Xencor Inc Q4 FY2021 Earnings Call

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Xencor Fourth Quarter and Full Year 2021 Conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please advise that this call is being recorded at the company's request. Now I would like to turn the call over to your speaker today, Charles Liles, Head of Corporate Communications and Investor Relations. Thank you. Please go ahead.

Thank you, and good afternoon. Earlier today, we issued a press release, which outlines the topics we plan to discuss today. The press release is available at www.xencor.com. With me on the call are Bassil Dahiyat, President and Chief Executive Officer, Allen Yang, Chief Medical Officer, John Desjarlais, Chief Scientific Officer and John Kuch, Chief Financial Officer. After remarks, we'll open up the call for your questions. Before we begin, I would like to remind you that during the course of this conference call, Xencor management may make forward-looking statements, including statements regarding the company's future financial and operating results, future market conditions, the plans and objectives of management, 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. With that, let me pass the call over to Bassil.

Thanks, Charles, and good afternoon, everyone. Today, we released our earnings results and now in a bit of a change from past calls, we'll only make a few brief comments before spending the majority of today's call on questions. We've used our array of modular protein engineering tools to create our internal development portfolio in oncology and autoimmune disease. And we use the breadth of this portfolio to take multiple simultaneous shots on growing the clinic. The proof-of-concept data we generate guides which programs we advance, which we terminate or which we partner. We focused our efforts in 2021 making key portfolio advancement decisions, specifically initiating Phase II studies for vudalimab, our selective PD-1 x CTLA-4 bispecific antibody in prostate cancer and gynecologic tumors based on promising Phase I data. We entered a collaboration with Janssen for the development of plamotamab, our CD20 x CD3 bispecific antibody to add their expertise and resources to the program and enable novel combination trials in a highly competitive therapeutic area. We terminated development of vibecotamab, our CD123 x CD3 due to a challenging clinical profile in a changing treatment landscape. Of course, we're continually applying our engineering tools to build drug candidates to tackle new or hard to address biologies. And several of our early-stage programs are advancing into clinical studies and reporting data this year, led by our reduced potency cytokines in our 2+1 CD3 and CD28 T cell engagers. Our goal is a well-balanced portfolio of late and early-stage programs in development that we can potentially advance to approval and ultimately the market if the data supports that. Now supporting our development work is the growing partnership portfolio, including three marketed products producing royalties for us, such as sotrovimab, the VIR GSK antibody for treating COVID-19. We also have a broad clinical pipeline with our partners, such as the exciting new 2+1 CD3 T cell engager, AMG 509 that we created for prostate cancer with our partner, Amgen, in which they released early but very promising data for this month. Our own XmAb 819 shares the same 2+1 format and we'll start a clinical trial in renal cell carcinoma this year. Now I'll turn to Allen Yang, our Chief Medical Officer, who will review a few recent highlights of our clinical programs and upcoming plans. Allen?

Thanks, Bassil. Today, we'll review two of our wholly owned programs, vudalimab and XmAb564. First, we are wrapping up our Phase I study with vudalimab. At SITC, we reported data from ensuring expansion cohorts, primarily metastatic castrate-resistant prostate cancer, renal cell carcinoma and a basket of other potential indications. We observed a consistently tolerable profile, predominantly immune-related adverse events, including rash, pruritus and liver enzyme elevations, but we have observed a low incidence of adverse events like colitis and pneumonitis that have been typical with historical combinations of PD-1 and CTLA-4 antibodies, which supports our hypothesis that vudalimab is selective for binding double-positive cells. And importantly, this could make it easier to use in patients. For a more complete discussion of the results, I would point you to our press release last fall and the posts available on our website. Though within the analysis, we want to highlight our prostate cancer cohort. Prostate cancer is a heterogeneous disease, and we enrolled mostly late-line patients. Eight patients had metastatic disease that is some kind of metastatic lesion in a visceral organ or lymph node that could be measured by RECIST for response. And four, we were able to evaluate response, and two of these four had durable impressive six and nine-month partial responses, and it has encouraged us to advance vudalimab in prostate cancer. The first Phase II study, which started last fall is in patients with metastatic castrate-resistant prostate cancer who are post-androgen deprivation therapy and post first-line chemo. We are using standard genotyping profiling to find actual risk phenotypes, which would guide us to either a chemotherapy regimen or PARP inhibitor, and vudalimab is dosed on top of that. Patients with no actual mutations will receive vudalimab monotherapy. Later this year, we'll present early initial data from this study. We will only have a few months of treatment data for a portion of patients, but it will allow us to get a first look at the safety of vudalimab in combination with other therapeutic agents that can have significant toxicities of their own. Historically, combination therapy with PD-1 CTLA-4 fuel blockade has been challenging, and we hope that vudalimab can improve on that. Of course, we will share whatever efficacy data we have collected at the time. Ultimately, we hope that this study defines combination strategies and subsets of patients with high unmet need that could define a simpler development path than previously available for prostate cancer. We are also initiating a second Phase II study evaluating vudalimab monotherapy in differently defined slices of prostate cancer that is a clinically defined high-risk metastatic castrate-resistant prostate cancer, where we saw two out of four partial responses in the Phase I. In addition, this study will examine gynecological tumors as well. We do not anticipate data from this second study in 2022. Next, our wholly owned cytokine XmAb564, a reduced potency IL-2 that we are developing in autoimmune disease. In contrast to cytokines being developed in oncology, it's engineered toward the IL-2 alpha receptor CD25, which is overrepresented on regulatory T cells compared to other T cells, and we've also reduced the affinity for the beta gamma receptor. While the T reg hypothesis is just that, a hypothesis that more regulatory T cells can result in clinical benefit for autoimmune disease, it was a perfect fit for our cytokine platform and represents an enormous opportunity to enable new treatment modalities based on T regs. Currently, we're conducting a single ascending dose study in healthy volunteers, and this year, we'll present our first data from that trial consisting of T cell and other biomarkers, safety and pharmacokinetic data; all critical information for determining our potential product profile. We also plan to initiate in parallel a multiple ascending dose study in select patient populations. Now as we wrap up, we wanted to briefly mention three other studies we are planning to initiate in 2022. First, the potentially registration-enabling Phase II study evaluating plamotamab in combination with tafasitamab and lenalidomide in patients with relapsed or refractory diffuse large B-cell lymphoma. Second, as Bassil mentioned, the Phase I study evaluating XmAb-819 in patients with renal cell carcinoma in the first half of this year. And third, following the submission of an IND, the Phase I study of the B7-H3 by CD28 bispecific, XmAb808 in patients with advanced solid tumors in the second half of this year. Now with that, I’d like to hand the call over to John Kuch, our CFO, to review our financial results. John?

Thank you, Allen. Xencor's broad portfolio of partnerships, collaborations and licenses continue to generate strong cash flows in 2021. During the year, we received over $200 million in upfront payments, milestone payments, and royalties, which helps offset our growing investment in our pipeline as bispecific and cytokine candidates. A breakdown of 2021 proceeds was $80 million in royalties, including $52 million from our partnership, $100 million upfront payment related to our second Janssen collaboration and $20 million milestone payments. These proceeds strengthened our balance sheet, and we ended 2021 with cash, cash equivalents, receivables and marketable debt securities of $664.1 million compared to $610.2 million at the end of 2020. We estimate that we'll end 2022 with between $500 million and $550 million in cash, cash equivalents, receivables and marketable debt securities. And based on current operating plans, we expect to have cash to fund research and development programs and operations through the end of 2025. I refer you to our press release this afternoon and our SEC filings for further information about our recent financial results. With that, we’d now like to open up the call for your questions.

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

Congrats on the productive year. First question on vudalimab. Can you discuss reasons for confidence in the safety profile of the drug and its potential in combination treatment?

Sure. I'll let Allen take that. I think it's basically just from what we've observed.

Yes. If you look at the data from the Phase I study that we presented at SITC and you look at the AE profile, traditionally with PD-1 CTLA-4 combinations, you would expect a lot of discontinuations. About a third of the patients discontinue the product. We did not have those problems, and it's primarily due to colitis and GI symptoms, and we don't have that problem. The GI toxicity rate was around 10%. If you look at the AE profile of the most common immune-related adverse event in about a third of patients, it was rash, which is a milder adverse event. So we believe that even though we're targeting both PD-1 and CTLA-4, it's a highly tolerable profile compared to the two drugs independently.

Understood. And second question on your cash guidance. Can you provide some color around what assumptions are being made in terms of receiving potential milestone payments and royalties from partners?

Yes. Well, I'll let John take that. But I think the word of the day here is that we're very conservative in future revenue flows when we do our planning.

Thank you, Bassil. Yes, Jonathan, as you know, we're very conservative as far as forecasting milestones, only near-term milestones that we have visibility from our partners. With respect to royalties, we look to, again, the guidance that's provided by our partners. So for example, GSK has provided some guidance as far as potential sales of sotrovimab in 2022, which I believe are somewhere in line with 2021. So we're going to forecast comparable levels, maybe a little bit discounted. So generally, that's how we look at things, and we do not forecast any new revenue. So when we think about the year-end cash position, we do include some potential revenue. But again, it's conservative, and it assumes certain spending levels based on starting certain clinical programs.

Understood. And I'll just sneak in one last one. On XmAb-306, are you able to provide any additional color on the tumor types and combination strategies of interest?

We continue to believe there is significant potential in both NK cell mediated therapies and T cell mediated therapies. Genentech is currently conducting the dose escalation for the Tecentriq combination, and we are eager for them to begin the expansion cohorts with Tecentriq soon. We find NK cell mediated therapies to be very promising. The leading NK cell therapies consist of effective antibodies that have been in use for several years, such as Rituxan, the indiscernible intercepting, and daratumumab. We are in the planning stages and will provide specific details when we launch those trials, which we hope to announce this year.

Your next question comes from the line of Kaveri Pohlman from BTIG.

My first question is about the cytokine program 306 and its use in conjunction with NK cell therapies. A recent article in Blood Journal indicated that administering exogenous IL-15 resulted in quicker rejection of NK cell therapy in AML patients compared to those who received low-dose IL-2 along with the cell therapy. I would like to know your thoughts on this. Is it more related to a different biological response or simply a matter of dosing?

Well, I think the complexities that happen when you give a cell graft to a patient, it makes it hard to understand even how the growth factors like IL-15 or IL-2 are working. I think you continually see these kinds of challenges with cell therapies, whether they're auto transplants or allo transplants. The power of an exogenous cytokine therapy when you're not basing your efficacy on a cell that you're infusing but rather on another drug is that you can count on the intrinsic biology of the natural NK cells that are in there, and it's a whole different game. So I don't know that that paper really reads very much on the approaches that we're taking, which is combining 306 with other drugs rather than the challenges and unknowns of experimental cell therapies.

Got it. And can you talk about your rationale for combining vudalimab with PARP inhibitors? Is there a biology there? Or it's just data-driven?

It's based on what is being treated. For patients with prostate cancer who have homologous recombination deficiency, the PARP inhibitor serves as the standard of care. We aim to demonstrate that we can enhance this treatment and explore potential synergies. However, our approach is primarily driven by empirical evidence.

I mean there is a concept out there that if you're repair deficient, you give them a PARP inhibitor, you might generate more neoantigens. Right? And have more of a T cell response to build on.

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

Hi, this is someone filling in for Greg. Congratulations on the progress. My first question is about vudalimab. As we anticipate some initial data from that trial this year, how would you define the benchmark for each molecular subtype to remain clinically competitive? Additionally, what will the decision-making process look like when you receive data from the trial?

Yes. Before I hand it over to Allen to discuss benchmarks, I want to mention that the data we will have this year will be an early glimpse. It will be from personally enrolled participants and will be gathered early in the follow-up period for most of them. We should gain clear insights from a small group of patients regarding the safety of some combination therapies. As for the benchmarks, we will need to wait for the full trial data, which will not be available this year. So, to clarify, we won't have strong efficacy data this year, but maybe Allen can address the benchmarks?

Yes. I think if you look at the expectations in castrate-resistant prostate cancer, for checkpoint inhibitors in general, the benchmark is fairly low. So if you look at the KEYNOTE-199 study, the response rate in chemorefractory patients, which will probably be most of the patients that we see, is probably about 5% or less, depending on what their expression of PD-1 was. And if you look at the CheckMate, I forget the number of the CheckMate study, I want to say 650 or something, which looked at nivolumab and ipilimumab in combination depending on the population you looked at, the response rate was probably approaching 10%, right? So the expectation of checkpoint inhibitors in prostate cancer is fairly low. And so we think there's clearly synergy when you compare those two studies, but the expectation was low. Now when you looked at our study, granted still a small number of patients, we're seeing a higher response rate, but the numbers are too small. And so we think we will add to chemotherapy as well as PARP inhibitors as well as other therapies or, excuse me, monotherapy in certain populations. But I think anything above that should be pretty exciting. It depends on the population. Like the marker negative group with chemotherapy, we would expect a higher response rate, but chemotherapy is not that effective.

Great. And then just one more, if I may, on plamotamab. I think Roche Genentech is investigating their CD23 in combo with Polivy. What are your thoughts on that combination approach and potential impact on the positioning opportunity for plamotamab?

Yes. I mean Polivy is, of course, being combined with it also in combo with other things. It's not just those two things. And really, as a targeted chemotherapeutic agent, I think it shares some of the same challenges in treatment that traditional chemo has, and that's why we're going to a chemo-free approach in our combination studies. I think we're trying to get to where the field wants to go. And I don't know that that changes the landscape for us dramatically in our thinking. It's really another chemo.

Yes, I have to agree, Bassil, that polatuzumab is an ADC like chemotherapy and the convenience for them is that they own that and can combine them. But I'm actually more excited about some of our potential combination opportunities. I think tafasitamab, lenalidomide and plamotamab scientifically makes more sense. And there's a much better scientific rationale for synergy, right?

Your next question comes from the line of Mara Goldstein from Mizuho.

So, if I can just ask another vudalimab question. And that really is coming off of some of the data that came out at ASCO GU, particularly around the PROPEL study and looking at combinations with PARP inhibitors. Can you maybe just help us understand sort of positioning of vudalimab from a combination perspective at this point, looking at where the standard of care may be going? That's my first question. And then I did have a second question on plamotamab, which we can come back to.

Sure. Allen, do you want to take that?

Yes. I just want to remind everybody that it's still early in our Phase II. I think clearly, the trend in prostate cancer is to sort of molecular define prostate cancer, and we have several buckets of aggressive molecular defined the homologous recombinant deficient, the MSI unstable group as well as those that are biomarker negative. And I think PARP inhibitors are going to be used. I think chemotherapy will still have a role as well, docetaxel and other agents. And so the question is checkpoint inhibitors have limited activity, can we add on to those therapies? In fact, the first question that we hope to address hopefully later this year that we can slightly combine a PD-1 CTLA-4 targeting agent with other therapies. This has traditionally been very difficult. It's been tried in melanoma. And I think the AE profiles were very discouraging. So we're excited if we can put these together. And I think if we are successful, then that will sort of change the different sort of subtypes of prostate cancer and how you treat them in earlier stages of disease, still within the castrate-resistant population.

Okay. I would like to ask about plamotamab and its combination trial with lenalidomide and tafasitamab. I'm interested in your thoughts on enrollment, especially considering some of the challenges tafasitamab has faced in gaining traction in the market.

Yes, we recognize that enrolling patients with relapse/refractory DLBCL is quite difficult due to the significant competition from numerous agents. While TAFA has seen a slow start in its commercialization, I don't view that as our main concern. The real challenge lies in the competitive environment of clinical trials vying for the same patient demographics. However, the distinctive scientific approach, particularly the chemo-free aspect and the underlying mechanistic rationale, is generating considerable interest among the physicians we are engaging with. Additionally, we believe that our partnership with Janssen, which we established last fall or winter, is a crucial strategic move for plamo. They possess the resources necessary to advance aggressively in this highly competitive development landscape.

Yes. And I would just add, Bassil, that our investigators are very excited about the scientific strategy of the combination. And then currently, we're still enrolling our Phase I study in the expansion cohorts in diffuse large B-cell lymphoma, and that cohort is enrolling rather well. And that's only in two regions; the United States and France, and we plan to go global with the study. So I'm confident that we can execute.

Your next question comes from the line of Charles Zhu from Guggenheim.

Congrats on the progress. If I may ask my first question, just one more on vudalimab. I guess regarding your upcoming data or I guess, in context of your trial, what sorts of prostate cancer subpopulations do you think are potentially most interesting? And also, how should we think about that in context of the broader landscape that continues to shift with things like ADT intensifications or new therapies like radioligands, you name it. How applicable will the data you generate in the coming days might be to a potential patient population perhaps a few years down the road?

Yes, I think the big picture answer on that is we're going to find out how well we work with things like chemo and PARP inhibitors that are certainly going to have an important role in the future landscape. And we're going to do that in a way that's correlated to the molecular subtype that's determined from the standard genotyping that's happening now in mCRPC post chemo. So we think we'll be well positioned to make decisions, but this trial is about making decisions and understanding which way we can go scientifically. And as that landscape changes, we're fully anticipating adjusting to it.

Yes, I think the benchmarks you mentioned or the COSMIC study by Exelixis showed a response rate of less than 20%, depending on whether you consider the site review or the central review. For the radioisotope from Novartis, the most recent study indicated a response rate approaching 30%. Those are significant challenges. As for the subsets of interest in our studies, we haven't publicly revealed the molecular phenotyping yet, but we are conducting two different studies focusing on aggressive phenotypes, either defined molecularly or clinically. Our Phase I data is early but promising, as we had two patients with very aggressive disease who showed good responses. We believe this could represent a target population for us as well. However, our data is still in the early stages. We aim to broaden our scope, which is why we are undertaking this Phase II study, and we'll narrow our focus based on the data we gather later. Yes. I think that the main differentiating factor that we have surrounding any kind of strategic combination therapy is that we’re not going to sit around and wait for the next phase of development with a focus solely on vudalimab exploration. We have to be very imperative about the rapid embrace of our partnerships and collaborations, actively addressing in a competitive environment, and we've got to keep our portfolio agile and able to pivot. Therefore, executing our strategy efficiently is of utmost priority. In our discussions around XmAb564, we're progressing systematically through our preclinical experiments and initiating our first human studies in order to substantiate the therapeutic potential of this innovative approach. If we find that the data suggests a compelling use case for this T-reg oriented therapy, we may explore additional combinations as we continue to add depth to this area of study.

There are no further questions at this time. I'll turn the call back to Bassil Dahiyat.

Thank you very much, and thank you, everyone, for joining us today. We look forward to updating you more over the course of the year, and have a wonderful evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.