Xenon Pharmaceuticals Inc. (XENE) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2019 Xenon Pharmaceuticals Inc. Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Jodi Regts. Ms. Regts, you may begin.

Thank you. Good afternoon. Thank you for joining us on our call and webcast to discuss our financial and operating results from the first quarter of 2019. 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 give an overview of Xenon's clinical programs 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 2021; the timing of IND or IND-equivalent submissions with regulatory agencies; the initiation of future clinical trials; the efficacy of our clinical trial designs and anticipated enrollment; the potential efficacy, safety profile, future development plans, addressable market, regulatory success and commercial potential of our - and our collaborative product candidates; the timing of and results from ongoing clinical trials and preclinical development activities; our ability to achieve certain milestones in our proprietary development programs; the results of research and development efforts; the status and timing of the potential addition of new programs to our pipeline and related development activities; the timing of our public presentation and potential publication of future clinical data; and the potential to advance XEN496 into a Phase III clinical trial and XEN007 into a Phase II or a later-stage clinical trial. 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 first quarter 2019 results and the accompanying quarterly report on Form 10-Q are 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. I gave a detailed update on each of Xenon's therapeutic candidates during our recent year-end conference call, so my aim today is to provide a brief status update on each of our clinical stage programs and to allow for questions at the end of this call. We continue to make significant progress advancing our robust pipeline of neurology-focused product candidates, including XEN496, XEN1101, XEN901 and XEN007. Supported by a strong balance sheet, we're executing our clinical development plans with the goal of having multiple products in Phase II or later-stage development this year. On today's call, I'll highlight some of the important milestone events anticipated during the second half of this year. Let me begin with XEN496. The Kv7 potassium channel modulator that we're developing as a treatment for KCNQ2 epilepsy, a rare severe pediatric seizure and neurodevelopmental disorder. While the active ingredient ezogabine was previously approved by the FDA as a treatment for adult focal epilepsy, published case series also reported on the successful use of ezogabine in children with KCNQ2 epilepsy, suggesting that XEN496 could be efficacious in this mostly difficult to treat pediatric patient population with good reported tolerability. While non-controlled, these clinical series as well as additional anecdotal parental and physician feedback, reported improvements in seizure burden as well as in development and in behavior. Importantly, Xenon received Orphan Drug Designation, or ODD, from the FDA for XEN496 as a treatment of KCNQ2 epilepsy. In response to our pre-IND briefing package submission, the FDA indicated that it was acceptable to study XEN496 in infants and children up to 4 years old and that a single pivotal trial in approximately 20 patients may be considered adequate, provided we show evidence of a clinically meaningful drug effect. Recognizing that ezogabine was initially developed as a hard-coated tablet that is unsuitable for use in children, we are currently finalizing a pediatric-specific formulation and expect to complete preclinical formulation testing with the final drug product by the end of this quarter. We have decided to test the novel improved XEN496 pediatric formulation in a PK study of healthy adult volunteers, which is expected to be initiated in the third quarter of 2019. We anticipate that this adult PK study will provide us important information to help ensure that our pediatric formulation is providing adequate drug exposure in the plasma before advancing the product into pediatric patients in the planned Phase III trial. Given this, we now expect to file an IND application in the fourth quarter of this year in order to initiate the Phase III clinical trial in KCNQ2 epilepsy. Our approach with XEN496 provides us with an opportunity to use a precision medicine approach to potentially treat KCNQ2 pediatric epilepsy. We believe our XEN496 Phase III clinical trial will be the first precision medicine trial of an antiepileptic drug in a generic form of epilepsy, and we're excited to take this leadership role in advancing novel medicines that can potentially address the underlying genetic mutations in these epileptic encephalopathies. We look forward to providing additional details about final trial design and final endpoints as these plans progress and as we get closer to filing the IND. Next up in our pipeline is XEN1101, a highly differentiated best-in-class next-generation Kv7 potassium channel modulator being developed for the treatment of focal adult epilepsy with potential application to other neurological disorders, such as ALS, tinnitus and major depressive illness. At the last Annual Meeting of the American Epilepsy Society, we announced promising final results from the XEN1101 Phase I clinical trial, including the transcranial magnetic stimulation, or TMS study. As a brief summary, the Phase I XEN1101 data include a PK profile that supports once-a-day dosing and exhibited good tolerability and projected efficacious doses. All AEs were mild or moderate, with the majority being mild, where results spontaneously and were consistent with antiepileptic drugs of this class. There were no serious AEs or clinically significant ECG or lab findings. The Phase Ib TMS study provides evidence of the CNS effect of a single 20-milligram dose of XEN1101 as indicated by the suppression of cortical and corticospinal excitability as measured by EEG and EMG, respectively. Our assessment of the complete package of Phase I data supported our advancement of XEN1101 into Phase IIb development. Additionally, the results of the TMS study helped with dose selection for our XEN1101 Phase IIb clinical trial with this 20-milligram dose we set as the mid-dose of three active doses [ph]. We recently initiated the Phase IIb clinical trial in adult patients with focal epilepsy. The trial is designed as a randomized, double-blind, placebo-controlled, multicenter study to evaluate the clinical efficacy, safety and tolerability of XEN1101 administered as adjuvant treatment in adult patients with focal epilepsy. Approximately 300 patients will be randomized in a blinded manner to 1 of 3 active treatment groups of placebo in a 2:1:1:2 fashion using doses of XEN1101 of 25 milligrams, 20 milligrams and 10 milligrams, plus a placebo arm. The primary endpoint in this trial is the median percent change in monthly focal seizure frequency from baseline compared to treatment period of active versus placebo. An IND or IND-equivalent application for XEN1101 has been accepted now by numerous regulatory authorities, including the FDA. And site selection and patient enrollment are now underway for the trial in the United States, Canada and Europe. Top line results from the XEN1101 Phase IIb clinical trial are anticipated in the second half of 2020. This time line is, of course, dependent upon the rate of enrollment, which we expect to have a better idea of by the time we release our Q2 results. Turning to the third product in our pipeline, XEN901, the potent, highly selective Nav1.6 sodium channel inhibitor being developed for the treatment of epilepsy. We have completed a randomized, double-blind, placebo-controlled Phase I clinical trial to evaluate XEN901's safety, tolerability and PK in both single ascending and multiple ascending dose cohorts of healthy adult subjects, and we included a pilot TMS arm as well. We reported data from an XEN901 Phase I clinical trial and related pilot TMS study at the December AES meeting. To summarize these promising results, XEN901 PK data demonstrated dose proportionality with a predicted half-life of 8 to 12 hours - sorry, 8 to 11 hours, which suggests that XEN901 could be compatible with a once or twice daily dosing regimen. The majority of AEs in the Phase I trial were deemed unrelated to XEN901. All were mild or moderate with the majority being mild, were transient and resolved spontaneously. There have been no serious AEs or clinically significant ECG, vital signs or laboratory findings. Within a pilot TMS study, like with XEN1101, the observed changes in TMS EMG and TMS EEG parameters suggest activity of XEN901 in the target CNS tissue. Based on the PK and safety profile demonstrated by XEN901 in the Phase I clinical trial, along with our ability to reach exposure in humans where we demonstrate efficacy in preclinical models, we are now planning for Phase II development. We expect to evaluate XEN901 as a treatment for rare pediatric forms of epilepsy, including SCN8A epilepsy or for adult focal seizures. A briefing document has already been submitted for our type B meeting. And the pathway forward will depend upon feedback from the FDA, outlining the requirements to advance XEN901 directly into pediatric SCN8A epilepsy patients, and we expect to receive the feedback within this quarter. In order to support future pediatric development plans, juvenile toxicology studies and pediatric formulation work are well underway. Our fourth product is XEN007, a CNS-acting T-type calcium channel modulator that contains the active ingredient flunarizine. Other reported mechanisms include dopamine, histamine and serotonin inhibition. Available in certain countries outside of the United States, flunarizine has been reported to have clinical benefits in treating migraine and vertigo, and off label, in a number of other neurological disorders, including hemiplegic migraine, alternating hemiplegia of childhood and as an adjunctive treatment in certain epilepsies, including childhood absence epilepsy. The FDA has granted Xenon a rare pediatric disease designation for the treatment of AHC with XEN007 and has also granted ODD for XEN007 as a treatment of both AHC and hemiplegic migraine. Given the widespread use of flunarizine, various development strategies for XEN007 are under consideration. We've had a number of discussions with physicians who have expressed good interest in supporting investigated sponsored studies. In 2019, we anticipate initiating at least one Phase II or later clinical trial in an orphan neurological indication. That concludes my status updates on each of our clinical stage programs. Looking at our preclinical work, our R&D team continues to make exciting advancements on a number of potential development candidates. I look forward to keeping you up-to-date on our progress over the coming months. In parallel, we're conducting go/no-go experiments on other assets from outside the company to allow decision-making on new development stage-ready products. We expect to be in a position to provide additional updates in the second half of this year. So to summarize today's comments, we continue to diligently execute on our clinical development strategies to support four very promising drug candidates, all poised to potentially be in Phase II or later-stage development this year. We are very excited about our neurology-focused pipeline, and we look forward to the anticipated near-term advancements of our novel precision medicine therapies designed to address rare pediatric disorders, such as KCNQ2 or SCN8A epilepsies or alternating hemiplegia of childhood as well as targeting broader patient population, such as adults with focal epilepsy or children with more common forms of childhood epilepsy. Now I'd like to turn the call over to Ian, who'll briefly recap our financial position after completing the first quarter of 2019. Ian?

Thanks, Simon. The specific details within our financial statements are covered in today's press release as well as on our 10-Q filing, so I'll provide an overview of the cash position, our cash runway guidance. And then I'll conclude with a review of upcoming milestones. Cash, cash equivalents and marketable securities as of March 31, 2019, were $110.4 million. This compares to $119.3 million as of December 31, 2018. As of March 31, 2019, we had approximately 25.8 million common shares outstanding and approximately 1 million Series 1 preferred shares outstanding. These are convertible into common shares on a one-for-one basis at the option of the holder, subject to certain limitations. Based on our current assumptions, which fully - which include fully supporting the planned clinical development of XEN496, XEN1101, XEN901 and XEN007, we anticipate having sufficient cash to fund our operations into 2021, and this excludes any revenue generated from either existing partnerships or potential new partnering arrangements. So with this backdrop of a strong balance sheet, we look forward to a number of important anticipated milestone events upcoming, including the initiation of the Phase III clinical trial for XEN496 as a treatment for KCNQ2 epilepsy; advancing our ongoing XEN1101 Phase IIb clinical trial in adult focal epilepsy; initiating the Phase II clinical trial for XEN901 in either pediatric SCN8A epilepsy or adult focal epilepsy, and this depends on FDA feedback, which we expect to receive this quarter; and initiating a Phase II or later clinical trial with XEN007 in an orphan neurological condition, such as alternating hemiplegia of childhood, hemiplegic migraine or childhood absence epilepsy. So I speak for the entire Xenon team when I say that we are driven to deliver results and propel our neurology pipeline into mid- and late-stage clinical development this year. And we look forward to keeping you updated on our progress. Operator, we can now open the call up for questions.

[Operator Instructions] Our first question comes from Paul Matteis of Stifel. You may proceed with your question.

Thanks so much for the update. Appreciate it. Couple of questions on 496, and then one on 901. On 496, can you clarify this healthy volunteer study, was this something that was asked for by the regulators, or did you decide to do it to better describe the pharmacokinetics ahead of going into patients? And then second, I was wondering if you could just talk about any additional preclinical toxicology work you have to do in juvenile models and whether or not you're comfortable that all of the old chronic toxicology work that was done in animals is fully leverageable for when you ultimately file an NDA? Thanks.

Thanks, Paul. Simon, two very important questions. So the first question, this is not an FDA-mandated study. We have not engaged the FDA at all on the need for the adult PK with the new drug product. This was our internal decision slowly - solely. And I think the clinical team just felt, given we weren't going to lose much time, it was more beneficial to have the study done and to be able to use that information without submission to the FDA, rather than risk maybe being told to do the study in a submission where we expected there would be an even greater delay. So the time lost doing this is actually very, very little. It's probably a month or so versus what might have been a more significant delay had we waited. So we think this is a prudent way to move forward. It certainly wasn't FDA mandated, but we think it's good clinical practice. On the second question, which is, do we think we'll need to do any preclinical tox, assuming that's obviously coming from the experience that Zogenix has had with an older molecule. We were very - all I can say, Paul, is we were very deliberate in asking the FDA in writing, whether the current data for which they had a right of reference from GSK was sufficient in terms of the nonclinical data to support a Phase III start. The answer back from them in writing recently was, yes, it was sufficient. In other words, no additional nonclinical work was deemed necessary for the Phase III start. Of course, we haven't asked them the question whether there's anything that might be deemed necessary for registration. We obviously have to think that through and really study the studies and engage the FDA on that. But we don't believe there is anything required, based on written and fairly recent feedback from the FDA. One thing you should remember is the time at which the toxicology work was done on fenfluramine versus on ezogabine, retigabine was decades apart, such that ezogabine would have fallen under the new ICH GLP tox guidelines. And so whether that is the underlying issue with respect to fenfluramine, I don't know. But I think we can certainly at least say that ezogabine tox was done much more recently and done under new acceptable guidelines.

Great. Thank you for all the color and context on that. Appreciate it. And then just one on SCN8A. Assuming that you get the go ahead to go straight into that patient population, do you have a good sense of whether or not there are certain clinical centers that have genetically tested and diagnosed a high number of these patients and whether or not you can kind of begin those efforts before ultimately initiating the Phase II? Thanks.

Yes. So that's another important point. I think it's fair to say that there probably aren't centers that have high numbers of these patients. So I don't assume, for example, there's any center where one specialist is looking after double-digit numbers of these patients. That - so, we do expect in a clinical study, we'll be building this trial across multiple centers, where, just like for KCNQ2, we would look to budget about one patient per center per year. We know, for example, that Invitae and GeneDx and others in Europe are doing screening at an increasing rate. I think over 300 U.S. institutions have now signed up on - have ordered tests through Invitae, for example. We are - we will be getting monthly and are getting monthly reports as part of our Behind the Seizures collaboration with Invitae. We're building registries. We also know, for example, for the SCN8A population, we're collaborating with an academic who has a registry of over 150 patients of these children. So we will have - we have a good idea, Paul, where a number of these kids exist. And then incident cases, we will be finding as they get diagnosed at an increasing rate as these studies that are now being offered, at least the sequencing tests being offered at a not-for-cost to all U.S. centers, I think are going to become the norm. So we're quite comfortable that while there aren't single centers with very large numbers, there'll be good numbers around the U.S. Ian just wanted to add a comment.

Yes. I'll just add a couple of things. I think one comment is you're not seeing physicians that are seeing 8A patients versus the Q2 patients. So these pediatric epileptologists are - what we'd like to do is all the work we're doing with 496 if we're available to get into the 8A population with 901 is leverage all of the work we're doing with 496. So we would go to the same centers, the same investigators. And if they have new incident cases with these rare pediatric encephalopathies, if it's a Q2 diagnosis, then they can go into the 496 trial. And if it's an 8A diagnosis, they can go into a 901 study if we get that feedback from the agency. I think there's a lot of leverage there that we can do. The other thing that's interesting, there's actually just been a recent paper that we think the incident of the 8A population is actually higher than maybe was thought previously. So happy to point you in the direction of that publication that's recently come out. But we are seeing a higher rate of the diagnosis in the 8A population.

Okay, great, awesome. Thanks for the color. Appreciate it.

Thank you. And our next question comes from Maury Raycroft of Jefferies. You may proceed with your question.

Hi, this is Swapnil [ph] on for Maury. So I had a couple of questions, one on 901. So you previously reported that in Phase I, you do not see any dose limiting toxicities. And then you are planning to do more preclinical work to understand the therapeutic index better. So I was just wondering, like, if there is any more update on that. And like what happens if you do not see any valuable safety signals? Like how do you proceed in that case?

Yes. It's an important question. We do have long-term tox as well as juvenile tox underway for 901, so we'll see what the therapeutic indices may look like in the long term, 6 or 9 month studies as well as in the juvenile studies. Assuming we don't hit MTD, which is the current situation with the Phase I clinical study, we will have a tox limitation. And ultimately, we'll know we can go in the animal up to exposures that would be limiting in humans. Even if we don't see tolerability concerns, we will have an exposure limitation based on the tox. So we're quite comfortable that we can get high enough exposures in the animal studies to get a tox cap that would be hard to go above. So we've still got some room in the clinic. And of course, this does play into what the study design is going to be for both the pediatric and the adult. I think we have a fair idea of what our predicted effective dose and exposure looks like, based on quite a significant amount of rodent data as well as some adult volunteer TMS data with 901, where we know what the plasma exposures we achieved were that gave us a TMS signal, those actually overlapped well with the predicted exposures from the MES rat assays. And so we've got information, both from in vivo studies as well as from the human TMS study, that can help guide the predicted effective range. And then the cap in the clinic in a Phase II setting, will really be driven by the preclinical tox and, as I said, we've got long-term and juvenile tox underway that, I think, will help us select that cap.

Okay. Yes. Great. That's helpful. And just one more question on 496. So you mentioned that last time you won't need any bioequivalency study to move further forward. So is that still the case? And like has there been any more updates on that or, like, if you have seen any IVIVC or anything with the new formulation?

Yes. And that's what we've just been discussing earlier with the prior question and in the update, which is that with 496, it's not strictly a bioequivalence study because we don't have the equivalent drug ezogabine available today to test. But we have decided to do an adult PK study with the new drug product formulation. It's a completely new formulation versus the old tablet ezogabine. But we thought it internally, after a lot of discussion, again, as I mentioned earlier, this was not based on FDA guidance, but we felt it was prudent to do the PK study with the new formulation. So that we go into the FDA IND sufficiently informed and armed, so that we can support the dosing proposal for the clinical study in these children with PK. Had we not done it and had we been left with this at risk, we felt it would have resulted in an even longer delay if we were told to do it by the FDA after the submission. So we think it makes sense. The guidance, we've changed a little bit from Q3 to a Q4 Phase III start. It's probably a month or 2, and I think it would have been 3 to 6 months had we not done it somewhat in parallel. So this is the so-called bioequivalence study that you're referring to. And it's not typically a bioequivalence because we're not testing it head to head to the other drug. It will be compared to a historical reference of ezogabine.

All right. Very helpful, thank you.

[Operator Instructions] Our next question comes from David Martin of Bloom Burton. You may proceed with your question.

So back to that study for 496, did you see anything unusual in the PK - in the animal PK work that it is making you do this?

No. In fact, animal PK hasn't yet been run, Dave. We've got a number of prototypes on stability and being run through dissolution testing. We feel comfortable where we are, but we obviously have to finalize stability, make sure that the prototype we select not only has the right type of dissolution profile, but also has the right stability that includes term stability as well as accelerated stability. Those tests are still underway with multiple prototypes. We do expect we'll have the animal PK done this quarter, though, but none have been run so far. And so no, this test was not driven off of any current concerns. It was driven off of the concern only and solely that the delay that might be incurred if the FDA were to require this, was going to be longer than if we started the test sooner. And so that's why we've geared up to do it now. And because we don't need long-term stability for a CTA submission in Canada versus, of course, for an IND in the U.S., you need a minimum of one month. We can actually get going on the phase - on this PK study outside of the U.S. more rapidly, and that's why we want to initiate that in the third quarter and will have the submission now at the IND with this data in Q4.

Okay. Second question, I think you had mentioned that there was a possibility the new formulation for 496 might address a skin coloration issue. I'm wondering, are you still thinking that might be the case? Or is that not on the table?

Yes. We do believe that and we do expect we'll have quite significant presentations of this at some point. Obviously, for intellectual property purposes, we're not making disclosures on the improvements that we've made. But we do feel, based on data we have to date at least, that we can limit the production of this pigmentation liability with the new drug product that we developed. So we still very firmly believe that we'll have that. And of course, we'll have novel IP around this formulation and how we get to the formulation, which should give us extensive protection commercially as well. I did want to also make the point because there have been a number of questions just on the PK. And as you've noted, we've pushed the guidance out a little on the Phase III IND filing. This should not affect our top line readout. We haven't formally guided, but we don't believe in any way that moving a month or two out is going to impact top line readouts, which we're hoping and certainly aiming will be towards the end of next year.

Great. So this reduction of the skin color, you're moving in the right direction, you're not moving away from it.

Not at all. No, no. It's completely - where we are today is completely consistent with what's been discussed in the past that we should have a drug product that has improved properties over the old ezogabine, not just in terms of ability to administer to these young patients, these infants and young children, but also in terms of risk of pigmentation, we expect a lower liability. That all being said, I think we've discussed before, David, and I've certainly discussed publicly, I think the whole pigmentation liability risk is a very different risk profile in these children, as it was perhaps for a commercial entity and adult focal epilepsy. We also know today, the visual pigmentation, the retinal pigmentation has not resulted in visual toxicity, which, of course, was the major concern when this drug was - soon after it was launched and the label was placed on it. So we now know two things. We know that the pigmentation risk was cosmetic, which is still important, nonetheless, but it didn't result in toxicity. And secondly, every parent we've discussed this with and every KOL we've discussed this with, for this indication, the pigmentation liability is not a concern. So while I think it's very important, we do everything we can to dial it out, it will be important for commercial reasons to have a drug that doesn't turn blue. And we think we can achieve that. I still think the old ezogabine, even in its current form, if the drug works, there's not going to be any significant commercial impact over the fact that it may cause pigmentation in some subjects. Remember, in addition, in up to two years of dosing in children, not a single case was reported of pigmentation in these kids. Now I think that's most likely because it wasn't just long-enough dosed. But time will tell, but - so all of this to say, we certainly are expecting to dial out the risk or minimize the risk. But even with the risk, I think the benefit to risk profile in this indication is very different than what was observed in the adults.

Yes. I'm wondering if you might see some use of this in adult focal seizures.

Yes. Look, I don't know. It's certainly not something we'd promote. It's certainly not something we would test. Of course, we are developing 1101 for that market, I think 1101 has better properties in a few ways. It's not renally excreted, so the risk of renal or urinary retention is negligible with 1101. And we know if affected about 1% of patients with ezogabine. And of course, the PK is another issue. So I'm certainly hopeful that if patients wanted to get on or physicians wanted to get patients on a potassium channel opener for adult focal epilepsy, they'd be referred into our clinical trial of 1101 as opposed to 496.

Got it. Okay, thanks.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Jodi Regts for any further remarks.

Thank you. Thanks, everyone, for joining us today. Operator, we will now end the call.

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.