Xenon Pharmaceuticals Inc. (XENE) Q3 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Xenon Pharmaceuticals Inc. Q3 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded. I will now turn the call over to our host for today’s conference, Mr. Ian Mortimer, Chief Financial Officer. Mr. Mortimer, please go ahead.

Great. Thank you. Thanks everyone for joining us today on our call and webcast to discuss our financial and operating results for the third quarter of 2015. Joining me on today’s call is Simon Pimstone, Xenon’s President and CEO. Following this introduction, Simon will provide perspective on Xenon’s progress, and I’ll review the financial results for the quarter, and after that, we’ll open up the call for 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, 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 chief administered 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. So I’ll now turn the call over to Simon.

Thank you, Ian; and good afternoon, everyone. And thanks so much for joining Xenon on our conference call and webcast today. We’re very pleased with our in this past third quarter in advancing both our proprietary programs, as well as our partnered programs. We’ve achieved important milestones that we believe underscore the therapeutic potential and the breadth of our pipeline and product opportunities, as well as the value of our Extreme Genetics platform. We believe we are well-positioned to continue to build on this momentum, with a number of important milestones throughout our pipeline anticipated over the coming quarters, and we have sufficient resources and capabilities to achieve our near-term goals. I’ll start with our two collaborations with Genentech, in both of which we have made strong progress since our last update. Our partnership with Genentech to develop early-active selective small molecule inhibitors of Nav1.7 for the treatment of pain is progressing well. The lead molecule in this collaboration is GDC-0276. And we expect enrollment to be completed by the end of this year and the expanded Phase 1 single and multi-ascending dose clinical trial in healthy volunteers. We’re also excited that Genentech recently advanced a second Nav1.7 inhibitor into clinical development. GDC-0310 is an orally active selective small molecule inhibitor of Nav1.7, and follows GDC-0276 into clinical development. Genentech has initiated a Phase 1 trial in up to 228 healthy volunteers. We are pleased to note that both GDC-0276 and GDC-0310 were included as key pipeline neuroscience assets in the product development portfolio update which Roche presented to investors on October 3. We believe that having two distinct Nav1.7 inhibitors in clinical development via our partner Genentech underscores the significant potential of this novel class of compounds as a new way to treat pain and the productivity of our broad Nav1 focused discovery and development partnership with Genentech. We believe Nav1.7 remains a very important pain target. And we believe that both GDC-0276 and GDC-0310 represents different attractive and promising product candidates. We completely support Genentech strategy of exploring the respective attributes and therapeutic utility of follow-on compounds and of new chemistries, and their strong commitment to our Nav1.7 development collaboration. As we have seen by recent announcements from other companies, there is a lot of activity targeting Nav1.7, and we believe we are very well positioned with our breadth of clinical candidates through our Genentech and Teva collaborations. We’re equally proud of the progress we have made in our pain genetics collaboration with Genentech. In September, we announced that we successfully discovered and identified a novel pain target, thus triggering a milestone payment to our company. Work is now underway with Genentech to study the impact of this target in model systems. We continue to believe that there is a critical medical need for non-opioid based mechanisms to treat pain and believe that we are well positioned to lead the discovery of additional promising targets and mechanisms that can significantly enhance treatment options. Moving to our pain collaboration with Teva, we are pleased to report that developments of TV-45070 is continuing as planned. TV-45070 targets both Nav1.7, as well as other sodium channels to treat conditions of chronic pain. Teva is fully committed to the development of TV-45070 for neuropathic pain indications. The Phase 2 trial in over 300 patients with PHN continues, with data still expected in the second-half of 2016. Teva continues to invest broadly in this product and in addition to the PHN study underway, has recently completed a drug-drug interaction trial and a clinical maximal use study, both of which were completed with no concerns identified. Teva is also continuing all the necessary non-clinical and CMC activities to support late stage clinical development for TV-45070. Turning our attention now to our proprietary pipeline, a major milestone achieved in the third quarter was the initiation of a Phase 1 trial and first subject dose with XEN801 as a potential treatment for acne. Key to our growth as a company is the parallel strategy of advancing both our partnered as well as our proprietary programs and XEN801 is the first asset from our current proprietary pipeline that we have advanced to the clinic. XEN801 is a novel topically administered, selective, small molecule inhibitor of stearoyl-CoA desaturase, or SCD1, an enzyme involved in lipid synthesis that is expressed in sebaceous glands in the skin. We believe that XEN801 can have an impact on acne by two distinct mechanisms. Firstly, by reducing monounsaturated fatty acids to reduce the production of sebum lipids produced by sebaceous glands; and secondly, by increasing the production of retinoic acid endogenously, which can have an apoptotic effect on the cells of the sebaceous gland. We believe that the dual mechanism SCD1 inhibitory activity of XEN801 may be especially promising increasing [ph] acne by targeting both reduction of the size and number of sebaceous glands as well as sebum production. In addition, because of the serious side effects that often limit the use of currently approved retinoid treatments, topically applied XEN801 might represent a novel and safer approach. We have also recently generated preclinical in-vitro data, that supports the apoptotic effects of XEN801 in human sebocyte cell lines. Therefore, we believe we have a product candidate with clear mechanistic differentiation in comparison with the current landscape of acne treatments. Our clinical strategy is to move XEN801 through the Phase 1 study, which would enroll up to three cohorts of 12 healthy subjects per cohort, dosing of 14 or 21 day treatment period. The objectives of Phase 1 are to determine safety and tolerability as well as to determine XEN801 systemic and skin exposure. It’s supported by positive data from the Phase 1 trial. We will be in a position to initiate or randomized multicenter double-blind vehicle-controlled Phase 2 clinical trial of XEN801 later this year or early in the New Year. The Phase 2 trial will be designed to evaluate the efficacy, safety, tolerability and systemic exposure in approximately a 150 patients with moderate to severe facial acne. The primary efficacy endpoints will be the percent change in total lesion counts including inflammatory and non-inflammatory lesions from base line to week 12. Secondary endpoints include the percentage change in inflammatory and/or non-inflammatory lesions at different time-points throughout the 12-week study as well as a number of investigators global assessment measures. We would expect results from the Phase 2 proof-of-concept study in the second-half of 2016. In addition, to our plans in acne, we have completed a thorough development and commercial assessment of expanded dermatological indications for XEN801 and we expect to be in a position to choose another indication for Phase 2 XEN801 development over the next few months. Our program to develop a potent and selective inhibitor of the sodium channel Nav1.6 for the treatment of the orphan disease, Dravet Syndrome or severe myoclonic epilepsy of infancy continues to progress well. And we continue to anticipate filing an IND for this program in the second-half of 2016. This past quarter we have brought in house in-vivo models of genetic seizure disorders including Dravet Syndrome and we are testing our Nav1.6 inhibitors in these models. We’re encouraged by the early results and we expect to be in a position to share these data with investors over the next few months. Finally, I’ll provide a very quick update on Glybera which is the first product whose active ingredients was derived from our platform to have received commercial approval. It’s currently the only gene therapy product to receive approval in Europe. Glybera is specifically indicated for the treatment of a subsets of adult patients diagnosed with an orphan lipid disorder known as Lipoprotein lipase deficiency or LPLD, which is confirmed by genetic testing. These patients suffer from severe multiple pancreatitis events and this is despite dietary fat restrictions. Glybera was developed by our licensee uniQure Biopharma, and it’s being commercialized by uniQure’s partner Chiesi. Although we are not giving specific guidance about Glybera, we understand that Chiesi has submitted price and reimbursement dossiers in key European countries to make Glyberia accessible to patients. We will certainly provide additional information as we receive it. So in summary, we believe we are executing on our strategy and building very good momentum in our business. As 2015 progresses, we intend to continue to advance our partners in proprietary pipeline programs and leverage the potential of our Extreme Genetics discovery platform as well as expertise in ion channel target discovery and biology. We anticipate continued progress across our product candidate pipeline and continue to believe that its diversity in therapeutic indications and stages of development is a major strength. I’d now like to ask Ian to review our financial performance for the quarter and review our upcoming milestones. Ian?

Thanks, Simon. I’ll provide a high level overview of the third quarter 2015 financial statements, and then finish off with a review of upcoming milestones. For the quarter ended September 30, 2015 we reported total revenue of $4.3 million, compared to $13.2 million for the same period in 2014. Revenue in both periods was primarily derived from Xenon’s collaboration agreements with Teva and Genentech. The decrease of $8.9 million was primarily attributable to an $8 million milestone payment received in Q3 2014 from Genentech and revenue recognized related 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 September 30, 2015 were $3.8 million compared to $3.2 million for the same period in 2014. The increase of $0.6 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 September 30, 2015 were $1.3 million compared to the same amount in 2014. For Q3 2015, we recognized a recovery of $1 million due to a change in the fair value of our liability classified stock option grants to directors and certain consultants, until the options were reclassified back to equity in September 2015. This was offset by an increase in expenses incurred as a public company and acceleration of stock-based compensation expense for certain consultants. Other expense was $3 million for the three months ended September 30, 2015 as compared to other income of $0.5 million for the same period in 2014, a change of $3.5 million, which is primarily attributable to unrealized foreign exchange losses. Our net loss for the quarter ended September 30, 2015 was $3.8 million, compared to net income of $9.2 million for the same period in 2014. The change was primarily attributable to lower revenue, higher operating expenses and unrealized foreign exchange losses recorded during Q3 2015. We ended September 30, 2015 with $65.5 million in cash and cash equivalents, and marketable securities, which we believe puts us in a strong financial position to execute on our near-term business objectives. To recap what we believe will be a busy period for potential milestones throughout the remainder of 2015 and into 2016, we’ll be completing enrollment in the GDC-0276 Phase 1 clinical trial being conducted by our partner Genentech by the end of 2015 and we’ll have the continued development of GDC-0310 currently in an ongoing Phase 1 clinical trial. Now that XEN801 has commenced clinical development, we expect the Phase 1 clinical trial to be completed by the end of this year and assuming that the data are supportive, we plan to initiate a Phase 2 proof-of-concept trial by the end of 2015 or early in 2016 in moderate to severe acne patients. We are also completing our planning for potential indication expansion outside of acne and we expect to be in a position to provide an update over the coming months. We expect to make continued progress in our Dravet Syndrome Nav1.6 program as well as identifying our next target for drug discovery and development. And lastly, we anticipated a commercial launch of Glybera in the EU by our licensee uniQure’s commercial partner Chiesi. As always, I’d like to thank our stakeholders for your continued interest and support. We continue to focus our resources on supporting both our partners as well as advancing the rest of our proprietary product pipeline. And we look forward to a strong finish to the year and believe we’re well positioned to achieve our goals in 2016. Operator, we’ll now open the call up for questions.

Thank you. [Operator Instructions] Our first question comes from the line of John Newman with Canaccord. Your line is now open. Please go ahead.

Hi, guys. Thank you very much for taking my question. I just wondered – first one I have is when we might receive an update possibly regarding the indication for the program with Genentech. And then, the second question I have was just, what would you like to see from the Phase 1 study for XEN801 in order to move their product forward into Phase 2? Thanks.

John, thank you. It’s Simon. So in terms of the Phase 1 study for XEN801, we obviously like to see a tolerability that’s at least as good, if not, better than what’s currently available. And importantly we’d like to see drug exposure in the skin at drug concentrations well about the predicted IC50 and the predicted efficacy concentration. So, we don’t have a PD read-out in the Phase 1 study. We’re not specifically looking at sebaceous glands, because those studies generally require much longer duration of action. And so, primarily as we outlined, this is a safety tolerability and PK steady. And really those are the key features. So, how well the drug is tolerated, and obviously we’re looking for tolerability that is as good, if not, better than existing drugs. And we’re looking for exposure of the drug in the dermal, epidermal layer. That’s well above the predicted exposure required, the efficacy based on some of our earlier modeling that’s come from early preclinical studies. In terms of the Genentech update, the goal is, as we outlined, to complete enrollment of the Phase 1 for GDC-0276 this year. We’ll continue to make progress with 310 this year through the Phase 1. But it’s likely that that will complete into 2016. As we speak, John, that once the 0276 Phase 1 has completed in both the SAD and MAD phases. We would be in a position to provide some updates to investors in the street regarding the next steps and plans for ongoing development for the program. So we’re not in a position to do that today. As outlined Phase 1 should complete over the next few months and we should be in a position thereafter to provide a more informative update.

Great, thank you.

Thank you. Our next question comes from the line of Hugo Ong with Jefferies. Your line is now open. Please go ahead.

Hi, guys. Thanks for taking the question. Just one on the acne program, just one is the Phase 2 and maybe subsequent trials, were they all also be performed in Canada like the Phase 1 trial? And second question is on the pain program, just based on your experience with Nav1.7 inhibition, how transferable is success in one neuropathic pain condition to a different neuropathic pain condition in your opinion?

Thanks very much. Hugo, that’s an excellent questions. Let me start with the first one. The Phase 2 will likely be a – clearly a multicenter study and we have goals of conducting that in Canada. Beyond the Phase 2 proof-of-concept, as we move into larger development studies which would be Phase 2b effectively, for those range of finding we would likely go beyond Canada. But the first Phase 1, 2 trial for which the protocol is approved is set to be conducted in Canada. We already are setting sites up for the Phase 2. This is a study in terms of numbers of patients that is eminently recruitable in Canada. In fact, Dermira ramdir [ph] ACC inhibitor program for acne in Canada is solely in Canada as well in the initial Phase 2. So, we’re quite confident that the study conducted in Canada will be conducted well. In terms of your next question how transferable is success in one neuropathic pain indication to another for a Nav blocker, I think it’s an outstanding question. And I think the answer at end of the day is we really just don’t know. What I can say, of course, is we do test the molecule in multiple forms of neuropathic pain, in vivo, we’ve looked at a variety of different industry recognized forms of neuropathic pain. We do see efficacy across those models. So, that is certainly our experience in preclinical in vivo models. I think if one goes broadly to pharmacological validation in humans today, not obviously without compound, but in general what we would call dirty our sodium channel blockers, I think it’s tough to say that a given drug is reproducible across all forms of neuropathic pain. We don’t know that’s specifically to be the case, Hugo. But, if we look at a molecule like carbamazepine, for example, it really would be used as a first line treatment, for example, in trigeminal neuralgia. It may not be used as a first line treatment, because of dose limiting AEs in another neuropathic indication like diabetic neuropathic pain. So, I think, it’s going to depend on the molecule. And I think we can make a blanket statement. And obviously, the work we’re doing, the work that others are doing, is this a competitive area – as you know, I think, we’ll certainly start to lucubrate which indications are best suited to this mechanism within the neuropathic timeframe work. So, normal neuropathic pain is equal, we know that. Some have mostly shifted elements. We need to obviously study this drug and others will study their drugs across different indications to identify the best indication. But coming back to our preclinical work, we are encouraged by the breadth of activity we see in our preclinical assays across a broad array of neuropathic models.

Great. And thanks for taking the questions.

Pleasure.

Thank you. [Operator Instructions] One moment, while we wait for additional questions. I am showing no additional questions. I will now turn the call back to Ian Mortimer, Chief Financial Officer, for closing remarks.

Great. Thanks, operator. And thanks, everyone, for joining us on the call today. We look forward to keeping you informed of our progress throughout the remainder of this year and into 2016. Operator, we’ll now end the call.

Ladies and gentlemen, this does conclude today’s program. You may all disconnect. Everybody have a wonderful day.