Xencor, Inc. ($XNCR)

For joining this session. My name is Alec Stranahan. I cover SMID Biotech at Bank of America, and I'm the analyst covering Xencor. And it's my pleasure to introduce Bassil Dahiyat, President and CEO of Xencor; and Dane Leone, Chief Strategy Officer. Guys, thanks for being here.

Thanks so much for having us.

Yes. Looking forward to the discussion. So maybe, Bassil, like just at a high level, what gets you most excited about the company? And which asset is your favorite?

Well, I think the tempo of data that we have starting in the second half of this year with our XmAb819 Phase I, sort of second readout where we hope to have a recommended Phase III dose, a clear pivotal plan and robust efficacy and tolerability data in our target dose range. That is coming on really soon. So I'm very excited about that. And that's really the beginning of a flow of data that we're going to have our second oncology solid tumor bispecific XmAb541 in gynecologic and GCT and then followed in the new year in 2027 by our first bispecific TL1A containing molecule, XmAb412. We expect to have healthy volunteer PK/PD and safety and immunogenicity data for that one. And then shortly after that, in the second half of '27, the full Phase IIb readout of our ultra-long-acting anti-TL1A antibody, XmAb942. So the transformation that we undertook a couple of years ago of reorienting the company around high engineering concept but validated biological concept drugs and disciplined clinical development is really going to play out. So that's what I'm most excited about is that the way the drumbeat that's been a little slow and coming, was really going to hit a rapid tempo this next year of real clinical data that's really going to move the needle. And it's going to allow us to make really critical decisions about which programs to lean into and deeply invest in to reach our true goal, which is to be a commercial stage company, which ones that might benefit from strategic partners or other sources of resources and capital. So all those decisions are coming. So I'm really, really on the edge of my seat as we approach those.

Great. Great. Well, maybe we can start at a high level. You've built several clinical stage programs from your engineering platform. This remains -- it's been differentiated. It remains differentiated, in my view. And you have several active partnerships as well. I guess, has focus shifted at all towards building your wholly owned assets and pushing those towards commercial stage? Or is the partnering model sort of still central?

The partnering model underpins and shares that common technological base that we have. I think the mindset has shifted in the investment community and to the pharmas that we speak to that, oh, okay, Xencor is really putting its chips down and has very viable clinical assets that are going to give me interpretable near-term clinical data to make go decisions and investment decisions. That, I think, is something that has been a change over the last couple of years, and it's a welcome and it puts the burden on us. It's a challenge. That base of partnerships and the revenues that it brings in and the validation certainly helps. But I'd say that shift has been very, I think, pronounced in people's minds. And it means it's a show-me story, and I'm very happy about that. Okay, then show me the clinical data that's going to get you to Phase III in RCC with a differentiated agent. Show me the best-in-class TL1A antibody data, deliver. We're happy to give you a shot.

Yes. And we've got plenty of catalysts look forward to pipeline forward. I guess maybe starting on XmAb819. This is your ENPP3 x CD3 in T-cell. You showed some pretty impressive 25% response rate, 70% disease control in very heavily pretreated patients, manageable CRS, which is -- has dampened activity for others in the class. I guess what sort of dose expansion data do you need by year-end to sort of justify moving the asset forward?

Yes. So let me take the start with the setup on the data, and then Dane can really dive into what that means for us for our pivotal phase thinking, which has a few options. So for us, we designed this molecule to selectively engage high expressing ENPP3 expressing tumor cells and avoid hitting and killing with this very potent CD3 T-cell mechanism, lower expressing normal tissue. And we think the data set from last fall at the ESMO meeting really demonstrated that we weren't seeing critical organ toxicities really with CRS, which is on class for CD3s. It was some rash, which is on mechanism for killing ENPP3 positive cells. There are basophils and mast cells, basically allergy driving cells in your blood that have that target. And so you hit those, you get some rash. But really, the AEs really clear up as you get to the end of the month through that priming regimen and that immune boosting phase, and then you're at a place where it's really a well-tolerated regimen with again, no major organ toxicities that we observed at all and that promising efficacy profile. That was the beginning of getting to our active dose range. What we spent the last 7 or 8 months doing has been now taking dose levels within that range, enrolling expansion cohorts. We've completed enrollment in the first one. We're enrolling rapidly the second one, and we're really doing a lot of experiments on the side because we have a very, very high interest from investigators and patients, making sure we're optimizing our priming regimen and things like that towards the end of this year, we'll have robust data sets of expansion cohorts at least a couple of doses with their priming regimen set that we could say, we believe this is the right one for recommended Phase III dose. And depending on the degree of response rate we see and the kind of early durability signals we see, we think that could position us, in particular, for very high unmet need subsets like multiple TKI pre-exposed patients or prior HIF-2 alpha exposed patients, that might afford a more rapid path to approval potentially. So it depends on the data, but the setup is great, and we're going to really deliver robust and much larger data package in that first glimmer last year. Maybe that's the sort of setup for what's next?

Yes, sure. I mean from our view as an organization and as a management team, 819, we're all in on what we see as a very favorable probability of technical success with this program and the ability for it to potentially be the first commercial stage product for Xencor as an organization. And to do that, we've taking the proof-of-concept data that we presented at the ESMO meeting in October last year to trigger the dose expansions that we need to characterize and do the proper Phase I work to satisfy Project Optimus and work with the health authorities to have an end of Phase I meeting that can then really, to Bassil's point, elucidate the best and most rapid path forward to late-stage development or through late-stage development. But that's only a part of the story, right? Because let's say, we go with a monotherapy registration-enabling study post IO, post TKI that affords us a flexible kind of second, third line label, much like belzutifan has in the U.S. today that's helping propel that drug to be a $1 billion drug. But we're thinking more broadly than that already. We're starting a pre-TKI study post IO/IO or classically ipi/nivo, which is about 1/3 of the frontline patients in advanced clear cell renal cell carcinoma. If that proof-of-concept substudy works out for us, that would then catalyze another study that could then allow us to capture the totality of the second line. And an anecdote there is really where cabozantinib is used today, which is a multibillion-dollar drug, largely used in the second line. So we think that the TAM for 819 in clear cell renal cell is going to grow rapidly, and we'll start thinking about frontline opportunities as these second, third-line opportunities start to mature along the clinical development pathway. But this is a targeted oncology agent, right? And ENPP3 is implicated in a number of different tumor types. And that's why we started screening and are now dosing patients across non-small cell lung cancer, colorectal cancer and papillary renal cell carcinoma that are ENPP3 positive. because we want to pursue that real target oncology development pathway efficiently and rapidly to say, okay, we have primary indications that really make sense where you don't have to screen patients. We're not preselecting in clear cell renal cell carcinoma because the H-scores are so high and consistent across patients with that histology. In these other tumor types where we would prescreen, we almost look at like a potential basket of very large market opportunities that could ultimately lead to a tumor-agnostic label follow the path of other successful programs like Enhertu. So we're very excited about this. We think we are novel first-in-class with a really differentiated agent. And we have the internal expertise of T cell engager development through partnerships like Amgen and others and Astellas that give us a lot of insight of how to do this properly and successfully that we're applying to our wholly owned programs. So we're very excited about 819.

Yes. No, that's great. And I guess in terms of how you step through the derisking in the later line CC/RCC, the frontline TKI naive patients or the ones that have progressed on IO and then the broader opportunity set for ENPP3-driven tumors. Is it sequential? It almost sounds like you're approaching this in parallel in terms of the initial derisking, but then how -- once you get that data in hand, how do you sort of pick and choose?

I think the clear cell opportunity is the one we focused on initially because -- we didn't have to prescreen on the target antigen. We could move rapidly. We could be assured that nearly all the patients, and it's at least 90% of them have the target. So we could elucidate the biology, come up with a dosing regimen and particularly a priming regimen that we knew was reflective of an ENPP3-rich tumor environment. So we wanted to make sure we could check that developability and safety box in the most rapid and robust way. And that, of course, naturally means clear cell opportunities further ahead, right? We could be starting a pivotal next year if all goes well. That's our plan. The other ones are just going to beginning to efficacy proof of concept, we hope by next year. We didn't have to redose escalate. We could go with the active dose that was tolerable in this target dose range. So they would then really have kind of independent depending on their own commercial and regulatory pathways, development paths. And so we would follow the signal where the data takes us. I mean, in late-line colorectal cancer, there are potentially more rapid ways to approval, right? We would see. But clear cell is ahead to be clear.

Parallel is the right word. And that's very contemporary for successful development in clinical oncology is as soon as you have that real signal in the first setting, right, which you can prosecute, in this case, clear cell for us, and you've looked across the board at the emerging data set you have internally to say, okay, we've more heavily pretreated patients seeing clinical efficacy on par with the marketed drugs available in the second and third line, that's worth investment. That's where we should be putting our dollars to invest and accelerate this program to make sure we cement ourselves as the leaders of this molecular target.

And I guess there's also learnings you could probably apply to the dose from the dose escalation to other tumor types, right? Like do you anticipate having a higher starting dose and, say, CRC?

We're starting at the active doses. We're starting at the doses that we've expanded at.

RD1.

RD1 is being...

Colorectal...

Colorectal Yes, there was no need to do that. Luckily, in oncology, you don't have to rewind and start all over again usually. So we're very happy with that. So we expect to have clarity, is it working? Is it not working much more rapidly.

Okay. And maybe thinking about your Claudin-6 program, too, this is XmAb541. Early responses across -- this is for germ cell and gynecologic tumors, some distinct competitive dynamics across germ cell and ovarian. But I guess, how does the early data sort of shape your thinking around which indication becomes sort of.

It set up the experiment, really. So the experiment that we're doing this year is we have this early data. We were able to accomplish our escalation more rapidly because we've learned a lot about how to escalate solid tumor CD3 is about CRS, about toxicity profiles to where right now, we're doing the real experiment at -- in the right dose range for both germ cell and gynecologic tumors, essentially separately, right? They're going to have their own different efficacy profiles. And they have their own sort of competitive landscapes in the GCT, rare, but for the people that fail on high-dose chemo, very high unmet need. And so that's one dynamic, but rare, very -- no competition and a very competitive landscape in ovarian with different modalities like ADCs and a rising bar of efficacy. And so there's a sort of a divergence of the 2. So we're going to have independent data at target dose range in a robust enough number of patients to decide, do we have the efficacy that merits one or the other going forward? And we would be able to, by the end of the year, that should all be brought together in a way that we can clearly articulate, here's the go-forward strategy or are we going to be disciplined with our capital and not further invest in monotherapy.

And maybe to that point, how are you sort of thinking about combos? I think you may have had an update, if I'm remembering correctly, in the 1Q press release around...

Yes, sure. So we're very excited about what's called the Amgen CD28, CD3 T-cell engager combination. We think that's going to be a real potential emerging class of how to more effectively agonize T cells against tumor cells. And there have been a lot of early experiments of trying to combine CD28 with PD-1 or the same antigen targeted CD3. We think empirically, those have not worked, right? We view good antigen targets that are different, but co-expressed on the tumor cells specifically has the potential future. And from the work that we presented at AACR this year around what's XmAb808, our B7-H3 x CD28, it shows really good co-expression on tumor cells of B7-H3 in Claudin-6. Since we had monotherapy proof-of-concept activity with 541, but we have to do all these expansion cohorts to verify a monotherapy development pathway one way or the other. We know, unfortunately, for regulatory requirements, we have to start at what's called MABEL for the CD28 dosing combination. So it's going to take time to dose escalate to cohorts where the XmAb808 arm is going to really be clinically active, we think, even though we can start at a clinically active dose of 541. So we wanted to start this now, not wait because we do think there could be differential efficacy that's worth investigating. And it didn't really make sense to delay because we have to do that dose escalation. So you'll hear us talk about this more, but the AACR poster we thought was really a good starting point and lays out the investment case to do this, even though it's going to take a bit of time to do something differentiated.

Okay. We've seen some companies layer on a CD28 on top of the CD3 going after the same target. I imagine there, you kind of soak up all the binding that you could with one or the other? Maybe if you could speak around the rationale for going out.

Yes. The real primary driver is you want to be able to narrow the cells that you're killing to just the right ones. And if you have strong expression of, say, B7-H3 and Claudin-6 on your tumor cells, the expression of those 2 targets on healthy cells is not necessarily correlated. And in fact, when we checked, they're not. So the end gate, it must be Claudin-6 and B7-H3 narrows your -- the cells you're killing. So it makes it a more selective antitumor agent, which hopefully avoids off-tumor toxicity. That's the genesis really of the idea. Now on the point that you're going to block up all the target, Typically, with CD3s, not always a potential design, typically with CD3s, the doses are relatively low that you need to get the T-cells going, you're typically not fully occupying them. So that can be a problem depending on the details, often not. That wasn't even in our thought process. We were like, how do we make this more selective, right? Because CD3s can sometimes fall down. We saw this in Roche's program years ago in colorectal cancer on healthy tissue tox. So it was really a safety.

Yes. It's meant to broaden the therapeutic index of the CD3. Yes. And that's why you need to do the end gate. If you're doing the same antigen target, by definition, you're not broadening the therapeutic index.

You're doubling down on your toxicity.

You're doubling down on everything. And so that's only if for whatever reason, you've gotten to the maximal dose that you've gotten with the CD3 aspect. and can't push that agonism forward, but you have no toxicity and then just need to punch through the agonism with the CD28. That's rarely and almost never the case though.

Yes. Yes. No, that makes a lot of sense. And I guess maybe in the meantime, as you're dose escalating B7-H3, you can test additional combination partners, PARP inhibitors or...

We haven't yet initiated any of that work, but it's very much in mind. I think we want to establish a baseline of monotherapy activity for something that isn't a truly synergistic -- known synergistic mechanism before we engage in that kind of thing. But it is definitely on the mind because I think that that's what the long path in ovarian cancer would entail as you look at the landscape.

I think -- and there's a philosophy we have, too, especially in oncology, we want monotherapy agents unless we own both of those agents ourselves for a combination. When you move into earlier line after successful monotherapy development and that earlier line requires combination therapy like what is obviously plausible for 819 to move in the front line, that's fine. But developing a fully only combo agent, right, is not that attractive to us.

Yes. I mean that's the benefit of the flexibility of the platform being able to pair the CD3, CD28 with the.

We view CD28 as a life cycle play and evolution of what CD3s can be ultimately and want to continue to be leaders there just as we have with CD3s.

It's early days.

And we have partnerships on the CD28 side. So we're learning a lot as we go to be as smart and effective as we can in the clinic.

Yes. Great. I want to shift gears to your TL1A program. Some pretty exciting recent updates and upcoming updates and we're kind of between updates and we're thinking about the future for TL1A and your next-gen option. I guess you've shown some pretty encouraging long half-life for XmAb942, that's your TL1A program, durable target suppression on a single dose in healthy volunteers. You've got a Phase IIb enrolling across 3 different doses. What should we sort of be looking forward to by year-end this year to sort of establish either a best-in-class profile or better understand sort of how.

Yes. The real readout for XmAb942 in the Phase IIb study is going to be second half of '27. So when we have our primary endpoint at the 12-week induction for clinical remission. That's the gold standard in ulcerative colitis development. And our goal there is to think about where the first-generation TL1As are in that -- and the close behind in the IL-23s in that 20-ish percent, maybe low 20% placebo-adjusted response rate or remission rate. So for us, we want to have something that can be -- that can exceed that, 5% to 10% to show that there's a way to break through the ceiling with optimized exposure with a very high potency molecule, 10-picomolar affinity with a very long half-life, 74 days that lets us go to 2, 3-month maintenance. So that had a best-in-class usability profile, if the heightened exposure and potency that we get from our optimized induction regimen as well as the very durable half-life and maintenance, if that can help us break through that ceiling. So late '27 is going to be really the driver for us understanding how this molecule could be developed, how attractive it's going to be for Phase III development. And at the same time, a variety of peer companies are doing studies in a range of indications for TL1A that we don't have any need to invest our money in exploring whether it works in rheumatoid arthritis or in NASH or whatever, they're doing an experiment for us. And so we'll be ready with a go-forward Phase III dose well characterized in that time frame, just as the Phase IIIs are reading out for the first gen.

Okay. And the thought process there is that if you see, say, one profile in, say, IBD in terms of the differentiation versus Roche, AbbVie, others, that would be applicable to other indications.

Well, the efficacy differentiation based on that optimized exposure, certainly, it's not been as validated in other indications as it has in IBD. But I think that plus the best-in-class dosing profile, I think, would make it a compelling entrant into what's really going to be one of the few branded biologic markets remaining or biologic drug classes remaining in the early 2030s. '23s are going to be out, TNFs already out, integrins are out. So a good place to be if we have a best-in-class profile.

Okay. And I guess, what does best-in-class sort of look like to you? Is this the longer half-life, superior target engagement, less frequent dosing?

I think it's efficacy.

Yes. I mean it's a totality statement based on the market research we've done. in understanding how you have not best-in-class, but best in market, right? So the concept here is 942 could come in well early into the branded period for the entire TL1A class. And the question we had asked when we were doing our market research was what would it take to have a profile or a target product profile that would be able to convert new scripts when we go to market in IBD. And what -- there were a couple of things. One, have you maxed out the exposure response, right? And that was what we presented at DDW that with our Phase IIb dosing regimen, which is very reasonable in terms of the actual amount of drug being given in both the IV induction and the subcutaneous -- single subcutaneous maintenance dose that we have greater than target -- 90% target inhibition in greater than 90% of the patients, which is almost double what we modeled for the first-gen class at their pivotal dose regimens that they're actually using in their pivotal studies. And so we think we have a very clear argument there. And so it's to Bassil's point, let's see where this go. Can this give us an extra 5 to 10 points on clinical remission at the induction period? We would hope so, right? And that is obviously the first and foremost most compelling thing on an FDA label or an EMA label, right, is what your efficacy looks like. Secondarily to that is obviously clinical convenience. The first-generation class are hamstrung by being stuck at this Q4-week maintenance level dosing. We have real-world evidence and from risankizumab, for example, in the IL-23 class wasn't the first to market in IBD, but is fully dominating at Q8-week dosing, right? And so I think when you have people believing you have the best efficacy with the best clinical convenience, you will convert and win those new scripts, right, even into 1 to 2 to 3 years in the branded period of a biologic class. So we're very confident that the design of XENITH-UC, the Phase IIb study to answer these questions definitely one way or another. And that's what will win that program, additional investment, right, once we see those results. But we shouldn't overlook the XmAb412 program, which is our novel bispecific and the genesis of a potential bispecific platform for autoimmune inflammatory and allergic disease. Do you want to take them through that?

Yes. The challenge in autoimmune disease is these agents are given chronically. They have clear need for simplicity and durability to give these attractive dosing profiles. recapitulate what Dane said, but it's a much harder challenge than an oncology to design bispecifics to fit the bill. So when we set out to make our TL1A IL-23, we knew we wanted to maximize the inhibition of both targets because both targets clearly benefit from higher exposure. We've seen this in TL1A for TUSCANY-2b. We've seen this in a myriad of studies for IL-23s. More drug is always better. So we wanted to dial up the potency, but we also wanted to have it in a format that could be readily administered in a convenient subcutaneous modest volume shot, right? So that means you formulate a lot of it into that tube. So the answer to that was rather than make the fastest thing we can make, which we could have had in the clinic probably 9 months ago, we decided to make something that was a very, very high potency molecule in order to achieve that potency in a format that avoids a lot of the liabilities of tetrameric or sort of Frankenstein-looking molecules where just -- there's a whole bunch of binding domains slapped on in order to avoid those stability half-life and immunogenicity liabilities, we made something that looks like a regular antibody and we had to get potency that was subpeicomolar, so femptomolar potency. You can't do that with a lot of the common tools for making antibody-looking bispecifics, 1 plus 1 formats by common light chains or like Camelid domains or scFvs, you don't have enough sequence diversity to play with. So we built a new structure and a new format for making for making native light stability pairings of distinct light and heavy chains on each side of the antibody, but very simply by throwing them into the same manufacturing, call Zenlock technology. That lets us optimize each site independently use all the best tools you can to get those very hard to achieve subpicomolar affinities and get us in a small simple molecule that inhibitory potency that can be delivered in a simple subcu injection. That's a tall order for the not quite as optimized format. And so we're very excited about 412 and also how this positions us for all the other programs in autoimmune and allergic diseases that have the same really stringent requirements for efficacy and for patient experience. And so we've got another program preclinically now that we've made this modular toolkit. We're going to play the Xencor theme again of make a bunch of modular ones. Find the best ones to develop and then maybe partner the others. So it's very exciting.

XmAb412 will be in the clinic in the third quarter, and we'll have first-in-human results in the first half of '27. So that will be another powerful driver of the TL1A pipeline portfolio that we have.

Right, right. And I guess just in the last 30 seconds or so, how do you see the platform? You mentioned sort of the protein engineering piece. How does that feed into sort of the next leg? We didn't even talk about the autoimmune sort of B-cell depleters as well.

Yes. I'll just say we tried to make molecules bespoke for those applications. Taking B-cell depleters into autoimmune disease means you have to have high tolerability and high safety, right? Means CRS cannot be an impediment. You can't have -- I mean, the reason why CAR-Ts are challenged is preconditioning, high CRS toxicity, you have to have things that are easy to give for rheumatologists. We think we made molecules that thread that potency needle and give you really durable B-cell suppression using a lot of the tricks of the trade we've learned over the years, making bispecifics for ourselves and for others.

Yes. Great. Well, with that, I think we're going to have to leave it there. So Bassil, Dane, thank you so much.

Thank you, Alec.

Thanks for being here.

Thanks for having us.