Good afternoon, and welcome to the Xencor Second Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen only mode. Following the formal remarks, we will open the call up for your questions. Please be advised that this call is being recorded at the company's request. At this time, I would like to turn it over to Josh Rappaport of Stern Investor Relations.
Please proceed.
Thank you, operator. Good afternoon. This is Josh Rappaport with Stern Investor Relations. Welcome to Xencor's Q2 2018 financial results conference call. Earlier this afternoon, we issued a press release, which outlines the topics we plan to discuss today.
The release is available at www.zencor.com. Today on our call, Basil Daya, PhD President and Chief Executive Officer, will discuss the company's business highlights and provide an update on Xencor's clinical programs and pipeline progress and John Cush, Senior Vice President of Finance and Chief Financial Officer, will review the financial results from the Q2 of 2018. 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 management for future operations, the company's partnering efforts, the company's capital requirements, the company's future product offerings and the company's research and development programs. These forward looking statements are not historical facts, but rather are based on Zegor's current expectations and beliefs and are based on information currently available to us.
The outcome of the events described in these forward looking statements is 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 Xencor's most recently filed Annual Report on Form 10 ks and Quarterly Report on Form 10 Q. With that, let me pass the call over to Basil.
Thanks, Josh, and good afternoon, everyone. The core of Xencor's approach to creating antibody therapeutics is our XmAb antibody engineering platform. By making small changes to an antibody structure, specifically in its Fc domain, we can improve its natural functions and performance. The plug and play nature of the small suite of XmAb Fc domains we've created allows us to engineer nearly any antibody to have improved potency, along a half life or bispecific structure. This flexibility and portability enables us to simultaneously advance multiple programs to proof of concept data and creates options to choose which programs to independently advance and which we will look to partner.
Our recent pipeline progress and upcoming clinical plans demonstrate this strategy and our continued execution against the objectives we laid out at the beginning of the year. We now have 11 XmAb based programs in clinical development internally into partners for a wide range of serious and life threatening diseases. Year to date, we've initiated clinical trials for 2 new bispecific programs in oncology, XmAb18087, our SSTR2xCD3 antibody for neuroendocrine tumors and gastrointestinal stromal tumors. And in July, XmAb20717, our PD-onexCTLA-four bispecific antibody for solid tumors. We're particularly excited to have initiated these trials, our first in solid tumors and for 2,717, our first tumor microenvironment activator.
Now looking ahead to the second half of twenty eighteen, we remain on track to announce initial data from our 2 ongoing trials from 2 of our ongoing trials, I should say. Our Phase 2 trial of XmAb5871 systemic lupus erythematosus or SLE and the Phase 1 trial of our first bispecific oncology candidate XmAb14045 in acute myeloid leukemia or AML. We also plan to initiate our 1st Phase 2 trial of XmAb5871 in IgG4 related disease or IgG4 RD and we plan to file 2 more investigational new drug applications for additional tumor microenvironment activators XmAb22841 and 23104 before year end. Now with that, let me begin today's update on our clinical efforts and broader pipeline with our lead program XmAb5871. 5,871 is our 1st in class monoclonal antibody that targets CD19 with its variable domain and uses our XmAb immune inhibitor Fc domain to target Fc gamma R2B, a receptor that inhibits B cell function.
While B cell inhibition is a proven strategy for many autoimmune diseases ranging from rheumatoid arthritis to lupus to IgG4RD, we believe 5,871 is differentiated from existing therapeutics because it's highly potent and broad blockade of B cell activation occurs without depleting or destroying B cells. This means that the immune system is able to resume naturally once treatment is longer required. Coupled with the fact that we can deliver 5,871 subcutaneously, we believe it offers an attractive product profile for patients with autoimmune disease. We're currently evaluating 5,871 in 2 indications, IgG4RD and SLA, both of which have represent areas of high unmet need. IDG4RD is a newly described fiber inflammatory autoimmune disease affecting approximately 40,000 people in the U.
S. And for which corticosteroids are the current standard of care and there are no approved therapeutic options. IVG4ID typically affects multiple organs causing tumor like swelling, a variable degree of fibrosis and potentially irreversible organ damage and is characterized by lymphoplasmacytic infiltrate in the affected organs rich in IgG4 positive plasm cells, hence the name. Based on positive final data from our Phase II trial in IgG4 RG, which 5,871 was well tolerated and met the primary endpoint of at least a 2 point reduction in the IgG4 IG responder index in all 12 patients who finished the study, we believe we may be able to provide the 1st therapy approved specifically for the treatment of this newly defined disease. We plan to initiate a randomized placebo controlled double blinded Phase 2 study to evaluate the addition of 5,871 to standard of care in approximately 200 to 250 patients with IgG4RD in the second half of this year.
Shifting now to SLE, we're currently running a randomized double blind placebo controlled multi dose Phase 2 trial utilizing a novel design to evaluate the ability of 5,871 to maintain the improvement in SLA disease activity after a short course of intramuscular steroid therapy and in the absence of immunosuppressive medication. Now compared to standard SLE trials, we believe this unique design will allow us to assess 5,871's effect on SLE with shorter time to endpoint with fewer patients. We expect to announce top line data in the Q4 of 2018, which will inform our next steps in development. Next, I'll update on our bispecific oncology pipeline. Our bispecific antibodies are single molecules built on our novel Fc domain, which preserves important properties of native antibodies, including a full length structure, while also providing robust scaffold for 2 or more different antigen binding domains.
Now our 3 most advanced bispecific programs are tumor targeted antibodies that contain a tumor antigen binding domain on one side and a cytotoxic T cell binding domain targeting CD3 on the other side. They work by activating T cells at the site of the tumor for highly potent killing of malignant cells. Now we expect to report initial data from our Phase 1 trial of our lead biopsy specific XmAb14045, which is a CD123xCD3 antibody for AML and other CD123 expressing hematologic malignancies. We expect to report data for that program by year end. These results will provide important insights into the safety and tolerability of the treatment, the dose levels for further development and initial activity data.
We also continue to advance clinical development of XmAb13676, a CD20xCD3 bispecific antibody designed to treat B cell malignancies and for XmAb18087 and XsTR2xCD3 bispecific antibody being developed for the treatment of neuroendocrine tumors and gastrointestinal storm tumors. We expect to report initial data from these two programs, Phase 1 data from these two programs in 2019. Now the next compound component of our bispecific pipeline is our suite of tumor microenvironment activators. These candidates can simultaneously engage multiple targets such as T cell checkpoints or agonists with the goal to improve the selectivity of combination therapies for T cell activation and to eliminate the need for multiple antibodies. Each of our new bispecific molecules test a distinct mechanism for TME activation.
Our first candidate targeting the tumor microenvironment is XmAb20717, PD-onexCCHLA-four bispecific antibody for the treatment of multiple oncology indications. In July, we dosed the 1st patient in DUET II, a dose escalating Phase I study to determine safety, tolerability, pharmacokinetics and pharmacodynamics, immunogenicity and preliminary antitumor activity of intravenously administered 2717 in advanced solid tumors. Now behind 2717 are XmAb23104, a PD-onex ICOS bispecific antibody, XmAb22841, a CTLA-four by LAG-three dual checkpoint inhibitor and XmAb-twenty four thousand three hundred and six, an receptor alpha bispecific molecule, all for the treatment of multiple oncology indications. We plan to file the IND applications for 23,104 and 22,841 this year with Phase 4 initiations to follow in 2019 and we plan to file the IND for 24,306 in 2019. And turning briefly to XmAb7195, our 1st in class monoclonal antibody that targets IgE with its variable domain.
And now similar to 5,871, it uses our XmAbmutine inhibitor Fc domain to target Fc gamma R2b. Based on the Phase 1b data reported in November of last year, we believe subcutaneously administered 7,195 could offer an improvement of our standard of care patients with asthma allergic disease who are currently seeking a development partner. Next, I'd like to turn to our touch on our partnerships. Business development has been a pillar of Xencor's clinical and corporate strategy, and it's really enabled by the flexibility of our platform. Successful, our partner programs validate the XmAb technology and helps to fund the development of our most promising internal programs.
We're proud that 8 pharmaceutical companies and the NIH are currently advancing drug candidates either discovered here at Xencor or to rely on our XmAbc domains for bispecific structure, higher cytotoxicity or longer half life. 4 such programs are currently undergoing clinical testing, including MOR208, which is in Phase 3 development as a combination agent for the treatment of relapsed or refractory diffuse large B cell lymphoma. Regulatory submissions have been filed in the U. S. And EU for Alexion's ravalizumab, which is formally called Alexion 1210 for the treatment of patients with paroxysmal nocturnal hemoglobinemia.
I'd also like to thank Ed Barakini, our Chief Business Officer, who's leaving the company as of August 15, 2018. In his 8 years at Xencor, Ed has contributed to creating this wide range of partnerships and we wish him the best in his next endeavors. Now with that, I'll turn the call over to our CFO, John Cush, to review our Q2 2018 financial results.
Thank you, Bassil. Xencor continues to operate from a position of financial strength. In this afternoon's press release, we reported cash, cash equivalents and marketable securities totaling $555,400,000 as of June 30, 2018, compared to $363,100,000 on December 31, 2017. This increase reflects net proceeds of $245,500,000 from our underwritten public offering in March 2018, offset by cash used to fund operating activities in the first half of twenty eighteen. Before turning to our 2nd quarter P and L, I'd once again like to remind everyone of Accounting Standards Codification, ASC Topic 606, the Financial Accounting Standard Board's new accounting rules regarding revenue recognition, which went into effect this year.
Our revenues are earned from technology licensing fees and milestone payments from our partners for license of our drug candidates and use of our proprietary XmAb antibody engineering technologies. As such, we have adopted ASC 606 effective January 1, 2018, and we have revised revenue report for 3 6 months ended June 30, 2017 to reflect this new standard. Note revenues were reported for 3 6 months ended June 30, 2018 compared to $12,500,000 $16,000,000 of income reported for the same period 2017. Revenue for the 3 6 month periods ended June 30, 2017 were primarily from milestones received from the company's CSL and MorphoSys collaborations. Revenue report for both periods was affected by adoption of new revenue recognition standard.
Under historic revenue recognition methods, Xencor would have recognized $600,000 $13,300,000 of revenue for 3 months ended June 30, 20 18 2017 and $7,500,000 $17,700,000 of revenue for the 6 month period ended June 30, 2018 2017. Research and development expenditures for 3 months ended June 30, 2018 were $23,300,000 compared to $16,900,000 for the 3 months ended June 30, 2017. Total R and D expenditures for the 6 months ended June 30, 2018 were $49,400,000 compared to $32,000,000 for the 6 months ended June 30, 2017. The increased in R and D spending for the 3 6 months ended June 30, 2018 over R and D spending in the same period of 2017 reflects additional spending in Xencor's pipeline of Black Pacific oncology candidates. General and administrative expenses 3 months ended June 30, 2018 were $5,000,000 compared to $4,100,000 for the same period in 2017.
Total G and A expenses for the 6 months ended June 30, 2018 were $9,500,000 compared to $8,900,000 for the 6 months ended June 30, 2017. The increased spending in G and A in the 3 6 months ended June 30, 2018 over G and A spending in the same period in 2017 reflects additional facility costs resulting from the expansion of space on the lease at Xencor's Monrovia and San Diego locations and increased stock based compensation charges. Non cash share based compensation expense for the Q2 ended June 30, 2018 was $9,400,000 compared to $6,600,000 for the same period in 2017. Net loss for the 3 months ended June 30, 2018 was $25,900,000 or $0.46 on a fully diluted per share basis compared to a net loss of $7,700,000 or $0.17 on a fully diluted per share basis for the same period in 2017. Net loss for the 6 months ended June 30, 2018 was $55,400,000 or 1 point 0 $7 on a full diluted per share basis, compared to a net loss of $23,200,000 or $0.50 on a fully diluted per share basis for the same period in 2017.
Increased loss for the 3 6 months ended June 30, 2018 over the same period 2017 is primarily due to lower revenue and increased R and D expenses in the 2018 periods. The total shares outstanding were 55,821,310 as of June 30, 2018 compared to 46,854,762 as of June 30, 2017. The additional shares outstanding at June 30, 2018 reflect the 8,395,000 shares sold in Xencor's March 2018 financing. Based on our current operating plans, we expect to have cash to fund research and development programs and operations into 2023 and to end 2018 with approximately $500,000,000 in cash, cash equivalents and marketable securities. With that, we'd now like to open the call up for your questions.
Operator?
Our first question is from Ted Tenthoff from Piper Jaffray. Your line is now open.
Great. Thank you very much and thanks for the thorough update. Lots going on and excited for the bispecific data starting to roll out in the back half.
Want to get a sense for
the first two bispecifics CD20, CD123, really get a sense for pace of enrollment and how many patients you may be able to report data on for 123 in the back half and CD20 in 2019?
We really can't disclose any details of the trial, including the number of patients that have been enrolled. I think one thing I can guide on is that for the XmAb14045 CD123 trial later this year, we do feel like that the unmet need is very high in this indication and that's consistent that we're going to be able to have a robust look at the kind of data on safety and dose and initial efficacy. So without being specific though, I really can't say both restrictions from our Novartis collaboration on disclosures as well as disclosure of details like that we're not doing.
All right, cool. Looking forward
to the data. Thanks so much.
Thank you. Our next question is from David Rush from Leerink Partners. Your line is now open.
Hi. This is David dialing in for Jonathan Chang. Thank you for taking my question. I was just wondering if you could provide any additional context on the study population in the DO IT-two trial, and any context you're thinking about benchmarks moving forward in those indications?
Sure. So the study population is advanced solid tumors and I believe it's actually in our clinicaltrials dot gov entry. These are tumor types that have had some history of responsiveness to immune checkpoint therapy, to immune checkpoint inhibition, whether they're labeled for that, whether these indications have a labeled immune checkpoint inhibitor or whether there's just been observations reported in clinical trials. We thought that was the most fruitful way to go. So you can imagine things like head and neck, non small cell lung, bladder, I think we know the list without trying to be exhaustive on the call without looking at them.
So we did that because we anticipate the mechanism of action of this as immune checkpoint inhibition and having 2 at once in a single molecule and with the design of the molecule tuned so that we would favor binding to double positive cells, that is cells that bind to PD-one and T cell A4, we think that selectivity could create advantages as well. So that's the study population. And I think your second question is what are the benchmarks, right?
Yes.
And so I think there's 2 ways to think about the 2717 program, which is our PD-one CTLA-four inhibitor. 1 is on as we go forward, obviously, 1st day and looks are going to be initial patient sets, dose escalation, establishing safety, getting to a dose. So without promising what might occur in our first data release, but overall, the kind of metrics we're looking against are responsiveness in these tumor types of PD-one against PD-one therapy is one set. And then the sort of still not well characterized, but emerging metrics for what happens in PD-one resistant or that is populations that have seen PD-one therapies and have progressed or advanced subsequent to that. So I think there's 2 sort of different metrics on efficacy.
And of course, there's the safety side where this molecule has CTLA-four in it. Combination therapies seems to have accentuated toxicity over just PD-one therapy certainly. And I think there's metrics that have emerged out of the combination trials for ipilimumab and nivolumab in places like melanoma, in RCC, in lung. So those are the 2 metrics we're looking at, both the safety side and the activity side.
Great. Thank you very much and congratulations again on the progress.
Thank you.
Thank you. Our next question is from Arlinda Lee from Canaccord. Your line is now open.
Hi, guys. Thanks for taking my questions. Maybe I can go back to the 20,701 7. Did you say that you were going to do specific cohorts of IO refractory patients? And then can you maybe comment on your the dose escalation schemes for your older T cell engaging bispecifics versus your IO, IO, your DUER ones and if there's any difference in that in terms of the dose escalation process?
Thanks.
Sure. So I guess, for your first question, no, we haven't disclosed anything about specific cohorts. We're still in dose escalation. And we've expressly put together the trial design in a way that gives us flexibility, where if we establish a safe dose and we see enough activity to encourage us, we could expand into multiple expansion cohorts, each with a given indication in it as well as a choice of whether they're post PD-one therapy or whether they're naive to PD-one therapy or immunotherapy. We're able to enroll either type in the trial and we'll just have to see what kind of patients come in the door obviously.
So that's sort of that question. It's just too early to say what we might expand into whether that would be P1 refractory or PD-one naive. Though we do anticipate the majority of patients to be PD-one post PD-one that we're going to see certainly during dose escalation at least, because that's just the world we live in today in those indications. Your second question related to the criteria and the nature of dose escalation for these dual amine check-in inhibitors or our tumor microenvironment activators versus the earlier set, the CD3 bispecifics, is that right?
Basically, if you had to start at particularly lower doses with the T cell engagers, if that's also the case for the, yes.
There's nothing specific about any kind of modality or type of molecule for what dose you started. It all depends on the mechanistic data you have from in vitro and vivo work on human cells and in animal models. I will say that we've found and I think many other companies would say this that for pure T cell activation like people see with CD3 bispecifics, there's a heightened awareness of cytokine release syndrome that people have seen that with CAR Ts obviously and with CD3 bispecifics like blinatumomab. And so there's a lot of attention paid to that. And these are very potent molecules and they have biological activity that can be detected in a very potent way.
So that's the criteria you use to set your initial dose. They consider things like no adverse event levels in your tox study as well as the FDA considers the minimum biologically active dose that's expected. And so they use those criteria and there's obviously flexibility and judgment they apply. But because the CD3 bispecifics are so potent, you do tend to be lower in where you can start your dose. The immune checkpoint inhibitors, both there's ample experience with immune checkpoint inhibitors, PD-1s and CTLA-4s, etcetera, which I think which helps the understanding of what initial starting dose might be and I think probably gives comfort to regulators, but I couldn't say for sure, as well as they're just fundamentally less potent molecules because they're mechanisms.
And so that would tend to have you start higher. They're all 3 plus 3 designs. I mean, those are some of the considerations that go into it. But I think, again, you mirror bispecific CD3 engagers or you can think of them as just T cell engagers, Okay, great. Thank you very much.
Our question is from David Nierengarten from Wedbush Securities.
Maybe just going back to the lupus study coming out at the end of the year, are there any particular readouts, cell markers and things like that, but you're looking for that in addition to the lupus result, you might point to or support its use in IgG for
Thanks. No, not really. There isn't really seeing much crossover. The characterization of plasmablasts in the circulation for IgG4ID, which is a promising direction for having a cellular correlate to activity, but certainly not fully validated. I don't I'm not aware of any kind of marker like that in lupus.
I think looking for biomarkers in lupus has obviously been something the world's wanted for a long time. The crossover between the two indications, we don't have any handle on that.
Just checking if there's something out there I missed. Thanks.
Yes, sure.
Thank you. Our next question is from Christopher Marai from Nomura Instinet. Your line is now open.
Hi, good afternoon. Thanks for taking the question.
Bob, I was just wondering if you
could confirm, did you guys and your partners Novartis submit an abstract to ASH given you seem to be pretty clear that you're going to present data later this year? 2nd, you highlighted the potential to see some activity that from the molecule in addition to safety data. So one, will you have maximum tolerated dose data? And 2, is there going to be any ability to compare this data to other CD3 targeted bispecific or CAR T approaches? And I have one follow-up.
Thank you.
Let me keep track of that. There's a bunch of points there. You said did we submit an abstract for the upcoming ASH conference. We don't comment on abstract submissions, only on their publications. Your second question was on what kind of the nature of the kind of data we would release like in all kinds of first in human cancer studies, you're in patients.
And as you dose escalate, if you get to active doses and you see activity, you'd certainly report that. I think that's pretty standard and you can report on what kind whether if any kind of biomarker data you've moved, whether you've got responses to therapy, you can talk about initial rates and things and it just depends on the data you read on the trial. So this is a very typical cancer trial, because it's a bispecific, doesn't mean it's any different there. Very typical cancer trial, I mean, if that to the extent we have activity data, we certainly report it. Then you asked about, would we report on sort of MTD type data?
Certainly, the primary outcome measure for this trial is safety, tolerability and determining the tolerable dose levels to go forward. So absolutely, we would hope to have data on that. And of course, we would characterize how much dose escalation we've done, what kind of doses we've gotten to, what the tolerability was at those doses, absolutely. Did I miss anything on those? I think I got all those the questions you asked.
Yes. And I think that was pretty clear. And thanks for the extra color. And then just secondarily, sorry to hear Ed Barakini moving on. I was curious how that might impact some of your plans.
I think you discussed previously that if data from
the LUPID study were to
be positive, that might be a program you want to partner. And then secondarily, how might that impact any potential partnering plans with respect to the IGE since I know he's pretty instrumental in the BD process at ENCORE? And that's it. Thank you.
Sure. Yes. Business Development is such a team effort. It's, of course, always driven fundamentally by the science and whatever data you have that can drive a deal and how you can engage the scientific peer sets of the 2 companies to engage that interest. That's so critical.
Then there's the deal structuring and the negotiation, also very critical. All those pieces have to come together. It's a team effort. Many at Xencor have been very familiar with for many years. We've done a lot of deals.
So I feel really confident going forward that we'll be able to continue the kind of deal making that makes sense. Ed's departure will certainly be noted and we wish him really well. And we've had quite a run the last 8 years with deals that I think we're all very proud of. And then with respect
to the Lupus program, would that be the plan? If the compelling data, you'd look for a partner? And then how do you expect that relative to the ICD-four related opportunity?
Yes. Very likely. I mean, if the lupus trial looks suggested to be very promising to proceed into later phase development that it could really help meet the unmet need in a differentiated way, then I think that expands the immediate small newly described indication like IgG4 related disease. So I think we would certainly view a partnership as something potentially really beneficial for the program and would probably prefer that path, all things being equal. But it all depends on the details.
Great. Thank you, Basil.
Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Basil Dahiya for closing remarks.
Thanks very much, operator. And I want to thank you all for joining today's call. We look forward to updating you on Xencor's progress in the coming months. Have a good afternoon.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.