Xencor, Inc. (XNCR) Q1 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Xencor First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] No I would like to welcome our host for today’s conference Ms. Hannah Deresiewicz with Stern Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. This is Hannah Deresiewicz with Stern Investor Relations, and welcome to Xencor's first quarter 2016 financial results conference call. This afternoon, we issued a press release, which outlines the topics that we plan to discuss today. The release is available at www.xencor.com. Today on our call, Bassil Dahiyat, Ph.D., President and CEO, will discuss the Company's business and clinical highlights from the last quarter; John Kuch, Vice President of Finance will review the financial results; and then we will open up the call up for your questions. Before we begin, I would like to remind you that during the course of this conference call, Xencor management may make forward-looking statements including statements regarding the Company's research and development, including clinical trial plans for XmAb5871, XmAb7195, and its other bispecific product candidates XmAb14045 and XmAb13676. Future financial and operating results, future market conditions, the plans and objectives of management for future operations, and the Company’s future product offerings. These forward-looking statements are not historical facts, but rather are based on Xencor's current expectations and beliefs and are based on information currently available to us. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including but not limited to, those factors contained in the Risk Factors section of its most recently filed Quarterly Report on Form 10-Q and its most recently filed Annual Report on Form 10-K. With that, let me pass the call over to Bassil.

Thanks Hannah, and good afternoon everyone. During our year-end earnings call in March, we emphasized, we are focusing on expanding our clinical development activity this year with expectations to start six clinical trials across four different XmAb programs. We are pleased we have already accomplished two of our goals in the first quarter namely, the initiation of Phase II clinical trials for XmAb5871 in IgG4-Related Disease and in Systemic Lupus Erythematosus. Together with four other clinical trials that we intend to initiate this year we are into a data rich 2017. I’ll start the call today by reviewing 58 - XmAb5871. 5871 is our first-in-class monoclonal antibody that targets CD19 with its variable domain and that uses our proprietary XmAb immune inhibitor Fc domain to target Fc gamma R2B, a receptor that inhibits B-cell function. 5871 is to impotent reversal of B-cell inhibition in data presented to-date. Now in March, we began enrolling patients in two Phase II trials, one evaluating 5871 for the treatment of IgG4-Related Disease and one evaluating - XmAb5871 for the treatment of Lupus or SLE. So we decided to pursue these two indications, because both are diseases with its strong rationale for the role of B-Cell inhibition and treatment and both have a high unmet need. Our IgG4 related disease study is a Phase II open-label pilot study in patients with IgG4-RD, which is a rare fibrone flamatory order immune disorder that affects multiple organs and we believe infects up to 40,000 patients in the U.S. There are currently no approved therapies and clinical steroids at the standard of care at this newly recognized disorder. This study is designed to assess control of disease activity with every other week IV administration of. We plan to enroll about 15 subjects for up to 24 weeks of treatment and the primary endpoints to evaluate the effect on the IgG4-RD Responder Index to measure the impact of treatment on disease activity. We expect to report initial data from this study in the first half of 2017. Our SLE trial is a Phase II randomized double-blind placebo-controlled study. Now, SLE is an inflammatory disease that can affect numerous organs in which the body's immune system essentially attacks its own healthy tissue. The disease affects an estimated 240,000 patients in the US each year. The current standard of care includes taking immunosuppressive medications to control symptoms which often results in significant side-effects. This study uses a novel trial design to evaluate the ability of 5871 to maintain the improvement in disease activity achieved after a short course of intramuscular steroid therapy and in the absence of immune suppressive medication. We believe this trial design will allow us to access the effect of 5817 on Lupus disease activity with a shorter time to endpoint and with fewer patients compared to standard Lupus trials. Approximately, 90 patients will be enrolled for up to 24 weeks treatment with a 1:1 randomization of 5871 to placebo. We plan to report data from this trial in 2018, We also plan to initiate a bioequivalence trial with a subcutaneous formulation of 5871 this year and expect to announce initial data from that trial in 2017. Now I will turn to our second internal clinical program XmAb7195. That’s our antibody that targets IgE with its variable domain and that uses an identical XmAb immune inhibitor Fc domain as 5871. In this case resulting in three distinct mechanisms of action for reducing IgE levels in particular rapid clearance of IgE via Fc-gamma-R2b binding on liver sinusoidal endothelial cells. We believe that 7195 has the potential to provide a first-in-class mechanism for reducing IgE that will address the full spectrum of severe asthmatics including the hardest treated population with very high IgE levels. We look forward to report a complete IgE reduction and safety data from our Phase I a study trial in the first half of this year. This trial includes cohorts of subjects with high IgE levels and the addition of cohorts of healthy volunteers treated with a split dose of 7195 consisting of a small priming dose followed by a second descending dose after one week. This new part of the trial will allow us to examine the reduction of IgE and safety data after a second IB infusion. We are also planning to initiate a Phase I trial with a subcutaneous formulation of 7195 in 2016 and expect to announce initial data in the first half of 2017. I’d like now to turn to our XmAb bispecific oncology pipeline. As we described previously, the core of bispecific program is a novel XmAb Fc domain that – for two or potentially more different antigen bindings. That creates a single molecule that combine two targets simultaneously. By using this plug and play Fc demand is the basis for a bispecific structure, we developed the uniquely flexible approach that lets us rapidly create candidates by combining any two bonding domains while potentially maintaining full length antibody properties such as favorable in vivo XmAb and simple manufacturing. We believe this flexibility differentiates our biospecific programs from others in the field. We’ve selected two tumor-targeted T-Cell engaging antibodies to advancing the clinical testing in 2016. These biospecific antibodies bind two and activate T-Cells for highly potent and targeted killing of malignant cells by binding CD 3 on the T-Cell and their XmAb Fc domains control long circulating half life stability and easy of manufacturing. XmAb14045, the first of these programs targets CD 123 on acute myeloid leukemia or AML cells and CD3 on the other side of the molecule. It showed sustained and potent depletion of target cells in primary studies from well tolerated single IV doses. We expect to initiate a clinical trial this year. XmAb13676 our second bispecific oncology candidate targets CD20 on malignant B-cells and also CD3. We also expect to begin a clinical trial in this case in for B-cell malignancies this year. We intend to disclose our next bispecific oncology candidate later this year and to start clinical trials in 2017. We expect these candidates to include both CD3 binding T-Cell engagers, as well as dual checkpoint inhibitor mechanism. Next to put note on partnerships, as you know, our partnerships leverage the plug and play nature of our XmAb Fc domain and have very little or no internal research like Xencor. We believe that this type of partnership greatly broadens the impact of our technology while also allowing our scientist folks on the development of our own internal programs. Currently, seven programs are in clinical testing by partners with multiple others in pre-clinical testing. This past January, the National Institute of Health announced and initiated a Phase I clinical trial of VCR, VRC I should say 01LS an antibody for the treatment of HIV which leverages our Xtend technology for longer half-life. Also, our partner, MorphoSys announced that will begin in 2017, a Phase III clinical trial of XmAb5574 now MOR208 in diffuse large B-cell lymphoma. Now with that, I will pass the call over to John to speak to our financials.

Thank you, Bassil. In this afternoon's press release, we reported cash, cash equivalents and marketable securities totaling $178.7 million as of March 31, 2016, compared to $193.3 million as of December 31, 2015. The decrease reflects net spending on operations for the first quarter of 2016. Revenues for the first quarter of 2016 were $7.3 million compared to $1.5 million in the same period of 2015. Increased revenues in the three months period ended March 31, 2016 over revenue for the same period in 2015 were primarily the result of revenue recognized under our 2015 Amgen Collaboration. Research and development expenditures for the first quarter of 2016 were $10 million compared to $5.2 million for the same period in 2015. The increased R&D spending in the three months ended March 31, 2016, over the same period in 2015 is primarily due to additional spending on our XmAb5871 clinical programs, and our initial bispecific development candidates XmAb14045 and XmAb13676. General and administrative expenses in the first quarter 2016 were $4 million, compared to $2.8 million for the same period in 2015. Increased spending in G&A areas in the first quarter of 2016 over the same period in 2015 reflects additional spending on professional fees including legal costs. Non-cash share-based compensation for the first quarter ended March 31, 2016 was $2 million, compared to $1.1 million in the first quarter of 2015. Net loss for the first quarter of 2016 was $6.40 million or $0.16 on a fully diluted per share basis, compared to a net loss of $6.44 million or $0.19 on a fully diluted per share basis for the same period in 2015. Increased revenue recognized in the first quarter of 2016 over the same period of 2015 was offset by increased expenditures of a similar amount such that the net loss for three months ended March 31, 2016 that’s comparable to the net loss for the same period in 2015. The lower loss per share amount in the first quarter of 2016 over the amount reported for the first quarter 2015 reflects the additional shares outstanding at the end of the first quarter of 2016. The total weighted-average shares outstanding for the three months ended March 31, 2016 was 40,741,753 compared to 34,297,782 for the same period ended March 31, 2015. Based on current operating plans, we expect to have sufficient cash to fund research and development programs and operations through 2019. With that we’d now like to open up the call for your questions. Operator?

Thank you. [Operator Instructions] And our first question is from the line of Michael Schmidt with Leerink Partners. Please go ahead.

Hi it’s Jonathan Chang stepping in for Michael. Thanks for taking my questions. First, I am curious to get your thoughts on how you view this opportunity for XmAb5871? Where do you see 5871 in the treatment landscape for Lupus? And also, can you talk about how the Phase II study is designed to overcome some of the problems that plaque with the studies in the past?

Sure, I guess, to start-off, the 5817 program has potential in a broad array of autoimmune diseases, because a broad array of autoimmune diseases have had B-Cell disregulation implicated. Lupus is one of those and so as we look at the program as a whole, we’ve always wanted to seek out the value in whichever opportunities we think we can address, preferably multiple opportunities. IgG4-Related Disease, which is the primary driver we believe in the near term of this program is a newly defined rare disorder that has some serobiological relevance for B-cell inhibition and we think can give relatively to many other diseases faster development timelines and a smaller development cost footprint for a company like Xencor. That said, Lupus, very much larger opportunity, clearly, a high unmet need. Therapies in general are not as effective as doctors and patients that want there are certainly side-effects. And so, for us, the Lupus opportunity is one to add as a supplement for 5871 and then hopefully, in the future, if these programs show promise, 5871 starts to mature, we can even add more potentially. But for now it’s focusing on the two, within the treatment landscape of Lupus, I’d say the unmet need is high. The use of a broad array of immuno-suppressed and steroids, biologics like Belimumab is still leaving a large unmet need. So I think, there is absolutely room for new agents, if you can demonstrate a meaningful increase in activity from what is being seen with these current agents. Now, that’s a very big kind of answer, because we are still at early stage in development. Now, when you go to the second page of your question, how do the Phase II program that we’ve selected, how does it hopefully overcomes some of the challenges that have been faced in Lupus development, I think the crux of it is, the observation by Joan Merrill at Oklahoma Medical Research Foundation that would draw the immunosuppressive medications that Lupus patients have typically taken can clear up some of the muddiness that happens when you try to run a clinical trials of investigation led by 5871. And so our study design expressly cools the patients down with intramuscular steroids, enrolls those who show that kind of reduction in disease activity, you would draw them from their background of immuno suppressants in these patients are typically on something agent 5, methotrexate and you don’t allow them to go back on those medications unless they show a relapse essentially or a significant increase in their disease activity. When you randomize at that initial point, when they’ve been pulled down in their immunosuppressive background has withdrawn you can compare now in a much cleaner way 5871 versus placebo. And so now how that plays into the future feeling in them, we don’t know, there is no existing enforced guidance in the FCO on Phase III programs, but we will certainly hopefully have some exciting data represents in a couple of years and we will engage in the dialogue for how to hopefully make Phase III studies more amenable for seeing clear results in Lupus maybe than the past.

Great, thank you. And it’s a bit early, but can you provide any color on how enrollment is going in the Phase II IgG4-Related Disease study?

We will guide on enrollments later in the year certainly when we complete it. I think we are well on track to presenting additional data in the first half of 2017.

Okay. great. Thank you.

Thank you.

And our next question is from the line of Chris Marai with Oppenheimer. Please go ahead.

Hi, good afternoon. Thanks for taking the question. Two actually, maybe let’s start with your bispecifics format. So, you had noticed, or you mentioned that you have a longer half-life with your format. Clearly, there is some competition which showed our half-life out there targeting the same CD123 target. I was wondering how you look at sort of dosing here. Clearly, there is some flexibility in having a continuous infusion toward half-life when it comes to the potential for off-target or even on-target side-effects. We’ve seen high tumor burdens perhaps heterogeneous tumor burdens which could influence side-effects related to CAR–T or [Indiscernible] I am wondering, how you are looking at potentially modulating the effect of your very long-acting bispecifics in light of these potential heterogeneous tumor environment and then two, longer half-life? And I have one follow-up. Thank you.

Sure. So, we view longer half-life as a – frankly, a profound benefit in using biologics in cancer therapy. I think that the challenges of a continuous infusion in terms of patient compliance, in terms of the nature of the diseases that you could practically speaking treatment of the more indolent forms of cancers might be more intractable to a continuous infusion than a simple weekly or bi-weekly dose. We don’t know what are adjusting frequency is going to be. We look at our monkey pharmacokinetics and we look at comparables and we are going to look at that sort of weekly to bi-weekly infusion frequency. I think that in terms of initial or in terms of toxicities from either on or off target tox, I think we’ve got ample models from how oncology antibodies have been used in the past where you can certainly titrate both dose step-ups and you can titrate dose or infusion speeds, I mean, there is a very long history of managing infusion-related reactions there. Not to say infusion reactions are going to be right, we don’t know, but I think that the whole design of the Phase I program which is frankly a fairly standard Phase I program design for antibody and oncology, that whole design is built to give us an insight on what are doses that have good tolerability. We certainly will be looking carefully at whether the phenomenon that’s often been observed with T-Cell engaging antibodies which is that upon a second dose, when there is presumably both tumor burden reduced, as well as T-cell – initial T-cell activations were about – gotten over, you certainly see less of the cytokine release syndrome side-effects that you see in that first dose. We have been looking carefully at that to see how we could come up with the right schedule. Too early to say, but I think the tools we have with the longer antibody half-life are ample to wrestle with those issues.

Okay, and then I am just wondering, also with respect to that, given your full max flexibility, have you been able to in the potency and would it make some sense to down potency potentially and then offer a longer duration as that anti-molecule in terms of a treatment option?

Yes, it’s a great question. We’ve certainly looked at tuned potencies across – at this point, still relatively small range of targets using private models now and we’ve found it for some targets, their distribution, the antigen sync effects, the kind of on-target tox you might get from rapid lices of the target cells, tuning potency can absolutely play there. And so, we think that there is now one size fits all answer. We think that it’s great to have this ability to modulate it and it’s great that there is at least a possible model in non-even primase to give us some guides. We are going to be learning a lot in this first study, I think tunability is absolutely critical for the growth of bispecific antibodies in oncology. As you look at different targets, I think we pit as best we could. The potencies of our first two programs, the CD123 and the CD20, again based on primase models to give us a good balance between longer acting lices of the target cells and modulated cytokine release. How the details –and really have to be determined in humans, but I just want to – that there is no definitely no one size fits all. We are very comfortable that the potency we get for these first two, it might be very different for the next programs we announce though.

Okay, great and then just with respect to the IgG4-RD program, the published data for Rituximab was pretty [Indiscernible]. But I am just wondering, how much do that depend on over B-Cell killing versus 5871 mechanism? And then how can we get comfortable with the fact that, maybe, not just crushing B-Cell populations would achieve a benefit in this disease? Thank you.

Sure, nobody has any idea of what – whether it was killing of the B-Cells or just some removal of some activity they provided played a role in IgG4-RD or frankly in any of the arenas where Rituximab has certain activity on immune disease RA. The sort of anecdotal activity in Lupus, of course, the excellent activities with the sister compounds in multiple sclerosis, nobody knows exactly what that situation is. I think that what we can offer is, we have a mechanism with a very clear understanding of how the mechanism operates at the cellular level inhibiting B-Cell function inhibiting T-Cell co-activation inhibiting antibody secretion by B-cell progeny very – that in humans for a Phase I program and clear indications of activity in RA in a situation we know we did not deplete B-cells and you’ve kind of already got in end autoimmune disease in mitral arthritis clarity that we can impact the signs and symptoms and then the actual disease activity scores in that disease without killing B-Cells. I think that’s a great platform to stand on, but of course doesn’t prove anything and then in the other indications and that’s why we do the experiment. I think the hypothesis for why a non depleter arch work though is quite compelling. Are there any more questions?

[Operator Instructions] And we have a question from the line of Arlinda Lee with Canaccord. Please go ahead.

Hi, guys. Thanks for taking my questions. I also had a question about your bispecifics. I think, you alluded to being able to target more than two different things. I’d love to hear more about that. And then, maybe a follow-up is, what kind of avenue are we going to get on announcement of the next two bispecifics that or in the next couple bispecifics that you guys plan on bringing into the clinic next year? Thank you.

Sure, so on your first question, we’ve been doing a lot of work looking at binding more than two targets at a time with our – using our Fc – bispecific Fc domain as the core, as the scaffold that you can decorate and that certainly is quite robust in doing that and we can generate molecules of a variety of formats of bind more than two targets. The biology to apply that two is of course the next question you have to address and we are looking at that across a range of potential programs. Nothing that we are ready to announce yet. I think the key though is, as our desire to modulate target cells like immune cells more selectively grows, and still at the same time be able to address additional activities in the same molecule, like say, recruitment of a cytotoxic effecter cell or a suppressive signal on what have you. This kind of product specific approach is going to become the next wave of things we look at in the coming years, us and perhaps others in the industry. And so, we are right now not ready to declare any candidates, but it’s something that we think is going to be moving forward in the next few years, it all depends on having a very robust baseline scaffold. If you don’t, it becomes difficult to build something that will work because you are constantly retrofit engineering the molecule all over the place to make it fit. So having that core Fc scaffold is the facilitator of that whole approach. Now the next question, the venue for hearing more about out bispecifics, thank you for asking, we are planning to have an event for presenting some of our R&D progress later this year – around mid-year we will be announcing that soon we hope and that will be a place where we anticipate describing our future programs in nearby specific area more openly and we look forward to announcing that when we are ready to so. Anymore, sorry.

I am sorry. And I am not showing any further questions in the queue. I would like to turn the call back to Bassil Dahiyat for final remarks.

Thank you, very much. So in closing, we have a very full slate of activities ahead of us this year as we continue to grow and advance the XmAb pipeline. Based on current operating plans, we believe we are sufficiently funded to support R&D programs and operations through 2019 which includes key data readouts and milestones across our internal and partnered programs. In the coming months, we expect to initiate new clinical trials for each of our four internal candidates, XmAb5871, 7195, 14045 and 13676 and to disclose our next bispecific oncology program. Also, we look forward to reporting data from our Phase I a trial for XmAb7195 in the very near future. Thank you very much and have a wonderful afternoon.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program and you may all disconnect. Have a wonderful day everyone.