XOMA's Management Presents at Morgan Stanley Global Healthcare Conference (Transcript)

Sep.12.12 | About: XOMA Corporation (XOMA)

XOMA Corporation (NASDAQ:XOMA)

Morgan Stanley Global Healthcare Conference

September 12, 2012 10:20 a.m. ET

Executives

Paul Rubin - Senior Vice President, Research and Development and Chief Medical Officer

Fred Kurland - Vice President-Finance and Chief Financial Officer

Yigal Nochomovitz - Morgan Stanley

Good morning everyone. Welcome to the XOMA session. My name is Yigal Nochomovitz, I am one of the biotech analysts at Morgan Stanley. And so just a few orders of business before we get started. All relevant research disclosures from Morgan Stanley can be found on our website or on our publicly printed notes. And secondarily, this is meant to be an absolutely open question-and-answer session, so feel free to raise your hand and interrupt at any point. We have microphones circulating around the room.

So welcome, Paul Rubin, CMO of XOMA, and Fred Kurland, CFO. Welcome to the session. Maybe we could start off, Paul, just give us a little bit of an overview of XOMA. What are the key priorities of the company at this point? Just flush out the story for those that are not familiar with the company.

Paul Rubin

Sure. First thank you for having us here. XOMA is a discovery based biotechnology company that, not surprisingly people know, has been around for quite a while. But during the time it’s been around it’s developed I think a very proprietary method which to discover monoclonal antibodies. It probably has some of the best libraries in the world plus our ability to interrogate receptors, especially through use of allosteric modulation I think is very unique. And at the day we should be able to determine potential monoclonals that could be differentiated from many other companies in the world.

Some of those include our lead candidate which is gevokizumab, which is a monoclonal antibody which is an allosteric binder to IL-1 beta, and then some other compounds a little further in the pipeline such as the XMet program which we might discuss a little later also. These are all monoclonal antibodies that bind to allosteric as opposed to orthostatic sites or the non-business end part of the molecule.

The company I think is making a concerted effort to get more value for its assets. So in fact as you are aware, we are developing gevokizumab in conjunction with our partner Servier on a global basis, initially for non-infectious uveitis which is our lead indication and is now in Phase 3 and will be on a worldwide basis. And then for a series of other indications that the development should occur in the next few years and we should get some good data on that product and then hopefully we will have a few other things as we go forward.

Question-and-Answer Session

Yigal Nochomovitz - Morgan Stanley

Got it. It’s a good overview. Maybe we could jump in then on the lead asset, gevokizumab. Give the investors some sense of comparative profile of your IL-1 data agent relative to what else is out there in the world. And I am thinking of things like (inaudible) and so forth.

Paul Rubin

Sure. I think that if you look at all the products that are on the market or in development for modulating IL-1 beta signaling, we are I think unique. We are the only compound, as I mentioned, that binds to a part of IL-1 beta where we can dramatically reduce the signal that occurs from IL-1 beta stimulating its receptors, we still allow interaction of IL-1 beta with its receptor. And what that does it enhances clearance of the molecule and it prevents the existence of circulating antibody like [complexes], which can be detrimental.

Our particular drug is the most potent of all those that are out there. And as a result of that it could be administered in a very small volume and we anticipate that will be less than 1 ml of fluid given once per month subcutaneously. It’s also quite stable which will allow us to ultimately have this available for self-administration. As far as I know it’s the only one that’s out there. And we have seen virtually no injection side reactions, which again, if you look at the label of the competitors, in no case are they devoid of injection side reactions. So that’s potentially another advantage.

So I think from it’s both physical and [chemical] characteristics and its potency and its ease of use, plus its mechanism, it’s clearly distinct from the other candidates or the drugs that are out there.

Yigal Nochomovitz - Morgan Stanley

You mentioned the lead indication and you are in non-infectious uveitis, you have also seen some solid data in related form of that disease called the Behçet's. Could you discuss a bit some of the data there and whether the mechanism that you have described for your gevokizumab is special for that disease or if other INLINE-1 antibodies could potentially show efficacy in that setting.

Paul Rubin

That’s a good question. First of all, uveitis is a syndrome, not unlike asthma, in which there are multiple (inaudible), Behçet's uveitis being one. So in fact Behçet's isn’t related, it is not infectious uveitis, it’s just one of the forms. In all cases, independent of the underlying [mediology], it presents clinically in the same way. So all cases they end of with inflammation of the uvea, which is kind of the middle lining around the eye. And as a result of that inflammation, they end up with the same clinical signs and symptoms. And in fact in the United States, the FDA doesn’t discern between Behçet's uveitis and other forms. It’s all non-infectious uveitis.

So what we have are data from one of these categories which is Behçet's uveitis. And this is a particular syndrome that in addition to inflammation of the uvea they get things mouth ulcers and they can get joint pain and inflammation of the urethra. These patients do present with severe forms of uveitis and they frequently get exacerbations over the course of a single year. And also these patients rarely spontaneously remit, that is to say that they don’t get better without some intervention. And often times intervention is very high dose steroids in order for this to occur.

We had a study initially of seven patients that were experiencing an acute event. And these patients were given a single dose of gevokizumab and within days they showed response and all of them essentially reverted back to a normal state within a relatively short period of time, no longer than two weeks or so. So again, this would be extremely unusual to be a placebo response.

Subsequently, we have elected to go into a product program where we can talk about it but prior to initiating our Phase 3 trials, Servier has actually spoken about the fact that they were going to do a second group of patients in Behçet's disease and a Phase 2 of a larger open label trial. And the purpose of this trial was to obviously confirm the original data but also to look at kinetics, to choose a dose and to make sure it was safe. And they would only going to forward with their pivotal trial in Behçet's should these data be acceptable and if that -- although we haven’t discussed the data we can say that we are going forward with the Phase 3 trial in Behçet's disease as well.

Yigal Nochomovitz - Morgan Stanley

Okay. Very good. You mentioned the data in Behçet's. Maybe you could speak a bit about what we know to date about the safety profile of gevokizumab and more specifically what we know about chronic dosing for that agent.

Paul Rubin

Sure. This drug has actually been under development since 2007 and some people are aware of its history. But there has been probably more than 500 patients that had received the drug at this stage. The majority of our information comes from a relatively large study we did in type 2 diabetes. So patients have gotten this drug for up to six months with a large number and in the Behçet's, our initial Behçet's trial there are patients that have now been on the drug for almost two years. And at least to date, the safety profile is very comparable to placebo. So obviously we need to expand the database but we believe that certainly from a therapeutic index perspective this drug seems to be very favorable.

Yigal Nochomovitz - Morgan Stanley

You briefly touched on the diabetes program, maybe just very briefly you could just discuss some of the learnings from that program and how that’s informing your development plan going forward in the [IL] setting.

Paul Rubin

Aside from obviously provide us with a very useful safety cohort, in addition, although in that particular trial which is kind of an all [encumbered] type two diabetes trial, where we did not see the effect on hemoglobin A1c there was a very robust, both clinically relevant and statistically significant dose response improvement in C-reactive protein. And not surprising but this proved that exactly what we hoped it would prove that when given systemically, gevokizumab is a very potent inflammatory drug. And now we have human data that confirms that CRP is a surrogate endpoint that reflects the ability to inhibit a number of inflammatory mediators. A lot of folks believe that it is both directly and indirectly related to an abnormal superphysiologic response to IL-1.

Yigal Nochomovitz - Morgan Stanley

Maybe we could broaden the discussion a bit and bring you in Fred. In terms of the commercial opportunity for these ocular disease and uveitis specifically, could you give us a sense of the market? How many patients and sort of and to the duration of therapy and so forth.

Fred Kurland

I am going to talk about the U.S. market because that and Japan are the markets in which XOMA has commercial rights for uveitis. So in the U.S. non-infectious uveitis, of the kind that we are going after. So we have to differentiate at the get go the anterior portion of the disease which covers approximately 80% of the total population with NIU. And that’s total population of about 750,000. So about 600,000 have the anterior portion, which as Paul will tell you better than I can, it’s fairly well treated by topical corticosteroids, so that’s not something that we are going after.

We are going after the posterior, intermediate and pan-uveitis. The total population in the U.S. is a 150,000. And by the way that includes the Behçet's uveitis population which represents about 5% of that total of 150,000. So that’s the waterfront of population. And it’s also as you know, below the 200,000 cutoff for the designation of the orphan disease. And so we do have orphan designation for non-infectious uveitis as well. So that represents a very significant commercial opportunity for us.

Yigal Nochomovitz - Morgan Stanley

And Paul maybe you could speak a bit to the sort of typical duration of the therapy that you might expect in this population?

Paul Rubin

These patients are on poly-pharmacy usually for prolonged periods of time and some instances for a lifetime. And unfortunately the majority of these patients at some point of their treatment regiment end up being on relatively high dose of systemic corticosteroids. In some instances as high as 60 milligrams. So you can imagine the game here is, can we provide a replacement or alternative or something that reduces the requirements for these corticosteroids. But in general they are usually on drugs for a lifetime.

Yigal Nochomovitz - Morgan Stanley

Okay. Let's touch a bit more detail on the NUI Phase 3 design. Could you discus the primary endpoints, the powering assumptions and then the reasoning behind taking two doses, 20 and 30 into the Phase 3 study.

Paul Rubin

Those aren’t the doses we use.

Yigal Nochomovitz - Morgan Stanley

Oh, I am sorry.

Paul Rubin

This study is actually based upon the literature where we were fortunate in that a drug was recently approved both in U.S. and Europe for the treatment of non-infectious uveitis (inaudible) which is a matrix injectable steroid. So we were able to look at the variability and response numbers so we had real life data with which to power our trial from. The primary endpoint something called vitreous haze, it’s an interesting finding in that when you get inflammation of the uvea, part of the uvea surrounds the posterior chamber of the eye and the fluid in the posterior chamber is known as the vitreous fluid. So when the uvea gets inflamed, cells and cellular debri ends up in the fluid in the back of the eye and causes a haziness that makes the physician unable to view the anatomic landmarks of the retina at the back of the eye.

So there actually was a scale that was created for the ability to look at the various structures at the back of the eye and that’s the called the SUN scale. And it’s a four point scale. So the accepted or the validated endpoint, and we are doing a responder analysis, is at least a two point improvement in their vitreous haze where the worse that can be is at four points on that scale.

So the analysis is looking at the numbers of responders in placebo versus active treated drug that has at least a two point improvement in their disease. And we have 90% power to show this response. We are using assumed response rates that are a little bit even more conservative than what we are seeing in the literature. Again, as I mentioned before, the good thing about this disease is that the placebo response rate is very low, unlike things like rheumatoid arthritis where you might see a 25% or 35% placebo response rate. In non-infectious uveitis it’s more like 10% or less. So that gives us the ability to have an adequately powered study with only 100 per group.

Yigal Nochomovitz - Morgan Stanley

And in terms of the trends you saw on vitreous haze reduction in the Phase two. Can you just outline those briefly for the...?

Paul Rubin

Yeah, there were obviously only a few patients that had it but in all cases they would have met the response criteria for our trial.

Yigal Nochomovitz - Morgan Stanley

Okay. And then on the dose question, do you have any comments there about the two sources?

Paul Rubin

We picked the dose, we picked two doses based on upon some pharmacokinetic, pharmacodynamic analysis we did in this open label trial. Where we found a specific plasma concentration that if patients fell below it, their disease tended to get a little worse and if they were above it they did better. So we targeted that. We picked one dose that was sort of right at that level and another dose that was a factor of two above it, that was the rationale for it.

Yigal Nochomovitz - Morgan Stanley

Okay. Also Servier is conducting a Phase 3 in Behçet's. Could you discuss that how trial was different from the NIU trial and timeline for readout for both studies.

Paul Rubin

Yeah, the Behçet's trial and I mentioned before that FDA was viewing Behçet's as just as a form of uveitis. So after discussion with FDA, they agreed on the fact that if we did one trial in Behçet's uveitis and one in all common non-infectious uveitis, they would count that as the two pivotal trials for approval for the complete dossier. And doing one in Behçet's actually was an advantage for our partner Servier because most of the Behçet's patients are in their territories which are ex U.S., Middle East and parts of Europe and Asia. So it gave them some advantages to have a Behçet's trial.

The Behçet's study is a little bit different in that, in that trial we will take patients that are (inaudible) on corticosteroids. And then bring them into the trial, put them on gevokizumab and then have a forced taper of their steroids and look at the time to exacerbation. So we know that a certain number of patients will exacerbate when you withdrew all their steroids. And the idea is, if you can concurrently use gevokizumab, can you facilitate the removal of the steroids. And then we will do kind of [capital meyer] type of analysis on the data.

Yigal Nochomovitz - Morgan Stanley

Got it. Let me stop there and see if there is any questions from the audience before I move to some of the other programs. Okay. So let's make sure we have touched on some of the other indications. You also pursuing work in acne vulgaris. Could you discuss a bit the rationale for that direction and where the study has been?

Paul Rubin

We are talking a subset of acne which is sever inflammatory acne. And the rationale for this is based upon kind of a set of data both preclinical and clinical. And you could start with human skin cells, the keratinocytes. And what the literature suggests is that if you take these cells and you incubate them with -- there is an organism that is responsible for the inflammatory nature of the condition of acne called Propionibacterium. So if you take these skin cells and you incubate them with the bug that causes the disease and you look to see what's produced, they produce very high levels of IL-1 beta. So we know that these skin cells that are inflamed are like capable of producing IL-beta but do produce it in the presence of causing organism. So that’s one bit data.

Secondly, there is actually a syndrome that’s known as PAPA syndrome which includes pyoderma gangrenosum and inflammatory acne. And this is in that category of these Cryopyrin associated period syndromes or CAPS syndromes. And those are the diseases that drugs like (inaudible) are approved for. In this particular syndrome which is known be due to high levels of IL-1 beta, the one thing that happens to these patients is they get these skin ulcers and they get acne. So you know that presence of IL-1 beta causes acne in these patients.

Then the reserve is true. When these patients are treated with (inaudible), there are case reports of not only do the acne clear but it stayed cleared for a prolonged period of time. So here is a case where a drug that only blocks interleukin has a curative on the acne associated with the syndrome. The third bit of data relates to commonly prescribed drugs for acne which includes things like tetracycline and doxycycline. And these work probably not as antibiotics but as anti-inflammatories. And the way they have their anti-inflammatory effect is they block an enzyme called caspase-1. And caspase-1 is the enzyme responsible for the conversion for inactive IL-1 beta to active IL-1 beta. So in fact part of the benefit of some of the most commonly used drugs relates to their ability to decrease levels of IL-1 beta.

Yigal Nochomovitz - Morgan Stanley

Now you have Phase 2 data in acne coming up towards the end of the year. A few questions there. I think a lot of investors maybe don’t know the acne world as well as they may know the oncology world. So maybe you could give us a sense as to what good data would look like in that setting. And then secondarily, I understand there were some changes to the enrollment criteria for the study. Maybe you could discuss that a little bit as well.

Paul Rubin

Well, the best data would be that you cure there acne. Probably the objective. But the studies are powered to show 50% improvement in the objective endpoint or the primary endpoint in this case. Strictly a count of the number of lesions on the face. So if you can get those reduced by 50% then that will be considered a clinically relevant response and that’s how the trial is powered. So what was your....?

Yigal Nochomovitz - Morgan Stanley

Just regarding the -- there was some change to the enrollment in terms of the number of lesions that...?

Paul Rubin

It’s sort of a catch-22 in that the most severe patients in addition to having these smaller lesions that are quite prominent and prevalent, they also have larger lesions known as nodules. So the problem is finding patients that have severe multiple lesions and initially what FDA wants our folks in this area to do is to find people with severe numbers of lesions without having more than just a few nodules, and that patient population doesn’t really exist, that’s one of the problems.

So initially we have limited the (inaudible) to have only three nodules and then we were able to expand that to go to seven. So what that did was to expand the pool of patients that we can recruit from without dramatically changing the number of nodules. And in fact that’s had a very good impact on the enrollment criteria.

Yigal Nochomovitz - Morgan Stanley

And Fred, another commercial question, I know it’s early days for the acne program but could you give us some sense as to the market and how you might compete against some of the entrenched players, for example, Accutane.

Fred Kurland

Sure, while the overall acne market as you might expect, quite large, about 50 million people in the U.S. But that subgroup that has the most severe form is about 10% of the total. So it’s still a very significant population. The product as you mentioned, Accutane, is the product that we would seek to replace. It’s highly toxic. It’s got lot of side effects. Doctors or dermatologists who are treating this severe form of the disease would be, I think anxious for something that had a better safety profile. So that’s what we are going after.

Yigal Nochomovitz - Morgan Stanley

Great. Let's move on to yet another indication, severe osteoarthritis. There is a study going on there. Maybe you could just discuss that one briefly. The rationale and so forth.

Paul Rubin

This is actually a subset of osteoarthritis of the hand, and it’s called erosive osteoarthritis. And it differentiates from kind of the run of the mill degenerative disease in the hand in a couple of areas. One, typically you don’t see erosions of the bone in osteoarthritis. In this case you do see it. And generally you don’t get an inflammatory synovitis or inflammation of the joints which again in this case you do. And in fact this is the only form that has actin formation as part of the disease. Coupled with that that this inflammation has been documented to be at least largely in part due to overactive or elevated levels of IL-1 beta. So the pathophysiology of the disease is very consistent with what our drug does.

There are a quite a few case reports on the successful use of (inaudible) in these patients as well. So there is also data suggesting that if you take away the interleukin response, you do get improvements in the disease. So that was the rationale. This is a disease that although it’s a subset of arthritis, there is still probably around 4 million patients in the United States that have this particular subset. So it’s a sizable commercial opportunity.

Yigal Nochomovitz - Morgan Stanley

And what is the current practice in terms of treatment strategy there, what's approved? Or is it mainly generic?

Paul Rubin

I don’t think there has ever been a drug developed specifically for this form. They are generally treated with the typical non-steroidal anti-inflammatory drugs and unfortunately they are not very successful. When we speak with some of the experts, they try some of these disease modulating agents although this is osteo not rheumatoid. And they have very mixed success with use in this disease.

Yigal Nochomovitz - Morgan Stanley

Okay. You have mentioned that there is a proof of concept study underway in yet another undisclosed indication. We haven’t seen that yet. Is there a point where you will be announcing what that indication is and is there any particular reason that you have kept that close to the chest?

Paul Rubin

Yes, we will be announcing it and relatively soon. The collaborator that we are working with is very high profile and they just wanted to make sure that the study was approved, went through their [IRB] before we made the announcements. So that’s what we are doing.

Yigal Nochomovitz - Morgan Stanley

Got it. Let's turn to the platform briefly in the last few minutes. You have a biodefense platform, anti-botulism with monoclonal antibody. What's the status of that program? This is a NIH trial, I understand. Could you just discus that one briefly?

Paul Rubin

Well, as you know that we have been contracted with the National Institute of Allergy and Infectious Disease in order to try to discover extra cocktail of monoclonals that can neutralize botulism, should they be used for terrorism or biological warfare. And in fact we have been pretty successful in finding these multiple antibodies. Some of them have actually been through clinical testing and we continue to work with NIAID to find the complete cocktail that ultimately can be useful.

Yigal Nochomovitz - Morgan Stanley

Okay. Let's make sure we touch on the Servier agreement so everyone understands that properly. Could you discuss, Fred, how are the rights partitioned between and XOMA and Servier? What are the economics of the trial funding in NIU?

Fred Kurland

Sure. Well, a couple or words about Servier. Because the folks in the room and who maybe listening maybe not be all that aware of Servier. It’s a French, private pharmaceutical company with turnover of not quite $5 billion a year. So it’s a substantial company. And for various reasons, they have chosen a number of years ago to not actively conduct business in the United States. I mention that because of the unique nature of the deal that XOMA has with Servier. It’s for gevokizumab of course. And the basic deal is that XOMA has retained the rights for just about all indications in the U.S. and Japan and Servier has worldwide rights outside of the U.S. and Japan for gevokizumab. The only exception to that general rule is that for two indications, for diabetes and for cardiovascular disease.

Servier starts out with the deal having U.S. and Japanese commercial rights. However, XOMA has the ability to reacquire those commercial rights at various points in time in the development timeline. Now the context is that Servier has already announced that date that they will be doing a cardiovascular program and the option that XOMA retains is to at various points including post successful Phase 3, can exercise its options to reacquire these commercial rights. And the purchase price is a percentage of the expenditures made by Servier in performing the development. So the huge, obvious advantage there is, we can, if we chose, we could wait until the entire program is derisked and step-in, exercise our right and acquire our commercial rights on the basis of cost as opposed to the basis of value. So that’s one part of the deal.

You referred quite rightly to the section on uveitis. And there is a special provision there whereby Servier pays for the first $50 million of development costs for non-infectious uveitis. And once that $50 million mark has hit than both companies share equally thereafter. We have just recently in our quarterly phone call, where we mentioned that we haven’t hit that point yet but we expect to fairly soon and we have taken that into account in all of our cash forecasts going forward. The third element worth mentioning in the deal is that both parties are encouraged to perform their own clinical trials in other indications and we feel the best way to develop this anti-inflammatory is to see how it works in a number of different indications. And this is Paul’s strategy of a whole series of proof of concept robust Phase 2 trials, the ones that you have just been discussing, as a way of identifying our next Phase 3 program.

So we are doing three, we expect and Servier has told us they will be doing some as well. They haven’t announced them yet but they will be soon doing them, as well as a large cardiovascular program. So it’s a very robust program. The other element of the deal include the joint decision by both parties to use contract manufacturing organization. We have selected Boehringer Ingelheim because they are world class and they have manufacturing facilities both in Europe and the U.S. There are, as you might expect, the usual array of milestone payments that are due in certain phases of development, regulatory and sales, as well as royalties. The royalties are a one way street. Servier pays XOMA royalties for sales in their territory. Those royalty rates are based on sales levels they start in the single digits but go to the mid-teens. We would expect given the potential in the product that we would be in the mid-teens and up there.

Yigal Nochomovitz - Morgan Stanley

Okay. Thank you very much. With that we are out of time gentlemen. I appreciate the answers. Thanks a lot.

Paul Rubin

Thank you.

Fred Kurland

Thank you.

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