Xenon Pharmaceuticals Inc. ($XENE)

We're going to get going here with our next company presenter at the BofA Annual Healthcare Conference. My name is Jason Gerberry. I cover biotech and pharma and I'm pleased to be introducing Xenon Pharmaceuticals and Tucker Kelly, CFO. So Tucker, thanks for joining us.

Great. Jason, wonderful to be here in Vegas with you and the BofA team and appreciate the opportunity.

Great. So maybe we'll start with just azetukalner for FOS epilepsy. You recently had your confirmatory pivotal study and next step is going to be regulatory. But maybe just at a high level, how would you -- coming out of that data, say the elevator hook is looking for azetukalner in the ASM space. There's a lot of different ASM alternatives. So maybe if you could just sort of frame the why and then we can go from there.

Yes, absolutely. So we were really excited when we reported out in March, the second, as you say, of our pivotal studies for azetukalner in focal onset seizures. So this is the X-TOLE2 study, which had a tremendous result, largest median percent change in seizure frequency on a placebo-adjusted basis ever seen in a registration study. And helpfully as well, it was incredibly confirmatory of the initial X-TOLE2 study -- the X-TOLE study we had done in the Phase IIb. So the efficacy, the safety, all the metrics that you really care about were incredibly consistent with what we've seen before. So we think we've got a really great drug on our hands. As you said, we're going to be marching toward filing our NDA submission in Q3. And we have a really different product. So as you said, there's a lot of ASMs that are on the market today. It's a generic market for the most part. There's now just one branded ASM remaining. But we have a really different approach. We've got a potassium channel modulator. Most of the class today in ASMs is around sodium channel blockers or SV2As. So we have a different mechanism of action. We have got a compelling efficacy profile and an ease of use and tolerability that we think is going to be really important as we touch on the commercial opportunity and the physician that we intend to go after. So yes, we're really excited about the data from X-TOLE2. We've got some initial feedback from KOLs and physicians and it's all been incredibly positive.

Yes. Okay. So the plan, as I understand it, will be to file the NDA in 3Q. What are sort of the -- if you can kind of just give us a sense of regulatory interactions, what are the steps needed to get that NDA through?

Sure. So we had a really productive series of conversations with the FDA over the years. And the team has been working hard even before the X-TOLE2 data was announced to get the NDA submission ready. So all the things that we could do beforehand without that data, we really worked on it and got done. So a lot of the CMC work, the module 3 components of the NDA submission were all kind of prepped and ready to go. That's assuming -- there's a lot of work left to be done. This will be our first NDA submission as a company. So it's a big lift, not at all worried about the packet but it is a lot of work. So the team is working really hard right now to pull together the integrated safety summary and the other modules with the combined data sets. And we'll have our interactions with FDA leading up to the NDA submission later this year and we're really excited about that.

Okay. So your base case is standard review. The last branded approval XCOPRI was also standard review. So that all makes sense. Are there any scenarios that could bump that up to priority review that expedite things?

Yes. As you say, when you look back at prior approvals in ASMs, there are always standard reviews. We think that's likely to be the case here. Look, we'll always be a strong advocate for our drug. We think it's got great properties. We think it's bringing a real differentiated clinical benefit in the way that other current approved products don't. So we'll always be a strong advocate for it. But I think as you say, the base case really should be standard review, so 12 months from NDA submission.

Got it. And you mentioned the reductions in the seizure frequency. Can you maybe talk a little bit about some of the data that you had at AAN around seizure freedom and how important that durability metric is ultimately to commercial adoption?

Sure. So the Phase III studies in FOS cover usually either 8- or 12-week double-blind period. So that's the principal data from the primary endpoint for both the X-TOLE study and the X-TOLE2 study. And what we touched on at AAN were 2 things. One is some additional data from X-TOLE2, talking about seizure freedom or as we really should call it 100% seizure reduction in the double-blind period. Typically, seizure freedom from a clinical standpoint is thought of as 6 or more likely 12 months of no seizures. And that's important because for these patients in most states that you can't drive if you've had a seizure within either 6 or 12 months. So seizure freedom is really thought of as a long-term goal that physicians are trying to achieve with their patients. What we talked about at AAN was both the 100% seizure reduction in the double-blind period, so over 12 weeks. And what we saw was, again, really consistent with what we've seen in X-TOLE as well as consistent with the OLE data. So from the X-TOLE study initially, we have patients that after the double-blind period ended, stayed on drug and we've got data that we put out at AES last year and as well at AAN this year out to 4 years on therapy for a lot of these patients. And what we see is whether it's in the double-blind period or in the OLE period, [indiscernible] years that the efficacy continues to improve. And we saw that as well in terms of 100% seizure reduction in double-blind, where we're up at that level that you mentioned by the last 12 weeks. And as you look back from 4 or 6 weeks out, it continued to go up. So we think that's really important. We bridge that to the OLE data showing that if you're staying on drug longer, you're getting much more significant periods of seizure freedom. And we had a lot of patients out to 4 years. And for those patients that have been on for 4 years, a very high percentage of those were able to get at least 12 months of seizure reduction at some point over those 4 years, so almost 40%. And there was another sort of 10% that were able to get seizure reductions, 100% seizure freedom over that 4 years. So a really compelling long-term efficacy data that we think is going to be impactful for us clinically as well as commercially.

Okay. So we've also heard just in our physician calls that the uniqueness of the Kv7 mechanism is an important attribute. There are others pursuing the Kv7 approach. I think Jazz has a very early stage I. Biohaven has a later stage I, not a lot of data that are out there. So it's kind of difficult to know what you're up against. But do you feel like the lead is so far and the bar is so high that you don't really concern yourselves. The focus is just internally what you have to do? Or how do you think about the defensibility given that there are other Kv7s out there?

Yes. That's right. So we feel really good about our position. As you mentioned, we certainly have the pole position. We're furthest out with a really robust and deep data set for azetukalner. So we've got the 2 Phase III studies that have read out. We've got the long-term extension data. We have over 800 patient years of experience now on the drug and we think we've got a really complete package that we think is going to set up well. So we both have a temporal head start in terms of others that may be coming behind us. We think we've got the best chemistry, highly potent molecule that gets good CNS penetration that obviously drives efficacy. And we've got a lot of other strong attributes as well. So we're going to try and get 4 doses on label with 2 doses that we've studied in the initial Phase IIb, 10 milligrams and 20 milligrams alongside the 15- and 25-milligram doses that we studied in X-TOLE2. And we think that's really important because not all patients are going to require or want or need the same dosage formulation. So we've got kind of a really strong data set across a variety of doses that will allow physicians to figure out kind of what they're trying to solve for a particular patient. Are they looking to try and maximize seizure reductions? Are they trying to get a different balance between seizure reduction and adverse events that you see with a lot of ASMs. So we think we've got a really broad moat that we've built around our franchise with azetukalner in epilepsy. And we think the data, as you talked about kind of speaks for itself in terms of the strength of the efficacy data in the class overall. But certainly, we're the only ones that have read out a pivotal study or a registration study with the KV7 today in epilepsy.

Okay. Can you outline -- I know price is becoming a little bit more of a discussion point. And you mentioned maybe starting some payer discussions now as you get ready for launch preparations. Some of the unique aspects of being kind of a later line, probably a 2L or 3L drug in the epilepsy space. It's a protected category. So maybe just think about the proportion of the business that's Medicare and how you envision policies? I know in past conversations with Xenon management, I think in epilepsy, it's -- the payers will typically let one branded agent be included in a multidrug cocktail. So as you think about sort of what the desired outcome would be from a ease of access standpoint and how the policies will be crafted. Maybe you can talk a little bit about that.

Sure. So there's a lot of factors. So maybe first to set the stage. So what we see in terms of clinical yield today is that patients typically go on like an SV2A inhibitor as a monotherapy to start. And then oftentimes, if they can't get seizure control, luckily, a lot of patients can get seizure control with a frontline agent, they'll often go to a second monotherapy, excuse me, a sodium channel blocker. And then after that, it gets more money. And there's a lot of heterogeneity in terms of the clinical practice. So oftentimes, it moves to a polypharmacy approach. And so you're mixing in SV2A inhibitors, sodium channel blockers but there aren't many mechanisms available. So there's really just a handful of kind of general options available to physicians. And what that means is that you've got a market that's highly genericized. There's only one sodium channel blocker today that is still branded. And so that leads to some interesting dynamics on the commercial side. So the payer mix is roughly 40% for commercial. And then after that, it's Medicaid because a lot of these patients and people who suffer with epilepsy are on disability and then Medicare after that. And as you mentioned, it's a protected class for Medicare purposes. And from a commercial standpoint, because it's a highly genericized market, it's not heavily managed. So there's a high unmet medical need and burden with these patients. There aren't a lot of category spend here because there aren't many branded agents and there hasn't been a lot of innovation. And in addition, when we look at it, there are certainly still with the branded agent that's out there and the ones that just came off patent in the last 1 year or 2, there certainly are some of the traditional step edits, prior authorizations and formulary restrictions. But because of the way the clinical medicine is practiced today, they don't mean quite as much in the sense that patients are already going to be on an SV2A inhibitor or an initial sodium channel blocker. So we don't, in practice see that branded agents have a particularly challenging time getting reimbursement. Their formulary placements are very manageable and reasonable. So we think we actually have a really nice setup from a commercial standpoint. As you mentioned, the team has been out already now talking with payers and PBMs and really introducing Xenon as a company, introducing azetukalner as a drug, talking about its benefits, its novel MOA, the unmet medical need and doing a lot of education. So this will be the first FOS launch since XCOPRI launched in 2019. So by the time we're on the market, 7, 8, 9 years. And so there's education to be done. It's not a category that the commercial payers have had to pay attention to. And we think we've got a great story to tell with a great drug and we intend to try and get really good value for the benefit we think we bring.

And I think what's been said on different calls, I want to make sure I summarize this right, is that the company's -- believes that there could be a price premium relative to, say, where XCOPRI comes out. That's like the current most widely used branded agent in the ASM space.

Yes. So obviously, the team is doing a lot of work on pricing with the data from the Phase III in hand and we'll continue to talk with payers and really, again, press the benefit and the unmet need and the novel MOA and all the other features. It's interdynamic because the last branded launch, as I mentioned, was in 2019. So it's been a number of years. I think if you look across the landscape of biotech and pharma, in general, prices have gone up in that time in terms of launch prices for a lot of new drugs. And we think we've got a really strong compelling value proposition to provide. So we'll continue those conversations. We do think there's a potential for premium pricing to where those agents are today. And we think it's justified based on the strong efficacy, safety and overall clinical benefit that we bring with a novel mechanism.

Yes. Can you talk a little bit about -- I think the market for kind of these more refractory patients in the past has been estimated at around [ U.S. 500,000 ] or so 500,000, 600,000, if have my numbers right. What I wonder is like of those, what proportion are presenting for a new treatment cocktail in a given year? Because that's kind of your in-play dynamic market in any given year. And I think what -- a lot of people who followed launches in this space, there's a bit of a slow year 1, 2 and then a build, right? And so I do wonder is it just the dynamic where it's 10%, 20% of those patients are maybe presenting in a given year for something new and that's what you're fighting for competing against like XCOPRI and other treatment options to get that incremental patient?

Yes. So the FDA would tell you that there's about -- in focal onset seizures, there's probably about 1.9 million patients in the U.S. As I mentioned earlier, the good news is for a lot of those patients, they're well controlled with an existing medication. So say roughly half of those patients don't need and aren't looking for on a regular basis, a new therapy. But the others do. So only roughly half of those patients are not well controlled. Some of them are not well controlled at all and really uncontrolled patients. And what we're looking at is that half of those patients is the ones that we think within FOS are going to be the addressable market.

Half of the 1.9 million?

Half of the 1.9 million, yes. And then amongst those, there's probably just over half of those are partially controlled. So they're getting decent seizure reductions. They're not having their seizures as frequently but they're certainly not well controlled to the point where they're not looking for other possibilities. And then just under half of those are really uncontrolled. And so I think at the outset, when you look at our commercial launch in FOS, we're likely to be making our first headway into that group of uncontrolled patients. But we do think that, again, given the novel mechanism and the strong data that our goal is to rapidly move up earlier in the treatment paradigm and be one of those early add-ons to your initial SV2A or sodium channel blocker. So we think it's a really large patient population that has a significant unmet medical need and we're bringing something very different to the table. This is all about FOS. We can also talk a little bit about the generalized seizures or PGTCS. That's a smaller market opportunity. It's probably about 900,000 patients overall that have generalized seizures with a similar mix of patients who are controlled and uncontrolled. So we think it's a really substantial number of patients that need new therapies and new options in the U.S., and we think that translates into a really strong commercial opportunity for azetukalner.

So for that uncontrolled group, do you have a sense of people -- those people will trial a regimen 3, 6 months and then the determination is made that they're not achieving control? Or is the profile a bit variable, some that lack of control is discerned early and others, it takes a while, maybe it either works early and then stops working.

Yes. I think it's really a patient specific. I think there's a couple of flavors of what you see. You typically see patients who either are looking for new therapies because they're not getting the efficacy that they desire, they're getting breakthrough seizures and uncontrolled seizures. And again, there, they would look to typically add on another ASM. So again, they see stacking, like in our clinical studies, patients had been on an average of 6 prior ASMs. They were on the study in both arms on an average of 2 to 3 ASMs. So patients kind of have this polypharmacy approach. And what we see then is other patients who maybe don't have the ability to tolerate the drug. There's certainly a lot of adverse events that patients suffer from with a lot of sodium channel blockers. And so oftentimes, you'll see patients who will be looking for new therapies and discontinue their existing ASMs for tolerability concerns. So I think each physician is really looking at their patient individually and figuring out what they're trying to solve for in terms of adverse event profile, seizure reduction. And that's again where I think they're cycling through different agents at different rates but they have got a limited toolbox to work with in terms of the types of agents that they can go to. So again, we think AZK provides a really nice option for them to look at, whether it's a tolerability issue because they've been on sodium channel blockers and they get a series of adverse events that are challenging there, or again, whether they're trying to get additional efficacy, which they've been going off the same mechanistic basis, having a potassium channel modulator could provide a very different option for them to try and maximize efficacy.

Okay. Can we talk a little bit just about like the marketplace and who is the likely prescriber of a drug like azetukalner. And so if I talk to a neurologist in a tertiary care setting, right and they kind of get to third, fourth line, they kind of feel like the value of adding another different therapeutic option starts to diminish and they may go to put a patient on a clinical trial or a nontherapeutic option. This drug is a lot easier to give than the competitive brand, which is XCOPRI. So that makes me think, all right, it's going to play well with the community who may be less inclined to do these nontherapeutic options. So maybe can you just paint a picture of who the likely early users or bulk of utilization is going to come from?

Yes. So that's where we think AZK can really have a different impact because it does have the ease-of-use attributes in addition to the efficacy and safety that we think are going to drive broader adoption, not only amongst the epileptologists, the specialists who treat epilepsy patients day in and day out and the general neurologists. And as you say, XCOPRI is a good drug. It does really well for a lot of patients. But because it has issues in terms of its titration, the need to manage drug-drug interactions, it really is very much relegated to the epileptologists. So most of the scripts for XCOPRI are in that setting and very few are in the general neurology setting. We think with azetukalner, we've got a very different profile. It has sort of the ease of use of one of the prior drugs called Vimpat. Again, it's once daily, doesn't have drug-drug interactions, doesn't require titration. We've got a rapid onset of action. And again, the efficacy and safety profile that we think is really favorable. So that provides us the opportunity not only to be really impactful for the epileptologists who see maybe the more refractory severe patients and on a per capita basis, certainly prescribe more than general neurologists do. But a lot of these patients are still at the general neurologists. And as you say, they tend to stay there even beyond the first, second and third therapy, even though that's more difficult to manage. They don't necessarily get things like XCOPRI that could be beneficial to them because it's just not really in the wheelhouse of a lot of these general neuros. And they may hold on to patients until they look at things like nonsurgical options -- nonmedication options, things like surgery and then refer out to an epileptologist. So we think from our commercial standpoint, we want to penetrate both. We want to try and get this drug widely used at both call points. It will be gradual in the sense that we'll certainly make better penetration sooner with the epileptologists, right? They're more up to speed on the novel therapies. They're going to be more intrigued by the novel mechanism of action. They see more patients. They've got more severe patients. But we're going to try both at the outset and we're going to really work hard to penetrate into the general neurologist community and we're going to do that in a really targeted way. So if you look at the kind of prescribing base, there's probably a 2,400 epileptologists in the U.S., there's 18,000 general neurologists. We're going to really target about 7,000 to 8,000 physicians at the outset. So all those epileptologists but then a subset of the general neurologists who either write some branded or have patients that are, we think, more ready for azetukalner. And the goal really is to be a widely used ASM across both parts of the channel and we think we've got the profile to be successful there.

And apologies if I missed this but have you said how many sales reps that would generally entail and how that might compare to what SK or Lundbeck have done in the past in this space?

Yes. So we're going to start with about 75 reps on the commercial side. Our field force in total will cover both the commercial reps but then we'll also have medical science liaisons, a number of whom are already on board today. We already have about a dozen MSLs on staff doing scientific communication. And they've been great about really getting some initial feedback from KOLs on the data. But yes, we think that, that profile can capture that strong market share that we're looking for amongst the epileptologists for the personal promotion and we're going to use a lot of nonpersonal promotion efforts as well to broaden the reach and targeting in areas like general neurology where, again, you might want a larger field force over time as well. So yes, we think that's a really good starting point for us. We think it's going to be an effective way to do it. Similar to what SK has today, I think they started with a little bit higher number of reps. They were probably in the 120 range at the beginning and they've dialed that back now to somewhere in that sort of 75-ish range, we think. So we think it's a great starting point, very manageable for us to do and will allow us to capture the opportunity in those settings.

Okay. And when you think about the launch curve and comps that are out there, would you advise investors to say, hey, look at how XCOPRI looked in the first 4 to 8 quarters, how maybe Vimpat adoption looked in those quarters, apply a haircut potentially given, I don't know, later mover, I don't know, how would you kind of advise investors when you think about comps or even go outside the FOS space for comps?

Yes. So the commercial team is going to be doing a lot of work now to refine their go-to-market strategy and their launch forecast. So I think we'll have more color as we get closer to launch itself. But what I'd say is that in the past, certainly, if you look at prior launches in ASMs that, like XCOPRI, a lot of them -- I like the prescribing patterns that a lot of these physicians do, they're kind of low and slow. So these are not hockey stick ramps, rare disease launches where you get a huge number of patients that are warehoused or a bolus and you've got this kind of revenue number that just is up and to the right really quickly. It tends to be a more gradual slope of the curve. Our goal is to have the best FOS launch ever. We hope to bend the slope of that curve. Some of that will be, I think, driven by the strong data we have and our execution on the commercial side. And again, it's a relatively conservative physician base. And so we're going to have to do a really strong job to try and help them that. I think XCOPRI was unfortunately hampered a little bit by the fact they launched during the pandemic. So that certainly didn't help them. But again, we think we've got a really good value proposition, a strong story tell and a commercial team that's very experienced in doing new drug launches, new drug launches in epilepsy. And so we think we've got the opportunity to have a fantastic launch. But exactly how long it takes us to sort of get that reach and breadth with physicians and get that uptake, we'll have to see as we get closer to the launch.

Maybe just a quick word on OUS and regulatory possible partnership and what you'd envision being kind of the split U.S., OUS for a drug like XCOPRI -- or azetukalner.

Yes. So look, we think it's a great drug and we want to get it to as many patients as we can, not only in the U.S. but around the world. It can help thousands and thousands of patients based on the data we've seen in the study. And so we certainly want to make that widely available. On the other hand, we are not going to be the company that puts in infrastructure in Europe or in Asia. It just doesn't make economic sense for us given that the economics abroad but also the fact that we don't have other drugs today that we could put in our commercial [indiscernible] bag. So it's not really a viable proposition for us but we think there's great value there. We'll continue to build value in the data packet, everything from running X-TOLE3, which is another Phase III study that is ongoing now and we've said we'll finish enrollment for the non-Japanese portion of subjects later this year. That is very much carbon copy of X-TOLE2. The reason we're running that study is principally for ex U.S. purposes. So in Europe, for instance, the regulatory guidance is that you have 2 12-week studies. Our initial X-TOLE trial was an 8-week double-blind period. It was 12 weeks in X-TOLE2. So this would give us 2 12-week studies. And what we announced earlier this year as well is that we have got an alignment with the PMDA in Japan based on the results of an ethnobridging study we have done that would allow us to take 60 patients out of the 360 from the X-TOLE3 trial and allocate those to Japanese subjects. So that would allow us to not have to run a separate efficacy study in Japan. So we think that's great value creation for the brand internationally. I think for us, the challenge is finding the right time to do that. And one of the issues today for a lot of sponsors and actually to us is the potential for most favored nation or MFN here in the U.S. The economic value from a pricing standpoint and return heavily favors the U.S. So if you look like at XCOPRI, they're doing about $500 million kind of annualized here in the U.S. It's about $100 million in Europe. So it's a fraction of what it is. So for us, the economic return is still heavily dependent on our ability to capitalize on stronger pricing here in the U.S. And so at the moment, I think we'll be cautious about how we think about partnering. But certainly, at the right time, we think it'd be great to get it in the hands of somebody who's got a good presence and can bring the drug to a lot of patients around the world.

Yes. Okay. Maybe just focus on the next thing, which is, I guess, MDD data in the story next year. And what are the aggregate learnings here around the profile of azetukalner on mood in the epilepsy population and to the extent you see read-through to the MDD studies?

Yes. So what we know kind of qualitatively from our discussions with physicians, what we see in the adverse event profiles that unlike other ASMs, we don't have any worsening of mood, which is really, really great for epilepsy. And that gives us a little bit more confidence in MDD but I'll talk in a second about kind of what gives us confidence as much as you can in any MDD study for the X-NOVA2 trial we're going to read out in the first half of next year. We did look at some mood PRO endpoints in the epilepsy study. But again, that was not a trial that was either enriched for patients with depression, though a lot of patients with epilepsy suffer from it. You can have background medications there. And what we saw was that we had a positive benefit for these patients on that PRO and also the control arm, right? So these patients there also saw a similar benefit to what they've seen in the treatment arm. So I think it was helpful for us. I think it gave us continued confidence that we've got mood neutrality within the epilepsy framework. And on the depression side, we're really pleased from our X-NOVA trial, which was a Phase II study that we ran a couple of years ago that came out with a positive result on measures of depression. So we had a clinically significant separation from placebo in those cases on 2 endpoints, MADRS and HAM-D and we'll be studying HAM-D in the X-NOVA2 trial reading out in the first half of next year. There have been a prior generation drug with a Kv7 mechanism that also had positive clinical data in depression. And so we've got kind of clinical evidence that we think gives us confidence to run the study. But as you well know, these are really tough trials to run. You get a lot of placebo effect. And so the team has been working really hard to try and manage that placebo effect in the MDD studies, a lot of operational things that we've done to try and mitigate the placebo response and try and let the drug declare itself and show in a statistically significant manner that we've got an effect on mood, which certainly would open up a large opportunity for us in MDD and would also be a tailwind for the epilepsy franchise as well. If we could have a MDD positive readout, even though that's not in epilepsy patients, that certainly would be in a strong additional set of data because a lot of those patients already suffer from depression today.

This may be a reach but when we look ahead, you have 3 pivotals going on for MDD. FDA has communicated they only need one pivotal study now. So if X-NOVA2 is positive, does that create a potential regulatory path in this whole discussion, I don't know if it's confounded by recent changes at FDA and sort of the catalyst behind that?

Yes. So we're going to read out the first of the Phase IIIs in MDD in the first half of next year. So our hope is that we may know a little bit more about FDA's posture on one study approvals. And that will give us a little bit of time. I'm glad we're not having to make that decision today. And we'll have the other studies. We've got one other study that we're running there as well today and then one that's currently ongoing in bipolar depression. I think the caution that we think about with respect to the one study approach is that, that may not be as relevant or as quick to come in certain indications. I think MDD is probably one of those where it would be further along the risk curve for FDA in terms of having a willingness to look at one study. There's just a lot of variabilities we touched on. So yes, if we get a positive readout, I'm sure we'll consider it and think about it and we'll evaluate where the FDA is in 1 year's time. But we're also cautious given the indication in general and the fact that it may be one of the more conservative areas of FDA when it comes to looking at one study but we'll see.

All right. Great. Well, we're out of time. So Tucker, thanks so much for joining us.

Great. Thanks so much for having me, Jason.

All right.

Thank you.