Xenon Pharmaceuticals Inc. (XENE) Earnings Call Transcript & Summary

Going with our next company presenter, and thanks for joining us at the BofA Annual Health Care Conference. My name is Jason Gerberry, I'm one of the biotech analysts at BofA. And I'm pleased to be introducing Xenon Pharmaceuticals, and we've got CEO, Ian Mortimer; and CFO, Sherry Aulin. So both of you guys, thanks for joining us. And we want to jump right into Q&A or do you have any prepared comments you want to make ahead of the -- start of that?

Well, one, thanks for having us. We don't have any prepared remarks, but I can give maybe a quick introduction to make sure we all have the same information and then let's jump into Q&A as well. So I think many people know Xenon well. We're a neurology company, really focused on drug and ion channels in the CNS, been doing this for more than 15 years. Lead program, which we'll focus on is XEN1101. This is a potassium channel modulator in a broad and ambitious Phase III program in epilepsy. We announced yesterday with the earnings that we have our third Phase III trial up and running now. So we've got 2 studies ongoing, X-TOLE2 and X-TOLE3 in focal onset seizures and then we have our X-ACKT study in primary generalized tonic-clonic seizures. And I know we'll talk about today that we've got an MDD readout later this year as well.

Great. Well, maybe we'll jump into focal onset epilepsy, and maybe start with the big picture question. If we just think about the space, there's obviously a lot of approved generics. There was a very successful drug in Vimpat that has achieved the blockbuster revenue status and we recently lost its patent exclusivity. So as you just think at sort of the market environment for a new brand, is it conducive to -- can we see another blockbuster drug launched in the space in terms of investors thinking about sort of the opportunities that you're seeking out and developing drugs for, and if large commercial opportunity success stories can still be added?

Yes, I think that's a great question, Jason. As you mentioned, Vimpat has done really well in the space. There's obviously other drugs, ASMs that have done quite well. Keppra is another one that really reached blockbuster status. When you think about drugs like Vimpat and Keppra, I think the commonality is that they were easy-to-prescribe drugs, I would say, from a physician's perspective, good tolerability profile, really kind of limited from a safety and monitoring perspective and low DDI risk. And as you mentioned, Vimpat did $1.8 billion in sales in its last year before losing exclusivity. And we really think given the profile of XEN1101 that we could be positioned potentially as the first branded agent. So when you look to the sort of branded environment today, there's really sort of a -- there's been really a bifurcation of the kind of haves and have-nots with Vimpat being in the haves category. There's other branded agents that haven't done so well from a sales perspective, and you'd really have to go through sort of each one and look at the characteristics and the profile to sort of kind of go through each one and highlight the challenges that they had. We really think given the profile of XEN1101 with novel mechanism, QD dosing, no titration, quick onset to efficacy that we have an opportunity to be that first branded agent. I guess one other important one to highlight is XCOPRI is the most recently branded ASM. And that launch has gone reasonably well from our perspective. They did launch during COVID, which can pose challenges. And I think that drug has shown to have good efficacy, but it does come with some challenges, including a long titration period to mitigate or manage the risk of potential drugs. And so there's more monitoring required on the part of physicians. And what we've heard from KOLs that we've spoken to is that it's definitely using later lines of therapy for that reason and often before a patient goes to surgery consult. So we think when we look at a number of years down the road when XEN1101 will be on the market and XCOPRI will be the only other branded agent that we definitely have an ability to be positioned ahead of XCOPRI.

As we think about your second confirmatory study, what aspect of the profile is most critical for you to replicate do you think of all features? You talked about good efficacy, easy to give, it's reasonably well tolerated. So -- and it's a novel mechanism of action, that's not going to change, right? So...

That's not going to change. Yes. Yes, I think you can put -- you could probably characterize from an attributes point of view, stuff that's not going to change, right? So we'll be an only-in-class mechanism when we launch. These patients are treated in polypharmacy. We want to combine different mechanisms together, so that's not going to change. The drug doesn't have to be titrated. That's not going to change either. And then what are we trying to replicate in Phase III? And just as a reminder, if we go back to the Phase II data, XEN1101 in 3 different doses with stat sig at every seizure reduction endpoint at all doses. So at the 2 doses in Phase III, obviously, we want to replicate how we're doing on the efficacy side. Sherry mentioned, but just to make the point again, one of the differentiating features of XEN1101 is the early onset to efficacy. So we are statistically significant at week 1. That is something we're trying to replicate in Phase III. It is part of the statistical hierarchy in Phase III. It is further down the hierarchy, but that has an opportunity for us to have that discussion from a labeling perspective at the time. And then from a tolerability point of view, yes, I mean, we're comfortable that this drug is generally well tolerated. We see the adverse events that we would expect to see for a very active CNS drug. They are known and they can be addressed, and they're in a dose-dependent fashion as well. So I think if we can replicate the profile of XEN1101 or close to it in Phase III, then all of the things that Sherry has mentioned on where we believe this drug could fit in from a prescriber point of view should play out.

Yes. Okay. And I think when we think about the efficacy in the subsequent Phase IIIs, if I have it right, sort of in your prior Phase IIb, the deck was somewhat stacked against you in terms of how severe these patients were. And if anything, because you enrolled that trial during COVID, there's -- you're not promising, you're guiding to like maybe a less severe patient population where your drug did, I think better, right? But that's certainly like a possibility that as enrollment factors get more balanced versus like traditional ASM studies. Just if you can speak to that dynamic and how you anticipate that evolving?

Yes. It's difficult to predict today, but let's dig into it a little bit. So we were the -- what we're trying to do in X-TOLE2 and X-TOLE3 in the Phase III program, and the reason we very purposely call them X-TOLE2 and X-TOLE3 is we're trying to replicate the X-TOLE data. So nothing is changing from an inclusion/exclusion criteria perspective to be clear. But as you mentioned, this was a much more severe or refractory population than we expected going in. And there's 3 different ways we measure that. We measure that by the number of drugs that the patients have failed, the number of drugs that they were on and their baseline seizure burden. And when you look at the literature, there hasn't been a more severe population that's been trialed in focal epilepsy. The median patient had failed 6 drugs was on 3 drugs and had 13.5 seizures per month, which is a significant seizure burden and would be considered a more highly refractory patient. Yes, we ran the study during COVID. So I think there the hypothesis that the patient population could be less severe in Phase III, I think is completely a reasonable question to ask. We will know as we get through the study, what the baseline characteristics are on a blinded basis, and obviously, we get to the end of the study.

Yes.

I think we would be -- I think it will be difficult to fathom that the patient population is going to get more challenging.

And so we're in a little bit of a window of time here in the next 1.5 years or so where we don't have any data and all we're going to do is nitpick and focus on little aspects of the trial. When you complete enrollment, would you plan on sort of communicating any facets of the [ state ] population that you've observed on a blinded basis or is that sort of TBD?

Yes, that hasn't been the way that we've communicated historically. And right now, we're getting to the end of screening in our MDD study. And we're not going to be sharing a bunch of the characteristics of that patient population before we unblind data and provide top line data. I just think very difficult to try to interpret blinded data. It's not something that we've done in the past and I don't expect to do in the future. So going into our epilepsy Phase III readouts, although we monitor that because I think it's important for us to monitor a number of things in the study to make sure that the study is being well run, that's not something that would be part of our public disclosure.

Yes. Okay. Now broadly in the space, clinical trial enrollment delays have been a topic amongst investors. Your -- what you guys see that may be underpinning this? And I know that you feel like you've provided a conservative enough of a time line to investors that you have some room to operate within that and you don't see it as an issue for you guys per se, but maybe just what gets you comfortable with that?

Yes. And we did touch on this, Jason, yesterday on our earnings call as well. I mean we remain very comfortable and confident in our ability to execute on the Phase III program. I mean, our confidence comes from multiple facets, I would say. Obviously, we have experience running a large epilepsy study with X-TOLE. And I think that goes a long way. That was a study that was 325 patients across 80 sites. And as Ian mentioned, our Phase III studies are designed very closely to X-TOLE. And so we're really looking to replicate what we achieved or accomplished with X-TOLE in these Phase III studies. I think importantly as well, we're going to leverage a lot of the same sites in X-TOLE. And so we do expect that a significant number of those sites will participate in our Phase III program, and we are seeing some of that happening already. And so the investigators have experience with the drug and have had patients have success on the drug. We have an active drug, obviously, which is a little bit different than trying to enroll a study where you have no proof-of-concept data. And keeping those relationships with key investigators is a big part of how we see our ability to succeed in the Phase III program. So overall, we're comfortable with where we are right now. As you mentioned, we haven't provided specific guidance on time lines, but we've provided in rough terms that we do expect the study to take about as long as X-TOLE did, which was 2 years to 2.5 years. And as we move along the remainder of the year, we'll be in a better position to see exactly how site initiation and patient enrollment is tracking against our internal expectations, and we'll be in a position to provide some more -- some actual specific guidance later this year.

Okay. You recently announced the decision to expand XEN1101 epilepsy development to adolescents. Just with a pediatric formulation, maybe can you just talk a little bit about what drove that decision and a little bit about the market opportunity in pediatric epilepsy?

Sure. I'll talk a little bit about the development plan and Sherry can go over the market opportunity and market size. So we have an obligation to do pediatric development as part of our adult development. And so that's a pediatric development plan that we negotiate and have conversations with FDA. Those have been taking place over some time. I think our level of comfort in providing more information publicly is that those conversations have taken place, and we have an agreed-upon pediatric plan with the agency. Here, we need to talk separately about focal onset seizures versus primary generalized tonic-clonic seizures. In focal epilepsy, there is an extrapolation rule. So there is regulatory guidance where you can get into younger cohorts of patients over time. You can do open-label. So this is in patients, but you do open-label, essentially PK data and then you can get the label into younger patients over time. In primary generalized tonic-clonic seizures as a reminder, what's unique about Xenon in our development plan from other epilepsy companies is we're doing focal epilepsy and primary generalized in parallel instead of doing those in series. There isn't that same regulatory construct in terms of the PK extrapolation. So in our conversations with FDA, there was a request at least in primary generalized tonic-clonic seizures today go down to 12-year-olds. So we're making that amendment. So in that Phase III trial that we call X-ACKT, instead of 18 and above, it's going to be 12 and above. We are in parallel. We've already started this work, and it will continue this year to do specific pediatric formulation development. So for 12 and above, they can take the adult dosage form. As you get into younger patients, you're going to need a different presentation. We're doing that work now. So as we think about younger patients, we're going to need to do pediatric [ form dev ]. We're also going to have to do some juvenile tox work as we get into much younger patients and that will happen over time.

Okay.

Yes. And when we think about the pediatric population, so in the U.S., there's close to 0.5 million pediatric patients that have epilepsy and very similar to the adult population. The split of focal versus primary generalized are -- is quite similar. So about 60% have FOS, about 30% have PGTCS and the other 10% are -- do not have a primary diagnosis or maybe have a mixed phenotype. And then from a treatment paradigm perspective, I mean it very closely mirrors the treatment paradigm for adults, where children who have epilepsy will be put on a generic agent first. And depending on tolerability and efficacy may be either switched to a different agent or may have additional agents added. And similar again to the adult patient population, there's still quite an unmet need here for novel mechanisms. And there's still patients who are having -- quite a number of patients that are having breakthrough seizures with the current therapies that are available.

Okay. Maybe if you can just talk a little bit about your open-label extension and follow-up of patients to help characterize your safety profile? I think you've now followed patients as far as 3 years now with I believe every 6-month scans, scans, things like that. So maybe just your level of confidence in terms of your understanding of the safety profile and that effort that you're doing?

Yes. So we've got -- so after patients finished the double-blind period in X-TOLE, the ability to go to open-label extension, we had 97% of patients that finished the double-blind moved over. So we have a large database that has moved through open-label extension. So that started at 275 subjects and it's gotten a little bit smaller over time. So yes, we continue to monitor those patients, both from an efficacy and a safety point of view. I would say the comments we make in open-label, specifically to your question around safety, the comments we make in open-label is there hasn't been any new safety signals in open-label that we didn't see in the double-blind period and a very consistent adverse event and safety profile across the board. So something that we would expect. We will give future updates later this year. There's a European Epilepsy Meeting in September, where we're going to focus on some open-label extension data, including quality of life data that we haven't previously presented. We have a couple of podium at that conference. And then we will be submitting abstracts, the abstract submission deadlines coming up for the American Epilepsy Society Meeting in December. And that's where we're going to look at more mature open-label data. As you mentioned, we do have patients now that have been dosed more than 3 years. We've kind of got hundreds of years of patient safety data. We will do later this fall in preparation for AES, a 30-month cut off the data. So last December, it was an 18-month cut. This will be a 30-month cut. It still means many patients have been exposed much, much longer than that, but at least that's a mature data set to look at efficacy. And specifically on the efficacy side, one of the things that we're really interested to continue to provide information publicly is around the seizure freedom rates.

Okay. We get a lot of questions just about the competitive landscape with other KVs in the space, and I think your success has motivated others to come, which is not an uncommon phenomenon in the biopharma space. So as we think about, a, the importance of setting an efficacy bar that's just high to beat and first-mover advantage and how important you think that is? And then when we try to cross trial compare the relative safety profile of, say, your medication versus a Biohaven's drug, is the best comparison really in healthy volunteers? And just kind of curious your perspective at all because it's obviously difficult to tease out your data when it's layered in terms of a combination with a number of other CNS agents?

Yes. I mean I think you're -- we completely agree with your first part. I think any time you've got a compelling mechanism and a compelling drug, it's going to bring competition. So I think we're going to see other potassium channel modulators being developed. You've mentioned one company, but there are others as well that we're keeping a close eye on. Yes, we absolutely have a leadership position in this field. We've been drug and ion channels in the CNS. So just from a basic diligence point of view, we can profile other drugs, we can give ourselves the level of comfort. I think we set a very high bar with XEN1101 from the attributes of the drug, not only the pharmacology, but the attributes of the drug, it being clearly a QD drug, the half-life of the drug, the early onset to efficacy, those aren't related to the mechanism. Those are related to the pharmaceutic properties of XEN1101, which I think are very special. And then as you mentioned, just from an efficacy point of view, on a placebo-adjusted basis, this is the best efficacy we've seen as for an anti-seizure medicine. So that bar is extremely high, whether you're a follow-up molecule with the same mechanism or whether you're a molecule with a different mechanism. So although we are definitely tracking people, we're the only KV drug with clear efficacy and end of Phase II meeting and a clear path to market with a broad Phase III program ongoing.

Okay. And then in terms of safety, do you feel like you have a good handle, I know that competitors try to like make claims about GABA and somnolence profile? And any caveats that you would throw in there in terms of making comparisons to some full data that were thrown out there regarding limited rates of somnolence of the competitor drug?

Yes. Look, I mean, happy to address that head on. We've done the experiment, XEN1101 has no activity on GABA-A. We're very comfortable with that. I would say if we look at drugs, anti-seizure medicines that are active in the CNS that decrease hyperexcitability in the brain have adverse events associated with them. We've seen that regardless of mechanism, you see Cmax related adverse events, dizziness, somnolence, fatigue and headache, and you just see different rates depending on the drug. I mean, to give you a bit of an example, Keppra, the most successful antiepileptic drug had the same -- had a 15% somnolence rate, which is exactly the same as XEN1101. So we're very comfortable with the AE profile of our drug and that it will compare well to those drugs that are currently on the market as well as drugs that come in development.