Good afternoon, ladies and gentlemen and thank you for standing by and welcome to the Second Quarter 2021 Xencor Conference Call. [Operator Instructions] Please be advised that this call is being recorded at the company’s request. Now, I would like to turn the call over to your speaker for today, Charles Liles, Head of Corporate Communications and Investor Relations.

Thank you and good afternoon. Earlier today, we issued a press release which outlines the topics we plan to discuss today. It’s available at www.xencor.com. Today on our call, Bassil Dahiyat, President and Chief Executive Officer will review recent business news and pipeline updates; John Desjarlais, Chief Scientific Officer will discuss our cytokine and CD28 programs; and John Kuch, Chief Financial Officer will review financial results. And then we will open up the call for your questions. And Allen Yang, Chief Medical Officer, will join us then. 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, future operations, the company’s partnering efforts, capital requirements, future product offerings and research and development programs. 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 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 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.

Thanks, Charles and good afternoon, everyone. Xencor’s approach to creating antibody and cytokine therapeutics uses our extensive protein engineering tools centered on our plug-and-play XmAb Fc domains to create novel molecular structures, improve natural protein and antibody functions and create new mechanisms of therapeutic action. This approach enables us to rapidly explore different targets and biologies so we can select the most promising programs to take forward. We have been focusing our work on the expansion and use of our XmAb bispecific platform to create antibodies that bind two or more different antigens simultaneously and also to engineer cytokines with structures and binding affinities optimized for therapeutic use. These plug-and-play tools are highlighted in our partnerships. Currently, we have 16 ongoing partnerships for XmAb technology, which have resulted now in three marketed products, the most recent being Vir and GlaxoSmithKline’s anti-SARS-CoV-2 antibody setrovumab, which recently received Emergency Use Authorization for patients with mild-to-moderate COVID-19. Our Xtend Fc technology was integrated into the antibody for the purpose of reducing the dose administered and potentially enhancing its lung tissue bioavailability. This partnership exemplifies our commitment to enabling the broad use of XmAb Fc technologies outside our core focus of oncology and autoimmune disease and demonstrates its applicability in vastly underserved areas like serious infectious diseases. In May, we also entered a similar licensing transaction with Bristol Myers Squibb to incorporate extended anti-COVID antibodies that’s currently in Phase 2 testing. Now, switching back to our internal programs, we are running 9 Phase 1 or Phase 2 studies evaluating our own XmAb bispecific antibodies and cytokines. This way, we are taking multiple simultaneous shots on goal in the clinic. And the proof-of-concept data we are generating is guiding which programs we independently advance, which we partner and which we will terminate. Further, we are…

Thanks, Bassil. We have been very busy using the full range of our protein engineering tools to turn native cytokines into therapeutics. We currently have our first two cytokines in the clinic, expect that two more will advance in the coming year, one internally and one at our partner, Genentech. There are of course several other interesting cytokines, so additional programs are likely to follow. Now, native cytokines have evolved to create powerful immune responses by acting potently, locally and rapidly, but when used with systemic drugs, these properties make them short-acting and often toxic. Our cytokine engineering keeps to create longer duration therapeutic activity and remained under the threshold for toxicity that has limited their clinical use historically. First, we designed small changes in the cytokine to lower its potency, often by hundredfold or more by reducing affinity to its receptors. This has created better tolerated, slower acting and far more sustained immune stimulating activity for multiple cytokines in preclinical models. We further enhanced the stability in pharmacokinetics by fusing them to XmAb bispecific Fc domains that incorporate our Xtend technology to further enhance persistence. Our first clinical program, XmAb306, is our engineered IL-15 for oncology that is partnered with Genentech. We engineer it for these properties: one, NK cell and T-cell activation for cancer therapy that potentially is a broad range of other cancer therapies; and two, unlike IL-2, IL-15 avoids the intrinsic bias for T-reg activation, which is undesirable of course for cancer therapy. XmAb306 is currently in Phase 1 dose escalation in advanced solid tumor patients, both in monotherapy in combination with atezolizumab and we are currently assessing additional combination studies for the future. Our first immune receptor targeted IL-15 is currently in IND-enabling studies with our partner, Genentech. Our second cytokine in the clinic is…

Thank you, John. As we have previously discussed, a critical part of Xencor’s business is leveraging its protein engineering capabilities through partnerships and collaborations for its XmAb technologies and drug candidates to generate non-dilutive sources of revenue. We receive upfront payments, milestones, royalties and also equity interest in connection with certain partnerships. Proceeds from these partnerships and collaborations allow Xencor to maintain a strong financial position as we continue to advance our portfolio of clinical stage and research stage bispecific antibody and cytokine programs. Cash, cash equivalents and marketable investment securities totaled $603.7 million as of June 30, 2021 compared to $604 million at December 31, 2020. Total proceeds from royalties, milestones, sale of an investment equity security and a net increase in the value of marketable equity securities offset net spending of approximately $90.5 million on operations for the first 6 months of 2021. Based on current operating plans, we expect to have cash to fund research and development programs and operations into 2024 and estimate we will end 2021 with between $475 million to $500 million in cash, cash equivalents and marketable securities. Now, I will review our 3 and 6-month financials. Total revenue for the second quarter ended June 30, 2021 was $67.4 million compared to $13.1 million for the same period in 2020. Revenues in the second quarter included revenue from our Janssen, Novartis, Genentech collaborations and royalty revenue from Alexion, Vir and MorphoSys while revenue for the second quarter in 2020 was primarily licensing revenue from Gilead and royalty revenue from Alexion. Total revenue for the 6 months ended June 30, 2021 was $101.4 million compared to $45.5 million for the same period in 2020. Revenue for the 6 months ended June 30, 2021 include revenue from our Janssen, Novaris, Genentech collaborations, milestone revenue from…

[Operator Instructions] Your first question comes from the line of Ted Tenthoff with Piper Sandler.

Great. Thanks, guys. Love the quick, concise and meaty update, a lot going on here. Couple of questions if I may. Just checking in on the Roche program, IL-15, any potential for updates there? And I think you said that you would file the IND for 819 this year and then potentially 2 INDs next year for IL-12 and 808. Is that all correct?

Thanks Ted. Yes, on the IND timing, you are exactly right, 819 this year, the IL-12 and XmAb808, our B7-H3 x CD28, those go into ‘22, those latter two. And with regard to the IL-15 program, XmAb306 we are currently collaborating with Genentech on, we are hopeful we can have some data to share with that program relatively soon. We are obviously still working with Genentech on the timing of that. But the program is advancing. We are, as you know, dose escalating both mono and combo and we are exploring combination studies that we can start planning for both with Genentech and ourselves as well. So stay tuned.

Awesome. Really excited to hear more about that and also from 717 in the back half. Thanks, guys.

Thank you.

Your next question comes from the line of Jonathan Chang with SVB Leerink.

Hi, guys. Thanks for taking my questions. First question on 717, how do you see this program positioned in the competitive landscape versus other PD-1 CTLA-4 bispecifics in development?

So, I guess there is two aspects to how we answer that question. First is the details of the mechanism of action. Our molecule is designed to have binding preferentially to those cells that have both antigens that is PD-1 and CTLA-4 because of the way we tune the affinity to each antigen. In particular, the CTLA-4 affinity is rather modest so you need that cooperativity of binding to hook on to double positive cells. The goal was to have something that’s more selective for the relevant T-cells and potentially has a differentiated tolerability profile. We think from around 100 patients or so in our safety database so far, we might be seeing a somewhat differentiated tolerability profile that doesn’t have some of the very characteristic and profound IPI related irAEs along the colitis and pneumonitis line. Of course, more data will have to be gathered to really nail that down. The only other program we know with that same MOA approach of a selective for double-positive cells bispecific would be a program that AstraZeneca has that we have not seen any data from yet, but I believe that’s somewhere between Phase 1 and 2 right now. The second way we want to position it is to see if, in particular, having a molecule that has the kind of profile that we have seen so far and is binding both antigens and offers that CTLA-4 bump-up along with the PD-1 to try that in the indications, where PD-1s are not already dominant. And that’s why we are focusing our efforts initially in castration-resistant prostate cancer. And we will be able to flesh out the details of that strategy very shortly now that we are up and running and the trial is initiated. The goal there is to go into indications where the MOA has some scientific basis as well as support from data in our Phase 1, but where there is not a swamped commercial landscape and an already dense ticket in development. And I think prostate cancer offers that kind of opportunity and that’s why we are aggressively pursuing it. We think we need to go where others haven’t already heavily tried in the past.

Got it. Thank you. And second question for 819, can you elaborate on the reduced potent CD3 binding and compare this to other similar efforts in the competitive landscape?

I will pass that one on to John Desjarlais, our CSO, who can comment more specifically on the kind of affinity ranges and our logic on that.

Yes. Thanks, Bassil and thanks for the question, Jonathan. So basically, I think Xencor is not the only company actually moving in this direction. I think a lot of companies kind of simultaneously started exploring this idea of reducing CD3 potency as a way to mitigate cytokine release syndrome and all the symptoms that go with that. We found importantly, we could show this either in-vitro, but also in various preclinical models that we can – by reducing the CD3 binding, we can actually preserve all of those cytotoxicity conferred by the bispecific antibodies, but greatly reduce the cytokines that are produced. We see several orders of magnitude reduced fixed production in the monkeys when we put these molecules in. They are tolerated at higher doses. So we are – you could think about mg per kg versus microgram per kilogram, something as widely different as that. And of course, there are other benefits to being able to dose higher. You get – tend to get longer PK, less target-mediated drug disposition. So we think there is a lot of benefits to that.

Got it. Thank you.

Your next question comes from the line of Peter Lawson with Barclays.

Great. Thank you so much. Thanks for taking the questions. On the CD28 constructs, when could we see the initial data around those and kind of the reason for picking CD28 over, I guess CD3 and even the reduced potency CD3 and other T-cell engagers?

Yes. So I will take a stab at that. So in terms of data, while we are just guiding that we are going to have the clinical trials started next year, and so for data, it will be beyond that. We can’t speak specifically to something that’s so far out. Now just I will make sure to emphasize that this CD28 is a T-cell-binding bispecific is not as an alternative to CD3 engagement or other kinds of T-cell targets. It’s a pathway called the signal 2 that is used to bump up T-cell activity, whether that’s activity that might be being driven by T-cell receptor binding and signaling, which is really how PD-1s work. So, think of this as an agent that could, in a tumor-selective way, boost potentially PD-1 checkpoint inhibitor activity. It’s also a way to augment CD3 bispecific activity, but again in a tumor-selective way, right. So it’s a way to bump up things for other agents as long as well as potentially having its own monotherapy activity. But we don’t view it as an alternative really.

Got it. Thank you. And then do you think the B7H3 construct you have with CD28 could actually drive responses by itself or do you think it has to be combined with other prostate antigens you have?

John, do you want to tackle that? I think we…

Yes, it’s certainly a possibility. We – obviously, we would hope to see single-agent activity. On the other hand, it’s important to emphasize that PD-1, it’s been shown by numerous publications over the last couple of years that PD-1’s main mechanism of action is actually to interfere with CD28’s signaling. And so a very obvious combination, therefore, would be combining the XmAb808 with PD-1 blockade just to make sure that, that brand-new CD28 signal you started doesn’t get shut off by the PD-1 signaling.

Yes. And we are quite enthusiastic about attacking CD28, because it’s a challenging target to make work in this context where you really truly have selective activation, not over-activation or super agonism. And John’s team has done an amazing job finding the right epitopes and building the right constructs with the right affinities. It’s quite an engineering feat. And we are really only aware of one company that’s ahead of us here. That will be Regeneron and they seem to be putting a lot of effort into this pathway as well. We think this could be an exciting access and we are really happy to be exploring it next year.

Perfect. Thanks so much. Thanks for taking the questions.

Your next question comes from the line of Etzer Darout with Guggenheim.

Great. Thanks for taking the question. This is Paul on for Etzer. Just wondering, do you have any guidance currently on initial dose escalation data for your two earlier-stage tumor microenvironment programs, 841 and 104? I think you sort of mentioned being about a year behind 717, so just hoping to see if there is an update coming?

We don’t have an update planned for this year. We will guide more on that later.

Okay. Well, in that case, I was hoping to get maybe your updated views on opportunity for 841, especially coming out of ASCO this year with some data for a likely matter that sort of validated the mechanism in melanoma. So, maybe your thoughts on expectations for initial readout? Anything incremental we can learn about the mechanism and overall thoughts there. Thanks.

Right. So, remember, this is a CTLA-4 by LAG-3. So, we are trying to combine both activities. And we have explored it – we have been exploring it in dose escalation and planned expansion cohorts that are actually, I think, starting imminently. And I think the goal there is to see whether in either, we have disclosed this before, either in monotherapy setting or in combination with a PD-1 inhibitor, and we are using pembrolizumab in a clinical collaboration with Merck, whether those settings of the post-PD-1 patient, because that’s the monotherapy cohort, those patients are going to all be post PD-1 in the indications we are going after for the most part. As well as we are looking there and we are looking in combo with pembro because we think this could be, hopefully, the agent of choice giving you the most bang for the buck in one molecule. Two checkpoints you can inhibit and hopefully in a way that again uses our selectivity design to home to the right cell populations and reduce the irAE profile that people see a lot with ipi. So, we don’t know the setting, we are going to let the data guide us. But that’s how we have set up the Phase 1, and we are getting to the point where we are starting to really explore the efficacy and expansion cohorts.

Great. Thanks a lot.

Your next question comes from the line of Arlinda Lee with Canaccord.

Hi guys. Thanks for taking my questions. I had one maybe for John. You talked about the CD28 strategy. Can you maybe talk a little bit about how you are – maybe in the context of the competitive landscape, how you guys are addressing CD28 versus others? And then, I guess more broadly, Bassil, you alluded to complementary mechanisms. How do you kind of think about the collaboration with Janssen and then with J&J and how that might play into your other efforts in the prostate cancer? Thank you.

Yes. Maybe I will take the one on Janssen first, and then John, you can jump in on our strategy, how we fit and how we think we differentiate. So, the Janssen collaboration is for a prostate cancer target that isn’t disclosed, to be used to target this CD28 mode in a bispecific antibody that we are creating with them. And they will develop and we have attractive deal terms. We can take a 20% stake in the cost of the program after clinical proof-of-concept and get a substantially enhanced royalty into the double-digits in teens. But the logic there for Janssen is they have a robust portfolio of prostate cancer agents, including CD3 bispecifics, they have talked about, including checkpoint efforts. And they think a CD28 signal 2 could be a hugely important consequential part of that. And so we are delighted to be working with somebody who shares our vision for the science. Note that is a tumor-specific antigen, this prostate-specific antigen for prostate cancer. And I think maybe John can jump into how we are using both antigen selection as well as our platforms development for the CD28 to separate ourselves from others.

Yes. Thanks for the question, Arlinda. And by others, mostly I am assuming you mean our colleagues at Regeneron who, as Bassil mentioned, are a little bit of ahead of us. I would say one key aspect is we have again built, like we always do, a plug-and-play platform. So, we have a highly stable anti-CD28 single-chain FP that came out of our libraries. It’s been heavily vetted. We have a whole affinity suite for those, and that’s something that we can plug in the whole affinity suite with any particular tumor antigen. And then I think the other key distinction is just looking at the targets that we have selected. So from the outset, I always wanted something that would be sort of a one-size-fits-all across a lot of histologies. And that led us pretty quickly to B7H3, knowing its properties of broad and very bright expression across a lot of different histologies. Turns out it’s also very bright on almost every epithelial tumor cell line that we work with, so it was very convenient for in terms of proof-of-concept. So, I think it comes down to that. Other targets we are looking at include like PDL1 that I mentioned, again, another broadly expressed tumor antigen. So, it comes down to that, I think the plug-and-play platform and the selection of broad targets versus very indication-specific targets like some of our competitors are exploring.

Okay, great. Thank you.

Your next question comes from the line of Tom Shrader with BTIG.

Hi. This is Kaveri on for Tom. Thanks for the update and thanks for taking our questions. Maybe one on the IL-12 and IL-15 program, is the biology different for these two molecules? They both seem to activate NK and CD8 T-cells. And does any recent data change the way you think about the opportunity, like I guess you mentioned it previously, we have also seen direct delivery of IL-12 is powerful in melanoma, but you can’t deliver it systemically. Does that intrigue you?

I will let John take that one. That’s – those issues are the ones that literally drove his entire design philosophy.

Yes. So, let me start in terms of the different biologies. It could certainly be confusing because they all activate NK cells and T-cells. But the way I think of it is cytokines like IL-2 and IL-15, their sort of their day job is to lead to expansion of those cell populations. So, you are making more T-cells, making more NK cells. At the same time, they can actually promote higher cytotoxicity levels. In contract, IL-12’s day job is basically to make those cells not so much proliferate as much. I mean, although we have seen that, but really to make them more cytotoxic and in particular, make them secrete a lot of interferon gamma, which, of course, pays all kinds of dividends in terms of immuno-oncology, including direct antitumor effects that interferon gamma is famous for. but also famously for up-regulating Class 1 MHC and increasing the overall immunogenicity in the tumor setting. And then with respect to the opportunity, one of the holy grails of IL is to actually have a systemic IL-12, right. I mean it’s doing intratumoral injection always has implementation. As one of my colleagues has pointed out to me, intratumoral injection is basically – it’s a subcutaneous injection near the tumor. So, you can still – when you are putting a highly potent IL-12 into a tumor, you are still getting systemic exposure ultimately. And so we have taken the approach, which seems to have worked out well pre-clinically and with our IL-15 program, of reducing the potency. And that allows you to have a much more slower onset of these activities that you want to promote like the interferon gamma and the other aspects of IL-12. So, we believe we can actually get away with systemic administration, at least that seems to be the case pre-clinically. But obviously, humans could be a different story, and we have to develop a very careful dose escalation plan in humans.

Got it. Yes, that makes sense. And for the IL-2 programs, can you tell us how differentiated it is from the other approaches, those are being evaluated in the clinic, either suppression of CD8 T-cells, specific CD8 T-cells or differentiation of induced T-regs through TGF-beta and IL-2? Thank you.

Bassil, you want me to take that one?

Yes. Yes, you can go ahead. I think – yes, sure. You are the expert.

Yes. I mean, the key differentiation is a lot of it comes in the design of the molecule. Our format is a monovalent IL-2 versus several of our competitors have bivalent IL-2. We avoided the bivalent IL-2 because it – that would almost interfere with our whole potency reduction concept. One of the main reasons to reduce potency is to reduce internalization, and that can actually be increased when you have a bimodality. We have also Xtend technology. Yes, that’s right. It has the Xtend technology, and I think we are a little more careful, at least looking at our own in-vitro selectivity data, we are more careful on the selectivity. And we think we have one of the best T-reg selectivity profiles.

Your next question comes from the line of Gregory Renza with RBC Capital Markets.

Hi. This is Xinyue Lu on for Greg. Thank you for taking my questions. I was wondering as you had multiple commercial success with your partner programs, at what point would you consider further monetizing pipeline success again? And how do you think about accessing royalties to further invest in your pipeline? Thank you.

Yes. So, we are always assessing the markets, that is the royalty market view on the value of our revenue streams and comparing that against how we look at it. And we think it’s always an option and an opportunity. We think it’s a great part of the flexibility we have built in our business plan versus the steady income stream, then that our assessment of how that income stream might grow, might miss align at times with the royalty companies. And if it does one day, then maybe there is an opportunity that we see we can do better that way. I don’t think of it as sort of an imperative. I think it’s just a ready opportunity there.

Great. Thank you very much.

Your next question comes from the line of Zhi Shu with Berenberg.

Hi. Thanks very much for taking my question. I have two. The first one, I want to ask about plamotamab, the CD3, CD20 bispecific antibody. Just you mentioned about sharing more Phase 1 data later this year. Could you remind us what the Phase 1 trial, the design of Phase 1 trial and I guess what we should be looking for in terms of de-risking the Phase 2 trial you are going to start? And the second question is around the cytokine portfolio. I think – and now you – it seems that you are putting more resources in developing more modifying cytokines. I guess, what would you like to do in terms of developing more cytokines, particularly in the autoimmune mutations, given cytokines are quite important in that area? Thanks very much.

Yes, I will answer the first question – sorry, I will answer the second question about our cytokine portfolio sort of strategy overall. Then I will let Allen Yang, our Chief Medical Officer, take the one about plamo. So, on the cytokine portfolio, we are applying more resources because we have seen from the data that we have gathered so far on our earliest programs, there are IL-15 and our IL-2 for T-regs, that this general strategy of reducing potency to the appropriate level, and you have got to really do the experiments to find out what that might be, to get that therapeutic profile that you want, the duration of action, the increase in cell populations that you want and the tolerability profile, that strategy seem to have general legs and pre-clinically now we have seen it again and again and again with different program like IL-12, we’re exploring IL-18 now. We have looked at some other cytokines. So, I think there is an enormous playground there. And I think for now, we are going to focus on buttressing our portfolio in the oncology space. We thought that the outlier there was the T-reg hypothesis for IL-2 was just too good and clear and direct of an opportunity for our platform to pass up for now. And so I think we are going to continue focusing on oncology while we do scientific and research exploration all over the place and for now just have the IL-2 be the one that we are planning for now in the autoimmune side. So, that’s in the clinic now. We are excited about it. The next clinical program and probably the one after that would be oncology. And then Allen, do you want to address the question about the Phase 1 and how that plays into Phase 2 for plamo?

Sure, Bassil. Thanks, Zhi Shu, for the question. So, the question was what to expect from our Phase 1 data. So, I think the last time we publicly released data on our Phase 1 program was at ASH 2 years ago, actually two previous ASHs and we were still in dose escalation. And so the team has spent a lot of time really optimizing the dose and schedule. And so more recently, we have been sort of developing a more convenient and dose and schedule for patients. At that time we released data. We have released data on something like responses at over 80 micrograms per kilogram and the response rate was roughly over 40%. We have now moved well beyond that in our dose escalation, and so we will be looking at data at much higher doses. And that was in diffuse large B-cell lymphoma. So, we will have continued data in diffuse large B-cell lymphoma and probably some indolent lymphomas as well. So, that will be the Phase 1 data. I think the second question was what to expect in the Phase 2 study. So, we have announced that we are committed to a Phase 2 study. We think it’s very exciting. It’s a chemo-free study, where we are combining plamotamab with tafasitamab and lenalidomide. So, we think that there is two complementary mechanism of actions and targets of CD19 with ADCC and CD20 with the T-cell engagement. So, we believe that, that is actually a very exciting and novel mechanism of action and will differentiate us from the competitors.

Great. Thank you very much.

And ladies and gentlemen, that concludes our Q&A session. I would like to turn the call over to Bassil Dahiyat for any closing remarks.

Thanks very much. And a big thank you to the team at Xencor that’s been tireless in keeping with our whole suite of programs moving forward. And finally, I would like to thank everybody very much for joining us today. We look forward to updating you again over the coming months, and have a terrific evening.

Thank you for your participation in today’s call. This does conclude today’s conference call. You may now disconnect.