Good afternoon, and thank you for standing by. Welcome to Xencor's Second Quarter 2023 Conference Call. After the speakers' presentation, there will be a question-and-answer session. Please be advised that this call is going to be recorded at the company's request. I would now like to turn the call over to your speaker today, Charles Liles, Head of Corporate Communications and Investor Relations. Go ahead, Charles.

Thank you, and good afternoon. Earlier today, we issued a press release, which outlines the topics we plan to discuss today, available at www.xencor.com. Providing comments on the call is Bassil Dahiyat, President and Chief Executive Officer; and Nancy Valente, Chief Development Officer. Afterwards, we will open up the call for your questions, and we'll be joined by John Desjarlais, Chief Scientific Officer; and John Kuch, Chief Financial Officer. Before we begin, I would like to remind you that during the course of this conference call, Xencor management may make forward-looking statements regarding the company's future financial and operating results, future market conditions, 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. Outcomes 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, I'll pass the call over to Bassil.

Thanks, Charles, and good afternoon. We'll have brief comments and then get to the Q&A because we've received positive feedback on having abbreviated comments on our call in the past two quarters. So I think we'll keep to that. At Xencor, we're advancing a broad internal development portfolio of antibodies and engineered cytokines in oncology and autoimmune disease that we've built with our array of modular continually advancing protein engineering tools. By taking multiple simultaneous shots on goal in the clinic, we can let clinical data guide which programs we advance, which we terminate, which we partner, so that we focus our resources on programs with the greatest potential for success and make room in our portfolio for the next wave of innovative biologics. Now before heading into our pipeline, we'll cover some updates on partnerships, which provide validation across our suite of XmAb technologies and revenues, which offset our development costs. First, the label on Ultomiris continues to expand in the EU and Japan, where it is now also approved to include neuromyelitis optica spectrum disorder. We earned $11.2 million in royalties in the second quarter, and if Ultomiris sales keep up, we would anticipate earning our remaining sales-based milestone payments of $20 million this year. Notably, we're enhancing our extended patent coverage and term in multiple global geographies, and we've begun to see country-by-country progress in Europe. Our CD28 bispecific collaborations with Janssen Biotech are also progressing well for both the prostate and B-cell targeted CD28 bispecific programs, and we anticipate both of them to advance in clinical testing. Finally, as noted in the abstract titles for the European Society for Medical Oncology, we anticipate data from Amgen's study of AMG 509 in prostate cancer at ESMO. AMG 509, or now xaluritamig, that's with an X as in XmAb or Xencor, utilizes our XmAb 2+1 bispecific antibody format that allows for multivalency of targeting demands. Amgen previously presented very encouraging PSA response data in early 2022. In the case of xaluritamig, the 2+1 format allows for higher avidity and tighter binding to a receptor that is barely exposed extracellularly. But we also use this highly versatile format to target high expressing tumor cells much more selectively over lower expressing normal cells, like we do with our XmAb819 and XmAb808 programs or to distinguish between nearly identical receptors in the same family like we do with our XmAb541 program. Now for updates this quarter on our wholly owned clinical portfolio, I'll turn it over to Nancy Valente, our Chief Development Officer.

Thanks, Bassil. We'll be starting with vudalimab, our PD-1 CTLA-4 T cell selective checkpoint inhibitor. In light of encouraging competitor data that we saw last fall for PD-1 CTLA-4 bispecific and our own Phase 1 experience, we are moving vudalimab into frontline treatment for patients with locally advanced or metastatic non-squamous non-small cell lung cancer. The first part of the study will randomize patients one to one at two different doses of vudalimab plus chemotherapy. The second part will take the recommended dose and randomized two to one against pembrolizumab with both arms in combination with chemotherapy with the primary endpoint of PFS. Preparations for initiating sites are ongoing, and we plan to get this study started by the end of the year. We anticipate having data from our other ongoing Phase II studies in metastatic castrate-resistant prostate cancer in early 2024. Recall one study is testing vudalimab monotherapy in clinically defined high-risk prostate cancer and advanced gynecologic malignancies. The other study is taking prostate cancer all comers, and we're evaluating vudalimab in combination depending on subtype. Moving along to other earlier stage bispecifics, XmAb819, our ENPP3-targeted CD3 bispecific, and XmAb808, or B7H3 targeted CD28 bispecific, both have strong enrollment and dose escalation with more interest from investigators than available slots per cohort. These are just two examples of novel XmAb 2+1 bispecifics with unique designs, enabling us to potentially fill a gap in treatment approaches. We also anticipate submitting our IND for our third internal 2+1 bispecific XmAb541, a CLDN6 targeted CD3 to be developed in ovarian cancer and other solid tumor types later this year and plan to submit an IND for our second internal CD28-bispecific in 2024. In regard to our cytokines, we've initiated a Phase 1 study this quarter for XmAb662, our engineered potency reduced IL12 Fc fusion protein in oncology. Now with that, please refer to our press release for financial results, and we'll open the call to your questions.

Thank you. We will now conduct our question-and-answer session. Our first question comes from Mara Goldstein of Mizuho. Your line is open.

Great. Thank you. This is Mara Goldstein. Hey, I wanted to ask just on the development mix. I understand there's probably limited information that you can share. But given now that the compound has a name and we're going to see more data, is it fair to assume that this will advance, we're looking at advancement here? And then the second question I just had is on vudalimab and when you will provide results for the prostate cancer part of the study, can you talk a little bit about what should the expectations be around the patient numbers and so forth?

Sure. So I'll take the first one, Mara. So we do know that Amgen has, and they publicly disclosed this, expanded their Phase 1 study quite substantially to include many different cohorts, both in combination with energy deprivation therapy as well as a subcutaneous dosing format, as well as continuing to advance this monotherapy. I think that's a pretty good sign that, that's a good commitment to advancement. I think that we should always keep in mind that in today's day and age, in oncology, people stay in Phase 1 and keep adding patients for quite a long time. So I can't speak to their specific tactical approach. But we are very encouraged, and we're watching closely as they keep moving forward. For the results for the prostate cancer that we mentioned we would have in early 2024 from both our monotherapy and combo study, roughly maybe Nancy can give a little bit of rough guidance on that.

Yeah. I mean we're excited. Yeah. So we're excited about vudalimab in prostate cancer. We previously presented data in Phase 1, where there were a few responses, two responses with long duration of six and ten months. And then in combination with chemotherapy at last year's SITC, again, with some responses and durations of about eight months. These studies are enrolling well. It's hard to say right now, more than that. We'll have data in early '24 from the monotherapy cohort and some of the chemo combination cohort. So remember, the combination cohort includes combination both with chemotherapy and a PARP inhibitor. So we hope to have some early data from that as well as longer-term data or more data from the monotherapy cohort.

Okay, thanks. Appreciate it.

Thanks, Mara.

Thank you. One moment for our next question. Our next question comes from the line of Etzer Darout of BMO Capital Markets. Your line is open.

Great. I guess the first one, I just wanted to know if you could comment a little bit more on some of the interest that you're seeing from investigators on XmAb819. Is it just really more around sort of the pace of enrollment that you're seeing? And then secondly, just wondered if you've made constructs of some of the other PD-1 CTLA-4s that are in the clinic. And then maybe specifically about lung cancer, if you see anything differentiating about your molecule and how that may do in non-small cell lung cancer versus what we've seen from some of these other PD-1 CTLA-4?

Sure. Thanks, Etzer. I'll just say on 819, I think, yes, just to be clear, the interest is from really strong enrollment and strong engagement and maybe the rationale for that and why investigators think this agent has a place. Maybe, Nancy, do you want to comment on that?

We've received feedback that there is great enthusiasm for the development of a product specifically targeting kidney cancer. Usually, kidney cancer is grouped with other solid tumors in studies. However, we are focusing our research on ENPP3 solely in kidney cancer due to its significant expression in that area, which makes scientific sense. No one has approached it this way before.

Yeah. And I think that given the mechanistic rationale and the very strong and specific expression of ENPP3 in renal tumors, I mean it's a really good fit, a targeted agent against the tumor-specific or tumor-associated antigen in RCC. I think it's really very timely. To your question on sort of competitors CTLA-4, PD-1, and lung cancer, I'll just comment maybe on the structural piece and maybe Nancy can comment on some of the more clinical rationale for why there's a big unmet need. Our PD-1xCTLA-4, vudalimab, was designed to really only engage well with target T cells that express both antigens. We really dialed down the affinity on each side, in particular, on the CTLA-4 binding side, so you have to have both targets there to engage or you really don't get much binding and derepression of the T cell response. And I think that's important, really, when we think about how we're looking at competitor data, in particular, the molecule formerly known as MEDI5752 at AstraZeneca, which was designed with a very similar rationale, and that's the only one that we're aware of in the clinic with the same kind of highly selective rationale for the cells that have both PD-1 and CTLA-4. So essentially, your CTLA-4 engagement is conditional on PD-1 being there. The hope is to reduce the scope of cells the T cells that you're activating that you don't want. Maybe you want to comment on why frontline lung?

Yeah, I'd love to. So when we looked at the MEDI5752 data and really compare the patient populations, what we had previously observed in our Phase I dose escalation and expansion, we thought it would make sense to go into frontline lung. Our patients, in particular, are really heavily pretreated. So they have a median of three prior lines of therapy, although one received prior checkpoint inhibitors and 40% actually received two checkpoint inhibitors. So a much different population than the competitor where those patients are checkpoint naive and not as heavily pretreated. So we thought this would be a great place to go. They provided proof of concept. And maybe we'll see something really interesting there.

Great. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Edward Tenthoff from Piper Sandler. Please go ahead.

Great. Thank you very much. I'm excited about the various updates. This is really cool. So when it comes to lung cancer, again, appreciating that initially, it will be sort of a reasonable size study. Longer term, do you think you might seek to partner? Or how are you guys thinking about that right now?

Right now, we want to concentrate on adding value to the program by collecting data from this large frontline lung population in combination with chemotherapy. We aim to show that we can achieve significant activity. AstraZeneca was excited about their initial results, as well as the hopefully improved safety profile we've observed from the PD-1 and CTLA-4 combination therapy. Looking ahead, this initial data could shift our perspective on partnerships, especially compared to our previous focus on smaller populations in later-stage patients. The potential is substantial to improve outcomes beyond standard care since most patients experience relapse or fail to respond within the first two years. There's considerable opportunity here, and we will explore how our partnerships might evolve to enhance our efforts. However, we believe this is not the right time for such considerations as we are still focused on establishing the efficacy and safety profile.

All right. That makes sense. Helpful. Great, thanks for the update.

Thank you very much. Please standby for our next question. Our next question comes from the line of Brian Chang from JPMorgan. Your line is open.

Thank you for taking my question this afternoon. I would like to ask about vudalimab in its new indication for non-small cell lung cancer. Can you provide some insight into your expectations for this area, particularly concerning the goals you are targeting? I'm especially interested in understanding what level of progression-free survival you believe you need in order to advance this program, especially in comparison to pembro plus chemotherapy. I have a follow-up question as well. Thank you.

Sure. We don't want to comment yet on specific targets we're aiming for regarding how we powered the study. However, we do observe that the extension of progression-free survival we noticed with the competing PD-1xCTLA-4 could potentially set us apart, which is why we made that the primary endpoint. We are not quite ready to provide quantitative insights on the success bar, but we will certainly address that later.

Okay. And then maybe just one more on just as a recap on data flow for the near term. Can you remind us, aside from the vudalimab and also the 564 data updates more towards the early part of 2024. What other data catalysts or potential catalysts that investors should look out for?

We are not providing specific timing for data releases until we approach the events to ensure clarity. However, we anticipate having updates next year on our XmAb104 PD-1x ICOS program, which is progressing well in microsatellite stable colorectal cancer, including expansion cohorts. Additionally, we expect to share data from our XmAb19 program, targeting ENPP3 and CD3, and we are optimistic about updates on our XmAb808 program, our first CD28 bispecific in the clinic. There will be considerable data flow from these earlier-stage programs next year. We won't comment on our partners, who will have their own updates. Besides Vudalimab and 564, those are the key items to monitor, and we will provide specific guidance as the dates approach.

That's helpful. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Alec Stranahan from Bank of America. Your line is open.

Great. Hey, thanks, guys. Thanks for taking my questions. Just a couple from us. The first is on the lung cancer study for vudalimab. Any additional thoughts around not including the vudalimab monotherapy cohort in the study? Is this driven more by the standard of care in non-small cell lung? Or is there something from the prostate study that you're seeing that's driving this? And then second question is just on expectations around partnership revenues, specifically, any color around what you expect from setrusumab from this year given that it was a pretty big contributor last year. Thank you.

I'll take the setrusumab question. We expect none. We reported almost none in the second quarter. Yeah. So we expect strived to be done. Maybe on the lung cancer and why not monotherapy, Nancy can go through the rationale there?

Yeah. Most of lung cancer, especially non-squamous non-small cell, is treated with chemotherapy. Even patients, it turns out that should be eligible for just checkpoint inhibitor alone. And so we decided we'd go there. We're going to look at PD-L1 expression or TPS less than 50%, 49% and lower. So that's also specifically the chemotherapy part of the non-small cell lung cancer world, like that's definitely where it's used. So those are the reasons.

Thank you.

Thank you. Please stand by for our next question. The next question comes from Kaveri Pohlman of BTIG. Your line is open.

Good afternoon. And thanks for taking my questions. For 819, I just want to know what makes kidney cancer attractive for this molecule. I know you mentioned ENPP3 has a strong expression, but do you expect T cells to work fairly well after first-line checkpoint inhibitors? And are there any other tumor types where you see opportunities?

Yeah. I think I'll let John Desjarlais, our Chief Scientific Officer, take that question. He's expert in all things ENPP3.

Yeah. Thanks for the question. So I guess maybe the better way to think about it is we like ENPP3 because we're basically first-in-class for CD3 bispecific. It is very strongly and essentially uniformly expressed in clear cell renal cell carcinoma. And there's a few other histologies where there could be high ENPP3 expression, but we wanted to prioritize for renal cell, mostly just to develop a signal once we establish that, then sure with perhaps a companion diagnostic, we could expand into a few other tumor types.

And John, maybe the question.

The other aspect of your question is, yeah, with T-cell. Yeah, it's interesting you asked that. It turns out that kidney cancer, if you look at RNA expression levels for T-cell markers, it's actually one of the highest histologies for having a T-cell presence, kind of consistent with the immune checkpoint inhibitors being very active in renal cell carcinoma. And we don't think there's any scientific reason why progression on a checkpoint inhibitor would have much impact on the future effects of it.

Got it. That's very helpful. Thank you. And maybe one on plamotamab. So you selected a step of dosing to manage CRS. But can you tell us about the safety profile? Do you think with this step-up schedule, you can avoid the hospitalization requirement that other bispecifics have?

So we'll address that in the context of the formulation moving forward, our subcutaneous in collaboration with Janssen, which does limit somewhat how much detail we can give. But I mean, I don't know, Nancy, do you want to take that? Or that's a goal. I don't know that we have enough data to say yet.

Yeah. Certainly, that'll be a goal. I think there's some bispecifics that require a lot of hospitalizations, some that are minimal. Our goal would be to go for the minimal amount that's appropriate as we look at the safety. And then it's really about optimizing the step doses to make sure that you have CRS, the patient is primed and not having too much CRS such that it's dangerous and requires hospitalization. So definitely, that's our goal. And I think a product like Plamo given subcutaneous could probably reach that like having less hospitalizations.

We don't have enough information to provide more details than we're optimistic about the progress with the subcutaneous option, but we currently lack data to share.

Got. Thanks for taking my questions.

Thank you. One moment for our next question. Our next question comes from the line of Charles Zhu of Guggenheim Securities. Charles?

Hey, guys. Thanks for taking the question and for providing progress across your pipeline. I'll start off with a quick clarifying one on vudalimab. So obviously, an intriguing choice to pursue frontline non-small cell lung cancer. One quick one regarding the chemotherapy backbone. Could you remind us or maybe provide color, is this the standard schedule of four cycles in maintenance or something that's more like a CheckMate 9LA where they stopped at two cycles? Thank you.

This is a standard schedule for non-squamous. It's Pemetrexed and a taxane. I think it's given for four cycles. And yeah, and there is a maintenance component as well.

Great. And then maybe another point to consider.

With vudalimab. Sorry, with vudalimab, of course.

Great. Thank you. And maybe I just want a bit more. And my second one, maybe a bit more scientific, mechanistic one for XmAb564. What's your view on the potential for a differential expression profile of CD25 as you move from healthy volunteers over to atopic dermatitis and psoriasis patients? And could this potentially impact the clinical profile of your drug? Thank you.

I don't know that there's any real strong information on CD25 expression levels in those two patient populations. Maybe John, do you want to comment on what is known about CD25 expression levels in other populations and how that might change things? I don't know that we would expect it to have a profound impact, but John would know more.

There is some literature suggesting that in autoimmune diseases, Tregs might have slightly lower CD25 expression. Additionally, there can be a deficit of Tregs compared to T effector cells. This is precisely why we developed the therapy to address the Treg deficit, allowing them to catch up with the effector cell population and enhance their suppressive capacity. However, I believe that there won't be anything that prevents our 564 from effectively mobilizing those Tregs in terms of CD25 expression.

Great, thank you.

Thank you. One moment for our next question. The next question comes from Charles Zhu of Leerink Partners. Johnathan, I apologize.

Hey, this is Matt Kemper filling in for Jonathan Chang. I have a quick question. For the 662 study, are there specific tumor types that investigators are particularly interested in evaluating the compound for? Thank you.

For 662, the IL12 program, I think we're just really at this point, exploring a range, making sure we can get a dose where we get the right kind of pharmacodynamics and tolerability data. I don't know that there's a particular ones that we're even most excited about. But I mean, John, do you want to correct me on that?

Well, yeah, I mean, we're sort of going across the board, right, because we're looking at immune responsive tumors, of course. But on the flip side, we're also very intrigued to look at 662 in histologies like colorectal cancer, where PD-1s by themselves are known not to do much. And since we're doing a pembrolizumab combination, if we see something, the signal will be more clear. Likewise, for prostate cancer and a few other histologies. So we really want to cast a wide net on this one and see what the signals are.

That's really helpful. Thanks for taking my question, guys.

Thank you. One moment for our next question. Our next question comes from the line of Boris Peaker of TD Cowen. Go ahead.

Great, thanks for taking my questions. I have two questions. On vudalimab in lung cancer. Just curious how do you anticipate safety to compare to the competitor bispecifics, obviously, and also to the combo of KEYTRUDA plus chemo? And on 564, maybe a kind of a broad question, how do you see this drug distinguish in psoriasis and atopic derm given kind of the pretty hot competitive landscape in those indications?

I’ll discuss the rationale behind 564 for those indications before turning it over to Nancy to discuss vudalimab. Our considerations regarding safety are still in the early stages. For 564, we chose atopic dermatitis and psoriasis as our Phase 1b study population because it's a multiple ascending dose study. Our main objective is to determine the appropriate dosing interval that allows for a sufficient duration of Treg expansion to maintain coverage throughout the dosing period while ensuring tolerability. We observed significantly longer Treg expansion for 564 compared to what competitors achieved in single-dose studies. We aim to leverage this to possibly go beyond the biweekly dosing that competitor Treg IL2 programs are currently using, which could serve as a crucial differentiator in the market. We selected psoriasis and atopic dermatitis due to the high patient populations available for enrollment and the ability to easily evaluate clinical responses using well-established endpoints. Furthermore, we can obtain biopsy samples since the tissue is accessible. This was the basis for our rationalization. Specifically for psoriasis, this rationale was predominant. In atopic dermatitis, we were particularly encouraged by initial data from a competing program that showed strong efficacy in a small Phase Ib population, particularly concerning durability beyond treatment that was somewhat unexpected but seems consistent with enhancing Treg function and tolerance. We wanted to explore this further, as it could provide an exciting opportunity to differentiate in atopic dermatitis, especially regarding long-term durability post-treatment, whereas current agents are typically administered every other week and may soon reach monthly dosing. Now I'll let Nancy respond. Could you please repeat your question on vudalimab, Boris?

Yeah. No, I was just asking in terms of safety. In lung cancer, how do you anticipate it to compare to, obviously, competitor bispecifics as well as just the KEYTRUDA plus chemo combo?

It's difficult to provide a precise answer without specific data regarding the combination. That's part of what we're investigating. The first part of our study focuses on two different doses of vudalimab alongside standard chemotherapy using pemetrexed and carboplatin. We will evaluate the safety profile when combining a bispecific treatment with this chemotherapy, as opposed to using just a monoclonal PD-1 antibody. To clarify a previous question, the regimen consists of four cycles of vudalimab, which we refer to as Vuda, combined with carboplatin and pemetrexed, followed by maintenance therapy with vudalimab and pemetrexed. This does not involve limited dosing as some have mentioned; it's a complete cycle treatment.

Great. Thanks for taking my question.

Thank you. One moment for our next question please. Our next question comes from Greg Renza of RBC Capital Markets. Your line is open.

Yeah. Hi, guys. It's Anish on for Greg. Congrats on the quarter. I just wanted to ask a couple on sort of your views on the positioning of two of your pipeline assets here. So just kind of wanted to see with plamotamab with multiple CD20, CD3 bispecifics approved. How do you believe plamotamab's combination will position among competitors? And then just on 564, just kind of building on a previous question, not necessarily in terms of differentiation with approved drugs right now. But in terms of lines of care, for example, would you guys see 564 being slotted in for patients with poorly controlled atopic derm or psoriasis that might be being treated with drugs like Sotyktu, Otezla, SKYRIZI, et cetera?

With plamo positioning, we believe the key is the same logic that attracted Janssen as a partner for plamo. They are currently leading the program and covering a significant portion of its costs, around 80%. The combination with our CD28 could create a differentiating factor. Our competitors are only at the initial stages of combining their CD28 bispecifics, while plamo has already demonstrated competitive efficacy and safety. We are progressing quickly towards a subcutaneous formulation. The goal is to achieve better efficacy by combining with established therapies, particularly in the area of hemocombo with other CD20 CD3s. That's why partnering with Janssen, which has excellent capabilities in hematologic malignancies, is exciting. It’s a challenging strategy for a small company to pursue alone. Regarding 564, I want to stress that we do not yet have a finalized indication study. Currently, in Phase 1b, we aim to demonstrate the durability of Treg enhancement and link it to efficacy where it’s easily observable. Depending on the results, atopic dermatitis could be a viable path forward. However, we are also exploring other indications and will announce any potential advancements as soon as we finalize our treatment plan. This is not a commitment to a specific indication strategy at the Phase 1 level. The discussion about sequencing in atopic dermatitis will become increasingly relevant, not just for Treg enhancers but for all therapies. Similar approaches have significantly influenced other autoimmune conditions, and we anticipate more of this to occur in skin conditions, as seen with arthritis.

Great. Thanks so much. Really appreciate the color there.

Thank you very much. One moment for our last question. Our last question comes from Peter Lawson of Barclays. Your line is open.

This is Alex on for Peter. Thanks for taking our questions. Just one on the ENPP3 program, I was wondering if you could remind us some of the shortcomings of the Astellas ADC going after the same target and what might be the benefits of a bispecific approach.

Yeah. John, do you want to tackle that one?

In fact, we discovered ENPP3 ourselves through a bioinformatic approach while searching for selectively expressed tumor-associated antigens. We became aware of the Astellas programs when we explored the literature. They had some reasonable data, showing responses in Phase 1. However, due to the orstatin payload, they experienced dose-limiting ocular toxicity. It was an interesting time because Astellas had acquired the Agensys program, and from what we've heard from people who worked there, the decision to discontinue that program was more strategic than based on data. We viewed it as strong validation for the selectivity of the target and the safety of pursuing it.

Thank you very much. At this time, I would now like to turn the conference back over to Bassil Dahiyat for closing remarks.

Okay. Thanks very much, everybody, for joining us this afternoon. Have a great evening, and we look forward to updating you again in the near future.

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