Good afternoon. Welcome to the Xencor First 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 questions. Please be advised that this call is being recorded at the company's request. At this time, I would like to turn the call 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 First Quarter 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 xencor.com. Today on our call, Bassil Dahiyat, Ph.D., President and Chief Executive Officer, will discuss the company's business highlights and provide an update on Xencor's clinical programs. John Desjarlais, Chief Scientific Officer, will discuss preclinical progress. John Kush, Vice President of Finance, will review the financial results from the first quarter of 2018. 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 Xencor'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 section of Xencor's most recently filed annual report on Form 10-K and quarterly report on Form 10-Q. With that, let me pass the call over to Bassil.
Thanks, Josh, and good afternoon, everyone. The core of Xencor's approach to creating antibody therapeutics is our XmAb engineering platform. By making small changes to an antibody structure, specifically its Fc domain, we can improve its natural functions and performance. The plug-and-play nature of this small suite of XmAb Fc domains that we've created allows us to engineer nearly any antibody to have improved potency, longer half-life, or bispecific structure. This flexibility and portability enables us to take multiple shots on goal simultaneously to generate proof of concept data to help determine which programs we will independently advance, which we will look to partner, and which we would terminate. The accomplishments in the first quarter, both internally and by our partners, demonstrate this approach.
Since last quarter's call, we announced the addition of our new XmAb IL-15 bispecific platform at the American Association for Cancer Research annual meeting, which will enable the rapid development of targeted T-cell activators. Our partners, Alexion and MorphoSys, each report a positive late-stage clinical data validating the safety and clinical utility of our Fc domains. We raised roughly $245 million to fund our development efforts beyond 2022. Looking ahead, we expect to announce initial data from two ongoing clinical trials in 2018, our phase II trial of XmAb5871 in systemic lupus erythematosus, or SLE, and phase I results from our first bispecific oncology candidate, XmAb14045, while continuing to expand our clinical and research-stage pipelines.
Specifically, before the end of the year, we expect to initiate our first phase III trial of XmAb5871 in IgG4-related disease, or IgG4-RD, and a phase I trial of XmAb20717, our most advanced tumor microenvironment activator. We also plan to file two investigational new drug applications for additional tumor microenvironment activators, XmAbs22841 and XmAb23104. With that, I'll transition to discuss our clinical efforts in greater detail, beginning with our lead program, XmAb5871. 5871 is a first-in-class monoclonal antibody that targets CD19 with its variable domain and uses our XmAb immune inhibitor Fc domain to target FcγRIIb, a receptor that inhibits B-cell function. We're currently evaluating 5871 in two indications, IgG4-RD and SLE, both of which have a strong rationale for B-cell inhibition and represent areas of high unmet need. I'll first talk about IgG4-RD.
As you've heard us describe before, it's a newly defined fibroinflammatory autoimmune disease. It typically affects multiple organs, causes tumor-like swellings and a variable degree of fibrosis, and potentially irreversible organ damage. It's characterized by a lymphoplasmacytic infiltrate in the affected organs rich in IgG4-positive plasma cells, hence the name. There are no therapeutic options approved for the approximately 40,000 people affected in the U.S., and corticosteroids are the standard of care. Based on positive final data from our phase II trial of 5871 in IgG4-RD, in which all 12 patients who completed the study achieved the primary endpoint of at least a two-point reduction in the IgG4-RD Responder Index and eight patients achieved disease remission, we believe we may be able to provide the first therapy approved specifically for the treatment of IgG4-RD.
Because there is no regulatory precedent for an approval pathway in IgG4-RD, we have engaged with both the U.S. Food and Drug Administration and the European Medicines Agency to design the most appropriate phase III program. Based on these discussions, we plan to initiate a randomized, placebo-controlled, double-blinded phase III study to evaluate the addition of 5871 to standard of care in approximately 200-250 patients with IgG4-RD in the second half of this year. In addition, we expect to report initial data from our randomized, double-blind, placebo-controlled, multi-dose phase II study of 5871 in SLE in the fourth quarter. This phase II study in SLE is designed to evaluate the ability of 5871 to maintain the improvement in SLE disease activity after a short course of intramuscular steroid therapy and in the absence of immunosuppressive medication.
We believe the unique design of this trial will allow us to assess the effect of 5871 on SLE with a shorter time to endpoint and with fewer patients compared to standard SLE trials. We expect to announce top-line data in the fourth quarter of 2018, which will inform our next steps in lupus. Turning now to our bispecific oncology pipeline, our bispecific antibodies are built on our novel Fc domain, which provides a robust scaffold for two or potentially more different antigen binding domains. The result is a single molecule that can simultaneously bind to multiple targets while preserving important properties of native antibodies. Our lead bispecific programs are tumor-targeted antibodies that contain a tumor antigen binding domain on one side and a cytotoxic T cell binding domain on the other.
They work by activating T cells at the site of the tumor for highly potent killing of malignant cells. Our most advanced programs are XmAb14045 and 13676, both currently in phase I studies designed to evaluate the safety and tolerability of treatment and to determine the maximum tolerated dose after the first and subsequent infusions. 14045, a CD123 by CD3 bispecific antibody, is being developed for the treatment of AML and other CD123-expressing hematologic malignancies. 13676, a CD20 by CD3 bispecific antibody, is being developed to treat B-cell malignancies. Despite recent advancements in new therapies for AML and B-cell malignancies, we believe there remains significant unmet need among the many patients who are unfit for existing therapeutic options or for whom they provide limited benefit.
We look forward to the first in human data for 14045 later this year and for 13676 in 2019, pending alignment on timing of announcements with our partner, Novartis. Our third bispecific candidate, XmAb18087, is an SSTR2 by CD3 bispecific antibody being developed for the treatment of neuroendocrine tumors and gastrointestinal stromal tumors. 18087 is being evaluated in a phase I dose escalation study, which started last quarter and which we expect to report initial data from in 2019. Turning briefly to XmAb7195. That's our first-in-class monoclonal antibody that targets IgE with its variable domain. 7195 uses our XmAb immune inhibitor Fc domain to inhibit B-cell function by targeting FcγRIIb and works through three distinct mechanisms of action to reduce IgE levels. This differentiates it from other approved IgE targeting therapies. First, 7195 sequesters free IgE to block IgE signaling.
Second, it suppresses B cell differentiation into IgE-secreting plasma cells. Third, it enables the rapid clearance of IgE from circulation. Based on the phase I-B subcutaneous administration data reported in November, we believe subcutaneous 7195 could offer an improvement over standard of care for patients with asthma or allergic disease, and we're currently seeking a development partner for this program. With that, I'll turn the call over to John Desjarlais to discuss our preclinical pipeline.
Great. Thanks, Bassil. The next component of our bispecific oncology pipeline are a suite of tumor microenvironment activators are expected to enter the clinic this year. 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 tests a distinct mechanism for TME activation. Our first candidate targeting the tumor microenvironment is XmAb20717, a PD-1 by CTLA-4 bispecific antibody for the treatment of multiple oncology indications. We expect to initiate a phase I trial this year. Following 20717 are XmAb23104, a PD-1 by ICOS bispecific antibody, which is a unique checkpoint plus co-stim combination. We also have XmAb22841, a CTLA-4 by LAG-3 bispecific antibody that can achieve triple checkpoint blockade when combined with an anti-PD-1.
Both are in development for the treatment of multiple oncology indications, with IND applications expected this year and phase I initiations to follow in 2019. Recently at the AACR annual meeting in April, we were pleased to introduce our new IL-15 program and to highlight new preclinical data on our lead candidate, XmAb24306, which is an IL-15/IL-15 receptor alpha Fc fusion. IL-15Rα complexes naturally target CD122, also called IL-2 receptor beta, without targeting CD25, a receptor that favors regulatory T cells. We used our highly stable Fc heterodimer scaffold to create a long-acting IL-15/IL-15 receptor alpha complex. XmAb24306 is designed to create sustained T cell and NK cell expansion via modulated CD122 activation, which we achieved by engineering the IL-15 complex and by incorporating our Xtend technology to further enhance half-life. IL-15's potential to date has been limited by rapid clearance and uncertain therapeutic index.
We believe our approach can overcome these challenges, provide a more druggable version of IL-15 with reduced potency, superior tolerability, and slower receptor-mediated clearance, which gives you longer half-life and more sustained lymphocyte expansion. XmAb24306 is actually the first of our tumor microenvironment activators built on this IL-15 platform. Primate data presented at AACR showed that treatment with XmAb24306 induces a steady, tolerable, and sustained increase of up to tenfold in T cells and even bigger boosts of the NK cells. We plan to file an IND for XmAb24306 in 2019 and to use our IL-15 and bispecifics platforms to develop a suite of additional targeted IL-15s, including a PD-1-targeted candidate to promote selective expansion and activation of exhausted T cells. We're also, of course, exploring additional targeted IL-15s.
Separately, in April, we entered into a collaboration with Applied BioMath, an industry leader in applying mechanistic modeling simulation analysis to de-risk drug research development. We've retained Applied BioMath to perform semi-mechanistic pharmacokinetic and pharmacodynamic modeling to analyze this new IL-15 platform. These models will be used to guide preclinical and clinical development of our IL-15 agents, including XmAb24306
Bassil can now touch on our partnerships.
Thanks, John. Currently, eight pharmaceutical companies and the NIH are advancing drug candidates either discovered here at Xencor or that rely on our XmAb Fc domains for bispecific structure, higher cytotoxicity, longer half-life or improved stability. Five partner programs are currently in clinical development, including two in phase III studies. In the first quarter, two of our partners, Alexion and MorphoSys, reported positive data from programs utilizing our proprietary XmAb Fc domains. In March and April, Alexion announced positive top-line results from two pivotal phase III trials in which intravenously administered ALXN1210 demonstrated non-inferiority to SOLIRIS in both complement inhibitor treatment naive and in previously SOLIRIS-treated patients with paroxysmal nocturnal hemoglobinuria, or PNH.
Regulatory submissions for ALXN1210 marketing approval are expected in the second half of this year. ALXN1210 uses our Xtend Fc domain for half-life extension. Also in March, MorphoSys reported updated data from its ongoing phase II L-MIND study, in which MorphoSys is evaluating MOR208 plus lenalidomide in patients with relapsed or refractory diffuse large B-cell lymphoma. This data showed continued maintenance of responses with a preliminary progression-free survival rate of 50.4% at 12 months in good tolerability. MOR208 uses our cytotoxic Fc domain, and it was actually created here at Xencor. It was known then as XmAb5574. Based on the data from this trial, MOR208 has breakthrough therapy designation, and the company's discussing potential opportunities for expedited approval with the FDA. With that, I'll turn the call over to John Kush to review our first quarter 2018 financial results.
Thank you, Bassil. Xencor continues to operate from a position of financial strength. We concluded the first quarter of 2018 with a successful follow-on stock offering, which resulted in net proceeds of approximately $245.5 million. These additional funds will enable us to continue to broaden and advance our clinical and research stage portfolio while also preparing for our next stage of growth. Let me now walk you through our first quarter 2018 financial results. In this afternoon's press release, we reported cash equivalents, and marketable securities totaling $582.5 million as of March 31st, 2018, compared to $363.3 million on December 31st, 2017. Again, this increase reflects the net proceeds of $245.5 million from Xencor's underwritten public offering in March 2018, partially offset by cash used to fund operating activities in the first quarter.
Before we review our quarterly financials, I would like to remind those listening that effective January 1st, 2018, the company adopted a new revenue recognition accounting standard, Accounting Standard Codification 606, commonly referred to as ASC 606. In addition to adopting the standard for 2018, revenue report for the prior period, including March 31st, 2017, has been revised to reflect the new standard. No revenue was recognized for the first quarter ended March 31st, 2018, compared to $3.5 million for the same period in 2017. Revenue report for both periods was affected by the adoption of the new revenue recognition standard. Under historic revenue recognition methods, the company would have recognized $6.8 million and $4.3 million of revenue for the periods ended March 31st, 2018 and March 31st, 2017, respectively.
The adoption of the new revenue recognition standard shifted the period that revenue is being recognized under our Amgen and Novartis arrangements to earlier periods. Research and development expenditures for the first quarter of 2018 were $26.1 million, compared to $15 million for the first quarter of 2017. Increased R&D spending in the three months ended March 31st, 2018, over R&D spending in the same period in 2017 reflects additional spending on our bispecific clinical and preclinical candidates. General and administrative expenses for the first quarter 2018 were $4.6 million, compared to $4.8 million for the first quarter 2017. Decreased G&A spending in the three months ended March 31st, 2018, over G&A spending in the same period 2017 reflects lower compliance costs associated with our SEC filings.
Non-cash share-based compensation expense for the first quarter ended March 31st, 2018, was $4.5 million, compared to $3.2 million for the same period in 2017. Net loss for the first quarter 2018 was $29.5 million or $0.62 on a fully diluted per share basis, compared to a net loss of $15.5 million or $0.33 on a fully diluted per share basis for the same period in 2017. I would note that the 2017 net loss has been revised from our initial reporting to reflect the adoption of the new revenue recognition standard. The increased loss for the three months ended March 31st, 2018, over the same period in 2017 is primarily due to additional spending on research and development activities. The total shares outstanding was 55,616,875 as of March 31st, 2018, compared to 46,689,447 as of March 31st, 2017.
The additional shares outstanding March 31st, 2018, reflect the 8,395,000 shares sold in our March 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 million in cash equivalents, and marketable securities. With that, we'd now like to open up the call for your questions. Operator?
Ladies and gentlemen, if you do have a question at this time, please press star, then one on your touchtone telephone. Again, for any questions, please press star, then one. Our first question comes from Ted Tenthoff of Piper Jaffray. Your line is open.
Great. Thank you very much. Pleased to see the cash position so strong and the flexibility that's going to afford you as you develop this pipeline. Quick question, if I may, on 123. Appreciating that you're not giving guidance on when we'll be getting data, how have you started to think about combination therapy in AML once you achieve monotherapy activity and/or safety?
Yeah. I think the evidence is starting to emerge that the T cells that are active in lysing a target cell with these CD3 bispecifics can also be subject to inhibition by PD-L1 signaling through PD-1. I think on everybody's list, certainly on ours, the use of a PD-1 inhibitor in combination is going to be something that's going to be looked at very carefully. I think that's a definite potential. I think, especially in these hematologic malignancies, you do have other agents that are out there, and I think we want to take a bit of a branched approach specific for maybe the particular sub-indications once we achieve the right dose and schedule that we feel comfortable with. There's agents like hypomethylators. If you do move to frontline, there'd be the high-intensity chemo.
Not to say that we've got any of those lined up, but we're looking broadly, but we're, I think, first and foremost, really looking at how checkpoint inhibition can play in that.
Great, Bassil. That makes a ton of sense. Just in terms of IL-15, I kind of look at the competitive landscape. Obviously, there's other targets along that have a similar mechanism, but where do you sort of see the competition?
I think there's been various IL-2 and IL-15 agents tried. I think they all target the same receptors with different levels of specificity. I think we've seen that initial data at SITC that was very promising for an engineered IL-2. I think beyond that, it's fairly early days. Maybe John, if you want to comment on the uniqueness of the mechanism.
As we discussed earlier on the call, what's unique about IL-15 and using the IL-15 receptor alpha complex is you completely avoid the built-in T reg bias that IL-2s come with. Really, the most unique thing that we've done here is kind of counterintuitively, we've actually reduced the potency of the IL-15 after we had some initial observations giving us a hint that reduced potency versions actually had longer half-life and, in fact, also more sustained pharmacodynamics. So nobody else seems to be taking that approach. We think we've got a unique approach there which we're hoping will enable an easier way to sync up with some of the dosing schedules that are used for some of the PD-1 inhibitors.
Makes a lot of sense. Appreciate it. Looking forward to more progress. Thanks so much.
Our next question comes from Arlinda Lee of Canaccord Genuity. Your line is open.
Hi, guys. Thanks for taking my questions. Maybe one for John first. Can you remind us on some of the milestones that you might be getting from partnerships as they progress their programs? Are you getting milestones on filings or on approvals or data sets? Thank you.
For Alexion, the remaining milestones we have are regulatory and sales, we don't break those out. The total is, I think, $55 million. Those will be over the next Well, the regulatory, we assume within the next 18-24 months, depending on the timing. For MOR208, I think there's still regulatory as well as sales milestones.
we don't break those out.
We don't break those out either.
Yeah.
Yeah. I hope that answers your question.
Yes. Thanks very much. I guess maybe back to Ted's question about how you guys think about approaching You talked about tuning your specificity and potency on these things. What are you looking for, I guess, pre-clinically that helps you guide what you think should play out in the clinic? Thanks.
Yeah. Well, we do our best with the two sides of the equation, the efficacy tuning and the safety tuning. It's never perfect, right? Because these are pre-clinical models. I think on the efficacy side, you look at the various tumor-bearing cell lines for CD3s, and these are for CD3 bispecifics, and you see if you can lyse the right cells and have specificity for cells that express what you think is the levels of antigen on your tumor. On the safety side, we always engineer these things to cross-react with non-human primate and use that to tune dose for on-target off-tumor toxicities that would always emerge both on the target as well as on the cytokine release syndromes that are inherent to these agents. Those are the two ways we juggle it. Each program is its own story, however. There's no specific numbers.
There's just the guidance we get from these models.
Okay. Thank you very much.
Thank you. Our next question comes from David Nierengarten of Wedbush Securities. Your line is open.
Hey, just a quick question. I noticed 676, talking about data now in 2019 and previously it was 2018. Is dosing going a little bit more slowly? Is this a decision from Novartis or maybe you could help us out a little bit about that and if there's any additional things you're learning from the dosing as it's going that will help you with your other programs. Thanks.
Yep. We shifted the guidance because we think that by year end, we think that the state of where we are going to be with data is probably not going to meet and justify our partners or probably our requirements for what we'd want to talk about, or what would be meaningful. We're certainly learning a lot from that trial and being able to contrast it with our XmAb14045 trial, and now we're starting to glean information out of our XmAb18087 trial, a completely different kind of tumor type, being a solid tumor. That is helping us understand better what are some of the ins and outs of how to dose these things. We are learning a lot. I think it's a matter of what quantum of data justifies, both in our partners' and our own eyes, having a release.
Got it. Is it a mechanism of just the dosing escalations going a little bit more slowly and maybe not hitting the dosage you think is going to give activity, or are you just going to wait for additional data before you report it?
Yeah, we're just going to wait for additional data. This trial didn't start enrolling patients until about 13 months ago. As you know, you have to start off fairly low.
Yep.
It's, I think, less a matter of anticipated dose and is that where we expect it to be or not. It's just you are with these CD3 bispecifics in a pretty conservative mindset, where you start your initial doses. It just takes time.
Okay, thanks.
Again, ladies and gentlemen, if you do have a question, please press star then one on your touch-tone telephone. Again, for any questions, please press star then one. Our next question comes from Christopher Marai of Nomura. Your line is open. Christopher, your line is open. If your phone is on mute, please unmute your line. Again, ladies and gentlemen, if you do have a question, please press star then one. I'm showing no further questions from our queue. I would now like to hand the call back over to management for closing remarks.
Thank you, operator. We want to thank everybody for joining today's call. Our remaining remark is that we look forward to updating you on Xencor's progress throughout the remainder of 2018. Thanks very much.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.