Xencor, Inc. (NASDAQ:XNCR) Q3 2023 Earnings Call Transcript

Xencor, Inc. (NASDAQ:XNCR) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Good afternoon and thank you for standing by. Welcome to Xencor’s Third Quarter 2023 Conference Call. Please be advised that this call is going to be 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. Go ahead, Charles.

Charles Liles: Thank you and good afternoon. Earlier today, we issued a press release, which outlines the topics we plan to discuss today. It’s available on 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, including statements regarding the company’s future financial and operating results, future market conditions, plans and objectives of management, future operations, company’s partnering efforts, capital requirements, future product offerings and research and development programs.

These forward-looking statements are not historical facts, but rather are based on our current expectations and beliefs and are based on information currently available to us. The outcome of the events described in these forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including, but not limited to, those factors contained in the Risk Factors section of our most recently filed annual report on Form 10-K and quarterly report on Form 10-Q. With that, I will pass the call over to Bassil.

Bassil Dahiyat: Thanks, Charles. At Xencor, we are advancing a broad internal development portfolio of engineered antibody based therapeutics in oncology and autoimmune disease that we have built with our array of modular, continually advancing XmAb protein engineering tools. We are taking multiple simultaneous shots on goal in the clinic and we use emerging data from clinical studies to guide which programs we advance, which we terminate and which we partner. A stringent review of this data and the status of competitors, allows us to prudently focus our resources and cash on programs with the greatest potential. We are now focusing on the tremendous opportunity for our targeted T-cell engager bispecifics in solid tumors. The class of CD3 T-cell engagers has recently shown great potential for bringing tumor targeted T-cell therapy to bear against solid tumors, a longstanding challenge for both antibody and cell therapy modalities.

At the recent ESMO conference, our partner Amgen presented highly encouraging interim results from a Phase 1 study of xaluritamig in patients with advanced prostate cancer. xaluritamig is an XmAb 2+1 CD3 T-cell engager targeting STEAP1. We created a 2+1 bispecific to address a challenging target with limited extracellular exposure. Amgen reported that during dose expansion and optimization, a 41% RECIST response rate has been seen in high dose cohorts and the preliminary durability while early, is encouraging. We look forward to further updates and progress with Amgen’s plans for additional studies in earlier lines of treatment. The enhanced customization afforded by the 2+1 format enables antibodies to bind more avidly to and selectively kill those tumor cells with higher antigen density, potentially sparing normal cells.

As a consequence, opens the door to a wider range of solid tumor targets that were previously accessible to T-cell engagers. And leading our own internal pipeline for this modality in Phase 1 is XmAb819 targeting ENPP3 in renal cell carcinoma, followed by XmAb541 targeting CLDN6 in ovarian cancer and other tumors. Our second set of tumor targeted T-cell engagers, are costimulatory bispecifics that engage CD28 on T-cells for targeted immune activation. CD28 co-stimulation has some promise for enhancing anti-tumor immune activity and Xencor CD28 platform has been engineered to expand the therapeutic window of costim activation by using reduced potency CD28 binding. Our CD28 bspecific XmAb808, which targets the broadly expressed tumor antigen B7-H3 is in a Phase 1 study in advanced solid tumors.

In addition, this quarter, our partner, Janssen, now J&J Innovative Medicine has advanced both of our CD28 collaborative programs, submitting an IND for the prostate cancer candidate and a CTA in Europe for the B-cell malignancy one. We anticipate further expanding our pipeline of T-cell engaging bispecifics in the future. As part of our efforts to provide sufficient resources to advance these programs, today, we are announcing that we have added $215 million in cash to our balance sheet from selling a portion of our royalty interest in Ultomiris and Monjuvi to OMERS, a Canadian pension fund. These two products were created with Xencor’s modular XmAb Fc domains and technologies, which is the foundation that enables our diversified approach to building value.

Our platform has been fundamental to the creation of three XmAb-based medicines marketed by partners, which generated royalty income that further drives innovations in our protein engineering and supports the advancement of our internal pipeline. We believe that strengthened financial position from this deal offers us additional flexibility to execute on our internal clinical development programs, the greatest potential for success. And the deal structure lets us retain potential economic upside from the sales performance of Ultomiris and Monjuvi. We have also made changes to our pipeline. We are terminating development of our Phase 1 PD-1 x ICOS program, XmAb104, and are closing with gynecologic tumor cohorts that are ongoing vudalimab Phase 2 monotherapy study.

For XmAb104 efficacy data and expansion cohorts in MSS colorectal cancer did not meet pre-specified criteria. And for vudalimab in gyn tumors, we see a rapidly changed competitive environment. We will keep supporting patients currently enrolled in the studies, including by continuing to provide study drug. Now on to Efbalropendekin alfa formerly XmAb306, that’s our co-development program with Genentech, where we have decided to opt out of our cost-sharing arrangement in P&L split because as the clinical trial reach and cost of the program continues to expand, we have had to prioritize it against other highly promising programs. We are still very supportive of the program and Genentech development plans. We elected per the contract to shift to a milestone royalty structure.

We’ll provide additional detail when the specifics are finalized, but we would anticipate terms commensurate with a license of an asset at this stage of development. As a result of the royalty deal, along with these program reductions and a continuing focus on reducing costs, we are guiding – we have cash runway into 2027. Now for a review on our wholly owned clinical portfolio, I’ll turn it over to Nancy Valente, our Chief Development Officer.

Nancy Valente: Thanks, Bassil. First, vudalimab, our T-cell selective checkpoint inhibitor targeting PD-1 and CTLA-4, as Bassil mentioned, in our Phase 2 monotherapy study, we have closed the cohorts enrolling patients with gynecologic tumors based on data from small cohorts in ovarian cervical and endometrial, where we did not see data that would support moving forward in the rapidly changing competitive landscape. We will now focus our attention on prostate cancer, both in this monotherapy study and in the study in combination with standard of care therapies. And we are on track to initiate our first-line non-small cell lung cancer study by year-end. In this study, we have a design that gives us an early look at safety and efficacy from two dose level cohorts in combination with chemotherapy.

And this is prior to the second part of the study that randomizes against standard of care pembrolizumab and chemo. Next, with our other dual checkpoint inhibitor targeting ICOS and PD-1, XmAb104, those signs of activity and microsatellite stable colorectal cancer were observed early on. Expansion cohorts did not meet the pre-specified activity threshold and we are stopping program development. Before moving to earlier stage programs, one note on plamotamab, which we licensed to J&J Innovative Medicine in 2021, we are wrapping up our internal clinical work. And we would anticipate further development activities will be done by Janssen. Now among our internally developed cytokines, our Tregs biased IL-2-Fc being developed in autoimmune disease, XmAb564 continues to enroll patients with either atopic dermatitis or psoriasis in multiple dose escalation.

In potency modulated IL-12 Fc in advanced solid tumors began dosing patients in a Phase 1 dose escalation study in the third quarter. Finally, our clinical XmAb 2+1 bispecifics, which Bassil introduced. Both XmAb819 and XmAb808, which respectively are ENPP3 x CD3 and B7-H3 x CD28 antibodies continue in dose escalation. We and the investigators remain enthusiastic about the potential of these programs. We are also on track later this year to submit an IND for a third internal 2+1 bispecific XmAb541, a CLDN6 targeted CD3 engager to be developed in ovarian cancer and other solid tumor types. Since the CLDN6 are so similar in structure, selecting specifically for CLDN6, especially over CLDN9, 3 and 4 is critical. The 2+1 format and our protein engineering really provides for CLDN6 selectivity.

And in our preclinical work, we see beautiful selectivity for CLDN6, avoiding CLDN9 and 3 and 4, especially compared to other CLDN6 x CD3. We’re really excited about getting this molecule into the clinic, continued progress with 819 and XmAb808 and expanding more into solid tumors with more T-cell engagers. With that, Bassil has one more item before moving on to Q&A.

Bassil Dahiyat: Thanks, Nancy. First, I’ll say, please refer to our press release for financial results. On a related note, for 23 years, all financial functions at Xencor have been led by one person, John Kuch, who has also, at some point, through the years come to oversee Investor Relations, facilities, IT and CMC operations. It is impossible to encapsulate so briefly how much we have relied on John for over two decades, pulling us out of some truly dire situations over those years. As we announced last month, John plans to retire early next year in March, and we thank him for his critical role in pursuit of creating and advancing new medicines for patients. Now with that, we’ll open up the call for questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Edward Tenthoff from Piper Sandler. Your line is now open.

Edward Tenthoff: Great, thanks. Can you hear me okay?

Bassil Dahiyat: You are a little staticky, but we will try.

Edward Tenthoff: Okay. If I have to I will try to pick it up the – pick up the receiver. So first to John wishing you all the best in retirement, I am sure you’re going to miss all the craziness with Bass, so it’s been a ton of fun working with you. I appreciate all the color and congrats on the OMERS deal. I wanted to kind of get a little bit more of a sense with respect to plamo, in terms of your comments about stopping internal development. Does this change the ongoing studies at all? Does this change your ownership at all? Just want to get a little bit more color what that means? Thank you.

Bassil Dahiyat: Sure, Ted. Sorry if that came off a little bit confusing. No, this is a no change whatsoever from the plan we have had with Janssen for the last 2 years. The plan was always that we would finish the ongoing Phase 1 study when we completed the work with our subcutaneous formulation. And then they would just pick up all clinical development activities themselves. The deal structure hasn’t changed. It’s just whose hands are doing the work. That was more of an update on, we’ve essentially finished the subcu Phase 1. We are wrapping that up and Janssen’s picking up their piece. So there’s no change. Sorry for the confusion.

Edward Tenthoff: No worries at all. And can you just remind us what studies are ongoing for that one?

Bassil Dahiyat: That’s the Phase 1 where we are wrapping up the subcutaneous dose escalation and expansion and then we anticipate that the molecule would be studied in combination with the lead B-cell malignancy CD28 program that they just filed a CTA for where they are planning on studying that with multiple agents, both internal to – or J&J Innovation and us. So that’s always been the game plan and we are anticipating that next step soon, we hope.

Edward Tenthoff: Hopefully. Thanks so much.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Dane Leone from RJS. Your line is now open.

Dane Leone: Thank you for taking the questions and congrats on the progress and John, I wish you the best in retirement. It’s been a pleasure working with you over the years. Maybe we could expand a little bit on the design of the frontline non-small cell lung cancer study with vudalimab. It sounds pretty interesting. I think probably two questions for us on the study design. Firstly, how much of the dose finding do you already have an idea about given the ongoing prostate and other solid tumor studies that could be informative? Two, what would be the actual patient population with regards to mutational burden, PD-1 status, cut points, etcetera that you would envision? And presumably, this would be an ex-U.S. study primarily. Thank you.

Bassil Dahiyat: I’ll let Nancy pick up the wall on that one.

Nancy Valente: Yes. So the study design is the Phase 1b/2. We are going to study two different cohorts of – two different doses of vudalimab and two cohorts and then make a determination of those dose or even a dose between that to take into combination with standard care chemotherapy for non-small cell non-squamous. We do have a lot of information about the dose from our prior Phase 1 dose escalation from – as you said, our studies in gynecologic malignancies prostate cancer. And so we use that to pick these doses to look at. The other part of the question was?

Dane Leone: The patient population like PD-L1 status.

Nancy Valente: Yes. PD-L1 status is 0 to 49%. And yes – and it’s – so it’s 0 to 49% first line standard of care treatment. We are going to – we are opening the study in the United States and also ex-U.S. as well. So we do plan to enroll patients in the United States.

Dane Leone: Do you have a general timeline at this point of when you would have initial outcomes-based results that would be informative of potential next steps or just even the correct dose?

Nancy Valente: Yes. So we are in the process of initiating the study right now. It’s really hard to tell right now when we would have the Part 1 and the Part 2. Part 1, obviously, would come first. We would be able to look at that data, share that data externally. It’s very hard to predict when that would happen. And then once we see that, we will move on to the randomized Phase 2 portion against pembro and chemo.

Dane Leone: Great. Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Etzer Darout from BMO Capital Markets. Your line is now open.

Etzer Darout: Great. Thanks for taking the questions. Just maybe the first one, just maybe for modeling purposes, if you could sort of maybe help us understand to the extent that you can sort of the residual royalties and/or milestones that you would receive for Monjuvi, Ultomiris, just how we should think about how to model any residual sort of upside here from the deal? And then secondly, just curious on sort of the focus on the 2+1, we saw some encouraging data from AMG 509 at ESMO, just wondering if you are seeing any other kind of interesting clinical signals so far from your other 2+1 molecules in the clinic. I know they are early, but just wondering if maybe you’re starting to see sort of an evolution here of a profile that you really like that you are sort of doubling down, if you will, on sort of solid tumors? Thank you.

Bassil Dahiyat: Thanks, Etzer. I will answer the second question first before I turn it over to John Kuch on the royalty deal. So we are not disclosing any data around any of our ongoing programs or for that matter, some of our partners still have ongoing 2+1 programs like Astellas is moving forward their Claudin 18.2. So we’ll give data later. I will say that we and our investigators remain enthused and there is a really great unmet need for certainly an EMP – renal cell carcinoma highly cytotoxic antibody. And so we are pedal to the metal, but we are not going to share any details about the trial just yet. On the royalty deal and some of the residuals, John, you want to say that?

John Kuch: Yes, sure. There is – it’s two separate transactions. One is the Ultomiris deal, which there’s caps from $26 million to $28 million, the first $35 million OMERS, we gets the excess over that. Beginning ‘29, the first $12 million goes to OMERS and we get the excess. There is also a potential milestone of $12 million for sales, which we could earn for Ultomiris sales from July 1, ‘23 to June 30, ‘24. The second transaction is the Monjuvi, which we received $22.5 million upfront. OMERS gets 130% of that upfront payment or $29.5 million and any excess we received the residuals.