Xencor Inc (XNCR) 2017 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Xencor's Third Quarter 2017 Financial Results Conference Call. (Operator Instructions) Please be advised that this call is being recorded at the company's request.

At this time, I would like to turn the call over to Mr. Josh Rappaport of Stern Investor Relations. Sir, you may begin.

Thank you, operator. Good afternoon, this is Josh Rappaport of Stern Investor Relations. Welcome to Xencor's Third Quarter 2017 Financial Results Conference Call. This afternoon, we issued a press release, which outlines the topics we plan to discuss today. The release is available at www.xencor.com.

Today on our call, Bassil Dahiyat, Ph.D., President and Chief Executive Officer, will discuss the company's business highlights and provide an update on Xencor's clinical programs and pipeline progress; and John Kuch, Vice President of Finance, will review the financial results from the third quarter of 2017. Then we will open up the call to 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 future financial and operating results, future market conditions, the plans and objectives of management for future operations, the company's partnering efforts, the company's capital requirements, the company's future product offerings and the company's research and development programs. 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 Factors sections of Xencor's most recently filed annual report on Form 10-K and quarterly report on Form 10-Q.

With that, let me turn it over to Bassil.

Thanks, Josh, and good afternoon, everyone. As you know, Xencor has spent the last several years expanding and advancing a broad pipeline of engineered antibody drug candidates, all based on our XmAb antibody engineering platform. This platform consists of a small set of antibody Fc domains, whose sequences we've slightly modified to improve natural antibody functions, such as immune regulation and antigen clearance, cytotoxicity, circulating half-life or to create bispecific antibody structures that are sustainable, long-acting and readily produced.

Today, XmAb-based antibodies are being developed internally by Xencor and by our partners in 11 different clinical-stage programs for the treatment of a wide array of diseases. This includes 4 programs that we're advancing internally, with multiple additional programs we expect to start clinical trials for in the next 18 months.

Our goal is to create a diverse pipeline of XmAb antibodies in oncology and immunology that will provide multiple opportunities to advance Xencor proprietary programs in the late-stage development.

This broad approach leverages the portability of our XmAb Fc domains, which lets us rapidly discover and develop enhanced antibody drug candidates for our own pipeline, while enabling partnerships to provide us with cash and resources but that don't require significant internal efforts on our part.

So today, we're going to provide clinical updates on 2 immune inhibitor internal programs, XmAb5871 and XmAb7195. As Paul will detail in a moment, last Saturday we announced promising final results from our Phase II trial of XmAb5871 in patients with IgG4-Related Disease or IgG4-RD. These results suggest that 5871 may offer the first approved therapy for a newly defined fibroinflammatory disease that can cause progressive damage in multiple organs. It also demonstrates the utility of XmAb technology at creating new therapeutics with differentiated and potentially superior mechanisms of actions.

So with 5871, it potently blocks -- potently and broadly blocks B-cell activation but without causing long-term B-cell depletion. These data also positions Xencor to initiate our first internal Phase III trial. We've had initial discussions with the FDA about Phase III development. Incorporating guidance from these discussions, we're planning a trial that we expect to start in the second half of 2018 as we complete the transition to a commercial manufacturing supplier and engage with the European Medicines Agency for scientific advice.

Today, we're also announcing results from our Phase Ib trial of subcutaneously administered XmAb7195, which support its continued development of the subcutaneously formulation in allergic diseases and asthma. We're currently focused on finding a partner for XmAb7195 as we significantly expand our internal development effort in our rapidly growing bispecific oncology pipeline.

Now the newest additions to our pipeline of XmAb bispecific antibodies target the tumor microenvironment for the treatment of cancer. While we will provide a more thorough update on these programs at our investor and analyst event around the SITC 2017 Annual Meeting this weekend, I do want to highlight our scope of our expansion into oncology.

Our internal pipeline now includes 6 bispecific oncology drug candidates in development, including 2, XmAbs 14045 and 13676, that are partnered with Novartis and in Phase I testing. We do intend to announce preliminary data for those programs next year. And then there's 4 programs, XmAb18087 and XmAb20717, which are expected to enter the clinic in 2018, and XmAbs 22841 and 23104, which are expected to enter the clinic in the first half of 2019.

Now our IND for XmAb18087 is already open and we expect to begin dosing patients early in the new year in a Phase I trial in neuroendocrine tumors and gastrointestinal stromal tumors. XmAb18087 targets somatostatin receptor 2, or SSTR2, which is a tumor-expressed protein and to target CD3 for the activation of cytotoxic T-cells. It will join our 2 lead CD3-binding molecules, XmAbs 14045 and 13676 in the clinic, while our partners, Amgen and Novartis, continue to advance multiple programs of their own preclinically that use our XmAb technology.

Now at SITC this weekend, we will present preclinical data on 2 of our new drug candidates, XmAbs 23104, a PD-1 and ICOS-binding bispecific antibody and our XmAb27107, which is our -- sorry 20717, which is our PD-1 and CTLA-4 bispecific antibody. Now these both target tumor microenvironment try to activate T-cells with novel mechanisms of action. These 2 programs, along with XmAb22841, represent our next wave in bispecific drug development. They're designed to improve the selectivity of combination therapies for T-cell activation and eliminate the need for multiple antibodies. Now each of these bispecific molecules will test a distinct novel approach for tumor microenvironment activation in the clinic to enable us to select the best combination of targets for T-cell activation in cancer.

Now with that, let me pass the call over to Paul, who'll provide a more detailed update on our 5871 and 7195 programs.

Thank you, Bassil. I'll start today by reviewing XmAb5871, our first-in-class monoclonal antibody that targets CD19, but its variable domain, and uses our XmAb and immune inhibitor Fc domain to target Fc gamma receptor IIb, a receptor that inhibits B-cell function.

As you know, we are currently evaluating 5871 in 2 indications, IgG4-RD and systemic lupus erythematosus or SLE, both of which have a strong rationale for B-cell inhibition, and in which we think we can execute efficient Phase II trials and potentially address areas of high unmet need.

Earlier this week, we announced the final results from our Phase II trial of 5871 in patients with IgG4-RD, and Dr. John Stone, the principal investigator on the study, will be presenting the data in an oral late-breaking presentation at the American Oncology of Rheumatology, or ACR, Annual Meeting at 5:15 Pacific Time today.

We are encouraged by the results from the study, which confirm and build upon our prior experience with 5871 in this patient population and support the advancement into Phase III development. As you know, this trial was designed to enroll 15 patients with active IgG4-RD. All patients received intravenously administered 5871 every 2 weeks for 24 weeks. And the primary objective was to evaluate the effect of treatment on the IgG4-RD Responder Index. Secondary and exploratory end points were to evaluate the safety and tolerability profile of 5871 and to characterize PK/PD and immunogenicity profile.

Of the patients enrolled in our trial, 12 of 15 had elevated baseline serum IgG4 concentrations and 10 had undergone treatment with other therapy before entry. The medium baseline IgG4-RD Responder Index was 12 and range from 2 to 30. An active inflammatory disease was observed in a median of 5 organ systems, with 13 patients having at least 3 organs involved. 80% of the patients dosed completed the study and all 12 of those patients achieved their primary endpoint of at least a 2-point reduction in the IgG4-RD Responder Index on day 169. None of the 12 required corticosteroids after month 2, and 8 patients achieved disease remission defined as IgG4-RD of 0 and no use of corticosteroids after the first 2 months of the trial.

The other 4 are achieved a Responder Index scores of less than or equal to 4 at day 169. 93% of the patients achieved a disease -- a decrease of at least 5 points in the Responder Index at some point during the trial. One patient had been on baseline corticosteroids for 2 years at 15 milligrams per day and was able to discontinue corticosteroids within 2 months. Four others received corticosteroids at the start of the trial and were tapered off within 2 months. Additionally, 5871 continued to be well tolerated with all drug-related adverse events graded as mild or moderate.

As we discussed earlier, 3 patients discontinued treatment early. One was an atypical patient with only laryngeal involvement who did not respond to 5871 or to subsequent rituximab therapy. One patient responded well but flared after 12 weeks and did not respond to subsequent rituximab therapy. And one responded well but developed infusion-related symptoms, including a transient rash and arthralgias following the fifth infusion. This patient concurrently developed anti-drug antibodies.

During the study, the mean B-cell counts decreased by 40%, 55% of baseline, and circulating plasmablast levels decreased by approximately 70% within the first 2 weeks of treatment. As Bassil noted, based on these results, we believe there is a path forward for continued development of 5871 in patients with IgG4-RD. Over the coming months, we will be engaging with the European Medicines Agency for scientific advice, completing our Phase III clinical trial design and preparing to initiate the trial in the second half of 2018.

We also continue to progress our Phase II study of 5871 in SLE. As a reminder, this is a randomized double-blind placebo-controlled multidose study designed to evaluate XmAb5871's ability to maintain the improvement in SLE disease activity after a short course of intramuscular steroid therapy and in the absence of immunosuppressant medication. We have designed the study to assess 5871's effect on disease activity with a shorter time to endpoint and with fewer patients compared to standard SLE trials. And we expect to report data in late 2018.

Turning now to the 7195. Our first-in-class monoclonal antibody that targets IgE with its varied domain and uses the same XmAb immune inhibitor Fc domain as 5871 to target Fc gamma receptor IIb. 7195 works in 3 distinct mechanisms of action to reduce IgE levels, which differentiates it from other approved IgE-targeted therapies. It sequesters free IgE to block IgE signaling, it suppresses B-cell differentiation into IgE-secreting plasma cells, yet, it enables the rapid clearance of IgE from circulation.

Today, we're reporting the results of our Phase Ib trial of subcutaneously administered 7195. The first part of the study was an open-label bioequivalence trial evaluating 4 once-weekly doses of subcu XmAb7195 ranging from 0.1 to 1 milligram per kilogram in cohorts of 6 healthy volunteers. The second part of the trial, which we began in October 2016, was a randomized double-blinded placebo-controlled multiple ascending dose study in atopic patients of subcu 7195 at doses of 1.5 and 2 milligrams per kilogram. The half-life of subcu XmAb7195 range from 3.6 the 4.9 days, which is comparable to the previously reported half-life of 3.9 days of intravenously administered XmAb7195. Bio-availability after the fourth dose exceeded 50%, which is typical for monoclonal antibodies, and drug concentrations increased with successive doses. Subcutaneous administration of XmAb7195 was well tolerated. There were no severe adverse events or serious treatment-emergent adverse events occurring during the study. The most frequently occurring treatment-emergent adverse events (inaudible) related, including erythema, pruritus and/or urticaria, and most were mild. No diffused urticaria or other systemic hypersensitivity reactions were reported.

There was no apparent effect of subcu 7195 on platelet count when dosed at 0.1 to 1 mg per kg weekly for 4 doses. At 1.5 to 2 mgs per kg weekly for 4 doses, there was mild platelet count reductions observed. 4 of 15 patients in the 2 mg per kg group had at least 1 platelet count of less than 150,000 at some time point. The lowest observed count was a 126,000 and recovered to within normal range occurred within a few days of the dose. In 85% of the subjects with detectable baseline free IgE, which was 9 -- (inaudible) detection being 9.59 nanograms per millimeter, treated with all 4 doses between 0.3 and 2 mgs per kg, free IgE was suppressed to below the limit of quantitation at some time point during the treatment period. In 74% of the subjects, 1 suppression of free IgE to below the limit of quantitation was observed. Values remained below the limit of quantitation for the remainder of the treatment period for at least 7 days following the last dose.

Similarly in the subgroup of atopic subjects, 100% of the subjects with detectable free IgE treated with 4 weekly doses at 1.5 or 2 mgs per kg had suppression of free IgE to below the limit of quantitation at some time point during the treatment period. And 86% of these atopic subjects, once the suppression of free IgE reached below the limit of quantitation, it remained there for the remainder of the treatment period and for at least 7 days following the last dose. Similar profound suppression of total IgE and basophil surface-bound IgE were also observed following the doses in the study.

These results show potent IgE reduction and improved tolerability over the IV formulation of 7195, which we reported on last year, and they support continued subcutaneous delivery for future development. We are continuing to analyze the data and to determine the optimal dosing schedule and are seeking a partner for future work.

Now I'll turn it back to Bassil for a quick update on our partnerships.

Thanks, Paul. We're at -- at Xencor, we're very proud that there are 9 pharmaceutical companies and the National Institutes of Health that continue to advance drug candidates, either discovered at Xencor or rely on our proprietary XmAb Fc domain in the clinic.

These XmAb Fc domains that are in the clinic now incorporate our bispecific structure Fc domains, our higher cytotoxicity Fc, our extend-longer half-life Fc and our immune inhibitor Fc domains. Now there are currently 7 such programs in clinical development, including 2 in Phase III studies. These are more MOR208, which was formerly XmAb5574, which more focuses in developing for diffused large B-cell lymphoma and chronic lymphocytic leukemia. The second program in Phase III is an undisclosed program in development by Alexion, which is our half-life extension domain. Now recently, Janssen, decided in the third quarter not to move forward with the Phase III trial of talacotuzumab, which utilizes our XmAb cytotoxic Fc domain for the treatment of AML. However, they have continued to develop the compound for use in other myeloid malignancies.

Now with that, I'll turn the call over to John to review our third quarter financial results.

Thank you, Bassil. In this afternoon's press release, we reported cash, cash equivalents and marketable securities totaling $373 million as of September 30, 2017, compared to $403.5 million as of December 31, 2016. The decrease reflects net spending on operations for the first 9 months of 2017.

Total revenue for the third quarter of 2017 was $7.1 million compared to $7.8 million for the same period 2016. Revenues for the 9 months ended September 30, 2017, were $24.8 million compared to $81.1 million in the same period of 2016.

Revenues earned in the 3- and 9-month periods ended September 30, 2017, were primarily from the company's Amgen and MorphoSys collaborations compared to revenues earned for the same periods in 2016, which were earned primarily from the company's Novartis and Amgen collaborations.

Research and development expenditures for the third quarter of 2017 were $19.4 million compared to $14.1 million for the same period in 2016. Total R&D expenses for the 9 months ended September 30, 2017, were $51.4 million compared to $38.5 million in the same period of 2016. The increased R&D spending in the 3 and 9 months ended September 30, 2017, over the same period in 2016 is primarily due to additional spending in the company's bispecific pipeline and development candidates.

General and administrative expenses in the third quarter of 2017 were $4.2 million compared to $3 million for the same period in 2016. Total G&A expenses for the 9 months ended September 30, 2017, were $13.1 million compared to $10 million in the same period of 2016. The increased spending in G&A in the 3 and 9 months ended September 30, 2017, reflects increased staffing and increased charges for stock-based compensation.

Noncash share-based compensation for the first 9 months of 2017 was $10.2 million compared to $5.9 million for the first 9 months of 2016.

Net loss for the third quarter 2017 was $15.6 million or $0.33 on a fully diluted per share basis compared to a net loss of $8.1 million or $0.20 on a fully diluted per share basis for the same period in 2016. For the 9 months ended September 30, 2017, net loss was $37.1 million or $0.79 on a fully diluted per share basis compared to a net income of $32.7 million or $0.78 on a fully diluted per share basis for the first 9 months of 2016.

The higher loss reported for the 3 months ended September 30, 2017, over the loss reported for the same period in 2016 was primarily due to additional research and development expenses on our bispecific pipeline and development candidates, while the loss reported for the 9 months ended September 30, 2017, compared to the income report for the same period in 2016 is primarily due to revenue reported from our Novartis collaboration in 2016 and additional R&D expenses in 2017.

Total shares outstanding was 46,955,365 as of September 30, 2017, compared to 41,138,851 as of September 30, 2016. The increase in total shares at September 30, 2017, reflects the sales of shares in the December 2016 financing.

Based on our current operating plans, we expect to have cash to fund research and development programs and operations beyond 2020 and to end 2017 with approximately $340 million in cash, cash equivalents and marketable securities.

With that, we'd now like to open the call up for your questions. Operator?

(Operator Instructions) Our first question comes from Ted Tenthoff, Piper Jaffray.

Excited for a lot of progress in the 2018 and the event down in Maryland this weekend. I wanted to get a sense for readouts with respect to the bispecifics. Can you give us a little bit more color on sort of how we should sequence those for 2018? Where do think we'll get data first? And kind of what can we expect in terms of data from the bispecifics in 2018?

Right. For the 2 programs we would expect to have data from in 2018 would be our first 2 leads that have gone to the clinic, XmAb14045, our CD123-targeting bispecific in AML; and XmAb13676, our CD20-targeting bispecific in -- for B-cell malignancies. We would expect the data to be -- the first data would probably be from the 14045 because that molecule got into the clinic about 6 months earlier. And we can't guide as to specific conferences or events where we might do that. But I think, we would sequence them in that order.

Great. That makes a lot of sense. And congrats too on the 7195 data. I'm curious to hear where that one goes the next year or 2.

Yes, thank you, we'll be guiding on that as we pursue our plans for that molecule, in particular, around partnering.

Our next question comes from Michael Schmidt from Leerink.

I just had one regarding the pivotal studies for XmAb5871. And I know you've talked about the Phase III trial design before and the potential endpoints. But just to confirm whether you're planning to do that trial with the IV or the subcu formulation? And if so, where that stands?

Our expectation is to do the trial with the subcutaneous formulation. That's part of our manufacturing plan and that's all progressing.

All right. Cool. And then a question around the SSTR2 bispecific antibody. I think you mentioned the initial Phase I study will be in neuroendocrine tumors. And I guess my question there is can you provide a little bit more information around this initial study? Are you selecting patients, for example, based on SSTR2 expression levels? Are you looking at other tumor types, too? I believe, the targets also expressed in small-cell lung, can you just help us -- give a little bit more context for this Phase I study?

Sure, sure. It's a good question because that's SSTR2 is a target. It is expressed on a variety of tumor types. It's certainly kind of a definitive target for neuroendocrine tumors. That's a marker used in the diagnostics -- imaging diagnostics for neuroendocrine tumors. We're not going to be checking SSTR2 levels in our patients because, again, it's such a characteristic neuroendocrine tumors and the scans they use, the labeled reagents they use are the ligands for SSTR2. It's a peptide -- natural peptide ligand. So we're not going to do that. The other tumor types we're trying are gastrointestinal stromal tumors, or GIST, which is known to express fairly uniformly and in relatively high-level SSTR2. So that's the case where it's more just like it’s a tumor-associated antigen that's well associated with it. And we thought it was an area where there's certainly, in the relapsed, just there's an unmet need or in people that have resistance mutations. We're not going after small-cell in this initial trial but we certainly have our eye on that for the future. Our goal is to really dose escalate, find safe and effective doses and pursue both of the GIST and the NETs, the so-called GEP-NETs that we disclosed in our -- earlier.

Okay, great. And then just a last question regarding the upcoming analyst event next weekend. Just curious if there's any specific data that you plan on presenting there, beyond what's going to be at SITC, anything that we should look forward to?

It’s really going to focus on the SITC posters that we're presenting on our 2 -- 2 of our lead tumor microenvironment molecules, XmAb20717 and XmAb23104. Those are both completely distinct mechanisms of action. We really feel that for the -- approaching bispecifics for the tumor microenvironment, we really have to try a variety of hypothesis because there's a lot of different ways you can attack it. 20717 is the combination, it is the most validated of targets. PD-1 and CTLA-4 certainly has had some of the highest -- certainly has had the highest response rates of combination I-O therapy. And we think this is an opportunity to have a more selective agents in only (technical difficulty) that are positive for both checkpoints. And therefore, hopefully focus the activity of the blockade of the checkpoints on the double-positive TILs, which are primarily in tumors. Kind of the TILs are always in tumors, on double positive T-cells, which are primarily in the tumors. Now for the 23104, it's completely doing different hypothesis, it's combining a checkpoint, PD-1 inhibition, with a co-stimulatory marker, ICOS activation. So that's unique as far as we can tell in a combination approach, certainly, within a bispecific, and that's distinct from the 20717. And the third program, the 22841, which we're not going to be presenting any new data on, is really meant for using a triple blockade regimen, where on top of the PD-1 blocker, we would add our CTLA-4 and LAG-3. So again, 3 completely distinct MOAs, distinct hypothesis that we want to test in the clinic. All the data at SITC is preclinical data. It'll be mouse xenograft data, it'll be T-cell activation data. Really setting the stage for this test of different hypothesis because there's a lot unknown in the immunology of tumors and we're going to really kind of spread our bets across a number of different approaches to optimize our chances for success.

Our next question comes from Christopher Marai from Nomura.

First on the IgE antibody, and forgive me if I've missed this, but just with respect to discussions with regulators and the prior safety concerns with the molecule, how should we be sort of thinking about this going forward? Obviously, the new formulation looks much better tolerated, potentially less safety concerns. But of course, longer-term dosing and more patient exposure could raise some questions. So how might regulators or you guys be thinking about this? And then I've got one follow-up.

Right. Well, we haven't had any discussions with regulators about 7195 in light of this new data. We wouldn't imagine we would in the immediate term. I think that it's something to watch. With the greatly attenuated effect on platelets that we saw with the subcu, I think that it creates a window there, and we're going to have to work within that window of dose and interval. But you asked the right question, it's unclear what's going to happen upon repeated exposure. You have to test it. Certainly, after 4 doses, we saw a much improved profile.

Yes. No, and I think that was expected, so congrats. That's really awesome. As those -- now turning to your bispecific platform. Any further clarity on whether we'll see data, I know it depends on your partner a little bit, earlier in '18 or towards the ASH 2018? And then maybe just thinking about potential future combinations. Obviously, the somatostatin target as well as the bispecifics -- the other bispecifics could use the combination strategies to unmet response, for instance, with anti-PD-1. How do you look at that going forward? Is it something that you might look to use currently approved anti-PD-1 therapies or some of your bispecific PD-1 CTLA-4 molecules that you're developing? And when we might we start seeing those trial start?

Right. So we would -- regarding your first question. We're not going to guide on a specific timing of a specific event. It obviously depends on our partner and that's a big part of this and we want to disclose data. As soon as we have any clinical data to disclose, we will. I think that for the idea of combinations with checkpoint inhibitors and CD3 bispecifics, it's an excellent idea, right. We already see in in-vitro studies, there's been glimmers of reports from a couple of clinical studies that you get up-regulation of checkpoints on T-cells when you treat with CD3 bispecifics, when you activate those T-cells, the tumor fights back. So I think it's a great idea. I think once we get through our initial dose escalation phase and understand the dose and the kind of activity profile we would have with any of the programs, whether it's the CD123 or SSTR2 or whatever, I think that would be something you would have on the shortlist of what you might do immediately thereafter. I think it just -- we have to get through and report our safety data, our -- have a recommended dose to go forward for the bispecific CD3 inhibitor. And then I think the question of whether we use a PD-1, a marketed one or one of ours, I think we want to have a little bit of data with one of ours by itself and understand what it might -- how it might behave before we pursue that combo. But I think the combo with existing PD-1 inhibitors is a very clear idea to consider very early in development. Because the world is going to move that way and how we manage it, it's only going to get easier the earlier we start looking at it.

(Operator Instructions) Our next question comes from Arlinda Lee from Canaccord.

I have 2. One, what is the Amgen milestones for?

No. There was no Amgen milestone in the quarter. That was revenue recognized under the collaboration for delivering some of the bispecific compounds to them.

Yes, previously deferred revenue.

Right.

Okay, got it. And then, I guess, then strategically, as you got potentially 6 bispecifics in the clinic next year, you're talking about looking at an early read of how these different strategies may or may not work. What kind of information or how much patient data would you need to see to pursue one versus another? Or are you going to wait for, like, the suite of 6 data sets (inaudible)?

No, we're going to consider -- we're going to certainly consider each program by itself, right. As -- I guess, you have -- maybe I cut you off, but the way I understood your question was are you going to wait till you have all the data from all your programs before you sort out what you do with any one of them. The answer to that is no. We sort of take our CD3s as one basket of assets and we take our tumor microenvironment, 2 of them being -- dual checkpoint inhibitors, the other one being a checkpoint and an activator bispecific. We take those as sort of 2 separate baskets. But the tumor microenvironment inhibitor -- tumor microenvironment modulators, we really see that as we want to build this portfolio of information, but each one is going to have its own pace, with the 2717 going first and the other 2 trailing by a few quarters. I think the designs for these early phase oncology trials are fairly well trodden. I think you're going to start trying to make -- glean information from modest numbers of patients, looking at response criteria, that -- very critically looking at the biomarker picture. What happens in the tumors with T-cells, what happens with cytokine levels, how does that correlate to the prognostic sort of indicators like PD-L1 expression and to mutational loads. It's a holistic picture you have to look at. But no, each program would be considered individually, right. That you -- I think we can't wait for all of them at once -- wait for all of them to make any decisions.

Right. So then, I guess, then question is about your capacity to add additional bispecifics into the clinic and what your thoughts are on moving forward versus advancing maybe earlier stage ones.

Well, I mean, as you go -- I mean, our whole strategy is about finding the ones where there's an exciting signal to chase and advancing that program. The ones where there's not, you would abandon that. And we always have many assets in preclinical that we could bring forward, that's driven our partnering strategy, when we can take some of those and put it in that direction. We, right now, guiding out through these additional 3 programs to file IND, the tumor microenvironment modulators, and we're not guiding on any 2019 program additions, but we're absolutely continuing to build our preclinical pipeline and keeping a watch. I think that, that's a pretty big bite for us right now to have 6 oncology programs going at once. The 2 with Novartis, we are very actively involved in the development. We control the U.S. commercial rights and so that's a pretty big bite, not to say that there's not capacity, but some of that's going to depend on the progress of these programs over the next couple of years and what we bring on behind them.

Our next question comes from David Nierengarten from Wedbush Securities.

Just a couple of quick ones. First off, I might have missed it, but is there -- what needs to be done before you start up the Phase III about 5871? In other words, why is it second half of '18 to start that up? And then on the bispecific programs, do you anticipate any similar kind of toxicity or any reason to consider any kind of also low-dose dosing required for some of the bispecifics like the PD-1, CTLA-4, for example, as we've seen some of the cytokine issues with the CD3 bispecifics. I mean I know they're totally different targets, but they do stimulate the immune system, so I'd be curious on your thoughts on that?

Yes, on the second question. I'll tackle that one first. These dual checkpoint inhibitors, the checkpoint costim bispecific, what we saw in our in-vitro studies with human T-cells, what we saw in our primate toxicology studies, where, by the way, the antibody -- the bispecific does cross-react pretty uniformly with these homologous monkey targets just like it does with the human. What we saw were the kinds of tolerabilities that you typically see with, say, the combination of the monospecific antibodies together, which, by the way, in a healthy animal is very little tox and very little kind of activity. You typically see that tox coming up in patients where there's presumably more activated T-cells to get the ball rolling. So they did not suggest, in any way, the kind of micro-dosing you need for CD3 bispecific that directly lights up the T-cells, not at all. Of course, you don't know until you're in the clinic. But the suggestion is we're in the same order of magnitude at the very least with sort of the usual checkpoint suspects, the PD-1s, the LAG-3s, et cetera. And then your first question about the timing, I guess, (inaudible) one, I'll address with -- provide (inaudible) timing and then maybe (inaudible) John to continue the work we're to prepare around the trial, defining the specifics of the trial, et cetera, and just the operational aspects. But one piece is we have decided to commit fully to our commercial manufacturer at the outset of the trial rather than do a transition from the clinical manufacturing that we've been doing now for several years with this program and transition in the midst. I think that was based on progress with the subcu progress of the commercial manufacturing, the desire to do it all in one go. And then maybe to touch on some of the -- just the basic clinical prep taking the first Phase III going for a small biotech.

Yes, so where the -- with the manufacturing timeline, we're taking the extra time to device the Phase III program. We've had discussions with the FDA. We're going to seek advice early next year with the EMAA (sic) [EMA] as well so that we can go forward with the best design that pivotal trial we're able to.

Yes, with -- being a new disease, I mean, well, we have some parameters that we actually laid out in the press release. We need roughly the size. It’s going to be in that 250 and 350 range. We're pretty comfortable that we're going to be talking about addition on top of standard of care, where the standard of care in this case is corticosteroids followed by taper. And then looking at endpoints that include the Responder Index in it. But typically, these endpoints in these autoimmune diseases have a composite nature and so developing the details of that is really what we're working on. And I think we are in line with what we've been thinking and what we have been talking about, and it's just really getting all the pieces together and going. So we're very excited to be able to start our Phase III next year.

I'm showing no further questions at this time. I would like to hand the call back over to management for any closing remarks.

Thank you very much, operator. And thank you all for your time and attention today. We, as I mentioned earlier, we will be presenting the new preclinical data for our tumor microenvironment-targeting bispecifics at the upcoming SITC Annual Meeting, and we'll host a webcast event this Saturday, November 11, to talk about those results. We have had a very busy quarter advancing multiple programs and reporting data on 2 programs in one go, so I'd like to thank the team at Xencor for all their hard work to pull together this enormous amount of data that we could talk about all at once. And I also look forward to providing everybody with additional updates, both this Saturday, but also in the future. Thank you very much for your time.

Ladies and gentlemen, thank you for participating in today's event. This concludes our program. You may all disconnect. Have a wonderful day.