Xenon Pharmaceuticals Inc.
Q1 2016 Earnings Call Transcript

Published: 11 May 2016

[Operator:]

Welcome to the Xenon Pharmaceuticals Incorporated First Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Ms. Jodi Regts. Ma'am you may begin.

[Jodi Regts:]

Thanks, Antwain. Good afternoon. Thank you for joining us on our call and webcast to discuss our financial and operating results for first quarter of 2016. Joining me on today's call is Dr. Simon Pimstone, Xenon's President and Chief Executive Officer; and Ian Mortimer, Xenon's Chief Financial Officer and Chief Operating Officer. Following this introduction, Simon will provide perspective on Xenon's progress, and then Ian will review our financial results for the quarter ended March 31, 2016. 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 capital position to execute on our business objectives and our ability to operate in a capital efficient manner, the timing of IND or IND equivalent submissions with regulatory agencies, the initiation of future clinical trials, potential efficacy, future development plans and commercial potential of our product candidates, the timing of and results from ongoing clinical trials and preclinical development activities, the commercial launch of Glybera in the European Union, our achievement of certain milestones under our collaboration agreements, the plans of our collaboration partners and their interactions with regulatory agencies, the results of research and development efforts and the status and timing of additional product candidates and related development activities. 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 statements. Today's press release summarizing our first quarter 2016 results and the accompanying quarterly report on Form 10-K will be made available under the Investor Section of our website at www.xenon-pharma.com. Now, I'd like to turn the call over to Simon.

[Simon Pimstone:]

Thanks very much Jodi and good afternoon everyone and thank you all for joining Xenon on our conference call and webcast today. I am extremely excited about where we’re at Xenon and what lies ahead. We continue to make very solid progress in this first quarter of the year by advancing our research and development pipeline, supporting our partnerships as well as our proprietary programs and continuing to operate in a capital efficient manner in order to achieve our new term goals and numerous key catalysts. We’re especially pleased to have further expanded our senior leadership team. In February, Dr. James Empfield joined Xenon as Senior Vice President of Drug Discovery and in April Dr. Raymond Winquist as our Head of Translation Research. We believe that these very highly respected researchers and our entire team of R&D professionals emblematic not only of the rigor of our science and the quality of our unique genetic space platform but also the therapeutic promise of our pipeline of differentiated product candidate based on targets with very high relevance to human diseases. We believe that the next 12 to 18 months will be a very exciting period for Xenon as our pipeline advances and expands and as we continue to make progress in developing novel medicines that can potentially address many serious diseases. Our business model of leveraging partnerships to participate in larger market indications such as pain, combined with our focus on rare or orphan neurological indications in our proprietary programs such as severe childhood epilepsy disorders enables us to pursue multiple and diverse therapeutic and commercial opportunities. To review our accomplishments in the first quarter I will start with our proprietary pipeline. Our lead proprietary development program in XEN801 is a promising potential treatment for patients with moderate to severe acne. In February of this year we advanced the program into a Phase 2 clinical trial which is progressing well, XEN801 is a novel topically administered selective small molecule inhibitor of stearoyl-Co-A desaturase-1 or SCD1 an enzyme that's in sebaceous glands in the skin and that’s involved in lipid synthesis. We believe that XEN801 dual mechanisms is a potentially meaningful therapeutic differentiator. First XEN801 is designed to reduce the production of lipids produced by the sebaceous glands in the skin and secondly the product works by inducing apoptosis or cell death of the sebaceous glands, essentially limiting the factory of lipid production in the skin. We believe that his product XEN801 is a promising novel treatment for acne which we anticipate could be better tolerated and without the serious side effects that often limit the use of currently approved retinoic treatments that have resulted in black box label. In our Phase 1 trial of XEN801 which was completed late last year, we dosed 48 healthy volunteers with an either 14 or 21 day treatment period. A number of different dose volumes of the 1% XEN801 drug product were evaluated with dosing on the face and the back to determine the maximum tolerated dose of the evaluating all safety and PK data including skin drug concentrations in biopsies that were taken from the back. We selected a Phase 2 dose based on favorable tolerability and drug exposure. We selected a dose volume where maximal plasma concentrations of XEN801 were low but really importantly a dose with a medium skin concentrations of XEN801 was above the drug concentration predicted for efficacy based on our prior preclinical studies. The Phase 2 trial underway is a randomized double blind vehicle controlled parallel group study, we’re assessing efficacy, safety and pharmacokinetics with a primary efficacy endpoint of the change from baseline in total lesion count. We expect to enroll approximately 150 patients with moderate to severe acne and we are looking forward to reading our top line results from this trial in the fourth quarter of this year. They are also making good progress in our program to develop a potent and selective inhibitor of the sodium channel Nav1.6 for the treatment rare intractable childhood epilepsies. Sodium channels appears to play a key role in balancing neuroexcitation and neuroinhibition in the central nervous system. This target Nav1.6 is the most highly expressed sodium channel in the [indiscernible] in the brain. So we believe this is a very compelling target for these forms of epilepsy. We are pursuing a differentiated approach to epilepsy through potent and selective inhibition of the Nav1.6 sodium channel. Gain of function mutations in this channel results in a very severe form of childhood epilepsy called SCN8A epilepsy or infantile epileptic and encephalopathy 13. This can be a devastating form of epilepsy with children having dozens of seizures daily and many of these kids being left with severe developmental delay. While this patient population has only recently been identified the number of SCN8A patients will continue to grow as early access to genetic testing improves. We also know that loss of function mutations in another sodium channel known as Nav1.1 caused Dravet Syndrome. With these loss of function mutations result in a reduction in neuroinhibition in the brain and unopposed hyper excitability that is still to be driven by unopposed Nav1.6 activity in the neuroexcitatory pathways resulting in seizures. While SCN8A epilepsy and Dravet Syndrome are two different forms of early infantile epileptic encephalopathies. In both cases the regulation or unopposed activity of the excitatory Nav1.6 pathway appears to play a critical role. We have identified selective molecules for Nav1.6 that are selective against Nav1.1 that means the drug hits Nav1.6 potently but avoids Nav1.1. Finding selective inhibitors of individual sodium channels is actually not a trivial undertaking in and of itself, based on the mechanism of action we expect our selective Nav1.6 inhibitors could be effective in treating SCN8A epilepsy caused by a gain of function in the stream as well as Dravet syndrome where is the current non-selective sodium channel blockers which act to further knock down Nav1.1 are actually contraindicated for treating kids with Dravet syndrome. There are a number of nonselective sodium channel blockers on the markets and that show good efficacy for some types of epilepsy but these nonselective agents are limited by common adverse side effects observed with nonselective sodium channel block. Drugs like phenytoin and carbamazepine have narrow therapeutic windows because they hit other sodium channels including channels in the brain. We've been able to dial out Nav1.1 activity and other sodium channel activity in our current chemistries, we intend to show more detailed data for multiple seizure models over the course of the next few months, I'm very excited to do so and importantly we remain on track to identify development candidate later this year and to file an IND application in the first half of next year 2017. Now I will discuss our advancing programs and our partnerships with Teva and Genentech in which we are developing novel inhibitors of the sodium channel Nav1.7 for the treatment of nociceptive and for neuropathic pain. Firstly, our collaboration with Teva is focused on developing a topical sodium channel blocker for peripheral applications, the product is known as TV-4570. It targets both Nav1.7 as well as other sodium channels to treat conditions of chronic pain. We've previously shown this topical product gets into skin at high concentrations with a Nav1.7 target as expressed in peripheral pain sensing nerve endings. Teva is conducting a randomized double blind placebo controlled Phase 2b trial in approximately 330 patients with post-herpetic neuralgia. The primary endpoint is the change from baseline in the numeric rating scale to week four and the secondary endpoints include 30% and 50% responder rates as well as quality of life scores and safety. Analysis of results will also include stratification of patients based on a key genetic marker, the polymorphism known as the R1150W. The common polymorphism which causes a gain of function phenotype in the channel, we had previously shown in a smaller trial of patients with post-herpetic neuralgia that carriers of this gain of function polymorphism appear of the periods have an enhanced clinical response to TV-4570. Results from this ongoing larger PHN trial are expected in the first half of 2017. In our strategic alliance with Genentech, we're developing orally active selective small molecule inhibitors of Nav1.7 for the treatment of pain, this collaboration is progressing well. Genentech is currently conducting 2 phase 1 clinical trials, one for GDC-0276 and the other GDC-0310, two differentiated inhibitors of Nav1.7. We expect attending a full assessment of the results from both Phase 1 trials in the coming months, Genentech plans to initiate a Phase 2 trial in 2016. We are also proud of the progress we have made in our second collaboration with Genentech in which we are focused on the discovery of novel pain targets in rare human disorders we individuals have either an inability to perceive pain, or individuals have non-precipitated spontaneous and severe pain. In the third quarter of last year we discovered and identified a novel pain target thus triggering milestone payments. We are extremely pleased that in March of this year we announced that both our Nav1.7 and our pain genetics collaboration's with Genentech were extended. We look forward to continuing to work with this outstanding partner to discover and develop potentially new therapies for the treatment of pain and to continue to identify novel and highly validated pain targets that could yield new non-opioid based mechanism to treat pain. We have numerous very exciting milestones which we are working towards this year and which we have made strong progress this first quarter. So why am I so excited to summarize. We look forward to completion of the 150 patient Phase 2 trial of XEN801 in patients with moderate to severe acne with top line results expected in the fourth quarter. We're on track to identify development candidates to address severe forms of childhood epilepsy with our Nav1.6 sodium channel inhibitor program and to release preclinical data in relevant epilepsy models later this year followed by a filing of an IND application in the first half of 2017. We also expect continued progress towards identifying our next target for drug discovery and development. We expect to announce our next IM channel drug discovery program in the not too distant future. We expect to continue to discover novel genes that play important roles in neurological disorders. We anticipate results in the first half of 2017 from Teva's ongoing Phase 2b clinical trials with TV4570 being conducted in more than 200 patients with post-herpetic neuralgia, we anticipate completion of GDC0276 and GDC-0310 Phase 1 clinical trials being conducted by Genentech followed by assessment of these results and progression into Phase 2 this year, we expect to continue to make progress in our pain genetics collaboration with Genentech, hopefully identifying and/or validating novel pain targets. We believe that building on our accomplishments in 2015 and continuing into the first quarter of this year we’re very well positioned to continue to advance expanding and diversifying our pipeline, including a strong going forward focus on orphan neurological disorders. From our well-structured partnerships we’re eligible to receive upto 32.5 million in potential milestone payments over the coming 24 months, complementing the more than $150 million in non-equity funding we have raised to-date. Taking into account our current cash position, the productivity of our extreme genetics platform and our pipeline of multiple product candicates and partnerships. We believe that we’re in an extremely strong position to continue to demonstrate significant progress and to execute on our stated goals. Before opening up the call for questions, I would like to Ian Mortimer to review our financial performance for the quarter.

[Ian Mortimer:]

Thank you, Simon and good afternoon everyone. For the quarter-ended March 31, 2016 we reported total revenue of $0.6 million compared to $4 million for the same period in 2015. Revenue in both periods was primarily derived from Xenon's collaboration agreements with Teva and with Genentech. We have received royalties from sales of Glybera under our license to Unicare. However we do not expect this royalty revenue to be significant in the near term, the decrease of $3.4 million was primarily attributable to revenue recognized relating to the upfront payment from the collaborative development in license agreement with Teva which was fully recognized by December 2015. The remaining decrease was due to less full time equivalent funding from Genentech and Teva as we've shifted resources away from our partner programs and to our proprietary programs including XEN801 and our Nav1.6 inhibitor program. Research and development expenses for the quarter ended March 31, 2016 were 4.4 million compared to 3.4 million in the same period last year. The increase was primarily attributable to an increase in spending on our XEN801 program which entered Phase 2 clinical development in February of this year and our Nav1.6 sodium channel inhibitor program. This is partially offset by decreases in Teva and Genentech collaboration expenses. General and administrative expenses for the quarter ended March 31, 2016 were $1.9 million this compared to $6.7 million in 2015. In the quarter ended March 31, 2015 we had a $4.9 million expense which was recognized due to the noncash fair value adjustment upon reclassification of certain stock option awards that were granted to directors and certain consultants to do liability classification. These options were then subsequently reclassified back to equity in September 2015. Other income for the quarter ended March 31, 2016 was $2.4 million and this compared to other expenses of $3 million for the same period last year. The change of $5.4 million was primarily attributable to unrealized foreign exchange gains arising from the translation of Canadian denominated balances to U.S. dollars as compared to unrealized foreign exchange losses for the same period in 2015. We ended March 31, 2016 with $56.1 million in cash and cash equivalents which we believe puts us in a strong financial position to execute on our near term business objectives. And as Simon mentioned we anticipate multiple milestone opportunities from our internal pipeline and from that of our partners over the coming quarters. We continue to manage our financial resources efficiently to support the advancement of our proprietary product pipeline and the successful execution of our corporate goal. So now with our prepared remarks concluded, operator we will open the call up for question. Thank you.

[Operator:]

[Operator Instructions]. Our first question comes from John Newman of Canaccord. Your line is open.

[John Newman:]

I just wondered if you know if you can give us a little bit more detail on what the indication is for the Genentech collaboration and I'm also curious as to whether you might be presenting the Phase 1 data for the acne product, anytime this year. Thanks.

[Simon Pimstone:]

John, in terms of the Genentech indication no we don’t have that as of yet, Genentech obviously in the [Technical Difficulty] Phase 2 program, Phase 1 studies are complete, they have selected molecules moving forward. I think they will be in a better position to indicate will they be taking this product. So I don’t expect to have data on the indications in the next couple of months but certainly in the latter part of the year as we advance towards the Phase 2 goal, I'm hopeful that we will be able to disclose more about this. They will certainly in their quarterly updates would typically indicate this study indication and details around the study but we’re certainly are hopeful that we will have some of that information just prior to that disclose. We do think John it would be a substantial Phase 2 but more than that we can't discuss at the moment. In terms of the Phase 1 data for the acne trial, the plan actually is not to disclose that data until we have the Phase 2 read out. We would like -- we will probably have some limits at disclosure later this year but certainly we don’t expect the full Phase 1 presentation this year but I think we can expect over the course of the next six months or so we will look to present some limited data around the selection of the dose from the Phase 1 study so I think it won't be a full-blown Phase 1 report, I think that would be something we will wait to determine off the Phase 2 as read but you will get to see in the coming months a limited data that I think will certainly support the selection of the current dose for the Phase 2 trial.

[Ian Mortimer:]

And maybe just to add to Simon's comment, John, this was designed of a Phase 1/2 protocol, so the Phase 1 was in a separate study from Phase 2, it was a protocol where we move from Phase 1 to Phase 2. So to present the data we like the complete study to be finished and obviously that data based locked before we would present it in a scientific form.

[Operator:]

The next question comes from Hugo Ong from Jefferies. Your line is open.

[Hugo Ong:]

Just maybe on the XEN801 program, if you could share your thoughts on the placebo response that you see in acne trials and what you guys have done to mitigate that as much as possible? Thanks.

[Simon Pimstone:]

Hugo, yes so the placebo response is obviously real, it's there, if I'm not mistaken the recent [indiscernible] Phase 2b study they announced just today saw a 40% placebo response. I haven't seen all of that data but I think that confirms what numbers are generally cited in this indication. Hugo we have done very extensive modeling around a placebo response in that range in order to come up with our Phase 2 trial design. We actually have selected and hope to randomize 150 subjects to enter into the Phase to 12 week dosing regimen as you know. We have modeled based on a high placebo response rate in the range of that was absorbed in the [indiscernible] Phase 2b trial. So we recognize that placebo response rates can be high and certainly need to take that into account in our statistical modeling which we did. Just as a matter of interest the Phase 2a trial that [indiscernible] had originally conducted was in a 105 subjects randomized. We elected to randomize upto a 150 in the study. So we feel very confident that we take into account the potential placebo response rate which we know is often quite significant in these types of studies. The good thing about starting a company around pain trial Hugo is that you learn those lessons quite quickly as you know and placebo response rates are front and center of our mind.

[Operator:]

I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Jodi Regts for closing remarks.

[Jodi Regts:]

Thanks everyone for joining us today. We look forward to keeping you informed on our progress throughout the year. Operator we will now end the call. Thank you.

[Operator:]

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