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XOMA Ltd. (NASDAQ:XOMA)

Piper Jaffray Healthcare Conference 2013

December 4, 2013 02:00 p.m. ET

Executives

John Varian – Chief Executive Officer

Analysts

Ted Tenthoff – Piper Jaffray

Ted Tenthoff – Piper Jaffray

My clock is showing 2 o'clock, so we are going to get starting on our next presenting company, which is XOMA. My name is Ted Tenthoff, I am senior biotech analyst here at Piper Jaffray, and before I begin I am required to point out certain disclosures regarding the relationship between Piper and XOMA, which are posted both near the door and also at the registration desk. Now as many of you probably know XOMA is not a new story in biotechnology. In fact, I think that the company maybe around longer than Piper has been holding this healthcare conference.

John Varian

Possibly, 32 years I think we went.

Ted Tenthoff – Piper Jaffray

This is the 25th year, so that’s saying something. Now all of that said, a new management team led by John has really been vitalized this sleepy antibody story, and I believe that the accomplishments are pretty impressive with a lot more to come in 2014. This has clearly been reflected in XOMA share price performance of late. So here to discuss the XOMA story is a good friend, John Varian, CEO of XOMA. John, thanks for being here.

John Varian

Thank you, Ted. Thanks for having us here. I really appreciate it.

Ted Tenthoff – Piper Jaffray

Absolutely. So I am going to jump right in with gevokizumab, which is your lead antibody and it's an IL-1 Beta antibody, a little bit different activity, a little bit different mechanism than some of the competitors out there, and you are developing it presently for Behçet's and non-infectious uveitis. So if you could, at a high level, explain the mechanism of action of gevo and how this maybe useful in treating these conditions?

John Varian

Sure, I would be glad to and again thanks for having us here. So gevokizumab is our focus of the company. It's -- I say not completely kiddingly often internally, it's our number one, number two and number three priority, and we work on it with that amount of dedication to it. So gevokizumab is a monoclonal antibody that is in the allosteric modulator of the interaction between IL-1 beta and the receptor for IL-1 beta. So IL-1 beta is one of the mother cytokines within the body, and it’s involved in a series, large number of inflammatory diseases, and so the competition within the IL-1 space is anakinra Kineret, which is a drug that has been around for quite a while developed by Amgen and now being developed by Sobi, and that’s a drug that blocks the entire interaction for IL-1 and it has to be given once a day.

The product that is probably the closest to our molecule is Novartis’ drug Ilaris. That’s the drug that’s given once a month as is our drug. It is a monoclonal antibody also, but it's a full blocker of the interaction between IL-1 beta and the receptor. So we believe that because we allosteric modulate that interaction, we still allow that process to occur but we more normalize the process. So we think we can have the effect on the disease but normalize the IL-1 beta interaction to more of the body’s normal system.

Ted Tenthoff – Piper Jaffray

And just, I don’t mean to interrupt you, but to illustrate that a little bit more why is it important to still maintain some IL-1 beta activity?

John Varian

Now, it’s a great question and we think it gives us an advantage because IL-1 beta matters by having some remainder of that system available in the face of a serious infection, the body could still mount a response. The other thing is IL-1 beta is cleared naturally through that receptor interaction. So by not blocking it completely we allow the IL-1 beta to leave the body as opposed to creating drug and IL-1 beta conjugates that have to remain in the body.

Ted Tenthoff – Piper Jaffray

Complex. That makes sense. Now moving to Behçet's and non-infectious uveitis, tell us a little bit about these ocular conditions, ocular inflammatory conditions?

John Varian

Sure. So non-infectious uveitis is actually a syndrome, and there is often underlying disease related to the syndrome itself. There could be various different diseases including things like rheumatoid arthritis, Sarcoidosis or Behçet's. In fact 60% of the patients who have Behçet's will develop Behçet's uveitis. So it's a syndrome and what it is, it is the inflammation of the uveitis that surrounds the entire eye. What we are focused on are patients who have uveitis and it affects at least the back part of the eye. It can affect other parts of the eye but if it affects the back part of the eye, that’s our target and that would warrant a systemic therapy like gevokizumab again given once a month.

Ted Tenthoff – Piper Jaffray

So with gevo you are partnered with French Pharmaceutical company Servier.

John Varian

Right.

Ted Tenthoff – Piper Jaffray

And I think many investors at least US investors may not be as familiar with Servier. So tell us a little bit about your partner and the deal you were able to strike with them for gevo.

John Varian

Sure. It's a very unique deal. So many Americans don’t know Servier. I actually, Ted knows I worked in Paris for about three years from 2000 to 2002, so I was more familiar with them. The reason that most Americans don’t know Servier as a company as well is because Servier operates basically in every country in the world except one, and that’s the United States. So because of that, because of that bias that they will not operate within the United States, we have a very unique deal with Servier. So gevokizumab is licensed to Servier worldwide except for we retain commercial rights in the US and in Japan.

So it's a very unusual deal for a small company like XOMA to have a deal where we actually have full commercial rights in virtually every indication with one or two exceptions, but virtually every indication we are going to talk about today, and so because of that what we are doing is we are picking indications that we can go after at XOMA where we can actually develop the drug fully ourselves here in the US and actually market the drug by ourselves in the US. So we are picking indications whether there is a small enough number of specialty physicians who treat the patients so we can actually market the drug in the US ourselves. By doing that we think we can capture the value from gevokizumab.

Ted Tenthoff – Piper Jaffray

So we were starting to talk about Behçet’s uveitis and non-infectious uveitis. You guys are conducting three Phase 3 trials of gevo and these indications collectively called the EYEGUARD studies. Walk us through the size and design. How are these little bit different from each other?

John Varian

Yes, and so going back to something you asked earlier, but I will answer kind of now because it leads into the studies. The way non-infectious uveitis is treated is typically a patient will come in with pain or vision issues, they will be diagnosed to have non-infectious uveitis. The physician will put the patient on hydrosteroids and usually immunosuppressants. That will typically bring down the effect of the non-infectious uveitis. It has to be treated because otherwise it will lead to blindness. Okay.

So they treat it aggressively and then what happens is the patient will get through their non-infectious uveitis, and then the physician cannot keep the patient on the high-dose steroids because of the side effects that come from chronic use of high-dose steroids, so they start reducing down the level of steroids, and then boom and exacerbation happens again, they bring back up the steroids and this is constant battle that the physicians go through. So our studies are EYEGUARDS-A, B, and C. EYEGUARD-A is designed to treat patients who come into the physician’s office, experience an exacerbation, where they are having the inflammation at that time, and we are treating the patients with either placebo or gevokizumab. So in that case we are looking for reduction in the inflammatory response, and we can talk more specifically about it if you like.

EYEGUARD-C stands for controlled. Those are patients who come into the study, they are controlled on corticosteroids and immunosuppressants, and then there is a steroid tapering of prescribed steroid tapering that occurs and then you look for gevokizumab treated patients versus placebo treated patients, and look for a separation at the time of the first exacerbation. So A is active patients, C is controlled patients. By doing both of those studies we think we will have all the information that the physicians need to know how to treat patients who are under control or if they are exacerbating.

EYEGUARD-B is just like EYEGUARD C when it comes to steroid tapering and looking for the separation except for its only in patients who have an underlying disease of Behçet’s, and so that’s one the survey is running outside the US. What we need for we believe the submission of our BLA is we need two of those studies to be able to submit for submission of our BLA.

Ted Tenthoff – Piper Jaffray

That's helpful. I appreciate the overview. And if there any questions don’t hesitate to raise your hand, happy to make this interactive, please.

Unidentified Participant

[Inaudible].

John Varian

So they have looked at symptoms of the Behçet’s and they seem to have activity there. They haven’t been looking at the Behçet’s uveitis as deeply as we have. And so it's a potential competitor but it's specifically in the Behçet’s patients -- of the, it's important to say, of the 150,000 patients who are estimated to have non-infectious uveitis in the US about 6,000 of those will be Behçet’s uveitis patients.

Ted Tenthoff – Piper Jaffray

Okay, please.

Unidentified Participant

Give us update on the [Inaudible].

John Varian

Yes. So what I can say is what I said a couple of weeks ago on our conference call. So EYEGUARD-B, so let me just go through the three studies, okay? EYEGUARD B is in patients again who have Behçet’s, that’s been run by Servier. That one’s been running along well. It's on time. We expect to have results by the middle of next year. So probably May, June of next year, okay. And that’s been the time table from day one.

EYEGUARDs A and C those are 300-patient studies. Each one is a 300-patient study and again patients who have active disease or controlled disease. We knew going into this study that it was going to be important to have sites open to get to the patients. Anyone who has done studies in non-infectious uveitis just started with a low number of sites and then they keep increasing and increasing and increasing it. We and Servier made the conscious decision that these worldwide studies will be done in 140 centers in order to get 300 patients per study.

So we need about two patients per open site. So the key for us is getting sites open. So that’s what I am going to speak to well. So in -- the way that the study is designed again, we are doing the US work, Servier is doing the non-US work. In the US, 70 sites are targeted to be opened. As of our call a couple of weeks ago, we said 68 out of the 70 were open. So in the US we are getting the sites open and the enrollment is going okay.

Outside the US, in August when we did a call, we really had to say that Servier was having an issue with getting their countries and their sites up. But as of our call a couple of weeks ago, Servier has targeted 19 countries and 70 sites. So they are half of those total 140 sites. As of a couple of weeks ago, we were able to say that they were up to nine countries that were opened, representing 34 sites and that they also got approval in six additional countries. So now 15 out of the 19 and all that was left to happen was the shipment of drug and the customs process, which takes between 21 and 60 days.

So by year-end, we will have the 68 sites in the US up and Servier will have the 15 countries representing 53 sites and so with that happening, we will have way more information about the rate of enrollment because again the key is when we get the sites open, we can get we believe two patients per site on average to get the study done.

Ted Tenthoff – Piper Jaffray

Excellent. Thank you very much. So tell us a little bit about the Phase 2 data that you have generated to kind of support the mechanism that’s been -- that you are now evaluating in this Phase 3 study.

John Varian

For the non-infectious uveitis specifically. Sure.

Ted Tenthoff – Piper Jaffray

Or both, actually as you wish.

John Varian

I will stick to non-infectious uveitis and you can direct me otherwise if you would like to, okay. So what happened was about several years ago, XOMA did a study in seven patients, a very small Phase 2 study in seven patients in Turkey, who had non-infectious uveitis with an underlying disease of Behçet’s. What we saw was all the patients were treated just once and we saw that all seven patients within two days to two weeks had their inflammation resolved. So very quick and very clear effect from the drug in those patients that were treated.

We then followed those patients and after about a month to two, five of the patients that we were following exacerbated again. They were treated again and again all five of those patients had their inflammation resolved. Four of those five patients had stayed on the drug for over two years and seemed to be well controlled still on the drug. So we had done that work. And that was what was encouraging us and Servier to look further into this indication. Servier then has done another Phase 2 study in 21 patients and the most significant piece of information coming out of that study was that of those 21 patients, 11 of those patients had non-infectious uveitis, and had the measurement of inflammation, which is known as vitreous haze. That’s the measurement of inflammation that’s required for our endpoint in EYEGUARD-A.

So it is active disease study. So of those 11 patients who had a vitreous haze score of two or higher, it's a five point scale from zero to four. Of all of those 11 patients who had a vitreous haze score of two or higher, 8 out of those 11 had a reduction in their vitreous haze of at least 2 points. That is the endpoint for EYEGUARD-A study. So that was really encouraging to us because now at this point between our study and their study, there have been 12 patients who have come in the study who had vitreous haze of over 2 who had a reduction in vitreous haze of at least 2. In their study those other three patients, had a vitreous haze reduction of at least one. So all patients had their vitreous haze down and 8 out of 11 or 9 out of 12 in total now have met the endpoint that would be required an EYEGUARD-A. So that was encouraging.

Ted Tenthoff – Piper Jaffray

Excellent. And let’s have a little bit of background, what can you tell us about the powering of each of the EYEGUARD studies?

John Varian

Sure, okay. So EYEGUARD-B is an events driven study. And so EYEGUARD-B again in these Behçet’s patients, patients are 50/50 split between drug versus placebo, and we are looking for a certain number of that, okay. We haven’t disclosed the exact number of events that we are looking for. It is part of the statistical powering. Once that certain number of events hits, which again is scheduled for May to June of this year, or this next year. Once that happens, that’s when the study will be unblinded and we will get our results.

And so doing that study it’s again to show a separation between the Behçet’s patients with the gevokizumab versus the placebo arm, okay. In the EYEGUARD-A study, again these patients who have vitreous haze scores of at least 2 plus what we are looking for is a 45% response rate in the patients who are treated, and we are looking for a 20% placebo rate. We base that 20% placebo rate on an [Indiscernible] study that was done a few years ago. They showed about 10% placebo rate. So we are pretty conservative in studying the placebo rate. So we are looking for a 25 percentage point separation between the two. And EYEGUARD-C it's similar but again it's steroid tapering.

Ted Tenthoff – Piper Jaffray

Yes, absolutely. Perfect. So we have seen another company, [Generon] become very successful launching an antibody in ocular indications. How large are these markets and is it something that XOMA could address on their own?

John Varian

Non-infectious uveitis, absolutely. So again the sizable market is about 150,000 patients in the US. What's nice about this particular indication is as I said, we will market gevokizumab in the US on our own. We are committed to doing that. Our Chief Commercial Officer, Tom Klein, who came over from Genentech in the Spring is already putting in place the information in the systems for us to be able to do that. So what's nice about non-infectious uveitis is those patients who are not treated by a ophthalmologist. They are sent from a ophthalmologist to one or two groups. They are either sent to a uveitis specialist or to a rheumatologist. The uveitis specialist is probably less than 200 in the entire United States, and if you think about us having 70 sites up in our clinical trial, you can imagine we know quite a few of these couple of hundred uveitis specialists.

They see rheumatologists because often there is an underlying disease that’s related to the development of non-infectious uveitis. So between the 5,000 rheumatologists that exist in the US and these uveitis specialists, we can attack that with a very small sales force. So the market potential that we think is very good that you would expect our drug to be priced like a biologic. We won’t say more than that but you would assume to be priced as a biologic. And the market research we’ve done so far supports that that would be expected.

Ted Tenthoff – Piper Jaffray

Excellent. So we discussed early on in our conversation the broad applicability of gevokizumab for really a number of inflammatory diseases. You are conducting quite a few Phase 2s. I am going to kind of go through a couple of these now. You recently reported three month data on gevokizumab in erosive osteoarthritis of the hand. So tell us a little bit about this disease because it's actually a little bit different than maybe some people are familiar with osteoarthritis, and what the results were that you saw.

John Varian

Yeah. So that was -- we think it's a great indication and we think that for several reasons. Probably most importantly there are about 2 million people in the US who have erosive osteoarthritis of the hand. So as everyone knows osteoarthritis is a huge disease in the US probably 30 million, 40 million people have it but it's a disease of the weight bearing joints that comes from wear and tear.

Osteoarthritis of the hand it is similar but it's related to the hand. This specific disease that we are talking about now erosive arthritis of the hand is a distinct subset of people who have erosive -- who have osteoarthritis of the hand. Again, these 2 million people suffer more than the osteoarthritis patients dramatically. It's the only form of osteoarthritis that’s inflammatory in nature.

What we have seen what led us to this indication is when the joints, it typically affects just the index finger, the middle finger and the base of the thumb. And what you see when the affected joints are biopsied you see high level of IL-1 beta. So we think that’s driving it. Interestingly anakinra, again the drug I referred to earlier today or earlier in my conversation with you, that is one where it had been in a very small number of patients it was tried, and then it actually worked but again that’s the drug that is given once a day versus our drug once a month.

So there is good evidence for IL-1 beta and these patients [do not] nothing works for them. It's really interesting. Going into our study, 80% of the people who joined our study, so this is seriously painful syndrome with these patients coming in, 80% of the patients who came in were on no other drugs because nothing else seems to work for these patients. The main reason people didn’t come into our study was because they are on opioids, and are afraid to go off their opioids to mask the pain that they are having.

So nothing else really seems to work. We did our study. We started our study in erosive osteoarthritis of the hand in 90 patients, 2:1 randomized to drug versus placebo. We saw data at three months. About a month ago we reported those data and those were very encouraging to us. Now what we are looking for is the six-month data with those patients. We will have that. We will have those data along with the data in another small study that we are doing in erosive osteoarthritis of the hand and we will also have some MRI and X-ray data on those patients that zero, day zero, at 30 days, I am sorry at 3 months and a 6 months.

And with all that in hand which we expect to have in hand sometime in late January through February when all those data come out, with all those data in hand, we will be making the decision about should we go forward into phase 3 in erosive osteoarthritis of the hand. But it's an indication that if we can get there we think it's a really good opportunity.

Ted Tenthoff – Piper Jaffray

All right, great. Totally transformative. And then anyone have any questions. I wanted to pick up you recently announced that Pyoderma gangrenosum will be your next Phase 3 pivotal study, now this is probably a disease that a, I mispronounced and b, most people probably don’t know a single thing about. So thankfully this is not a slide presentation. So we don’t have to see the pictures. But tell us a little bit about this disease and the pivotal study that you intend to run?

John Varian

Sure. That will -- I will be glad to. So yes, it is -- you did mispronounce it. And it's a disease you don’t want to have is what I would say. No it's a very serious disease that’s driven by neutrophils in the skin. It causes lesions that are really devastating. And so when you do I would encourage you to actually look at the pictures in our presentation on our website because it's quite dramatic. So this disease is again it is driven by neutrophils. It affects only probably 3,000 to 5000 people in the US. So it's a very small population.

But what these people have to go through is high-dose steroids for long periods of time, TNF-alphas help but over a long period of time. What we saw in this very small pilot study that we did this last summer was in the four patients we treated we saw very good results. And those results were good enough that we decided this should be our next pivotal indication, and again if you look at what we have seen and what we continue to see with those same patients it's very compelling for us to move this forward.

And so what we are going to do, we started our pilot study by having a conversation with the FDA last May and got some directions. They consider this to be a very serious disease and that it's a small enough disease that we might not have to do the big broad development plan. We might be able to do an abbreviated development plan. We now have these data. We are going to submit those in a package and in the phase 2, meeting request package to FDA and then they have about 60 days to grant us the meeting, and so what we would target is that very early next year, we would be submitting the package and requesting the meeting.

And then we will get a agreement on what the Phase 3 pivotal study should look like. What we hope and the direction we feel like we have at this point is it would be hopefully a single study, not too large that would allow us to get approval for the drug, and if you look at similar indications, similar sized patient population that’s been not atypical but we need to have that confirmed before we actually launch those studies.

Ted Tenthoff – Piper Jaffray

And you and Servier are conducting a host of other studies and I am going to kind of move on to some other parts of the pipeline with the remaining two or three minutes that we have left. You know one of the differentiating factors as I was really doing due-diligence on XOMA and again you touched on this with gevo’s mechanism of action is this ability to uniquely allosterically modulate or develop allosteric antibodies essentially, and again this is understood in small molecules, but I really haven’t heard of anyone else doing this with the specificity of an antibody.

I think it's probably best exemplified by your excellent programs, which are beginning -- getting ready to approach the clinic. So tell us a little bit, these target the insulin receptor. Tell us how you are able to come out with different profiles of antibodies because of the just massive libraries that you are able to screen with.

John Varian

It is a combination of techniques, both a massive library and the ability to measure signaling almost live. And so XOMA you touched on when we started the conversation. XOMA’s science for the last 32 years has been phenomenal. What we haven’t had is a business model that really took advantage of that great science, and that’s as you can probably tell that’s what we are really focused on is implementing that kind of a business model.

But this is just a great example of the science at XOMA. So as you probably all know antibiotic development over the years has typically been what binds the best, what blocks the most and so it's literally find antibodies that block that interaction, stop that interaction completely. Again, the competitive drug from Novartis does exactly that. What XOMA can do is by binding to different sites on either the ligand or the receptor, we can allosterically modulate the signal and turn it up or down or almost sideways, and so with the XMet program, we have XMetA, which is an activator of the insulin receptor.

So an agonist to the insulin receptor, other people aren’t doing that it's because of this allosteric modulation approach. That is a drug or an antibody that we can actually use as almost basal insulin, right. So it could really change the way that insulin is used or how patients who have the type 1 or type 2 diabetes are treated. XMetS is a sensitizer, this is my example of [Indiscernible]. XMetS sensitizes the insulin receptor to insulin whether it's endogenous or exogenous, either way, and so you can imagine that if you can sensitize the insulin receptor. In animal models, we have sensitized it by 20 times more.

You can imagine how that could help the bodies use it's own insulin better or externally given insulin better. It could change the world about how type 1 and type 2 diabetes are treated. For those programs because the development pathway on those and because of the need for marketing, we will partner those. XMetD is a deactivator of the insulin receptor and that’s one what we think there is some orphan indications. We will take all the way forward ourselves, and actually market it ourselves in the US.

Ted Tenthoff - Piper Jaffray

Great. And we are out of time. Please, last question.

Unidentified Participant

[Indiscernible]

Ted Tenthoff - Piper Jaffray

So the question on headcount and maybe John you can throw in cash positions at 74 million how that -- how long [that lasted] or somewhat related.

John Varian

Okay. Very good question. So two years ago we took over the company. It was about 260, 270 people. We took it down to about 160, 170 and that's where we are right now, right around 170. So we have reduced the headcount and maintained that same headcount over the last couple of years. The growth has been in clinical and regulatory as you guess because we have expanded that so much. When it comes to projections for the future we don’t have massive increases until we get ready to launch our drug ourselves, and then at that point in time we will invest in the infrastructure to actually commercialize the drug, and build the sales team to do that in the US. So that would be our big major step forward in that.

Unidentified Participant

[Indiscernible]

John Varian

Yes. And so in cash we had 74 million at September 30. What we said is that takes us well into 2015. We haven’t given more guidance on that.

Ted Tenthoff - Piper Jaffray

Well, John, thank you so much for being here. I am looking forward to the data we would have in 2014.

John Varian

As am I. Thank you. Thanks Ted.

Question-and-Answer Session

[No formal Q&A session for this event]

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