Xenetic Biosciences, Inc. (XBIO) Q4 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Xenetic Biosciences Quarterly Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Jenene Thomas, Investor Relations. Thank you, Ms. Thomas. You may begin.

Good morning everyone and thank you for joining Xenetic Biosciences quarterly business update conference call and webcast. I would like to remind you that today’s webcast will be accompanied by a slide presentation that can be found under the Investors section of the Company’s website, xeneticbio.com, under Events and Presentations. At this time, I would like to remind our listeners that remarks made during this call may state management’s intentions, hopes, believes, expectations or projections of the future. These are forward-looking statements that involve risks and uncertainties. Forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the federal securities laws. These forward-looking statements are based on Xenetic Biosciences’ current expectations, and actual results could differ materially. As a result, you should not place undue reliance on any forward-looking statements. Some of the factors that could cause actual results to differ materially from those contemplated by such forward-looking statements are discussed in the periodic reports Xenetic Biosciences files with the Securities and Exchange Commission. These documents are available in the Investors section of the Company’s website and on the Securities and Exchange Commission’s website. We encourage you to review these documents carefully. Following the Company’s prepared remarks, the call will be opened up for a question-and-answer session. Joining me on the call today are Scott Maguire, the Company’s Chief Executive Officer; Jeff Eisenberg, Chief Operating Officer; and Dr. Curt Lockshin, Chief Scientific Officer. It is now my pleasure to turn this call over to Scott Maguire.

Thank you, Jenene. And first of all, I’d like to thank everyone for taking time out of the day to listen to the Xenetic earnings call. I’m pleased we are now in a routine to have these calls on a regular quarterly basis. It is this type of interaction and communication that gives the Company and the technologies, the visibility they deserve. Speaking of visibility, Xenetic rang the bell on NASDAQ last week, on Thursday morning. It was a great event enjoyed by all the Xenetic staff and advisors that played a critical role in getting Xenetic listed on NASDAQ. With that, I would now like to go through the achievements since our last call. As we announced, at the beginning of January, we received a $3 million milestone payment from Shire, for hitting an inflection point in our license agreement. This is related to Shire’s advancing SHP656 through the Phase 1/2a clinical study and it’s a long-acting form Factor VIII, a treatment for hemophilia A. We also announced recently that -- we will be announcing hopefully the end of next month that we’ve achieved a FDA approval on a protocol that we filed recently under an existing IND for a biomarker study of XBIO-101 for the treatment of triple negative breast cancer. And we also expanded our patent portfolio quite significantly since the last time we announced our patents in November 2014. And we’ve expanded those into the key geographic markets; we strengthened our portfolio across the board covering our therapeutic technologies. We also announced the appointment of Dr. Ed Benz, the former CEO of the Dana-Farber Cancer Institute, one of the world’s leading cancer institutes. He’s become a member of our Board and along with Roger Kornberg bring global credibility and global recognition to Xenetic. We also appointed Dr. Curt Lockshin, as a Chief Scientific Officer. He is a very experienced R&D professional, who has been a part of this Xenetic team for the past two years, but he has now become a full time member at the position of Chief Scientific Officer. Just this morning, we announced the expansion of our executive management team with the appointment of James F. Parslow, Jim as we call him, as the Chief Financial Officer. Jim has 25 years of financial and business leadership experience, both of which are important components to execute on shareholder value enhancement. I would now like Jim to introduce himself to you all and give a reason or two for joining the Xenetic team.

Thank you, Scott. It’s great to be joining such a great team here at Xenetic at such an exciting time in the Company’s evolution. The business model is very compelling, and I believe there is tremendous opportunity to unlock significant value. I also believe that my extensive background and approach to the financial management will be complementary to the management team’s expertise as we have opportunities in front of us to accelerate our business strategy. Importantly, I am publicly part of the Company that could have a significant impact on people’s lives as we advance XBIO-101 to provide solutions where there remains significant unmet need in treating cancers. I look forward to working with this impressive team and Board of Directors from both the strategic and financial perspective to execute our strategy and drive shareholder value. With that, I’ll turn it back to Scott.

Thank you, Jim and welcome aboard again. I’d also like to thank Joe Frattaroli, who has been our contract CFO for his hard work and dedication the last two years. As of December 31, 2016, Xenetic had $4 million in cash and cash equivalents; this is excluding the Shire milestone payment. So, we have capital to hit on our Q2 clinical and license inflection points including the Phase 2a data readout from Shire. Now, the NASDAQ listing enables us access to a whole pool of capital that we did not have previously. And this is from groups of investors called fundamental investors that are the real drivers of shareholder value in the biotech world. This is important since in all likelihood, we will be seeking to access the capital markets over the course of this year. Now, the three headed execution strategy on creating shareholder value is being opportunistic in evaluating strategic financing options; potential licensing revenue from existing shareholder relationships; and leverage the positive data to execute more PolyXen like partnerships for our drug delivery platform technology. Now, the business model is quite simply, leverage off of the platform technology to seek or leverage non-dilutive capital to execute further and Serum Institute of India like deals. So, Shire and Serum Institute of India like deals is what we seek further from our platform technology. And this is to fund our proprietary oncology pursuits, our therapeutic developments with the end goal of leading to a market launch on the oncology programs. So that’s the main business strategy for the Company. I would now like to hand over to our COO, Jeff Eisenberg to provide an update on ErepoXen and Shire. Jeff?

Thank you, Scott. So, to follow on Scott’s point, we now have a business model and strategy that truly positions Xenetic for substantial growth. As part of our ongoing strategic review, our team engaged in a concerted effort late last year to refine our strategy, recognizing that applying our resources to the only the highest value projects and focusing on execution would be beneficial internally and would be attractive to potential fundamental investors. So now, especially for our long-term shareholders, I’d like to provide an update on our polysialylated EPO project ErepoXen, being developed for the treatment of anemia in chronic kidney disease. After completing three patient cohorts of our Phase 2 clinical trial and following our November fundraise, we decided to focus our efforts where we believe we can best add value. And that is on our lead internal candidate XBIO-101, which will be reviewed later in this call and about which we are really excited. The ErepoXen project was always intended to be an out license opportunity, and we feel we have sufficient data with our three completed cohorts to attract the partner if there is a partner to be found. We have shown that our technology works. We see a dose response that corrects hemoglobin levels with extended half-life in CKD patients, which is exactly what we set out to demonstrate. Meanwhile, our strategic partners and shareholders Pharmsynthez and Serum Institute of India continued to pursue development in their markets. And if they are successful, we get our royalties from their sales. Now, I’ll turn to PolyXen and our collaboration with Shire on SHP656 or polysialylated Factor VIII. Shire continues to advance this important project, which is completing its Phase 1/2 study. We expect top-line data from Shire Q2 of this year. Scott and the Xenetic team have done an amazing job with this partnership, which started with Baxter and then migrated to Baxalta and now Shire. One of the reasons, we are all so excited about this opportunity is that we really believe we have the right product for the right market with the right partner at the right time. Our agreement with Shire covers a series of novel polysialylated blood coagulation factors, including SHP656 that utilize our PolyXen delivery system. Shire is the market leader in the category with well over $3 billion in sales and the market is substantial. By the time SHP656 is launched, the global hemophilia market should exceed $10 billion. In addition to being a great strategic partner, Shire is also a significant investor in Xenetic having invested $13 million to-date. I already mentioned that Shire is completing a Phase 1/2 trial and the data readout is expected in Q2. If the trial is successful, we expect Shire to move into a Phase 3 trial this calendar year, at which point we believe there will be much more visibility into this projects and its potential impact on Xenetic from our existing shareholders as well as prospective investors. And this is one of the main reasons that this year could be transformational for Xenetic. Shire’s objective for SHP656 is to develop a once weekly or even less frequently dose Factor VIII product, and I’ll discuss the significance of that in a moment. The terms of our deal are quite meaningful for a Company of our size, up to a $100 million in milestones and approximately high single-digit royalties on sales. We received our first clinical milestone payment of $3 million earlier this year. The data shown here will explain our optimism about the prospects for successful trial outcome. Presented here are preclinical data for ADVATE, Baxter’s original Factor VIII molecule, ADYNOVATE, the next generation pegylated version and SHP656. As you can see clearly, there is a consistent positive trend in mean residence time from the rodent to the primate model in all three products with SHP656 being the longest and then similarly positive trend in humans for ADVATE and ADYNOVATE. If that trend continues in the pending trial, we think there is a good chance that we will help Shire achieve its objective of once weekly dosing. The next slide presents the competitive landscape in hemophilia A, the market targeted by SHP656. Shire believes that frequency of dosing is and will continue to be a key differentiator in this large global market. And a takeaway from this chart is that there is no product on the market for this indication that is labeled to be dosed once per week. ACE910 has the potential to dose weekly but that product has faced some very well publicized safety challenges in the clinic. So we feel that if our product works as intended, then Shire will be very well-positioned to compete in this market and perhaps even grow its share over time. Now, I would like to step back and talk more broadly about our PolyXen technology and our strategy to exploit it. In the four months since I joined the Xenetic management team, I have grown increasingly enthusiastic about this platform. The PolyXen platform has significant potential across a wide range of biologics and the potential to create products that can make a real impact in their markets. In that sense, we expect PolyXen to be a significant growth driver for us for years to come, and our plans include aggressive business development efforts to expand our collaboration pipeline. In that regard, we believe that success of SHP656 would further validate our technology and help to accelerate our partnering efforts. Our goal is to enter into more early stage collaborations leading to demonstration of feasibility and ultimately to additional Shire like license deals. We do have the visibility of work ongoing and even though these are not announceable events, they could lead to more announceable events and potential value drivers as we move forward. For the reasons Scott covered earlier, we do feel that this technology has tremendous value with or without SHP656. We have compelling human data in a number of different compounds including the ErepoXen data I described earlier. So, we feel that we have the right pieces in place to effectively advance this technology and use it to drive growth and provide non-dilutive capital. And with that, I’m going to turn the call over to Dr. Kurt Lockshin, our Chief Scientific Officer to discuss XBIO-101.

Thank you, Jeff. I am pleased today to provide an update on XBIO-101, Xenetic’s lead internal product candidate. Since we obtained the asset in 2015, our internal team has been working with outside advisors and key opinion leaders to execute on development plans which will give us the best chance for successful clinical outcomes in various oncology settings. Drugs that target hormone receptors can be an effective tool against certain cancers. Prime examples would be progestin as they target the progesterone receptor or tamoxifen which targets the estrogen receptor. However, patients whose tumors tissues lack those relevant receptors are not candidates for hormone receptor targeted therapy. Well known examples would include progesterone receptor negative endometrial tumors which lack the progesterone receptor and triple negative breast cancer tumors which lack all three of progesterone, estrogen, HER2 receptors. Our objective with XBIO-101 is to increase levels of hormone receptors and tumor tissues in order to render them sensitive to hormone therapies. XBIO-101 is currently the subject of a Phase 2 study in progesterone resistant endometrial cancer; and in an addition consistent with our guidance at the end of 2016, we recently filed a protocol for a biomarker study of XBIO-101 in triple negative breast cancer. XBIO is essentially a de-risked repurposing opportunity. It’s used outside the U.S.; it’s provided over 20 years of market history and surveillance from over $10 million doses sold in these territories as well as safety and tolerability data from the supporting clinical trials. Given its known mechanism of action is an interferon inducer, its primary use has been for certain infectious diseases and other conditions where immunomodulation is indicated. Importantly, however, in animal models, XBIO-101 has been shown to increase levels of the progesterone receptor and receptor negative endometrial tumors. This and other history have supported our U.S. orphan designation in the treatment of PrR-negative endometrial cancers as well as of course our ongoing Phase 2 IND. Furthermore, we have preclinical evidence suggesting the utility of XBIO-101 in estrogen receptor negative tumors, such as found in the case of triple negative breast cancer. Endometrial cancer is the most invasive gynecological cancer in the United States with around 60,000 cases diagnosed annually. The early stage tumors can often be treated successfully with surgery or radiotherapy but late stage and recurrent disease, about 20% of the diagnoses carries more negative prognosis, fewer treatment alternatives and represents a dire unmet medical need with no FDA approved therapies for these patients. We’re therefore enthusiastic about the potential role for XBIO-101 in these settings, but there remain significant shortcomings in treatment options. The diagram on the next slide shows the U.S. prevalence of these various patient groups. Around 20% or 130,000 patients are late stage, recurrent or metastatic. Our orphan designated population, around 65,000 receptor negative patients are predominantly found in this category. Also within the late stage population are non-responders to progestin therapy irrespective of receptor status per say. In some cases for example, this might be the result of desensitization of our prior hormone therapy. If XBIO-101 is able to sensitize or re-sensitize these patients as the case maybe to progestin therapy, they might potentially also be part of XBIO-101’s addressable population, which we view as an exciting opportunity in and of itself. Our Phase 2 endometrial cancer trial in the United States calls for enrollment of approximately 72 patients and upto 50 clinical sites with the one-year treatment period of XBIO-101 with progestin therapy followed by one-year surveillance period. It is designed to treat receptor negative patients directly with an XBIO-101 progestin combination as well as to identify other non-responders who may then be entered into the combination regimen. To summarize, we are in the process of activating our Phase 2 trial of XBIO-101 with progestin therapy in endometrial cancer, and we are on track to commence patient dosing this quarter. We expect to report interim data before the end of 2018. And as I stated, we’ve also submitted a protocol for the U.S. FDA for a biomarker study of XBIO-101 in triple negative breast cancer patients. This is designed to determine the effect of XBIO-101 in the levels of hormone receptors, in this case including the estrogen receptor. We are excited to be advancing our internal XBIO-101 programs forward and believe 2017 will be filled with meaningful progress on the clinical development side. Thank you. I will now hand the conversation back over to Scott.

Thank you, Curt and also thank you Jeff both of you for detailing these exciting programs. The expected near-term milestones which are may well agreed, could be transformational for any one of these as a standalone. However, we have three such near-term milestones coming up in Q2 only. And that’s the commencement of recruitment for our Phase 2 clinical study for XBIO-1 and the subsequent dosing relating to that study, the announcement of topline data from Shire for their Phase 1/2a study in Q2 as well, and hopefully receiving a milestone payment from Shire if the endpoints are achieved in the Phase 1/2a study. And this would then move into a Phase 3 study, the second half of this year. And if the results are positive, we seek to leverage this relationship to execute more PolyXen partnerships reflecting of the economics of the Shire license deal. We believe we have a very compelling investment opportunity. PolyXen which is the drug delivery technology, one of the most versatile drug delivery technologies, known event, [ph] without the subsequent adverse events, we would expect to drive significant growth going forward. We currently have four molecules in clinical development under license utilizing this technology. Of course, we have the Shire relationship, which could yield significant milestones and royalties in the near-term in the Biotech world. And our lead program XBIO-101 in Phase 2 clinical study for the treatment of endometrial cancer as well as the pending FDA clearance of the clinical protocol for triple negative breast cancer. Now, we have additional technologies and programs that have already been clinically vetted through our shareholders partnerships. Seven molecules covering nine different therapeutic areas have reported some clinical, form of clinical results whether that’s Phase 1 or Phase 2 whereby Xenetic owns all rights in the large markets, Europe and the United States, and these are ready for advancement in Europe and the United States as clinically vetted molecules as resources allow. 2017 has started to be a transformational year and we expect to continue this trend with significant positive pipeline advancements. Now, I would like to turn over to the operator Michelle for any questions that you may have.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Kevin DeGeeter with Ladenburg Thalmann. Please proceed with your question.

Hi. This is Jay Colby [ph] on line for Kevin. Thanks for the questions. I guess first, how should we think about the pace of enrollments at the endometrial study of XBIO-101? And then, when could we see potential data from the triple negative breast cancer biomarker trial?

That’s a good question, Jay, and I’m going to hand that over to Dr. Curt Lockshin, who detailed the XBIO-101 program.

Hi. Thanks for the question. The pace of enrollment will be determined in the early going I believe. There are a lot of variables that play into that. The pace can obviously be increased by opening up more sites as needed. So, we have the ability to dynamically do that as time goes on. As I indicated, we expect to be able to report interim data towards the end of 2018, which means essentially that we’d anticipate enrollment, full enrollment taking on the order of one year. As far as the triple negative work, the start of that is really dependent on current available resources. The biomarker study of course will be a much shorter proposition since it requires a lower -- a short period of dosing and a much more rapid readout and better recruitment of TNBC patients as compared to late stage endometrial.

Okay, great. And then, so I guess for the interim analysis on endometrial that’s from the full 72 patients or is that…?

No, that would be -- no, sorry to interrupt. No, that would be from approximately half of the patients.

Okay, great. And then, I guess lastly for me, with the appointment of -- with the announcement of Jim as the CFO today, is senior management team flushed out at this point or do you see more hires down the road?

Well, we have now added three C level positions in the last four months. So, I think the Company is perfectly placed now with the corporate structure ready to execute on all the value initiatives as outlined in our presentation today.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back over to Mr. Scott Maguire for closing remarks.

Yes. Thank you, Michelle and thank you to the Xenetic team as well. As I said previously, this has started out to be a transformational year and we expect to continue this trend over the course of 2017 and we look forward to communicating with you on a quarterly basis with these earnings calls. Now that we have established as a firm routine with Jenene Thomas and her crew where we are looking forward to get more news coming up over Q2, which just to remind you is the Shire data readout, the commencement of the endometrial cancer trial and the triple negative breast cancer biomarker study moving to approval. So, thank you very much again for your time today and we look forward to updating you in another quarter.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.