Xenon Pharmaceuticals Inc.
Q4 2018 Earnings Call Transcript

Published: 7 Mar 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2018 Xenon Pharmaceuticals Incorporated Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Jodi Regts. Ma'am, you may begin.

[Jodi Regts:]

Thanks, Heather. Good afternoon. Thank you for joining us on our call and webcast to discuss our 2018 financial and operating results. Joining me on today's call are Dr. Simon Pimstone, Xenon's Chief Executive Officer; and Ian Mortimer, Xenon's President and Chief Financial Officer. Following this introduction, Simon will provide perspective on Xenon's progress, and then Ian will review our financial results. After that, we will open up the call to your questions. Please be advised that during this call, we will make a number of statements that are forward-looking, including statements about the sufficiency of our cash to fund operations into 2021; the timing of IND or IND equivalent submissions with regulatory agencies; the initiation of future clinical trials; the efficacy of our clinical trial designs and anticipated enrollment; the potential efficacy, safety profile, future development plans, addressable market, regulatory success and commercial potential of our product candidates; the timing of and results from ongoing clinical trials and preclinical development activities; our ability to achieve certain milestones in our proprietary development programs; the results of our research and development efforts; the status and timing of the potential addition of new programs to our pipeline and related development activities; the timing of our public presentation and potential publication in future clinical data; and the potential to advance XEN496 into a Phase 3 clinical trial and XEN007 into a Phase 2 or later stage clinical trial. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call. We undertake no obligation to publicly update any forward-looking statement. Today's press release summarizing our 2018 results and the accompanying annual report on Form 10-K will be available under the Investors section of our website at www.xenon-pharma.com and filed with the SEC and SEDAR. Now I'd like to turn the call over to Simon.

[Simon Pimstone:]

Thank you, Jodi, and good afternoon, everyone. 2018 was a pivotal year for Xenon as we build out our neurology pipeline and advanced multiple product candidates using a variety of development strategies including a precision medicine approach to address rare pediatric disorders. This foundational work has resulted in four distinct therapeutic candidates XEN496; XEN1101; XEN901; and XEN007. These are expected to be in Phase 2 or later stage development this year, as well as the potential for additional development candidates which we’re very excited about and which we expect to report on in the second half of this year. On our call today I’ll provide an update in all of Xenon's clinical stage products before turning things over to Ian, who will then provide a financial and milestone overview. Let me start with XEN496, a Kv7 potassium channel modulator with the active ingredient ezogabine. We’re developing XEN496 as a treatment for KCNQ2 epileptic encephalopathy or KCNQ2 epilepsy which is a rare severe neuro-developmental pediatric disorder with a significant seizure burden and profound developmental impairment. Ezogabine was previously approved by the FDA as an antiepileptic drug or AED as an adjunctive treatment for adults with focal seizures with or without secondary generalization. In fact, ezogabine is the only AED previously approved by the FDA with a mechanism of action that potentiates Kv7 mediated potassium current. GlaxoSmithKline marketed ezogabine in various jurisdictions as Potiga in the U.S. and as Trobalt in Europe but withdrew the drug from the market worldwide in June 2017 citing commercial reasons. In the landscape of other approved AEDs in the adult population, ezogabine never gained a large market share due to a number of liabilities including pigmentation risk, especially the initial concerns about potential visual toxicity related to retinal pigmentation which to-date have not been proven. As well as issues around the three times a day dosing regimen and Cmax related CNS adverse effects, as well as urinary retention observed in approximately 1% of patients. While ezogabine was approved for adult focal epilepsy, published case series reported on the successful use of ezogabine in children with KCNQ2 epilepsy suggesting that XEN496 could be efficacious in this orphan hard to treat pediatric patient population with good reported tolerability. While non-controls these clinical series reported improvements in seizure burden, as well as in development and behavior. We received Orphan Drug Designation or ODD from the FDA for XEN496 as a treatment of KCNQ2 epilepsy. Importantly, we obtained a regulatory right of reference from GSK authorizing the FDA to reference GSK's nonclinical and clinical data when considering our regulatory submissions. This is especially valuable considering that ezogabine has been used by thousands of patients. We established a steering committee made up of key opinion leaders in pediatric, epilepsy fields to help guide the clinical development of XEN496. In response to our pre-IND briefing package submitted in 2018, the FDA indicated that it was acceptable to study XEN496 in infants and children up to four years old and that a single pivotal trial in approximately 20 patients may be considered adequate provided we show evidence of a clinically meaningful effect. Recognizing that ezogabine was initially developed as a hard-coated tablet that is unsuitable for use in children, we are finalizing a pediatric-specific formulation and we expect to complete preclinical formulation testing with a final drug product in the second quarter of 2019. We are on track to file an investigational new drug or IND application in the third quarter of 2019 and based on this regulatory feedback, we anticipate initiating a Phase 3 clinical trial thereafter. This timeline is based on our assumption that the testing of our new XEN496 pediatric formulation in healthy adult volunteers will not be a regulatory requirement prior to initiating a Phase 3 clinical trial. We're excited that XEN496 provides us with the opportunity to move rapidly into late stage development and to apply precision medicine approach to treating KCNQ2 epilepsy. We look forward to providing additional details regarding the clinical development of XEN496 including the final anticipated trial design and endpoints. Next in our development pipeline is XEN1101 a differentiated next generation Kv7 potassium channel modulator being developed for the treatment of focal adult epilepsy and potentially other neurological disorders. We announced final data from the XEN1101 Phase 1 clinical trial including the transcranial magnetic stimulation or TMS studies at the American Epilepsy Society Annual Meeting this past December. Just to briefly review, the objectives of XEN1101 Phase 1 clinical trial were to evaluate the safety, tolerability and PK of both single ascending doses, and multiple ascending doses using a powder and capsule formulation of XEN1101 in healthy subjects The XEN1101 Phase 1 clinical trial also included a pharmacodynamic read-out from TMS studies that were designed to assess XEN1101 ability and potency to modulate cortical excitability thereby demonstrating activity in the target CNS tissue. To summarize the results presented at AES, the Phase 1 1101 data include a PK profile that supports once a day dosing and exhibited an AE profile consistent with antiepileptic drugs of this class. The majority of AEs were milds or moderates results spontaneously and were consistent with antiepileptic drugs of this class. Sedation including somnolence, and drowsiness and dizziness including lightheadedness and presyncope were the most common AEs, while mild cognitive effects including memory and speech impairment and blurred vision were also observed in a dose dependent manner. There were no serious AEs, no deaths and no clinically significant ECG or laboratory findings and no urine refindings and no pigmentation was observed. Thus these Phase 1 data suggest that XEN1101 is generally safe and well-tolerated in the doses examined including single doses of up to 30 milligrams and multiple doses of up to 25 milligrams once daily. In the Phase 1b TMS study, XEN1101 reduced corticospinal excitability as demonstrated by a concentration-dependent elevation in resting motor threshold the key TMS EMG measure. In addition, XEN1101 modulated TMS evoked EEG potentials otherwise known as TEPs in a patent consistent with reductions in cortical excitability. Overall the Phase 1b TMS study provide evidence of the CNS effects of a single 20 milligram dose of XENE1101 as indicated by suppression of cortical and corticospinal excitability and helped us with dose selection for our XEN1101 Phase 2b clinical trial with this 20 milligram dose was set as the mid-dose of three active dose groups. We have recently initiated our Phase 2b clinical trial in adult patients with focal epilepsy. The Phase 2b clinical trial is designed as a randomized double-blind placebo-controlled multicenter study to evaluate the clinical efficacy, safety and tolerability of XEN1101 administered as adjunctive treatment in adult patients with focal epilepsy. Approximately 300 patients who we randomized in a blinded manner to one of three active treatment groups or placebo in a 2

[Ian Mortimer:]

Thanks Simon, and good afternoon everyone. I’ll start by providing an overview of our cash position and cash runway guidance and then I'll provide a few highlights of the financial statements. Cash and cash equivalents and marketable securities as of December 31, 2018 were $119.3 million. This compares to $43.7 million as of December 31, 2017. As I noted on our last call, our balance sheet will strengthen this past year through the successful completion of an underwritten public offering in September as well as other raises earlier in the year. The raise in September provided us with proceeds of $59.2 million net of underwriting discounts and commissions, but before operating expenses. Another positive benefit of this offering included the addition of high quality institutional and shareholders to continue to support our strategic goals. As of December 31, 2018 there was approximately 25.75 million common shares outstanding and approximately 1 million Series 1 preferred shares outstanding which are convertible into common shares on a one-for-one basis at the option of the holder subject to certain limitations. Based on our current assumptions which include fully supporting the planned clinical development of XEN496, XEN1101, XEN901 and XEN007 we anticipate having sufficient cash to fund operations into 2021. And this excludes any revenue generated from either existing partnerships or potential new partnering arrangements. I won’t provide any specific comments on our financial statements as all of the details are covered in our press release and in the 10-K filing. However, I did want to bring to your attention a one-time expense that occurred in September where we incurred a one-time $6 million payment to Valeant or Bausch Health and this was to further buyout of all future milestone payments and royalties owed with respect to our XEN1101 product candidate. This was a very important transaction for Xenon as we now owe nominal future economics on all four assets within our proprietary clinical pipeline which gives us tremendous flexibility as we develop these products. So in summary looking to the remainder of the year, we anticipate initiating a Phase 3 clinical trial for XEN496 for the treatment of KCNQ2 epilepsy, advancing our ongoing XEN1101 Phase 2b clinical trial in adult focal epilepsy with the goal of approximately half the trial recruited by year-end. Initiating a Phase 2 clinical trial for XEN901 in either a pediatric or adult epilepsy indication depending on regulatory feedback which we expect during the second quarter. And also we expect to initiate an investigator sponsored Phase 2 clinical trial for XEN007 in the near-term as well as working towards a Phase 2 or later clinical trial in an orphan neurological indication, possibly alternating hemiplegia of childhood and this obviously depend on regulatory input. We attempt to achieve these development milestones with the support of a strong balance sheet that funds our portfolio into 2021. To build on Simon’s comments in conclusion we have built out an innovative CNS product portfolio that has both breadth and depths and with more to come. While I am proud of the great amount of progress that we've made over the past year I'm even more excited looking to the future with the prospect of having multiple neurology products in mid-and late stage clinical development this year. We look forward to keeping you updated on our progress throughout the year. Operator, we can now open the call up for questions.

[Operator:]

[Operator Instructions] And your first question comes from Stephen Willey with Stifel. Your line is open.

[Stephen Willey:]

Just wanted to clarify regarding 496, so is it your intention then to secure definitive regulatory guidance on the proposed pediatric formulation and I guess the lack of a bridging study prior to cementing an IND filing and if so I guess kind of how does that logistically work will there be some formal FDA meeting that needs to go in the calendar or is it just something that you can solicit from the agency, I guess anecdotally?

[Simon Pimstone:]

Steve. it’s Simon thank you. At the moment we aren’t looking to seek formal guidance before the IND submission anticipated for Q3. We do as I have stated earlier in the call anticipate getting in vitro and in vivo PK data on the new drug product formulation probably quite early in Q2. Obviously we'll look at that and make a determination. At current our thinking is - the likelihood is lower rather than higher of needing a bio-study, but a bioequivalent study and the current feeling is that we should be submitting without the need for bioequivalence IND in the third quarter. If we see anything in the data over the next few months in terms of both in vitro and in vivo that may change that plan obviously we will amend, but currently the plan is not to go to the FDA prior to their submission which as I said is Q3.

[Stephen Willey:]

Then I think there's also kind of a bit of discussion that's occurring with respect to endpoint selection for the Phase 3 trial and just kind of wondering if you can provide an update there as well?

[Simon Pimstone:]

Yes, we are finishing up, I think we made very good progress in the last month or two with our KOLs. I’d say we’re pretty close - lot of the protocol development I would say focuses on two main issues Steve. One is, what exactly is the endpoint going to be. We already had guidance and we've communicated this that the FDA would like to see video EEG in that endpoint. What we don't know at this point is exactly what the duration of video EEG episodes will be 48 hours, 72 hours, 96 hours one continuous video EEG or multiple. So that's under development with KOLs. The second is, as we guided again before the feedback from the FDA was that a single pivotal trial of approximately 20 subjects should be sufficient assuming or provided we show evidence of clinically meaningful effect. Now we need to define what the clinically meaningful effect is and if P-value driven what is that look like. We’re doing some of that power calculation work and of course what ties into that is what is the protocol look like specifically is this placebo-controlled or is it active baseline versus end of study controlled just with an active arm that's looking like where we probably leaning. Again this is all pre-FDA interaction, I would say in the second quarter Steve we will have a final protocol developed statistical plan modeled and we will be looking to submit that to the FDA again in the third quarter. We don't think at this point we need prior interaction with the FDA. We think we’ll submit the IND in Q3 with a protocol that has been inputted by really the key opinion leaders in this space.

[Stephen Willey:]

And then just on 901, I know the Phase 1 dose escalation data really seems to suggest that you’ve got an assay with a really wide therapeutic window here?

[Simon Pimstone:]

Yes.

[Stephen Willey:]

And I know that you're guiding to Phase 2 development occurring in either peds or adult as kind of being the next step, but how are you guys thinking about just pushing dose further presumably you'd like to reach a DLT at some point. And then just whether or not that's more easily accomplished just with the existing formulation in an adult patient population.

[Simon Pimstone:]

Yes, I think that's an excellent point Steve and we don’t know which way the FDA is going to go on this. We think there is a very strong rational for getting this drug into refractory 8A gain-of-function children. Some kids do respond interestingly the best drugs typically for the 8A gain-of-function where they do respond to typically sodium channel blockers. So this does again provide further support for a more selective on target drug that we can dose with higher receptor occupancy and better tolerability. The morbidity and mortality of these children is high about 10% SUDEP by the age of 10 to 12 in these kids. So there is absolutely no question that a proportion of these children are still markedly refractory and we would like to motivate given the safety both pre-clinically and clinically to-date that we could design and have really designed a very safe titration based protocol that we think could test the activity of this drug in these children in a very safe manner. To your point, I think if we are really going to sufficiently dose escalate above the Phase 1 doses, that could probably be more likely in and adult patient population. Again we're doing some preclinical work to further expand our therapeutic index, but we’ll obviously have to take into consideration whether it's an adult or pediatric study. And I think in adult study, we may well be able to go to more DLTs. We did not reach MTD in the Phase 1 and so we actually don't know whether we’re at the - how far off we are from the maximum tolerated dose. What I will say is at the concentrations we did achieve with good tolerability in the Phase 1, we get well above the predicted efficacy range based on the animal data. So I think that's probably - at least that's a good benchmark. We’re getting above the predicted efficacy exposure and we don't know what the MTD is and that’s probably something we would test if we go into adults. So I think Steve long-winded answer, but we are hoping to get into peds as quickly as we can if supported by juvenile tox, which is obviously just initiating. We’ll have that done in time obviously for when we would like to submit but we are going to the FDA shortly at least submitting questions around whether the next phase of development could be a pediatric study for 901. And if the answer is yes, these are the things we need to do but we could get there that would be the focus probably for this year. If the answer is no, they’d like to see more adult work then I think in the second half of the year we can expect a Phase 2 trial proof-of-concept in focal - adults with focal epilepsy. And there, I think, we would certainly look to push those.

[Operator:]

[Operator Instructions] Your next question comes from Maury Raycroft with Jefferies. Your line is open.

[Maurice Raycroft:]

To start for 1101 for the Phase 2b, I’m wondering how many sites and what potential number of patients do you anticipate being enrolled by midyear. And you commented that you should have a better idea on how the trial is going by midyear, will you provide an update at that point?

[Ian Mortimer:]

Maury, it’s Ian. So obviously no, the total trial number is 300 subjects and what we said in our prepared remarks today is that we think we should be about halfway in terms of patients enrolled by the end of this year. We haven't provided any guidance on where we will be at midyear. I think kind of in Simon’s comment and I would echo them is you need to be a number of months into a study just to see what that enrollment curve looks like. So I think by midyear we’ll be able to confirm that we’re on track for our topline data in the second half of 2020.

[Maurice Raycroft:]

And then for 007 you mentioned you have a licensing agreement to access regulatory files and drug manufacturing info. Just clarifying on that, does that encompass right of reference to historical efficacy and safety data?

[Simon Pimstone:]

So there is no - so this isn’t in the U.S. right. So it's not a right - so it's very different than 496 where the right of reference we received from GSK is such that the FDA can refer to the GSK regulatory filings with FDA. Flunarizine was never developed in the U.S. So we have two relationships we have a relationship on primarily it's broader than just preclinical, but it’s primarily on talks. We kind of think about the preclinical package nonclinical package, as well as clinical data. So it's not right of reference, but we can use that information in our submission to FDA. And then the second relationship we have is with a manufacturer of the commercial product outside of the U.S. So essentially that would be our CMC section. So a huge amount of the heavy lifting that we would need to provide to FDA we have - we've gained through relationships with two other third parties.

[Maurice Raycroft:]

And then on the behind the seizure program just wondering if you're planning on providing updates on that program along the way and if that program is going to be expanded outside the U.S. as well?

[Simon Pimstone:]

Yes, I’ll start with the second one. We don’t know that I think that's a question for Invitae and we’re focusing the relationship for now in the U.S. testing. So I don’t have an answer. In terms of the first question, we haven’t planned to provide updates something we’ll certainly consider. We’re using this primarily for us to help build a registry both for commercial reasons, but also incident cases for the clinical trial. So we hadn’t certainly planned updates, but we’ll certainly consider this and maybe do some manual updating of this as we look forward.

[Operator:]

[Operator Instructions] And I am showing no further questions at this time. I'd like to turn the call back over to Jodi Regts. Oh I am sorry, we do have another question that's popped up from Maury Raycroft with Jefferies. Your line is open.

[Maurice Raycroft:]

I just one more question. I was just wondering for the new development candidates that you mentioned are those from in-house development or are they from outside partners. And would you potential even revisit some of the candidates from the Genentech collaboration?

[Simon Pimstone:]

Yes, so the answer to the second part of your question is not at this point. Genentech is the fully focused on the 1.7 pain program, it's internalized at Genentech as we've updated and we’ll provide guidance as Genentech gives us authority to do under our confidentiality disclosure requirements or provision. So the answer to that is no, not at this time. In terms of the first part of your question where might new development candidates come from, Maury I think you can expect much of the same, which means, we’ve got some very exciting internal programs some which are actually quite advanced others which are earlier stage. But we also have some very interesting concepts that can be maybe considered more along the lines of what you’ve seen with the 496 and 007 for new development opportunities that we think could be fast tracked and that fit beautifully within our strategic areas of focus, neurology, Orphan opportunities, ion channel modulation and some other mechanisms within that bag as well. But there is actually a considerable amount of activity underway both on the discovery in-house but also we've got some really, I think very creative ideas not to dissimilar to what you’ve seen with previous announcements. And I think, again depending on how work goes over the next few months you know, we certainly hope and aim to have some announcements around new development opportunities in the second half of this year which could add very considerably to the pipeline if those turnouts in studies we have underway to be in our favor.

[Operator:]

Thank you. And I am showing no further questions at this time. I’d like to turn the call back over to Jodi Regts for closing remarks.

[Jodi Regts:]

Thanks for joining us today. Operator, we will now end the call.

[Operator:]

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