Good day, ladies and gentlemen, and welcome to the Q2 2017, Xencor Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Ms Hannah Deresiewicz with Stern Investor Relations. You may begin.

Thank you, operator. Good afternoon. This is Hannah Deresiewicz with Stern Investor Relations. Welcome to Xencor’s second quarter 2017 financial results conference call. This afternoon, we issued a press release which outlines the topics we plan to discuss today. The release is available at www.xencor.com. Today, on our call, Bassil Dahiyat, Ph.D President and Chief Executive Officer will discuss the company's business highlights and provide an update on Xencor’s clinical programs and pipeline progress. And John Kuch, Vice President of Finance will review the financial results from the second quarter of 2017. 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 future financial and operating results, future market conditions, the plans and objectives of management for future operations, the Company’s partnering efforts, the Company’s capital requirements, the Company’s future product offerings and the Company’s research and development programs. 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 Xencor’s most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q. With that, let me turn it over to Bassil.

Thanks, Hannah, and good afternoon, everyone. Thank you for joining us. Xencor spent the last several years expanding and advancing a broad pipeline of XmAb antibody drug candidates based on XmAb antibody engineering platform, which is a small set of antibody FC domains and sequences we’ve slightly modified to improve natural antibody functions such as immune regulation and antigen clearance, cytotoxicity, circulating half-life or to create bispecific antibody structures that are stable, long-acting and readily produced. Today, XmAb-based antibodies are being developed internally by Xencor and by our partners in 11 different clinical stage programs for the treatment of a wide array of diseases. This includes four programs that we are advancing internally, with multiple additional programs we expect to start clinical trials for the next 18 months. The breadth of this pipeline is enabled by the XmAb platform’s portability, our ability to plug and play an FC domain we’ve engineered for particular property into multiple new antibodies. Now, we had several updates for our internal portfolio in the second quarter. In May, we announced receipt of orphan drug designation for our lead compound XmAb5871 in patients with IgG4-Related Disease or IgG4-RD. And in June we announce updated interim data from our ongoing study in this indication, which showed the 14 of 15 treated patients responded to the therapy with six achieving remissions. We expect top-line results in this study later this year and we are engaging with the USFDA to discuss the development plans, future trials and potential registration requirements in this indication. We also expect top-line results from our subcutaneous administration Phase I study of XmAb7195 by year end and initial data from our Phase I studies of XmAb14045 and 13676 in 2018 pending alignment with our partner Novartis. Overall, we expect to have proof-of-concept data for these…

Thank you, Bassil. In this afternoon’s press release we reported cash, cash equivalents and marketable securities totaling $378.7 million as of June 30, 2017, compared to $403.5 million as of December 31, 2016. The decrease reflects net spending on operations for the first six months of 2017. Total revenue for the second quarter 2017 was $13.3 million, compared to $66 million for the same period in 2016. Revenues for the six months ended June 30, 2017 were $17.7 million compared to $73.3 million in the same period 2016. Revenues earned in the three and six months periods ended June 30, 2017 were primarily milestones received from our CSL and MorphoSys collaborations, compared to revenues for the same period in 2016, which were earned primarily from the company’s Novartis and Amgen collaboration. Research and development expenses for the second quarter of 2017 were $16.9 million, compared to $14.4 million for the same period in 2016. Total R&D expenses for the six months ended June 30, 2017 were $32 million, compared to $24.4 million in the same period of 2016. The increased R&D spending in the three and six months ended June 30, 2017 over the same period in 2016, is primarily due to additional spending on Xencor’s pipeline of bispecific oncology candidates. General and administrative expenses in the second quarter of 2017 were $4.1 million, compared to $3 million for the same period in 2016. Total G&A expenses for the six months ended June 30, 2017 were $8.9 million compared to $7 million for the same period in 2016. The increased spending in G&A in the three and six months ended June 30, 2017 reflects additional charges for stock-based compensation. Non-cash share-based compensation for the first six months of 2017 was $6.6 million, compared to $4 million for the first six…

Thank you. [Operator Instructions] And our first question comes from Michael Schmidt from Leerink Partners. Your line is open.

Hi, guys. Thanks for taking my questions. I had a couple on 5871 and Bassil, if you maybe could talk a bit more about what points are that you could clarify with the FDA ahead of initiating the pivotal program? A question on what pivotal trial could like? Will this be a randomized controlled study, - and lastly, is IgG4-Related Disease an indication where one would expect a placebo effect and maybe if you could comment on some of those considerations? Thanks.

Sure. So, I guess, the points we really want to clarify with the FDA are, due to the general – does the general approach of whatever trial design we propose is it consistent with their expectations? It’s a brand new disease. There is no experience directly with this disease and we think dialogues in end of Phase 2 is going to be very important and we learned a lot from it. So, we fully expect there to be a need for randomized controlled trial not a single arm trial. I think correlates in auto immune disease that could be instructive for this study would be those in vasculitis. For example, the trial that was recently described by Dr. John Stone at ACR last fall for giant cell arteritis which is a form of vasculitis with an antibody drug. IgG4-RD has common features with the vasculitis as it affects most organs. There is microvascular damage, as organ damage caused sometimes by fibrosis and so, I think those are good metrics. The trials, there is three that aware of that that we are in the vasculitis for antibodies to get – well, in two cases approved, in the third case, a successful Phase 3 announced that they are randomizing on standard of care. So that’s what we would expect to happen here. They were typically on the order of a couple hundred patients. It all depends on the treatment of that size and that’s one of the things that we are looking at carefully. So we can understand how to size our trial. We are certain we would want to do a randomized study against standard of care and the question is how do the details I’ll looking at is the kind of points we want to understand best with the FDA.…

Yes, maybe placebo effect was the wrong choice, but more broad, but I was kind of thinking, is there data that what would one expect into the IgG4 responder index for the control arm for example in this trial?

Yes, I think, what you are going to expect is that, there will be an initial rapid response and an effective response usually, not always, but usually a deep response to Corticosteroids therapy and then, very commonly patients will have a disease flare within some period of time. And so it’s expected that what we are going to likely do is again based on the similarities to vasculitis and how those trials were run, induce a patient into a response with standard of care and you will follow in maintenance head-to-head against placebo. So 5871 against placebo and then if the patient has a relapse of disease, you would treat with Corticosteroids as rescue. And so, in that sense, the design is the efficacy of Corticosteroids will help determine how long before the patient will likely relapse and that will determine the duration of the trial and the effect size that we’d expect to see, there is greatly not that much natural history information. We are learning a lot from our Phase 2 about how rapidly our drug works, but the natural history on steroids, this is still based on just a few studies in search of experiences with this disease. I think that the idea that the endpoint is based on the disease the exacerbation is which was what was done in these other areas and we are controlling just with placebo in a sense and the rescues with steroids helps somewhat with the idea that you are masking the disease at least turn that interim after you put a patient into response. Did that help? I think the giant cell arteritis – the active trial which was presented in November of this past year and was just published in the New England Journal has that kind of approach as did the others and I think that’s instructed.

Very good. Thanks for all the added information.

Thank you, Michael.

Thank you. Our next question comes from David Nierengarten from Wedbush Securities. Your line is open.

Thanks for taking my couple questions. First off, I know just, I am not sure if this is a chain language, but the bispecific CD123 antibody looking at both AML and other CD123 expressing hem malignancies. So just curious you guys are opening it up to BPDC and then other less common hem malignancies? And then, the second question was refresh our memory, if the SSTR2 CD3 bispecific has incorporated any of the CD3 tuning technologies and/or research that you guys have been working on? Thanks.

Sure. Thanks, David. For the 14045, that was initially in the plan and it’s been in our clinical trial that got entry and believe we’ve stated that publicly I’d have to go look at my exact press releases and notes, but I believe we’ve had this in our public disclosure that from the very beginning we designed the trial for CD123 expressing malignancies and then there is a list of things we include like of course, AML which is by far the most predominant or common of those. BPDCN, certainly fits that bill. There is certain types of relapsed CML that fits the bill. There is other more rare tumors that do as well. So, that’s not new. We expect the majority of patients certainly in the Phase 1 dose escalation to be AML because it’s the easiest to find and we just want to accrue this trial rapidly and advance as quickly as we can. So that’s that one. On the SSTR2 CD3 compound the XmAb18087, we’ve looked in primate models very carefully at the effect of affinity on both sides and we selected one that has – I believe we reported this an affinity in the animal range for the CD3 side and I don’t recall we’ve seen any affinity SSTR2. But we look very carefully again in primate models as well as in, in vitro with cells to find what we had that window of good activity at hitting the target cells and as well the reasonable cytokine release syndrome that we manage to get with some of our Hem targeting tumors. So, we did certainly go through it. The answer you end up with in that case will depend on a particular target antigen. So, yes, so we absolutely looked at it and that’s what we guided. I believe we presented much of that at AACR this past year.

As just a back up to the 123, is that under Novartis’ control on how to report out the initial data, because that would be interesting to see if there is any stratification according to CD123 expression since it does overexpress, it is more common in AML but there are certain patients with AML that have higher expression levels of course than others. So, are there any plans to report on that or discuss those details on the date come out?

Yes, we will certainly try to dive into the different – whatever different tumor types we might have as well as, see if can clean anything from CD123 expression. I believe that from my understanding, there are variations that are seen in AML or typically in the leukemic blast cells. I don’t know, I could be wrong in this, I don’t know if there is so much on the blast – I am sorry, on the leukemic stem cells rather than some of the blast cells, but we are doing very thorough work characterizing the phenotypes of these patients’ tumors. And so, we’ll see.

All right. Thanks.

Thank you. Our next question comes from Arlinda Lee from Canaccord. Your line is open.

Hello, thanks for taking my questions. I guess, two things, one on 7195 is that subcutaneous trial seems to have started around the same time as the 5871? Is there – can you line at the design and if there were any differences kick out from maybe why this might take a little bit longer? And then, I guess, on the bispecifics, can you – you mentioned in your press release that you are going to talk a little bit about your tumor microenvironment targeting things pre-clinically. What else are you guys thinking about, in terms of bispecifics and might you start to see the Amgen CD3, CD38 partnered program in the clinic anytime soon? Thanks.

Sure, so first on 7195, we did started it around the same time as the 5871 subcue trial. Of course, the study design here was a little bit more complex. The 7195 subcue trial was a multi-dose, weekly study done in a series of doses with a dose escalation portion first in healthies and then in atopic patients. So we could examine different IgE levels and build a robust pharmacokinetic and pharmacodynamic dataset to that IgE reduction response compared to pharmacokinetics subcue, so we could build that across a range of IgE. So it’s a somewhat more complex trial and larger trial than simply enrolling healthy volunteers like we did for 5871. So the timing is a bit different. That’s why we are still on track to report our top-line results for the end of this year. So, just about a year and maybe a couple months after we started it. For the tumor microenvironment bispecifics that we hope to have data, I guess, more information and more description of our molecules, later this year hopefully at a scientific conference, we have after our PD-1 x CTLA-4 dual block or the XmAb 20717 which we’ll expect to have the IND filed in 2018, we expect to have other agents. We’ve talked about these our CTLA-4 lag 3 bispecific blockers is the next one after that and then a PD-1 x Costimulatory molecule bispecific that inhibits PD1 and agonizes the costimulatory molecule that’s also moving forward and we had a candidate that cleared with an XmAb number and hope to have the IND for both of those in 2018. Does that answer your question? Wasn’t clear on the first part.

And then, maybe on the lastly on the 13551partnered with Amgen?

Sure, sure. So, the CD38 x CD3 targeting program that was part of our Amgen collaboration. I guess, we did that deal in September of 2015, it’s now two years. I know that they are still active advancing it. I am hopeful that they will have it in the clinics soon. I can’t really say because, that program is fully outlicensed to them and we are just watching them as they progress it. Yes, we are very excited to see that one can get in the clinic very soon.

Thanks very much.

Thank you. Our next question comes from Edward Tenthoff from Piper Jaffray. Your line is open.

Great, thank you. A little higher level question if I may on 7195, first. With some of the newer agents in I5 and no with the dupilumab data coming, how do you see sort of the biologic asthma landscape changing and how could that change sort of the landscape for your compound?

Yes, I think, severe asthma has been sort of – historically been sort of a absence really biologically active immune modulators like antibodies and then start contrast right in the world of rheumatology where you have after the TNF blockers came out twenty years ago, there was just a flood of other agents that really created a diverse multi-layer treatment paradigm in say, Rheumatoid Arthritis. And now, say in psoriasis, where you have first-line agents, second-line agents because people typically progress through these agents, either they grow in response or their disease waxes and they have to have something else to hit it with and asthma has been completely absent that with the exception of dissolve there charging along to block IgE and now that’s all changing. These new agents coming on like the trastuzumab which is an IO4 receptor blocker or the IO5 agent. Others behind it, I think are going to create this broadening in acceptance of biologics using more expansively in asthma which I think is great for patients and I think, you have a situation that’s against some of the rheumatology have sort of a unclear immune ideology of what’s driving people’s disease there is certainly variability. We know that for example, the IO4 blockers they typically try to focus on eosinophilic heavy disease. Eosinophils are probably involved in everybody’s allergic asthma, how it expresses in certain patients, certainly differs. Nobody has a full understanding of that. And so, I think you are going to have a situation that’s going to evolve where use of biologics is more accepted. People with more severe disease are going to be able to taper off of their oral Corticosteroids and manage their diseases better just generally with more biologic agents and I think you are going to have multiple lines of therapies. I think maybe great for patients and I think you are going to have in that, we believe a strong and central role for the well-established utility of IgE blockades. So, IgE blockade is not driven by any particular biomarker like some of these therapies, but it’s really about the central mediator of the allergic response in disease. IgE binding to your allergen, right, and blocking that down is a consequence to that. So we think IgE blockers are going to be central to this paradigm of multiple agents, and we think that with a much more effective blockade or reduction of IgE like we can achieve with 7195, we can play an important role. So I think it’s not going to be one biologic. I think it’s going to be a broad number.

I think that makes a lot of sense, great. And the question on 123, obviously, a lot of programs going after that target for AML, how do you sort of your bispecific maybe differentiating, obviously early days, but what your goal to differentiate that program versus some of the other approaches?

Sure, I think there is a two sort of buckets of CD123 targeting therapies. It’s certainly an emerging target where there’s been a lot of interest in the last few years that have now resulted in a handful of clinical programs. You’ve got, sort of take non-bispecific programs sort of as a baseline, programs like the Talacotuzumab program and that Janssen has going forward in Phase 3 in AML that actually happens to use our cytotoxic Fc domain to recruit natural killer cells, macrophages it seems to us from the reported data to be relatively well tolerated. It must be showing some responses in our Phase 3 as they publish further little data. You’ve got also advancing the diphtheria tox in conjugate to IL3 itself. IL3 is a natural linking for CD123, that has shown activity. Those was significant - I think toxicities that seem to be mediated by the function of diphtheria toxin itself. So, I think what you’ve established there is that you can have activity and probably efficacy from CD123 targeting and your toxicity seems to track from your modality, whether it’s diphtheria toxin on the one hand or a fairly well tolerated sort of more traditional antibody on the other hand with a Talacotuzumab. So, it sort of established that target as one, okay, well, if there is some traction at the Hem target, that looks like you can hit with something pretty hard and hitting that target CD123 itself might not be something that a patient can handle. Great, so now you got the bispecifics where you have the first programs that we are aware of are for example, a program that is a non-Fc containing bispecific, MacroGenics is developing that has a relatively short half-life, say, relative to say that Fc containing CD123 approach…

Helpful, thanks, Bassil.

Thank you.

Thank you. [Operator Instructions] And our next question comes from Christopher Marai from Nomura Instinet. Your line is open. Please check that your line is not on mute. Once again, Mr. Marai, if your line is on mute, please unmute your line or pick up your handset. And I am showing no further questions from our phone lines. I would now like to turn the conference back over to Bassil Dahiyat for any closing remarks.

Thank you very much operator and thank you all for your time. We look forward providing further updates as we continue to advance our XmAb pipeline later this year. And thanks again, bye-bye.

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