Xencor's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Xencor, Inc. (XNCR)

Xencor, Inc. (NASDAQ:XNCR)

Q4 2013 Results Earnings Conference Call

March 19, 2014 04:30 PM ET

Executives

Deanne Tockey - Stern Investor Relations

Bassil Dahiyat - President and CEO

John Kuch - VP of Finance

Analysts

Jason Kantor - Credit Suisse

Michael Schmidt - Leerink Partners

Chris Marai - Wedbush Securities

Operator

Good afternoon, and welcome to the Xencor Fourth Quarter and Year End 2013 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 the call is being recorded at the company’s request.

At this time I would like to turn the call over to Deanne Tockey of Stern Investor Relations, please proceed.

Deanne Tockey

Thank you, operator, good afternoon this is Deanne Tockey with Stern Investor Relations and welcome to Xencor’s fourth quarter and year end 2013 conference call. This afternoon we issued a press release which outlines the topics that we plan to discuss today. The release is available at www.xencor.com. Today on our call Bassil Dahiyat, Ph.D. President and CEO will discuss the company’s business and clinical highlights from the last year, John Kuch Vice President of Finance, will review the financial results. And 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 and the company’s future product offerings. These forward-looking statements are not historical facts, but rather are based on Xencor’s current expectations and believes and are based on information currently available to us.

The outcome of the events described in these forward-looking statement 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 Registration Statement in connection with its initial public offerings filed on December 2, 2013 with the SEC.

All information provided in this conference call is as of March 19, 2014. Except as required by law, we undertake no obligation to update publicly any forward-looking statements made on this call or to confirm the statement to actual results or changes in our expectations. Also in light of Regulation FD we advise you that it is Xencor’s policy not to comment on our financial guidance other than in public communications.

With that let me pass the call over to Bassil.

Bassil Dahiyat

Thanks Deanne. Good afternoon to everyone and welcome to Xencor’s inaugural earnings call. We’re delighted to report the successful completion of our IPO in December of 2013 where we netted approximately $72.5 million. As a result we’re entering 2014 a new public company. We’re very well capitalized and we're focused on advancing our programs in the clinic as rapidly as possible. Now it’s very exciting time for us. This is a big transition for the company and we think we can advance our both internally developed program as well as our partnering strategy.

We now have five clinical programs ongoing internally and with partners, employing our XmAb platform which is our Fc engineering platform for antibody optimization and we have a sixth program starting soon.

First I’ll touch on the antibody engineering technology that’s the foundation for Xencor’s product development. For those who are not familiar with the tools that we use that make us unique. We focus on the portion of the antibody that interacts with the multiple segments of the immune system. This portion of the antibody is called the Fc domain, which is part of the constant region of the antibody, so it’s constant and it’s interchangeable amongst antibodies that might bind to different antigen.

Our XmAb technology creates or it consists of really subtle changes in the natural structure of the Fc domain to selectively augment their functions. For example, to augment their regulation of immune responses, to augment their ability to control antigen levels, to increase their cytotoxicity that’s driven by Fc domain functions or to extend antibody half-life.

So these engineered Fc domains that make up our XmAb technology can readily be substituted for natural Fc domain and typically maintain over 99.5% identity in structure and amino acid sequence to natural antibodies, which helps preserve a lot of the beneficial features of antibodies for drug development such as good half-life, such as stability to manufacturing protocols one can use.

These changes enable our XmAb engineered antibodies to offer innovative approaches to treating disease and potentially clinical advantages over other treatments and that’s why we're pursuing a broad portfolio for clinical development.

And now I'll jump in to our pipeline program, starting with the two internally developed and generated product candidates XmAb7195 and XmAb5871. First with XmAb7195, we have advanced the development of this molecule for allergic disease and asthma with plans to file an IND and initiate a Phase 1a single ascending dose clinical trial in the first half of 2014.

This trial’s going to take place in healthy volunteers with parallel cohorts enrolled in allergic subjects, who have naturally high IgE levels, but the point of this drug is to control IgE levels, we wanted to test it, to see how well it can do in the context of high IgE where there is a significant unmet need.

This clinical trial is designed to of course study primarily the safety and pharmacokinetics of the drug in human as well as to validate XmAb7195’s ability to suppress both free and total IgE levels in subjects.

We anticipate preliminary data report from this study by the end of 2014. If this trial is successful, we'll move into a Phase 1b multiple ascending dose clinical trial in healthy adult volunteers and in parallel cohorts in patients with mild to moderate asthma in 2015, where we will of course be studying again safety pharmacokinetics and IgE reduction.

Now we selected IgE as a target for one of our candidates, because IgE is the molecular mediator of allergies and the allergic asthma response. When IgE binds to allergens in your circulation in your body, it recognizes them and it can then downstream trigger the allergic response from immune cells that are called mast cells and basophils which start the whole cascade that results in say broncho constriction of asthma or the hives that are called chronic urticaria in severe dermatology patients, other pathologies like food allergy.

So IgE is sort of at the apex of this cascade that happens and 7195 works by binding IgE and then simultaneously engaging through our XmAb Fc domain, we call our XmAb immune inhibitor Fc domain, it engages the FcγRIIb pathway that antibodies naturally engage in a heightened way to rapidly clear the IgE from the circulation.

Now in preclinical studies, we’ve demonstrated that XmAb7195 reduces IgE in variety of models, variety of these models, including those where the IgE levels in the animal are very high. And we get greater reductions in extent that it’s held low, we can drive IgE compared to the currently marketed IgE therapy sold there, the only one we are aware of, which is currently on an annual revenue run rate of over $1 billion.

Now we believe XmAb7195 has the potential to be a product that has first in class mechanism for reducing IgE, again mediated by our XmAb immune inhibitor Fc domain and potentially can address the full spectrum of sever asthmatic including the hardest to treat asthma patient population that has very high IgE levels thereby making them ineligible for current therapies.

So now I’ll shift gears to talk about, little bit about XmAb5871. That’s our most advanced clinical compound that contains our XmAb immune inhibitor Fc domain, so the same exact Fc domain in 7195. This agent however is for suppressing autoimmune function and autoimmune disorders. And the current clinical development focuses on rheumatoid arthritis and lupus.

So in October of last year in 2013, we dosed the first patient in our Phase 2a clinical study in patients with moderate to severe rheumatoid arthritis. We expect top line data from this Phase 2a trail in the second half of 2014.

Now the way XmAb5871 works is it bonds through the variable domains in the antibody to CD19 which is a marker on B-cells. B-cells are critical immune cell population that’s involved in a variety of natural functions as well as disorders. Now simultaneously, this XmAb immune inhibitor Fc domain targets FcγRIIb pathway and that potently yet irreversibly inhibits B-cell function. So when the antibody is present on the cell, it suppresses the function of the B-cell, when antibody washes away the B-cell’s function seems to come back.

In our Phase 1a study that we completed, in healthy volunteers we observed effective suppression of B-cell responses to antigen challenges without destroying the B-cell population. So that’s a potential significant differentiator for safety purposes from cytotoxic B-cell antibodies that are currently used in autoimmune disease such as rituximab.

Now, our partner Amgen has an option to acquire the exclusive worldwide license to XmAb5871 at any time up to the completion of and reporting data out of a Phase 2b proof of concept trial. But in the mean time, we are controlling all clinical development activities in collaboration with Amgen but with Xencor controlling the program still until an option might be exercised.

Now, I will shift gears a little bit and talk about a compound called MOR208 which is formally called XmAb5574. This is a compound that we created at Xencor and subsequently licensed to MorphoSys in 2010. MOR208 has a very potent anti -- it’s a very potent anti-CD19 monoclonal antibody with high cytotoxic function that is we advance to B-cell or a CD19 bearing tumor cell; it recruits immune function to destroy that cell. So, this is in stark contrast to XmAb5871 which is our CD19 -- anti-CD19 antibody where the Fc domain was engineered to have immune inhibitor function, but eliminate the cytotoxic functions that naturally created in Fc domain. So that’s our immune inhibitor drug.

So, that’s a great example of how our Fc engineering technology adds a new degree of freedom to antibody discovery. It is letting us create two completely different drugs really from the same studying antibody and anti-CD19 by applying a different Fc domain that recruits different immune functions with wholly different kind of compound.

Now MorphoSys, as we said licensed MOR208 rights from us in 2010 and they’re developing MOR208 on a variety of B-cell cancers. So, the rational for this compound is that CD19 is expressed in a broad set of B-cell cancers and we’ve observed a favorable tolerability profile for the compound in our clinical trials so far. So that suggests that MOR208 could be effective in a broader spectrum of malignancies in ritauxin under this broad expression profile across different B-cell tumor types, as well as being well-suited for use in combination chemo or immune modulatory agents or in salvage studies, because again because the favorable tolerability profile we serve.

Now in October of last year 2013, we announced the completion of a Phase 1/2a clinical trial evaluating MOR208 in patients with relapsed or refractory chronic lymphocytic leukemia or CLL. The final study results, which included an extended treatment duration arm, showed a single agent overall response rate of 29.6% according to the International Working Group on CLL criteria based on the safety population studied in the trial.

So based on this encouraging antitumor activity, MorphoSys has launched multiple Phase 2 trials in 2013, one in B-cell acute lymphoblastic leukemia or B-ALL, and another Phase 2 trial in non-Hodgkin lymphoma or NHL. And then more recently, they started this year a Phase 2 trial with CLL in with Revlimid. So this broad development program by our partner MorphoSys creates a number of opportunities for MOR208.

Now the newest element of our XmAb Fc technology is our bispecific Fc domain, which allows us to create dual antigen targeting molecule, and there is a wide variety of potential usage for those, but just focusing on what the platform enabled and how it might differentiate us, by using an Fc domain as an integral part of the molecule, we can maintain natural antibody like properties such as pharmacokinetics and production methods and potentially overcome some of the challenges that have limited many of the earlier bispecifics platforms. And there is a lot of effort now going on in bispecifics to overcome these challenges and we -- our entry is to our XmAb Fc.

We plan on advancing one of our lead bispecifics into -- for the clinical development for IND enabling work starting this year, by mid this year. Now in addition to this internal pipeline activity and our development partnerships with Amgen and MorphoSys, an important part of what we do at Xencor in our business is our technology licensing program.

We’ve been in a number of technology licenses to our XmAb toolkit or parts of it to pharma and biotech companies to generate both near and long term revenue funding. We’re currently eligible for over $1.3 billion in potential milestone payments in these agreements in aggregate and these -- the way these licenses work is they leverage our patent state and the plug and play nature of the XmAb technology where you can literally take an Fc domain that say has a heightened cytotoxicity and use it again and again in many different antibiotics without re-optimizing them.

And so we simply grant a license to a particular Fc domain that our partner requires for say extended half-life for cytotoxicity. We’re using that partner’s program or a few of their programs and then they do all the work. These license grants are quite specific and narrow to the partners needs, so maintain the majority of the rights for intellectual property at Xencor.

So in 2013, we granted Merck access to one of our Fc engineering patents for our therapeutic monoclonal antibody program of theirs. We granted CSL and Alexion in two separate partnerships licenses to our Xtend half-life extension technology for some of their programs. And in addition, Janssen licensed from CSL, a clinical-stage monoclonal antibody that have in the past been optimized with our cytotoxic Fc technology. So that program advances in the clinical, it's now taken on a new larger partner in the form of Janssen.

So, we are going to continue to seek additional licensing partnering opportunities around our technologies when it makes sense for our product development efforts and for the business as a whole.

So, now I'll turn it over to John Kuch for our financials.

John Kuch

Thank you, Bassil. In this afternoon's press release, we reported cash and cash equivalents totaling $78 million as of December 31, 2013 compared to $2.3 million on December 31, 2012. The cash includes a $72.5 million in net proceeds from the initial public offering of the 14.6 million shares of the company's common stock, which closed in December 2013.

Revenues for the fourth quarter ended December 31, 2013 were $1.7 million, compared to $2.4 million in the same period of 2012. Revenues for the full year of 2013 were $10.2 million compared to $9.5 million in the same period of 2012. Revenues are earned from technology licensing fees and milestone payments from Xencor's partners for the license of its drug candidates and the use of its proprietary XmAb antibody engineering technologies.

Research and development expenditures for the fourth quarter ended December 31, 2013 were $4.1 million compared to $3.9 million for the same period in 2012. Research and development expenditures were $17 million for the full year ended December 31, 2013 compared to $12.7 million for the same period in 2012. Increases in R&D spending were primary due to increased spending on the company’s two lead clinical programs; XmAb7195 and XmAb5871.

General and administrative expenses in the fourth quarter ended December 31, 2013 were $1.3 million compared to $1 million for the same period in 2012. General and administrative expenses were $3.7 million in the full year ended December 31, 2013 compared to $3.1 million for the same period in 2012. The increase primarily reflects increased compensation expenses and professional fees.

Net loss for the fourth quarter ended December 31, 2013 was $3.7 million compared to a net loss of $3.1 million for the same period in 2012. The increase in loss reflects lower licensing and milestone fees of $0.6 million earned in the fourth quarter of 2013.

Net loss for the full year ended December 31, 2013 was $60.3 million or $3.85 per share on a fully diluted basis compared to a net loss of $8.6 million or $118.86 per share on a fully diluted basis for the same period in 2012. The 2013 net loss includes a loss on the settlement of convertible notes of $48.6 million and related accrued interest expense of $1.2 million. These non-cash charges are reported as other expenses in our 2013 earnings.

The weighted average shares outstanding used to compute earnings per share was 15,645,789 shares for the year ended December 31, 2013 compared to 72,302 shares for the year ended December 31, 2012.

Based on current operating plans, we expect to have sufficient cash to fund research and development programs and operations through 2016. We expect to end 2014 with approximately $54.5 million in cash and cash equivalent.

We’ll now open up the call for your questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Jason Kantor of Credit Suisse. Your line is now open.

Jason Kantor - Credit Suisse

Great. Glad to be participating in your first inaugural call here, couple of questions, first on the financials. What goes into that year-end cash guidance in terms of milestones or new partnership revenue; what’s included, what’s not included?

John Kuch

Well, generally we have some annual licensing fees that are a part of the transaction where a partner has to pay us a recurring fees to keep the agreement, we have those, those are fairly committed. And then we have some near-term milestones that we feel fairly confident of. There is a pool of milestones that we are eligible for and we take a very small percentage based on informal information we may get from partners on status of a program. But it’s a very low level relative to the total amount of money in there.

Jason Kantor - Credit Suisse

And I mean is it also - are there other milestones that could potentially be achieved in that timeframe, but are not included in that because you just don’t know?

John Kuch

Yes, absolutely. There is additional milestones that we are eligible for, but we may not get or we may get in converse - in addition we do not have any new transaction that we may get during the year. So the way we view it, it’s fairly conservative estimate of revenue on a cash basis. Now remember this is just cash revenue not necessarily revenue reflected for financial reporting purposes.

Bassil Dahiyat

Yes. One point to note is many of our partnerships are these technology licenses where we literally hand off the technology in a controlled license and it’s up to the partners to do what they will and he have no impact or influence on the further activities. We think it’s appropriate to take a conservative approach in projecting revenue out of this.

Jason Kantor - Credit Suisse

And then when somebody licenses those products to somebody else like in the case with Janssen that your royalty just follows the product, there is no change in that relationship?

Bassil Dahiyat

Yes. Typically what happens is there is an obligation that our licensee has to us and so long as they maintain those financial obligations like royalties and milestones to us, how they structure it with any flow-through or not with their partner, we’re agnostic.

Jason Kantor - Credit Suisse

Okay. And then finally on the IgE program, you’re committed to having some data by year-end and I am just wondering will that just be in the normal volunteers or will that also be in the high IgE volunteers? I guess the crux of the question is should we anticipate an IgE reduction result if that’s something that we will see with this drug?

Bassil Dahiyat

Well, we are committing to having the healthy volunteers data by the end of this year. But note that healthy volunteers have quite measurable IgE that is – it’s measurable; its reduction is measurable as well. So we’ll certainly have IgE reduction data. The question is whether we will have such data from patients at start up at very high level, but a normal volunteer, the range of normal IgE levels in healthy so to speak non-allergic patients overlaps with a number of allergic patients, right. So there is a range of healthy IgE levels that some of them go somewhat high, even the lower ones are readily - the changes from our [agent] [ph] we expect to be readily measurable.

So there will be reduction data, we are -- is what we're committing to. How high that IgE might start from is up to how the clinical trial progresses.

Jason Kantor - Credit Suisse

Got it. Okay, thanks.

Bassil Dahiyat

Thank you, Jason.

Operator

Thank you. Our next question comes from the line of Michael Schmidt of Leerink Partners. Your line is now open.

Michael Schmidt - Leerink Partners

Hey thanks for taking my questions. You mentioned to start IND-enabling studies for a CD123 bispecific antibody this year. I was just wondering if you could comment some more on how you envision the pipeline to expand over the next couple of years, when are you -- when do you think you can get into the clinic with that agent? And then what is the status of the CD38 bispecific product that’s listed on your pipeline chart as well?

Bassil Dahiyat

Right. Well, we're not -- we haven’t committed to either the CD38 or the CD123, which are two research leads for our bispecific platform. We are certainly going to initiate one of those two into IND-enabling studies by mid this year and we would expect them to be able to file an IND for one that we select to go forward entering 2015.

Now both agents share the approach of recruiting cytotoxic t-cells through binding CD3 on one arm of this Fc containing molecule and then the tumor targeting antigen on the other arm in the case of the CD123 that would be for AML for the case of the CD38 that would be for multiple myeloma.

So what we're doing is, we're sort of progressing these and keeping in mind our organizational capacity for driving programs forward pursuing an IND that we can get going next year to follow on from the IND for 7195 that we are fast approaching the filing of this year. And as we go forward, we're going to continue to work to advance agents into the clinic, we think our research pipeline is rich, there is other things of course we're working on in discovery that are behind these two bispecifics we mentioned.

We think bispecifics are going to be a big part of what we do. But we don't have any commitment yet on what the next agent might be after one of these two or whether we might advance both of them at different with one of them coming on at a different timeframe. We're still sorting out our plans with the commitment for the one to kick off the IND-enabling work this year.

Michael Schmidt - Leerink Partners

So it sounds like you are not committed on 123, it could be either of the two?

Bassil Dahiyat

Correct, it could be any, now we're continuing to see which we think is going to have the best profile for differentiation et cetera. But we're excited by the activity we're seeing for both already in our preclinical studies.

Michael Schmidt - Leerink Partners

Sure, okay. And then on the rheumatoid arthritis Phase 2a data that you expect to report in the second half of this year. So what data exactly are you planning to report? And so how would a result or a potential [result] [ph] influence your next steps in that program?

Bassil Dahiyat

Right. So, the data we're expecting to report is, this is a Phase 1b 2a study, where there was basically that multiple ascending dose study was a Phase 1b, where we added an additional cohort of patients at all the same dose to be at Phase 2a portion. And so the primary, one of the primary outcome, results outcome is going to be of course the safety pharmacokinetics of the agent.

In addition, we are examining the disease response criteria that are standard in this field; the primary one we are focusing on is the DAS28 score which is a measure of rheumatoid arthritis disease activity, a version of the DAS28 score that incorporates also quantitatively the levels of serum marker CRP. We are examining other metrics of disease response such as ACR 20, 50, 70 scores. And we are looking at reporting the primary -- exploratory outcome measure of the DAS28 plus CRP.

Michael Schmidt - Leerink Partners

And then….

Bassil Dahiyat

Sorry, I was going to follow-up. Go ahead.

Michael Schmidt - Leerink Partners

Yes, go ahead, sorry.

Bassil Dahiyat

So in terms of how these colors are taking on development this was really as in conjunction with our collaborative work with Amgen, a way for us to examine how we impact a particular disease phenomenon, in this case RA with this utterly new mechanism of action. And we know we can inhibit B-cells from our prior clinical study in Phase 1a in a way -- in a completely novel pathway, nobody that we are aware of has targeted FcγRIIb which is a real driver of the activity of the drug, nobody has been able to access that pathway to see what happens when you do so in the clinical setting.

And so we are excited by the activity we have seen. Now this is -- let’s just take a step further and examine disease modifying activity in a particular disease. I think certainly, the results we will see will color our thinking on how to drive forward subsequently in RA, where RA considering based on what we know of the activity of the agent at suppressing B-cell responses in humans considering how we can potentially expand the clinical development program into additional indications, again subsequent to finishing this trial.

So I would say it gives us a partial picture focusing on the profile that might have in RA, again it’s a small phase that is not going to be definitive in any sense but it does give us an education on that disease which will cover I think in another diseases but it’s not the full picture. We are also examining based on our Phase 1 data other areas we can start pursuing, it’s like the true autoantibody mediated diseases.

Michael Schmidt - Leerink Partners

Sure, okay. And then I guess so, what is your overall thinking on the asthma market longer term? We have recently seen some positive data from Glaxo’s mepolizumab in eosinophil high patients. How do you think the market is evolving and what role will IgE inhibition play in that market?

Bassil Dahiyat

Yes. So that’s a great question. We think that the asthma marketplace, in particular now we are talking about the more severe types of asthma, the more severe manifestations that are generally fully controlled with existing inhale therapies and it require long-term steroid use which is where all of these agents are initially targeting at least. So we think that IgE is still the only truly validated target in this disease and it’s been validated by Xolair’s use.

After a lot of attempts and a lot of years, some of these interleukin targeting therapies, IL-5 like you mentioned, the mepolizumab or the IL-4 receptor targeting therapies that are coming on, that have reported Phase 2s recently are starting to show initial validation for those target axes. And it’s going to be really interesting to see the breadth of population that these agents address as they continue development as they are going to be able to expand away from sort of the eosinophil disease from mepolizumab or they not. But in general, I think this is going to fit into a renascence for severe asthma patients where there have really been very few options, Xolair really being one of the only ones. And I think it’s going to be fantastic for patients and I think there is a lot of opportunity for all, in particular targeting IgE which is established or validated is an utterly distinct pathway that impacts disease relative to say IL-4, IL-5, which are involved in more upstream immune disregulation, we’re way downstream at the allergic response space.

So I think this huge need and better treatment, there is going to be places for all. And we think that the leading paradigm is still and we believe will remain IgE blockhead and how these pieces all fit together around that, it will be interesting to see evolve over the next few years.

Michael Schmidt - Leerink Partners

Got it, alright. Great. Thank you.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Chris Marai of Wedbush Securities. Your line is now open.

Chris Marai - Wedbush Securities

Hi, good afternoon. Thanks for taking my question and congratulations on your IPO in the quarter. With respect to 7195 and IgE lowering therapies, obviously Xolair [has muted] in asthma, but I am wondering several studies have been looking at it in different indications. And I am wondering how you guys are looking at 7195 beyond asthma and specifically maybe what indications? And then at what time point will you expect to hear decision on a path forward in a clinical setting after your data here at the end of the year? Thanks.

Bassil Dahiyat

Thank you, Chris. There are number of other disorders, systemic, allergic disorders that Xolair has demonstrated some kind of activity and most recently in chronic idiopathic urticaria which is severe hives but let’s not minimize it. This is hives that people are so profoundly effective about it taking suppressive drugs or whatnot. And IgE is important and that disease in Xolair has demonstrated activity there. There is activities in other allergic diseases such as nasal rhinitis, such as food allergy et cetera.

We’re going to focus on establishing in this initial Phase I program, the dose and schedule that we are, we find optimal for controlling IgE. And we can use that IgE control measure which we can monitor in our Phase I studies very easily, we can use that to help determine as best we can these dose parameters and schedule parameters, so we can then design the right approach for Phase 2. Certainly asthma is going to be at the center of our development, we know that.

How we view toward the specifics of that asthma program, how we view maybe incorporating something like a dermatology focus maybe in urticaria or examining some of the other respiratory disorders that are related to asthma such as rhinitis, it’s going to depend on what we learn from this Phase I program. So I don’t think we would give any guidance on that sort of the avenue of approaches we’re going to take until we’re well into 2015 and have a feeling from our multiple ascending dose study, a better idea of these sort of parameters, the dose schedule, the duration of action, the sort of degree of IgE control we’re seeing in humans et cetera. That will be very informative.

Chris Marai - Wedbush Securities

Right. And then and with respect to your differentiated mechanism of action in lowering IgE levels, and I was wondering have you looked at other opportunities where maybe Xolair has failed, so maybe, I don’t know, minimal results, is that something that you guys are going to be taking a look at some point in time in 2015 as well? Thanks.

Bassil Dahiyat

I don’t think we will be looking at any clinical studies outside of our Phase I program during 2015. We do need to establish safety in the multiple ascending dose setting which will take most of 2015 if not all of 2015. I think -- but again to go back to what you sort of said, places where Xolair has lacked in results; the central part of our asthma approach is that Xolair right now because of its potency, its amount of potency is limited to a set of patients where when you measure their IgE, their IgE is within manageable levels, manageable based on the historical data with Xolair can control. This is built and it’s a label on Xolair. So, it’s only indicated for the patients who have IgE within a certain range and body mass within a certain range, so you can be sure you can put enough Xolair into them to control their IgE.

Anywhere from 20% to 30% of patients have too much IgE and can’t get Xolair. So right there, even within asthma is an opportunity where you could -- Xolair is there, right. And that’s an opportunity where based on our work in vivo model pre-clinically, we believe 7195 has great potential to reach those patients, because our new mechanism of action seems to control IgE levels much better. So they can control IgE starting at much higher levels and they can drive it down to much lower levels and you can achieve with a simple kind of blockade mechanism that have for first generation monoclonal antibody has like nowhere.

So, I think there is built in cellular places where Xolair stealth opportunities there and there is others in various allergic diseases. But we need to establish dose, schedule, of course safety as well, and understand how we get the IgE in detail. And that’s what this Phase 1 study is going to do. It’s going to be a powerful Phase 1 program to really guide our next steps in development. We’re going to have a lot more information I think than most biologics programs will about these issues launching into Phase 2, again because of the ability to measure IgE.

Chris Marai - Wedbush Securities

Okay, great. And then that’s I guess too quickly, but with respect to the Phase 2 trial, I mean given that the expense of the results that to see from your Phase 1 and multiple ascending dose Phase 1, do you see potentially a pivotal Phase 2 trial design that you guys will be running or if you’ve seen to…

Bassil Dahiyat

Well, it certainly would not be a pivotal Phase 2 study in an asthma setting. We believe that the requirements for safety databases are going to be substantial, because while asthma is a debilitating disease, it is not generally being a fatal disease such as severe indications like oncology. So, that would not be the case. How we structure that Phase 2 and how close that first Phase 2 adheres to what would be -- what would look like a registrational study in Phase 3 so that would have matched the population and duration period et cetera versus maybe being shorter pilot study, that’s what we need to sort out. And we are working with the group of KOLs to really kneel that down. But there is really no chance we believe in even with severe asthma setting for any kind of accelerated pathways so to speak.

Chris Marai - Wedbush Securities

Okay, great. Thanks for taking my questions.

Bassil Dahiyat

Thank you very much.

Operator

Thank you. I’m showing no further questions in the queue. I’d like to hand the call back over to Bassil Dahiyat for closing remarks.

Bassil Dahiyat

Thank you very much. As I mentioned, 2014 has some exciting milestones for us to look forward to and we’re working very hard at Xencor to achieve those. And we expect to report first Phase 1a data on IgE levels from our XmAb7195 trial, as well as top-line data for XmAb5871 in our Phase 2a rheumatoid arthritis trial by the end of the year, in addition to launching the real development work, the IND-enabling development work for our first bispecific by middle of this year.

So thank you very, very much for joining Xencor’s inaugural earnings call. We are very excited by our newly mentioned public company status and we are very grateful for the support we received. Thank you very much. And I look forward to updating you again soon.

Operator

Ladies and gentlemen that does conclude today’s call. You may all disconnect. Have a good day everyone.

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