Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2020 Xencor Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Charles Liles. Thank you, and please go ahead, sir.

Thank you, and good afternoon. Earlier this afternoon, we issued a press release which outlines the topics we plan to discuss today. The press release is available at www.xencor.com. Today on our call, Bassil Dahiyat, President and Chief Executive Officer; will provide updates regarding COVID-19, our portfolio programs and licensing partnerships; John Kuch, Senior Vice President and Chief Financial Officer, will review the financial results from the first quarter. Then we will open up the call for your question, and Allen Yang, Senior Vice President and Chief Medical Officer, will join us for the Q&A. 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, capital requirements, future product offerings, research and development programs and the impacts of the COVID-19 pandemic on these topics. These forward-looking statements are not historical facts, but rather are based on our current expectations and beliefs and are based on information currently available to us. The outcome of the events described in these forward-looking statements are subject to known, 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 our 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.

Good afternoon. Before we touch on the development portfolio update, I'm going to describe the effects of COVID-19 pandemic on our business. Now despite the numerous challenges, we're fortunate that our clinical trials and research work continue to progress with modest impact on trial enrollment to date and that we continue to enjoy a strong cash position. We're still enrolling patients into a number of clinical studies that are evaluating our bispecific antibodies in oncology. And while clinical studies in oncology are still high priority for patients, their families and their physicians, the planned study initiations later this year for our two hematology programs, plamotamab, our CD20 x CD3 program, and vibecotamab, our CD123 x CD3 program, and the enrollment to our ongoing studies will likely be affected as many clinical sites have delayed starting new trials and others have postponed enrollment. This situation is very fluid and we'll continue to update as appropriate. Within the company, we've implemented a number of measures to protect the health and safety of our employees and our community. These include requiring all nonlaboratory employees to work remotely, a reduction of research lab staff density by implementing alternating shifts and by reorganizing our facility to further reduce staff density. Now a core part of our business is to complement our internal pipeline development with partnering. And we received payments from the licensing of our XmAb technologies, the clinical advance eculizumab candidates as well as royalties from sales of approved products. We're monitoring for potential impacts to this partnership revenue. On the other hand, in April, our partners Alexion and Vir Biotechnology each announced plans to initiate clinical studies evaluating antibodies and incorporate our Xtend Fc technology to treat patients with COVID-19. Alexion announced that they're initiating a Phase III trial with Ultomiris in treating…

Thank you, Bassil. Xencor continues to operate from a strong financial position which enables us to support our portfolio of clinical-stage and research-stage specific antibody and cytokine drug programs. Cash, cash equivalents and marketable securities totaled $609.9 million as of March 31, 2020, compared to $601.3 million on December 31, 2019. The increase reflects upfront and milestone payments and royalties related to licensing agreements, net of spending on operations for the first quarter. For the first quarter ended March 31, 2020, revenues were $32.4 million compared to $111.9 million for the same period in 2019. These revenues include milestone revenue recognized for MorphoSys, royalty revenue recognized from Alexion and licensing revenue recognized from our Amgen and Gilead collaborations compared to revenue from the same period in 2019, which were primarily revenue from our Genentech collaboration. Research and development expenditures for the first quarter in 2020 were $33.9 million compared with $28.2 million for the same period in 2019. The increase being primarily due to increased spending on our panitumumab and XmAb2717 programs, partially offset by reduced spending on our obexelimab program. General and administrative expenses for the first quarter of 2020 were $7.2 million compared to $5.5 million in the same period 2019. The increase primarily being related to greater spending on personnel costs and professional fees. The net loss for the period ended March 31, 2020, was $8.1 million or $0.14 on a fully diluted per share basis for the first quarter compared to net income of $80 million or $1.38 on a fully diluted per share basis for the same period in 2019. The net loss for first quarter 2020 compared to net income reported for the same period 2019 is primarily due to revenue recognized from the Genentech collaboration in 2019. Noncash share-based compensation expense for the first quarter of 2020 was $6.5 million compared to $5.9 million for the same period in 2019. Total shares outstanding were $57 million as of March 31, 2020, compared to $56.3 million as of March 31, 2019. Based on current operating plans, we expect to have cash to fund research and development programs and operations into 2024 and to end 2020 with between $500 million and $550 million in cash, cash equivalents and marketable securities. With that, we'd now like to open up the call for your questions. Operator?

[Operator Instructions] And our first question comes from the line of Jonathan Chang with SVB Leerink. Your line is now open.

First question, can you help set expectations for the XmAb20717 ASCO publication?

Sure. We expect to be able to report escalation the already completed dose-escalation cohorts. And we're really hoping to see the safety and tolerability of the end molecule, which is obviously very important for our product profile to differentiate from the rather toxic regimens that you get with PD-1 CTLA-4 blockade, for example, with ipilimumab and nivolumab combinations. We're going to look for biomarkers to make sure they're moving in the right direction, and we're going to look to see what efficacy we have from those cohorts. Of course, it's a very heterogeneous patient population, many different tumor types, some with approved checkpoint inhibitors that would make you expect many of the patients would be post-PD-1 therapy, some with different kinds of tumors. So that's the kind of data we'll present, and we've really always thought that the way to get at efficacy is by doing expansion cohorts and that's something we've just gotten going very recently. Because you can do larger numbers of patients with individual tumor types and really have a better shot at studying them.

And just a follow-up on that, since you mentioned recently opened expansion cohorts in this study, given the heterogeneous nature of a Phase I dose escalation study, can you talk about how you're teasing out signals of activity in the data you're generating and how you're thinking about which indications and settings to pursue further?

Yes. We're thinking about it based on what are the places that checkpoint inhibition can move the needle, right? So the dose-expansion cohorts we have set up, give you an indication there, their mixture of indications where there's known checkpoint therapy activity where there's a proved checkpoint inhibitors and where likely everybody is going to be receiving at least PD-1-alone therapy prior to advancing to a clinical trial. Those would be our non-small cell lung, our melanoma and our renal cell carcinoma expansion cohorts. Those are cohorts where we hope we can study enough patients in each of those indications to establish whether we have meaningful activity in each of those indications post PD-1 therapy. So looking at the PD-1 relapse and refractory population. Tremendous opportunity, obviously, very high bar. On the other couple of cohorts, to give you an indication of the other area we're looking were prostate cancer, where there's only recently been significant and meaningful clinical activity from checkpoint inhibitors but still a pretty heterogeneous multiline cancer that I think has a lot of opportunity, if it's relatively speaking compared to other areas in oncology more open as well as a basket of more unusual rare tumors that have just all sorts of different biologies that we want to explore. So with the basic science sort of if we can establish the basic science around our compound, we could study what's really going on in expansion cohorts.

And just one last question. It sounds like the COVID-19 impact on your ongoing clinical studies is minimal so far. Can you expand on this? I'm curious because we're hearing varied responses among even our oncology companies.

I'll let Allen Yang, our Chief Medical Officer, address that.

Yes. Thanks, Bassil, good question. So I can't comment on other companies, but at Xencor, what we've been hearing anecdotally is that a lot of sites are closing to new patient enrollment, not because they're being overwhelmed, but because they're preparing for a potential surge of COVID-19 patients. With that said, oncology is a large unmet need, and so these will probably be the patients that need therapy the most. And so these would be the last patients that would be sort of denied access to care because of preparations for COVID. In addition, most of our studies since their Phase I are in dose escalation. So you need very few patients for dose escalation. And so those slots, when they become available to patients, they get filled very quickly by our investigators. And overall, the impact that Bassil alluded to was on new patient studies. And so one can imagine, instead of an oncology patient who needs a therapy, when you have a study and you're setting up that study, it's about contracting, sort of getting the site up to speed, having them learn about the protocols. And this is mainly administrative. And see it and this can be deprioritized. That's why we haven't seen much disruption.

Yes. I think it really comes down to the luck of the draw. Different sites have different what they've done. Before we go to the next question, I just wanted to comment. There have been on and off problems with the Q&A queuing system, that we're going to continue through, but just bear with us if anything does pop up. I'm ready for the next question.

And our next question comes from the line of Arlinda Lee with Canaccord. Your line is now open.

I was curious about the, I guess, milestone flow on MorphoSys' 208. The $12.5 million milestone, can you talk about what that's for and what the $25 million upcoming might be? And then also I was kind of curious. We've been talking a lot about your I-O-I-O bispecifics for a while and how that was a focus. And now that you have this your next wave seems to be the 2:1s. And can you kind of talk about the shift in interest in focusing from I-O-I-O to the 2:1?

John, you want to take the milestone question?

Sure. Sure. Thanks, Arlinda. Yes, we had reported in our 10-K that there were $37.5 million of regulatory milestones related to the compound. We received $12.5 million upon acceptance of the BLA by the FDA, which then gets through, I think, in January or February. So that's the $12.5 million. The other $25 million relates to additional regulatory approvals related to the compound.

And I'll take the I-O-I-O bispecific and 2+1 CD3s. We go where the scientific hypotheses that we think are going to drive the best chance t having a differentiated drug, like how patients is. And with three I-O-I-O bispecifics in the clinic, that's testing three distinct hypotheses that we were excited about, but there's a lot that can be done in particular when we enable CD3 bispecifics to be more amenable for solid tumors, which often have a heterogenous target density on healthy versus disease tissue and things like that, where a 2+1 approach gives you a nice handhold. So it was just more of where does the science give us the best immediate opportunity. And where have we already put a lot of bets down on multiple hypotheses. But it's all going into expanding what we're doing into being a more opportunity within solid tumors as opposed to on our earlier work in the first two programs we're in.

Can I also ask a question on the 23 sorry, 24306 IL-15 compound in collaboration with Genentech? You guys have talked about having a fairly aggressive program. I'm curious since the trial has already started to has started, I was curious about your whether that program might have any COVID impact and when we might be able to see first data from that.

We've been guiding that there is unlikely to be data from that program this year. That's in the hands of Genentech. They're executing on the trial, and we have to reach agreement with them on when we do data releases. But I would not expect it this year, given they just dosed the first patient in March. As for COVID-19 impacts, I know they're very committed to the trial. They got a patient going right when COVID was starting to ramp up. And we that's what we know that they're still very committed, and there's a lot of activity going on. And if and when we learn something meaningful about COVID impact, we'll absolutely report that in our next update.

And our next question comes from the line of Peter Lawson with Barclays. Your line is now open.

This is [Waleed] on for Peter. I apologize if I missed anything earlier, I had a difficulty with the conference line. But I just wanted to ask a question on XmAb18087. Wondering if you can gives us clarity on whether or not that data is still on track for the second half and maybe you can tell us how enrollment is going through the study. And whether you're seeing any challenges for patients being able to get follow-up and just an update on that study.

So, yes, we reaffirmed earlier on the call that XmAb18087, now called Tidutamab, we expect to give a data update on the Phase I study second half of this year. We do continue to enroll. And Allen, do you want to touch on the question regarding follow-up visits and whatnot?

Yes. I just want to remind that neuroendocrine tumor and gastric stromal tumors are rare tumors. But despite that, we still are enrolling well. And in the patients that are on study, we haven't seen anybody miss key visits. And that goes across our studies. And key visits would be dosing visits or tumor-assessment visits. So I think we're doing pretty well.

What can we expect to see in that update, number of patients and maybe type of data? And then maybe you can help sort of set a bar for certain efficacy and safety benchmarks that you may want to meet to help consider your results positive?

So we're not guiding on the number of patients. It's we've been dose escalating through a number of cohorts. But it so it is going to be in that range when you consider typically you have three to six patients per cohort. Without getting into any specifics about the upcoming data, in general, these neuroendocrine tumors are not they don't typically respond with a resist sort of response. I think you from the approved agents, they typically have around a 10% or 5% or 10% response rate. But what happens is you get a duration of the patient continuing on and being tolerant to the therapy of course. And not getting worse, right? So the approved agent recent approved agent, for example, which is a radionuclide peptide conjugate was approved on PFS and OS. So that might maybe set your expectation from what you would hope to see. On the safety front, it's a CD3 bispecific against the solid tumor where the antigen is expressed in various neuroendocrine tissues. So I think it's going to come tissue-by-tissue where these neuroendocrine cells are making sure that a patient can tolerate it. But these are advanced net patients with very few options. So there is a there is some latitude there if it's showing activity.

Our next question comes from the line of Gabriel Fung with Mizuho Securities. Your line is now open.

This is on Gabriel on for Mara. And just a first question here just regarding the COVID-19 impact. I understand about that delays may be felt, but I was just wondering if you can quantify the magnitude of the delay that within like a quarter or maybe two. And then the patient I mean in the trials that are already going, let me start on the trials that you're expecting to start as of last quarter. Have you already enrolled any patients? And I have a few more follow-up after that.

So we're going to average about five questions per analyst, I'm guessing. So to get to your first question, the studies that we had guided that we were going to initiate this year were in the second half, we would announce our plans for our plamotamab our CD20 x CD3 bispecific for the next set of trials. For that, we have no guidance we can offer on what if what kind of delays might emerge from COVID-19. It seems reasonable to assume there will be, but it's far enough off and the COVID situation is so fluid, we don't know. We had planned by midyear to open the study for vibecotomab, our CD123 x CD3, a new study, where we would give details at the time when it opens. That's how our agreement with Novartis works. That is has, I think, felt some impacts because of the administrative points and some study sites just not wanting to take on new studies while COVID was feared, and it still is feared, of course. I don't know if we can give a specific amount of time. We're hoping to be able to initiate that study sort of later in the part of midyear. Certainly in the second half, we hope, but we don't have anything more specific than that. Now you had some other aspects to your question?

No, that's good. I'll come to the next question. It's pretty quick. It's just really much on cash. Given your cash position right now, I was just wondering if it makes sense to even look externally for additional assets or technologies, and that's it.

We always are looking. And it's as a small company, you're a bit disadvantaged, and I think we're always looking for great new technology or molecules that can fit. I don't think we make it a primary corporate goal, but it's always a good idea. You should never feel like what you've got in your own shop as the end of the world. That said, we do have a very rich, very busy, busy development team and a lot of research ongoing. But it's something we have in mind for sure.

Our next question comes from the line of Ed Tenthoff with Piper Jaffray. Your line is now open.

Well, I said, I'm going to come. Follow-up on an earlier question on IL-15. And I'm really trying to understand what are the optimal potential combinations here. So really, how does that mechanism play best, either with checkpoints or other targeted agents. So how are you guys, at a very high level, thinking about developing that candidate with Genentech?

Thanks, Ted. It's great to hear all of you guys being safe and sound. So the initial work is with the checkpoint inhibitor. It's with the atezolizumab PD-L1 molecule from Genentech. It's an approved agent. It's doing pretty well, even though it's, I think, third in the PD-1 L-1 space, it's doing pretty well when expanding. We are hopeful that, that can lead to a number of different exciting clinical trials that they can initiate once we're out of initial dose escalation. I think that there's certainly other checkpoint inhibitors, and we have eyes for our own pipeline. If the molecule gets through this first trial nicely, then we would certainly imagine looking for how we can synergize with those checkpoint inhibitors. I do think that the natural killer cell opportunities are there. There's nothing we have specifically that we can guide to right now. Though we and Genentech are talking avidly about them because it's both the T cells and the NK cells that IL-15 really drives. I think that we're going to as we get through this Phase I and get tolerability data and understand our dose and hopefully see something exciting, we'll be able to pin that down more. But there's a lot of different opportunities. And so for starters, let's make sure we check the box on a checkpoint inhibitor. For the test, Genentech is very, very motivated to advance.

Our next question comes from the line of Gregory Renza with RBC Capital Markets. Your line is now open.

This is [indiscernible] on for Greg. I have a few questions. First, what are your disclosures with ongoing monotherapy trials of vibecotomab and plamotamab and 14045 over the year. And then my second question is, how do you think COVID-19 has shaped your development strategies and can you remind us your priorities among the early stage program?

So super hard to hear, there were some definite connection issues there. I believe your first question was about guiding on any data readouts for plamotamab and vibecotomab for this year. We have not yet guided on those. We will we can give updates on when we might have data from those later in the year. We haven't guided on anything yet so far. And I think it's prudent for us to make sure we understand the COVID impacts fully before we do. That said, I think as Allen has said in some of the earlier comments, so far, our trials have continued to enroll. They've done well. Some of it's the luck that go with our sites. But we don't know where the future is going to be. So we're just going to stay very vigilant. But so far, the impacts have been somewhat relatively limited on our enrollment, though our new study start, in particular for vibecotomab, we know that that's impacted because that was something that was getting into the advanced stages of planning and prep. And that's instead we were hoping midyear, it's going to slide from there, but we don't know exactly how much. And I couldn't hear anything beyond that.

Can you hear me now?

A little better.

Okay. My second question was, how do you think COVID-19 has shaped your development strategies? And can you remind us of your priorities among the early stage program?

All right. So our priority is always to take all of our early stage programs until we can get some element of proof-of-concept data or not from them in a meaningful trial. And then from that point decide the strategy. So we've got to the point where we have active doses for vibecotomab and plamotamab, so we're initiating new studies. With those would be earlier ones. We're still in that initial data-gathering phase. So the priority is to manage the portfolio in a way that as we gather more data across that portfolio, we pick the winners in advance of those. So that's how that is. I don't think COVID-19 has changed our priorities in any way regarding that. I think part of the reason for that is it's only been a couple of months. We don't know exactly where COVID-19 is going to impact our ability to do clinical trials of the industry or anything over the next few even years. I will say that our strong cash position allows us to continue on in a fairly aggressive stance like we've been trying to do all of our clinical development for the time being and still play this strategy forward.

And our last question comes from the line of Etzer Darout with Guggenheim Securities. Your line is now open.

Just one really for me. Obviously, we've gotten some activity data for PD-1 CTLA-4 bispecifics from a couple of different companies, including one that'll come at ASCO. And I guess, for me, your question is it's sort of it's early data sets. But I mean, what are you going to what do we expect in terms of ultimate differentiation? I mean, one of the things that you explore and your dose expansion studies is post PD-1 patients. So I mean, they just is that one area where you kind of see the your assets sort of being able to differentiate over some of these others that are sort of progressing through the clinic?

Yes. I think our strategy is to look at both post PD-1 patients in indications where PD-1s are established and look at other indications where there's a good biologic hypothesis, in particular for CTLA-4. We do hope that our design makes our molecule tolerable and easily combinable because of course there's always a desire to combine with whether it's chemo or targeted agents or what have you with these molecules. And cancer combination therapy always ends up being something you look at. The differentiation, I think, our molecule is designed to be truly as selective as possible for the double-positive cells. And we'll see how that plays out as both in terms of targeting and to get access to the tumor as well as in the side of safety. But I think if the data is far too early, that's our that's how we've designed it to differentiate itself, and we'll see how it all plays out over the next few quarters.

And this does conclude today's question-and-answer session. I would now like to turn the conference call back to Bassil Dahiyat for any closing remarks.

Well, I'd like to thank everybody very much for joining us today, and also bearing through the multiple technical difficulties, including my being on mute for the first two minutes. Always more challenging when we are all remotely located like we are these days in COVID-19. I look forward to catching up again and giving further updates on our progress throughout the year. And in the meantime, I hope everybody stays safe. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.