Xencor Inc (XNCR) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Xencor first-quarter 2016 earnings conference call.

(Operator Instructions)

Now I would like to welcome our host for today's conference, Ms. Hannah Deresiewicz with Stern Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon. This is Hannah Deresiewicz with Stern Investor Relations and welcome to Xencor's first-quarter 2016 financial results conference call.

This afternoon we issued a press release which outlines the topics that we plan to discuss today. The release is available at www.xencor.com.

Today on our call Bassil Dahiyat PhD, President and CEO, will discuss the Company's business and clinical highlights from the last quarter. John Kuch, Vice President of Finance, will review the financial results and then we will open the call up your questions.

Before we begin I would like to remind you that during the course of this conference call Xencor Management may make forward-looking statements including statements regarding the Company's research and development, including clinical trial plans for XmAb5871, XmAb7195 and it's bispecific product candidates, XmAb14045 and XmAb13676, future financial and operating results, future market conditions, the plans and objectives of Management for future operations and the Company's future product offerings. These forward-looking statements are not historical facts but rather are based on Xencor's current expectations and beliefs and are based on information currently available to us.

The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. Including but not limited to those factors contained in the risk factor sections of its most recently filed quarterly report on Form 10-Q and its most recently filed annual report on Form 10-K.

With that let me pass the call over to Bassil

Thanks, Hannah, and good afternoon, everyone. During our year-end earnings call in March we emphasized we're focusing on expanding our clinical development activity this year with expectations to start six clinical trials across four different XmAb programs.

We're pleased that we've already accomplished two of our goals in the first quarter, namely the initiation of Phase 2 clinical trials for XmAb5871 in IgG4-Related Disease and in systemic lupus erythematosus. Together with the four other clinical trials we intend to initiate this year, we're aiming for a data-rich 2017.

I'll start the call today by reviewing XmAb5871. 5871 is our first-in-class monoclonal antibody that targets CD19 with its variable domain and it uses our proprietary XmAb immune inhibitor Fc domain to target FcgRIIb, a receptor that inhibits B-cell function. 5871 has shown potent, reversible B-call inhibition in data presented to date.

Now in March we began enrolling patients in two Phase 2 trials, one evaluating 5871 for the treatment of IgG4-Related Disease and one evaluating XmAb5871 for the treatment of lupus or SLE. So we decided to pursue these two indications because both are diseases with strong a rationale for the role of B-cell inhibition and treatment and both have a high unmet need. Our IgG4-Related Disease study is a Phase 2 open-label, pilot study in patients with IgG4-RD, which is a rare fibroinflammatory autoimmune disorder that affects multiple organs and we believe inflicts up to 40,000 patients in the US.

There are currently no approved therapies and corticosteroids are the current standard of care for this newly recognized disorder. This study is designed to assess control of disease activity with every other week IV administration. We plan to enroll about 15 subjects for up to 24 weeks of treatment and the primary endpoint is to evaluate the effect on the IgG4-RD Responder Index to measure the impact of treatment on disease activity. We expect to report initial data from the study in the first half of 2017.

Our SLE trial is a Phase 2 randomized, double-blind, placebo-controlled study. Now, SLE is an inflammatory disease that can affect numerous organs in which the body's immune system essentially attacks its own healthy tissue. The disease affects an estimated 240,000 patients in the US each year.

The current standard of care includes taking immunosuppressant medications to control symptoms which often result in significant side effects. Now this study uses a novel trial design to evaluate the ability of 5871 to maintain the improvement in disease activity achieved after a short course of intramuscular steroid therapy and in the absence of immunosuppressant medication.

We believe this trial design will allow us to assess the effect of 5871 on lupus disease activity with a shorter time to endpoint and with fewer patients compared to standard lupus trials. Approximately 90 patients will be enrolled for up to 24 weeks of treatment with a 1 to 1 randomization of 5871 and placebo. We plan to report data from this trial in 2018. We also plan to initiate a bioequivalence trial with a subcutaneous formulation of 5871 this year and expect to announce initial data from that trial in 2017.

Now I'll turn to our second internal clinical program XmAb7195. That's our antibody that studies IgE with its variable domain and uses the identical XmAb immune inhibitor Fc domain as 5871. In this case resulting in three distinct mechanisms of action for reducing IgE levels, in particular rapid clearance of IgE via FcgRIIb binding on liver sinusoidal endothelial cells. We believe that 7195 has the potential to provide a first-in-class mechanism for reducing IgE that will address the full spectrum of severe asthmatics including the hardest to treat population with very high IgE levels.

We look forward to reporting complete IgE reduction and safety data from our Phase 1a study trial in the first half of this year. This trial includes cohorts of subjects with high IgE levels and the addition of cohorts of healthy volunteers treated with a split dose of 7195 consisting of a small priming dose followed by a second ascending dose after one week.

This new part of the trial will allow us to examine reduction of IgE and safety data after a second IV infusion. We're also planning to initiate a Phase 1 trial with a subcutaneous formulation of 7195 in 2016 and expect to announce initial data in the first half of 2017. I'd like now to turn to our XmAb bispecific oncology platform.

As we described previously, the core of our bispecific programs is a novel XmAb Fc domain that is a scaffold for two or potentially more different androgen binding domains. That creates a single molecule that can bind two targets simultaneously. By using this plug-and-play Fc domain as the basis for a bispecific structure we've developed a uniquely flexible approach that lets us rapidly create candidates by combining any two binding domains while potentially maintaining full length antibody properties such as favorable in vivo half-life and simple manufacturing.

We believe this flexibility differentiates our bispecific programs from others in the field. We've selected two tumor-targeted T-cell engaging antibodies to advance in the clinical testing in 2016. These bispecific antibodies bind to and activate T-cells for highly potent and targeted killing of malignant cells by binding CD3 on the T-cell. And their XmAb Fc domains confer a long circulating half-life, stability and ease of manufacture.

XmAb 14045, the first of these programs, targets CD123 on acute myeloid leukemia, or AML, cells and CD3 on the other side of the molecule. It's showed sustained and potent depletion of target cells in primate studies from well-tolerated single IV doses. We expect to initiate a clinical trial this year. XmAb13676, our second bispecific oncology candidate, targets CD20 on malignant B-cells and also CD3. We also expect to begin a clinical trial, in this case in B-cell malignancies, this year.

We intend to disclose our next bispecific oncology candidates later this year and to start clinical trials for them in 2017. We expect these candidates to include both CD3 binding T-cell engagers as well as dual checkpoint inhibitor mechanisms.

Next a quick note of partnerships, as you know our partnerships leverage the plug-and-play nature of our XmAb Fc domains and have very little or no internal research commitment by Xencor. We believe that this type of partnership greatly broadens the impact of our technology while also allowing our scientists to focus on the development of our own internal programs.

Currently, seven programs are in clinical testing by partners with multiple others in preclinical testing. This past January, the National Institutes of Health announced it had initiated a Phase 1 clinical trial of VCR, VRC I should say, 01LS, an antibody for the treatment of HIV which leverages our Xtend technology for longer half-life.

Also our partner MorphoSys announced it will begin in 2017 a Phase 3 clinical trial of XmAb5574, now called MOR208, in diffuse large B-cell lymphoma. Now with that I'll pass the call over to John to speak to our financials.

Thank you, Bassil. In this afternoon's press release reported cash, cash equivalents and marketable securities totaling $178.7 million as of March 31, 2016, compared to $193.3 million as of December 31, 2015/ The decrease reflects net spending on operations for the first quarter of 2016.

Revenues for the first-quarter 2016 were $7.3 million compared to $1.5 million in the same period of 2015. Increased revenues in the three-month period ended March 31, 2016, over revenue for the same period 2015 were primarily the result of revenue recognized under our 2015 Amgen collaboration.

Research and development expenditures for the first-quarter 2016 were $10 million compared to $5.2 million for the same period in 2015. The increase in R&D spending in the three months ended March 31, 2016, over the same period in 2015 is primarily due to additional spending on our XmAb5871 clinical programs and our initial bispecific development candidates XmAb14045 and XmAb13676.

General and administrative expenses in the first quarter 2016 were $4 million compared to $2.8 million for the same period 2015. Increased spending in the G&A areas in the first quarter of 2016 over the same period in 2015 reflects additional spending on professional fees including legal costs. Non-cash share-based compensation for the first quarter ended March 31, 2016, was $2 million compared to $1.1 million in the first quarter of 2015.

Net loss for the first quarter of 2016 was $6.40 million or $0.16 on a fully diluted per share basis compared to net loss of $6.44 million or $0.19 on a fully diluted per share basis for the same period in 2015. Increased revenue recognized the first quarter of 2016 over the same period of 2015 was offset by an increased expenditures of a similar amount, such as the net loss for the three months ended March 31, 2016, as comparable to the net loss for the same period in 2015.

The lower loss per share amount in the first quarter of 2016 over the amount reported for the first quarter 2015 reflects the additional shares outstanding at the end of the first quarter of 2016. The total weighted average shares outstanding for the three months ended March 31, 2016, was 40,741,753 compared to 34,297,782 for the same period ended March 31, 2015.

Based on current operating plans, we expect to have sufficient cash to fund research and development programs and operations through 2019. With that we would now like to open up the call for your questions. Operator?

(Operator Instructions)

Michael Schmidt with Leerink Partners.

Hi, it's Jonathan Chang stepping in for Michael. Thanks for taking my questions.

First, I'm curious to get your thoughts on how you view the lupus opportunity for XmAb5871? Where do you see 5871 in the treatment landscape for lupus? And also can you talk about how the Phase 2 study is designed to overcome some of the problems that have plagued lupus studies in the past?

Sure. I guess to start off, the 5871 program has potential in a broad array of autoimmune diseases because a broader array of autoimmune diseases have had B-cell dysregulation implicated.

Lupus is one of those and so, as we look at the program as a whole, we've always wanted to seek out the value in whichever opportunities we think we can address, preferably multiple opportunities. IgG4-Related Disease, which is the primary driver we believe in the near term of this program, is a newly defined, rare disorder that has some clear biological relevance for B-cell inhibition and we think can give, relatively to many other diseases, faster development timelines and a smaller development cost footprint for a company like Xencor.

That said, lupus, a very much larger opportunity, clearly a high unmet need. Therapies in general are not as effective as doctors and patients would want and there's certainly side effects. And so for us the lupus opportunity is one to add and to supplement for 5871 and then hopefully in the future if these programs show promise, 5871 starts to mature, we can even add more potentially.

But for now it's focusing on the two. Now within the treatment landscape of lupus I'd say the unmet need is high. The use of a broad array of immunosuppressants, steroids, biologics like belimumab, is still leaving a large unmet need. So I think there's absolutely room for a new agent if you can demonstrate a meaningful increase in activity from what is being seen with these current agents. Now that's a very vague kind of answer because we're still at early-stage in development.

Now, when you go to the second phase of your question, how did the Phase 2 program that we've selected -- how does it hopefully overcome some of the challenges that have been faced in lupus development? I think the crux of it is the observation by Joan Merrill at Oklahoma Medical Research Foundation that withdrawal of the immunosuppressant medications that lupus patients have typically taken, can clear up some of the muddiness that happens when you try to run a clinical trial with an investigational agent like 5871.

And so our study design expressly cools the patients down with intramuscular steroids, enrolls those who show that kind of reduction in disease activity. You withdraw them from their background immunosuppressants, and these patients are typically on something like azathioprine or methotrexate and you don't allow them to go back on those medications unless they show a relapse essentially or a significant increase in their disease activity.

When you randomize at that initial point when they have been cooled down and their immunosuppressant background meds withdrawn, you can compare now in a much cleaner way 5871 versus placebo. And so now how that plays into the future treatment paradigm we don't know. There's no existing in force guidance from the FDA on Phase 3 programs but we'll certainly, hopefully, have some exciting data to present in a couple of years and we will engage in the dialogue for how to hopefully make Phase 3 studies more amenable to seeing clear results in lupus than they have been in the past.

Great, thank you. This is a bit early but can you provide any color on how enrollment is going in the Phase 2 IgG4-Related Disease study?

We will guide on enrollment later in the year. Certainly when we complete it. I think we're well on track to presenting initial data in the first half of 2017.

Great, thank you.

Thank you.

Chris Marai with Oppenheimer.

Good afternoon. Thanks for taking the questions. Two, actually, and maybe let's start with your bispecific format. So you'd noticed, or you mentioned that you have a longer half-life with your format and clearly there's some competition with shorter half-lives out there, targeting the same CD123 target.

I was wondering how you look at sort of dosing here? Clearly there's some flexibility in having a continuous infusion and short half-life when it comes to the potential for off target, or even on-target side effects. We've seen high tumor burdens, perhaps heterogeneous tumor burdens, which could influence side effects related to CAR T or Blincyto.

I'm wondering how you're looking at potentially modulating the effect of your very long-acting bispecifics in light of this potential heterogeneous tumor environment and then, too, longer half-life? And I have one follow-up. Thank you.

Sure. So we view longer half-life as a, frankly, a profound benefit in using biologics in cancer therapy. I think that the challenge is of a continuous infusion in terms of patient compliance, in terms of the nature of the disease is that you can practically speak and treat the more indolent forms of cancers might be more intractable to a continuous infusion than a simple weekly or biweekly dose.

We don't know what our dosing frequency is going to be. We look at our monkey pharmacokinetics and we look at comparables and we're going to look at that sort of weekly to biweekly infusion frequency. I think that in terms of initial -- in terms of toxicities from either on or off target tox, I think we've got ample models from how oncology antibodies have been used in the past where you can certainly titrate both dose step ups and you can titrate dose or infusion speeds. I mean, Rituxan, there's a very long history of managing infusion related reactions there, not to say infusion reactions are going to be your AE, we don't know.

But I think that the whole design of the Phase 1 program, which is frankly a fairly standard Phase 1 program designed for antibody and oncology, that whole design is built to give us some insight on what are doses that have good tolerability. We certainly will be looking carefully at whether the phenomenon that's often been observed with T-cell engaging antibodies, which is that upon a second dose when there's presumably both tumor burden reduced as well as T-cell, initial T-cell activations where that hump goes -- gotten over, you certainly see less of the cytokine release syndrome side effects that you see in that first dose.

We're going to be looking carefully at that to see how we can come up with the right schedule. Too early to say but I think the tools we have with a longer antibody half-life are ample to wrestle with those issues.

Okay. And then I'm just wondering, also with respect to that -- given your format flexibility, have you been able to tune the potency and would it make some sense to down potency potentially and then offer a longer duration of that molecule in terms of a treatment option?

It's a great question and we certainly looked at tuned potencies across -- at this point still relatively small range of targets in using primate models now and we found that for some targets their distribution, the androgen sink effect, the kind of on-target talks you might get from rapid lysis of the target cell, tuning potency can absolutely play there.

So we think that there's no one-size-fits-all answer. We think that it's great to have this ability to modulate it and it's great that there's at least a plausible model in non-human primates to give us some guides.

We are going to be learning a lot in this first study. I think tunability is absolutely critical for the growth of bispecific antibodies in oncology as you look at different targets. I think we picked as best we could the potencies of our first two programs the CD123 and the CD20, again, based on primate models to give us a good balance between longer-acting lysis of the target cells and modulated cytokine release.

How the details play out are going to really have to be determined in humans but I -- there's definitely no one-size-fits-all. We're very comfortable that the potencies we picked for the first two, it might be very different for the next programs we announce, though.

Okay, great. And then just with respect to the lgG4-RD program. The published data for a tox map was pretty compelling but I'm just wondering how much did that depend on over B-cell killing versus 5871's mechanism? And then how can we get comfortable with the fact that maybe not just crushing B-cell populations would achieve a benefit in this disease. Thank you.

Sure. Nobody has any idea whether it was killing of the B-cells or just some removal of some activity they provided played a role in IgG4-RD or frankly in any of the arenas where Rituxan has shown activity in autoimmune disease, RA, the sort of anecdotal activity in lupus, of course the excellent activities for the sister compounds in Multiple Sclerosis. Nobody knows exactly what that situation is.

I think that what we can offer is, we have a mechanism with a very clear understanding of how the mechanism operates at the cellular level inhibiting B-cell function, inhibiting T-cell coactivation, inhibiting antibody secretion by B-cell progeny. Very clear understanding about it in humans from our Phase 1 program and clear indications of activity in RA in a situation where we know we did not deplete B-cells.

So you've kind of already got an N autoimmune disease from a true arthritis, clarity that we can impact the signs and symptoms and then the actual disease activity scores in that disease without killing B-cells. I think that's a great platform to stand on but of course it doesn't prove anything in any of the other indications and that's why we do the experiment. I think the hypothesis for why a non-depleter ought to work though is quite compelling.

Are there any more questions?

(Operator Instructions)

Arlinda Lee with Canaccord.

Hello, guys. Thanks for taking my question. I also had a question about your bispecifics.

I think you alluded to being able to target more than two different things? I'd love to hear more about that.

And then maybe a follow-up is what kind of a venue are we going to get an announcement of the next two bispecifics, or the next couple bispecifics, that you guys plan on bringing into the clinic next year? Thank you.

Sure. On the first question, we've been doing a lot of work looking at binding more than two targets at a time with our -- using our Fc, bispecific Fc domain as the core, as the scaffold that you can decorate. And it certainly is quite robust in doing that and we can generate molecules of a variety of formats that bind more than two targets.

The biology to apply that to is, of course, the next question you have to address and we are looking at that across a range of potential programs, nothing that were ready to announce yet. I think the key though is, as our desire to modulate target cells like immune cells more selectively grows, and still at the same time be able to address additional activities in the same molecule like say recruitment of a cytotoxic effector cell or suppressive signal, what have you. These kind of prize-specific approaches are going to become the next wave of things we look at in the coming years. Us and perhaps others in the industry.

So we are right now not ready to declare any candidates but it's something that we think is going to be moving forward in the next few years. It all depends on having a very robust baseline scaffold. If you don't it becomes difficult to build something that will work because you're constantly retrofit engineering the molecule all over the place to make it fit. So having that core Fc scaffold is the facilitator of that whole approach.

The next question, the venue for hearing more about our bispecifics, thank you for asking. We are planning to have an event for presenting some of our R&D progress later this year around midyear. We'll be announcing that soon we hope and that will be a place where we anticipate describing our future programs in our bispecific area more openly and we look forward to announcing that when we are ready to do so.

I'm not showing any further questions in the queue. I would like to turn the call back over to Bassil Dahiyat for final remarks.

Thank you very much. So in closing, we have a very full slate of activities ahead of us this year as we continue to grow and advance the XmAb pipeline. Based on current operating plans we believe have -- we're sufficiently funded to support R&D programs and operations through 2019 which includes key data readouts and milestones across our internal and partner programs.

In the coming months we expect to initiate new clinical trials for each of our four internal candidates, XmAbs 5871, 7195, 14045 and 13676 and to disclose our next bispecific oncology programs. Also we look forward to reporting data from our Phase 1A XmAb7195 in the very near future. Thank you very much and have a wonderful afternoon.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day, everyone.