect in patients is often limited by side effects at higher doses.

We believe based on our preclinical data, XEN901 has the potential to overcome these limitations and become a potentially best-in-class sodium channel inhibitor. We are looking forward to completing the Phase I clinical trial with a readout of the financial results anticipated in the fourth quarter of 2018. We expect to initiate a Phase II clinical trial evaluating XEN901's efficacy as a treatment for adult focal seizures or for rare pediatric forms of epilepsy thereafter.

My comments today are a brief summary of the preclinical and interim clinical data that we presented at Eilat. However, we have uploaded presentations from Eilat on the Xenon website, and I encourage you to look at these materials for even greater details on our XEN1101 and 901 programs.

Before I turn things over to Ian to provide a financial overview, I want to reiterate some key milestone events coming up.

We'll present the results from the XEN1101 Phase Ib double-blind, placebo-controlled randomized crossover TMS study in 20 subjects at the end of this month. We anticipate presenting final XEN1101 Phase I results in the fourth quarter of this year. We expect to initiate a Phase II clinical trial evaluating XEN1101's efficacy as a treatment for adult focal seizures by year-end. We anticipate presenting final XEN901 Phase I results in the fourth quarter of this year, followed by the initiation of a Phase II clinical trial evaluating XEN901's efficacy as a treatment for adult focal seizures or for rare pediatric forms of epilepsy. In addition, we continue to evaluate opportunities to expand our pipeline of novel ion channel modulators through both our internal research efforts and our ongoing assessment of promising external product opportunities. We are working to add a new program to our pipeline in the coming months.

Now I'd like to turn this over to Ian to summarize our financial results for the quarter. Ian?

Thanks, Simon. I'll start by providing an overview of our cash position, cash runway guidance, and then I'll provide a few highlights of the financial statement.

I am pleased to report that we entered the second half of this year with a significantly strengthened balance sheet and new institutional shareholders who support our strategic goals. Cash and cash equivalents and marketable securities as of June 30, 2018 were $63.3 million. Included in this cash number are the net proceeds of approximately $29 million from the sale of 3.44 million common shares under our first at-the-market, or ATM, offering agreement. Subsequent to the end of the quarter, we raised an additional net proceeds of approximately $14.7 million from the sale of 1.6 million common shares, and this was under our second ATM offering agreement. Therefore, this $14.7 million is not included in our June 30th cash number.

We're very pleased that after the announcement of our Phase I clinical data in May for both 1101 and 901 that we were able to raise this capital and continue to broaden our institutional shareholder base. In addition to this new equity capital, effective August 3, 2018, we also refinanced our term loan agreement with Silicon Valley Bank. This increases our total outstanding borrowings from $12 million to $15.5 million, but more importantly this extends the interest-only period on the loan from September 30, 2018 to March 31, 2020, and this has, obviously, a positive impact on our cash runway.

Therefore, with the capital raised under the ATM equity offerings and the refined SVB term loan, based on our current assumptions, which includes fully supporting the planned clinical development of both XEN1101 and XEN901, we anticipate having sufficient cash to fund operations into at least mid-2020. And this cash runway guidance excludes any revenue generating from either existing partnerships or potential new partnering arrangements.

So I'll now provide a few highlights from the rest of the financial statements. Research and development expenses for the quarter ended June 30, 2018 were $5.4 million, this compares to $6.1 million for the same period in 2017. The decrease of $0.7 million is primarily attributed to decreased spending on preclinical, discovery and other internal program expenses, partially offset by the increased spending on XEN1101.

General and administrative expenses for the quarter ended June 30, 2018 were $2.2 million compared to $1.8 million for the same period in 2017. The increase of $0.4 million is primarily attributable to increased stock-based compensation expense, legal and recruitment fees. These increases were partially offset by decreased costs for business development activities.

Other expenses for the quarter ended June 30, 2018 were $0.2 million compared to other income of $0.5 million for the same period in 2017. The decrease in other income is primarily driven by a change in foreign exchange gains and losses arising largely from the translation of cash and cash equivalents and marketable securities denominated in Canadian dollars to U.S. dollars and interest expense incurred on our term loan.

So overall, this provides a net loss for the quarter ended June 30, 2018 of $7.8 million compared to $7.4 million for the same period in 2017.

So in summary, and just before we open the call up for questions, we are proud of the entire Xenon team's efforts that have gone into developing our business strategy and clinical programs, leading us to this point today where we look forward to additional derisking clinical data for both XEN1101 and XEN901 over the next number of months and advancing both of these programs into Phase II efficacy trials.

In addition, as Simon noted, we also continue to evaluate other opportunities to grow our pipeline of ion channel modulators and expect us to provide some updates over the coming months.

We believe our work has the potential for a significant impact in the treatment of epilepsy and other neurological disorders, and we look forward to keeping you updated on our progress.

Operator, we can now open the call up for questions.

(Operator Instructions) Our first question comes from Stephen Willey of Stifel.

Congratulations on all the progress. Just a quick question for Simon. I guess, when you characterize the activities for 901 that lie ahead of you, I think you keep referencing adult focal seizures and/or rare pediatric forms of epilepsy. So just kind of curious if the latter reference means that you've made any progress with respect to some of the really juvenile tox studies that need to be done and the formulation switches that would need to be done to move into this patient population?

No, I appreciate the question, Steve, and you're absolutely right. I'm referencing both the adult focal and the rare pediatric options, and that is what they remain. As you know, obviously, sodium channel modulators are the mainstay of treatment for focal seizures. So clearly, it remains an opportunity. I think the critical really gating piece is going to be the interaction we expect and hope to have with the regulatory agencies subsequent to having the Phase I study completed to determine what, in fact, will be needed and required to initiate a pediatric study in the EIEE13 infantile epilepsy subgroup. So, work is initiating to help support the pediatric entry as soon as possible. Those studies clearly are gating. Those include, as you've referenced, juvenile tox and CMC formulation development. A critical gating item, however, is, of course, the regulatory meeting. We expect to submit request for meeting sometime this year. I don't know when we'll have the FDA response by, but we hope to have that as quickly as possible. And then I think we'll have a better understanding of whether or not we're able to move into that pediatric population hoping to have juvenile tox and CMC worked out to support any pediatric program as quickly as possible. That's not going to be 2018, Steve, it will be a 2019 timeframe.

Understood. And then just on 007. Can you maybe just explain a little bit kind of what your options might be just in terms of the various development strategies that you have in front of you? And I guess, what are some of the decision points that you're considering as you consider each of the various options that you have?

Yes. It's a good question Steve. Clearly, the ODD, as you know, for the molecule has been obtained for hemiplegic migraine. I would say that's where the bulk of the work has been done to date. We understand that condition well. It's actually a pretty common orphan disorder, 30,000 to 60,000 subjects in the U.S., where the drug would be developed. And so we are quite far down, I would say, in assessing the opportunity of the drug for hemiplegic migraine, and I think just some months away from maybe finalizing that. But in parallel, there are a couple of other indications, which we haven't yet disclosed publicly, and I don't think we'll do so until we're a bit further along in understanding the potential, where the drug flunarizine may have significant utility as well in neurological orphan disorders. But we still are, I'd say, mapping out what the clinical study would look like and looking at feasibility of the studies. And until we've completed that work, and that's really what's holding things up at this point, is we're not ready to commit to HM until we've completed the planning around a couple of other indications. We should have that wrapped up in the coming months, Steve, and then I think we'll be making a decision on what the next steps, which we hope would be a Phase II program would look like. So that's kind of where we are, staying a little bit quiet in terms of the indications at this point only because I think we've got a bit more work to do. But we are looking at specifically 2 other indications, and we hope to have that looked at and completed, that assessment, over the coming few months and then a final decision made. We haven't given guidance on the 007 molecule, but we do expect the next study will be a Phase II program. And I think and hope that we would be committing to a Phase II program. Well, I don't think it will be in 2018, certainly soon thereafter. So we have work underway, and we hope to have, I'd say, more clarity on this in the coming few months.

(Operator Instructions) Our next question comes from Maury Raycroft of Jefferies.

This is Vesna on for Maury today. My first question is a follow-up on Stephen's question. So thank you for the additional color on the Phase II for 901. I was wondering for the Phase II plans for 1101, have you discussed those with the FDA yet? Are you planning to schedule that meeting? Will it be 1 or 2 separate meeting for the 2 drugs? And also are you considering a combination arm for the Phase II studies? Or will it be monotherapy for 1101?

Yes. So thank you for those questions, good questions. In terms of the combination arm, we don't have a combination arm specifically contemplated for 1101 Phase II, but, of course, there's background treatment. So effectively, these are generally always combination therapies, but there are an array of background drugs that can be used and so those will be combination. But no combination arm. Specifically, we will have 2 or 3 active arms, monotherapy on background therapy with 1 placebo arm.

And then the first question you asked was whether we had FDA interactions on 1101 for Phase II? Not yet. Just to remind you, the Phase I is currently being conducted through a CTA in the U.K. The -- we certainly are looking at jurisdictions very closely now. And any U.S. development for the Phase II would require an FDA submission. We haven't had an FDA interaction yet for 1101 in preparation for the Phase II. We expect to make decisions based on geography, actually, in the very, very near term. We don't expect to have submissions that include both 1101 and 901 together. These are very different drugs, different mechanisms, different questions. The plan for 1101 initially is to go into adults with focal epilepsy, whereas with 901 we've got questions around whether we can advance that product without adult data into a pediatric population. So very different questions for the agency, and we expect there will be different meetings.

Yes, I would just add to that. Given that both 1101 and 901, the Phase I trials were done in Europe, Phase II development may start earlier in Europe, so we could always get a leg up there. In the adult population, specifically for 1101, we don't expect that we would need a pre-IND regulatory interaction. Very different in the pediatric setting where there's specific questions that we would want guidance on, but we feel comfortable that the phase II program in adults that we will be initiating for 1101 that we file the IND and then we could go right into initiating that Phase II program.

That is very helpful. And then as a follow-up question, if you can give us any additional clarity on your plans for ezogabine? Have you discussed this with the regulators? And if you were to conduct a pediatric trial, how big of a trial would it be? When are you planning on doing that? If you can give any additional color, I would appreciate it.

I think our plan is to give sort of more fulsome color once we have some of the boxes checked on our side. So we have had some preliminary interaction with the FDA. So we're very comfortable with that. We're not at this point, I think, in a position to talk about the details of what a next step program would be for the product. We've got some work underway with KOLs and sites to determine sort of feasibility around some of the preliminary discussions we've had. We may or may not have to go back to the FDA. I think we'll be in a very good position to update The Street in the very near term on this. But yes, we have had some preliminary discussions with the FDA. We're encouraged. We, obviously, are pursuing this based on preliminary discussions that have been held, but certainly we have a number of boxes still to check, which I think we can do in the near term to determine the next steps. And so I think that's really all that we can say at this point in time.

Thank you. I am showing no further questions. I'd like to turn the call back over to Jodi Regts for any closing remarks.

Thanks, everyone, for joining us today. We look forward to keeping you updated on our progress. Operator, we will now end the call.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.