Xenon Pharmaceuticals Inc. (XENE) Q2 2015 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Xenon Pharmaceuticals Inc. Second Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Ian Mortimer, Chief Financial Officer and Chief Operating Officer. Sir, please begin.

Thanks operator, and thanks everyone for joining us on our call and webcast today to discuss our financial and operating results for the second quarter of 2015. Joining me on today's call is Simon Pimstone, Xenon's President and CEO. Following the introduction Simon will provide perspective on Xenon's progress and then I'll review the financial results for the quarter, after that we'll open up the call for your questions. Please be advised that during this call we'll make a number of statements that are forward-looking, including statements about discrepancy of our capital position executed on our business objectives, the timing of IND or IND equivalent submissions with regulatory agencies, the initiation of future clinical trials, the timing of and results from ongoing clinical trials and preclinical development activities, the commercial launch of Glybera in the European Union, our chief administered milestones under our collaboration agreement, the plans of our collaboration partners and their interactions with regulatory agencies 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. So now I'll turn the call over to Simon.

Thank you, Ian and good afternoon everyone, and thanks for joining Xenon on our conference call and webcast today to go through our progress in Q2. I'd like to focus my comments on looking forward to our key potential milestones as we continue to advance our partnered and proprietary pipeline programs, and also leverage the potential of our extreme genetics platform and expertise in ion channel drug discovery. We anticipate continued progress across our product candidate pipeline and believe that it's diversity and therapeutic indications, diversity and drug targets as well as in stage of development is the major strength that helps us to continue to balance the risks and the opportunities inherent in the drug discovery and development process. Since announcing the results of the Phase 2b trial of TV-45070 in patients with single knee osteoarthritis in the beginning of July and the decision we made with our partner Teva, not to continue to pursue this indication further, we have continued to focus on advancing our overall portfolio and general corporate strategy with the exception of removing OA as a target indication for TV-45070 there will be no changes in our companies fundamental areas of focus and we look forward to continued advancement of our product candidate pipeline. Our interest in the Nav1.7 target remain strong and is at the core of our collaborations with both Teva and Genentech, Nav1.7 appears to play a critical role in pain signaling and our focus with Teva remains in developing TV-45070, the targets both Nav1.7 and other sodium channels to treat conditions of chronic pain. As we discussed several weeks ago, our analysis of the results of the Phase 2b trial with TV-45070 conducted in patients with Co-A suggested that the Teva that the lack of observed efficacy in that trial maybe driven by insufficient drug exposure within the knee joints. In our opinion the outcome of the [indiscernible] is not impact the rationale or opportunity in neuropathic pain in any way, it's a very different pain mechanism compared with Co-A. Teva and Xenon are fully committed to the development of TV-45070 for neuropathic pain indications and a trial in over 300 patients with post-herpetic neuralgia is currently underway but the data is still expected in the second half of 2016 as per prior guidance. Our partnership with Genentech to develop GDC-0276 and other orally active selective small molecule inhibitors of Nav1.7 for the treatment of pain is progressing well. We expect enrollments to be completed in the second half of this year and the expanded Phase 1 single and multi-ascending [ph] dose clinical trial for GDC-0276 in healthy volunteers, a trial that Genentech is funding and conducting. The has also being a considerable efforts in the collaboration focused on follow-on compounds the new chemistry is targeting at Nav1.7 with Genentech, we expect to be in a position later this year to provide a broader update regarding our Genentech collaboration. As a reminder we also have a second pain focused collaboration with Genentech focused on pain genetics, while we’re making, where we’re making good progress towards identifying new and novel pain site that’s in our goal is to identify our first target by the end of this year. In our proprietary pipeline our near term focus is on XEN801, our SCD1 inhibitor being developed for the treatment of moderate to severe acne. We have completed all IND enabling activities including the required toxicology and CMC activities and based on these we anticipate filing the IND equivalence CTA application in Canada later this month. This will put us in a position to start the Phase 1 trial in the near term and if supported by the Phase 1 data we then would start a proof of concept Phase 2 clinical trial by the end of 2015 in patients with moderate to severe acne. We are excited to test clinically our hypothesis of inhibiting SCD1 or [indiscernible] with XEN801. We believe that we can have impact on acne by two distinct mechanism, firstly our reducing mono-unsaturated fatty acids we hope to reduce the production of [indiscernible] lipids produced by sebaceous glands and secondly inhibition of SCD1 increases the production of retinoic acid endogenously which can have an apoptotic effect on the cells of sebaceous glands known as Sebocytes. Recently we tested this mechanism in human sebocyte cell lines, these experiments SCD1 demonstrates an ability to increase levels of a protein called NGAL in the cells and NGAL is known to meditate Sebocytes apoptosis. NGAL is increased to retinoic acid signaling, this supports the differentiated mechanism XEN801 compared to other drugs proved in development for acne, we expect results from the Phase 2 proof of concept portion of the XEN801 trial in 2016 as per prior guidance, our program to develop a potent selective inhibitor of the sodium channel in Nav1.6 for the treatment of the orphan disease Dravet Syndrome otherwise known as severe myoclonic epilepsy of infancy is also progressing well and we anticipate filing an IND in this program in 2016. Just recently we have brought in-house and in-viva model of Dravet Syndrome, we will be testing our Nav1.6 inhibitors in this model later this quarter. We also have additional early drug discovery activities targeting other high end channel targets which we expect to report on in more detail in the next few months. Our focus is on orphan channelopathies who we believe there is a genetically defined population which we can target an develop it. Finally I will provide a very quick update on Glybera this is the first product whose active ingredient was derived from our platform to receive commercial approval, it's currently the only gene therapy product to receive approval in Europe. Glybera specifically indicated for the treatment of a subset of adult patients diagnosed with the orphan lipid disorder known as Lipoprotein lipase deficiency or LPLD, confirmed much by testing, these patients suffered from severe multiple episodes of pancreatitis despite dietary fat restriction. Glybera was developed by our licensee uniQure Biopharma being commercialized by uniQure's partner Chiesi, although we are not giving specific guidance about Glybera, we do understand that Chiesi has submitted price and reimbursement dossiers in key European countries to make Glyberia accessible to patients who will provide additional information as we receive it. Therefore in summary, we believe our diverse product candidate pipeline is an important part of how we diversify risk by reducing our dependence on any one single assets and providing multiple near term milestone opportunities. We do look forward to keeping you all updated on our progress and I'd like to ask Ian now to review our financial performance for the quarter, and to review our 2015 and near term upcoming milestones. Ian?

Thanks, Simon. I'll provide a high level of review of the second quarter 2015 financial statements and finish off with a review of the upcoming milestones. For the quarter ended June 30, 2015, we reported total revenue of $4 million compared to $5.3 million for the same period in 2014. Revenue in both periods was primarily derived from Xenon's collaboration agreement with Teva and Genentech. The decrease of $1.3 million was primarily attributable to revenue recognized in the second quarter of 2014 relating to the upfront payment from our December 2011 Genentech agreement. No such amounts were recognized in the current quarter as the upfront payment was fully recognized by December 2014. The remaining decrease was due to less FTE funding from both Genentech and Teva, and a change in foreign exchange rate between the U.S. and Canadian dollar. Research and development expenses for the quarter ended June 30, 2015 were $3.7 million compared to $2.6 million for the same period in 2014. The increase of $1.1 million was primarily attributable to an increase in spending on our XEN801 and Nav1.6 sodium channel inhibitor programs, partially offset by decreases in Teva and Genentech collaboration expenses. General and administrative expenses for the quarter ended June 30, 2015, were $2.1 million compared to $1.2 million in the same period in 2014. The increase was primarily attributable to additional expenses incurred as the public company. On the financial statements you will also that we've now broken out general and administrative stock-based compensation expense with our functional currency changed to U.S. dollars on January 1 of this year, certain options granted to Directors and certain consultants are subject to liability accounting with fair value calculated using the Black-Scholes option-pricing model. So prior to January 1, these options were subject to equity accounting. Because of this we have a G&A stock compensation recovery in the second quarter of 2015 of $1.9 million compared to an expense of $0.1 million in the same period of 2014. The change is primarily attributable to the change in the fair value of these liability classified options. As you have seen in the press release, we restated our Q1 2015 numbers to reflect this technical non-cash accounting change, and obviously this has absolutely no impact on our cash or assets or revenue. Other income was $1 million for the three months ended June 30, 2015 as compared to other expense of $0.1 million or the three months ended June 30, 2014, a change of $1.1 million and primarily attributable to unrealized foreign exchange gains. Our net income for the quarter ended June 30, 2015, was $1.2 million compared to net income of $1.2 million for the same period 2014. Net income was primarily attributable to the non-cash G&A stock comp recovery that I spoke about, and offset by lower revenue and higher R&D development expenses. We ended June 30, 2015 with $73.7 million in cash and cash equivalents and marketable securities which we believe puts us in a strong financial position to execute on our key near term business objectives. And now let me recap what we believe will be a busy period for potential milestones throughout the remainder of 2015 and into 2016. Completing enrollment in the GDC-0276 Phase 1 trial being conducted by Genentech in the second half of 2015 and we're also working to identifying novel pain targets emerging from our Genentech genetics collaboration. We will advance XEN801 into clinical development and as supported by the Phase 1 data will also initiate a Phase 2 proof of concept study before the end of 2015 in moderate to severe active patients. We'll continue to make progress in our Dravet Syndrome Nav1.6 program, as well as we're working to identify our next target for drug discovery and development. And lastly, we anticipate the commercial launch of Glybera in the EU by our licensee unit cares commercial partner Chiesi. So, as always I'd like to thank all of our stakeholders for your continuing interest and support. We continue to focus our internal resources on supporting our partners as well as advancing the rest of our proprietary product line. We intend to carefully manage our financial resources and operate efficiently. We believe we have a number of key near term milestones, opportunities that we will look forward to communicating in the second half of 2015 and into 2016. Operator we will now open the call up for questions.

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

Just wondered if you could talk about what you’re looking to see in the current work that you’re doing on the acne asset in order to be confident in moving that forward?

I mean obviously the program one we speak a lot more about as the CTAs filed and we expect to be improved and we move into the clinic, I think what's the critical first phase of Phase 1 is obviously to the general tolerability of this topical application. This is a gel based formulation for the drug product. It appears to have appeared performed well in our GOP [ph] toxicology program and so we certainly are hopeful that we will see a good tolerability in setting [ph]. Secondly I think what is also going to be important is to get a sense of the pharmacokinetics of the drug itself John and looking particularly at how much drug gets into the skin which we will be able to through biopsies and obviously what the associated plasma concentration is, that would be the Phase 1 part of the program which we will be focusing on starting this quarter. As we have guided and we continue to be on track for is that goes well and we showed the tolerability and we show appropriately decay, we expect to initiate our Phase 2 programs at the end of the year, this will be a 12 week dosing period, placebo controls and we will be looking at the study in about a 125 to 150 patients with moderate to severe acne and what will be the looking for is the change in the lesion count at the end of the 12 weeks in dosing compared to base line and the difference between response between and active and placebo treated patients. So fairly standard, in fact very standard proof of concept study, well powered study for preliminary Phase 2 and I think we have built into this study, kinds of assumptions that this study should be able to give us an answer whether this drug is working or not John.

And then one additional question, during the call touched it but you discussed this, I think you mentioned in the printed press release that you filing an IND for Genentech asset if I'm not mistaken and I just wondered if you could give us any sense as to if and when you maybe able to disclose more information about that indication?

So I think what we said and our guidance continues to be and we expect to complete enrollments in the Phase 1 towards the end of this year, we will be providing updated guidance later in the John, we’re obviously in discussions with Genentech on next phases that we have not disclosed anything and we’re under confidentiality obligations based on our agreement with them to keep confidential at the moment, the plans we don’t have final plans at this point and so there is really no disclosure for us to make. We should be ironing out the next phase plans with Genentech over the next few months and so our guidance's remained that we will be updating the market in the later part of the year on the plans. What you may have referred to is the second collaboration we have is a genetics collaboration with Genentech. We’re guiding hopeful that we will be identifying another pain target as you may recall, we were studying families that don’t feel pain, well families with excessive forms of spontaneous pain who try and identify new pain targets for drug discovery. Obviously Nav1.7 is a very important one, there maybe others that we can identify in humans that when altered either by a loss or regain of function can really alter human pain perception, we've got some really interesting families that we're studying to hope to identify a novel target or novel targets than and we expect to be able to do this year and that was probably the reference that you were referring to.

Thank you. [Operator Instructions] At this time I'm showing no further questions in the queue. I would like to turn the call back over to Mr. Ian Mortimer for further remarks.

Great, thanks operator and thanks everyone for joining us on the call today. And, we look forward to keeping you informed of our progress throughout the year. We'll now end the call. Thank you, operator.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.