Xencor Inc (XNCR) 2018 Q1 法說會逐字稿

Good afternoon, and welcome to the Xencor First Quarter 2018 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 Josh Rappaport of Stern Investor Relations. Please proceed.

Thank you, operator. Good afternoon. This is Josh Rappaport of Stern Investor Relations. Welcome to Xencor's First Quarter 2018 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 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. John Desjarlais, Chief Scientific Officer, will discuss preclinical progress. And John Kuch, Vice President of Finance, will review the financial results from the first quarter of 2018. Then we will open up the call for 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 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. 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, we can improve its natural functions and performance.

The plug-and-play nature of this small suite of XmAb Fc domain that we've created allows us to engineer nearly any antibody to have improved potency, longer half-life or bispecific structure. This flexibility and portability enables us to take multiple shots on goal simultaneously to generate proof-of-concept data to help determine which programs we'll independently advance, which we will partner and which we would terminate.

The accomplishments in our -- in the first quarter, both internally and by our partners, demonstrate this approach. Since last quarter's call, we announced the addition of our new XmAb IL-15 bispecific platform at the American Association for Cancer Research Annual Meeting, which will enable the rapid development of targeted T-cell activators. Our partners, Alexion and MorphoSys, each reported positive late-stage clinical data, validating the safety and clinical utility of our Fc domain. And we raised roughly $245 million to fund our development efforts beyond 2022.

Looking ahead, we expect to announce initial data from 2 ongoing clinical trials in 2018, a Phase II trial of XmAb5871 in systemic lupus erythematosus, or SLE; and Phase I results from our first bispecific oncology candidate, XmAb14045, while continuing to expand our clinical and research stage pipelines.

Specifically, before the end of the year, we expect to initiate our first Phase III trial of XmAb5871 in IgG4-Related Disease, or IgG4-RD; and a Phase I trial of XmAb20717, our most advanced tumor microenvironment activator. We also plan to file 2 investigational new drug applications for additional tumor microenvironment activators, XmAbs 22841 and 23104.

With that, I'll transition to discuss our clinical efforts in greater detail beginning with our lead program, XmAb5871. 5871 is the first-in-class monoclonal antibody that targets CD19 with its variable domain and 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.

I'll first talk about IgG4-RD. As you've heard us describe before, it's a newly-defined fibro-inflammatory autoimmune disease. It typically affects multiple organs, causing tumor-like swellings and a variable degree of fibrosis and potentially irreversible organ damage. It's characterized by a lymphoplasmacytic infiltrate in the affected organs rich in IgG4-positive plasma cells, hence the name. There are no therapeutic options approved for the approximately 40,000 people affected in the U.S. and corticosteroids is the standard of care.

Now based on positive final data from our Phase II trial of 5871 in IgG4-RD, in which all 12 patients who completed the study achieved the primary endpoint of at least a 2-point reduction in the IgG4-RD Responder Index and 8 patients achieved disease remission, we believe we may be able to provide the first therapy approved specifically for the treatment of IgG4-RD. Because there is no regulatory precedent for an approval pathway in IgG4-RD, we've engaged with the U.S. Food and Drug Administration and the European Medicines Agency to design the most appropriate Phase III program. And based on these discussions, we plan to initiate a randomized, placebo-controlled, double-blinded Phase III study to evaluate the addition of 5871 to standard of care in approximately 200 patients to 250 patients with IgG4-RD in the second half of this year.

In addition, we expect to report initial data from our randomized, double-blind, placebo-controlled multi-dose Phase II study of 5871 in SLE in the fourth quarter. Now this Phase II study for SLE is designed to evaluate the ability of 5871 to maintain the improvement in SLE disease activity after a short course of intermuscular steroid therapy and in the absence of immunosuppressive medication.

We believe the unique design of this trial will allow us to assess the effect of 5871 on SLE with a shorter time to endpoint and with fewer patients compared to standard SLE trials. And we expect to announce top line data in the fourth quarter of 2018, which will inform our next steps in lupus.

Turning now to our bispecific oncology pipeline. Our bispecific antibodies are built on novel -- our novel Fc domain, which provides a robust scaffold for 2 or potentially more different antigen binding domains. The result is a single molecule that can simultaneously bind to multiple targets while preserving important properties of native antibodies.

Our lead bispecific programs are tumor-targeting antibodies that contain a tumor antigen binding domain on one side and a cytotoxic T-cell binding domain on the other. They work by activating T cells at the site of the tumor for highly potent killing of malignant cells.

Our most advanced programs are XmAb14045 and 13676, both currently in Phase I studies designed to evaluate the safety and tolerability of treatment and to determine the maximum tolerated dose after the first and subsequent infusions.

14045, a CD123 x CD3 bispecific antibody is being developed for the treatment of AML and other CD123 expressing hematologic malignancies. 13676, a CD20 x CD3 bispecific antibody, is being developed to treat B-cell malignancies.

Now despite recent advancements in new therapies for AML and B-cell malignancies, we believe there remains significant unmet need among the many patients who are unfit for existing therapeutic options or for whom they provide limited benefit. And we look forward to the first-in-human data for 14045 later this year and for 13676 in 2019, pending alignment on timing of announcements with our partner, Novartis.

Now our third bispecific candidate, XmAb18087 is an SSTR2 x CD3 bispecific antibody, being developed for the treatment of neuroendocrine tumors and gastrointestinal stromal tumors. 18087 is being evaluated in a Phase I dose-escalation study, which started last quarter and which we expect to report initial data from in 2019.

Now turning briefly to XmAb7195. Now that's our first-in-class monoclonal antibody that targets IgE with its variable domain. 7195 uses our XmAb immune inhibitor Fc domain to inhibit B-cell function by targeting Fc gamma RIIb and works through 3 distinct mechanisms of action to reduce IgE levels.

Now this differentiates it from other approved IgE-targeting therapies: first, 7195 sequesters free IgE to block IgE signaling; second, it suppresses B-cell differentiation into IgE secreting plasma cells; and third, it enables the rapid clearance of IgE from circulation. Now based on the Phase Ia -- sorry, Phase Ib subcutaneous administration data reported in November, we believe subcutaneous 7195 could offer an improvement over standard of care for patients with asthma and allergic disease, and we're currently seeking a development partner for this program.

Now with that, I'll turn the call over to John Desjarlais to discuss our preclinical pipeline.

Great. Thanks, Bassil. Yes, so the next component of our bispecific oncology pipeline, our suite of tumor microenvironment activators, are expected to enter the clinic this year. These candidates can simultaneously engage multiple targets such as T-cell checkpoints or agonists with the goal of improving the selectivity of combination therapies for T-cell activation and eliminating the need for multiple antibodies.

Each of our new bispecific molecules test a distinct mechanism for TME activation. Our first candidate targeting the tumor microenvironment is XmAb20717, a PD-1 x CTLA-4 bispecific antibody for the treatment of multiple oncology indications. For that, we expect to initiate a Phase I trial this year.

Following 20717, are XmAb23104, a PD-1 x ICOS bispecific antibody, which is a unique checkpoint plus costim combination. We also have XmAb22841, a CTLA-4 x LAG-3 bispecific antibody that can achieve triple checkpoint blockade when combined with an anti-PD-1. Both are in development for the treatment of multiple oncology indications with IND applications expected this year and Phase I initiations to follow in 2019.

And recently, at the AACR Annual Meeting in April, we were pleased to introduce our new IL15 program and to highlight new preclinical data on our lead candidate XmAb24306, which is an IL15/IL15-receptor alpha FC fusion. IL15-R alpha complexes naturally target CD122, also called IL-2 receptor beta, without targeting CD25, a receptor that favors regulatory T-cells. We used our highly stable Fc heterodimer scaffold to create a long-acting IL15/IL15-receptor alpha complex. So XmAb24306 is designed to create sustained T-cell and NK cell expansion via modulated CD122 activation, which we achieved by engineering the IL15 complex and by incorporating our Xtend technology to further enhance half-life.

Now IL15's potential to date has been limited by rapid clearance and an uncertain therapeutic index. We believe our approach can overcome these challenges, provide a more druggable version of IL15 with reduced potency, superior tolerability and slower receptor-mediated clearance, which gives you a longer half-life and more sustained lymphocyte expansion.

XmAb24306 is actually the first of our tumor microenvironment activators built on this IL15 platform. Primate data presented at AACR show that treatment with XmAb24306 induces a steady, tolerable and sustained increase of up to tenfold in T-cells and even bigger boost to the NK cells. We plan to file an IND for XmAb24306 in 2019 and use our IL15 bispecific platform to develop a suite of additional targeted IL15s, including a PD-1-targeted candidate to promote selective expansion and activation of exhausted T-cells. We're also, of course, exploring additional targeted IL15s.

Separately, in April, we entered into a collaboration with Applied BioMath, an industry leader in applying mechanistic modeling, simulation and analysis to derisk drug research development. We've retained Applied BioMath to perform semi-mechanistic pharmacokinetic and pharmacodynamic modeling to analyze this new IL15 platform. And these models will be used to guide preclinical and clinical development of our IL15 agents, including XmAb24306.

Bassil can now touch on our partnerships.

Thanks, John. Currently, 8 pharmaceutical companies and the NIH are advancing drug candidates either discovered here at Xencor or that rely on our XmAb Fc domains for bispecific structure, higher cytotoxicity, longer half-life and improved stability. 5 partner programs are currently in clinical development, including 2 in Phase III studies.

The milestones and potential royalties from partnerships can really expand the resources we have for our internal programs and help validate our XmAb platform.

Now in the first quarter, 2 of our partners, Alexion and MorphoSys, reported positive data from programs utilizing our proprietary XmAb Fc domains. In March and April, Alexion announced positive top line results from 2 pivotal Phase III trials in which intravenously-administered ALXN1210 demonstrated non-inferiority to Soliris in both complement inhibitor treatment-naive and in previously Soliris-treated patients with paroxysmal nocturnal hemoglobinuria or PNH. Regulatory submissions for ALXN1210 marketing approval are expected in the second half of this year. Now ALXN1210 uses our Xtend Fc domain for half-life extension.

Also in March, MorphoSys reported updated data from its ongoing Phase II L-MIND study, in which MorphoSys is evaluating MOR208 plus lenalidomide in patients with relapsed or refractory diffuse large B-cell lymphoma. This data showed continued maintenance of responses with a preliminary progression-free survival rate of 50.4% at 12 months and good tolerability. MOR208 uses our cytotoxic Fc domain, and it was actually created here at Xencor. It was known then as XmAb5574. And based on the data from this trial, MOR208 has Breakthrough Therapy Designation, and the company is discussing potential opportunities for expedited approval with the FDA.

Now with that, I'll turn the call over to John Kuch to review our first quarter 2018 financial results.

Thank you, Bassil. Xencor continues to operate from a position of financial strength. We concluded the first quarter of 2018 with a successful follow-on stock offering, which resulted in net proceeds of approximately $245.5 million. These additional funds will enable us to continue to grow and advance our clinical and research stage portfolio while also preparing for our next stage of growth.

Let me now walk you through our first quarter 2018 financial results. In this afternoon's press release, we reported cash, cash equivalents and marketable securities totaling $582.5 million as of March 31, 2018, compared to $363.3 million on December 31, 2017. Again, this increase reflects net proceeds of $245.5 million from Xencor's underwritten public offering in March 2018, partially offset by cash used to fund operating activities in the first quarter.

Before we review our quarterly financials, I would like to remind those listening that effective January 1, 2018, the company adopted a new revenue recognition accounting standard, Accounting Standards Codification 606, commonly referred to ASC 606. In addition to adopting the standard for 2018, revenue reported for the prior period, including March 31, 2017, has been revised to reflect the new standard. No revenue was recognized for the first quarter ended March 31, 2018, compared to $3.5 million for the same period in 2017. Revenue reported for both periods was affected by the adoption of the new revenue recognition standard.

Under historic revenue recognition methods, the company would have recognized $6.8 million and $4.3 million of revenue for the periods ended March 31, 2018, and March 31, 2017, respectively. The adoption of the new revenue recognition standard shifted the period that revenue is being recognized under our Amgen and Novartis arrangements to earlier periods.

Research and development expenditures for the first quarter of 2018 were $26.1 million compared to $15 million for the first quarter of 2017. Increased R&D spending in the 3 months ended March 31, 2018, over R&D spending in the same period in 2017 reflects additional spending on our bispecific clinical and preclinical candidates.

General and administrative expenses for the first quarter 2018 were $4.6 million compared to $4.8 million for the first quarter 2017. Decreased G&A spending in the 3 months ended March 31, 2018, over G&A spending in the same period 2017 reflects lower compliance cost associated with our SEC filings.

Noncash share-based compensation expense for the first quarter ended March 31, 2018, was $4.5 million compared to $3.2 million for the same period in 2017.

Net loss for the first quarter 2018 was $29.5 million or $0.62 on a fully diluted per share basis compared to a net loss of $15.5 million or $0.33 on a fully diluted per share basis for the same period in 2017. Again, I would note that the 2017 net loss has been revised from our initial reporting to reflect the adoption of the new revenue recognition standard.

The increased loss for the 3 months ended March 31, 2018, over the same period in 2017 is primarily due to additional spending on research and development activities.

The total shares outstanding was 55,616,875 as of March 31, 2018 compared to 46,689,447 as of March 31, 2017. The additional shares outstanding in March 31, 2018, reflect the 8,395,000 shares sold in our March financing.

Based on our current operating plans, we expect to have cash to fund research and development programs and operations into 2023 and to end 2018 with approximately $500 million in cash, cash equivalents and marketable securities.

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

(Operator Instructions) And our first question comes from Ted Tenthoff of Piper Jaffray.

I'm pleased to see the cash position so strong and the flexibility that's going to afford you as you develop this pipeline. A quick question, if I may, on 14045. Appreciating that you're not giving guidance on when we'll be getting data, how have you started to think about combination therapy in AML once you sort of achieve monotherapy activity and/or safety?

Yes. The -- I think the evidence is starting to emerge that the T-cells that are active in lysing target cells with the CD3 bispecifics can also be subject to inhibition by PD-L1 signaling through PD-1. And I think on everybody's list, certainly on ours, the use of PD-1 inhibitor in combination is going to be something that's going to be looked at very carefully. I think that's a definite potential, I think. Especially in these hematologic malignancies, you do have other agents that are out there. And I think we want to take a bit of a branched approach specific for maybe the particular sub-indications once we achieve the right dose and schedule that we feel comfortable with. There's agents like hypomethylating agents. There's, if you do move to front line, there'd be the high-intensity chemo. I'm not -- not to say that we've got any of those lined up. But we're looking broadly, but we are, I think, first and foremost, really looking at how checkpoint inhibition can play in that.

Great, Bassil. That makes a ton of sense. And just in terms of IL15, as you guys kind of look at the competitive landscape, obviously there's other targets along, that have similar mechanism, but where do you sort of see the competition?

Yes. I think there's been various IL-2 and IL15 agents tried. I think they all target the same receptors with different levels of specificity. I think we've seen that initial data at SITC that was very promising for an engineered IL-2. I think beyond that, it's fairly early days. And maybe, John, if you want to comment on the uniqueness of the mechanism?

Yes. I mean, as we discussed earlier on the call, I mean, what's unique about IL15 and using IL15/IL15-receptor alpha complex, is you completely avoid the built-in Treg bias that the IL-2s come with. And then really the most unique thing that we've done here is kind of counterintuitively, we've actually reduced the potency of IL15 after we had some initial observations, giving us a hint that reduced potency versions actually had longer half-life and in fact also more sustained pharmacodynamics. So nobody else seems to be taking that approach. So we think we've got a unique approach there, which we're hoping will enable an easier way to sync up with some of the dosing schedules that you use for some of the PD-1 inhibitors.

And our next question comes from Arlinda Lee of Canaccord Genuity.

Maybe one for John first. Can you remind us on some of the milestones that you might be getting from partnerships as they progress their programs? Are you getting milestones on filings or on approvals or data sets?

So for Alexion, the remaining milestones we have are regulatory and sales. And we don't break those out, but the total is, I think, $55 million and those'll be over the next -- well, the regulatory, we assume, within the next 18 months to 24 months, depending on the timing. And then for MOR208, I think there's still regulatory as well as sales milestones.

And we don't break that out. Yes.

We don't break that out either. Yes. So I hope that answers your question.

Yes. And then, I guess, maybe back to Ted's question about how you guys think about approaching -- you've talked about tuning your specificity or potency on these things. How do you -- how -- what are you looking for, I guess, preclinically that helps you guide what you think should play out in the clinic?

Yes. Well, we do our best with the 2 sides of the equation, the efficacy tuning and the safety tuning. It's never perfect, right, because these are preclinical models. I think on the efficacy side, you look at the various tumor-bearing cell lines for CD3s and -- for these -- for CD3 bispecifics. And you see if you can lyse the right cells and have specificity for cells that express what you think is the levels of antigen on your tumor. And then on the safety side, we always engineer these things to cross-react with nonhuman primates and use that to tune dose for on-target and off-tumor toxicities that would always emerge both on the target as well as on the cytokine release syndromes that are inherent in these agents. So those are the 2 ways we juggle it. Each program is its own story, however. There's no specific numbers. There's just the guidance we have in these models.

And our next question comes from David Nierengarten of Wedbush Securities.

Just a quick question. I noticed 13676 you're talking about data now in 2019. Previously, it was 2018. Is dosing going a little bit more slowly? Is this decision from Novartis? Or maybe you could help us out a little bit about that and if there's any additional things you're learning from the dosing as it's going that will help you with your other programs?

Yes. So we shifted the guidance, because we think that by year-end, we think that the state of where we're going to be with data is probably not going to meet and justify our partners or probably our requirements of what we'd want to talk about or what would be meaningful. We're certainly learning a lot from that trial and being able to contrast it with our XmAb14045 trial. And now, we're starting to glean information out of our 18087 trial, a complete different kind of tumor type, being a solid tumor. And that is helping us understand better what are some of the ins and outs of how to dose these things. So we are learning a lot. I think it's a matter of what quantum of data justifies both in our partners and in our own eyes having a release.

Got it. So is the mechanism of just the dosing escalation going a little bit more slowly and maybe not hitting the dose that you think is going to give activity? Or are you just going to wait and -- wait for additional data before you report it?

Yes, we're just going to wait for additional data. We just think having -- because this trial didn't start enrolling patients until about 13 months ago. And as you know, you have to start off fairly low. So it's, I think, less a matter of anticipated dose and is that where we expect to be or not. It's just, you are with these CD3 bispecifics in a pretty conservative mindset with where you start your initial doses. So it just takes time.

(Operator Instructions) And our next question comes from Christopher Marai of Nomura. (Operator Instructions) And I'm showing no further questions from our queue. I would now like to hand the call back over to management for closing remarks.

Thank you, operator, and we want to thank everybody for joining today's call. Our remaining remark is that we look forward to updating you on Xencor's progress throughout the remainder of 2018. Thanks very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.