Xencor Inc (XNCR) 2018 Q3 法說會逐字稿

Good afternoon, and welcome to the Xencor Third 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 Charles Liles, Associate Director and Head of Corporate Communications and Investor Relations at Xencor. Please proceed.

Thank you, operator. Good afternoon. This is Charles Liles with Xencor.

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, PhD, President and Chief Executive Officer will discuss the company's business highlights; Paul Foster, MD, Senior Vice President and Chief Medical Officer will provide an update on Xencor's clinical programs; and John Kuch, Senior Vice President of Finance and Chief Financial Officer will review the financial results from the third quarter. 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, plans and objectives of management for future operations, partnering efforts, capital requirements, future product offerings and 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 outcomes of the events described in these forward-looking statements are 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 pass the call over to Bassil.

Thanks, Charles, and welcome aboard at Xencor. And good afternoon everybody.

At Xencor, we engineer monoclonal antibodies with dramatically enhanced biological functionality and performance versus their natural counterparts. Our proprietary XmAb technology focuses on the bottom half of an antibody structure, its Fc domain, which we tweak to produce antibodies with improved potency, a longer half-life or bispecific structure. Now over the last 15 years, we've created a large intellectual property base around these novel Fc domains, which has enabled us to build a broad and diverse portfolio, with 12 XmAb-based candidates currently being evaluated in the clinic, both internally and by our partners.

Recently, we announced data from 2 internal programs. The top line results from our Phase II study of XmAb5871 in systemic lupus erythematosus, or SLE, that was in October, and just last week encouraging initial data from our ongoing Phase I clinical trial of XmAb14045 in acute myeloid leukemia, or AML, which we will present more fully next month at ASH.

Now as you know, XmAb14045 is the lead candidate from our bispecific oncology pipeline. And while by the in-human data from our bispecific platform is a milestone for Xencor, we also believe it is reflective of the emergence of bispecific antibodies as a major part of the field of antibody therapeutics. The concept of bispecific antibodies has been around for decades because the idea of binding 2 antigens at once has greatly increased -- to greatly increase the breadth of biology that antibodies can do is highly attractive. Now the field is only just starting to make progress towards that potential because of the creation of new molecular engineering tools. We believe the situation for bispecifics is analogous to that for therapeutic antibodies around 20 years ago. After a decade of limited utility as a therapeutic class, humanization technologies emerged and avoided -- emerged only when they were able to avoid immune rejection by the body, which started the massive expansion of the field. That was the development of humanization technology. And in parallel now, the field is developing bispecific antibody technologies.

Now the main challenges with bispecific antibodies had been that they lacked the long half-lives in vivo, high stability and ease of manufacturing that regular antibodies have because, to create bispecific binding, which is non-natural property, most designs eliminated Fc domains and simply stitched 2 different antigen-binding domains together. These missing properties are what make antibodies such good drug platforms, however. And those properties in the large part -- they, in large part, do come from antibodies having Fc domains.

Now about 6 years ago, we began working to create bispecific antibodies that contain Fc domains. We used our long experience in Fc engineering. We engineered domains that spontaneously formed bispecific structures and can be decorated with nearly any antigen-binding domains. They can be made using standard antibody production techniques, and they have antibody-like half-lives.

Now this plug-and-play platform is very flexible and has enabled the rapid and simultaneous development of a wide range of bispecific molecules addressing a breadth of targets. We're able to put Xencor at the forefront of the next wave of antibody engineering, which has the potential to deliver new treatments in oncology and other areas.

Now I'll come back to this later. For now, I'll turn it over to our Chief Medical Officer, Paul Foster, to review our recent clinical data readout, starting with XmAb5871.

Thanks, Bassil.

XmAb5871 is our first-in-class monoclonal antibody that targets CD19 with its variable domain and uses our XmAb immune inhibitor Fc domain to target Fc gamma receptor 2B, a receptor that inhibits B-cell function. While B-cell inhibition is a proven strategy for many autoimmune diseases, we believe 5871 offers patients and physicians a potentially differentiated therapeutic option because of its subcutaneous delivery format and its highly potent and broad blockade of B-cell activation occurs without depleting or destroying B-cells. This means that the natural immune system is able to function normally once treatment is no longer needed.

We are currently advancing 5871 for the treatment of IgG4-Related Disease, or IgG4-RD, a newly defined disease characterized by tumor-like swelling, a variable degree of fibrosis and potentially irreversible organ damage, plus lymphoplasmacytic infiltrate in the affected organs.

Following encouraging data from our Phase II trial last year and because IgG4-RD is a recently characterized disease with no therapeutic options or regulatory precedence for approval, we have been working closely with the U.S. Food and Drug Administration to finalize the trial design and protocol for our proposed Phase III study.

We expect to initiate a randomized placebo-controlled double-blinded Phase III study evaluating the addition of 5871 to the standard of care corticosteroids in approximately 200 to 250 patients with IgG4-RD by early in 2019.

In SLE, we reported encouraging top line results from our Phase II study of 5871 at the American College of Rheumatology, or ACR, annual meeting in October. As we described before, this study used a novel trial design intended to more rapidly assess 5871's effect on SLE, with a shorter time to endpoint and with fewer patients compared to standard SLE studies.

We enrolled 104 patients with moderate to severe non-organ-threatening SLE. Patients continued their background immunosuppressive medications -- sorry, discontinued their background immunosuppressant medications after receiving a short course of IM steroids to quiet their SLE disease activity. Patients who achieved the required dose improvement were then randomized to 1:1 to receive 5871 or placebo every 14 days for up to 16 doses.

The primary endpoint of the study was the proportion of patients with no loss of improvement, or LOI, in the efficacy-evaluable population, defined as those who completed Day 225 experienced LOI or discontinued due to a drug-related adverse event. LOI was defined as an increase of greater than or equal to 4 points on the SLE disease activity index, or SLEDAI scale; or a new British Isles Lupus Activity Group, or BILAG, A or B score; and importantly, physician intent to treat with rescue therapy.

While the study did not achieve statistical significance on the primary endpoint, data trended positively with improvement maintained at day 25 -- 225 by 42% of the patients treated with XmAb5871 compared to 28.6% of patients treated with placebo. Additionally, the efficacy-evaluable population includes -- excludes 10 placebo patients and 2 XmAb5871-treated patients, who withdrew from the study for reasons other than LOI or adverse events. These exclusions led to higher placebo response rates compared to the intent-to-treat population. In the intent-to-treat population, improvement was maintained by 40.4% of patients in the XmAb-treated arm compared to 23.1% of the patients in the placebo arm at Day 225.

Predefined secondary endpoints included evaluations of time to loss of improvement and safety and tolerability. XmAb5871-treated patients in the efficacy-evaluable population experienced a statistically significant longer time to loss of improvement compared to placebo-treated patients, a 76% improvement in median time to LOI and a 47% reduction in the risk of LOI. Safety was consistent with previous trials.

We are encouraged by these results, which marked the third autoimmune disease to demonstrate responsiveness to XmAb5871 treatment. As we devote our internal resources developing 5871 and IgG4-RD, we look forward to exploring potential partnership opportunities to further develop XmAb5871 for SLE.

I'll now turn to our bispecific pipeline. At the American Society of Hematology meeting next month, we will share initial clinical data from our ongoing Phase I trial of XmAb14045, a CD123 x CD3 bispecific antibody in development for acute myeloid leukemia and other CD123-expressing hematologic malignancies. As we discussed in the abstract released last week, these early data show encouraging signs of efficacy in a heavily pre-treated population for weekly administered 14045.

At the time of data cutoff, 63 patients with relapsed or refractory AML and 1 patient with B-cell acute lymphoblastic leukemia were enrolled. These patients had a median age of 61 years and experienced a median of 3 prior therapies, and 30% had undergone prior allogeneic stem cell transplantation. To date, the maximum tolerated drug has not been determined. As expected, Cytokine Release Syndrome, or CRS, was the most common adverse event occurring in 77% of patients and was generally managed with pre-medication. 7 patients or 11% experienced Grade 3 or Grade 4 CRS.

Regarding efficacy, 23% of evaluable patients at the 2 highest dose levels studied, 1.3 and 2.3 micrograms per kilogram, with AML achieved either a complete remission or a complete remission with incomplete hematologic recovery.

While the AML treatment landscape has improved in recent years with the approvals of new drugs, there remains an urgent need for effective new therapies. Based on these early data, we believe 14045 may have meaningful potential, and we look forward to continuing to optimize our dosing regimen as we progress through Phase I.

I'll now turn it back to Bassil to review our bispecific antibody platform and earlier-stage pipeline.

Thanks, Paul.

As we outlined at the start of the call, all our bispecific antibodies are built on our proprietary XmAb Fc domain to preserve natural antibody stability, long half-life and ease of production. This plug-and-play approach provides great flexibility for designing a range of different bispecific structures. And to date, we have created 7 bispecific oncology candidates, which can be grouped into 3 distinct classes.

The first and most advanced group are our CD3 bispecific antibodies, XmAbs 14045, 13676 and 18087. These compounds are tumor-targeted antibodies that contain both the tumor antigen-binding domain and a cytotoxic T-cell-binding domain -- a CD3-binding domain. They activate T-cells at the site of the tumor in order to potently kill malignant cells.

Now all 3 of these CD3 bispecific antibodies are in Phase I development. In addition to the XmAb14045 data described by Paul, we expect to report initial clinical data in 2019 for XmAb13676, our CD20 x CD3 bispecific antibody for B-cell malignancies; and XmAb18087, our SSTR2 x CD3 bispecific antibody for neuroendocrine tumors and gastrointestinal stromal tumors.

Now our next class of bispecific antibodies are our tumor microenvironment activators. Rather than directly bridging a T-cell to a tumor cell, our TME activators seek to more effectively reactivate tumor-reactive T-cells than existing therapies by engaging multiple T-cell targets simultaneously such as checkpoints or agonists. Now this approach not only eliminates the need for the multiple antibodies usually used for combination therapy, but allows for more selective targeting of T-cells with high checkpoint expression, which are typically overrepresented in the tumor microenvironment.

We currently have 3 TME activators in development, each testing a distinct mechanism for TME activation.

First, XmAb20717, a PD-1 x CTLA-4 bispecific antibody is currently being evaluated in Phase I trial for patients with advanced solid tumors. We dosed the first patient of the study, which we call DUET-2 in July 2018 and we expect to report initial data on the safety, tolerability, pharmacokinetics, pharmacodynamics, immunogenicity and preliminary antitumor activity in 2019.

Additionally, the IND for XmAb23104, our PD-1 x ICOS bispecific antibody was recently allowed to open by the FDA, and we expect to initiate a Phase I trial on patients with select solid tumors in 2019.

We also plan to submit an IND for XmAb22841, our CTLA-4 x LAG-3 bispecific antibody by year-end and to initiate a Phase I trial in multiple oncology indications next year.

Finally, we're developing a suite of bispecific cytokines, which contain both cytokine and cytokine receptor domains to selectively expand and activate immune cells that be recruited against tumors.

First of these programs is XmAb24306, an IL-15 therapeutic which we designed specifically to create sustained T-cell and NK cell expansion via modulated potency and built it upon an XmAb bispecific Fc domain that contains our Xtend technology for longer half-life.

We hope that it will provide a more druggable version of IL-15 with improved tolerability, slower receptor-mediated clearance and prolonged half-life. We expect to submit an IND for XmAb24306 in multiple oncology indications in 2019.

We believe this broad pipeline of bispecific oncology candidates provides us multiple distinct opportunities to impact the treatment of patients with cancer, and we're committed to exploiting the full potential of our bispecific platform, both internally and through potential collaborations.

To that end, business development remains a key pillar of our corporate strategy, in large part due to the flexibility of our platform. Licensing transactions provide us with multiple revenue streams that help fund the development of our most promising, wholly owned product candidates, while requiring limited resources from our internal team and providing external validation of our XmAb technology.

Today, 8 pharmaceutical companies and the National Institutes of Health are advancing novel drug candidates that were either discovered at Xencor or that rely on our XmAb technology for bispecific structure, higher cytotoxicity, longer half-life or improved stability.

Four such programs are currently in clinical development, including MOR208, a compound which we discovered and initially developed internally at Xencor, which MorphoSys is evaluating in multiple pivotal trials for patients with relapsed/refractory large B-cell lymphoma -- Diffused Large B-cell lymphoma, or DLBCL.

Further, a compound called AMG 424, a CD38 x CD3 bispecific antibody, is being progressed by Amgen into Phase I for patients with multiple myeloma. And they initiated that trial this past quarter.

Additionally in the third quarter, we received $9 million in milestone payments from Alexion in connection with their recent submission of marketing authorizations for ALXN1210 to the FDA and EMA for patients with paroxysmal nocturnal hemoglobinuria, or PNH. In October, Alexion announced that it has submitted an additional marketing authorization to regulatory authorities in Japan and that the U.S. FDA has set a review date for its application in February 2019.

Under the terms of our collaboration with Alexion, we'll be eligible for additional milestone payments of up to $28 million and sales -- those are regulatory milestone payments. And sales milestones up to $30 million in addition for royalties on future sales of ALXN1210.

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

Thank you, Bassil.

Xencor continues to operate from a strong financial position. In this afternoon's press release, we reported cash, cash equivalents and marketable securities totaling $547.8 million as of September 30, 2018, compared to $363.3 million on December 31, 2017. This increase reflects net proceeds of $245.5 million from our underwritten public offering in March 2018, partially offset by cash used to fund operating activities in the first 9 months of 2018.

Before turning to our third quarter P&L, I'd once again like to remind everyone that our financial statements reflect adoption of Accounting Standards Codification, ASC topic 606, the Financial Accounting Standard Board's revised accounting rules and revenue recognition, which went into effect this year.

The company earns revenues from technology licensing fees and milestone payments from our partners for license of our drug candidates and use of our proprietary XmAb antibody engineering technologies. As such, we adopted ASC 606, effective January 1 of this year, and revised revenue reported for the prior period ending September 30, 2017, to reflect this new standard.

Revenues for the 3 months ended September 30, 2018, were $29 million compared to no revenue reported for the 3 months ended September 30, 2017.

Revenues for the 9 months ended September 30, 2018, were also $29 million compared to $16 million for the 9 months ended September 30, 2017.

Revenue in the 3- and 9-month periods ended September 30, 2018, were from revenue recognized under our Novartis collaboration and milestones received under our Alexion collaboration. This compares to revenue from the same period in 2017, which were from milestones received under our CSL and MorphoSys collaborations.

Research and development expenses for the 3 months ended September 30, 2018, were $21 million compared to $19.4 million for the 3 months ended September 30, 2017.

R&D expenditures for the 9 months ended September 30, 2018, were $70.4 million compared to $51.4 million for 9 months ended September 30, 2017. Increased R&D spending in the 3 and 9 months ended September 30, 2018, over R&D spending in the same period as 2017 is primarily due to additional spending on our expanding pipeline of bispecific oncology candidates.

General and administrative expenses for the 3 months ended September 30, 2018, were $7.4 million compared to $4.2 million for the same -- for the 3 months ended September 30, 2017.

G&A expenses for the 9 months ended September 30, 2018, were $17 million compared to $13.1 million for the 9 months ended September 30, 2017.

Increased G&A spending in the 3 and 9 months ended September 30, 2018, over G&A spending in the same period of 2017 reflects additional compensation costs, including increased stock-based compensation charges.

Noncash share-based compensation expense for the second quarter ended September 30, 2018, was $15.5 million compared to $10.2 million for the same period in 2017.

Net income for the 3 months ended September 30, 2018, was $3.2 million or $0.05 on a fully diluted per-share basis compared to a net loss of $22.7 million or $0.48 on a fully diluted per-share basis for the same period in 2017.

Net income for the 3 months ended September 30, 2018, over the loss reported for the same period in 2017 is primarily due to revenue recognized from our Novartis and Alexion collaborations in 2018.

Net loss for the 9 months ended September 30, 2018, was $52.2 million or $0.98 on a fully diluted per-share basis compared to a net loss of $45.9 million or $0.98 on a fully diluted per-share basis for the same period in 2017.

The increased revenue for the 9 months ended September 30, 2018, over amounts for the same period in 2017 was offset by increased spending in R&D in 2018.

The earnings per share loss for the 9 months ended September 2018 was equal to the earnings per share loss in 2017 due to the increase in shares outstanding during 2018.

The total shares outstanding was 56,212,449 as of September 30, 2018, compared to 46,955,365 as of September 30, 2017. The increase in total shares reflect our underwritten public offering of approximately 8.4 million shares in March 2018.

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 $525 million in cash, cash equivalents and marketable securities.

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

(Operator Instructions) Our first question is from Ted Tenthoff with Piper Jaffray.

And I'll save the questions on the ASH data for presentations from where -- I'm intending to go. I have kind of a higher-level question, just as the bispecific pipeline advances, obviously, this isn't going to be data-driven, but how do you foresee balancing kind of which drugs to keep, which drugs to potentially partner? How will you be making those kinds of decisions with such a rich pipeline?

Thanks, Ted. So we've been stating our strategy for a while now as use both the data and the market potential and clinical and commercial cost and infrastructure needed for our programs to sort of guide our thinking on a program. And we've always worked to create a diversity across those different parameters within our pipeline. And we've selected some indications as small ones with very high unmet need, small ones in terms of the number of patients in terms of kind of marketing approach you'd have to have because we do have ambitions to be a commercial organization one day. Those small indications would be exemplified by our molecules in AML, XmAb14045, in neuroendocrine tumors and GIST, XmAb18087. Those are molecules that if the data bears out, could be molecules we could potentially take forward alone. And I'll remind you that for 14045, though, it is partnered with Novartis commercially in the outside of U.S. territories, in the U.S., we have full commercial rights. I think for other assets like our tumor microenvironment bispecifics, we've been stating this since we kicked off those efforts a couple of years ago. We view those as ones where we want to build scientific knowledge of the different hypotheses we're testing for the tumor microenvironment between, say, XmAb20717 versus XmAb22841. And as we build data around those hypotheses, for the ones with strong data, we feel we'll be very well positioned to find partnerships that can let us retain a larger fraction of commercial potential. Though, we do think that broad, solid tumor drug development in the late phase, in particular, in immuno-oncology, would be challenging as well as marketing. Could be even more challenging for a smaller organization. So we sort of balance it that way. And I hope that gives clarity on how we view the specifics of our pipeline.

Our next question is from Jonathan Chang with Leerink Partners.

This is David Ruch dialing in for Jonathan. First question, could you help to set investor expectations ahead of the ASH in terms of how much more data we can see versus what was disclosed in the abstract?

Yes. It's only a few months of additional time between data cutoffs, and we'll, of course, show any new data on patients that we didn't have to disclose prior and be able to discuss some of our thinking for going forward around regimens but perhaps not in exquisite detail. Does that sort of answer your question? I mean I don't want to suggest anything about data we might show in a few weeks right now.

No, that's helpful. Second question is just with regard to other CD123 presentations expected at ASH. And we touched on this a little bit on the call already, but how are you thinking about the competitive landscape there? And what are some things you'll be looking for in those competitor presentations?

I think for us, we've tried to be the leader in having an agent that can be delivered intermittently. That is our initial dosing schedule's weekly. We're obviously going to work on optimizing the regimen, but our goal is to have something that can be delivered in that weekly time frame, at least at steady-state. And so that's how we sort of position ourselves. That's an important, I think, movement for the whole bispecific antibody field, having dosing that can be done as a regular therapy when you come into the hospital or come into the physician's office to get your drug and then you don't have to be there or have to have drug continuously infused. I think that's an important differentiator or parameter that we view as really important for our whole CD3 portfolio. And then I think you have to look at that sort of combination of how tolerability and response rate play off of each other. I think we're well positioned in both at the outset of our work in this Phase I. And now we're getting down to the next step of trying to find the best possible regimen.

Our next question is from Arlinda Lee with Canaccord Genuity.

Maybe first on the patients that were enrolled in your Phase I 14045 trial. Can you characterize these patients and whether those overall patient characteristics were representative of those treated at your go-forward 1.3 micrograms per kilogram dose and the higher one, 2.3?

Well, first, I want to caution, we don't -- we're not posing these as go-forward dose. Those are where we got to in our weekly, and we're also looking at other doses and dosing regimens. But putting that aside, without getting ahead of ourselves, just to be clear we understand your question is how representative were the patients of those 2 dose levels of the overall population in our trial because what we disclosed in the abstract was sort of the overall population. Nobody was selected or satisfied. I don't know, Paul, if the details -- if you can even really get into it right now.

I can't get into it right now. I don't have it at my fingertips. But we don't expect them to be any different from the overall population.

Okay. And then can you talk about the overall population, the 30% allogeneic stem cell transplant, how -- median 3 prior therapies. Those strike me as fairly sick patients, but I'd love to hear what you guys think, how sick were the patients that you enrolled?

Yes. This was a relapsed/refractory disease, and we were trying to dose escalate. So it was really -- I mean there were exclusion criteria, but it was a pretty broad set. We got a lot of really sick patients. Paul, if you want to elaborate on this.

Yes, they're -- they don't get a whole lot of extra therapy in this disease. So you relapse couple of times and that's usually as long as they survive. So this is a very sick population. We took all comers that were relapsed/refractory. The allo transplants, these are patients who have failed allo transplant so they either had relapsed after that or were primarily refractory to that transplant. So a very sick population.

Okay, great. And then maybe one for John. On the milestones, what constituted the rest of the $20 million in revenue?

Yes. Well, there is 2 pieces of revenue. The $20 -- $9 million was the milestone from Alexion, and $20 million was recognized under the Novartis collaboration related to delivery of a -- one of the bispecifics under the contract. That was just out of deferred revenue.

Our next question is from Bill Tanner with Cantor.

Guys, I had a couple for you, if I could, on 7195. You mentioned the likelihood of partnering the asset for SLE, and I think you've talked in the past about keeping IgG4-RD, and just some commentary on being able to thread the needle there in terms of being able to keep something and partner something, kind of -- depending on the circumstances, sometimes that's maybe less tenable than others. And then the other one on -- I mean on 5871, sorry. And then the other one on 5871, just on the SLE results, just any readthrough or any commentary on IgG4-RD?

Yes, so on the partnering front, so just to be clear, I would anticipate a partnership for this program would be around all indications. And I know that can get tricky when you're juggling multiple indications. I think that the way I've tried to pose it has been in a go-it-alone scenario, where a lupus trial had not worked out in a way that suggested there was future potential -- and we think it certainly did work out in a way that suggested its future potential. But in that scenario, we would pursue alone IgG4-RD-related disease and try to build from there because that is a smaller indication. There's not a deep competitive landscape there like in some other autoimmune diseases like rheumatoid arthritis. In the context of partnering, you really do need to put all the indications together. But I think that a partnership that we could sort of -- if we could draw what the most successful kind of partnership would be, it would involve us retaining some kind of commercial rights around all indications by territory. So ideally, in the United States, I think that's where -- the only one that makes sense. And retaining some portion of that commercial markup place for ourselves. That's how we view partnerships now in the context of having lupus data that suggests there's potential going forward in that disease. Yes, we wouldn't split indications. If I suggested that, I'm sorry for the confusion.

No, no, no. I mean -- sorry, you didn't suggest. I was just wondering. So you would contemplate that the partner would likely carry most of the freight for the SLE?

Yes, yes, yes. That's right. On the issue of readthrough from lupus to other diseases like IgG4-RD, Paul, you want to comment on that?

We're seeing -- I mean we've seen a positive trend now in rheumatoid arthritis and IgG4-RD and lupus. So we think this is a very active molecule in the autoimmune space. It's hard to try and correlate response in one to a specific disease, but we think it has potential broad applications.

Got it. And then Bassil, maybe then back on 7195 that I misspoke about at first. I know you've been talking for a number of quarters about potential partnering. Any progress there, anything to share? And then maybe...

It's challenging. I'll be clear, it's been challenging. The landscape in asthma and allergic disease has shifted a lot in the last couple of years with the advent of a number of other agents, biologics as well. And that's been difficult. We're still -- we still see that there's value in the asset, but it's been a hard slog.

I mean are people looking then at more direct cytokine blockers then as cleaner, perhaps, is it were?

I don't know about cleaner. I think the most simple mechanism for blocking allergic responses is still blockade of IgE, which is at that -- at the base of how that response then expands from -- it's at the base of going from allergic recognition to actually the cascade of inflammatory consequences. I think it's been a combination of new agents. Those new agents having I would say challenging launches or maybe not quite as explosive as was hoped. And just overall landscape was getting a little more crowded and seems a little more -- a little tougher commercially.

Our next question is from David Nierengarten with Wedbush Securities.

I just had a quick couple -- do -- maybe a follow-up on an earlier question. To be clear, have you continued dosing at higher levels for 045? Or are you working on different dose schedules? Or are you just straight up continuing the dose escalation?

I would say yes to both.

Okay. Fair enough, yes. Higher doses, maybe different schedule. Okay, good. And then second -- yes. Okay, cool. And then the second one, yes, I think you had a prior guidance for starting the IgG4-RD Phase III this half, and you're just talking about early '19. Is there any reason for pushing it out a little bit? Is it getting sites on board or anything else that we should know about?

Well, I think currently, we're in the midst of working through the process with FDA in finalizing trial specifics. This is the first randomized study in IgG4-RD, and we're trying to be very thoughtful with trial design to best support establishment of clinical benefit at the end of the trial.

(Operator Instructions) Our next question is from Tom Shrader with BTIG.

I just wanted to get a little bit of a sense of the SLE data. Is there anything you could have seen that would've made you say, "No, this is the one." Or was it always just sort of a quick way to get a read on inhibition of B-cell? Just your thoughts there. And along those lines, did you have a good sense of what really good data would look like based on kind of a novel trial design?

So just to be clear, when you say that this is the one, that this trial design -- I wasn't clear on that first part.

I mean what it would've taken for you to say, "We're going to fund Phase III here." Or was that never on the table?

Well, that was never on the table that we would fund Phase III ourselves because the combination of the safety data you need, the infrastructure you need to do the trials, it would be -- that would have to be large enough in order to power things properly. I think I'll let Paul speak to what our thoughts were and what a meaningful effect would be and how that drove the powering of the study, and then what we did see.

Yes, we picked what we thought would be a clinically meaningful effect in terms of response of a placebo like you do in most trials. We didn't quite hit it on this trial, but we think this is a positive trend. Most people we've talked to all think this is a true signal. The trial design itself, this is not a registrational trial design. This is a trial design that really stresses the -- or puts stress on showing a positive response because you're, in fact, inducing a situation where these patients are going to relapse because you've taken them off their background immunosuppressants, you've cooled them down initially with corticosteroids and then they will all eventually have a flare. And so we put the drug in that situation, and we've shown that we were able to reset a certain landmark in time, have a greater proportion that didn't flare. And those that did, we have much longer time to that event occurring. So we see this as very positive.

Okay. And if I can, on the DUET trial, is it really response data that matters? Or do you think demonstration that you can push doses or get to dose levels or inhibition levels that can't be gotten to with the individual antibodies, are you going to look for that kind of stuff? Or are we really looking for response data here?

Yes, so you're talking about the XmAb20717 study with the DUET-2 study, which is our PD-1 x CTLA-4. And I think what you're getting at is people have tried -- have been forced to try a lot of different dose level combinations with those 2 because of specific toxicities that emerged. In particular, probably from CTLA-4 blockade, right?

Right.

I think it is very important to see how high we can escalate dose if the selectivity we built into the molecule, that favor binding, and therefore, in blockade of the 2 targets on the double positive cells to see if that changes therapeutic window. I think that is an important metric. But I think we do want to tie that maybe with that higher therapeutic window into some kind of response activity. I think we've got to be careful in the very small number of patients we'll have in our first few data -- our first data readout to try to not to direct head-to-head numerical comparisons. But I think response data activity of the molecule being demonstrated earlier is important for us to have confidence going forward. But you hit on a good point. Can we open up that therapeutic window and will that allow us the possibility of having higher response later in studies when we have more patients?

And that does conclude our Q&A session for today. I'd like to turn the call back over to Xencor for any further remarks.

Thanks very much, operator. And thank you all for joining today's call.

We look forward to updating you again soon as we conclude 2018, and enter 2019 with several data readouts and new clinical trial initiations on the horizon. Thank you again.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a great day.