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Edited Transcript of XNCR earnings conference call or presentation 5-Nov-19 9:30pm GMT

Q3 2019 Xencor Inc Earnings Call Monrovia Nov 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Xencor Inc earnings conference call or presentation Tuesday, November 5, 2019 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Bassil I. Dahiyat Xencor, Inc. - Co-Founder, CEO, President & Director * Charles Liles Xencor, Inc. - Associate Director and Head of Corporate Communications & IR * John J. Kuch Xencor, Inc. - Senior VP of Finance & CFO ================================================================================ Conference Call Participants ================================================================================ * Alethia Rene Young Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research * Arlinda Anna Lee Canaccord Genuity Corp., Research Division - Analyst * Dane Vincent Leone Raymond James & Associates, Inc., Research Division - Research Analyst * David Simms Ruch SVB Leerink LLC, Research Division - Associate * Etzer Darout Guggenheim Securities, LLC, Research Division - Senior Analyst * Mara Goldstein Mizuho Securities USA LLC, Research Division - MD of Equity Research Department * Shanshan Xu Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, and welcome to the Xencor Third Quarter. 2019 Financial Results Conference Call. (Operator Instructions) Please be advised that this call is being recorded at the company's request. At this time, I would like to pass the call to Charles Liles, Associate Director and Head of Corporate Communications and Investor Relations at Xencor. Please proceed. -------------------------------------------------------------------------------- Charles Liles, Xencor, Inc. - Associate Director and Head of Corporate Communications & IR [2] -------------------------------------------------------------------------------- Thank you, operator, and good afternoon. Welcome to Xencor's Third Quarter 2019 Financial Results Conference Call. 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 a business overview and review our pipeline and licensing partnerships; and John Kuch, Senior Vice President of Finance and Chief Financial Officer, will review the financial results from the third quarter and first 9 months of 2019. 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 the management for 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 upon 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 sections 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. -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [3] -------------------------------------------------------------------------------- Thanks, and thanks everyone for joining us this afternoon. The core of Xencor's approach to creating antibody and cytokine therapeutics is our XmAb engineering platform. By making small changes to an antibody structure, specifically in its Fc domain, we can improve its natural functions and performance and create new mechanisms of therapeutic actions. The plug-and-play nature of the suite of XmAb Fc domains that we've created allows us to engineer nearly any antibody to have improved potency, longer half-life or bispecific structure. This flexibility and portability enable us to take multiple shots on goal simultaneously and generate proof-of-concept data to guide which programs we'll independently advance or partner or terminate. Now in the past few years, we've focused our R&D efforts on the expansion and use of our bispecific XmAb platform to create new drug candidates that bind 2 or more different targets simultaneously. Since 2016, we've initiated 6 Phase I clinical studies evaluating XmAb bispecific antibodies. Our plug-and-play approach to engineering enables the rapid design and simplified development of antibodies and other protein structures like cytokines. Bispecifics are very rapidly emerging area of therapeutic development, particularly in oncology. And in order to stay at the forefront of innovation in this space, we use our engineered heterodimeric Fc domain as a robust scaffold to rapidly develop new candidates that we group into 3 different classes: T cell engager bispecifics, tumor microenvironment activator bispecifics and cytokines. The first and most advanced class is the T cell engager class. These are tumor-targeted bispecific antibodies that contain both the tumor antigen-binding domain and the cytotoxic T cell-binding domain, specifically, a CD3 binding domain. They activate T cells at the site of the tumor in order to potently kill malignant cells. XmAb14045 is our CD123 x CD3 bispecific antibody that's being developed in collaboration with our partner Novartis. It's in an open-label, Phase I, dose-escalation study to assess safety, tolerability and preliminary antitumor activity in patients with relapsed/refractory acute myeloid leukemia as well as other CD123-expressing hematologic malignancies. In the second quarter, we restarted the study under an amended protocol which included more prescriptive guidance on the monitoring and management of cytokine release syndrome, following the lifting of a partial clinical hold. We continue dose escalation in the study and are planning [to initiate additional] clinical studies evaluating XmAb14045 in 2020. Our next program is XmAb13676, a CD20 x CD3 bispecific antibody. It's also in Phase I but for patients with advanced B-cell malignancies like non-Hodgkin lymphoma and chronic lymphocytic leukemia. We expect to present data from this study at the ASH Annual Meeting in December where we plan to show initial safety and clinical activity. That's during dose-escalation cohorts. Now XmAb18087 is our third T cell engaging CD3 bispecific. It targets SSTR2, or somatostatin receptor 2, an antigen highly expressed on some solid tumors. In early 2018, we started dosing patients in a Phase I, dose-escalation study to assess its safety, tolerability and preliminary antitumor activity in patients with neuroendocrine tumors and gastrointestinal stromal tumors. We expect to present initial data from that study in the first half of 2020. Now the next group of our bispecific antibodies is our tumor microenvironment activators. Rather than directly bridging a cytotoxic T cell to a tumor cell, our TME activators seek to more effectively reactivate tumor-reactive T cells than existing therapies do. Our antibody simultaneously engage multiple T cell targets, such as checkpoints or agonists, and a key feature of their design is to choose individual binding affinities for each T cell target to be suboptimal for binding T cells with only 1 of the 2 targets on its surface but to have high binding when both targets are present. This zipping up when multiple handholds for the antibody are present is called avidity. Our approach reduces the need for multiple antibodies typically used in combination therapy and also allows for more selective targeting of T cells that have multiple checkpoint expression. These are typically found more often in the tumor microenvironment than in the periphery. Now earlier this year, we started dosing the first patients in our second and third TME clinical trials: Phase I, dose-escalation studies of XmAbs 22841 and 23104. Along with the ongoing Phase I study of XmAb20717, we're focused on enrolling patients with several advanced solid tumor types in these studies. Our hope is to be able to drive stronger antitumor responses with improved tolerability for patients. We anticipate initial dose escalation and biomarker data for the first of these programs, XmAb20717, our PD-1 x CTLA-4 bispecific, in the first half of 2020. Finally, we're developing a suite of cytokine immune -- cytokines. These are immune-signaling proteins that we built on top of our XmAb bispecific Fc domain and that also incorporate our Xtend technology in the Fc domain. Using this Fc domain and tuning the potencies of these cytokines enables more druggable molecule to be made with potentially superior tolerability, slower receptor-mediated clearance and prolonged half-life. Our first cytokine program and the lead in our collaboration with Genentech is XmAb24306. It's an IL-15 fused with its receptor-alpha subunit, and both of those fused on our bispecific Fc domain. As noted, it contains both the cytokine and its receptor domain in order to expand and activate T cells and natural killer cells. XmAb24306 is intended for development with a wide range of combination agents. And importantly, we can perform our own clinical trials with both our own pipeline assets and non-Genentech agents within this collaboration, subject to some conditions. We look forward to planning a number of these combination studies pending completion of the initial dose-escalation study. Currently, we're supporting Genentech's IND application which is expected before the end of this year. We anticipate first-in-human study dosing patients in multiple oncology indications early next year. We'll now switch to reviewing some updates from our licensing partnerships which continue to provide revenue that helps fund development of our own internal pipeline candidates. Most of these partnerships require very limited resources and effort from us. We're not going to review each program, but we have 8 ongoing partnerships for XmAb technology which have resulted in 1 marketed product, 4 clinical-stage candidates and 2 candidates that have open INDs and pending Phase I initiations. In 2013, we licensed Xtend Fc technology to Alexion, which was used in creating Ultomiris, their complement inhibitor with improved half-life which allows for less frequent dosing regimens compared with Soliris. It's the first antibody to incorporate an XmAb technology to be marketed, and we're very excited by that. Ultomiris has now received multiple global marketing authorizations in the U.S., Japan and Europe for the treatment of adults with PNH. And last month, Ultomiris received approval from the FDA for the treatment of patients with atypical hemolytic uremic syndrome, or aHUS. We're receiving a 1.5% royalty on net sales in all indications and geographies worldwide. Another partner, MorphoSys, licensed from us as tafasitamab, which was previously known as MOR208 and before that, as XmAb5574. It's an anti-CD19 antibody that we designed and initially developed incorporating our cytotoxic Fc domain for high ADCC function. MorphoSys reaffirmed on their update call last week that they intend to complete a BLA submission by the end of this year. If approved, we will receive royalties in the high single to low double-digit percentage range as well as additional milestone payments. Between 2015 and 2016, we entered into research collaborations with Amgen and Novartis that among other terms of them included the creation of novel XmAb bispecific antibodies that would be advanced by these partners. Recently, IND applications were allowed by the FDA for an undisclosed Novartis XmAb bispecific antibody and for Amgen's AMG 509, a STEAP1 x CD3 bispecific antibody that uses our XmAb 2+1 format. That format uses the same heterodimeric XmAb Fc domain as all of our other candidates, but it has 2 tumor-targeting domains and 1 CD3-targeting domain. This format allows higher selectivity for tumor antigen expressing cells. In total, we recognized milestone revenue of $15 million from these collaborations in the third quarter. Finally, we have continued to expand our senior management team. This past quarter, we announced the appointment of Celia Eckert as General Counsel and Corporate Secretary. Celia has spent more than 20 years as a corporate attorney in both law firms and in-house roles. She'll be instrumental in building a strong legal infrastructure which is absolutely required as Xencor grows and matures as an organization and advances our portfolio programs through the later stages of clinical development. We're thrilled to have Celia on the team. Now with that, I'll turn the call over to John Kuch to review our third quarter 2019 financials. -------------------------------------------------------------------------------- John J. Kuch, Xencor, Inc. - Senior VP of Finance & CFO [4] -------------------------------------------------------------------------------- Thank you, Bassil. During the third quarter, Xencor's financial position benefited from milestones that were earned from several of our partnerships and collaborations. The company continues to operate from a strong financial position to allow us to continue to advance our pipeline of bispecific and cytokine candidates as well as our early research programs. In this afternoon's press release, we reported cash, cash equivalents and marketable securities totaling $620.5 million as of September 30, 2019, compared to $530.5 million at December 31, 2018. The increase reflects upfront payments and milestones received in 2019 from Genentech, Astellas and Alexion, offset by cash used to fund operating activities in the first 9 months of 2019. Total revenue for the third quarter ended September 30, 2019, was $21.8 million, which was primarily milestone revenue recognized from our Novartis, Alexion and Amgen collaborations. Total revenue for the 9 months ended September 30, 2019, was $153.2 million and includes revenue earned from our Genentech and Astellas collaborations and the milestone revenue recognized from Novartis, Alexion and Amgen. Total revenue for the 3 and 9 months ended September 30, 2018, was $29 million and includes collaboration revenue earned from our Novartis and milestone revenue earned from Alexion. Research and development expenses for the third quarter of 2019 were $29.8 million compared to $21 million for the same period in 2018. Total R&D expenses for the 9 months ended September 30, 2019, were $91.3 million compared to $70.4 million for the same period in 2018. Increased R&D spending for the 3 and 9 months ended September 30, 2019, over the same periods in 2018 reflects increased stock-based compensation expense and additional spending on the company's CD3 bispecific antibody and cytokine development candidates and technologies. General and administrative expenses for the third quarter of 2019 were $6.3 million compared to $7.4 million for the same period in 2018. The decreased G&A spending for the third quarter of 2019 over 2018 amounts reflect decreased spending on personnel expenses. Total G&A expenses for the 9 months ended September 30, 2019, were $17.5 million compared to $17 million for the same period in 2018. The increased spending for the 9 months ended September 30, 2019, reflects additional spending on intellectual property including patents and licenses and expenses related to professional services. Noncash, stock-based compensation expense for the 9 months ended September 30, 2019, was $24.7 million compared to $15.5 million for the same period in 2018. The net loss for the third quarter ended September 30, 2019, was $10.2 million or $0.18 on a fully diluted per share basis compared to net income of $3.2 million or $0.05 on a fully diluted per share basis for the same period in 2018. The net loss reported for the 3 months ended September 30, 2019, over the net income reported for the same period in 2018 is primarily due to lower collaboration revenue earned and higher R&D expenses. For the 9 months ended September 30, 2019, net income was $53.8 million or $0.92 on a fully diluted per share basis compared to a net loss of $52.2 million or $0.98 on a fully diluted per share basis for the same period in 2018. The net income reported for the 9 months ended September 30, 2019, over the net loss reported for the same period in 2018 is primarily due to revenue recognized from the Genentech and Astellas collaborations and milestone revenue earned from the Novartis and Amgen collaboration. The total shares outstanding were 56.7 million as of September 30, 2019, compared to 56.2 million as of September 30, 2018. Based on current operating plans, projected spending and expected proceeds from our partnerships and collaborations, we expect to have cash to fund research and development programs and operations beyond 2024 and to end 2019 with between $590 million and $625 million in cash, cash equivalents and marketable securities. With that, we would now like to open up the call for your questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Alethia Young of Cantor Fitzgerald. -------------------------------------------------------------------------------- Alethia Rene Young, Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research [2] -------------------------------------------------------------------------------- Congrats on all the progress. Maybe a couple for me. One, I was just curious what other studies you might be doing with your CD123, if you've talked about any particular indication. Two, just can you remind us, at ASH, like how much data we should expect for the CD3 program and what that trajectory looks like over the rest of 2020? And then the last question is just kind of high level. It seems like there's a lot of different readout programs in 2020 that are expected here. And I guess where are you kind of thinking about where there's the most confidence or potential differentiation in the program? -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [3] -------------------------------------------------------------------------------- All right. So I'll try to start that at the top. Other studies for 14045, we are planning on focusing on -- continuing to focus on AML. And I think that there's a number of slices of that treatment algorithm that have significant unmet need. I think those are in, of course, relapsed and refractory disease where we did our dose escalation and there's various niches of that. But as well, there's a place in consolidation where I think a good monoclonal antibody could really play a role that's post induction to try to increase the number of people that have a deep CR to get them to either ultimately transplant or just maintain it. So I think those are important niches, and I think we're going to be able to guide more on that as we and our partner Novartis finalize plans and hopefully be able to announce those in the first half of next year. Now for the data we plan on presenting at ASH for XmAb13676, our CD20/CD3 bispecific, that's going to be presenting our initial dose-escalation data. So it is dose-escalation data, and I will say we are continuing to escalate dose in that study. But that said, we do expect to be able to show data that looks at efficacy, safety and tolerability of the agent as we've progressed in our dose escalation. And we should be able to triangulate how that looks and how we hope -- where we hope to get with further dose escalation. So we're excited by that data though it's initial dose escalation. But again, it should be -- it should provide a look at the activity of the molecule as well. And on your last question, you've seen these various readouts in 2020. I would say that all of the programs are just getting to the cusp of really engaging in the most important studies which would deliver true proof of concept. And so our whole strategy is around advancing multiple programs, whether it's our CD123 or CD20/CD3s, our first solid tumor programs; our 18087, which is our SSTR2 x CD3; or our first checkpoint bispecific, which is our XmAb20717. All of those, we really need to advance them into the right kind of studies. So for the latter 2, that would be -- we're still relatively early in dose escalation for 18087. That would be beyond that expansion cohorts. For our 20717, we've already built in expansion cohorts in multiple tumor types after dose escalation. And we'll, of course, announce after we get through dose escalation for our CD20 what the next steps are. So I think it's really the next step studies that give us that read. And in the meantime, we'll continue driving them forward and updating on data as we progress. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- Our next question comes from Michael Schmidt of Guggenheim Securities. -------------------------------------------------------------------------------- Etzer Darout, Guggenheim Securities, LLC, Research Division - Senior Analyst [5] -------------------------------------------------------------------------------- This is Etzer filling in for Michael. I had a couple of quick questions really on, first, on 18087 here. To what extent do you see Lutathera as a competitive benchmark given the radiopharmaceutical that has the additional logistical requirements? And just to try to get a sense of what you think the relative importance of the different clinical end points are for 18087. And given characteristics of the disease, if high initial objective response translates into prolonged survival or maybe sort of the reverse could be indicative of a shorter PFS. Wanted to kind of get some comments from you there. -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [6] -------------------------------------------------------------------------------- Right. So I guess, yes, Lutathera is a good benchmark. It's a very dense treatment landscape because people have this -- the neuroendocrine tumor type for a long time. They progressed in multiple therapies. They're all on a somatostatin analog initially and often forever. And then they progress through a variety of different therapies, whether it's different kinds of chemo and now Lutathera, the radio conjugate. I would say that it's a good benchmark in that it provides us some clarity on what would be needed to be seen in this disease, which is consistent with what was used as end points in the past. You really need duration. It's PFS and it's overall survival duration that are going to drive a nonobjective response rate. We saw with Lutathera, an agent that moved the needle on PFS and OS, a very modest objective response rate, I think, in the low teens percent. So I think what that does for earlier phase development to get a read on your asset and how it's doing in that is that you need to avail yourself of the various tools we have in imaging, where imaging radioisotope-labeled somatostatin analogs are giving people a read on how a tumor might be responding even if the objective response criteria of resist are too murky in this tumor type. So I think -- I hope that answers your question. I think ultimately, I don't really want to speculate on the differences that might emerge if you look at different response rates and how that could play into differing durations from differing mechanisms of cytotoxic action. I don't think anybody knows enough to talk about that yet. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Our next question comes from Shanshan Xu of Berenberger -- excuse me, Berenberg Capital Markets. -------------------------------------------------------------------------------- Shanshan Xu, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [8] -------------------------------------------------------------------------------- So for your IL-15/IL-15 alpha bispecific, theoretically, one of the reasons that IL-15, the mechanism of action might be superior to IL-2 is that it doesn't really activate Treg. So could you please confirm that from your preclinical data, it showed the minimal Treg activation. And for the combination trials, what kind of mechanism of action do you think makes the most sense to be combined with your IL-15/IL-15 alpha bispecific? And I have a follow-up. -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [9] -------------------------------------------------------------------------------- Sure. So with IL-15, just to be clear, IL-15 does activate Tregs, and our engineered IL-15 has some Treg-activating activity as well. What it doesn't do, what IL-15 doesn't do, is bind the receptor CD25, which is also known as IL-2 receptor-alpha. That receptor is what makes IL-2 biased to more potently activate Tregs versus T effector cells. So IL-2 is naturally a hyper potent Treg activator that also activates T effector cells at higher doses. IL-15 has essentially identical activation of Tregs and T effector cells because of course, both of those cell types have the IL-2 receptors beta and gamma and IL-2 and IL-15 signal through these beta-gamma chains essentially at equivalent presence on both Tregs and T effectors. So IL-15 naturally starts out without a Treg bias, which you want to avoid. You don't have to go through a lot of effort to avoid that. Now our preclinical data shows very rapid and sustained expansions of T effector cells as well as natural killer cells in nonhuman primates. And so I think that points to the kind of combination agents you could use being very varied. But I think we don't want to forget natural killer cell-driven agents, such as your traditional antitumor antibodies as well as the T-cell-driven agents like CD3 bispecifics, like checkpoint and agonist therapeutics as well. And then there's -- you can always keep going on and on in a number of -- if you see good activity and you're convinced your drug has a good therapeutic index, you can try out all sorts of different things like vaccines and neoepitope therapies, et cetera. But I think, first, we need to establish it in the basics of the checkpoint space and the NK cell-driven therapies. -------------------------------------------------------------------------------- Shanshan Xu, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [10] -------------------------------------------------------------------------------- Great. And for your 2 to 1 bispecific antibody, so I guess valency is another parameter beyond binding affinity to tune down the CRS? Do you believe 2 to 1 is the most optimized modality for CD3 bispecifics in solid tumors? -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [11] -------------------------------------------------------------------------------- I wouldn't say that it's the most optimized modality for solid tumors that's going to be utterly target dependent, and I think it's going to depend on the expression level of the target, its differing expression levels in nontarget healthy tissue where solid tumor-associated antigens are very often expressed on nontarget tissue. Heme malignancy is much more forgiving there. I don't know if valency per se drops down your CRS. It's really the potency of the molecule driven by its affinity of binding CD3 as well as antigen that modulates the CRS. This isn't in our hands as well as other companies. Valency gives you a selectivity for higher expressing -- higher expression levels on particular cell types, which can often let you play with affinity and dial things down and be more selective. And by hitting fewer cells, you can manifest less CRS. So all those factors kind of interplay. I don't think that it's necessarily optimal for solid tumor. I do think, however, that many solid tumor antigens share this feature being expressed at differing densities on healthy tissue but tend to be bright on tumor tissue. That's why they're picked as tumor-associated antigens. And that feature plays very well to the 2+1 format where you can use a lower affinity on each individual arm that binds the tumor antigen, but the 2 of them together zip up when you have high expression. So optimal, that's going way too far, but highly useful for many, solid tumor antigens, I think absolutely and it's going to -- you're going to see this kind of format and other higher valency formats used more and more. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Our next question comes from Mara Goldstein of Mizuho. -------------------------------------------------------------------------------- Mara Goldstein, Mizuho Securities USA LLC, Research Division - MD of Equity Research Department [13] -------------------------------------------------------------------------------- Just a follow-up on XmAb13676. Are you able to just share with us sort of what we should anticipate in terms of number of patients that you might be reporting data on? And hoping maybe you can provide some color on XmAb717 (sic) [XmAb20717] just regarding what we should think about or you would think about as a benchmark for success and advancement given how the market for checkpoint and combination therapies is evolving. And then I just had a financial question in that I'm just curious about the comment about decreased spending on personnel expenses and what that relates to. -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [14] -------------------------------------------------------------------------------- Okay. You want to take that one first, John? -------------------------------------------------------------------------------- John J. Kuch, Xencor, Inc. - Senior VP of Finance & CFO [15] -------------------------------------------------------------------------------- Yes, there was a change in senior management over the interim in 2018 -- in 2019 that resulted in a change in compensation expense for the period. So just one senior management person transition. -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [16] -------------------------------------------------------------------------------- Yes, he retired, and so that resulted in the recognition of a lot of stock-based compensation. -------------------------------------------------------------------------------- John J. Kuch, Xencor, Inc. - Senior VP of Finance & CFO [17] -------------------------------------------------------------------------------- Right. -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [18] -------------------------------------------------------------------------------- Oh, sorry. There were questions for me. Sorry, Mara. So we're certainly not going to be able to guide on the number of patients specifically in 13676 studies until at the abstract cutoff, when the abstract gets released and our -- ultimately, when we have our materials presented at the conference itself. We'll of course tell you specifically there. I will say that we are guiding to be able to triangulate on as we progress through dose escalation, we're not done, but as we progress to looking at some safety and activity and how they interplay with each other. And given that CD3 bispecifics are generally dosed initially at very low doses and it's first-in-human study because of FDA safety requirements, that's going to involve a number of patients because you're going to have to have -- had a number of cohorts. So hopefully that helps because we are getting up to cohorts that we are going to be able to look at activity and safety, right? You're actually starting to see things move or that T cells are starting to do stuff. For XmAb20717, that's our PD-1 x CTLA-4 bispecific that we engineered so that it favors the repression of cells that express both of those checkpoints rather than just one and therefore we hope focuses more on the more activated T cells that were in the tumor. What we hope to show there -- because you're right it's a very crowded space. And I think from our dose-escalation studies, we want to show, one, that we can have a blockade of CTLA-4 in combination with PD-1 and have the right biomarkers move. So you want to have peripheral T cells move, certainly if we're able in the initial study with relatively small numbers to see tumor T cells. We would like to see that if we're able to access the biopsy samples enough. And you'll be able to couple that kind of activation of the T cells with a safety profile that suggests our selective tuning could offer a broader way of using a PD-1/CTLA-4 combination blockade than some of the safety challenges that have occurred with the combination blockade in other studies or with other agents, right, when you're using 2 different antibodies. And then, of course, looking at initial antitumor activity is going to be as well something though early on and in particular, given that you're going to be treating patients that have almost certainly all experienced anti-PD-1 therapy. You're going to have to compare yourselves to those kinds of prior studies in your mind rather than looking at what happens against naive patients. But I think just from the biomarkers and safety and some initial activity data, we should be able to really get a feel for where the molecule's going to go. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from Jonathan Chang of SVB Leerink. -------------------------------------------------------------------------------- David Simms Ruch, SVB Leerink LLC, Research Division - Associate [20] -------------------------------------------------------------------------------- This is David Ruch on for Jonathan. Congratulations on the progress. I wanted to start with another quick follow-up on 13676. Could you just give some context to how you view this program as differentiated from some of the other CD3 and CD20 bispecifics in the space? Is there anything you've observed so far that might suggest a unique combination approach from what Regeneron and Roche have been guiding towards? And then second, any additional -- I know we talked about expectations for the conference. But any additional color on the abstract in terms of which cohorts might be presented there given the timing of the abstract submission? -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [21] -------------------------------------------------------------------------------- I really can't provide any additional color on the abstract [design] beyond what we talked about today. To go back to your other questions, we engineered this molecule and we used nonhuman primate studies to study cytokine release syndrome. We engineered it relative to other candidates we had in our lead series to have lower cytokine release. And we did that by fiddling with the affinity, in particular, in this case on the CD20 arm, lower cytokine release that would allow us to dose larger absolute amounts of the molecule and thereby get longer duration of exposure and longer and deeper depletion of B-cells without the profound -- without as profound as cytokine release syndrome as the other members of the lead series. So that was how it was engineered. How that differentiates, I can't say exactly because the individual molecules have not been compared head to head. I'd say in general, we're going after having a very potent cytotoxic modality CD3 in a manageable package. But I think the differences in the clinical data are going to have to be used to try to assess that in more detail. But our goal was something that could be a tolerable way to have highly potent CD3 killing and hopefully overcome the wonderful 20-year success story of Rituxan with NK cell-mediated killing. As for unique combinations, I don't know if I can offer our specific combination strategy yet, but I think there are a number of approaches that I think merit pursuit once we can establish a therapeutic window. And those could be anywhere from combination with other antibodies that maybe target different B-cell targets to all the way to chemo, right? So there's a whole range of things. We'll be able to guide on that soon, but not yet. -------------------------------------------------------------------------------- David Simms Ruch, SVB Leerink LLC, Research Division - Associate [22] -------------------------------------------------------------------------------- Great. That's helpful. Just another one, quickly. If you could comment on the status of the partnership discussions for IgG4, and what are you looking for in a potential partner in terms of developing this program moving forward and potentially be on the IgG4 indication? -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [23] -------------------------------------------------------------------------------- Yes, so we're still in discussions around partnering, and we are still looking for a partner that can advance the molecule across different indications, perhaps not immediately at the start of a collaboration but over time because autoimmune molecules that have these kind of broad immune-modulating functions need to be developed broadly in order to have their -- both their risk reduced and their maximum potential reached, so not just in IgG4-related disease, but there's other autoimmune diseases. Of course, we've shown data in lupus. There's other diseases where B-cell inhibition is shown to be very active. So ongoing discussions, and a key driver is how broadly a partner can pursue the assets. And you had another question, I'm sorry. You had a fourth one? -------------------------------------------------------------------------------- David Simms Ruch, SVB Leerink LLC, Research Division - Associate [24] -------------------------------------------------------------------------------- No. That was it. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Our next question comes from Arlinda Lee of Canaccord Genuity. -------------------------------------------------------------------------------- Arlinda Anna Lee, Canaccord Genuity Corp., Research Division - Analyst [26] -------------------------------------------------------------------------------- I had a couple for John on the collaborations. With Alexion, are there any more regulatory milestones remaining? And then on MorphoSys, can you talk maybe a little bit about what development milestones or how the development milestones are structured? And then lastly on 13676, can you guys talk about if you -- you mentioned it was a dose escalation. Do you have any dose expansion data that might be forthcoming? And how early -- I'm wondering, with the patients that were treated with 13676 and given your CRS signal in 14045, how much of those measures were put into place for the 13676 patients. -------------------------------------------------------------------------------- John J. Kuch, Xencor, Inc. - Senior VP of Finance & CFO [27] -------------------------------------------------------------------------------- Okay. I'll go first and address the financial questions. On Alexion, we've received all the development milestones. We still have $30 million in sales milestones they were eligible for. With respect to MorphoSys, there are regulatory milestones on submission and approval. These are in the tens of millions of dollars. So those are the ones in the near term. Bassil? -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [28] -------------------------------------------------------------------------------- And on the 13676, we're just going to be presenting ongoing dose-escalation data at ASH. We expect to have expansion cohorts start after we've completed dose escalation, which we're still in the midst of. So we'll guide on that later on, probably next year. And then as for any kind of crossover from the 14045 protocol for management of CRS using 13676, I'll say that just because a clinical protocol is an immensely detailed thing, you don't just port exactly things over. We certainly took learnings from that in how we practice the clinical trial and how we've managed our ongoing amendments to the 13676 protocol. So there are learnings crossing over, but I wouldn't want to make it sound like it's some kind of one-to-one mapping. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- The next question comes from Dane Leone of RJF. -------------------------------------------------------------------------------- Dane Vincent Leone, Raymond James & Associates, Inc., Research Division - Research Analyst [30] -------------------------------------------------------------------------------- So just kind of a high-level question here. You guys have a lot of stuff on the bispecific pipeline merging into 2020. Given you guys are a protein engineering company, I would still kind of expect to see more stuff percolating in the deeper discovery pipeline. Do you just have something philosophically about how you're thinking between bispecifics and then more forward engineering of monoclonal antibodies at this point? -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [31] -------------------------------------------------------------------------------- When you say other engineering of monoclonal antibodies, you mean monospecific antibody engineering? -------------------------------------------------------------------------------- Dane Vincent Leone, Raymond James & Associates, Inc., Research Division - Research Analyst [32] -------------------------------------------------------------------------------- Right, right, in terms of the pipeline as you sit down and think about where you want to focus your resources. -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [33] -------------------------------------------------------------------------------- Yes. Yes. I mean we kind of think about them essentially equal in our minds as we look at new programs we want to go after and whether it's new biology that's emerging that we want to see if we can exploit or whether it's initial data that's emerged from other parties with other molecules where we say, wow, we could do better than that with X, Y or Z engineering. And where we've come to for the most part in the last few years has been all these new tricks and tools we have with our bispecifics has led us in that direction. It's not really a philosophical sort of move just towards bispecifics. It's come because of all the new things you can do with the science that we're just learning about. So we are open-minded about that. I will say that our next set of molecules we're going to want to advance in the clinic -- because you're right we have a very broad and active discovery portfolio. The next of them will very likely be bispecifics and cytokines. And we're looking at both figuring out, making sure that we're using the right valency format and the right affinities for our CD3 bispecifics, for example, and we hope to have more of those coming forward in the near future as well as continuing to look at how cytokines behave and how you can tune that behavior to be more therapeutic-like as opposed to that sort of massive initial spike of activity most cytokines give, followed by a fade out. So it's not a philosophy about going to one modality or other. It's just where can we do the best, most innovative science, and it's just leading us to the bispecific right now. -------------------------------------------------------------------------------- Dane Vincent Leone, Raymond James & Associates, Inc., Research Division - Research Analyst [34] -------------------------------------------------------------------------------- Okay. Great. And then just one follow-up, I guess, that might be a 2-parter. In terms of setting the table, you've talked a bit about 13676. That's going to be at ASH. From your perspective, clinical scientist perspective, what do you think The Street should be looking for in terms of takeaways? Like, where would you set the table in terms of limits of expectations of what we can understand from the dose-escalation cohort wherever that's landed at current levels? And what insights do you think people could be reasonably comparing to some of the other efforts? And then the second part of that, which I guess is a separate question, is it reasonable to not expect clinical data from 24306 in 2020 but translational data? -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [35] -------------------------------------------------------------------------------- Okay, got you. So going to the first one, 13676, given that we're progressing in dose escalation, we're not where we expect to get and where we believe we're going to get relatively shortly in terms of how high the doses are. We're still moving to the cohorts. We think that we should look at this as an interim look at when we're looking at, for example, the number of responses we might or might not have, when we're looking at the nature of the adverse event profile we might have. We should think of this as a work in progress that we have to keep our minds open about what might happen as we advance further in doses and as we have patients on study for longer. So I think it's that sort of snapshot as you're getting to where you're going to go rather than this is what we imagine is going to be the final story for our dose escalation. So that's the magnitude dose and the biology that we see. For 24306 data in 2020, that is really going to be something Genentech and we have to discuss. And I don't understand fully how they think about data disclosure for early phase trials. But I would imagine that they would be not interested in releasing biomarker data terribly early on. It would not suit their needs, and we have to work in conjunction with them. So I would not guide towards 24306 data, the IL-15 compound, in 2020 without knowing anything else beyond that. I would, as a baseline, not guide to that. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- I'm showing no further questions at this time. I'd like to turn the conference back over to Bassil Dahiyat for any closing remarks. -------------------------------------------------------------------------------- Bassil I. Dahiyat, Xencor, Inc. - Co-Founder, CEO, President & Director [37] -------------------------------------------------------------------------------- Thanks very much, operator, and thank you all for joining us today. We look forward to updating you again as we continue our progress. Good afternoon. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.