XBiotech Inc.
Q1 2017 Earnings Call Transcript

Published: 7 May 2017

[Operator:]

Good day, ladies and gentlemen and welcome to the XBiotech’s First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Ashley Otero. You may begin.

[Ashley Otero:]

Thank you, operator. Before turning the call over to our CEO, John Simard, I would like to make the following remarks. During this call, forward-looking statements including declarations regarding management’s beliefs and expectations will be made. In some cases, you can identify forward-looking statements by terminologies such as may, will, should, would, could, expects, plans, contemplates, anticipates, believes, estimates, predicts, projects, intends, or continue or the negative of such terms or other comparable terminology, although not all forward-looking statements contain these identifying words.

[John Simard:]

Thank you for the introduction and thanks to all those attending the call this morning. I will speak to the status of our ongoing marketing authorization application first here this morning and then give a more general background of the other operations that are ongoing. As we already publically announced, on April 20, an oral explanation in support of our marketing authorization application was given to the EMA at its headquarters in London, England. In our opinion, an overwhelming body of evidence was presented that confirmed our True Human antibody works through specifically target tumor associated information and that this activity results in an important therapeutic benefit for patients with advanced colorectal cancer. At the April 20 meeting, we thus presented unambiguous findings from our Phase 3 pivotal study that our antibody therapy controlled a combination of key symptoms associated with advanced cancer and in particular advanced colorectal cancer. These symptoms included pain, fatigue, anorexia and muscle loss. Each of these measures were in fact established with the EMA’s scientific group as the primary endpoint of the clinical study. And to be clear, we did in fact meet the planned primary outcome of the study. The symptoms we measured each are of critical importance to the patient’s well being. That is in fact why the combined endpoint was considered so relevant as a measure of our drug’s activity. At the request of the EMA, we spent a long time investigating what we could learn about what these symptoms told us about the patient’s disease. These findings were also groundbreaking. Our analysis showed that the symptoms that we used as an endpoint for the clinical study with far more relevant measures of prognosis than the longstanding use of tumor measures. Our findings showed that patients which achieved the primary endpoint, in other words, patients which had achieved stabilization or improvement with these combination of symptoms also had dramatic increase in overall survival, reduced tumor progression in substantially fewer disease related serious adverse events. What was equally remarkable was that the safety and tolerability of the therapy was unprecedented for oncology. In the double-blinded placebo controlled Phase 3 study, doctors actually attributed more adverse events to placebo than to the antibody therapy. The findings with the therapy not only met our planned endpoints, but the new endpoints exceeded all of our expectations for its value as a measure of disease progression. At our invitation, the London meeting was attended by renowned oncologists that have used the antibody therapy in their clinics to treat colorectal cancer patients. These oncologists were Andrew Hendifar from the UCLA’s Cedars-Sinai Cancer Center, Alexander Knuth, Professor Emeritus and Former Chief of Oncology University of Zurich Hospital; [indiscernible] Professor of Oncology in Warsaw and Mark Saunders, Clinical Oncologist from the NHS Foundation Trust in the UK who came together with his research nurse [indiscernible]. Finally, we had a patient with us that has been in the Phase 3 study receiving antibody therapy for about two years. These extraordinary people convened in London to share their various experiences and the common belief that the antibody therapy serves a dire unmet medical need in advanced cancer. Their dedication, expertise and support was indeed inspirational. And unfortunately, we seemed unable to engage the CHMP committee members in any meaningful way to evaluate the data presented or to consider the important clinical benefits of the therapy. The presentation made at the meeting has been filed as an 8-K document and is available for download. Upon careful review of this presentation, I believe those knowledgeable in the field will conclude that the negative positions taken by the CHMP are in conflict with the scientific data reported. It remains at present impossible for us to determine where the source of this conflict comes from. Although the design was based on explicit regulatory guidance provided by the EMA, the study did however represent a new way to evaluate an anti-cancer agent. Focusing on the use of symptoms as a measure of disease progression goes against tradition, against the use of tumor measures that have been used to evaluate anti-tumor activity of cancer agents for 60 years. Yet, the EMA’s published guidance states that symptom control and I quote, “if related to anti-tumor effects, is a valid measure of therapeutic activity and may serve as a primary endpoint in late line therapy studies”. Moreover, key aspects of the study design used in the Phase 3 trial rolls out of an extensive collaborative process between the company and the EMA’s own Scientific Advice Working party. Although the endpoints were new, we expected that these formal guidance and engagement activities with the EMA in the study design will provide the necessary institutional support for positive findings [indiscernible]. However, the outcome of the oral explanation needs vote [ph] that the CHMP committee does not properly appreciate the importance of either the clinical approach or the data that was generated from the Phase 3 study. We must continue to work to help the EMA gain a better understanding, a better perspective of the data and the importance of the therapy for the unmet medical need for advanced colorectal cancer. In these circumstances, EMA regulations provide for a reexamination procedure that can give us the opportunity to work further towards this aim. In summary, the reexamination procedure with the EMA is as follows. Within 15 calendar days, after receiving a final opinion, we are to submit a written notice to the EMA requesting reexamination. Within 60 days from the opinion, a further detailed explanation justifying the need for a reexamination must be provided. And within 60 days from receiving the detailed explanation, the EMA shall complete its reexamination process of its original opinion. During this period, the company may also seek additional input from the EMA Scientific Advice group or from an adhoc group of experts to further support the reexamination process. A final opinion is expected after the CHMP convenes during its routine meeting in mid-May. It must be emphasized that we have not yet received the final opinion on our marketing authorization application. We received only a trending vote that took place immediately following the meeting. While the EMA has not shared the details and reasoning behind the trending vote, it was explained to us that the trend indicated that there would be a lack of support for an approval once the official vote is to be taken at the scheduled meeting in May. Hence, the immediate communication with you on the result of that trend. We do however trust that through the remaining procedures available to us, it will be possible to build a consensus around the positive data and the accretional importance of our antibody therapy for treating advanced colorectal cancer. We are vigorously pursuing these activities. It’s important to know that this situation has happened in the recent past with other drugs. Since 2009, 18 products have undergone reexamination through this appeal process. The CHMP has reversed their original negative opinion to positive outcomes in seven of these cases. In May 2016, the anti-cancer agent, a tyrosine-kinase inhibitor developed by the Japanese pharmaceutical company Takeda, was denied approval for the treatment of multiple myeloma. Denial of approval was after the drug showed significant improvement in progression free survival, but could not demonstrate extension of life in patients with advanced disease. A reexamination was requested and the drug was eventually granted marketing authorization in November 2016. Crucial to the reexamination process appears to be the widespread support of the drug that it received among multiple myeloma advocacy groups across Europe. In another example, in 2014, the EMA rejected approval of a new treatment for duchenne muscular dystrophy. The rejection was based on the fact that the pivotal study to demonstrate efficacy failed to meet its primary endpoint. This of course is a significant failure. The decision was appealed and post-hoc data analysis was accepted that showed that the drug was more effective in a subset of patients involved in the clinical study and based on this post-hoc data and the presence of another ongoing Phase 3 study, in May 2014, the EMA changed its decision and conditionally approved the drug. Again important in the decision by the EMA to grant conditional approval of the widespread backing of patient groups that demanded new treatments for muscular dystrophy. There are at least 43 patient organizations spread across the 32 European countries that advocate for the right needs of colorectal cancer sufferers. Our plan is to get support from each and every one of these organizations and to deliver the support to the EMA. My personal experience with patients and patient advocates has been extraordinary. I believe we can garner patient support unlike any other cancer drug before us. That is because our treatment is unlike any other cancer drug before and how it makes patients feel better while it attacks the disease. This is enormously important to patients and the fact that the drug was derived of a natural human antibody gives patients a great deal of comfort in receiving the therapy. Every situation is different and they are complex in multiple variables involved in this approval process. But in our case, we achieved our primary endpoint for a study that we designed together with the EMA and we demonstrated unequivocal benefits for patients receiving the therapy. We have a therapy that patients and clinicians are screaming for. I must believe that our well grounded appeal strenuously supported by all the stakeholders involved will be appropriately received in a reexamination process by the EMA. Again, we will vigorously pursue this reexamination process. While we continue to pursue our EU marketing authorization, other important clinical programs are not affected. Our global Phase 3 study is ongoing that has completed enrollment with 640 patients having received treatment with either our antibody therapy or placebo in advanced colorectal cancer population. Although this study is in a similar patient population to that conducted in Europe, the endpoint differs from the EMA study. The global Phase 3 study under our fast tracked FDA regulatory path has a conventional objective of demonstrating overall survival as the primary endpoint. In other words, the placebo controlled randomized double blinded study must show a significant improvement in overall survival between the treatment and placebo groups. The second interim analysis is scheduled for mid-June. And the second interim will be similar to the first in that there will be three possible outcomes. Completion of the study because of the successful demonstration of the primary endpoint, a continuation of the study to collect more survival data or a halting of the study if we fail to meet the statistical significance for the survival effect. We will of course report on the outcome of this analysis when it becomes available. To discuss our development pipeline beyond oncology, I will briefly mention two other clinical programs for which we are in the planning stages for registration studies. We are in the process of developing Phase 3 pivotal study protocols for both our dermatology and our infectious disease programs. As soon as possible, we will be submitting registration plans to the FDA for what is known as a special protocol assessment or SPA for both the dermatology and infectious disease therapies. These SPAs will enable the agency to review and help guide the development of the clinical protocols so that we are in better agreement on what will be sufficient data to seek product registration. We expect to have agency feedback for each of these pivotal study designs around the same quarter of 2017. When I speak of our dermatology program in this context, I’m speaking of Hidradenitis Suppurativa. And our recent findings from our Phase 2 study showed that our antibody therapy for Hidradenitis significantly improved the disease including in patients that were refractory to other best known therapies such as REMICADE or HUMIRA. Importantly, while our therapy improved the skin lesions, it also worked under the skin to reduce the underlying vascularization of the lesions. 60% of the patients treated had meaningful improvement in the disease according to the accepted heart score rating system that is used to assess disease severity in Hidradenitis. The devastating nature of the disease, the lack of treatment options and the high incidence of diseases in the public made the treatment response that we saw to our therapy all the more important. But what we also saw in terms of reduction in vascularization of the skin lesions was tremendously important in terms of the potential durability in the treatment and how it confirmed a fundamental mechanism of action that has wide ranging implications for this antibody therapy. We know that the target of the antibody is a potent inducer of angiogenesis but we have not previously had the clinical study designs, which allowed us to capture these kinds of results. So this activity goes beyond skin disease and speaks to a very fundamental mechanism that could be at work for patients that are treated with the antibody in other diseases too like cancer where inhibiting tumor angiogenesis has been a duty [ph] of oncologists for decades. In summary, our findings in Hidradenitis suggest a very important therapy for patients suffering from this disease which is estimated to affect as many as 4% of the population. Our treatment for Hidradenitis will have important impact on this disease for sure. But our results in dermatology as a whole including psoriasis and acne [indiscernible] Hidradenitis is the tip of the iceberg and that an approval in Hidradenitis will be a gateway to proving that our antibody therapy is the most important new treatment approach in development today for our inflammatory skin disorders. I would like now to say a few words about our infectious disease program. Our discovery approach to deriving antibody therapeutics of individuals with natural immunity to disease has the potential for treating a new generation of therapies for infectious disease. We’re pleased with the speed at which we can identify a candidate therapy from an individual that has antibodies to neutralize a deadly infectious agent. With our FDA Fast Track program to treat staphylococcus aureus, we showed that the very precise immunity so cleverly engineered by one person's immune system can be used to protect others even from bacteria evolved to evade the body's defenses. A recent clinical finding is therefore from our staph aureus therapy for a homerun. Let me give you a little background on this study. We knew from the start that our antibody therapy was unique. [indiscernible] to treat staph infections found for the first time in antibody that targets the bacteria at a key wavelength factor. It's allowed the bacteria to escape the body’s immune system and to cause devastating disease. We fully expect that the antibody can neutralize blood-borne staph infections and to do it as safely as if it were a natural antibody already present in the person's body. What we knew less about though was who and where would we find these infections. We wanted to demonstrate activity in patients who needed help the most. That is those with bacteria that it’s spread into the blood and had significant risk of dying from the infection. We had good ideas from the literature about who were the most likely patients to have this infection and we consulted extensively with medical experts to determine where this drug might most commonly be used. But as with all complex problems, it took real world experience to actually learn the most about the patient population, who is in need of this antibody therapy. [indiscernible] clinical studies with dozens of hospitals targeted to have our antibody on the shelf to treat people urgently in need of therapy. As it turned out, the lead doctor at the clinic -- for all the clinics was a surgeon that treated trauma victims. That is the investigator treated patients who came into the emergency ward after serious or life-threatening events. Patients at the center had been in car accidents, had head injuries, required emergency surgery for chronic diseases or the like. These patients who are subject to invasive procedures and the other ones severely weakened by their injuries. They appeared to be the most susceptible to the blood infections with staph aureus. A key endpoint in this study, we however -- the duration of hospitalization and the incidence of serious adverse events. As we saw the complicated nature of the background illnesses of the patient’s blood staph bacteremia, it became concerning whether or not we could see ultimately a reduction in hospitalization or serious adverse events by treating only the bacteremia. In other words, there was so much background noise related to the bacteremia that treating the infectious disease, although serious and life-threatening, might not give us a clear enough signal of the drug effect. So it was quite extraordinary. Once the study completed, it was unblinded to find that there was about half as many serious adverse events overall in patients receiving antibody and nearly 60% reduction in serious adverse events that were deemed to be related to infection. As well, hospitalization time was reduced by about one third in those receiving the antibody. This was exactly the signal that we were hoping for. And it came in spite of a patient population that had so much background illness; it made us uncertain of the outcome. In the clinical testing of the new treatment, it is essential that you demonstrate a treatment effect that shows an impact, a positive impact on the patient's well-being. Reducing serious adverse events or hospitalized days is just such an effect. This is how we plan to approach the pivotal study for registration of the product. We are now developing a pivotal study plan that will enable us to seek market registration for our 514G3 antibody therapy to treat life-threatening staphylococcus aureus infections. As I mentioned before, the first step would be getting the study proposal to the FDA and getting their detailed feedback on the plan and the endpoints. Once this is achieved, we would be prepared to launch an approval study. We will give you more information on the timing of this program as we progress. To help us with all of this scientific and clinical development, we recently announced the formalization of a scientific advisory board, which now includes leading physicians and researchers with a broad range of expertise relating to the aids of the company's product pipeline, including oncology, dermatology, infectious disease and Type 2 diabetes. We have put brief biographies of these extremely talented and dedicated physicians on our website. I encourage those that are interested in knowing more about some of these doctors involved to go ahead and have a look at the XBiotech website. I want to say just a few words about our ongoing groundbreaking discovery work. In general, our technology enables us to capture the essence of protective immunity from an individual and share it with others. The potential safety and benefits from this approach I think are quite intuitive. But what is a really remarkable opportunity, an unmet need for these kinds of therapies is with our ageing population. Antibodies play a crucial role in eliminating infectious disease before they can become a problem. As we age, our immune system diminish. By the time we reach retirement age, the quality and quantity of our antibody defense has significantly diminished. This diminishing antibody immunity cannot be overcome by immunization and just simply isn't the machinery in place any longer to produce the kinds of antibodies that we give at one point in our lives. Consequently, infectious disease agents that were once easily controlled begin to outpace and outmaneuver our antibody system. Diseases like C. difficile, herpes-zoster and Influenza are prime examples of infectious agents once well-controlled that begin to represent an existential threat to a body no longer defended by a strong antibody system. So what we are able to do in essence is to replace that diminishing antibody response with those that have been lost. When we search the healthy human population for natural antibodies against disease; we are finding those natural protectors that have been lost with age. We can make it and we can simplify those antibodies in large quantities to use to reinvigorate the leading immune system. With the ageing demographics in our industrial societies, the need for this approach is both massive and growing every day. And to me, it is the most sensible use of biological therapy that one can imagine. Within this platform, we are furthering innovation to find unique approaches to make these therapies as effective and as useful as possible. You may remember that we are working towards development of the first oral monoclonal antibody therapy which we will use to try and prevent the terrible intestinal infections caused by C. difficile. In hundreds of thousands of elderly people each year in the United States, Europe and Japan awaiting antibody immunity that protects their intestine from uncontrolled colonization by this bacteria allows the disease to manifest with a high degree of morbidity and deadly consequences. We have found antibodies in healthy volunteers that target the exact ranges of the bacteria we believe are involved in its attachment to the lining of the intestine. We've also found antibodies that target parts of the bacteria involved in its utility. We believe these antibodies are involved in protecting healthy immunocompetent individuals from developing disease. And we are extremely excited about the potential to bring these antibodies into the clinic to supplement the immunity of our ageing population and relieve the considerable human suffering that these infections cause today. Our True Human antibody candidates targeting C. difficile are now being developed for production cell lines that will enable us to manufacture products and support final stages of preclinical research and to support clinical trials and distribution to the market. Because this is an oral antibody therapy and not administrated directly into the bloodstream, it gives us opportunities to reduce some of the downstream production steps normally used in the manufacturing of antibodies. We will therefore be innovating further in our manufacturing process to further reduce the cost and complexity of the production process for this therapy. We will submit these details along with the protocol to the FDA to gain the early feedback for all aspects of this program and I will keep you apprised as this important therapy advances closer to the clinic. The development of our True Human antibody therapies for Influenza and herpes-zoster is also proceeding. Antibody candidates against herpes-zoster have now been shortlisted and we will have to go in vitro testing for efficacy soon. Our search for broadly neutralizing antibodies for Influenza are continuing, but to date we have not been satisfied with the breadth of activity we can achieve with the antibodies we have found so far. Because of the variations between Influenza, finding an antibody that can protect against many different strengths would be ideal for a product. And to achieve this kind of broadly neutralizing activity, we will have to continue to screen the candidate molecules we have found to date. As we have talked about in the past, we were recently granted GAP certification by the EMA to enable our production of antibody for market. This manufacturing infrastructure is a cornerstone that will enable our drug production needs for all of our clinical trials and commercial programs, including oncology, dermatology and infectious disease programs. We continue to build on our operational capabilities in our new manufacturing facility and our first full-scale manufacturing runs to support registration of the facility began already in the first quarter and will continue. We still have work to do to bring that facility online. I will now summarize briefly our financial position today. From inception through March 31, 2017, the company has accumulated a deficit of approximately $257 million. During the first quarter of 2017, the company had about $10.9 million in operating expenses, which is about $700,000 above our operating expenses during the first quarter of 2016. As of March 31, 2017, XBiotech had cash and cash equivalents of approximately $54.6 million. Our biggest cash needs during the quarter were in support contract and clinical operations where we spent about $3.8 million. Overall, personnel costs for the quarter were our second biggest cost, where we spent approximately $2.7 million. We spent an additional $1.2 million in laboratory supplies and some trailing costs related to our construction and manufacturing amounted to about $1.5 million. As you already know on the last quarter, we raised about 32 million in a registered direct offering. This means that we sold shares directly without a broker or an underwriter and without any of the associated fees and that these shares were registered in tradable securities. The company has, based on its current burn rate, cash to operate into the third quarter of 2018. With that, I will wrap up this portion of the quarterly update and remind listeners that we will have Q&A session and I do look forward to trying to answer any of the thoughts or questions you may have. Operator, thank you. Please open the call to Q&A.

[Operator:]

[Operator Instructions] Our first question comes from Kumar Raja of Noble Capital. Your line is open.

[Kumar Raja:]

Hi. Thank you for taking my question. So the ongoing US colorectal trial. Can that be leveraged for re-examination by the EMA and also when you guys released Phase 2 data for staph aureus; there were some imbalances in the arm. And for the Phase 3 trial, what is the expectation in terms of how large a trial in terms of how many patients you need and what can be done in that trial to reduce these imbalances?

[John Simard:]

Hi. Thanks for the question. Thanks for calling in today. Mike, do you want to start with the second question?

[Mike Stecher:]

Sure. Regarding the imbalances, as I'm sure you are aware, the patient numbers in the Phase 1/2 trial were 36 and 16. So 36 patients treated with the antibody and 16 with placebo. 30 of those were at the highest dose level and we did this design in this way in order to evaluate different dose levels, not only for the, essential for dose limiting toxicity, but also for the dose effect. So what we had was a study with relatively small numbers, which we had great results we feel, but there was this imbalance that we saw in the number of deaths. So, the way we would handle this and the way we will handle this moving forward is the same way anyone else would and that is with larger numbers, and with Phase 3 pivotal trial, it's going to take quite a bit more than 52 patients, so larger numbers and one-to-one randomization that should account for any potential additional imbalances.

[John Simard:]

Does that answer your question on that?

[Kumar Raja:]

Yes. And on leveraging the US trial for re-examination by the EMA for?

[John Simard:]

Yes. I was going to answer that, and as a given example, of the study in muscular dystrophy which failed on the first pass and to be granted approval, when they came back for the re-examination, they apparently did discuss and used the Phase 3 data that was ongoing in a separate study as part of the arguments to support the conditional approval that they ultimately achieved. So I think if history is any guide, with this re-examination process, it seems that anything could potentially be on the table. It's really up to the examiners at that time to decide what they think is relevant. This Phase 3 study could be viewed as relevant, but on the other hand, it's not really necessary. We did achieve the primary endpoint. The purpose of this study in Europe was to show improvement in [indiscernible] and collection of symptoms that are unquestionably clinically relevant, pain, fatigue, anorexia and muscle mass, we demonstrated that and I think we want to focus on that, it's independent of the US study and in our case, I'm not sure that we need the US study to be successful in our appeal.

[Operator:]

Thank you. [Operator Instructions] At this time, I’m showing no other callers in the queue for questions. I'll turn the call back over to management for closing remarks.

[John Simard:]

We have no further remarks, but we do thank again everyone for coming on the call this morning. That will wrap up the session.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. You may disconnect. Have a wonderful day.