Good afternoon and welcome to the Xencor First Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only-mode. Following the formal remarks, we will open up the call up for questions. Please be advised that this call is being recorded at the Company's request. At this time, I would like to turn the call over to Josh Rappaport of Stern Investor Relations. Please proceed.

Thank you, operator. Good afternoon, this is Josh Rappaport with Stern Investor Relations. Welcome to Xencor's first quarter 2018 financial results conference call. Earlier 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; John Desjarlais, Chief Scientific Officer, will discuss preclinical progress; and John Kuch, Vice President of Finance, will review the financial results from the first quarter of 2018. Then, we will open up the call 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 sections of Xencor's most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q. With that, let me pass the call over to Bassil.

Thanks, Josh, and good afternoon, everyone. The core of Xencor's approach to creating antibody therapeutics is our XmAb engineering platform. By making small changes to an antibody structure, especially it's Fc domain, we can improve it's natural functions and performance. The plug and play nature of this small suite of XmAb Fc domains that we've created allows us to engineer nearly antibody to have improved potency, longer half-life or bispecific structure. This flexibility and portability enables us to shake multiple shots on goal simultaneously to generate proof-of-concept data, helps from which programs we will independently advance, which we will partner and which we would terminate. These accomplishments in the first quarter, both internally and by our partners demonstrate this approach. Since the last quarters call, we announced the addition of our new XmAb IL15 bispecific platform at the American Association for Cancer Research annual meeting which will enable the rapid development of target T-cell activators. Our partners, Alexion and MorphoSys, each reported positive late-stage clinical data validating the safety and clinical utility of our Fc domains. And we raised roughly $245 million to fund our development efforts beyond 2022. Looking ahead, we expect to announce initial data from two ongoing clinical trials in 2018; our Phase 2 trial of XmAb5871 in Systemic Lupus Erythematosus or SLE; and Phase 1 results from our first bispecific oncology candidate, XmAb14045 while continuing to expand our clinical and research stage pipelines. Specifically before the end of the year we expect to initiate our first Phase 3 trial of XmAb5871 in IgG-4 related disease or IgG4-RD and Phase 1 trial of XmAb20717, our most advanced tumor micro-environment activator. We also plan to file two investigational new drug applications for additional tumor micro-environment activators, XmAb's 22841 and 23104. With that, I'll transition to discuss our clinical…

Thanks, Bassil. So the next component of our bispecific oncology pipeline are suite of two micro-environment activators that are expected to enter the clinical this year. Each candidate can simultaneously engage multiple targets such as T-cell checkpoints or agonist with the goal to improve the selectivity of combination therapies for T-cell activation and to eliminate the need for multiple antibodies. Each of our new bispecific molecule tests a distinct mechanism for TME activation. Our first candidate targeted in the tumor micro environment is XmAb20717, a PD-1 by CTLA-4 bispecific antibody for the treatment of multiple oncology indications. For that we expect to initiate a Phase 1 trial this year. Following 20717 are XmAb23104, a PD-1 by IcO bispecific antibody which is a unique checkpoint plus [indiscernible] combination. We also have XmAb22841, a seasonally four by lag, 3 bispecific antibody that can achieve triple checkpoint blockade when combined with an anti-PD-1. Both are in development for the treatment of multiple oncology indications with IB applications expected this year and Phase 1 initiations to follow in 2019. And recently at the ACR Annual Meeting in April, we are pleased to introduce our new IL15 program and to highlight new [ph] clinical data on our lead candidate, XmAb24306, which is an IL15 receptor alpha Fc fusion. IL15 are alpha complexes naturally target CD122, also called IL2 receptor beta. Without targeting CD25, receptor that favors regulatory T-cells. We used our highly stable Fc heterodimer scaffold to create a long acting IL15, IL15 receptor alpha complex. So XmAb24306 is designed to create sustained T-cell and NK cell expansion via modulated CD122 activation which we achieved by engineering the R15 complex and by incorporating our stem technology to further enhance half-life. Now IL15's potential data has been limited by rapid clearance in uncertain therapeutic index. We believe our approach can overcome these challenges, provided more druggable version of IL15 which reduce potency, superior tolerability, and slower receptor mediated clearance which gives us a longer half-life and more sustained lymphocyte expansion. XmAb24306 is actually the first of our tumor micro-environment activators built on this IL15 platform. Primary data presented ACR show that treatment with XmAb24306 induces a steady, tolerable stain increase of up to 10-folder T-cells and even bigger boost for the NK cells. We plan to file an IB for XmAb4306 in 2019 and these are IL15 and biospecifics platform to develop a suite of additional targeted IL15s, including a PD-1 targeted to promote selective expansion and activation of exhausted T-cells. We're also of course additional targeted IL15s. Separately in April, we entered into a collaboration with Applied Biomass, an industry leader in applying mechanistic modeling simulation analysis to derisk drug research and development. We've retained [indiscernible] to perform semi-mechanistic pharmacokinetic and pharmacodynamics modeling to analyze this new IL15 platform, and these models will be used to guide preclinical and clinical development of our IL15 agents including XmAb24306. Bassil can now touch on our partnerships.

Thanks, John. Currently 8 pharmaceutical companies and the NIH are advancing drug candidates either discovered here at Xencor or either [indiscernible] Fc domains for bispecific structure, higher cytotoxicity, longer half-life for improved stability. Five partner programs are currently in clinical development including two in Phase 3 studies. The milestones and potential royalties from partnerships, it can really expand the resources we have for our internal programs and help validate our XmAb platform. During the first quarter, two of our partners, Alexion and MorphoSys, reported positive data from programs utilizing our proprietary XmAb Fc domains. In March and April, Alexion announced positive top line results from two pivotal Phase 3 trials in which intravenously administered ALXN1210 demonstrated non-inferiority to Soliris in both complement inhibitor treatment naïve and in previously Soliris treated patients with paroxysmal nocturnal hemoglobinuria or PNH. Regulatory submissions for ALXN1210 marketing approval are expected in the second half of this year. Now ALXN1210 uses our extend Fc domain for half-life extension. Also in March, MorphoSys reported updated data from it's ongoing Phase 2 L-MIND study in which MorphoSys is evaluating MOR208 plus lenalidomide in patients with relapsed or refractory diffuse large B-cell lymphoma. This data showed continued maintenance of responses with a preliminary progression rate of 50.4% at 12-months and good tolerability. MOR208 users are cytotoxic demand and it was actually created here at Xencor, it was known then as XmAb5574. And based on the data from this trial, MOR208 has breakthrough therapy designation and the company is discussing potential opportunities for expedited approval with the FDA. Now with that, I will turn the call over to John to review our first quarter 2018 financial results.

Thank you, Bassil. Xencor continues to operate from a position of financial strength. We concluded the first quarter of 2018 with successful follow-on stock offering which resulted in net proceeds of approximately $245.5 million. These additional funds will enable us to continue to broaden advance our clinical and research stage portfolio but also preparing for our next stage of growth. Let me now walk you through our first quarter 2018 financial results. In this afternoon's press release, we reported cash, cash equivalents and marketable securities totaling $582.5 million as of March 31, 2018, compared to $363.3 million on December 31, 2017. Again, this increase reflects net proceeds of $245.5 million from Xencor's underwritten public offering in March 2018 partially offset by cash used to fund operating activities in the first quarter. Before we review our quarterly financials; I would like to remind those listening that effective January 1, 2018 the Company adapted a new revenue recognition accounting standard, account and standard quantification 606 can we refer to ASC606. In addition to adapting the stand for 2018, revenue reported for the prior period including March 31, 2017 has been revised, reflect to new standard. No revenue was recognized for the first quarter ended March 31 compared to $3.5 million for the same period in 2017. Revenue reported for both periods was affected by the adoption of the new revenue recognition standard. Under historic revenue recognition methods, the Company would have recognized $6.8 million and $4.3 million of revenue for the periods ended March 31, 2018 and March 31, 2017, respectively. The adoption of the new revenue recognition standard shifted the period that revenue is being recognized under Amgen and Novartis arrangements to earlier periods. Research and development expenditures for the first quarter 2018 were $26.1 million, compared to $15 million for…

[Operator Instructions] And our first question comes from Ed Tenthoff of Piper Jaffray. Your line is open.

I'm pleased to see the cash position so strong, and the possibility that's going to [indiscernible] as you develop this pipeline. Quick question if I may on 123, appreciating that you're not giving guidance on when we'll be giving data. How have you started to think about combination therapy in AML -- I was to sort of achieve monotherapy activity and were safety.

I think the average is starting to emerge that. The T-cells that are active in lysing target cell with these CD3 brought specifics can also be subject to inhibition by PDL-1 signaling to PD-1 and I think on everybody's list -- certainly on ours -- the use of the PD-1 inhibitor in combination is going to be something that's going to be looked at very carefully; I think that's a definite potential. I think -- and especially malignancies you do have other agents that are out there and I think we want to take a bit of a branched approach specific for maybe the particular sub-indications once we achieve the right dose and schedule that we feel comfortable with. There is agents like [indiscernible], there is -- if you do move to front line there would be the high intensity chemo; I'm not to say that we've got any of those wind up but we're looking broadly but we are -- I think first and foremost really looking at how checkpoint inhibition can play in that.

And just in terms of IL15, I'm just going to look at the competitive landscape; obviously those other targets along -- that have similar mechanism but where do you sort of see the competition?

I think there has been various IL2 and IL15 agents tried; I think they all target the same receptors with different levels of specificity. I think we've seen an initial data at CTSE [ph] that was very promising for IL2. I think beyond that it's fairly early days, and maybe John, if you want to comment on the uniqueness of the mechanism.

Yes. I mean, as we discussed earlier on the call, I mean what's unique about IL15 and using the IL15 receptor alpha complex, is you completely avoid the built-in T-Reg [ph] bias that IL2's come with. And then really, the most unique thing that we've done here is kind of counter-intuitively we've actually reduced the potency of the IL15 after we had some initial observations giving us a hint that reduced potency versions actually have longer half-life and in fact also more sustained pharmacodynamics. So nobody else seems to be taking that approach, we think we've got a unique approach there which we're hoping we'll enable an easier way to think up with some of the dosing schedules that are used for some of the PD-1 inhibitors.

And our next question comes from Arlinda Lee of Canaccord Genuity. Your line is open.

Maybe one for John first. Can you remind us on some of the milestones that you might be getting from partnerships of [indiscernible] program? Are you getting milestones on filings or on approvals or datasets? Thank you.

So for Alexion, the remaining milestones we have are regulatory and sales, and we don't break those out but the total is I think $55 million. And those will be over the next -- well, the regulatory we assume within the next 18 to 24 months depending on the timing. And then for MOR208, I think there is still regulatory as well as sales milestones, and we don't have either. So I hope that answers your question?

Yes, thanks very much. And then, I guess maybe back to type of question about -- think about approaching -- you know, you've talked about tuning your specificity or importance of leasing. How do you -- what are you looking for I guess preclinically that helps you guide what you think you should playout in the clinic? Thanks.

Well, we do our best with the two sides of the equation. The efficacy tuning and the safety tuning, it's never perfect, right, because these are preclinical models. I think on the efficacy side, you look at the various tumor bearing cell lines for CD3's -- for these put CD3 biospecifics and you see if you can lyse the right cells and have specificity for cells that express but you think is the levels of antigen on your tumor. And then on the safety side, we always engineer these things to cross-react with non-human primate and use that to tune dose for on-target off tumor toxicities that would always emerge but on the target, as well as on the cytokine release syndromes that are inherent with these agents. So those are the two ways we juggle it; each program is its own story, however, there is no specific numbers, there is just the guidance we get from these models.

And our next question comes from David Nierengarten of Wedbush Securities. Your line is open.

I noticed 676 talking about data now in 2019 and previously it was 2018; is dosing going a little bit more slowly? Is this a decision from Novartis or maybe you could help us out a little bit that? And if there is additional things we're learning from the dosing as it's going that I will help you with your other programs. Thanks.

So we shifted the guidance because we think that by year end we think that the state where we're going to be with data is probably not going to meet and justify our partners or probably our requirements -- what we'd want to talk about or what would be meaningful. We're certainly learning a lot from that trial and being a little bit contrasted with our XmAb14045 trial and now we're starting to gleen [ph] information our of our 18078 trial, a completely different kind of tumor; being a solid tumor, that is helping us understand better what are some of the ins and outs of had a dose these. So where I'm wearing a lot, I think it's a matter of what quantum of data justifies both in our op operators and in our own phase, having the release.

So the mechanism of just a dosing escalation is going a little bit more slowly and maybe not hitting the dosage you think is going to give activity or are you just going to wait, wait for additional data before you report it.

Yes, we're just going to wait for additional data. We just think have -- because this trial didn't start enrolling patients until about 13 months ago. And as you know, you have to start off fairly low. I think it's a less a matter of anticipated dose and is that we're we expect to be or not is just -- you are with the CD3 bispecifics in a pretty conservative mindset where you start your initial doses, so it just takes time.

[Operator Instructions] And our next question comes from Christopher [ph] of Nomura. Your line is open. Christopher your line is open. [Operator Instructions] And I'm showing no further questions from our queue. I would now like to hand the call back over to management for closing remarks.

Thank you, operator. We want to thank everybody for joining today's call. Our remaining of markets that we look forward to updating you on Xencor's progress throughout the remainder of 2018. Thanks very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. And have a wonderful day.