Xencor Inc (XNCR) 2021 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by, and welcome to the Second Quarter 2021 Xencor Conference Call. (Operator Instructions) Please be advised that this call is being recorded at the company's request.

Now I would like to turn the call over to your speaker for today, Charles Liles, Head of Corporate Communications and Investor Relations.

Thank you, and good afternoon. Earlier today, we issued a press release which outlines the topics we plan to discuss today. It's available at www.xencor.com.

Today on our call, Bassil Dahiyat, President and Chief Executive Officer, will review recent business news and pipeline updates; John Desjarlais, Chief Scientific Officer, will discuss our cytokine and CD28 programs; and John Kuch, Chief Financial Officer, will review financial results. And then we'll open up the call for your questions. And Allen Yang, Chief Medical Officer, will join us then.

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, future operations, the company's 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 our current expectations and beliefs and are based on information currently available to us.

The outcome 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 section of our 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 good afternoon, everyone. Xencor's approach to creating antibody and cytokine therapeutics uses our extensive protein engineering tools centered on our plug-and-play XmAb Fc domains to create novel molecular structures, improve natural protein and antibody functions and create new mechanisms of therapeutic action. This approach enables us to rapidly explore different targets and biologies, so we can select the most promising programs to take forward.

We've been focusing our work on the expansion and use of our XmAb bispecific platform to create antibodies that bind 2 or more different antigens simultaneously and also to engineer cytokines with structures and binding affinities optimized for therapeutic use. These plug-and-play tools are highlighted in our partnerships. Currently, we have 16 ongoing partnerships for XmAb technology, which have resulted now in 3 marketed products, the most recent being Vir and GlaxoSmithKline's anti-SARS-CoV-2 antibody, sotrovimab, which recently received Emergency Use Authorization for patients with mild to moderate COVID-19.

Our Xtend Fc technology was integrated into the antibody for the purpose of reducing the dose administered and potentially enhancing its lung tissue bioavailability. This partnership exemplifies our commitment to enabling the broad use of XmAb Fc technologies outside our core focus of oncology and autoimmune disease and demonstrates its applicability in vastly underserved areas like serious infectious diseases.

In May, we also entered a similar licensing transaction with Bristol Myers Squibb to incorporate extended anti-COVID antibodies that's currently in Phase II testing.

Now switching back to our internal programs. We're running 9 Phase I or Phase II studies evaluating our own XmAb bispecific antibodies and cytokines. This way, we're taking multiple simultaneous shots on goal in the clinic. And the proof-of-concept data we're generating is guiding which programs we independently advance, which we partner and which we will terminate. Further, we're continually feeding new molecules that we believe are differentiated into the clinic to keep our pipeline robust.

So now I'll touch on the programs with recent updates. Very recently, we initiated a Phase II study for XmAb717, our PD-1 x CTLA-4 dual checkpoint bispecific antibody. It's in patients with metastatic castration-resistant prostate cancer that we classify by molecular subtype, as a monotherapy or in combination, depending on the subtype. Now we expect to present mature data from the ongoing Phase I studies expansion cohorts later this year, specifically in prostate cancer, renal cell carcinoma and in a basket cohort of tumors without approved checkpoint therapies.

We believe that metastatic prostate cancer is an indication with high unmet need and that currently is without much checkpoint inhibitor use. And we think it could benefit from a checkpoint inhibitor, particularly one with XmAb717's dual targeting of PD-1 and CTLA-4 and potentially differentiated tolerability profile. We're also planning new studies of XmAb717 in additional tumor types that we'll guide on later.

Now shifting to plamotamab, our CD20 x CD3 bispecific antibody. Under our strategic clinical collaboration with MorphoSys and Incyte, we'll be investigating the chemotherapy-free triple combination of plamotamab with tafasitamab and lenalidomide in patients with certain lymphomas. Plamotamab's T cell redirection of tumors and tafasitamab's enhanced ADCC tumor killing combine distinct immune pathways for antitumor effect. And we think the combination is a differentiated approach for treating patients with lymphoma.

Now we plan to initiate the first of these studies in patients with relapsed or refractory diffuse large B-cell lymphoma, an aggressive type of NHL in late '21 or early 2022 once we finalize our recommended dose in our ongoing Phase I study and complete operational preparation for the multinational trial. We plan to present updated data from the ongoing Phase I study later this year.

Now for tidutamab, our CD3 bispecific antibody that targets SSTR2, we've initiated a Phase II clinical study in patients with Merkel cell carcinoma and small cell lung cancer, which are SSTR2-expressing tumor types known to be responsive to immunotherapies. Later this year, the company plans to present updated data from the Phase I expansion cohort in patients with neuroendocrine tumors, including longer clinical follow-up and updated biomarker data.

Last, I'll touch on XmAb819. Later this year, we anticipate submitting an IND for 819, our ENPP3 x CD3 bispecific for renal cell cancer. And we're planning on initiating a Phase I study in early 2022. XmAb819 is engineered with reduced potency CD3 binding as well as a multivalent 2+1 bispecific antibody format, which has 2 antigen-binding domains to the tumor target, providing for more selective binding to the high ENPP3 density expression on tumor cells compared to the lower density on normal cells.

This binding selectivity of the XmAb 2+1 format extends the range of targets amenable to CD3 bispecifics, especially solid tumor targets. Recall, our partner Amgen's AMG 509 program targeting STEAP1 in prostate cancer also uses tidutamab.

Now I'll turn it over to John Desjarlais, our CSO, to discuss our rapidly expanding cytokine drug portfolio and CD28 programs.

Thanks, Bassil. We've been very busy using the full range of our protein engineering tools to turn native cytokines into therapeutics. We currently have our first 2 cytokines in the clinic, expect that 2 more will advance in the coming year, 1 internally and 1 at our partner, Genentech. There are, of course, several other interesting cytokines, so additional programs are likely to follow.

Now native cytokines have evolved to create powerful immune responses by acting potently, locally and rapidly. But when used with systemic drugs, these properties make them short-acting and often toxic. Our cytokine engineering seeks to create longer-duration therapeutic activity remain under the threshold for toxicity that has limited their clinical use historically.

First, we designed small changes in the cytokine to lower its potency, often by 100-fold or more by reducing affinity to its receptors. This has created better-tolerated, slower-acting and far more sustained immune-stimulating activity for multiple cytokines in preclinical models. We've further enhanced the stability and pharmacokinetics by fusing them to XmAb bispecific Fc domain that incorporate our Xtend technology to further enhance persistence.

Our first clinical program, XmAb306, is our engineered IL-15 for oncology that is partnered with Genentech. We engineer it for these properties: one, NK cell and T cell activation for cancer therapy that potentially is a broad range of other cancer therapies; and two, unlike IL-2, IL-15 avoids the intrinsic bias for T reg activation, which is undesirable, of course, for cancer therapy.

XmAb306 is currently in Phase I dose escalation in advanced solid tumor patients, both in monotherapy and in combination with atezolizumab. And we are currently assessing additional combination studies for the future. Our first immune receptor targeted IL-15 is currently in IND-enabling studies with our partner Genentech.

Our second cytokine in the clinic is XmAb564, our wholly-owned IL-2 Fc fusion engineered to selectively activate regulatory T cells or T regs for the treatment of autoimmune disease. We're conducting a Phase I single-ascending dose study to characterize the safety, tolerability and pharmacokinetics of subcutaneously-delivered XmAb564 in healthy volunteers. And the study will include an analysis of key biomarkers, including measures of T reg expansion.

The goal of an IL-2 therapy for autoimmune disease is to provide sustained long-intensity activation of T regs while avoiding the pro-inflammatory systemic activation of effector T cells. So a T reg-selective IL-2 therapy with an expanded therapeutic window compared to historic IL-2 approaches could have broad potential across many different autoimmune diseases. And preclinical studies indicate this may be the case for XmAb564.

As with our other engineered cytokines, we reduced its potency to improve tolerability and duration of action and used our XmAb heterodimeric Fc domain and Xtend technology to enhance its half-life.

Our newest cytokine program is a preclinical IL-12 program. Our IL-12 cytokine program builds on our prior work with XmAb306 and XmAb564. Now IL-12 is a potent pro-inflammatory cytokine that promotes high levels of interferon gamma secretion, thereby increasing the immunogenicity of the tumor microenvironment and making tumor antigens more visible to the immune system. It can also promote proliferation of T cells and NK cells and can increase cytotoxicity of both those cell types.

Now IL-12 can have strong antitumor activity, but as seen in prior clinical studies with IL-12 and other cytokines, it was demonstrated to have a narrow therapeutic window, limiting its utility. So we applied our cytokine engineering methods to IL-12 to generate, again, potency-reduced, longer-acting and more tolerable drug candidate. And we anticipate submitting an IND for the lead in 2022.

Now I'd like to take a moment to review our targeted CD28 platform, which is a new class of T cell engager designed to complement other mechanisms of T cell activation such as checkpoint inhibition or CD3 engagement. CD28 has a key immune co-stimulatory receptor on T cells that has been difficult path to safely and effectively engage therapeutically. But by targeting a CD28-binding domain to a tumor by using a bispecific antibody, we can boost the activity of T cells in a tumor-selective way to enhance T cell-directed therapies.

Our most advanced wholly-owned lead CD28 candidate is XmAb808, a B7-H3 x CD28 bispecific antibody for potentially broad solid tumor use, including in prostate cancer where B7-H3 is highly expressed. That molecule is advancing through preclinical development, and we plan to file an IND in 2022. The second CD28 program is the focus of our research collaboration well underway with Janssen, where we have partnered and discovered a CD28 bispecific antibody against the prostate tumor target. Finally, we remain interested in PD-L1 as another target for this platform.

All these programs show the power of Xencor's platform to create candidates that access new biologies and to continually supply our clinical pipeline with differentiated molecules.

Now with that, I'll hand the call over to John Kuch, our Chief Financial Officer, who will review key highlights from our second quarter financials. John?

Thank you, John. As we have previously discussed, a critical part of Xencor's business is leveraging its protein engineering capabilities through partnerships and collaborations for its XmAb technologies and drug candidates to generate nondilutive sources of revenue.

We receive upfront payments, milestones, royalties and also equity interest in connection with certain partnerships. Proceeds from these partnerships and collaborations allow Xencor to maintain a strong financial position as we continue to advance our portfolio of clinical-stage and research-stage bispecific antibody and cytokine programs.

Cash, cash equivalents and marketable investment securities totaled $603.7 million as of June 30, 2021, compared to $604 million at December 31, 2020. Total proceeds from royalties, milestone, sale of an investment equity security and a net increase in the value of marketable equity securities offset net spending of approximately $90.5 million on operations for the first 6 months of 2021. Based on current operating plans, we expect to have cash to fund research and development programs and operations into 2024 and estimate we will end 2021 with between $475 million to $500 million in cash, cash equivalents and marketable securities.

Now I'll review our 3- and 6-month financials. Total revenue for the second quarter ended June 30, 2021, was $67.4 million compared to $13.1 million for the same period in 2020. Revenues in the second quarter included revenue from our Janssen, Novartis, Genentech collaborations and royalty revenue from Alexion, Vir and MorphoSys, while revenue for the second quarter in 2020 was primarily licensing revenue from Gilead and royalty revenue from Alexion.

Total revenue for the 6 months ended June 30, 2021, was $101.4 million compared to $45.5 million for the same period in 2020. Revenue for the 6 months ended June 30, 2021, include revenue from our Janssen, Novartis, Genentech collaborations, milestone revenue from MorphoSys, Vir and Novartis and royalty revenue from Alexion, Vir and MorphoSys compared to revenues from the same period in 2020, which were primarily licensing revenue from Gilead and Aimmune, milestone revenue from MorphoSys and royalty revenue from Alexion.

Research and development expenditures for the second quarter were $49.5 million compared to $43.5 million in the same period in 2020. Total R&D expenses for the 6 months ended June 30, 2021, were $90.9 million compared to $77.4 million for the same period in 2020.

Increased R&D expenses for the 3 and 6 months ended June 30, 2021, over the same periods in 2020 were due to additional spending on certain development programs, including XmAb104, our PD-1 x ICOS program; XmAb819, our ENPP3 CD3 and other early-stage development programs. Additional spending on XmAb306, our IL-15 program partnered with Genentech, also contributed to increased R&D expenses during the first 6 months of 2021.

General and administrative expenses for the second quarter ended June 30, 2021, were $8.9 million compared to $7.2 million in the same period in 2020. Total G&A expenses for the 6 months ended June 30, 2020, were $17.1 million compared to $14.4 million for the same period in 2020. Increased G&A expenses for the second quarter and the first 6 months of 2021 over amounts for the same period in 2020 were primarily due to increased G&A staffing and spending on professional fees.

Other income for the second quarter ended June 30, 2021, was $43.2 million compared to $2.6 million in the same period in 2020. Other income for the 6 months ended June 30, 2021, was $56.3 million compared to $3.3 million in the same period in 2020. Other income for the second quarter and the first 6 months of 2021 includes a realized gain of $18.3 million on the sale of an investment equity security and a net increase in unrealized gains on the company's marketable equity securities.

Net income for the second quarter ended June 30, 2021, was $52.2 million or $0.87 on a fully diluted per share basis compared to a net loss of $35 million or $0.61 on a fully diluted a share basis for the same period in 2020. For the 6 months ended June 30, 2021, net income was $49.8 million or $0.82 on a fully diluted a share basis compared to a net loss of $43.1 million or $0.76 on a fully diluted per share basis for the same period in 2020.

Net income reported for the 3 and 6 months ended June 30, 2021, compared to the net loss reported for the comparable periods in 2020 were primarily due to higher collaboration, milestone, royalty revenues and increase in other income for 2021. Noncash share-based compensation expense for the 6-month period was $17.6 million compared to $14.7 million for the same period in 2020. And total shares outstanding were 58.3 million as of June 30, 2021, compared to 57.2 million as of June 30, 2020.

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

(Operator Instructions) Your first question comes from the line of Ted Tenthoff with Piper Sandler.

Great. Loved the quick, concise and meaty update, a lot going on here. A couple of questions, if I may. Just checking in on the Roche program, IL-15. Any potential for updates there? And I think you said that you would file the IND for 819 this year and then potentially 2 INDs next year for IL-12 and 808. Is that all correct?

Thanks, Ted. Yes, on the IND timing, you're exactly right. 819 this year, the IL-12 and XmAb808, our B7-H3 x CD28, those go into '22, those latter 2. And with regard to the IL-15 program, XmAb306, we're currently collaborating with Genentech on. We're hopeful we can have some data to share with that program relatively soon. We're obviously still working with Genentech on the timing of that. But the program is advancing. We're, as you know, dose escalating both mono and combo. And we're exploring combination studies that we can start planning for both with Genentech and ourselves as well. So stay tuned.

Awesome. Really excited to hear more about that and also from 717 in the back half.

Your next question comes from the line of Jonathan Chang with SVB Leerink.

First question on 717. How do you see this program positioned in the competitive landscape versus other PD-1 CTLA-4 bispecifics in development?

So I guess there's 2 aspects to how we answer that question. First is the details of the mechanism of action. Our molecule is designed to have binding preferentially to those cells that have both antigens, that is PD-1 and CTLA-4, because of the way we tune the affinity to each antigen. In particular, the CTLA-4 affinity is rather modest. So you need that cooperativity of binding to hook on to double positive cells. The goal was to have something that's more selective for the relevant T cells and potentially has a differentiated tolerability profile.

We think from around 100 patients or so in our safety database, so far, we might be seeing a somewhat differentiated tolerability profile that doesn't have some of the very characteristic and profound EPI-related irAEs along the colitis and pneumonitis line. Of course, more data will have to be gathered to really nail that down. The only other program we know with that same MoA approach of a selective for double-positive cells bispecific would be a program that AstraZeneca has that we've not seen any data from yet, but I believe that's somewhere between Phase I and II right now.

The second way we want to position it is to see if, in particular, having a molecule that has the kind of profile that we've seen so far and is binding both antigens and offers that CTLA-4 bump up along with the PD-1 to try that in the indications where PD-1s are not already dominant. And that's why we're focusing our efforts initially in castration-resistant prostate cancer. So we'll be able to flesh out the details of that strategy very shortly now that we're up and running and the trial is initiated.

The goal there is to go into indications where the MoA has some scientific basis as well as support from data in our Phase I, but where there's not a swamped commercial landscape and an already dense thicket in development. And I think prostate cancer offers that kind of opportunity, and that's why we're aggressively pursuing it. We think we need to go where others haven't already heavily tried in the past.

Got it. And second question for 819. Can you elaborate on the reduced potency CD3 binding and compare this to other similar efforts in the competitive landscape?

I'll pass that one on to John Desjarlais, our CSO, who can comment more specifically on the kind of affinity ranges and our logic on that.

Yes. Thanks, Bassil. And thanks for the question, Jonathan. So basically, Xencor is not the only company actually moving in this direction. I think a lot of companies kind of simultaneously started exploring this idea of reducing CD3 potency as a way to mitigate cytokine release syndrome and all the symptoms that go with that.

We found importantly -- we could show this either in-vitro, but also in various preclinical models that we can -- by reducing the CD3 binding, we can actually preserve all those cytotoxicity conferred by the bispecific antibodies, but greatly reduce the cytokines that are produced. We see several orders of magnitude reduced fixed production in the monkeys when we put these molecules in.

They're tolerated at higher doses. So we're -- you could think about mg per kg versus microgram per kilogram, something as widely different as that. And of course, there are other benefits to being able to dose higher. You get -- tend to get longer PK, less target-mediated drug disposition. So we think there's a lot of benefits to that.

Your next question comes from the line of Peter Lawson with Barclays.

On the CD28 constructs, when could we see the initial data around those? And kind of the reason for picking CD28 over, I guess, CD3 and even the reduced-potency CD3 and other T cell engagers?

Yes. So I'll take a stab at that. So in terms of data, while we're just guiding that we're going to have the clinical trials started next year. And so for data, it will be beyond that. We can't speak specifically to something that's so far out.

Now just I'll make sure to emphasize that this CD28 as a T cell-binding bispecific is not as an alternative to CD3 engagement or other kinds of T cell targets. It's a pathway called the Signal 2 that is used to bump up T cell activity, whether that's activity that might be being driven by T cell receptor binding and signaling, which is really how PD-1s work. So think of this as an agent that could, in a tumor-selective way, boost potentially PD-1 checkpoint inhibitor activity.

It's also a way to augment CD3 bispecific activity, but again in a tumor-selective way, right? So it's a way to bump up things for other agents as long as -- as well as potentially having its own monotherapy activity. But we don't view it as an alternative really.

And then do you think the B7-H3 construct you have with CD28 can actually drive responses by itself? Or do you think it has to be combined with other prostate antigens you have?

John, you want to tackle that? I think we...

Yes, it's certainly a possibility. We -- obviously, we would hope to see single-agent activity. On the other hand, it's important to emphasize that PD-1, it's been shown by numerous publications over the last couple of years that PD-1's main mechanism of action is actually to interfere with CD28 signaling. And so a very obvious combination, therefore, would be combining the XmAb808 with PD-1 blockade just to make sure that, that brand new CD28 signal you started doesn't get shut off by the PD-1 signaling.

Yes. And we're quite enthusiastic about attacking CD28 because it's a challenging target to make work in this context where you really truly have selective activation, not over-activation or super-agonism. And John's team has done an amazing job finding the right epitopes and building the right constructs with the right affinities. It's quite an engineering feat. And we're really only aware of one company that's ahead of us here, and that will be Regeneron. And they seem to be putting a lot of effort into this pathway as well. We think this could be an exciting access, and we're really happy to be exploring it next year.

Your next question comes from the line of Etzer Darout with Guggenheim.

This is Paul on for Etzer. Just wondering, do you have any guidance currently on initial dose escalation data for your 2 earlier-stage tumor microenvironment programs, 841 and 104? And I think you sort of mentioned being about a year behind 717. So just hoping to see if there's an update coming.

We don't have an update planned for this year. We'll guide more on that later.

Okay. Well, in that case, I was hoping to get maybe your updated views on opportunity for 841, especially coming out of ASCO this year with some data for elipovimab that sort of validated the mechanism in melanoma. So maybe your thoughts on expectations for initial readout? Anything incremental we can learn about the mechanism and overall thoughts there.

Right. So remember, this is a CTLA-4 x LAG-3, so we're trying to combine both activities. And we've explored it -- we've been exploring it in dose escalation and plan expansion cohorts that are actually, I think, starting imminently. And I think the goal there is to see whether in either -- we've disclosed this before, either in monotherapy setting or in combination with a PD-1 inhibitor, and we're using pembrolizumab in a clinical collaboration with Merck, whether those settings of the post-PD-1 patient, because that's the monotherapy cohort, those patients are going to all be post PD-1 in the indications we're going after for the most part.

As well as we're looking there and we're looking in combo with pembro because we think this could be, hopefully, the agent of choice, giving you the most bang for the buck in 1 molecule. 2 checkpoints you can inhibit and hopefully in a way that, again, uses our selectivity design to hone to the right cell populations and reduce the irAE profile that people see a lot with EPI. So we don't know the setting. We're going to let the data guide us, but that's how we've set up the Phase I, and we're getting to the point where we're starting to really explore the efficacy and expansion cohorts.

Your next question comes from the line of Arlinda Lee with Canaccord.

I had one maybe for John. You talked about the CD28 strategy. Can you maybe talk a little bit about how you're -- maybe in the context of the competitive landscape, how you guys are addressing CD28 versus others? And then, I guess, more broadly, Bassil, you alluded to complementary mechanisms. How do you kind of think about the collaboration with Janssen and then with J&J and how that might play into your other efforts in prostate cancer?

Yes. Maybe I'll take the one on Janssen first, and then, John, you can jump in on our strategy, how we fit and how we think we differentiate. So the Janssen collaboration is for a prostate cancer target that isn't disclosed, to be used to target this CD28 mode in a bispecific antibody that we're creating with them. And they'll develop and we have attractive deal terms. We can take a 20% stake in the cost of the program after clinical proof-of-concept and get a substantially enhanced royalty into the double digits and teens.

But the logic there for Janssen is they have a robust portfolio of prostate cancer agents, including CD3 bispecifics they've talked about, including checkpoint efforts. And they think a CD28 Signal 2 could be a hugely important consequential part of that. And so we're delighted to be working with somebody who shares our vision for the science. Note that is a tumor-specific antigen, this prostate-specific antigen for prostate cancer. And I think maybe John can jump into how we're using both antigen selection as well as our platform's development for the CD28 to separate ourselves from others.

Yes. Thanks for the question, Arlinda. And by others, mostly I'm assuming you mean our colleagues at Regeneron who, as Bassil mentioned, are a little bit of ahead of us. I'd say one key aspect is we've again built, like we always do, a plug-and-play platform. So we have a highly stable anti-CD28 single-chain Fv that came out of our phage libraries. It's been heavily vetted. We have a whole affinity suite for those, and that's something that we can plug in the whole affinity suite with any particular tumor antigen.

And then I think the other key distinction is just looking at the targets that we've selected. So from the outset, I always wanted something that would be sort of a one-size-fits-all across a lot of histologies. And that led us pretty quickly to B7-H3, knowing its properties of broad and very bright expression across a lot of different histologies. Turns out it's also very bright on almost every epithelial tumor cell line that we work with. So it was very convenient for -- in terms of proof-of-concept.

So I think it comes down to that. Other targets we're looking at include like PD-L1 that I mentioned, again, another broadly expressed tumor antigen. So it comes down to that, I think the plug-and-play platform and the selection of broad targets versus very indication-specific targets like some of our competitors are exploring.

Your next question comes from the line of Tom Shrader with BTIG.

This is Kaveri on for Tom. Thanks for the update. Maybe one on the IL-12 and IL-15 program. Is the biology different for these 2 molecules? They both seem to activate NK and CD8 T cells. And does any recent data change the way you think about the opportunity? Like I guess, you mentioned it previously, we have also seen direct delivery of IL-12. It's powerful in melanoma, but you can't deliver it systemically. Does that intrigue you?

I'll let John take that one. That's -- those issues are the ones that literally drove his entire design philosophy.

Yes. So let me start in terms of the different biologies. It could certainly be confusing because they all activate NK cells and T cells. But the way I think of it is cytokines like IL-2 and IL-15, their sort of -- their day job is to lead to expansion of those cell populations. So you're making more T cells, making more NK cells. At the same time, they can actually promote higher cytotoxicity levels.

In contrast, IL-12's day job is basically to make those cells not so much proliferate them as much. I mean, although we've seen that, but really to make them more cytotoxic and, in particular, make them secrete a lot of interferon gamma, which, of course, pays all kinds of dividends in terms of immuno-oncology, including direct antitumor effects that interferon gamma is famous for, but also famously for upregulating class I MHC and increasing the overall immunogenicity in the tumor setting.

And then with respect to the opportunity, one of the Holy Grails of bio is to actually have a systemic IL-12, right? I mean, doing intratumoral injection always has limitations. As one of my colleagues has pointed out to me, intratumoral injection is basically -- it's a subcutaneous injection near the tumor. And so you can still -- when you're putting a highly potent IL-12 into a tumor, you're still getting systemic exposure ultimately.

And so we've taken the approach, which seems to have worked out well preclinically with our IL-15 program of reducing the potency. And that allows you to have a much more slower onset of these activities that you want to promote, like the interferon gamma and the other aspects of IL-12.

So we believe we can actually get away with systemic administration. At least that seems to be the case preclinically. But obviously, humans could be a different story, and we have to develop a very careful dose escalation plan in humans.

Got it. Yes, that makes sense. And for the IL-2 program, can you tell us how differentiated it is from the other approaches, those are being evaluated in the clinic, either suppression of CD8 T cells, specific CD8 T cells or differentiation of induced T regs through TGF-beta in IL-2?

Bassil, you want me to take that one?

Yes. Yes, you can go ahead. I think -- yes, sure. You're the expert.

Yes. I mean the key differentiation is a lot of it comes in the design of the molecule. Our format is a monovalent IL-2 versus several of our competitors have bivalent IL-2. We avoided the bivalent IL-2 because it -- that would almost interfere with our whole potency reduction concept. One of the main reasons to reduce potency is to reduce internalization. And that can actually be increased when you have a bivalent modality. We've also...

Xtend technology.

Yes, that's right. It has the Xtend technology. And I think we're a little more careful, at least looking at our own in-vitro selectivity data, we're more careful on the selectivity. And we think we have one of the best T reg selectivity profiles.

Your next question comes from the line of Gregory Renza with RBC Capital Markets.

This is Xinyue Lu on for Greg. I was wondering, as you had multiple commercial success with your partner programs, at what point would you consider further monetizing pipeline success again? And how do you think about accessing royalty to further invest in your pipeline?

Yes. So we're always assessing the markets, that is the royalty market view on the value of our revenue streams and comparing that against how we look at it. And we think it's always an option and an opportunity. We think it's a great part of the flexibility we've built in our business plan versus the steady income stream, in that our assessment of how that income stream might grow might miss the line at times with the royalty companies. And if it does 1 day, then maybe there's an opportunity that we see we can do better that way. I don't think of it as sort of an imperative. I think it's just a ready opportunity there.

Your next question comes from the line of Zhi Shu with Berenberg.

I have 2. The first one, I want to ask about plamotamab, the CD3, CD20 bispecific antibody. You said -- you mentioned about sharing more Phase I data later this year. Could you remind us what the Phase I trial -- the design of Phase I trial, and I guess, what we should be looking for in terms of derisking the Phase II trial you are going to start?

And the second question is around the cytokine portfolio. I think -- and now you -- it seems that you are putting more resources in developing more modifying cytokines. I guess what would you like to do in terms of developing more cytokines, particularly in the autoimmune medications, given cytokines are quite important in that area?

Yes, I'll answer the first question -- sorry, I'll answer the second question about our cytokine portfolio sort of strategy overall. Then I'll let Allen Yang, our Chief Medical Officer, take the one about plamo.

So on the cytokine portfolio, we are applying more resources because we've seen from the data that we've gathered so far on our earliest programs, there are IL-15 and our IL-2 for T regs, that this general strategy of reducing potency to the appropriate level, and you've got to really do the experiments to find out what that might be, to get that therapeutic profile that you want, the duration of action, the increase in cell populations that you want and the tolerability profile. That strategy seems to have general legs. And preclinically, we're exploring IL-18 now. We've looked at some other cytokines.

So I think there's an enormous playground there. And I think for now, we're going to focus on buttressing our portfolio in the oncology space. We thought that the outlier there was the T reg hypothesis for IL-2 was just too good and clear and direct of an opportunity for our platform to pass up for now. And so I think we're going to continue focusing on oncology, while we do scientific and research exploration all over the place and for now just have the IL-2 be the one that we're planning for now in the autoimmune side.

So that's in the clinic now. We're excited about it. The next clinical program and probably the one after that would be oncology. And then, Allen, do you want to address the question about the Phase I and how that plays into Phase II for plamo?

Sure, Bassil, thanks. Thanks, Zhi Shu, for the question. So the question was what to expect from our Phase I data. So I think the last time we publicly released data on our Phase I program was at ASH 2 years ago, actually 2 previous ASHs, and we were still in dose escalation. And so the team has spent a lot of time really optimizing the dose and schedule.

And so more recently, we've been sort of developing a more convenient and dose and schedule on something like responses at over 80 micrograms per kilogram. And the response rate was roughly over 40%. We've now moved well beyond that in our dose escalation. And so we'll be looking at data at much higher doses. And that was in diffuse large B-cell lymphoma. So we'll have continued data in diffuse large B-cell lymphoma and probably some indolent lymphomas as well. So that will be the Phase I data.

I think the second question was what to expect in the Phase II study. So we've announced that we're committed to a Phase II study. We think it's very exciting. It's a chemo-free study, where we're combining plamotamab with tafasitamab and lenalidomide. So we think that there's 2 complementary mechanism of actions and targets of CD19 with ADCC and CD20 with the T cell engagement. So we believe that, that is actually a very exciting and novel mechanism of action and will differentiate us from the competitors.

And ladies and gentlemen, that concludes our Q&A session. I'd like to turn the call over to Bassil Dahiyat for any closing remarks.

Thanks very much, and a big thank you to the team at Xencor that's been tireless in keeping with our whole suite of programs moving forward. And finally, I'd like to thank everybody very much for joining us today. We look forward to updating you again over the coming months. And have a terrific evening.

Thank you for your participation in today's call. This does conclude today's conference call. You may now disconnect.