Xencor, Inc.
Q3 2017 Earnings Call Transcript

Published: 8 Nov 2017

[Operator:]

Good after ladies and gentlemen. And welcome to the Xencor's Third Quarter 2017 Financial Results Conference Call. At this time all participants are in a listen-only-mode. Following the formal remarks, we will open up the call for your questions. Please be advised that this call is being recorded at the company's request. At this time, I would like to turn the call over to Josh Rappaport of Stern Investor Relations. Sir you may begin.

[Josh Rappaport:]

Thank you, operator. Good afternoon, this is Josh Rappaport of Stern Investor Relations. Welcome to Xencor's third quarter 2017 financial results conference call. This afternoon, we issued a press release which outlines the topics we plan to discuss today. The release is available at www.xencor.com. Today, on our call, Bassil Dahiyat, Ph.D. President and Chief Executive Officer will discuss the company's business highlights and provide an update on Xencor's clinical programs and pipeline progress. And John Kuch, Vice President of Finance will review the financial results from the third quarter of 2017. Then, we will open up the call for your questions. Before we begin, I would like to remind you that during the course of this conference call, Xencor management may make forward-looking statements including statements regarding the company's future financial and operating results, future market conditions, the plans and objectives of management for future operations, the company's partnering efforts, the company's capital requirements, the company's future product offerings and the company's research and development programs. These forward-looking statements are not historical facts, but rather are based on Xencor's current expectations and beliefs and are based on information currently available to us. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including but not limited to, those factors contained in the Risk Factors sections of Xencor's most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q. With that, let me turn it over to Bassil.

[Bassil Dahiyat:]

Thanks, Josh and good afternoon, everyone. As you know Xencor spent last several years expanding and advancing a broad pipeline of engineered antibody drug candidates all based on our XmAb antibody engineering platform. This platform consists of the small set of antibody Fc domains whose sequences is slightly modified to improve natural antibody functions such as immune regulation and antigen clearance, cytotoxicity, circulating half-life or to create bispecific antibody structures that are stable, long-acting and readily produced. Today, XmAb-based antibodies are being developed internally by Xencor and by our partners in 11 different clinical stage programs for the treatment of a wide array of diseases. This includes four programs that we are advancing internally, with multiple additional programs we expect to start clinical trials for in the next 18 months. Our goal is to create a diverse pipeline of XmAb antibodies and oncology and immunology that will provide multiple opportunities to advance Xencor proprietary programs into late stage development. This broad approach leverages the portability of our XmAb Fc domains, which lets us rapidly discover and develop enhanced antibody drug candidates for our own pipeline, while enabling partnerships that provide us with cash and resources, but that don't require significant internal efforts on our part. So today we're going to provide clinical updates on two immune-inhibitor internal programs XmAb5871, and XmAb7195. As Paul will detail in a moment, last Saturday we announced promising final results from our Phase 2 trial of XmAb5871 in patients with IgG4-Related disease or IgG4-RD. These results suggested that 5871 may offer the first approved therapy for newly defined fibro-inflammatory disease that can cause progressive damage in multiple organs. It also demonstrates the utility of XmAb technology at creating new therapeutics with differentiated and potentially superior mechanisms of action. So, with 5871 it potently blocks - prudently and broadly blocks B-cell activation, but without causing long-term B-cell depletion. These data also position Xencor initiate our first internal Phase 3 trial. We've had initial discussions with the FDA about Phase 3 development incorporating guidance from the discussions, we're planning a trial that we expect to start in the second half of 2018 as we complete the transition to a commercial manufacturer and supplier and engage with the European Medicines Agency for scientific advice. Today we are also announcing results from our Phase 1B trial of subcutaneously administered XmAb7195, which support its continued development as a subcutaneous formulation in allergic diseases in XmAb. We are currently focused on finding a partner for XmAb7195 as we significantly expand our internal development effort in our rapidly growing bispecific oncology pipeline. Now the newest additions to our pipeline of XmAb bispecific antibodies targeted tumor micro environment for the treatment of cancer. While we will provide a more thorough update on these programs at our Investor and Analyst event around the SITC 2017 Annual Meeting this weekend. I do want to highlight our scope of our expansion into oncology. Our internal pipeline now includes six bispecific oncology drug candidates in development, including two XmAb14045 and 13676 that are partnered with Novartis in a Phase 1 testing. We do intent to announce preliminary data for those programs next year. And then there is four programs XmAb18087 and XmAb2717, which are expected to enter the clinic in 2018. And XmAb22841 and 23104, which are expected to enter the clinic in the first half of 2019. Now our IND for XmAb18087 is already open and we expect to bring in dosing patients early in the New Year in a Phase 1 trial in neuroendocrine tumors and gastrointestinal stromal tumors. XmAb18087 targets somatostat receptor 2 or SSTR2, which is a tumor express protein and to target CD3 for the activation of cytotoxic T-cells it will join our two lead CD3 binding molecules, XmAb14045 and 13676 in the clinic. While our partners Amgen and Novartis continue to advance multiple programs at their own preclinically that use our XmAb technology. Now at SITC this weekend we will present preclinical data on two of our new drug candidates, XmAb23104 a PD-1 and IcO spice binding bispecific antibody and our XmAb27107, which is our - 20717 which is our PD-1 and CTLA4 bispecific antibody. Now these both target tumor micro environment try to activate T-cells with novel mechanisms of action. These two programs along with XmAb22841 represent our next wave in bispecific drug development, they're designed to improve the selectivity of combination therapies for T-cell activation and eliminate the need for multiple antibodies. Now each of these bispecific molecules will test the distinct novel approach for tumor micro environment activation in the clinic to enable us to select the best combination of targets for T-cell activation in cancer. Now with that let me pass the call over to Paul, who will provide a detailed update on our 5871 and 7195 programs.

[Paul Foster:]

Thank you, Bassil. I will start today by reviewing XmAb5871 our first in class monoclonal antibody that targets CD19 with its variable domain and uses our XmAb immune inhibitor Fc domain to target FcgRIIb to be a receptor that inhibits B-cell function. As you know we are currently evaluating 5871 in two indications IgG4-RD and Systemic Lupus Erythematosus or SLE, both of which have a strong rationale for B-cell inhibition and which we think we can execute efficient Phase 2 trials and potentially address areas of high unmet need. Earlier this week, we announced the final result from our Phase 2 trial of 5871 in patients with IgG4-RD and Dr. John Stone the principal investigator on the study will be presenting the data in an oral late breaking presentation at the American College of Rheumatology or ACR Annual Meeting at 5

[Bassil Dahiyat:]

Thanks, Paul. At Xencor we're very proud that there are non-pharmaceutical companies and the National Institute of Health they continue to advance drug candidates either discover to Xencor or rely on our proprietary XmAb Fc domains in the clinic. These XmAb Fc domains are in the clinic now, incorporate our bispecific structure Fc domains, our higher Cytotoxicity Fc, our extent longer half-life Fc and our immune inhibitor Fc domains. Now there are currently seven such programs in clinical development including two in Phase 3 studies. These are MOR208, which was formerly XmAb5574 which MorphoSys is developing for diffuse large B-cell lymphoma and chronic lymphocytic leukemia. The second program in Phase 3 is an undisclosed program in development by Alexion which uses our half-life extension domain. Recently Janssen decided in the third quarter not to move forward with the Phase 3 trial of Talacotuzumab which utilizes our XmAb cytotoxic Fc domain for the treatment of AML. However, they have continued to develop the compound for use in other myeloid malignancies. Now, with that I'll turn the call over to John to review our third quarter financial results.

[John Kuch:]

Thank you, Bassil. In this afternoon's press release, we reported cash, cash equivalence and marketable securities totaling $373 million as of September 30, 2017 compared to $403.5 million as of December 31, 2016. The decrease reflects net spending on operations for the first nine months of 2017. Total revenue for the third quarter 2017 was $7.1 million, compared to $7.8 million for the same period 2016. Revenues for the nine months ended September 30, 2017 were $24.8 million, compared to $81.1 million in the same period of 2016. Revenues earned in the three and nine-month period ended September 30, 2017 were primarily from the company's Amgen and MorphoSys collaborations, compared to revenues earned for the same periods in 2016, which were earned primarily from the company's Novartis and Amgen collaborations. Research and development expenses for the third quarter of 2017 were $19.4 million, compared to $14.1 million for the same period in 2016. Total R&D expenses for the nine months ended September 30, 2017 were $51.4 million, compared to $38.5 million in the same period of 2016. The increased R&D spending in the three and nine months ended September 30, 2017 over the same periods in 2016 is primarily due to additional spending on the company's bispecific pipeline and development candidates. General and administrative expenses in the third quarter of 2017 were $4.2 million, compared to $3 million for the same period in 2016. Total G&A expense for the nine months ended September 30, 2017 were $13.1 million compared to $10 million in the same period of 2016. The increased spending in G&A in the three and nine months ended September 30, 2017 reflects increased staffing and increased charges for stock-based compensation. Non-cash share based compensation for the first nine months of 2017 was $10.2 million compared to $5.9 million for the first nine months of 2016. Net loss for the third quarter 2017 was $15.6 million or $0.33 on a fully diluted per share basis, compared to a net loss of $8.1 million or $0.20 on a fully diluted per share basis for the same period in 2017. For nine months ended September 30, 2017 net loss was $37.1 million, or $0.79 on a fully diluted per share basis, compared to a net income of $32.7 million or $0.78 on a fully diluted per share basis for the first nine months of 2016. The higher loss reported for the three months ended September 30, 2017 over the loss reported for the same period of 2016 is primarily due to additional research and development expenses on our bispecific pipeline development candidates. While the loss reported for the nine months ended September 30, 2017 compared to the income report for the same period 2016 is primarily due to revenue reported from our Novartis collaboration 2016 and additional RD expenses in 2017. Total shares outstanding was 46,955,365 as of September 30, 2017, compared to 41,138,851 as of September 30, 2016. The increase in total shares at September 30, 2017 reflects the sales of shares in December 2016 financing. Based on our current operating plans, we expect to have cash to fund research and development programs and operations beyond 2020 and to end 2017 with approximately $340 million in cash, cash equivalents and marketable securities. With that we would now like to open the call up for your questions. Operator?

[Operator:]

Thank you, sir. [Operator Instructions] Our first question comes from Edward Tenthoff of Piper Jaffray. Your line is open, please go ahead.

[Edward Tenthoff:]

Great, thank you very much, thanks for the good update I am excited for a lot of progress into 2018 and as you went down in Maryland this weekend. I wanted to get a sense for a read out with respect to the bispecific can you give us a little bit more color on sort of how we should sequence those for 2018? Where do you think we will get data first and kind of what can we expect in terms of data from the bispecific in 2018?

[Bassil Dahiyat:]

Right, so the two programs we would expect to have data from coming in 2018 would be our first two leads that have gone to the clinic XmAb14045, our CD123 targeting bispecific in AML and XmAb13676 our CD20 targeting bispecific in B-cell malignancies. We would expect the data to be - the first data would probably be from the 14045 because that molecular gone into the clinic about six months earlier. And we can't guide at specific conferences or events where we might do that, but I think we would sequence them in that order.

[Edward Tenthoff:]

Great, that makes a lot of sense. And congrats too on the 7195 data, I am curious to hear where that one goes next year or two?

[Bassil Dahiyat:]

Yes, thank you. Yes, we will be guiding on that as we pursue our plans for that molecule and particularly around partnering. Thank you.

[Edward Tenthoff:]

Great. See you this weekend.

[Operator:]

Thank you. Our next question comes from Michael Schmidt from Leerink. Your line is open, please go ahead.

[Michael Schmidt:]

Hey guys, congrats on the progress and thanks for taking my question. I just had one regarding the pivotal studies for XmAb5871 and I know you have talked about the Phase 3 trial design before and the potential endpoints, but just to confirm whether you are planning to do that trail with the IV or the subcu formulation and if so where that stand? Thanks

[Bassil Dahiyat:]

Our expectation to do the trails with the subcutaneous formulation that's part of our manufacturing plan and that's all progressing.

[Michael Schmidt:]

Alright. And then a question around the SSTR2 bispecific anybody, I think you mentioned the initial Phase 1study will be in neuroendocrine tumors. And I guess my question there is can you provide a little bit more information around this initial study? Are you selecting patients for example based on SSTR2 expression levels? Are you looking at other tumor types too I believe the targets also expressed in small cell lung? Can you just help us give a little bit more context for this Phase 1 study?

[Bassil Dahiyat:]

Sure, it's a good question. Because SSTR2 is a target it is expressed on a variety of tumor types. It's certainly kind of a definitive target for neuroendocrine tumors that's a marker used in the diagnostics, the imaging diagnostics for neuroendocrine tumors. We're not going to be checking SSTR2 levels in our patients, because again it's such a characteristic in neuroendocrine tumors. And the scans they use, the labeled reagents they use are the ligand for SSTR2. It's a peptide - natural peptide ligand. So, we're not going to do that. The other tumor types we're trying are gastrointestinal stromal tumors or GIST which is known to express fairly uniformly and in relatively high level SSTR2. So that's the case where it's more just like it's a tumor associated antigen that's well associated with it. And we thought it was an area where there is certainly in the relapsed gestures there is an unmet need or people that have resistance mutations. We're not going after small cell in this initial trial, but we certainly have eye on that for the future. Our goal is to really dose escalate, find treatment effective doses and pursue both of the GIST and the NEST [ph] the so-called GAP NEXT [ph] that we disclosed earlier.

[Michael Schmidt:]

Okay, great. And then just last question regarding the upcoming analyst event next weekend. Just curious if there is any specific data that you plan on presenting there beyond what's going to be at SITC anything that we should look forward to? Thanks.

[Bassil Dahiyat:]

It's really going to focus on the SITC posters that we're presenting on our two of our lead tumor microenvironment molecules actually XmAb20717 and XmAb23104 those are both completely distinct mechanisms of action. We really build it for the approach in bispecific for the tumor microenvironments. We really have to try a variety of hypothesis, because there is a lot of different ways you can attack it. 20717 is the combination it is the most validated of targets PD-1 and CTLA-4 was certainly has had some of the highest - certainly has have the highest response rates of combination IO therapy. And we think this is an opportunity to have a more selective agents and only (inaudible) positive for both checkpoints. And therefore, hopefully focused the activity of the blockade of the checkpoints on the double positive tilts which are primarily in tumors. Kind of tilts are always in tumors on double positive T-cells which are primarily in tumors. Now for the 22104 it's completely really different hypothesis. It's combining a checkpoint PD1 inhibition with costimulatory marker ICOS activation. So that's unique as far as we can tell in a combination approach certainly within a bispecific and that's distinct from the 20717. And the third program the 22841 which we're not going to be presenting any new data on is really meant for use in a triple blockade regimen where on top of the PD1 blocker we'd add our CTLA-4 and LAG-3. So again, three completely distinct MOAs, distinct hypotheses that we want to test in the clinic. All the data SITC is preclinical data it will be mouse xenograft data, it will be T-Cell activation data really setting the stage for this test of different hypothesis. Because there is a lot of unknown in immunology of tumors and we're going to really kind of spread our best across a number of different approaches to optimize our chances for success.

[Michael Schmidt:]

Terrific. Thanks for the added information.

[Operator:]

Thank you. And our next question comes from Christopher Marai from Nomura. Your line is open. Please go ahead.

[Christopher Marai:]

Hi, guys, thanks for taking the questions and congrats on the progress. First on the IGE antibody and forgive if I've missed this, but just with respect to discussions with regulators and the prior safety concerns with the molecules. How should will we be sort of thinking about this going forward? Obviously, the new formulation looks much better tolerated potentially less safety concerns. But of course, longer term dosing and more patient exposure could raise some question. So how might regulators or you guys be thinking about this? And then I've got one follow-up. Thank you.

[Bassil Dahiyat:]

Right, we haven't had any discussions with regulators about 7195 in light of this new data. We wouldn't imagine we would in the immediate term. I think that it's something to watch with the greatly attenuated effect on platelets that we saw with the subcu. I think that it creates a window there and we're going to have to work within that window of dose and interval. But you asked the right question it's unclear what's going to happen upon repeated exposure you have to test it. Certainly, after four doses, we saw a much-improved profile.

[Christopher Marai:]

Yes. And I think that was expected so congrats that's really awesome. As those now turning to your bispecific platform any further clarity on whether we'll see data? I know it depends on your partner a little bit earlier in '18 or towards the ASH 2018? And then maybe just thinking about potential future combinations, obviously there is some amount of stagnant target as well as bispecifics, the other bispecifics could use the combination strategies to unmet response for instance with anti-PD1. How do you look at that going forward? Is it something that you might look to use currently approved Anti-PD1 therapies or some of your bispecific PD1 CTLA4 molecules that you're developing? And when might we start seeing those trials start? Thank you.

[Bassil Dahiyat:]

Right. So, we would - regarding your first question, we're not going to guide on a specific - timing of a specific event. Obviously, it depends on our partner and that's a big part of this. And we want to disclose data as soon as we have any meaningful data to disclose we will. I think that for the idea of combination with checkpoint inhibitors and CD3 bispecifics it's an excellent idea. We already see in vitro study there has been glimmers of reports from a couple of clinical studies that you get up regulations of checkpoints on T-Cells when you treat with CD3 bispecifics when you act with the T-Cell the tumors fight back. So, I think it's a great idea, I think once we get through our initial dose escalation phase and understand the dose and kind of activity profile we would have with any of the programs, whether it's the CD-123 or SSTR2 or whatever I think that will be something you would have on the short list of what you might do immediately thereafter. I think it just we have to get through and report our safety data or have recommended dose to go forward for the bispecific CD3 inhibitor. And then I think the question whether we use a PD1 or marketed one or one of ours, I think we want to have a little bit of data with one of ours by itself and understand what it might - how it might behave before we pursue that combo. But I think the combo with the existing PD1 inhibitors is a very clear idea that you need to consider very early in development. Because the world is going to move that way and how we manage it, is only going to get easier the early we start looking at it.

[Christopher Marai:]

Great, thank you.

[Operator:]

Thank you. [Operator Instructions]. Our next question comes from Arlinda Lee from Canaccord. Your line is open. Please go ahead.

[Arlinda Lee:]

Hi, guys. Thanks for taking my questions. I have two, one what is the Amgen milestone for?

[Paul Foster:]

No, there is no Amgen milestone in the quarter that was rather recognized under the collaboration for delivering some of the bispecific compounds to them.

[Bassil Dahiyat:]

Yes, previously deferred revenue.

[Paul Foster:]

Right.

[Arlinda Lee:]

Okay, got it. And then I guess then strategically as you got potentially six bispecifics in the clinic next year. You're talking about looking at an early read of how these different strategies may or may not work. What kind of information or how much patient data would you need to see to pursue one versus another or are you going to wait for like the suite of six datasets?

[Bassil Dahiyat:]

No, we're going to consider each program by itself, right. Maybe I cut you off, but what I understand your question was, are you going to wait till you have all the data from all your programs before you sort out what you do with any one of them? The answer to that is, no, we sort of take our CD3s as one basket of assets and we take our tumor microenvironment, two of them being checkpoint inhibitors the other one being a checkpoint and an activator bispecific. We take those as those sort of two separate baskets. For the tumor microenvironment inhibitor, tumor microenvironment modulators we really see that as we want to build this portfolio of information but each one is going to have its own pace with the 20717 going first and the other two trailing by a few quarters. I think the designs for these early phase oncology trials are fairly well trodden. I think you're going to start trying to make clean information from modest numbers of patients looking at response criteria, but very critically looking at the biomarker picture, what happens in the tumors with T-Cells what happens with cytokine levels, how does that correlate to the prognostic sort of indicators like PDL1 expression and tumor mutation alert. So, it's a holistic picture you've look at, but no, each program would be considered individually right. I think we can't wait for all of them in once, wait for all of them to make any decisions.

[Arlinda Lee:]

Right. So then, I guess, then the question is about your capacity to add additional bispecifics into the clinic and what your thoughts are on moving forward versus advancing maybe earlier stage ones? Thanks.

[Bassil Dahiyat:]

Well, I mean, as you go, I mean, our whole strategy is about finding the ones where there is an exciting signal to chase in advancing that program the ones where there is not you would abandon that, and we always have many assets in preclinical that we could bring forward, that's driven our partnering strategy, when we can take some of those and put in that direction. We right now are guiding out through these additional three programs to file IND the tumor microenvironment modulators. And we're not guiding on any 2019 program additions, but we're absolutely continuing to build our preclinical pipeline and keeping a watch. I think that's a pretty big bite for us right now to have six oncology programs going at once. The two with Novartis we're very actively involved in development. We control the U.S. commercial rights. And so, that's a pretty big bite, not to say that there's not capacity but some of that's going to depends on the progress of these programs over the next couple of years. And what we bring on buying them.

[Arlinda Lee:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from David Nierengarten from Wedbush Securities. Your line is open, please go ahead.

[David Nierengarten:]

Hey, thanks for taking my question. Just a couple of quick ones, first off, I might have missed it, but is there - what needs to be done before you start up the Phase 3 of 5871 in other words why is it second half of '18 to start that up? And then on the bispecific programs, do you anticipate any similar kinds of toxicity or any reason to consider any kind of ultra-low dosing required for some of the bispecifics like the PD1, CTLA4 for example, as we've seen some of the cytokine issues with the CD3 bispecifics, I mean, I know they're totally different targets, but they do stimulate the immunes system, so I was - be curious on your thoughts on that? Thanks.

[Bassil Dahiyat:]

On the second question, I'll tackle that first, these dual checkpoint inhibitors the checkpoint co-stem bispecific, what we saw in vitro studies with human T-cells what we saw in our primary toxicality studies where, by the way the antibodies the bispecific does cross react pretty uniformly when the simian [ph] monkey targets, just like it does with the human. What we saw were the kind of tolerability that you typically see with say the combination of the mono specific antibodies together, which by the way in a healthy animal is very little tox and very little kind of activity typically see that tox coming up in patients where there's presumably more activated T-cells to get the ball rolling. So, they did not suggest in any way to kind of micro dosing you need for say CD3 bispecifics, that directly lights up the T-cells, not at all. Of course, you don't know until you're in the clinic, but the suggestion is we're in the same order of magnitude at the very least with sort of the usual checkpoint suspect the PD1 and LAG3, et cetera. And now your first question about the timing, I guess, there is two elements to that one I will address with provide timing and maybe Paul can touch on the continued work we're doing to prepare around the trial defining the specifics of the trial et cetera in this operational aspects. But one piece is we've decided to commit fully to our commercial manufacturer at the outset of the trial, rather do a transition from the clinical manufacturing that we've been doing now for several years with these programs and transition in the midst I think that was based on progress with the subcu progress at the commercial manufacturing the desire to do it all-in one go, and then maybe touched on some of the just the basic clinical prep ticking the first Phase 3 going for a small biotech?

[Paul Foster:]

So, with the manufacturing timeline we're taking the extra time to advice the Phase 3 program we've had discussions with the FDA, we're going to seek advice early next year with EMAA as well. So, we can go forward with the best design pivotal trial we are able to.

[Bassil Dahiyat:]

Yes, it's been a new disease, I mean, we've some parameters that we obviously laid out in the press release roughly the size it's going to be in the 250 to 350 range, we are pretty comfortable that we're going to talking about addition on top of standard of care where the standard of care in this cases code of the storied followed by paper. And then looking at endpoints that include the responder index in it, but typically these endpoints in these autoimmune disease has a composite nature. And so, developing the details of that is really what we're working on and I think we are in line with what we've been thinking and what we've been talking about and it's just really getting all the pieces together and going. So, we're very excited to be about start Phase 3 next year.

[David Nierengarten:]

Definitely. All right, thanks.

[Operator:]

Thank you. And I am showing no further questions at this time. I would now like to hand the call back over to management for any closing remarks.

[Bassil Dahiyat:]

Thank you very much operator and thank you all for your time and attention today. As I mentioned earlier we will be presenting the new preclinical data for our tumor microenvironment targeting bispecifics at the upcoming SITC Annual Meeting and we'll host the webcast this Saturday November 11 to talk about those results. We have had a very busy quarter advancing multiple programs and reporting data on two programs in one go. So, I would like to thank the team at Xencor for all their hard work to pull together this enormous amount of data that we could talk about all at once. And I also look forward to providing everybody with additional updates both this Saturday, but also in the future. Thank you very much for your time.

[Operator:]

Ladies and gentlemen, thank you for participating in today's event. This concludes our program, you may all disconnect. And have a wonderful day.