Xencor Inc (XNCR) 2017 Q4 法說會逐字稿

Good afternoon. Welcome to Xencor Fourth Quarter and Full Year 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'd like to turn the call over to Josh Rappaport of Stern Investor Relations. Please proceed.

Thank you, Kevin. Good afternoon. This is Josh Rappaport with Stern Investor Relations. Welcome to Xencor's Fourth Quarter and Full Year 2017 Financial Results Conference Call. Earlier 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 fourth quarter and full year 2017. Then we will open up the call for your questions.

Before we begin, I'd like to remind you that during the course of this conference call, Xencor management may make forward-looking statements, including the 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 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 section of Xencor's most recently filed annual report on Form 10-K and quarterly report on Form 10-Q.

With that, let me pass the call over to Bassil.

Thanks, Josh, and good afternoon, everyone. 2017 was a productive year for Xencor. We announced positive Phase II results from our lead program XmAb5871 in IgG4-Related Disease, or IgG4-RD. We expanded our clinical and research stage bispecific oncology pipeline, and we reported encouraging data from our Phase I trial of subcutaneously administered XmAb7195. These accomplishments position us for a busy 2018 and demonstrate the potential of our XmAb antibody engineering technology to deliver new drug candidates for patients with a range of severe life-threatening diseases.

Now the core of Xencor's approach to creating antibody therapeutics is our XmAb engineering platform. By making small changes to an antibody structure, specifically, its Fc domain or the structural base of an antibody, we can improve its natural functions and performance. The plug-and-play nature of the small suite of XmAb Fc domains that we've created allows us to engineer nearly any antibody to have improved potency, a longer half-life or bispecific structure and opens doors to biology previously inaccessible to traditional antibodies. Importantly, this plug-and-play nature enables us to rapidly expand our pipeline while also attracting partnerships that provide capital and more clinical programs without requiring significant Xencor resources.

Now we currently have 11 XmAb-based programs in clinical development internally and with partners. This includes XmAb18087, our newest clinical program and our third bispecific oncology candidate. We initiated a Phase I trial in advanced neuroendocrine tumors and gastrointestinal stromal tumors, or GIST, earlier this month for 18087. This is our first program -- our first bispecific antibody program targeting solid tumors.

Now as we look to 2018, we expect several important milestones across our portfolio, including data readouts from 3 internal studies: top line data from our Phase II trial of XmAb5871 in systemic lupus erythematosus, or SLE; and initial data from our Phase I trial of bispecific XmAbs 14045 and 13676 in development for AML and other CD123-expressing malignancies and B-cell malignancies, respectively. Together with our XmAb5871 IgG4-RD data readout, these data readouts will provide us key insights into the clinical benefit of our most advanced programs and enable us to make informed decisions over which program or programs to independently advance into late-stage development.

Now in parallel, we'll continue to expand our ongoing development efforts. As you know, based on the promising results from our Phase II trial, we expect to initiate a Phase III trial evaluating 5871 in patients with IgG4-RD in the second half of this year. We also expect to initiate a Phase I trial of XmAb20717, a bispecific antibody targeting the T-cell checkpoints PD-1 and CTLA-4. That's our most advanced tumor microenvironment activator. We plan to file INDs or, I should say, investigational new drug applications for 2 additional bispecific TME activators, XmAbs 22841 and 23104 later this year.

Now with that, I'll get into the specifics of our clinical and preclinical efforts, starting with XmAb5871. 5871 is our first-in-class monoclonal antibody that targets CD19 with its variable domain and critically uses our XmAb immune inhibitor Fc domain to target Fc gamma RIIb, a receptor that inhibits B-cell function. We're currently evaluating 5871 in 2 indications: IgG4-RD and SLE, both of which have a strong rationale for B-cell inhibition and represent areas of high unmet need.

Now at the American College of Rheumatology, or ACR, annual meeting in November, we presented positive data from our Phase II trial in IgG4-RD. This trial was designed to evaluate the safety and efficacy of 5871 in 15 patients with IgG4-RD. 12 of the patients completed the 24-week study, and all 12 achieved the primary endpoint of at least a 2-point reduction in their IgG4-RD Responder Index on day 169. Notably, none of the 12 required corticosteroids after month 2.

Now 8 patients of these, or 53%, achieved disease remission as designed by an IgG4-RD of 0 and no corticosteroid use after 2 months. Now the other 4 achieved IgG4-RD Responder Index scores of less than or equal to 4 on day 169. Across all 15 patients, 14, or 93%, achieved a decrease of greater than or equal to a 2 in their IgG4-RD Responder Index, most within 2 weeks.

Now additionally, 5871 continued to be safe and well tolerated -- oh, I'm sorry, I made an error there, a decrease of at least 5 in their IgG4-RD Responder Index, most within 2 weeks. Now additionally, 5871 continued to be safe and well tolerated with all drug-related adverse events graded as mild or moderate. Based on these results, we believe there's a path forward for the continued development of 5871 in patients with IgG4-RD.

Now because IgG4-RD is a newly defined disease with no therapeutic options and no regulatory precedents for an approval pathway, we've been engaging with regulatory authorities to design the most appropriate Phase III development program. Following an End of Phase II meeting last year with the U.S. FDA, we've designed a randomized, placebo-controlled, double-blinded Phase III study to evaluate the addition of 5871 to standard of care in approximately 200 to 250 patients with IgG4-RD. We expect to initiate this study in the second half of this year. We also intend to seek scientific advice regarding this trial from the European Medicines Agency early in this year. Now in January, we received from the EMA orphan medicinal product designation in IgG4-RD for 5871 to go along with the orphan drug designation we received last year from the FDA.

So separately, from IgG4-Related Disease, we continue to progress our randomized, double-blind, placebo-controlled multi-dose trial of 5871 in SLE. This trial uses a novel design to evaluate the ability of 5871 to maintain the improvement in SLE disease activity after a short course of intramuscular steroids and in the absence of immunosuppressant medication. We believe this trial design will allow us to assess the effect of 5871 in SLE with a shorter time to endpoint and with fewer patients compared to standard SLE trials. To that end, we completed enrollment of approximately 100 patients in December and expect to report top line data in the fourth quarter of this year.

Now I'll pivot to our bispecific oncology pipeline. Our bispecifics are built on our novel Fc domain which we created to provide a robust scaffold for 2 or more different antigen-binding domains. The result is a single molecule that can simultaneously bind multiple targets while preserving important properties of native antibodies. Our lead bispecific programs are tumor-targeted antibodies that contain a tumor antigen-binding domain and a cytotoxic T-cell-binding domain, the T-cell domain being CD3. They work by activating T-cells at the site of the tumor for highly potent killing of malignant cells. Now importantly, the format of our bispecifics allow us to tune their potency to balance the antitumor activity with a reduction of immune toxicity that can result from T-cell activation.

Now pending alignment on time with our partner, Novartis, we plan to announce initial data from our Phase I studies of XmAb14045 for the treatment of AML and other CD123-expressing malignancies and of XmAb13676 for the treatment of B-cell tumors late this year. As a reminder, both trials are designed to evaluate the safety and tolerability of treatment to determine the maximum tolerated dose after the first and subsequent infusions and to provide a preliminary assessment of antitumor activity.

Now as I mentioned at the start of today's call, we recently dosed the first patient in our Phase I dose-escalation study of XmAb18087. 18087 is an SSTR2, or somatostatin receptor 2, by CD3 bispecific antibody that we're developing for the treatment of advanced neuroendocrine tumors and GIST. Our Phase I trial is designed to evaluate safety and tolerability, pharmacokinetics and immunogenicity and to assess preliminary signs of antitumor activity. After determination of a maximum tolerated dose or recommended Phase II dose, this trial will enroll patients in separate neuroendocrine tumor and GIST expansion cohorts to collect additional data on safety and potential efficacy. We expect to report initial data in 2019.

Now beyond the 3 CD3 bispecifics, 14045, 13676 and 18087, we are expecting our bispecific oncology pipeline to build a suite -- we're expanding, I should say, to build a suite of tumor microenvironment, or TME, activators that simultaneously engage multiple targets, such as T-cell checkpoints or agonists. To us, these TME activators represent the next wave of bispecific drug development. They have the potential to improve the selectivity of combination therapies for T-cell activation and to eliminate the need for multiple antibodies each against a specific target. Now each of this next wave of bispecific molecules will test a distinct approach for TME activation, which will enable us to select the best of these combinations of targets for T-cell activation in cancer.

Now at the SITC Annual Meeting this past November, we presented posters with preclinical data from 2 of our bispecific antibodies targeting the tumor microenvironment: XmAb20717, our PD-1 by CTLA-4 bispecific; and XmAb23104, our PD-1 by ICOS bispecific. Both are in development for multiple oncology indications. Now both of these antibodies are selective for their target pairs, that is cells that bind both antigens, and show superior T-cell activation compared to anti-PD-1 antibodies alone. Further, they're well tolerated with antibody-like pharmacokinetics in cynomolgus monkeys.

Our third TME activator, XmAb22841, is also active in vivo and is designed to combine with anti-PD-1 therapy to achieve highly active triple checkpoint blockade. We plan to initiate a Phase I trial evaluating XmAb20717 in 2018 and trials for 23104 and 22841 in 2019.

Now the latest addition to our TME pipeline is our candidate XmAb24306. 24306 is an IL-15/IL-15 receptor alpha complex fused to our plug-and-play XmAb heterodimer Fc domain. Now IL-15/IL-15 receptor alpha complexes naturally target CD122, also called IL-2 receptor beta, without targeting CD125, a receptor that favors regulatory T-cells. We use our highly stable XmAb Fc scaffold to create a stable ligand-receptor complex.

Now 24306 is designed to create sustained T-cell activation or expansion, I should say, via modulated CD122 activation, which we achieved by engineering the IL-15/IL-15 receptor alpha complex, and our XmAb bispecific Fc domain that contains our Xtend technology for longer half-life. We plan to present detailed preclinical data for 24306 at the American Association of Cancer Research Annual Meeting in April.

Now I'll touch briefly on XmAb7195, our first-in-class monoclonal that targets IgE with its variable domain. 7195 uses our XmAb immune inhibitor Fc domain to target B-cells by targeting Fc gamma RIIb and works through 3 distinct mechanisms of action to reduce IgE levels. That's what differentiates from approved IgE-targeting therapies. First, it sequesters free IgE to block IgE signaling; next, it suppresses B-cell differentiation into IgE-producing plasma cells; and last, it enables the rapid clearance of IgE from circulation. Now based on the Phase I subcutaneous administration data we reported in November, we believe subcutaneous 7195 could offer an improvement over standard of care for patients with asthma or allergic disease and are currently seeking a development partner.

Next, I'll do a quick update on our partnerships. That's -- partnering is really a core part of our strategy, particularly as we look to continue expanding our pipeline. Using licensing of the XmAb technology, we can take additional shots on goal for our programs -- for programs that we aren't pursuing ourselves while retaining the commercial rights for our most promising assets. Critically, we provide little or no R&D work in our partnerships, allowing us to focus our resources on our own pipeline.

Now currently, 8 pharmaceutical companies and the NIH are advancing drug candidates either discovered at Xencor or that rely on our proprietary XmAb Fc domains. There are currently 6 such programs in clinical development, including 2 in Phase III studies. The first of these 2 is Alexion 1210, a next-generation C5 inhibitor that Alexion is advancing that uses our Xtend technology for longer half-life. Data from 2 Phase III trials of 1210 are expected in Q2 of this year with regulatory filings expected later this year.

The second of these is XmAb5574/MOR208, which is being developed by MorphoSys. In November 2017, they received Breakthrough Therapy designation in relapsed and refractory diffuse large B-cell lymphoma in combination with lenalidomide, and they're also in a Phase III trial in relapsed/refractory DLBCL in combination with bendamustine. We eagerly await the data readouts from both of these programs.

Now for our bispecific partnerships which are much more recent, we announced in December that Amgen submitted an IND application for AMG 424, a novel T-cell-recruiting bispecific antibody targeting CD38 and CD3 for multiple myeloma. 424 uses our bispecific XmAb technology and CD38 and CD3 binding domains produced at Xencor. Now this IND filing triggered a $10 million milestone payment, which is reflected in our financials.

Finally, a quick comment on the team here. In December, we welcomed Richard Ranieri to our Board of Directors. Rich is currently EVP of Human Resources at BioMarin and brings substantial experience building biotech companies from research and development into commercial organizations, and we very much look forward to his insights as we progress into later stages of development.

Now with that, I'll turn the call over to John to review our fourth quarter and full year 2017 financial results. John?

Thank you, Bassil. In this afternoon's press release, we reported cash, cash equivalents and marketable securities totaling $363.3 million as of December 31, 2017, compared to $403.5 million at December 31, 2016. The 2017 year-end cash balance reflects operating spending net of $31 million in milestone payments received during the year. The 2016 year-end cash balance reflects the upfront proceeds of $150 million received from Xencor's Novartis collaboration and net proceeds of $119 million received from a financing in excess of spending in operations in 2016.

Total revenue for the fourth quarter of 2017 was $10.9 million compared to $6.4 million for the same period in 2016. Revenues for the full year 2017 were $35.7 million compared to $87.5 million in 2016. Revenue earned in the 3-month period ended December 31, 2017, were primarily from a milestone payment received from Amgen compared to revenue for the same period in 2016, which were primarily from milestone payment received from Alexion. Total revenues earned in 2017 were lower than 2016 primarily due to revenue earned from our Novartis collaboration in 2016 compared to revenue earned from our Amgen collaboration in 2017.

Research and development expenditures for the fourth quarter of 2017 were $20.4 million compared to $13.4 million for the same period in 2016. Total R&D expenses for the full year 2017 were $71.8 million compared to $51.9 million in 2016. R&D spending for the fourth quarter and for the full year ended December 31, 2017, was greater than R&D spending over comparable periods of 2016 primarily due to increased spending on our bispecific oncology pipeline.

General and administrative expenses for the fourth quarter of 2017 were $4.4 million compared to $3.1 million for the same period in 2016. Total G&A expenses were $17.5 million for the full year 2017 compared to $13.1 million for the same period in 2016. Additional spending on G&A for the 3 and 12 months ended December 31, 2017 over the same periods in 2016 reflects increased stock-based compensation charges. Noncash, share-based compensation expenses for the year ended December 31, 2017, was $13.7 million compared to $7.8 million for the year ended December 31, 2016.

The net loss for the fourth quarter of 2017 was $11.8 million or $0.25 on a fully diluted per share basis compared to a net loss of $9.1 million or $0.21 on a fully diluted per share basis for the same period in 2016. For the full year ended December 31, 2017, the net loss was $48.9 million or $1.05 on a fully diluted per share basis compared to net income of $23.6 million or $0.56 on a fully diluted per share basis for the full year ended December 31, 2016. The higher loss for the 3 months ended December 31, 2017 over the loss reported for the same period in 2016 is primarily due to increased research and development spending, while the loss reported for the full year ended December 31, 2017, compared to the net income reported for the full year ended December 31, 2016, is primarily due to the Novartis collaboration revenue reported in 2016 and increased expenses in 2017.

Total shares outstanding was 47,002,488 as of December 31, 2017, compared to 46,567,978 shares outstanding as of December 31, 2016. Based on our current operating plans, we expect to have cash to fund research and development programs and operations beyond the end of 2020 and to end 2018 with approximately $240 million in cash, cash equivalents and marketable securities.

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

(Operator Instructions) Our first question comes from Edward Tenthoff with Piper Jaffray.

So we're excited for the progress this year. Bassil, you mentioned partnering as kind of an important part of the business. And is the way we should be thinking about that as you'll partner products in the future that maybe aren't core? How should we be thinking about future partnering opportunities for Xencor?

Sure. So I think the primary role of partnering for us is to really expand our pipeline, which means we can't license -- purely license out assets that are core to our future growth to other parties without maybe a deal structure like we achieved with our Novartis collaboration where we maintained U.S. commercial rights for ourselves. I think, in general, I would expect to sort of see some technology partnerships, not really an emphasis, where for really noncore molecules or for molecules where it's something we wouldn't want to pursue on our own, we would allow a third-party to use one or more of our Fc domains in the right context.

And then I think it would be as we advance in the clinic, assets that either it's just difficult for us to, based on as clinical data emerges, see investing what it takes to really get it across the finish line in late development. We want to bring extra resources to bear, whether that's a deal where we share commercial rights, we license outright, would be based on the mix of other programs we have. We certainly want to make sure that we maintain our own core assets fully owned by Xencor. So it's really going to be about how the data emerges and how we need to leverage resources from others to maybe push something all the way across the finish line while we focus our internal resources on the programs that we choose to keep 100% for ourselves.

Our next question comes from Arlinda Lee with Canaccord Genuity.

I was curious about what kind of data might we see for 14045 this year, and maybe you can walk us through how low of a dose do you think you started at? And then maybe on the CD3, you talked about tuning the potency. Can you talk about if all the CD3s that you have in the clinic right now will have the same potency? Or did you kind of individually tune those for the partner of the bispecific?

Right, right, right. So I guess first on the -- the first question on 14045, obviously, there'd be -- the Phase I study safety data would be front and center, which is an important consideration in how you give such highly active agents these T-cell-engaging antibodies. And of course, initial activity, we would hope to be able to demonstrate against tumor cells, against blasts in AML really.

We certainly have to be cautious when we start these studies and start at a low dose. We don't disclose the quantitative doses until we do a data release. But I think in particular for antibodies, we have to be, because of the regulatory environment for how antibody molecules are governed as opposed to, say, cell therapies like CAR T therapies, we do start at low doses and have to progress upwards till we get activity and then go from there to where you need to be.

That's a general statement. I'm not really commenting specifically on any 1 program. That really holds true for, I think, all antibodies, again, in distinct -- distinction from CAR T therapies where they're kind of not really sure where to start because of the lack of animal models that really read on their drug -- specific drug candidates and they kind of sometimes come in really high and that can be both good and dangerous.

Now going to your second question on potency, there's multiple pieces to the potency picture. There's the affinities to your T-cell-targeting side, the CD3 side, affinity to your antigen and then there's how you balance those. And we typically use primate models to tune that. And for our first 3 CD3 bispecifics, they do have the same CD3 affinity on the CD3 binding side, which is a high single-digit nanomolar, which is not a super low affinity, but again, it's balanced by what's happening on the antigen binding side where, depending on the target, it's either -- well, they're all differently -- the numbers don't make sense to compare. It's based on what we see in our primate pharmacology and toxicology model. We always try to get that long-term activity without having an unmanageable toxicity from the T-cells, the cytokine release response.

So it's hard to say same potency across different candidates, but the same design principles are used. A really great case is our partner Amgen's AMG 424 program where they took the various building blocks, different CD3 and CD38 affinities, and they had a beautiful presentation at ASH this past December showing the different combinations they tried. There are quite a large number of them in both in-vitro studies with human cells and in-vivo studies in primates to tune it properly and ended up with a lower CD3 affinity and a moderate CD38 affinity. It's so case specific. You have to have the tools to rapidly prototype and test what you're going to do.

Our next question comes from Michael Schmidt with Leerink Partners.

This is Jonathan Chang stepping in for Michael. First question, can you remind us what the economics are for programs partnered with Alexion and MorphoSys? And can you talk about the potential near-term milestone payments from these programs and other partnered programs as well?

Well, we don't really disclose specifics on milestone payments. The economics on the Alexion partnership are low single-digit royalties, and we have on the order of tens of millions of milestones remaining for regulatory filing and approval milestones. And then the sales milestones are, in aggregate, also tens of millions. Right. For the MorphoSys -- now that was a case where we literally just gave them an intellectual property premium to operate license under our patents for the Xtend technology. We never touched the molecule or did any work or invested anything.

The MOR208 program is a whole different beast. We created that molecule from scratch. We called it XmAb5574, filed the IND and it started the Phase I study when we partnered with MorphoSys. For that, the economics are a different scale. There are high single to low double-digit royalties, and we have in excess of $100 million of milestones remaining for this set of indications in regulatory and development milestones and then further milestones for sales.

And just to follow up on that. For the cash guidance that you've provided for the end of 2018, does that -- can you talk about what that incorporates for -- in terms of milestone assumptions?

Just very modest milestones based on what public information that partners have disclosed. We're generally very conservative as far as projecting out milestones. So it does include a nominal amount, but not a lot and generally, we're more conservative.

Yes, nominal relative to the total spend in each of those years. So the modeled milestones are significantly smaller in magnitude than -- and is a fraction of spend than our spend. It doesn't have a huge impact on the runway. Now in reality, they could end up being more or less, but we're very conservative in how we approach the model.

Okay. Great. And then maybe just one last one. Can you talk about the reasons for confidence for the SLE opportunity for XmAb5871? And can you talk about what you would need to see from that study to move forward in SLE?

Yes. Yes. So -- well, I mean, SLE is a really, really hard disease. So you always have to go in with the right level of humility. That said, XmAb5871 is an exceptionally potent B-cell inhibitor. B-cells have been validated to have an important role in SLE disease, and intervening at the B-cell can certainly treat SLE. The approval of belimumab, a BAFF-inhibiting antibody, is demonstrating that.

Now 5871's mechanism is a very broad suppressive mechanism of B-cells without killing them. So it blocks signaling that comes and T-cell -- B-cell proliferation that comes from BAFF signaling, for example, like belimumab does, but with a wholly different mechanism as well as blocking numerous other pathways like B-cell receptor signaling directly that causes activation, a TLR signaling. So it's very broad shutdown.

I think we would hope for more activity, and broader shutdown of different pathways would suggest at least it is consistent with that. So the design and mechanism of the molecule is consistent with intervening with B-cells. That gives us some degree of confidence that this was worth pursuing without speaking to the result directly.

And then I think the next piece is our clinical trial design, which is a novel design. In collaboration with a leading academic lupologist, we designed the study to look at loss of improvement in disease symptoms that had occurred following an intramuscular steroid injection, which really served to cool down patients. And that loss of improvement was looked for in the context of removing their baseline immunosuppressive medications. So this would be things like methotrexate and mycophenolate.

All of those background medications are known to confound the ability to look at results in lupus studies when you try to add a new therapy on top of a dense mix of fairly potent and fairly active therapies. So that study design really sort of trying to clean up the landscape and look for loss of improvement over time that's hopefully avoided with 5871. But in the control arm where there's very little therapy on board now with these patients, none of them are immunosuppressants. They're absent the high-dose steroids after that initial induction phase, that cleaning up of the landscape, we hope, gives it a much clearer signal. So those are the 2 pieces: the mechanism and the clinical trial design.

Our next question comes from David Nierengarten with Wedbush.

Just a couple quick questions. Could you remind us if the standard of care for IgG4 on clinical trial includes Rituxan? And then on 087, is there any differences in starting dose or thoughts as you think about a CD3 bispecific in the solid tumor setting versus what we've seen in the liquid tumor setting?

Sure. So for standard of care for IgG4-related disease does not include Rituxan and that would not be part of our standard of care baseline in a clinical trial. The standard of care would be corticosteroids. Now for 18087, the starting dosage is really baked -- it's always empirical for all of our programs, including 18087. And the good thing is because these CD3 domains and our antigen binding domains are always engineered to cross-react and bind to nonhuman primate targets, we use the typical toxicology specie, cynomolgus monkey, to look at where we should do our starting dose based on the usual kind of guidance for where -- what dose level do you see adverse events at, what dose level do you see activity at?

Now in general, these hematologic malignancies tend to have very high tumor loads, right, AML in particular; B-cell malignancies like lymphoma, very high tumor loads. And so the higher the tumor load, the more coupling you get of your target cell with a T-cell because your antibody -- and therefore, the more T-cell activation and the more potential toxicity from cytokine release syndrome. Most of the solid tumors have generally lower tumor load, just less tumor accessible to the vascular compartment, less tumor in general probably.

And so we expect to have a lower amount of that acute cytokine release when there's less tumor load, and that's something we're going to look for in 18087. It did have our starting dose start out higher than we saw with our hematologic malignancies targets in 14045 and 13676. I don't know how relevant that is because you also don't know what dose levels you're going to require for activity. It's unlikely to be the same for these different tumor types. That said, the lower amount of bulk -- bulky tumor that you have accessible to the drug and T-cells early on, we would imagine would have an impact on the severity of adverse events, but that's a thesis we have to prove by looking at it.

It's interesting, I think, to note that the target-mediated toxicity, hitting somatostatin receptor 2, which is certainly expressed on some normal tissues like pancreatic islet cells, for example, that has not been an impediment to the approval of an SSTR2 peptide ligand coupled with a radionuclide conjugate. That is a radioactivity emitter, which is a pretty potent and potentially toxic payload. So we feel we designed the molecule to be able to deal with potential toxicities, but it's going to have to wait and see in the trial.

Our next question comes from Christopher Marai with Nomura Insight (sic) [Instinet].

This is Allen Cha for Christopher Marai. So kind of going off the previous question on 18087, is there any indication that you see progressing more rapidly through dose-ranging studies and with bispecific approaches? And are you going to be measuring PD-L1 expression on the tumors? And second, will the data for AML program 045 be sufficient to choose a Phase II dose and proceed to Phase II/III registrational studies?

Okay. So first on 18087, would it be faster dose-ranging? We honestly don't know. Again, given that you hope to see or you would expect to see with less tumor load, less CRS, one would imagine that. But the reality is until you get clinical experience with the molecule, trying to extrapolate from primate data is difficult, right? So the answer is we don't know. I think this is one of the few solid tumor-targeting CD3 bispecifics that's been tried. There has been data that was presented by Roche last summer at ASCO. There might have been a couple other trials going but I haven't seen data from. So we're learning. We're going to learn pretty rapidly about how bispecifics behave in solid tumors based on this kind of data flow. So the answer is I don't know, but we hope so and we'll see.

Regarding expression of PD-L1, we're looking at a lot of biomarkers. We have a pretty robust biomarker program for this molecule looking at PD-L1. Honestly, I couldn't tell you the exact list of things, but it's a pretty broad biomarker program. And certainly, looking at PD-L1 is important for looking at what might correlate to activity. Certainly, PD-L1 can help suppress activity of a CD3-activated T-cell. So I think we do, but I'd have to double check to be certain because it was a pretty complex biomarker plan and I honestly don't remember the details. Yes, for the AML data for 14045, would that be sufficient for -- to determine recommended Phase II dose in a go-forward, we'll have to see as the data continues to mature.

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

On the IgG4-Related Disease Phase III, I noticed that -- I thought you guys had talked about maybe having a trial that was a little bit more patients, and I was wondering if there was anything that came out of your discussions with FDA or EMA that might have led to that?

Right, yes, the -- we have shifted the patient number down a bit from our initial thinking coming right out of the FDA meeting. So you don't get specific instructions when you have a meeting with regulatory authorities. You get a lot of discussion and guidance on what are important factors, be it endpoint, be it clinical benefit definition, be it your stat plan, whatever. And then you try to work from that to refine your designs.

We've refined our thinking on the trial design and we further analyzed it. We've really looked at -- we think we have the ability to run this trial well from that 200, 250 patients. And really, some of the drivers of that refinement, we're really thinking about how the definition of disease signs and symptoms that we've seen from the patients treated so far that we expect to see plays into the endpoint and how that can -- how that will play into the statistics. So it was a refinement.

Oh, yes, sorry. So then can you maybe talk about the refinements of the definition of disease or the definitions of endpoints? Could you please clarify on that?

With definition of disease, I -- there's a classification exercise that's being finished up shortly from a large group of physicians. We're partly helping sponsor it, but it's really quite a big independent effort. But in regard to endpoint, we are looking at using clinical signs and symptoms as a critical part of our endpoint as well as using IgG4-Related Disease Responder Index, which is obviously based on clinical signs and symptoms, but it's a slightly different look at it in our endpoints. This is, again, as we've been guiding, based on prior analogous trials in rheumatology, like in genital arthritis or ANCA vasculitis about how you mix this. We're not going to give overly specific guidance because we haven't yet gone through our EMA discussions. We expect that to happen early this year. But when we do kickoff the trial, we'll be able to give more specifics on that.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Bassil.

Thanks very much, operator, and thank you all for your time today and your continued interest in Xencor. We look forward to giving you updates on our progress as we go through 2018. Good afternoon.

Ladies and gentlemen, that does conclude today's presentation. You may now disconnect, and have a wonderful day.