Xenon Pharmaceuticals Inc. (XENE) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q2 2018 Xenon Pharmaceuticals Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the conference over to your host, Ms. Jodi Regts. Ma’am, you may begin.

Thank you. Good afternoon. Thank you for joining us on our call and webcast to discuss our financial and operating results for our second quarter ended June 30, 2018. Joining me on today’s call are Dr. Simon Pimstone, Xenon’s 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 cash to fund operations into at least mid-2020; the timing of IND or IND equivalent submissions with regulatory agencies; the initiation of future clinical trials; the efficacy of our clinical trial design and anticipated enrolment; the potential efficacy, safety profile, future development plans, regulatory success and commercial potential of our and our collaborator’s, product candidates; the timing of and results from ongoing clinical trials and preclinical development activities; our ability to achieve certain milestones in both our proprietary and partner development program; the plans of our collaboration partners and their interactions with regulatory agencies; the results of our research and development efforts; the status and timing of the potential addition of new programs to our pipeline and related to development activities; and the potential to advance XEN007 or other product candidates into Phase 2 or later clinical trials. 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 statement. Today’s press release summarizing our second 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. As I reflect upon the first half of this year, we achieved a number of important milestones and continue to see exciting advancements in Xenon’s clinical stage epilepsy ion channel programs. We enter the second half of the year bolstered by a strong momentum in our clinical stage programs and by significantly strengthened balance sheet. We look forward to exciting catalysts in the near-term, including a readout of our Phase 1b TMS pharmacodynamic data from XEN1101 program, complete Phase 1 readouts from XEN1101 and XEN901 epilepsy programs in the fourth quarter of this year, and advancing both these programs into Phase 2 clinical development. Just briefly, I’d like to touch on our ongoing collaboration with Genentech, before focusing on our proprietary epilepsy programs. As noted on previous calls, 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. We have no further update at this time as this work remains in progress. Now, I’ll turn my attention to our proprietary pipeline of ion channel modulators. Our pipeline includes two proprietary and novel epilepsy 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. We also added XEN007, a CNS-acting calcium channel inhibitor, containing the active ingredient, flunarizine, to our pipeline earlier this year. We obtained FDA Orphan Drug Designation or ODD for XEN007 for the treatment of hemiplegic migraine, an orphan and often severe disorder associated with migraine. To potentially expedite the development of XEN007, we have entered into certain agreements that provide us with access to clinical and regulatory data, as well as 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. We continue to examine various development strategies for XEN007 with key opinion leaders and leading clinicians within our strong network in the hemiplegic migraine or HM community. In addition to HM, we believe there may be other neurological disorders, where CNS-acting calcium channel inhibitor may be beneficial. And we are considering these future development ideas in both adults as well as pediatric populations. We look forward to updating you on 007 as our plans are finalized. We also continue to look at other opportunities to expand our pipeline. We recently received FDA Orphan Drug Designation for ezogabine, a potassium channel modulator we are currently evaluating for the treatment of KCNQ2 epileptic encephalopathy, also known as EIEE7. As per our past practice, once we have identified a new definitive pipeline program with a defined development path and have allocated appropriate resources, we will communicate more details and we have to do so for this product in the coming months. Turning to our clinical stage products. I’ll begin by providing an update on XEN1101, which is a Kv7 potassium channel opener, being developed by us for the treatment of epilepsy. In May, we released interim Phase 1 clinical data including data from 5 SAD cohorts and 1 MAD cohorts as well as results from a pilot Phase 1a TMS study at the Eilat Conference in Madrid, Spain. To briefly summarize those encouraging data. Pharmacokinetic data confirming a half-life consistent with once daily dosing, drug exposure levels at doses tested above the EC50 in preclinical models and safety tolerability data supporting further development of XEN1101. The TMS Phase 1A pilot study, which included 8 male subjects where 3 doses of XEN1101 were tested including 10, 15 and 20 milligrams. When measuring the resting motor threshold or RMT in the TMS-EMG assay, the mean change in RMT at 4 hours was 1.5%, 1.33% and 4.33% for the 10, 15 and 20-milligram doses, respectively. This compares to a literature publication of ezogabine with the lead author Ossemann, where in a double-blind placebo-controlled crossover study in 15 healthy subjects at a single dose of 400 milligrams, ezogabine increased the resting motor threshold by 2.4%. Within the TMS-EEG portion of the pilot XEN1101 study all three subjects at the 20 milligram dose showed statistically significant modulating activity at 4 hours post dose when compared to baseline. Both TMS-EMG and TMS-EEG evaluations were compared to each of the subject’s individual base line. We have now completed enrollment in XEN1101 Phase 1 single and multi-ascending dose clinical trial and the Phase 1b double-blind placebo-controlled randomized crossover TMS study in 20 healthy subjects. We will announce the results from the Phase 1b TMS study at the 13th European Congress on Epileptology taking place in Vienna, Austria, at the end of this month, where our study has been selected for a podium presentation. Based on both preclinical and interim clinical evidence, we believe XEN1101 has the potential to be a best-in-class Kv7 modulator that based on our interim Phase 1 clinical study data has exhibited differentiation and improvements over historical data for ezogabine, an earlier generation Kv7 modulating drug. Importantly, the interim PK data from our Phase 1 clinical trial supports the possibility of once daily dosing for XEN1101 versus the three times daily required for ezogabine and contributes to what we believe should be improved CNS tolerability. To-date, in the Phase 1 clinical trial, the XEN1101 has performed well in terms of PK, safety, tolerability and with regards to the pharmacodynamic TMS readouts. We plan to publish the complete XEN1101 Phase 1 clinical trial results at a scientific meeting in the fourth quarter of this year. And we anticipate initiating a Phase 2 clinical trial evaluating XEN1101 as a treatment for adult focal seizures, by year-end. While we are in the process of completing our detailed Phase 2 planning, we expect to be in a position to communicate final trial design plans in the coming months. We’re designing our next trial as a well tolerated, randomized, placebo-controlled Phase 2 study. Overall, we believe the preclinical and clinical data shared to-date for XEN1101, clearly supports its future development. And we look forward to analyzing the full data sets and moving into an efficacy study, as quickly as possible. I’d now like to turn my attention to XEN901, which is a potent, highly selective, Nav1.6 sodium channel inhibitor being developed for the treatment of epilepsy. We presented promising interim XEN901 data including data from six SAD cohorts at the recent Eilat conference in May. Our presentation included, pharmacokinetic data, predicting the half-life consistent with once or twice daily dosing, and multiple dose levels tested yielded drug exposure levels above the efficacy range for EC70 in the preclinical Maximal Electric Shock or MES model. The interim Phase 1 clinical data also suggests that overall XEN901 is safe and well-tolerated. We have generated compelling data that highlights the Nav1.6 channel as the critical sodium channel in regulating cortical hyperexcitability and the mechanism by which non-selective sodium channels appear to be having their effect. There is strong genetic validation for pursuing these particular targets. Children bone with gain-of-function mutations in the SCNA8 gene, the gene encoding the Nav1.6 channel developed a very severe early onset form of epilepsy known as EIEE13. We’ve also generated preclinical data showing that XEN901 is greater than 100-fold more potent on Nav1.6 versus other sodium channels and is also greater than a 100-fold more potent on Nav1.6 when compared to the non-selective sodium channel antiepileptic drugs. XEN901 was also observed to be a highly potent and efficacious in the Maximal Electroshock Seizure, or MES mouse model, a validated translational model for focal seizures. We saw concentration dependent increase in efficacy with chronic dosing leading to an approximately 10 times increase in potency versus single dose administration. We made similar observations in our rat MES assay. When compared to phenytoin, carbamazepine and lacosamide in a mouse MES assay, we needed significantly lower plasma exposure for similar effects, and we observed a markedly improved therapeutic index in preclinical models. We hypothesized that this high therapeutic index of XEM901 could enable higher levels of efficacy with fewer adverse events in the clinic. Although sodium channel blockers are a mainstay in the treatment of focal epilepsy, utilizing these drugs to the maximal effect in patients is often limited by side effects of higher doses. We believe, based on our preclinical data, XEN901 has the potential to overcome these limitations and become a potentially best-in-class sodium channel inhibitor. We’re looking forward to completing the Phase 1 clinical trial with a readout of the final results anticipated in the fourth quarter of 2018. We expect to initiate a Phase 2 clinical trial, evaluating XEN901’s efficacy as a treatment for adult focal seizures or for rare pediatric forms of epilepsy thereafter. My comments today area a brief summary of the preclinical and interim clinical data that we presented at Eilat. However, we have uploaded presentations from Eilat on the Xenon website, and I encourage you to look at these materials for even greater details on our XEN1101 and 901 programs. Before I turn things over to Ian to provide a financial overview, I want to reiterate some key milestone events coming up. We’ll present the results from XEN1101 Phase 1b double-blind placebo-controlled randomized crossover TMS study in 20 subjects at the end of this month. We anticipate presenting final XEN1101 Phase 1 results in the fourth quarter of this year. We expect to initiate a Phase 2 clinical trial, evaluating XEN1101’s efficacy as a treatment for adult focal seizures by year-end. We anticipate presenting final XEN901 Phase 1 results in the fourth quarter of this year, followed by the initiation of a Phase 2 clinical trial evaluating XEN901’s efficacy as a treatment for adult focal seizures or for rare pediatric forms 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. We’re working to have a new program to our pipeline in the coming months. Now, I’d like to turn this over to Ian to summarize our financial results for the quarter. Ian?

Thanks, Simon. I’ll start by providing an overview of our cash provision, cash runway guidance, and then I’ll provide a few highlights of the financial statements. I am pleased to report that we enter the second half of this year with a significantly strengthened balance sheet and new institutional shareholders who support our strategic goals. Cash and cash equivalents and marketable securities as of June 30, 2018 were $63.3 million. Included in this cash number are the net proceeds of approximately $29 million from the sale of 3.44 million common shares, under our first at-the-market or ATM offering agreement. Subsequent to the end of the quarter, we raised additional net proceeds of approximately $14.7 million from the sale of 1.6 million common shares, and this was under our second ATM offering agreement. Therefore, this $14.7 million is not included in our June 30th cash number. We’re very pleased that after the announcement of our Phase 1 clinical data in May, for both 1101 and 901 that we were able to raise this capital and continue to broaden our institutional shareholder base. In addition to this new equity capital, effective August 3, 2018, we also refinance our term loan agreement with Silicon Valley Bank. This increases our total outstanding borrowings from $12 million to $15.5 million. But more importantly, this extends the interest-only period on the loan from September 30, 2019 to March 31, 2020, and this has obviously a positive impact on our cash runway. Therefore, with the capital raised under the ATM equity offerings and the refined SVB term loan, based on our current assumptions, which include fully supporting the planned clinical development of both XEN1101 and XEN901, we anticipate having sufficient cash to fund operations into at least mid-2020. And this cash runway guidance excludes any revenue generating from either existing partnerships or potential to new partnering arrangement. So, I’ll now provide a few highlights from the rest of the financial statements. Research and development expenses for the quarter ended June 30, 2018 were $5.4 million. This compares to $6.1 million for the same period in 2017. The decrease of $0.7 million is primarily attributed to decreased spending on preclinical, discovery and other internal program expenses partially offset by the increased spending on XEN1101. General and administrative expenses for the quarter ended June 30, 2018 were $2.2 million, compared to $1.8 million for the same period in 2017. The increase of $0.4 million was primarily attributable to increased stock-based compensation expense, legal and recruitment fees. These increases were partially offset by decreased costs for business development activities. Other expenses for the quarter ended June 30, 2018 were $0.2 million compared to other income of $0.5 million for the same period in 2017. The decrease in other income is primarily driven by a change in foreign exchange gains and losses arising largely from the translation of cash and cash equivalents and marketable securities, denominated in Canadian dollars to U.S. dollars, and interest incurred on our term loan. So, overall, this provides a net loss for the quarter ended June 30, 2018 of $7.8 million compared to $7.4 million for the same period in 2017. So, in summary, and just before we open the call up for questions, we are proud of the entire Xenon team’s efforts that have gone into developing our business strategy and clinical programs, leading us to this point today where we look forward to additional de-risking clinical data for both XEN1101 and XEN901 over the next number of months and advancing both of these programs into Phase 2 efficacy trials. In addition as Simon noted, we also continue to evaluate other opportunities to grow our pipeline of ion channel modulators and expect to provide some updates over the coming months. We believe our work has the potential for a significant impact in the treatment of epilepsy and other neurological disorders, and we look forward to keeping you updated on our progress. Operator, we can now open the call up for questions.

Thank you. [Operator Instructions] Our first question comes from Stephen Willey of Stifel. Your line is open.

Just a quick question for Simon. I guess, when you characterize the activities for 901 that lie ahead of you, I think you keep referencing adult focal seizures and/or rare pediatric forms of epilepsy. So, just kind of curious, if the latter reference means that you’ve made any progress with respect to some of the early juvenile tox studies that need to be done and the formulation switches that we need to be done to move into this patient population?

I appreciate the question, Steve. And you’re absolutely right, referencing both the adult focal and the rare pediatric options. And that is what they remain. As you know, obviously sodium channel modulators are the mainstay of treatment for focal seizures. So, clearly, it remains an opportunity. I think, the critical really gauging piece is going to be the interaction we expect and hope to have with the regulatory agencies, subsequent to having the Phase 1 study completed to determine what in fact will be needed and required to initiate a pediatric study in the EIEE13 infantile epilepsy subgroup. So, work is initiating to help support the pediatric entry as soon as possible. Those studies clearly are gating. Those include, as you referenced, juvenile tox and CMC formulation development. A critical gating item however is of course the regulatory meeting. We expect to submit a request for meeting sometime this year. I don’t know when we’ll have the FDA response by, but we hope to have that as quickly as possible. And then, I think we’ll have a better understanding of whether or not we’re able to move into that pediatric population, hoping to have driven our tox and CMC worked to out to support any pediatric program as quickly as possible. That’s not going to be 2018, Steve; it will be a 2019 timeframe.

Understood. And then, just on 007. Can you maybe just explain a little bit kind of what your options might be, just in terms of the various development strategies that you have in front of you? And I guess, what are some of the decision points that you’re considering, as you consider each of the various options that you have?

It’s a good question, Steve. Clearly, the ODD, as you know, for the molecule, has been obtained for hemiplegic migraine. I would say that’s where the bulk of the work has been done to-date. We understand that condition well. It’s actually a pretty common orphan disorder, 30,000 to 60,000 subjects in the U.S. where the drug would be developed. And so, we are quite far down, I would say, in assessing the opportunity of the drug for hemiplegic migraine, and I think just some months away from maybe finalizing that. But in parallel, there are a couple of other indications which we haven’t yet disclosed publicly, and I don’t think we’ll do so, until we are a bit further along in understanding the potential where the drug, flunarizine, may have significant utility as well in neurological orphan disorders. But, we still are in, I’d say, mapping out what the clinical study would look like and looking at feasibility of the studies. And until we’ve completed that work, and that’s really what’s holding things up at this point. We’re not ready to commit to HM until we completed the planning around a couple of other indications. We should have wrapped up in the coming months, Steve. And then, I think we’ll be making a decision on what the next steps, which we hope would be a Phase 2 program, would look like. So, that’s kind of where we are. Staying a little bit quiet in terms of the indications at this point, only because I think we’ve got a bit more work to do. But, we are looking at specifically two other indications. And we hope to have that looked at and completed that assessment over the coming few months and then a final decision made. We haven’t given guidance on the 007 molecule, but we do expect the next study will be a Phase 2 program. And I think and hope that we would be committing to a Phase 2 program, while I don’t think it will be in 2018, certainly soon thereafter. So, we have work underway, and we hope to have, I’d say, more clarity on this in the coming few months.

Thank you. [Operator Instructions] Next question comes from Maury Raycroft of Jefferies. Your line is open.

Hi. This is Vesna [ph] on for Maury today. Congrats on the progress. And thank you for taking our questions. My first question is a follow-up on Stephen’s question. So, thank you for the additional color on the Phase 2 for 901. I was wondering for the Phase 2 plans for 1101. Have you discussed those with the FDA yet? Are you planning to schedule that meeting? Will it be one or two separate meetings for the two drugs? And also, are you considering a combination arm for the Phase 2 studies, or will it be monotherapy for 1101?

Yes. So, thank you for those questions, good questions. In terms of the combination on arm, we don’t have a combination arm specifically contemplated for 1101 Phase 2. But of course, there’s background treatment. So, effectively, these are generally always combination therapies. But, there are an array of background drugs that can be used. And so, those will be combination, but no combination arm specifically. We’ll have 2 to 3 active arms, monotherapy on background therapy with 1 placebo arm. And then, the first question you asked was, whether we had FDA interactions on 1101 for Phase 2. Not yet. Just to remind you, the Phase 1 is currently being conducted through a CTA in the UK. We certainly are looking at jurisdictions very closely now. And any U.S. development for the Phase 2 would require a FDA submission. We haven’t had an FDA interaction yet for 1101 in preparation for the Phase 2. We expect to make decisions based on geography, actually, in the very, very near term. We don’t expect to have submissions that include both 1101 and 901 together. These are very different drugs, different mechanisms, different questions. The plan for 1101 initially is to go into adults with focal epilepsy, whereas with 901, we’ve got questions around whether we can advance that product without adult data into a pediatric population. So, very different questions for the agency and we expect there will be different meetings.

Yes. I would just add that. Given that both 1101 and 901, the Phase 1 trials were done in Europe, Phase 2 development may start earlier in Europe. So, we could always get a leg up there. In the adult population specifically for 1101, we don’t expect that we would need a pre-IND regulatory interaction very different in the pediatric setting where with specific questions that we’d want guidance on. But, we feel comfortable that the Phase 2 program in adults that we would be initiating for 1101 that we file the IND and then we could go right into initiating that Phase 2 program.

Thank you. That is very helpful. And then, as a follow-up question, if you can give us any additional clarity on your plans for ezogabine, have you discussed this with the regulators? And if you were to conduct a pediatric trial, how big of a trial would it be? When are you planning on doing that? If you can give any additional color, I would appreciate it. Thank you.

I think, our plan is to give sort of more fulsome color once we have some of the boxes checked on our side. So, we have had some preliminary interaction with the FDA. So, we’re very comfortable with that. We’re not at this I think in a position to talk about the details of what a next step program would be for the product. We’ve got some work underway with KOLs and sites to determine sort of feasibility around some of the preliminary discussions we’ve had. We may or may not have to go back to the FDA. I think, we’ll be in a very good position to update the street in the very near term on this. But yes, we have had some preliminary discussions with the FDA. We’re encouraged. We obviously are pursuing this based on preliminary discussions that have been held. But, certainly, we have a number of boxes still to check, which I think we can do in the near term, to determine the next steps. And so, I think that’s really all that we can say at this point in time.

Thank you. I’m showing no further questions. I’d like to turn the call back over to Jodi Regts for any 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.

Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.