Xenon Pharmaceuticals, Inc. (NASDAQ:XENE)
Q2 2016 Earnings Conference Call
August 03, 2016 04:30 PM ET
Jodi Regts - Senior Director, Corporate Affairs
Simon Pimstone - President & CEO
Ian Mortimer - CFO & COO
John Newman - Canaccord
Hugo Ong - Jefferies
Good day, ladies and gentlemen, and welcome to the Xenon Second Quarter Financial Result Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded.
I would now like to introduce our host for today's conference, Ms. Jodi Regts Ma'am, you may begin.
Thank you, Crystal. Good afternoon and thank you for joining us on our call and webcast to discuss our financial and operating results for the second quarter of 2016. Joining me on today's call is Dr. Simon Pimstone, Xenon's President and Chief Executive Officer; and Ian Mortimer, Xenon's Chief Financial Officer and Chief Operating Officer. Following this introduction, Simon will provide perspective on Xenon's progress, and then Ian will review our financial results for the quarter ended June 30, 2016. After that, we will open up the call to your questions.
Please be advised that during this call we will make a number of statements that are forward-looking, including statements about the sufficiency of our capital position to execute on our business objectives and our ability to operate in a capital efficient manner, the timing of IND or IND equivalent submissions with regulatory agencies, the initiation of future clinical trials, potential efficacy, future development plans and commercial potential of our product candidates, the timing of and results from ongoing clinical trials and preclinical development activities, the commercial launch of Glybera in the European Union, our achievement of certain milestones under our collaboration agreements, the plans of our collaboration partners and their interactions with regulatory agencies, the results of research and development efforts, and the status and timing of additional product candidates and related development activities.
Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control including the risks and uncertainties described from time-to-time in our SEC filings. Our results may differ materially from those projected on today's call. We undertake no obligation to publicly update any forward-looking statements. Today's press release summarizing our second quarter 2016 results and the accompanying quarterly report on form 10-Q are available under the investors sections of our website at www.xenon-pharma.com.
Now, I'd like to turn the call over to Simon.
Thanks very much, Jodi, and good afternoon everyone. And thank you for joining Xenon on our conference call and our webcast today. During the first half of this year we continue to execute on our goals and strategies by advancing our research and development pipeline, by supporting our partnerships as well as our proprietary programs and by continuing to operate in a capital efficient manner in order to achieve our near term goals and key value drive is which is hear about.
We believe that our business model of leveraging financially well-structured partnerships to participate in large market indications such as Pain, combined with our focus on rare or orphan neurological indications in our proprietary programs such as severe childhood epilepsy disorders is our major strength. The strategy enables us to pursue multiple diverse therapeutic and commercial opportunities, enables us to manage risks and to maximize opportunities for success.
We have tremendous amount to look forward to in the coming 6 to 12 months including important catalysts in our proprietary and partner programs. To review our accomplishments and upcoming milestones in the midpoint of this year I'll start with our proprietary assets. Our lead proprietary development program XCN801 is a highly differentiated products for the treatment of moderate to severe acne based on a novel mechanism of action. In February of this year we have advanced 801 into a phase 2 clinical trial which is a progressing well with more than half of a total 150 planned patients enrolled today in our multi-center trial in Canada.
XCN801 is a novel selective small molecule inhibitor of Co-A desaturase-1 or SCD1 this is an enzyme involved in lipid symphysis that is highly expressed in sebaceous glands in the skin. Comes in administered in a gel form and is designed to inhibit the production of lipids in the skin, it is differentiated as a result of its geo-mechanism of action, 801 is designed to reduce the production of lipids produced sebaceous glands and also induces cell sebaceous glands essentially limiting the factory of lipid production in the skin.
In preclinical models we have been able to show that we could achieve high local skin concentrations with very low systemic exposure in multiple models with XCN801. We have firmed these results in our 48 subjects phase 1 trial. We demonstrated that XCN801 was well tolerated with the preferred PK profile including very low systemic exposure but excellent skin exposure. In the phase 1 clinical trial, we biopsied the back of these subjects in order to test concentrations of XCN801 in the dermis. And so drug concentrations about 100 fold about the IC50 for the inhibitory concentration of the enzyme. Therefore we believe we have good levels of exposure of the drug at the target of the skin well about the IC50 and in fact around 100% inhibitory concentration for the enzyme in vitro. We selected the dose to advance interface 2 based on favorable tolerability and drug exposure and that phase 2 clinical trial as you know is currently underway.
The ongoing phase 2 trial is a 12 week randomized double blind and vehicle control paralleled group study design. The active on is XCN801 applied as a 1% gel, 1 Staley [ph] and the matching gel also applied once daily without the active ingredients. We are stressing efficacy, safety and pharmacokinetics with a primary effect efficacy endpoint being the change from base line in total lesion count at the end of the 12 weeks study. This is a well powered phase 2 study the aim of which is to enroll approximately150 patients with moderate to severe acne. All we have surpassed 50% enrolment today these results today and I am very pleased with this based on our update projections we have adjusted our timeline slightly to expect top-line results in the first quarter of 2017 instead of year end 2016.
We continue to receive strong interest in this acne program; I believe this is due to a number of factors. First XCN represents a novel target and unique mechanism of action that aims to reduce lipid production. Our data's show good tolerability of XCN801 and as mentioned we know we are effectively getting drugs to the target in the skin of good level with extremely low systematic exposure which will hopefully results in a very systematic profile compared with current goal standard agents. We believe we have a well powered phase 2 study and we look forward to redar, as noted in the first quarter of 2017.
Turning out tensions to another key proprietary program rose to making good progress developing reports and select inhibitor of sodium channel NAV1.6 for the treatment of ray interacted childhood epilepsies such as Dravet syndrome and XCN8A or otherwise known as NAV1.6 gain of function epilepsy. Sodium channels play a key role in balancing neuro-excitation and neuro-inhibition in the central nervous system. NAV1.6 is the most highly expressed sodium channel in the hyper parameter pathways in the brain so we believe this is a very compelling and differentiated targets. In fact there are reports of children with very severe uncertain untraceable epilepsy that have been gain of function mutation in SCM 8A, the gene that incurs the protein NAV1.6 which underscores the importance of the target in seizure disorders. We believe that inhibiting NAV1.6 is a highly targeted approach to treat severe childhood epilepsy like Dravet Syndrome as well as a NAV1.6 gain of function epilepsy.
Promising results continue to come out of our preclinical program. We recently presented data showing that there are number of different NAV1.6 gain of function mutations that exist in humans that can cause this form of epilepsy and we demonstrated that we can block these different variants with an NAV16 inhabitants.
Using a NAV16 inhabitants we have also shown compelling dose dependency and a gain of function mass model. WE will see a very significant reduction in seizure activity in these animals. So not only are we able to see seizures in these animals caused by gain of function in NAV1.6 but we also able to inhibit NAV1.6 mutants in humans that caused the disease. This is a very important target engagement essay that we developed in the mass so as to exhibit the effect on seizures to this particular mechanism. We continue to be very excited by this NAV1.6 program and as reported previously we do expect to select a candidate this year and to file an I&D in the first half of next year.
Now discussed our advancing programs in our partnership Teva and Genentech in which we are developing novel inhibitors of the sodium channel Nav1.7 for the treatment of pain. People who lack NAV1.7 gene and protein have condition known congenital insensitivity to pain and cannot feel pain.
On the other hand, people who have gain of function in this gene or protein have a severe form of pain known as Dysmenorrhea [ph] Therefore there is tremendous amount of human genetic data supporting the validation and the value of NAV1.7 as a pain target. A collaboration with TEVA is focused on developing a topical sodium channel block out for peripheral application of neuropathic pain including post-herpetic neuralgia TV4570 targets both NAV1.7 as well as other sodium channels to preconditions of chronic pain. We have previously shown this tropical product gain into the skin at high concentration with an NAV1.7 target expressed in the peripheral pain sensing nerve endings. TAV8 is conducting a randomized double blind for placebo control phase 2 B trails in approximately 330 patients with PHM. The primary endpoint is the change from baseline in the numeric grading scale compared to Week 4 and the secondary endpoints include 30% and 50% responder rates, quality of life assessments and safety.
Analysis of results will also include stratification of patients based on the key genetic markups. There are 11 such common polymorphism which causes the gain of function Genotype in the NAV17 channel. People who are carriers of this polymorphism tend to have a higher pain score on average than non-carriers. We are very interested to determine whether the inhibition of the Sodium channel by TV-45070 has a preferential effect on those who carry this data function variants in this NAV17 gene.
We had previously shown in a smaller [ph] which we conducted that carriers of this gain of function polymorphism appears to have an enhanced clinical response to TV-45070, a sodium channel inhibitor that we have developed. We expect approximately 20 to 25 carriers in each of these 3 arms of the phase 2 trials and will be seeking to determine whether TV-45070 might indeed show a preferential response in such carriers of this gain of function polymorphism. Results from this larger PHN file are expected as guided in the first half of 2017. In our strategic alliance of Genentech were developing orally active and highly selective small molecule inhibitors of NAV17 for the treatment of pain. This collaboration is also progressing well.
Genentech has moved two inhibitors of NAV1.7 into clinical development and is conducted two phase 1 clinical trials. One for GDC-0276 and the other for GDC-0310. We expect the pending of full assessment of results from the both phase 1 trials Genentech plans to initiate a phase 2 trial in late 2016 or early 2017. They are also proud of the progress we have made in our second collaboration with Genentech in which we are focused on the discovery of Novel Pain targets in ray human pain disorders.
Individuals have either a disability to deceive pain or have non-precipitated spontaneous and severe pain. In the third quarter of last year we discovered and identified a novel pain targets triggering a mass containment and providing further validation of ongoing work against this target. We look forward to continuing to work with the outstanding partner to discover and develop potentially new therapies for the treatment of pain and continue to identify novel and highly validated pain targets.
It could yield [indiscernible] based mechanisms to treating pains. The numerous exciting milestones which we are working towards this year and in which we have made strong progress in the second quarter. To summarize, we look forward to completion of the 150 patient phase 2 trial for XCM-801 and in patients with moderate to severe acne. The top line results expected in the first quarter of 2017, we are progressing towards identifying and developing development candidates with severe forms of childhood epilepsy within NAV16 sodium channel program and in order to file an IND application in the first half of 2017 is guided.
We also expect continued progress towards identifying our next target for drug discovery and development. We expect to announce our next IN channel drug program and expect to continue to discover novel genes that play a role in neurological disorders. We anticipate results in the first half of 2017 with ongoing phase 2B trial of TV-45070 patients of PHM and we anticipate complete completion of GDC-0276 and GDC-0310 phase 1 clinical trials currently being conducted by Genentech followed by an assessment of these results in the not too distant future with progression to phase 2 later this year or early 2017.
We continue to make progress in our pan-genetics collaboration with Genentech. So, we believe that 2016 and 2017 will be exciting years of significant accomplishment for Xenon as our pipeline continues to advance and expands to develop novel medicines to aggress serious and mathematical needs. Our partner and proprietary programs represent novel approaches based on compelling science.
We intend to continue to operate in an efficient and capital efficient manner to build on our progress and to expand and diversify our pipeline including a growing focus on all neurological disorders. From our world structured partnerships we are eligible to receive up to $32.5 million in potential milestone payments over the next couple of years complementing the more than $150 million in non-equity funding we have already raised to date.
Taking into account our current cash position and our multiple product candidates and partnerships, we believe that we are in a very strong position to continue to demonstrate significant progress and to continue to execute on our stated goals. Before I open the call up for questions I would like to ask Ian now to please review our financial performance for the quarter. Ian?
Thanks Simon and good afternoon everyone. For the quarter ended June 30, 2016 we reported total revenue of $0.4 million compared to $4 million for the same period in 2015. Revenue in both periods was primarily derived from Xenon collaboration agreements with Tether and Genentech. The decrease of $3.6 million was primarily attributable to revenue recognized relating to the upfront payments from the collaborative development and license agreement with tether which was fully recognized by December 2015.
As well as revenue related to the upfront payment of the march 2014 collaborative agreement with Genentech which is fully recognized by March 2016. The remaining decrease was due to less full time funding from Genentech as we have shifted resources from supporting our collaborations onto our proprietary programs.
Research and development expenses for the quarter ended June 30, 2016 were $5.1 million. This compares to $3.7 million for the same period in 2015, the fair value of liability classified stock options. These stock options were subsequently reclassified back to equity in September 2015.
Other income for the quarter was $0.4 million as compared to $1 million for the same period in 2015. this decrease of $0.6 million was primarily attributable to a decrease in unrealized foreign exchange gains arising from the translation of Canadian denominated balances to U.S. dollars as compared to the same period in 2015.
Net loss for the quarter was $6 million, compared to a net income of $1.2 million for the same period in 2015 and this change is primarily attributable to lower revenue, higher G&A expenses largely due to that stock based compensation recovery in the second quarter of last year, higher R&D expenses and lower unrealized foreign exchange gains.
We ended June 30, 2016 with $50.7 million in cash, cash equivalents and marketable securities which we believe puts us in a continued strong financial position to execute on our near term business objective. As Simon mentioned, we anticipated multiple milestone opportunities from the internal pipeline as well as that from our partners. We continue to manage our financial resources efficiently to support the advancement of our proprietary product pipeline and the successful execution of our corporate goal.
With our prepared remarks concluded, operator, we can now open the call up for questions.
Thank you. [Operator instructions] And our first question comes from John Newman from Canaccord. Your line is now open.
Hi, guys. Good afternoon. Thanks for taking the question. I just had a question regarding the 801 data that you are expecting in the first quarter of '17. What type of data do you think you might be showing us in the top-line release? Just wondered if you could describe the primary and secondary end points there. Thanks.
Thanks, John. It's Simon here. Nice to hear from you. John, the primary end points is really the total lesion counts, which includes both inflammatory and non-inflammatory lesions at the end of the 12 week, those being compared to baseline. So it's the percentage change in the total lesion count including both inflammatory and non-inflammatory lesions from baseline to week 12.
Secondary end points include the percent changes in inflammatory and/or non-inflammatory lesions differentiating them at different time points throughout the 12 weeks study as well as investigate a global assessment measures and of course a number of others. But the key end points as I highlighted primary being the same change in the total lesion counts from baseline to week 12 broken out individually between inflammatory and non-inflammatory as secondary end points as well as in the absolute changes the secondary end points and as well as the IGA school, which is obviously an important end point to look at.
This is our first study, effectively is one of the largest study. It's approved for concept study, but these will begin very acceptable end points of the study.
John, its Ian. We would expect to have a press release in Q1 of next year that would have top-line results for all primary and secondary end points and then the more detailed data with then subsequently be released in a medical need.
Okay. And could you talk about what is being allowed in the study in terms of medications? Just wondering what other things patients are allowed to use to treat their acne during the trial?
There aren't other drugs that they're allowed to use to treat their acne during the trial. We have patient's rescuers in any study obviously that that will be noted and will be assessed. But coming in, these patients need to be off of agents for treatment of their acne and their [indiscernible].
Okay, great. I might ask one more question. On the Roche partnership, I'm trying to recall if this is the first time you have talked about the two drugs targeting pain. I'm just wondering if you can talk a little bit more about what type of pain or if you still waiting on the 'okay' there from Roche Genentech?
Yes. Bottom line is we're waiting for the 'okay' from Roche Genentech on what we can discuss around the indications. We certainly expect that they make the decision to move forward into Phase 2. We'll be able to start to provide better color on what that Phase 2 program looks like. I'm very hopeful that as far as Phase 2 program drawn, we are going to see some standard Phase 2 studies as well. So I don't think this will just be in a single small study. I think they will make a real commitment to the Phase 2 program. But what indications may look like and what studies may look like is something that we can't discuss at this point. We expect to be able to disclose that obviously once we do update on the advance into phase two.
Okay, great. Thank you.
Thank you. [Operator instructions] And our next question comes from Hugo Ong from Jefferies. Your line is now open.
Hey, guys. Great. Thanks for taking the questions. On the TV-4570, I was reading over the clinical journal of the team paper recently on the proof of concept study in post-herpetic neuralgia. The paper discussed how the patients had a much longer duration since diagnosis, versus patients in other PHN studies suggesting a more refractory population. Do you expect to have a similarly refractory patient population in the Phase 2B study?
It should be less refractory in the Phase 2B study based on inclusion and exclusion criteria. But as you know, PHN is often a refractory condition. I don't think there's any company today that can look to recruit a study of the size of the patients who have PHN, neuropathic pain just a few months. Typically these patients have had their pain for some years and you can look on the protocol. There should be more information for you on the inclusion criteria and exclusion criteria. Many times these patients are patients who have failed other drugs and come into the clinical study. Typically, it's the number of years, but we think it will be lesser the duration in the study than the prior study. But one can't get away in this condition with a cohort where the duration of their disease is just a few months. That's just always one of the challenges.
I think another key differentiator was the shorter duration of dosing in that study. It was a cross over study. There were many very different features of that study – smaller sample size, cross over, different periodicity of treatments and shorter duration of dosing, three versus four weeks. We did actually see in that phase the initial proof of concept Phase 2 trial and increasing effect size from week-to-week, from week one, to week two, to week three, we haven't plateaued. We actually endeavor as we fill in to put that data. It did feel that we were seeing continued improvement over time, not knowing where that ends because we only dose three weeks. But there are some key differentiators between the studies. I've just named I think some of the important ones for you to recognize.
Okay, understood. Thank you. That's very helpful. And on the primary end point of the Phase 2B study, let me just play devil's advocate and let's just say it initially is on the primary end point. Do you still see a path forward for TV-4570 if it shows a strong signal and say the responder analysis?
I think it absolutely comes down to what we see. If we hit on secondary's, if we have a good trained on primary, I'm not quite sure here, but I'm giving you my opinion because we haven't actually had that final discussion with [indiscernible]. But absolutely, I think if we believe there's a signal based on what we see in primary and secondary's and we believe there is a drug effect with the larger sample size and maybe some adjustments to the study design, we think we could even improve that. We absolutely would be interested and I believe we would be interested in ongoing development. We don't know that today. That's a discussion that we need to have, but there's certainly not been a decision made that if we miss on primary from a T value, the product doesn't get developed. That's absolutely not the case.
The other important piece as part of the analysis of course is the whole 1150W polymorphism will have reasonably significant percentages or proportions of these cohorts who should be carriers as we typically seen in the past around 20%. So 100 subject plus or minus per arm, we should see around 20 carriers per arm. Well, it's not powered for this. If it does show even more robust effect, another strategy that -- may want to adapt is some kind of selection or stratification based on this common polymorphism in the next study. I think those are discussion that between now and when study reads, we will have and plans we'll make. But there's absolutely no guidance from all that if we miss on the primary, they don't continue to develop TV-4570. They like the product. There are obviously other forms of neuropathic pain that are of interest. There's a stratification strategy that could build interest with this polymorphism and so, a lot of discussion around this will need to be had and we would hope that they would look at the data – which I think they will – and make the decision based on that.
Okay, understood. And related to the polymorphism, for the Genentech compounds, will they also look at the R1150W genotype in the Phase 2 study?
We can't comment at this point on the Phase 2 design study, Hugo. We haven't got any final and final form for communication. I think all I can say at this point is we're going to have to wait until they give us the green light to communicate and we'll hopefully be able to communicate as fully as we'd like. But to this point, we can't make a comment on that question, apologies.
Oh, okay. Got it. Just quickly on acne, any reason for the slight delay to Q1? Did it have to do with enrollment?
In terms of any -- and you just said that again…
I'm sorry, just any reason for the slight delay from Q4 to Q1?
It's just an enrollment issue. I think we now are at a much better point and the study being a number of months in where we've got a predictable line. The first few months, it's always difficult following the requirements lines, the sites are coming on and off, new sites are opening and non-performing sites are getting closed and you reach a point in the study where you can just get a predict based on a few months history. And I think we're at that point now. So I think we're starting to see a trend line that's looking consistent. So we're comfortable where we are today in this guidance, it's a small shift in our guidance but there is no reasons other than the complexity of study, recruitment and sites opening that has caused the slight delay. We're actually very pleased without the studies going otherwise, we're very pleased.
Okay, great. Thanks for taking my questions guys.
Thank you. And I'm currently showing no further questions from our phone lines. I will now like to turn the conference back over to Jodi Regts for any closing remarks.
Thanks everyone for joining us today. We look forward to keeping you informed of our progress throughout the year. Crystal, we'll now end the call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.
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