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

Ladies and gentlemen, the program is about to begin. At this time, it is my pleasure to turn the program over to Jason.

Thank you, operator, and good day, everybody. Thanks so much for joining us at the BofA Annual CNS Day event. I'm pleased to be introducing Xenon Pharmaceuticals and CEO, Ian Mortimer; and Chief Commercial Officer, Chris Von Seggern. And so gentlemen, thank you so much for joining us today. And I think, Ian, you had a few opening remarks. And then from there, we'll jump into Q&A.

Yes. Happy to. Thanks very much, Jason. Thanks to you and the BofA team for hosting us today. I think a really important time actually, this has been a big year of execution for Xenon. So really nice to kind of check in on how we're doing. And I'm really pleased to be joined with Chris Von Seggern, today our Chief Commercial Officer, as you mentioned. I know a number of the questions will be around really just where we see the lead assets fit in commercially both in epilepsy and in major depressive disorder. So it's really nice to have Chris here and provide a lot of the work that Chris and the team have been doing in preparing the market. For many people who know us, know us well, obviously, we're a neurology company, really deep expertise in drug and ion channels in the CNS. We really have people focus on three key areas in the business. One is the lead molecule, azetukalner in epilepsy. The second is azetukalner as broadened into psychiatry, and we'll talk about that today. And then third, we're starting to talk a little bit more about the maturing discovery pipeline at Xenon, and there's three targets that we like a lot. We're doing even more work behind those three targets, but there's three targets that we've been spending a lot of time on and you're going to see multiple molecules transition into human clinical development from our discovery portfolio over the next year or 2. So hopefully, we can spend some time there as well. But for many that know us well, I really think about azetukalner at least first in epilepsy. And really, our broad investment in epilepsy, we're running 3 Phase III clinical trials in parallel, 2 in focal onset seizures and 1 in primary generalized tonic-clonic seizures. And our real commitment and broad investment here is based on some extremely compelling Phase II data from a study called the X-TOLE study and that we disclosed publicly a couple of years ago, at least the double-blind data. And then we've been following these patients for multiple years in open-label extension. And actually, we're going to have some data from OLE, some more mature data at the American Epilepsy Society meeting in Los Angeles in December just around corner. We now have our first patients at 5-plus years of dosing, over 600 patient years of exposure. So we have a huge amount of data on the long-term efficacy and safety of the molecule. But I know we'll get in today, but we really think the profile of azetukalner is very compelling in epilepsy, based on the Phase II data from X-TOLE. Obviously, it's an only-in-class mechanism. None of the drugs currently available target potassium-channel modulation. On a placebo-adjusted basis, this is the best efficacy in the double-blind ever seen in focal onset seizures in the most refractory or severe population ever trialed. So it gives us confidence just on the efficacy profile of the drug. We're also seeing that now in open-label extension, where we're getting even greater seizure reduction as patients stay on the molecule longer, and we're getting these longer periods of seizure freedom. So for patients that have been on the drug at least 2 years, it's almost about 1 in 4 of them that are getting at least 12 months of seizure freedom, which is actually remarkable when you look at the baseline characteristics of the patients coming in, including 13.5 seizures at baseline per month or a seizure approximately every other day. So with an only-in-class mechanism, really significant efficacy, we have early onset to efficacy. So we see statistical significance at week 1 in the X-TOLE study. The drug doesn't need to be titrated, so that's a clear differentiator. So it has real ease of administration, with no DDIs being identified or we have to make any modifications to other drugs. And we're also seeing this emerging mood benefit as well. So I think when we look at the overall profile, extremely compelling in epilepsy, and we'll go a little deeper in all of those throughout the next 45 minutes or so. The first Phase III trial in epilepsy called X-TOLE2, we expect that to read out second half of next year. That's on the critical path to filing an NDA in transitioning this molecule to be in a commercial medicine. Obviously, I mentioned the mood benefit, that's a nice segue into kind of that second tier or pillar of the organization, which is really moving azetukalner into psychiatry. We read out at the end of last year a Phase II clinical trial called the X-NOVA study. And that -- basis of that study, and we can get into more details, is the basis of us running 3 Phase III clinical trials in major depressive disorder. And the first one of those Phase III clinical trials is going to start in Q4 of this year, so in the near term. And when we look at the profile in depression, obviously, we're seeing an important separation on clinical scales of depression, whether you look at MADRS or [ MD-17 ]. But we think there's also other important differentiators of the molecule, one; early onset to efficacy. So somewhere that we saw in epilepsy, we're seeing in depression as well, where we get a separation early on at week 1. We also know that a number of these patients have a significant comorbidity of anhedonia, and we saw statistical significance on that endpoint in our Phase II program. Obviously, a different mechanism from how MDD is treated today and a different adverse event profile, so we're not seeing the sexual dysfunction or the weight gain that is seen with other classes of drugs that are used to treat major depressed order. So I think we're really interested in moving azetukalner into psychiatry and into major depressive disorder. There's also the common length where there's a significant comorbidity of depression in the epilepsy patients. And so we can talk about that as we move through the Q&A. And the last thing that I had mentioned at the beginning was really our focus on the discovery platform and the maturity of that. We're focused on three different targets: continued prosecution of Kv7. These would be additional molecules following behind azetukalner. We're also very interested in Nav1.1 and Nav1.7 for seizure disorders and for pain, respectively, and we can go into some of those details. Balance sheet is good, cash into 2027 to fully fund the late-stage clinical programs for azetukalner in both epilepsy and in depression and a number of these molecules transitioning from discovery into human clinical development. So I think it sets up the company. I know that it's been a big year for us in terms of execution, and really looking forward to 2025 and beyond in terms of a lot of clinical data going to come from Xenon and as we transition and forward integrate also into a commercial organization.

Okay. Great. So maybe we'll start with epilepsy and with -- putting your clinical data side for a moment, just kind of curious, if you were asked the question, like what do you think makes focal onset, right, like a good market, in terms of launching a new drug, given you've got a number of generic alternatives available for you; and so that's always going to bake the question, is this a space that's going to reward innovation? So maybe I'll start there, and then I've got some follow-ups.

Yes, for sure. Yes, we think absolutely, the focal onset seizure space. Although, as you mentioned, there are a number of generic drugs available, I think there's absolutely a need for innovation. And the drugs that have innovated have done really well. And so Chris can walk us through some of epidemiology data and just so we get a bit of an understanding of how big the market and what the medical need are -- medical need is. And then I think we should go into the attributes of azetukalner and really where those would fit and why we believe this could really be a real significant commercial opportunity for Xenon. Chris?

Yes, absolutely. Thanks, Ian. So when you think about the epilepsy space, it's important to note, the total size of the opportunity there are about 3 million adult patients in the U.S. who suffer from epilepsy, and it's split into two major forms. So the first would be focal onset seizures, which represents about 60% of the market. About 30% of the market would be primary generalized tonic-clonic seizures, the other major component of epilepsy. And a portion of patients remain with an ambiguous diagnosis that sit between those two groups. So 3 million adult patients, about half of them are underserved with existing therapeutics today. And despite the fact that there are a number of products that have been on the market for quite some time, you can think about with the selection of over 2 dozen approved products, you still cannot get meaningful seizure reduction for a very large percentage of the patient population. And that underpins the unmet medical need here. Part of the challenge is many of the therapeutic alternatives that exist today sit within a small number of mechanistic categories. and there is a mechanistic differentiation. And you can't, therefore, stack up medicines on top of each other because you're not going to see additional therapeutic benefit within that category. So yes, there are many products that are available, but it's important to appreciate that there's still many, many patients that are suffering from seizures and are not seeing an adequate response. And when we transition them to azetukalner profile, there are a number of attributes that really are important to consider. First is that mechanistic differentiation. We are an only -- we're the only product with clinical data in the Kv7 space. And importantly, Kv7 is an important complement to the mainstay of treatment, which are categorically sodium channel agents in the space. So that mechanistic differentiation is an important attribute. But there are many other attributes that are important with the profile like azetukalner, rapidity of onset in the environments that we're thinking about. Getting to efficacy quickly is an important consideration for these patients. Most of the other products require titration. So that's a complementary rapidity of onset. If you have a product that requires penetration over the course of weeks or months, you're living with the risk of an unprovoked seizure happening during that period of time. Ian has mentioned the comment around DDIs. Given that much of this market is combination treatment for patients who are difficult to treat, you can imagine the importance of a medicine that can play well with others. And then really the last piece of the equation, which is new to the story with azetukalner, is the potential to address mood. And mood is a very significant comorbidity within the epilepsy space. We can spend more time on that in a moment.

Okay. And Jason, maybe just to add to that, I mean, I think we can look at some other commercial proxies here, right? Why have certain drugs done really well in the category? And the three that really come to mind are Keppra, Lamictal and Vimpat, right, all blockbuster drugs. And all had clear differentiating features, right? Keppra was a novel mechanism at the time. The data were really strong. Lamictal, although it was a sodium channel inhibitor, really had this mood stabilizing benefit or differentiating factor. And Vimpat is really widely recognized as a drug that's quite easy to use and easy to administer and to provide in combination with other therapies. So each of those had different differentiating factors that led to a large commercial opportunity. And then if we look azetukalner, I actually think the list of differentiating features and compelling properties of azetukalner is even longer, right? We have the novel mechanism, we have the compelling efficacy, the early onset to efficacy. And now what we're seeing is this emerging profile in mood as well. So we actually think there's a really unique opportunity for azetukalner in the FOS space.

How would you -- a lot of people focus on the XCOPRI launch and as a learning more than anything, right? I think there was in year 3 or 4, I believe, that they launched during COVID. So there's all sorts of, I guess, caveats here. But as you look at that as a proxy for -- does the market -- where new or innovative things -- things I typically hear about XCOPRI is good on efficacy, good on driving seizure freedom, not the easiest drug to onboard for patients. And so I guess I'd love to get your perspective on that as sort of like a proxy or something that you learn from as you think about go-to-market.

Yes. Absolutely. So first, let's put you in the mindset of a patient that's looking for an alternative therapy. So this is not a market where newly diagnosed patients are seeking branded therapies. As we've already discussed, there are a number of generic -- generically available medicines, some of which are mainstays of treatment, levetiracetam or lamotrigine or products that are used very frequently early in lines of therapy. What's causing a patient to seek a second or a third or more line of therapy is either na tolerability issue in their existing therapeutic or a breakthrough seizure. So in many respects, you have to think about the addressable patient population for branded agents being for those patients who have an inadequate response to early line of treatment, and then you're waiting for these events to emerge. And it's the attributes of the profile that's sitting in front of you that the physician is thinking about when they're selecting for a new drug. So that's the patient population. Now let's turn to XCOPRI. You're right, XCOPRI, I think, has some things going for it and has some things -- has some challenges. They launched in the middle of COVID, and access to physicians for a new company with a new product was challenging. And from a launch perspective, they've actually done a reasonable job positioning themselves in the marketplace. They do have compelling efficacy data and seizure freedom data. And that's -- those are the main drivers for that product. But there are some limitations to XCOPRI that have really hindered use in clinical and commercial practice. The first of which is the exceptionally long titration period. And that titration period is tied to a very severe but rare adverse event called [ TRES ] that is life threatening. And if one accelerates the titration period for a product like XCOPRI, you could actually put the patient at risk. So what we've seen in our market research is that clinicians are holding that product for really late-line patients. It's a product held right before one would turn to a surgical option. And it's this ease-of-use challenge with XCOPRI that's really held it back, in our opinion. When you turn from XCOPRI to azetukalner, that's one of the real attributes or benefits that our product has or has the potential, which is we play well with others, we have a rapidity of onset, there's no titration required. And these ease-of-use attributes really do play an important role earlier in lines of clinical treatment decision making. And the best analog to think of from that standpoint is Vimpat. When Vimpat was introduced into the marketplace, clinicians latched on to its ease-of-use attributes. And that was one of the reasons why Vimpat was often considered this first branded product. And when we conduct our market research, we often hear that the total package of azetukalner puts them in line of thinking about using the product earlier. The major difference we hear is the potential mood benefit coming, does catapult the product into a different category when you think about the patient population that has met medical need associated with mood-related symptoms.

I was -- I think XCOPRI, as Chris has gone through, is, I think, an interesting proxy because it's the most recent branded drug that's been launched in the space. So we absolutely should be keeping an eye on it. Actually interesting, when we launch, we will be the only 2 branded drugs, right? So I think it's important to track how they've done. And I think Chris has put it into perspective the strengths of that molecule and maybe some of the challenges and where azetukalner could fit in. To bring that forward when we launch our -- part of our real messaging around azetukalner is going to be that this should be the first branded drug that physicians reach for all of the attributes that Chris has gone through. I think XCOPRI is going to continue to play a role, absolutely. But I think if we can -- if the profile of azetukalner that we've seen so far, both in all of the clinical studies and the open-label extension, if that continues, we really expect that azetukalner will be the first branded drug used. So it's really an order also as we think about -- from a launch perspective.

Yes. I mean, I know that over the years, you've talked about based on the profile you've seen at X-TOLE, the potential to be kind of first brand, right? And that's third line, maybe mainly, but there's also some second line utilization for our first brand. But then I think more recently, you talked about the mood benefit possibly being a swing factor that could facilitate even more early-line use. So how does that -- I guess, as long as you have a positive pivotal trial, do you feel like there's a knock-on effect that could drive earlier lines, assume that's defined by my second line or just broader use with physicians knowing they want to have that adequate coverage against mood given the high level of comorbidity?

Yes. So I think there's a lot of -- a lot of excellent questions in kind of embedded there, right? So let's talk a little bit about the patient population and then -- and why they would potentially reach for a drug that could have mood -- positive mood benefit or move stabilization benefit. And then Chris can go into some of the market research and what we're hearing because I think the -- psychiatric comorbidities in epilepsy, as an overall statement, are -- there's an under education appreciation for that. And I think there's an opportunity for us to play an important educational role in the epilepsy community as well. But there's two really key things to think about in the epilepsy community, there's both -- in terms of the patients having the comorbidity. And I think at least to me, that's really intuitive, right? These patients are having breakthrough seizures, those seizures are having an impact upon their quality of life, and that's having an impact on psychiatric comorbidities such as depression and anxiety. So I think that's part of it. The other thing is that some of the anti-seizure medicines that are used are mood-negative, right? So the adverse event profile is that there is negative mood symptoms associated with those molecules. We see that at times with levetiracetam, we see it with drugs like perampanel. And so there's both the adverse event or the exacerbation of an underlying mood conditions, there's the comorbidity as well. So with azetukalner, the data that we've shown, not from the X-TOLE study, but in the X-NOVA study, and there's lots of mystic rationale to back this up as well; is that we are seeing an antidepressive effect of the molecule, and we think that's going to be important in the epilepsy community. But there's a huge amount of education that's going to be required as well.

Yes, absolutely. And as Ian has mentioned, we spend a fair amount of time with our physician community, trying to explore the understanding of mood-related conditions within the epilepsy population, both from the physician perspective, but also layering in the patient perspective as well. And when we have the conversation with physicians about this, what became instantly clear to us is the lack of appreciation, the under-appreciation of the importance of this comorbidity as it pertains to overall patient management. So physicians are quick point to a product like lamotrigine as a product that they would preferentially choose for a patient with a pre-existing mood condition or one that develops over time, based on the exacerbation to Ian's point of another anti-seizure medication. And the data that relied on for that are coming from the bipolar data associated with lamotrigine. So it's not specific to data within the epilepsy population that they're pointing to, it's just that the molecule is well understood to provide mood-related benefit. When we talk to physicians, though, there is this disconnect between their perception of mood and depression within the epilepsy population and the patient perception. Patients often report depression and depressive-related symptoms at a much higher rate than physicians do. And it's that intersection that we believe is quite important for us to address during the time as we prepare for launch. And you'll see more and more from us as we think about our disease state education and about our disease state education and how we want to connect with the community to try and close that gap because we believe that there's a real opportunity here to improve overall patient care by addressing the comorbidities that are related beyond just the symptoms themselves.

Okay. And then think about if you're able to directionally consistent results with X-TOLE2, when we think about sort of the ultimate regulatory review in product labeling considerations, where do you stand on whether you think retinal exams at either treatment initiation or post treatment would be potentially required based on any kind of like predecessor molecule? Even if you run your trials and you have this long-term follow-up and you don't see anything I guess, is there a theoretical concern? How do you think about that or would frame that for investors?

Sure. Yes, probably helpful to maybe just a little bit of background. You kind of -- it's embedded in your question, but just so everyone has that context. So prior to azetukalner, there was a previous drug that was developed and approved in epilepsy, it's no longer commercially available. That drug was called ezogabine in the U.S. That was the generic name. And ezogabine, what you're referring to is there was some pigmentation associated with that drug. It was -- it showed up on cumulative dosing, so the probability in a patient increased over extended exposure to the molecule, and it showed up as pigmentation in the skin, kind of this blue, gray discoloration color, also in the lips, the gums, the nail bed, but also in the retina, and that was kind of central to your question. And so we've learned a lot from the work that GSK did. We're very comfortable in the statement that this is not a class effect, and this isn't mechanism-based toxicity. It was really something unfortunate in the chemistries of ezogabine and the chemistries and what happened in under-oxidative conditions. That drug dimerized with -- and it was that new dimer complex, that chemical complex that had color associated with it. So we haven't seen that with -- if we just look at the chemistry of azetukalner, which is different than ezogabine, we have not seen that preclinically, we cannot -- we can't recapitulate what happened with ezogabine, with azetukalner. But yes, and then the question is let's answer it clinically because of the details with ezogabine, it was on extended exposure of the molecule. And so as I mentioned, we do ophthalmology, and we are following these patients closely. We now have patients out over 5 years of dosing. So although I think the mechanistic argument and the chemist argument is really solid that we shouldn't see this with azetukalner, We need to prove it out clinically. And to prove it out clinically, you need longer-term exposure. And so we've seen that. We now have patients, as I mentioned, with 5 years of dosing. And we haven't seen the pigmentation that was what they saw with ezogabine. And so ultimately, with everything, all of the data is going to be part of a review package with FDA. But both in terms of the scientific arguments as well as the clinical data already that we have already -- that we already have with azetukalner and we'll continue to collect in Phase III, we're going to have a huge amount of information to answer the question around risk of pigmentation. We haven't seen anything, we don't expect to see anything based on the underlying mechanism and science, but we'll continue to monitor it. And that will be a discussion with FDA. But based on our expectations today, we wouldn't see anything that would be something that would be required, either a treatment initiation or through treatment.