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XOMA Ltd. (NASDAQ:XOMA)

Lazard Capital Markets Healthcare Conference 2011

November 15, 2011 1 AM ET

Executives

John Varian – Interim CEO

Paul Rubin – VP, Clinical Development and Chief Medical Officer

Operator

[Starts Abruptly] introduce John Varian, who will be presenting to us today about his company XOMA.

John Varian

Thanks Colleen, and thank you to Lazard for having us present here giving us the opportunity to talk about XOMA and some of the new changes that are going on there. I joined the company at the end of August as the interim CEO. I've been involved with XOMA for the last nearly almost 3 years as a board member, and during those 3 years our focus has been on really one thing. XOMA is a company that over the years has had terrific science but there is a belief among the board and I think many others that XOMA has not really benefited as much from its own discoveries as it should have and so our focus has been on changing that making sure we are in a position to benefit from our own discoveries.

We’ll be making forward-looking statements of course today. So if you look at the assets that we have at XOMA the primary asset the thing that most people are focused on is XOMA 052 and it has just received its official name which is gevokizumab. So gevokizumab, it will be 052 we’ll be saying it that way today. Gevokizumab targets IL-1 beta, which is a validated anti-inflammatory target. We will be talking primarily today about an announcement which we made last week, which is a combination of really two things that we are implementing to build more value around gevokizumab.

First of all, we have an expanded phase 3 program expanding beyond the original indication that was planned for it to make it broader and to noninfectious uveitis, and we will be talking more about that through today's presentation. The other thing we announced last week is that we’ve launched a proof of concept program where we’ll be taking different indications and testing gevokizumab in those indications, so that we’ll have good information flow and be building the value of gevokizumab over a shorter period of time.

Paul Rubin is going to speak in great detail about both of those things. One of the most important steps that we took in retaining more value around our own assets was the collaboration that we entered into at the very beginning of this year with Servier. Servier is unique in that there are a $5 billion plus company. I didn't do anything -- I did nothing. I didn't touch anything, I didn't do anything. Well, we’ll be back in our case. Okay. So this collaboration with Servier was very important because they are a company that's again a $5 billion company but they will allow a company like XOMA to have full rights in the United States, and so under our collaboration with Servier, we have full rights in both US and Japan for all indications for gevokizumab except for diabetes and cardiovascular, but even in those indications we have the right to buy back rights in those areas all the way through and even past announcement of phase 3 results.

So again it's a company and a collaboration that gives us rights in the US for our assets. Servier will be starting, in fact their specialty is cardiovascular. They will be starting a phase 2 study in cardiovascular, sometime probably mid-year next year. The other core assets of XOMA are preclinical assets, which we just really started to present at conferences and it has just been published in a paper even as of yesterday. It is called our XMet program. It's a program around insulin activation, and so around sensitizing for better effect from insulin.

So it's another program where we will be seeking a partner in the future to help us develop the program in that area. Our technology has been providing over the years a great deal of financing for XOMA, our technology we are able to license to others so that they can use it as part of their discovery too. In addition we have a biodefense program, which has -- we’ve contracted a total of about $120 million in biodefense, what that does for us is it allows us to do things we would want to do anyway but have it paid for by the under the contracts of US government.

So since I've been at the company again since the very end of August as the interim CEO, we’ve really worked with the management team to focus on how do we build value around our key assets, and again we will be talking about that much more today. The other thing we've done is we put in place some initial cost reductions. There will be a further streamlining of activities at XOMA as we look and focus our efforts. What we want to make sure we're doing, is we are spending money on the things that matter the most and making sure that we don't spend money on things that don't matter as much.

So it's a very strong focus that we will be focused on over the next couple of months. Around the gevokizumab phase 3 program, again what we will be doing is moving into noninfectious uveitis, and that is uveitis that affects more than the anterior portion of the eye. So the back of the eye or the middle of the eye, by doing that by moving away from Behcet's only to noninfectious uveitis, it changes our potential patient base in the US from about 7500 Behcet's uveitis patients to 150,000 noninfectious uveitis patients.

We would expect that we would be filing for a US label which would be for noninfectious uveitis, Behcet's would be one piece of that. Importantly too we still are able to get orphan designation. We’ll be filing for that very soon for the noninfectious uveitis indication. So it's a still an orphan indication, which is very helpful to us. The proof of concept studies that we will be rolling out, we have -- we will be announcing those as we roll those out.

We expect to launch the first proof of concept study before year-end, again these studies are designed to be phase 2 studies that are phase 3 enabling, and they are studies where we think we can show results within six to nine months after the start of each of the studies. All the indications we’re looking at once we know there is a very strong indication of IL-1 beta involvement with inflammatory process. So I'm going to come back and speak a little bit more about the commercial side of the company later on, but I'm going to have Paul Rubin take you through these two key announcements again the phase 3 studies that have been rolled out, they are being rolled out and then proof of concept studies. Paul.

Paul Rubin

Thanks John and good afternoon everyone. Just before we get into what we're actually doing, it might be worthwhile to have a little bit of primer on the role of IL-1 beta in the body. IL-1 beta is kind of the mother cytokine is that when it is released by cells they are actually stimulated to release a whole host of other cytokines including things like IL-6 and IL-17. So in fact diseases that are modulant to those cytokines also can be impacted by an IL-1 beta modulator antagonist. IL-1 beta is ubiquitous in the body. It is obviously produced by inflammatory cells and there are IL-1 beta receptors in virtually every tissue. So in theory inflammation in any part or in any tissue can be corrected through the use of a potent IL-1 beta inhibitor, which gevokizumab is.

The concept of IL-1 beta is already proven. I mean IL-1 beta is a validated target and there are actually a few drugs that have been approved that have this mechanism, although interestingly the first two are probably not as potent or not as easily administered or tolerated as much as the leader ones things like our drug and canakinumab, although we believe gevokizumab has some additional benefits, perhaps having a better safety profile and obviously will try to prove that in our clinical program.

The safety of the concept in general is pretty well documented that that these drugs have been around for about 15 years and do have a different safety profile compared to for example TNF-alpha inhibitors, where certainly IL-1 beta seems to be a bit more benign. There is a lot of possibilities here as you can see that diseases that have an association with IL-1 Beta which for us is both good news and bad news. We have multiple choices yet we want to make sure that we pick the ones that are consistent with both our resources and our objectives for the company and for the shareholders.

Just a bit of background as to where we are as I mentioned it is a potent IL-1 Beta inhibitor but we have had clinical programs in place. Some of you might be aware of the fact that we did do a rather large diabetes program, although the primary endpoint hemoglobin A1c did not show statistical significance from placebo. We did gather quite well side safety portfolio now 500 patients of which 300 received the drug for more than six months and although we didn't show an impact on A1c, we did see a statistically significant relevant effect on C-reactive protein, which as you know is a strong indicator of inflammation.

In fact this reflects the data that we saw on C-reactive protein. These are patients that received the drug at various doses for a six-month period. As you can see during the course of the study there was an increase in C-reactive protein for the patients on placebo, where there was a statistically significant decrease at all dose levels for the patients receiving gevokizumab with the dose response. We also finished a study in Behcet's uveitis, which as John mentioned is a subset of noninfectious uveitis. This was a small trial, open label 7 patients but I think it is relevant because the patients with Behcet's uveitis are so well characterized, and so well known by their treating physicians that if you see a response of the drug, you can easily tell whether this is clearly drug response or the natural course of their disease.

In this instance, all 7 patients presenting with acute exacerbations of Behcet's uveitis had a rapid and very profound benefit where they essentially became quiescent in from 1 to 14 days and this is not part of the natural history of the disease. These patients do not respond as rapidly in this dramatic of a fashion. So both the company, as well as the treating physicians, were very excited about seeing this data. Of these patients 5 of them after the drug wore off did have a second exacerbation, and when treated with the drug again went to remission. So they responded on two consecutive occasions.

We have subsequently initiated a prophylaxis trial of these 7 patients. Of the original 7 they were brought back in to receive the drugs once per month subcutaneously, and tried to see how long we can maintain them disease-free. Interestingly of the initial patients after the first dose one of the patients was discontinued because they just had poor eye function to begin with and the physician was a little concerned to keep them in the trial.

Two others discontinued because of exacerbation but it turned out after we drew blood levels they virtually had no therapeutic concentrations of the antibody. So either there was a dosing error or an administration error, we're not sure which. Of the four that clearly had what we thought were therapeutic levels, all four remained disease-free and they have had the drug for more than a year, and these are patients that predictably had 4 to 5 exacerbations per year for many years prior to initiating the trial.

So again we clearly altered the course of their disease. We decided in the United States that it was more prudent better for the drug to initiate a trial in noninfectious uveitis but we could extrapolate this Behcet’s data because it is a subset of the disease, doctors treat it exactly the same way and in both instances IL-1 beta is strongly linked to the pathophysiology. So I'll talk a bit about this plan that we are initiating for those of you who aren't intimately familiar with uveitis. It's an inflammation of the uvea, which is the coating and the middle portion of the eye that starts from the front of the eye to the back of the eye.

When that gets inflamed it results in a number of things that include infiltrates in the back of the eye, cellular accumulation in the front of the eye and a haziness to the fluid in the back of the eye called the vitreous, which is known as the vitreous haze, and these same clinical symptoms occur in patients, all patients that get uveitis. There are multiple etiologies Behcet's being one but there are also other inflammatory diseases, one of the manifestations is uveitis. Interestingly many of these have been documented to get associated with IL-1 Beta as well.

So another reason to expand the program to NIU. So in addition to this link to Behcet’s uveitis, there are animal models of posterior uveitis that are again you could demonstrate conclusively that IL-1 Beta is causative and you can also block IL-1 Beta in these animal models or something like Kineret and prevent the pathophysiology from occurring, and interestingly both regulatorily as well as clinically they all view Behcet’s uveitis as part of the spectrum of the disease of NIU.

They're essentially the same disease just at different ends of the spectrum. There has been some evidence of using Kineret in a syndrome called CINCA, which one of the manifestations is posterior uveitis and Kineret actually works quite well in these patients, in fact in some instances, it is the only thing that will control the uveitis of these patients. We just completed a meeting with FDA to discuss our clinical plan and we reached an accord. We will be doing two pivotal trials, one in noninfectious uveitis and that will be done predominantly in the United States and some ex-US, and we will be doing the second trial in Behcet’s uveitis.

Those two trials together will form the basis of our dossier for the BOA. And this has been agreed upon with FDA. We are waiting to talk to EMA because this is a global program, and we should hear from them within the next few months and then initiate the trials. We don't anticipate any issues also because we plan that we are initiating is one that's very similar to that of other drugs that have been approved for the indications such as Ozurdex, which is a steroid implant.

So we're not blazing new territory here, blazing new trials, we are essentially going a pathway than has already been accepted by regulatory agencies, but obviously this is a different drug. As John mentioned we are also trying to extract more value out of the compound by initiating a proof of concept program, and in this instance what we're trying to do is to take advantage of the fact that gevokizumab is a very potent anti-inflammatory drug, but doing in a way that's both time constrained, cost constrained, and risk constrained, and what we've done is apply a set of characteristics to finding these indications, and it turns out there is probably 8 or 9 that fall into this category.

We apply these criteria as I mentioned obviously it had to be very strongly linked to the IL-1 pathway one to be able to get data in a short period of time. So it's meaningful for the investor as well as for the company. We are powering these studies to make sure that we have a definitive response. These will not be a handful of open label patients. This will actually be placebo-controlled, usually one or two doses but done in a manner that is gives a statistical power but also in the timeframe in which we need the information.

We're trying to pick indications that are distinct from each other and that's another way to mitigate risk that success or failure of any one of these indications has very little bearing on success or failure of any of the others. So essentially we do have these multiple shots on goal, which again because we know this is an anti-inflammatory, we're not sure which one will work if we have multiple chances, the likelihood of at least one working is very, very high, and in each case we’re picking indications when the market size is actually substantial.

So we plan to initiate this first trial sometime this quarter and once we do have the first patient in, obviously there will be additional announcements concerning what we're doing and then these subsequent trials will initiate over the ensuing few months. So in fact we hope to have all three actually occurring in parallel and again that will give us a three chances at showing the definitive efficacy that we will be able to report on in the relatively near future. So with that I am going to hand it back to John.

John Varian

Thanks a lot Paul. So as I said earlier our focus is on building shareholder value at XOMA that comes to us from our own discoveries, and one of the keys to that is that we are committed to commercializing our own products to specialize physician groups where it makes sense in the United States. We think that this first indication that we are going after noninfectious uveitis is a perfect example of that where we can do that. We can use the targeted focused commercialization effort with a very manageable cost structure to actually launch and market the drug.

One of the key reasons that we have moved to this focus on noninfectious uveitis, particularly in the United States is because of the way that the patients lay out across the world who have Behcet’s. Behcet’s as you can see from this pie chart here is disproportionately distributed throughout the world such that a good patient population outside the US, but in the US there is a very small number. When we focus on noninfectious uveitis, uveitis itself is not that small of an indication. It's about 750,000 patients in the US who have uveitis, but in many cases, in most cases it comes from an infection of viral or bacterial or other infection that causes the swelling, I mean the inflammation in the eye, and so those patients are treated by treating the actually underlying infection.

There is also anterior uveitis where it is only in the front part of the eye that is treated through topical steroids. The portion that we are focused on are these noninfectious uveitis patients. There is 150,000 worth of systemic therapy that needs to be used. I said a little earlier that we have our next-generation of discoveries and the one that's most exciting is really our XMet program, where again we have a sensitizer and an activator of the insulin receptor. Again that's been presented at conferences just this summer in a paper that just came out yesterday where there is a great deal of excitement around this and the key difference in the way that XOMA develops and discovers its antibodies is that we're able to develop antibodies that are not just completely on or off switch to a particular receptor.

We can actually modulate the receptor and that's where it's really important. It's something like diabetes where you don't want to just turn something completely on or off, but you actually want to manage the disease so that you can actually have an effect on the things that you want but not get all the different side effects that come from that and that's really the promise of this program, the XMet program. This is a program where diabetes is a daunting area for development as you all know, both in cost and time. And so this is one where we are absolutely focused on getting the right partner to develop this program with us, and so we expect it to be a major pharmaceutical company who can develop this program optimally in a shorter period of time.

As I said earlier our discovery program here allows us to actually not only benefit from our own knowledge, it's for our own discoveries but we can actually do licensing deals where people can use pieces of our technology and that's been a great financing tool for the company over the years. Financially at September 30th we had $47.5 million in cash from the first nine months of the year we burnt $21 million in cash. Our cash requirements have been going down because under our collaboration with Servier around this noninfectious uveitis Behcet’s program, they are funding the first $50 million of cost and thereafter we each pay 50-50, and so because that program is in place, our cash usage has been going down.

We’re also in the process of re-domesticating from Bermuda to Delaware, which we think will reduce our administrative costs quite a bit. Every single transaction we ever look at, it becomes much more complicated and much more costly because of the need to have deal with the offshore legal matters. Shares outstanding as of now are $34.3 million, and again this fresh look that we're putting in place around the company focusing on the key assets, looking at ways to reduce spending on areas that are not core to building values.

So it has been a very exciting time working with the management team, it's a very strong team and it's very as the board members watch them from a far to now be part of it and actually working with this team they are very bright they've got great ideas and what we do is implementing those ideas to really capture more value for us and for our shareholders. So I actually left a couple of minutes, so in case we do have any questions I could have at least a couple of minutes to try to answer any. Go ahead.

Unidentified Participant

[inaudible]

John Varian

It's subcu injection. Yes.

Unidentified Participant

[inaudible]

John Varian

That's a great question and what we -- again the study in Behcet’s was focused on uveitis, but we have seen from the physicians now these patients has been on the drug for more than a year. We have seen effects in other, like the lesions in the throat and that sort of thing we're starting to see an affect of that, but that's not been as anecdotal of course.

Unidentified Participant

[inaudible].

John Varian

Subcu, not directly into the eye, yes. Great question. Other question.

Unidentified Participant

[inaudible]

John Varian

I wasn't sure we were supposed to say that, but yes we said so. Yes, we do have programs in oncology that we haven't announced specifics of but under CDA we discussed those.

Unidentified Participant

[inaudible]

John Varian

No. No we have a program in oncology and again that under CDA we can talk about the specifics of, but we haven't done it publicly at this point. Okay. Well, we ran out of time exactly right. So thank you everyone very much. I really appreciate the opportunity to talk to you. Thank you.

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