Xenon Pharmaceuticals Inc. (XENE) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Xenon Pharmaceuticals' First Quarter 2018 Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference Ms. Jodi Regts. Ms. Regts, please go ahead.

Thanks, Danielle. Good afternoon. Thank you for joining us on our call and webcast to discuss our financial and operating results for our first quarter ended March 31, 2018. Joining me on today's call are Dr. Simon Pimstone, Xenon's President and Chief Executive Officer; and Ian Mortimer, Xenon's President and Chief Financial Officer. Following this introduction, Simon will provide perspective on Xenon's progress, and then Ian will review our financial results. After that, we will open up the call to your questions. Please be advised that during this call, we will make a number of statements that are forward-looking, including statements about the sufficiency of our capital position to execute on our business objectives and our ability to operate in a capital efficient manner; our expectations regarding the sufficiency of our cash to fund operations into mid-2019; the timing of IND or IND equivalent submissions with regulatory agencies; the initiation of future clinical trials, the potential efficacy, future development plans, and commercial potential of our and our collaborators product candidate; the timing of and results from ongoing clinical trials and pre-clinical development activities; our ability to achieve certain milestones in both our proprietary and partner development programs; the plans of our collaboration partners and their interactions with regulatory agencies; the results of our 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 filing. Our results may differ materially from those projected on today's call. We undertake no obligation to publicly update any forward-looking statements. Today's press release summarizing our first quarter results and the accompanying quarterly report on Form 10-Q will be made available under the Investors section of our website at www.xenon-pharma.com and filed with the SEC and on SEDAR. Now, I'd like to turn the call over to Simon.

Thank you, Jodi, and good afternoon everyone. We have spent the last number of quarters focused on advancing our ion channel neurology pipeline to where we now have multiple clinical stage assets. And importantly, we have exciting catalysts in the near-term, including clinical updates on both XEN1101 and XEN901 that we presented at an international symposium next week in Madrid. I will focus my comments today on XEN1101 and XEN901 as there is no new updates to our guidance around our partnered program with Genentech. As noted on our yearend call, Genentech has completed a Phase 1 clinical trial for GDC-0310, which is an oral selective Nav1.7 small molecule inhibitor developed for the potential treatment of pain. We look forward to updating you once Genentech's ongoing preclinical studies are completed and the final results are analyzed by Genentech. As many of you know, ion channels represent a target class for multiple approved drugs. What makes Xenon's approach unique is that we have developed ion channel modulators that posses enhanced selectivity which we believe will yield drugs with improved indices compared with existing approved products. We believe the advances we have made have the potential for a significant impact in the treatment of epilepsy and other neurological disorders. As mentioned, our pipeline includes two proprietary and highly novel product candidates currently in clinical development, XEN1101 and XEN901. Both have unique mechanisms of action and we believe they contain additional attractive pharmaceutical properties that could yield important therapeutic advances and differentiation from existing antiepileptic drugs. Last quarter, we announced the addition of XEN007, a CNS acting calcium channel inhibitor containing the active ingredient flunarizine. We have received FDA orphan-drug designation of XEN007 for the treatment of hemiplegic migraine or HM, an orphan and often severe form of migraine affecting 30,000 to 60,000 individuals in the U.S. To potentially expedite the development of XEN007, we have entered into certain agreements that provide with access to clinical and regulatory data and manufacturing support which may allow us to advance this product candidate either on our own or in partnership directly into a Phase 2 clinical trial. As noted previously, our clinical development plans include a proposed strategy to develop XEN007 as the first treatment specifically for HM anywhere in the world. We continue to examine various development strategies for XEN007 with key opinion leaders and leading clinicians within our strong network in the HM community. In addition to HM, we believe there maybe other neurological disorders where a CNS acting calcium channel inhibitor maybe beneficial and we are considering these future development ideas in both adults and pediatric populations. We look forward to updating you on our plans for XEN007. With Xenon's antiepileptic drugs, we are striving to deliver some truly differentiated and potentially transformative products into the market. As noted, we are focusing on developing drugs that selectively modulate voltage-gated ion channels, which are a well-recognized class of targets. In fact, there were many approved ion channel modulators for the treatment of epilepsy, drugs such as phenytoin, carbamazepine, lamotrigine and lacosamide. These drugs, however, are limited in terms of their ability to titrate the dose and maximize efficacy because of their ubiquitous nonselective binding to related voltage-gated channels with resulting dose limiting toxicities. We believe that Xenon's more potent and selective molecules should allow higher channel occupancy, thereby maximizing efficacy with improved tolerability. Our product that is furthest along in the clinic is a potassium channel opener called XEN1101. We believe XEN1101 is a potential best in class Kv7.2 opener, a channel that regulates cortical excitability in the brain. What's so compelling about this potassium channel target is that it has exceptional human validation. Children born with loss-of-function mutations in the KCNQ2 gene developed a very severe early onset form of epilepsy known as EIEE7. Mouse models confirm this genotype phenotype effect. So, this Kv7.2 potassium channel target is a well-accepted and validated target. The validation around XEN1101 is not limited to the genetic data. The XEN1101 program has been developed based on a vast amount of information from an earlier generation potassium channel modulator known as ezogabine or retigabine. Ezogabine was developed by GSK and approved in 2011 for the treatment of refractory partial-onset focal seizures. Ezogabine worked well, reducing median seizure frequency by 30% to 40% in pivotal trials at clinical doses. However, this product was limited by a number of side effects, which ultimately led to the withdrawal of ezogabine from the markets in 2017 for commercial reason. We believe XEN1101 can overcome the key liabilities observed with ezogabine. XEN1101 has the advantage of being a novel chemical entity differentiated from ezogabine. We have built a strong case for XEN1101 to be a potential best in class drug based on preclinical results generated to-date. XEN1101's predicted once daily dose would be one significant advantage over ezogabine, which was dosed three times daily. When we test XEN1101 in a number of relevant animal models, we observed a greater breadth of activity over other AEDs and we see that activity at significantly lower doses than what was observed with ezogabine. Furthermore, XEN1101 has selectivity over other potassium channels, potentially providing this compound with greater safety margins. Based on an attractive and differentiated preclinical profile, we advanced XEN1101 into the clinic in the latter part of last year. XEN1101 is currently being examined in healthy subjects in a randomized double-blind placebo-controlled Phase 1 clinical trial to evaluate the safety, tolerability in pharmacokinetics of both single ascending doses and multiple ascending doses. The XEN1101 Phase 1 clinical trial includes Phase 1a and Phase 1b pharmacodynamic readouts from a transcranial magnetic stimulation or TMS study designed to asses XEN1101's ability and potency to modulate cortical excitability, thereby demonstrating activity in the target CNS tissue. We have now completed the Phase 1a pilot TMS study in eight healthy male subjects. And based on the data, we initiated a double-blind placebo-controlled randomized crossover Phase 1b TMS study in approximately 15 healthy subjects, which we expect to conclude this quarter. We are looking forward to presenting interim Phase 1 results within a -- with a podium presentation at the 14th EILAT Conference on new antiepileptic drugs and devices to be held in Madrid, Spain next week on May 15, 2018. Our presentation will include preliminary pharmacokinetic, tolerability and safety data from 42 subjects along with the pharmacodynamic readout from out completed Phase 1a pilot TMS study in eight healthy male volunteer subjects. These data represent the first in human experience with XEN1101. I want to briefly outline why we believe that this interim Phase 1 readout is important for the XEN1101 product. As I noted previously, while this Phase 1 trial is designed to readout traditional SAD and MAD results, we also added the TMS studies to provide an early pharmacodynamic readouts and potentially help shape our future development plans. For those of you unfamiliar with the TMS model, a magnetic pulse is applied to the brain and one can monitor EEG brain waves or EMS thresholds such as the motor thresholds required to induce the muscle twitch typically measured in the hand. The amount of voltage required to induce that twitch is measured along with whether the addition of a drug can increase that versus baseline or versus placebo. A number of antiepileptic drugs have been tested in the TMS model and have shown these characteristic changes. Characteristic changes were observed in TMS EMG studies with ezogabine. We therefore identified TMS as a very interesting early opportunity to demonstrate a pharmacodynamic effect on cortical excitability, therefore providing an early read of on target drug activity in the CNS and importantly, enabling a comparison with ezogabine. Furthermore, the pilot TMS study allowed us to determine dose for the larger placebo-controlled crossover study that is now underway and will help determine dose selection in future stages of clinical development. We expect to complete this TMS crossover study in approximately 15 subjects this quarter and we will look to present that data at a scientific meeting likely in the third quarter of this year. We anticipate initiating a Phase 2 clinical trial in adult focal seizures by yearend. At the same time, we continue to explore a parallel plan to advance XEN1101 into rare ultra-orphan pediatric forms of epilepsy such as EIEE7 as soon as feasible thereafter. Turning to another ion channel modulator in our pipeline, I'm pleased to update you on the progress we are making with XEN901, which is a potent highly selective Nav1.6 sodium channel inhibitor also being developed for the treatment of epilepsy. Like our XEN1101 program, we are exploring both adults and pediatric indications for XEN901. Similarly, we also have strong genetic validation for pursuing this particular target. Children born with gain-of-function mutations in the SCN8A gene, the gene encoding the Nav1.6 channel developed a very severe early onset form of epilepsy known as EIEE13. Additionally, we have generated compelling preclinical data that supported the advancement of XEN901, including data that suggest Nav1.6 is the primary driver of efficacy for voltage-gated sodium channel targeted AEDs such as phenytoin, carbamazepine and lacosamide. By selectively targeting Nav1.6, it is anticipated that XEN901 could maximize channel inhibition, yielding an enhanced effect up to and including potential seizure freedom in a greater number of patients. We also generated data in a variety of models representative of both adults and pediatric epilepsy showing improved efficacy at significantly lower concentrations than approved antiepileptic drugs, such as carbamazepine and phenytoin. In fact, efficacy at 1,000 fold lower brain exposures. As noted, our objective when developing a highly selective drug like XEN901 is to be able to dose titrate to maximize effects due to a vastly enhanced therapeutic window. As noted on our last call, the Phase 1 XEN901 clinical trial including SAD and MAD cohort is underway. We will also be presenting preclinical data and an overview of our XEN901 clinical program with some updates on the status of the currently ongoing XEN901 Phase 1 clinical trial as a podium presentation at the EILAT meeting next week in Madrid. We expect to have a completed readout of Phase 1 results in the second half of this year and then aim to initiate a Phase 2 clinical trial in adult focal seizures. As with XEN1101, we continue to evaluate parallel plans to advance XEN901 into rare ultra-orphan pediatric forms of epilepsy such as EIEE13 as soon as feasible thereafter. We believe XEN901 is the only highly selective Nav1.6 sodium channel inhibitor currently in the clinic and could provide robust clinical efficacy with an improved safety profile of other sodium channel blocker AEDs. Before I turn things over to Ian to provide a financial overview, I wanted to reiterate some key milestone events coming up. We will present interim XEN1101 Phase 1 data and results of pilot TMS study on May the 15 at the EILAT meeting in Madrid. We will also present an overview of XEN901, including preclinical data and a clinical update at EILAT on May 15. We anticipate presenting topline completed XEN1101 Phase 1 results and full Phase 1b TMS study in the second half of this year. We expect to initiate an XEN1101 Phase 2 clinical trial in adult focal seizures by yearend. We expect to complete our XEN901 Phase 1 clinical trial in the second half of this year in order to initiate a Phase 2 clinical trial in adult focal seizures. At Xenon, we continue to advance our strategy to become a leader in the antiepileptic space by developing therapeutically differentiated alternatives to other AEDs. By pursuing a selectivity strategy with XEN1101 and XEN901, we believe that we are developing drugs that potentially have improved therapeutic windows and could represent important new treatments of epilepsy. In addition, we continue to evaluate opportunities to expand our pipeline of novel ion channel modulators through both our internal research efforts and our ongoing assessment of promising external product opportunities. Now, I'd like to turn this over to Ian to summarize our financial results for the quarter. Ian?

Thanks, Simon. Staring with our financials, cash equivalence and marketable security as of March 31, 2018, we are $35.1 million. This compared to $43.7 million as of December 31, 2017. There were 14.2 million common shares and 2.9 million series 1 preferred shares outstanding as of March 31, 2018. To provide a little of background on our current shares outstanding, on March 27, we closed a previously announced transaction with Teva to terminate by mutual agreement our collaborative development and license agreement dated December 7, 2012 as amended. In connection with this closing, we cancelled a million common shares of Xenon that were owned by Teva, a transaction that was accretive to all Xenon shareholders. Prior to the cancellation of the Teva owned shares, an existing shareholder, BVF Partners L.P. and its affiliates held a position representing approximately 19.9% of Xenon's outstanding common shares. We signed an exchange agreement with BVF to allow for a one for one exchange of 2,868,000 common shares for the same number of series 1 preferred share to Xenon. Following the conversion to preferred shares, BVF now has greater flexibility with respect to their ownership position. As revenue was not material for the quarter, I'll focus my income statement comments on expenses. Research and Development expenses for the quarter ended March 31, 2018 were $5.6 million compared to $5.9 million for the same period in 2017. The decrease of $0.3 million was primarily attributable to a decrease spending on XEN801, a product candidate that is no longer being developed and the decrease in preclinical discovery and the other internal program expenses. This decrease was partially offset by increase spending XEN1101, which was acquired in April 2017, XEN901 and preclinical and discovery expenses supporting our Nav1.6 program. General and administrative expenses for the quarter ended March 31, 2018 were $2.2 million and did not change significantly as compared to $2.1 million for the same period in 2017. Other incomes for the quarter ended March 31, 2018 was $4.1 million. This compares to $0.5 million for the same period in 2017. The increase was primarily driven by a onetime gain of $4.4 million on the termination of our collaboration agreement with Teva that resulted in the cancellation of the 1 million common shares of Xenon previously owned by Teva. This was partially offset by a change in unrealized foreign exchange gains and losses arising from the translation of Canadian denominated balances to U.S. dollars. So, this gives a net loss for the quarter ended March 31, 2018 of $3.8 million compared to $7.5 million for the same period in 2017, due primarily to the increase in other income. In order to continue to optimize our financial flexibility and optionality, we continue to prudently manage our cash resources. Based on our current assumptions, which includes fully supporting the plan clinical development of both XEN1101 and XEN901, we anticipate having sufficient cash to fund operations into mid-2019, and this includes any revenue generated from either existing partnerships or potential new partnering arrangements. So, in summary, just before we open the call up for questions, I would like to echo Simon's enthusiasm related to our proprietary epilepsy programs and the number of key catalysts expected in the coming months. I encourage you to listen to our conference call and webcast on May 15 that will summarize our XEN1101 and XEN901 presentations at EILAT. While these are interim Phase 1 results from our XEN1101 program, they will provide important potentially de-risking data, enabling us to answer early questions around PK, drug exposure, tolerability and cortical hyperexcitability. We also look forward to providing an update on XEN901 where we believe our preclinical data and clinical update next week will provide strong validation and rationale for our approach of targeting Nav1.6 selectively. We look forward to providing these important updates next week. Operator, we can now open the call up for questions.

[Operator Instructions]. Our first question comes from the line of Stephen Wiley from Stifel.

Just wondering if you could maybe provide a little bit of an update with respect to where you are in terms of the juvenile tox data and some of the formulation work that will be required for both 1101 and 901 as you think about moving this into pediatric patients. And then, just also wondering when you think you might be able to initiate some of that regulatory dialogue, obviously, on the back of completing the work that I just asked the question about.

Thank you, Steve. Simon here. Thanks for the questions, an important one. We haven't yet triggered the juvenile tox, that's obviously one gating item. CMC work is initiated. That is probably a 6 to 12 month timeline and obviously, that's a fairly significant range but we're fairly early in the process at the moment, Steve. So, I don't really know where that's going to land. But we estimate probably in the 6 to 12-month timeframe. Our goal is to engage the FDA or other regulatory agencies once we have completed the Phase 1 studies in adults and healthies. The goal right now would be to at least start that engagement in the second half of the year. So don't have more visibility than that from a regulatory perspective but we expect to be able to take the completed Phase 1 data with questions to the regulatory authority such as the FDA in the second half of the year. We would expect that if we do get a path forward with the FDA in this approach, in other words, not a traditional step-down approach but being able to expedite access into these orphan high unmet need indications, we certainly would hope that could be a 2019 activity, but we don't -- we're not issuing guidance on that at this point until we have regulatory feedback.

Understood. And then, just last, you know that there's been, obviously, a lot of discussion around fenfluramine data from Zogenix in Dravet, I guess, specifically in -- just kind of wondering if you think 901 would be a drug that you could envision either working in combination with fenfluramine or providing some kind of synergistic activity on top fenfluramine.

Yes. Again, a great question. Thank you. Steve, we have really -- so, the answer to that is yes. We've really spent a lot of time thinking about this and working on a molecule that really has quite exquisite selectivity. I think the data that we'll be presenting next week should give you and others a flavor of what I'm talking about and we'll be publishing some of that data for the first time. But I think the whole goal was to really develop a drug that can potently block what we think is a critical neuroexcitatory channel in the CNS and we, again, updated to suggest that pan sodium channel blockers while primarily providing efficacy through this channel. So, the idea to really potently selectively block this channel without having ubiquitous binding to other channels should allow us to maximize the effect size and minimize toxicities, which I think both as monotherapy but, of course, is adjunctive therapy could be very useful. The 1.6 mechanism is very well-suited to Dravet. The Dravet syndrome, as you know, is caused, at least the majority of patients, by loss-of-function mutations in other sodium channel, Nav1.1. Pan sodium channel blockers are contraindicated because they block Nav1.1, you don't want to knock it down further. This 1.6 mechanism spares 1.1, we have very, very high selectivity for 1.6 over 1.1. And so, the idea is that this absolutely could be a drug that we think is quite well mechanistically suited to Dravet. We don't expect drug-drug interaction liabilities with 901; it's a very important element of that product. So, this isn't a drug that is significantly inhibits or induced by SIPs. And it's very important here that we have a drug with a differentiated mechanism of action. We know that most prescribers including in pediatrics, required drugs of different MOAs. This is very, very differentiated from anything else. And so, we do see a great potential to have a drug like this used with hopeful synergy with other drugs such as fenfluramine. Now, of course, we need to test that but this certainly something we'll look to do as we move this forward in development.

Our next question comes from Maury Raycroft from Jefferies.

To start, EILAT, for the eight subjects and the TMS analysis, can you remind me how many different doses were assessed in these subjects? And could it be possible to see a dose response using the TMS measure?

Yes, Maury. It's Simon again. There were three doses that we used and we'll present that next week. I think what we're trying to understand from that data is, is this sort of a dose threshold that allows us to see what we believe is a robust signal, and that's kind of what we set out to do. We obviously went into a priority not really knowing what doses would induce the TMS effect in either EMG or EEG and they may differ, EMG and EEGs. But we certainly are hoping to see and we went and expecting to see some threshold that if you cross at a certain dose level, we start to see something and could be really what we'll be looking for. Ultimately, we don't have the benefit with retigabine of whether they had a dose related effect because retigabine was ultimately just study that a single dose, it was the highest dose selected at 400 milligrams. So, I think they took a slightly different tact which was going with the maximum dose tolerated that was approved and run the study at that highest dose. We've done a bit of a dose titration in this pilot study starting at actually low doses and at three dose cohorts and used that as an opportunity to optimize dose selection. I think just as a caution, I think these are small -- relatively small group sizes, two to three subjects per cohort. But I think enough to give us a sense of what maybe thresholds and that's kind of what we set out to achieve with that pilot study.

Got it. That's helpful. And in the presentation at the meeting or potentially in the conference call after, will some of the direct comparisons between historical ezogabine TMS data and 1101 be made?

Yes. In fact, we'll present that as part of the update at the EILAT meeting and we'd be happy to discuss that further in the conference call following.

Great. Okay. And then, for the 42 healthy volunteers, will we be able to draw any conclusions on safety compared to ezogabine's historical safety profile and some of the drug limitations as well?

I think we'll be able to provide color around that. I think this is obviously interim; it's not a full Phase 1. So, just caution that this is not going to -- we're not going to be presenting detail safety tables as we would, obviously, with a complete Phase 1 study. But the aim and goal is to provide you with sufficient sort of color around the safety, tolerability and PK. We will show PK curves and safety will summarize and I think you'll be able to get a good flavor as to what the tolerability looks like in comparison.

Great. Very helpful. And the last question is just on 007. If you could provide any additional details on the agreement for 007 giving you access to the regulatory files and manufacturing support. I guess being comment on who the agreements are with and potentially provide more details on what you have access to.

Yes. No, we haven't provided publicly the names of the partners both on the regulatory data side and on the CMC manufacturing side, these are sort of blue chip companies well-known to this drug but we haven't disclosed names. We have access, essentially, on the regulatory side to all of the nonclinical and clinical files that are available and this is really, really critical just so people understand. The potential advantage of that, of course, is to allow us to expedite development and we believe, potentially, it could start a Phase 2 program without the need of preclinical tox to support that of Phase 1 human safety. The drug is obviously been well studied over decades, there's ample data and we now have an exclusive right of reference to all of that, including clinical data both in the clinic and whatever post marketing data is available. So, that's really on the regulatory side. On the CMC side, it's a company that manufactures the drug, sells the drug. And effectively, we have license to all of the manufacturing, actually, the methods, the validation of these methods, the documentation that comes with that that will be required for submission and actually, the family that will make the product for us. So, I think, again, a very important element of the de-risking of that drug and that the CMC is completely worked up and we will have effectively a completed CMC portion of the IND or any regulatory submission completed. So, those are the clear advantages of the license agreements we have. Anyone who wanted to develop flunarizine, which, by the way, would be only CNS acting calcium channel blocker in the U.S., anyone who wanted to develop that drug would have to start from the beginning in that they won't -- would not have a right of reference as we do have that exclusively. So, we think there is a competitive advantage to the agreements we have in place.

Our next question comes from the line of David Martin of Bloom Burton.

This is Antonia [ph] on the line on for Dave. I just have a question regarding the Phase 1 for 901. Can you please clarify whether you're in fact measuring TMS and whether -- and if so, will that data be presented next week?

Yes. Antonia, thank you. We're not -- it's currently not part of the Phase 1 plan, so there won't be data on TMS. It's not in the protocol; we're not measuring it at the moment. We are having some internal discussions as to whether we want to build that into a next program and maybe part of an early Phase 2 program. We haven't made that decision yet but we -- that is under review. So, you will not see TMS that is not being not for 901 at the moment.

But there will -- I'll just add, there will be some clinical data on 901 next week. So, as a reminder 901 is about six months behind in terms of the start of clinical development behind 1101. So, we do have a more robust package for 1101 in terms of clinical data but 901, we will have some data from the early cohorts that we'll be able to present next week as well.

Okay. And my second question and I know this was addressed kind of earlier in the discussion, but with regards to 1101, just to clarify, you said you will be comparing the parameters with the data that was generated for ezogabine. So, we will be able to compare the potency of both drugs based on the data you present?

Yes. So essentially, they're all somewhat different studies. The ezogabine was a crossover study compared to placebo and place-controlled. That is a study that we're currently running our crossover trial essentially mimics that ezogabine trial pretty much exactly, but that will available for review in Q3. What we'll presenting is subject to that switch over from the single ascending dose into TMS model across three-dose cohorts where there post drug effects with TMS is compared to the pre-drug baseline effect with TMS. So -- but yet, I think, one, we'll be able to look at the ezogabine study, and again, this is a literature example, it's not an active comparator in this trial and draw conclusions based on the effect size, particularly in the mode of thresholds which is the key metric in EMG and compare our effect size in our EMG. We will be going a little bit further than what was done with ezogabine. Ezogabine did not study the effect of the drug on the EEG. We will be presenting effects on EEG signals. Those have been shown for other antiepileptic drugs and we will -- we'll highlight that as well. So, again, these are historical controls, not part of the study but there is data out there on what other drugs have done, including ezogabine's effects on motor thresholds, which we will present and summarize and you'll be able to draw some conclusions.

[Operator Instructions]. And I'm not showing any further questions at this time. I would like to turn the call back over to Jodi Regts for closing remarks.

Thanks, everyone, for joining us today. We look forward to keeping you updated on our progress. Operator, we will now end the call.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.