XOMA's (XOMA) CEO John Varian Presents at Bank of America Merrill Lynch 2014 Healthcare Conference (Transcript)

May.15.14 | About: XOMA Ltd. (XOMA)

XOMA Corporation (NASDAQ:XOMA)

Bank of America Merrill Lynch 2014 Healthcare Conference Call

May 14, 2014 1:10 p.m. ET


Paul Rubin – SVP, Research and Development & Chief Medical Officer

John Varian – CEO

Unidentified Analyst

I think we are ready to start. Hi, good afternoon. Welcome to day two of our Annual Health Care Conference, here in Vegas. This afternoon, we are happy to have with us Xoma Corporation and without further ado. It's my pleasure to introduce you to Senior Vice President and Chief Medical Officer of the company, Paul Rubin, who will present the Company's story to you. Paul?

Paul Rubin

Thank you. Thanks so and thank you all for coming. So just before, we begin as always, I'll just let you know we will be making forward-looking statements. I know this isn't unique to us, but we're continuing it. So those of you that are familiar with Xoma's know that, the Company's been around for quite a few decades in actuality and it's probably during that time, it's been through few iterations, but I think over last three years in conjunction with CEO, John Varian who's sitting there among you.

We have really changed the concept of the Company and the story and the strategy, in order to try to capture more to value that Xoma actually creates, we've been I think a very potent discovery engine for a long time and we just decided that we wanted to put in a strategy that would allow us to take that very good discovery science and capture more to value for the Company and its shareholders. So that's a bit of what we will be talking out during this presentation.

Our lead asset is a monoclonal antibody directed against Interleukin-1 beta and this was a molecule that was discovered by our scientists and by virtue of the fact that is a Novel Anti-Inflammatory agent there are literally hundreds of potential indications that you can pursue with this.

So in fact, we've kind of view it is as a pipeline in a single product and that you can, you have the option of ultimately using this drug in the same dose administered the same way for a whole host of indications and in fact our strategy is to put this compound into these diseases and then allow data, from Proof-of-Concept trials drive what our indications will be as we go into pivotal trials and ultimately lead to market utilization.

So our lead indication for gevokizumab right now is non-infectious uveitis and we actually have two trials in all common non-infectious uveitis that Xoma is responsible for running. We've recently made an announcement that we've decided to go into second pivotal program looking at pyoderma gangrenosum, which is a very severe painful inflammatory skin disease and we will talk a bit more about that.

And we have a whole host of additional Proof-of-Concept trials that are ongoing and our next choice will come from the data derived from those trials. Our partner Servier, who has rights for this compound outside of the United States and Japan is running, a third uveitis trial that specifically and patients that have uveitis, secondary to an underlying conditions known as Behçet disease or EYEGUARD-B.

They also have a very active cardiovascular program going on and again a series of additional Proof-of-Concept trials. So in effect, we have multiple chances somewhere around 10 or 12 different trials going on, all of which could conceive we provide additional value and additional indications for the compound in the company.

So let's talk about non-infectious uveitis. Uveitis is an inflammation of the lining of the eye and this lining starts in the front. You can see all the way around the ciliary body and iris, where the color part of the eye is all the way to the back and it can be inflamed anywhere along its course, but if that inflammation is in the back part of the eye, you can't reach it with eye drops and you have to treat, with a systemic anti-inflammatory agent such as gevokizumab.

And that's non-infectious uveitis, has to be posterior in nature involving the back of the eye and that's the target of our clinical trials and openly that will be the market target going forward. It has a patient population or prevalence of about 150,000 in the United States. So it meets orphan criteria, but there is enough patients that it makes development possible and also it's very attractive market from a commercial perspective and we have received orphan status for this particular indication.

So it has a number of signs and symptoms that are typical of inflammation and interestingly, we've seen that our drug in our first pile of trial and a subsequent cohort totaling about 28 patients that have , a Behçet Uveitis and that's Uveitis associated with Behçet and we've seen very marked and rapid reversal of that inflammation and this is kind of typical picture that you're seeing, see the picture all the way on your left, shows the accumulation of white blood cells or pus cells in the front of eye and kind of skewing of the pupil.

And you could see that, within four days that's four days after a single doze. This has completely reversed. Another way you can look at this and this is another important sign is because this is, the endpoint for our pivotal trial and EYEGUARD-A active study that we are doing, but you can actually view through the pupil and try to recognize the anatomic structures in the retina and if there's significant inflammation, there's an accumulation of protein and cells and it makes it hazy or cloudy and difficult to view these structures and you can actually grade that cloudiness on a zero to four scale and that's called vitreous haze.

And again, you can see and this is again a typical patient in fact, we've seen responses and about 80% of the patients that have this type of sign, in Behçet disease in our Proof-of-Concept trials, but as you can see by day 21 there is complete clearing.

So this patient would have counted as a responder in our pivotal trial and as I mentioned, we saw this pretty consistently in our cohort of patients that we tested the drug at. We have three pivotal trials ongoing as I mentioned and we believe and we've had conversations with the FDA, that any two positive trials could suffice us the basis of BLA submission.

So any two of three, if positive would be enough we believe for a successful submission to either FDA or EMA or any other regulatory and as you can see, EYEGUARD-A and EYEGUARD-C have 300 patients in that. in those two particular trials because all common Uveitis, we actually have a dose range in components, so there is two doses as well as placebo, EYEGUARD-B is a bit smaller and that is in Behçet Uveitis there is fewer patients and we only have a single dose versus placebo.

So you can also see the expected times, that we think that we'll have data. The one that will be done most quickly is the EYEGUARD-B, that this is the study that's driven by events – we know the study is over when a certain number of patients have actually worsened in any of the groups and we believe that number of events would have achieved in June and then it would take a certain period of time to accumulate the data and analyze, so we are estimating that we can have that data sometime, this year somewhere around third quarter and then you could see the times for the other two.

So our second pivotal indication is pyoderma gangrenosum. In pyoderma gangrenosum, is inflammatory as I mentioned. Its inflammatory ulcer in the skin, it's usually in the area on the shin. Most commonly, although it can occur anywhere in the body. It's severely inflammatory, severely painful. It's in the absence of any infection and patients generally require prolong high dose anti-inflammatory therapy in order to reverse the lesions of this disease.

It can occur in the absence of any other underlying disease or about half the patients have an underlying condition such as inflammatory bowel disease or rheumatoid arthritis about 50% of the patient's have a single episode. They're treated and then, it never occurs the other 50% actually have recurring disease usually through a lifetime.

We have done some work on trying to size the market and we have pretty reliable data that in the United States. At least in the single calendar year, there was between 11,000 and 14,000 individual patients treated. So although, it is an orphan it's more on the lower prevalence orphan side, but again there are enough patient's and they're treated in specific centers that we believe we can have access and do relatively facile clinical program and we've spoken with FDA's to what this would be, we intend to start two pivotal trials as soon as we get our final feedback from FDA and those trials would be approximately nearing 50 patients to 60 patients range each.

So, fortunately we're not serving food, but you can see how severe these lesions actually are, but also what's remarkable is the rapidity of the response that we saw with this drug. So these are two our initial Proof-of-Concept trial, was a half a dozen patients that we saw very consistent response among these patients and you can see, as I mentioned with high-dose corticosteroids average time to healing 11.5 months.

We saw complete [indiscernible] with complete closure to wound and they started to improve within a couple of weeks and saw complete closure in majority of the cases, within 84 days. So again, according to our experts this was considered a remarkable response and provided the impetus for us to initiate these clinical programs.

So this is – one typical profile, patient this is another again. Again, this is one the lower extremity and you could see how severe the lesion is and again, they're very, very painful when you look at them. So this is just roughly represents each individual patients and you could see of the six patients, we treated four had a very quick and complete improvement in their lesion.

Patients that did not respond, in a retrospect we had his photographs looked at by experts and said this was not active pyoderma gangrenosum and in fact, we're going to take that lesson to help the design of our subsequent pivotal trials and then the patients that only got a single dose, actually did get a secondary skin infection, which is very common in this disease.

So by protocol, he can no longer get any more doses. Interestingly, he got steroid and did completely heal by day 84, although this was in combination of the two but except steroid alone usually takes 11 month. So this is still I think a pretty impressive response.

All the patients had improvement in pain. I think that pain improvement is probably driven by two things; one obviously by controlling information, you can control pain, but there is also data suggesting that IL-1 beta serves as almost a sensitizer of nerve endings. So it has an anti-pain or antinociceptive effect.

And in most conditions, where pain is a factor that are also driven by IL-1 beta. You will see improvement in pain, such as gout which is been showing that the pain can improve with an anti IL-1 beta, as well. So as I mentioned, Xoma has been a pretty active discover of monoclonal antibodies for quite some years.

And in fact, in addition to juggle gevokizumab, which as I mentioned our lead asset. We've been quite productive in finding new and notable compounds as well and we've had a program in place that was directed towards interrogating the insulin receptor. Looking at antibodies that bind to the receptor but bind in an area that is not where insulin binds.

So in fact, you could alter signaling while still allowing insulin to interact with its receptor and that's called allosteric modulating or allosteric binding, which is also a key tool for the Xoma discovery group.

So the XMet program, which stands for Xoma Metabolism actually derive three separate classes of compounds. One, we are XMet A, since it stands for XMet Activator and this is monoclonal antibody, that when you look in the literature and you look on the market. The majority of monoclonal antibodies are antagonist, they block.

So it's very rare to find antibodies that actually agonize or stimulator receptor. So in this particular case, in XMet A we found an antibody binds to the insulin receptor and it actually acts as if it’s a long acting insulin, but with some real distinct benefits.

In addition to the duration of the activity, which you might only have to do a few doses per months as oppose to daily. It has a very low propensity to cause hyperglycemia, which are one of the major issues of insulin, that where you control blood sugar, the therapeutic index is very, very small and it's not uncommon for patients to also get the following hypoglycemic especially the elderly if they're not eating right.

So in fact, this could be a big advantage and the other advantage to this. It has a signaling biased and that's the insulin receptor actually has two functions. At least, main functions that we are aware of. One is the control of sugar and that everyone knows about, but it also causes hyperproliferative effect, which is involved in things like, heart disease, purple vascular disease and inflammation.

Now interestingly, this XMet A unlike insulin only stimulates the glucose control part without an effect on the hyperproliferative effect, there with somewhat negative effect. So it has something again, which you called biased signaling, which is present in this model, but also something that Xoma's taken advantage in other programs that we are looking at going forward.

So that will be a very novel, I think additional aid for the treatment of patients with Type 2 specifically or possibly with Type 1 diabetes. Now XMet S is one of the Holy Grail's of diabetes research and that this is a monoclonal antibody, that again binds to a part of the receptor, where insulin doesn't that increases the sensitivity to an insulin, in an insulin resistant state.

So we know that, Type 2 diabetes is typified by insulin resistance and in fact, sometimes it's not a lack of insulin, they actually have too much insulin in their body, which causes other issues. So this particular type of molecules, actually restores the sensitivity when there is insulin resistance. We only have good data in rodents proving this concept.

I forgot to mention that, with XMet A, the first one we actually have really nice data showing this benefit in spontaneously diabetic monkeys, which were told is very predictive of what will happen in the human condition. So we are very optimistic that A&S will be very attractive to a partnership with a larger company that has more resource to do, these Type 1, Type 2 diabetic trials.

So our aim to get these to a link pre-clinical stage. Really kind of workout the manufacturing and then look for a good partner up, to along this and these types of activities are ongoing. Now the third class, is one that we intend to actually develop and market because it fits exactly with what our business strategy is right now and that's XMet D or D activator.

And this particular molecule, actually decreases the sensitivity of insulin towards receptor. So you ask, why would you want to do that. well, it turns out there is a whole series of conditions most from our severe and orphan in nature, but they're typified by the body making too much insulin and as a result, getting profoundly low blood sugar or hypoglycemia that causes, seizures, passing out or syncope.

And in children, that have this, they could end up with significant brain damage and in fact in – the one indication which is called general hyperinsulinism, which is a disease that's related 10 or 12 different genetic defects and it's about 150,000 life births. It's about two times as prevalent in Europe, but in this particular case these kids are from the day they're born, have issues with hypoglycemia and in fact the parents are so afraid that they don't feed their child, child will get seizures and brain damage. You can imagine the morbidity of living with something like this, and the expense of taking care of this. Plus these patients are treated in very specific centers.

So we again have good access to study this. It will be a very high value disease, that's just for one then they're other indications including something called insulinoma, which are tumors that are of the beta cells or the insulin producing cells, which the tumor itself is relatively ambulant, but the symptoms associated with hyperinsulinemia are found.

So this is another compound that we will have in the clinic this year. We are in target to start clinical trials this year. And again, it’s a super low prevalent orphan disease, high morbidity, high value added program.

So in summary, you can see that. We are trying to take advantage of a pretty significant set of assets. Starting with gevokizumab and you can see all the diseases that we're trying this in, so we have multiple chances of success and again that's by design. They don't all have to work for the drug to be a very significant value creator for the company.

So in addition, to what we're doing. You can see the diseases, we're in or either have completed Proof-of-Concept or are in the process of completing. We also have XMet D for this intrinsic hyper in 20 next States, that will be in the product, but then also the added value of our partner Servier doing additional trials for gevokizumab to create even additional opportunities for the drug in the company.

And we have of the rights to access any data that they create. So we have there, we can share the results of their activities in addition to what we're doing. And then we also have two – if you think, will be interesting partnering candidates that include the XMet A or the insulin activator as well as XMet S Insulin Sensitizer

I'm just saying those are kind of in mid-to-late pre-clinical development and we should be able to realize value out of those assets as one. Just from a financial perspective. We ended the last quarter or March 31 with $92.7 million in cash. We believe, we have enough cash that will also allow us to turnover these value creating currents.

So we can get there, get the company to the next value point with the existing money that we have right now. Now, we have about $107 million shares outstanding. Right now, we have a very solid investor base some of the largest biotech investors are now active part of our company in our investor base and this is the change from the where the company was, few years back.

So we have good long-term investors who have good vision, is to what we're trying to accomplish. So meaning what we're trying to do first is to create value out of our lead asset which is gevokizumab and we're doing this on multiple front and we already have seen the fruits of some of this very intense efforts, that's gone into this date.

We have it in one pivotal program. We are about initiate a second pivotal program in very high value diseases that would warrant this type of premium biologic. So we have Uveitis and you could see the program. We have the pyoderma gangrenosum and missing the pyoderma gangrenosum which I didn't mention. Is that, it is actually one of series of related inflammatory skin diseases.

So pyoderma gangrenosum is in a group called, neutrophilic white cell dermatosis or a disease of skin and they all seem to be, have a common element in that. They have the infiltrate of neutrophils, but they all seem to be, they have IL-1 beta component. So we believe, if we validate our Proof-of-Concept trial in this pivotal trial or just the data that we are seeing so far for pyoderma gangrenosum. Probably decreases the risk of success in these related conditions.

And we intend to look at those over the next few months and years as well to really leverage creation of a dermatologic franchise. And then we're continuing look as we said and then do, especially once we build commercial infrastructure. We have the ability to – we already have an existing pipeline and we have the ability to fill that pipeline with our own intrinsically discovered and developed products.

Plus -- other I think which actually attracted me to come to Xoma in the first place, is that we are very good at the manufacturing end, the biologics. And especially, in a small company if you can control your own product that is one of the most important gaining factors for development. So that's also a unique asset for a company of this size that could actually make their own stuff and who're actually quite good at it.

So I think that's all I have to say right now.

Question-and-Answer Session

Unidentified Analyst

All right. Thanks very much. Well with that. We can open the question-and-answer session and I'll open it up to the audience that. If there's anybody that has any questions. And if not or while you're thinking about them. How about I kick it off, with one on gevokizumab. In non-infectious Uveitis. Your first, the pivotal trial as I understand it.

Your enrollment timeline, I think and correct if I'm wrong and EYEGUARD-A and EYEGUARD-A have been extended a little bit because enrollments have been challenging due to finding patients and from my reading, it seemed like some of the challenges were associated with the fact that.

There was a particularly high prevalence of patients in geographies where, it wasn't actually feasible to go ahead and recruit patients and conduct trials. India, specifically as a geography where is particularly eye prevalence. Where conducting a trial wasn't necessarily feasible.

And I'm wondering, if you think that there is any read through to commercialize it, potential commercialization implications that you've observed in development. So if there's a challenge in recruiting patients in India for example, where you think you'll find particularly high numbers. Is there going to be a challenge in terms of accessing and treating those patients should the drug be approved?

Paul Rubin

Okay, that was a multipart question. I think first of all, let me clarify. We will be having centers in these other countries that higher prevalence in patients, just the administrative aspects of getting up and running were a little more challenge than we anticipated, but now we've resolved most of issues associated with that.

So in fact, those countries where you do see a disproportionate number of patients that that file for these trials, will be online either now or very soon. So it is that. I think that, the difficulty in enrolling patients has very little to do with the ultimate commercialization of the product. The difficulty comes from artificially imposed entry criteria by the regulatory agencies, which has little to do with the way that doctors actually treat these patients.

So for example, now we're obligated to enrollment patients in the active study that have at least two out of four on this [indiscernible] scale. Now the problem is doctors don't wait to get a [two] before they starting treating with systemic anti-inflammatory agent. They will start with the one, so to find patients with [two], it's very hard for the study. It's an artificial impulse [indiscernible], but in fact the number of patients that get systemic anti-inflammatory is far greater, than the ones that were seeing or that can actually qualify for our trial.

Unidentified Analyst

So you think that it’s a technical difficulty.

Paul Rubin

It's a technical issue related to artificially imposed enter criteria that have, for better or worse that becomes standard for these trials. Interestingly, there is a committee of experts in the United States that intent to meet with FDA later this year to just to talk exactly about that and try to change FDA's new [reform] how to these trials, unfortunately it's too late for us.

Unidentified Analyst

Got it. Okay and then a question if I may on PG and I'm just going to call as a PG because I will definitely mess up the pronunciation, but do you think are there any other unique factors that govern the identification and recruitment of patients for enrollment in this trial? Is there anything you need to consider there, as you think about timelines and is there any sort of proxy that will help us roughly or an analog that helps us roughly understand, what the trial is going look like in terms of how long it will take or how to think about it?

Paul Rubin

Will answer the last first. We're actually are following the guideline, there's actually FDA guidelines that deal with the treatment of dermatologic ulcers and in fact the guidelines state, that the only acceptable primary endpoint is complete closure or complete up utilization. So we will have that and initially, we're little concern about that is too high to hurdle until we saw the data from our first handful of patients.

So in fact in some ways, we are glad that we can use as our primary endpoint because the placebo response rate for that endpoint is virtually zero. So there has been one control trial, to see what the control trial has done with [Infliximab] and in that particular patient, the placebo cohort had zero responses and then that's the same thing, we are hearing from our experts for the most part, with the exception of very small lesions.

So where they rarely see or in fact someone say, they've never seen a patient say I have lesion and it's spontaneous resolved. They will sometime see patients that have small scar that looked like they might have been ulcers, but they're very little. So I think the lesson from that, is to make sure that we have a lower limit, with the size that we'll include in trial.

So that's one lesson that we've learned. Now we don't know how long it will take to recruit that's a question except to say that to get, the initial patient cohort. It's just a few centers and it happened actually quite rapidly. So even though, this is a relatively uncommon disease. Again these patients seen by literally a few tens of doctors, see majority of these patients.

So we can focus on those centers and there are also no competing trials, unlike Uveitis where there are multiple competing trials. So this particular indication will be the only game in town and the data that we have today that's actually been presented and discussed among treating physicians and we're already getting request for the drug now, on a regular basis.

Unidentified Analyst

And then, I may have a bit of bigger picture question given that you actually for the last pivotal trial going. You've got another pivotal indication coming up. How do you think and this is not a specific question on pricing at all, but how are you thinking about pricing in the context, your lead indication is an orphan indication, the PG for example is what I would call an ultra-orphan indication and how do you think.

I mean, clearly picking the orphan territories important in that bracket pricing in and of itself, but how do you think about differentiating or sort of unifying pricing around, what I consider pretty large differences in market prices?

Paul Rubin

Well, I'm not going to talk quantitatively, although more quality and you could imagine the price will be inversely proportional to the size of the market, which is prevalent to the disease and also the price that we come out with really is the function of, what's the first indication that's approved or marketable.

So if you have the very low prevalence indication that comes out first. You could charge a higher price going on and then as additional indications come out. As their problems increases, you would actually do a model to determine the price point that will give you the most revenue.

Unidentified Analyst

Sure, it's easy if you stop from the smallest indication.

Paul Rubin

So what we'll do is and our strategy is to allow, so we're starting with small ones first.

Unidentified Analyst

Okay. All right and then I actually just got a housekeeping question on cash fund and I was – probably if you could confirm what the timeline for EYEGUARD enrollment that is factored into your $55 million, $65 million I think it is cash flow into 2014. Does that contemplate enrollment in both of those on your end obviously [indiscernible] within 2014?

Paul Rubin

Well, firstly remember that SERVIER is paying for 50%, but I don't think we believe that the adjustments that we've made will affect our runway. Is that fair turn?

Unidentified Analyst

All right. Great. That's all that I have, if we have no other questions from the audience. Thank you very much for your time.

Paul Rubin

Thank you.

Unidentified Analyst

We certainly appreciate and I hope everyone enjoyed for the rest of the day. Thank you.

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