Zenas BioPharma, Inc. (ZBIO) Earnings Call Transcript & Summary

Thank you. Welcome, everyone. Good afternoon. Thanks for being with us at this session of the Morgan Stanley Global Healthcare Conference. We're very excited to have Leon Moulder, CEO and Chairman of Zenas BioPharma, with us. I'm Judah Frommer, one of the SVB biotech analysts here at Morgan Stanley. Let me just read a quick disclosure, and then we'll jump into it: for important [disclosures], please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. So with that out of the way, Leon, the company has evolved over the past year. Maybe we can start with a high-level overview of how the pipeline and the balance sheet have developed.

We saw you here last. Yeah, so first of all, thank you for having us here. It's been a great day so far. This is number 13 of 14 or 15 meetings we're having. And let me just make a comment on our disclosures. I would refer you to our SEC filings since we may be making some forward-looking statements here. Of course, the company has progressed quite a bit over the last year as we deepened our pipeline. If we talk just financially first, because you mentioned that, over the last year we put in place a royalty financing with Royalty Pharma that helps us fund the Abexolumab and its launch. We executed on a PIPE transaction. We then followed it up with an equity offering and concurrent convertible note transaction, loan with Pharmakon, and we do have an active ATM. We use that judiciously, and we had two opportunities this year where top mutual funds wanted to get a starter position, so we utilized the ATM twice that way. So we ended the second quarter with about $674 million in cash, and for us going forward, if our Abexolumab for IgG4-RD is approved next year, we're eligible for $75 million more on the Royalty Pharma financing, and then we have the potential to tap into another $75 million on the Pharmakon term loan, and that would provide us cash through the second quarter of 2029. And of course, with what we have going on in our pipeline that I'll mention in just a moment, that positions us really well. Priority number one, of course, for the company, now that we have a BLA under review with the FDA with a PDUFA date of late May, is preparing for the launch and then effectively launching Abexolumab, if approved, for IgG4-related disease in the U.S. Along the way, we're progressing other programs. I'll highlight a few, and we'll get into this more, of course, our two large Phase 3 global programs in progressive MS for our BTK inhibitor, Elobruzinib, and then our newer molecule, ZB001. It's an oral IL-17 inhibitor that's in the clinic now. And in addition, we're expanding the Abexolumab opportunity and have a lupus Phase 2b study reporting out at the end of this year.

Great, and we'll touch on all of it. So maybe just starting with Abexolumab in IgG4-related disease. Maybe just set the stage for us a bit with unmet need here and the advantages that a B-cell inhibitor can offer versus a depleter. You've talked about the dosing profile, the ability to pause therapy, but maybe just, you know, highlight that unmet need and what you're trying to solve here. If we back up and look at this disease,

which is a newer disease. It was identified just about 20 years ago. And up until the recent approval, well, now just over a year, there were no approved drugs. A few drugs were put into randomized Phase 3 trials, but not by sponsors, typical sponsors; they were really Phase 4 trials of older DMARDs that were not highly effective. So patients were treated primarily with steroids, which are highly effective. The problem with steroids, because this is a chronic disease, is chronic steroid administration just isn't possible. It was identified that targeting B cells, specifically with Rituximab, could be beneficial. And if you administer a regimen of Rituximab, you can put a patient into remission, and if you periodically re-administer it, you can maintain that remission. Now, the drug, though, has not been the subject of a Phase 3 trial, so the evidence isn't necessarily there for some payers, and it's not approved by the FDA, so it made it a challenge to get it for the vast majority of patients. So if you look at the IgG4-related disease market in the U.S., there are about 20,000 patients who we know are diagnosed and are treated with a variety of different modalities. We believe the actual market may approach 30,000 to 40,000, but with 20,000 today and just over half of those patients flaring frequently enough that they require chronic therapy, the options are limited, except for the approval now of UPLIZNA. If we think about that, the opportunity is really to bring to the clinicians and the patients an alternative. So today, when a patient is flaring, they think about administering a steroid, and then whether that's a patient that should get continuous therapy because they flared enough in the past, and that they have a choice of UPLIZNA or Rituximab, and much of that is driven by that clinician's experience and whether they can get a payer to pay for Rituximab or not, which can be a challenge. So UPLIZNA is getting more and more use over time, and when we come to market, if I'm not wrong, approved next year in the second quarter. We anticipate that a large number of patients still haven't been started continuously on either UPLIZNA or Rituximab. So there'll be a lot of patients that will show up in a flare, show up in a clinician's office with the diagnosis, and have not been on a therapy in a long time other than maybe a steroid a few years ago, or they're a brand new diagnosed patient. And the clinician will need to make a decision. And our market research and work that's been done by many, many of your colleagues on the sell side has indicated that clinicians think about our drug as one approach. It's an inhibitory approach. It shuts down B-cell activity, meaning it reduces antibody production, cytokine production, presentation of T cells, or antigen to T cells, and that's how it works. Or they could deplete a large compartment of the immune system and eliminate B cells. So they think about that, and they generally talk about it as, well, maybe I'll use UPLIZNA, maybe I'll use [Rituximab], depends on the setting, depends on what I can get paid for, or I can use your drug, and for your drug, in my patient population, where almost 50% are over age 65, more than 1/3 of them have concurrent illnesses, that perhaps with your effective agent and inhibitor, that we can pull back at any time and based on the clinical Phase 3 data, where serious adverse events were lower in the drug arm compared to placebo, that the Grade 3 infections were lower in the drug arm compared to the placebo arm, that this could be a good first choice for my patients. So that's how many clinicians are thinking about it, and we think the data supports that thought process.

OK, great. And then maybe just the dosing profile, how could that specifically be tied into the kind of convenience for the patient? What's the feedback you've gotten? Is it more from patients versus from practitioners?

Practitioners on that front. And it's both, and both are important in the decision. Of course, in rheumatology, there are many, many medications that are administered by the patients at home via subcutaneous administration. It's sort of a standard now. So, with our drug being an at-home subcutaneous administration, it fits into a typical paradigm as opposed to having to schedule a patient at an infusion center and send them off to find that and have that done. So part of our market research, as we're thinking about the launch of our drug, was to ask that question and understand how important it is. From the survey that we conducted, about, you know, I'd say I think it's like 43% of the clinicians favored weekly sub-Q over every six-month infusions. About 5% favored six-month infusions over our sub-Q, and the rest were indifferent, right? And then we asked patients the question, and 75% of the patients said they'd rather do self-administered sub-Q. So I think that helps. It fits kind of the paradigm of how medicines are given in America today.

Got it. And maybe just like digging a little bit deeper. For the Phase 3 data, when those were reported, I guess in terms of the efficacy profile versus the convenience profile that's provided, Abexolumab, I guess can you help us with physician feedback on how that convenience profile and that ability to pause dosing, especially in this older population, is being factored in when considering the efficacy versus UPLIZNA as well.

Yes, so from an efficacy standpoint, obviously, the trial met the primary endpoint and all of the key secondary endpoints. And, you know, the hazard ratio didn't hit a number that some people had in mind, but to the clinicians, that's an impressive number across rheumatology. So in their minds, it's an effective drug. The next thing they think about is that patient population and what would cause them the least issues from a safety and tolerability standpoint. And they like the idea of this inhibitory approach and the data from our Phase 3 study, and then in addition, the convenience that you mentioned of the at-home administration. I think that's the hierarchy is a trade-off of efficacy and safety. This population, they want an effective drug, but they want something that they're really comfortable with from a safety standpoint. And it's not as if the alternatives have a high incidence of severe adverse effects. It's not really that. It's just that these clinicians have used B-cell depletion for many years in various indications off-label, and they occasionally have a catastrophic infection, something really serious. They don't want to experience that again. They don't want to subject one of their older patients to that. So that's where they hesitate and think about our inhibitory profile perhaps being a better first choice.

Okay, that makes sense. You mentioned, obviously, you have a PDUFA upcoming, but I guess between now and then, I think you've talked about some additional data you could share, maybe at medical meetings, you know, how could additional data kind of further round out the profile for [Abexolumab]?

I think what will be important is the upcoming meetings, the IgG4-RD biannual symposium, and that's run by John Stone out of Mass General, and that's where the world's experts in IgG4-related disease get together. And then later in November, or late October, November, is the American College of Rheumatology meeting, ACR. So we submitted information from our open-label extension. Previously, we had released that at six months. Remember, the randomized control portion of the study was 12 months. Yep. At six months in the open-label extension, we had a 92% protection from flare. So we'll update that with the probability of flare at 12 months. So that was submitted. And then in addition to the flare protection, there's a vaccine sub-study underway in the open-label extension. And that's where patients at select sites pause their Abexolumab treatment, then are administered either a flu, COVID, or both vaccines, and then wait two weeks and then measure titers that would indicate protection, and then restart Abexolumab. So we also submitted those data sets and hope to have that presented.

Okay, great. And then you talked about.

About kind of the off-label nature of utilizing Rituximab. I guess, how could you see that dynamic changing with another drug potentially coming to market?

And this is more a prediction. Yes. So if you look at the current utilization, Rituximab is still used more than Ocrelizumab. It's more... When you have a launch of a drug that has an indication in the disease and Rituximab is the current drug that's used but doesn't have an indication, you see the launch drug surpass it at some point in time. So I believe UPLIZNA will surpass Rituximab in utilization, but I don't think, of course, with an FDA-approved label and payer support. And we'll come along, if approved, with an approved drug with Phase 3 data. And, you know, payers will make that decision, recognizing that UPLIZNA and Rituximab are on the medical benefit side of a payer, as infusions, and our drug, Abexolumab, will be on the pharmacy benefit side. So the decision process is a little bit different, different group of people in many cases, but UPLIZNA has broad access across the country right now. And we would anticipate having the same as the only approved drug on...

The pharmacy benefit that exists. Right. That makes sense. And maybe, I mean, I'll ask this question this way. I guess within the BLA submission process, and you mentioned the PDUFA kind of late in May, in this upcoming year. Any indication of FDA's appreciation of the remaining unmet need in IgG4-related disease that you could highlight?

You know, they're very actively engaged in the review. They don't really comment on it. Yeah. It's not a discussion point. They, you know, they correspond to any questions, you respond to the questions, and then you don't hear anything back. Or further clarification of a question, right. So there's nothing really to point to there, except the review is very active, and from a statutory standpoint, there'll be a mid-cycle of the review as we approach early November and then a late cycle in March. And this is all statutory. You can calculate it. And then if things are moving along, they'll give us feedback on the label in April.

Okay, perfect.

And you touched on the commercial opportunity briefly, and I think you'll have an investor event upcoming, so I don't want you to front-run your own event, but I guess maybe we could start with, I think you talked about a $3 billion opportunity domestically, and maybe we start with just how does pricing factor in there? How are you thinking about maybe...

Where pricing could come in relative to the appropriate comparators. The way we arrive at that is, I'll go back to what I said earlier, although we believe there are 30,000 to 40,000 patients with the disease in the U.S., we know there are 20,000 diagnosed and treated today, and then that other number of patients who flare frequently enough, they should have continual therapy, and that's 10,000 or 12,000. So that's a conservative TAM today. It could grow. If you just apply the UPLIZNA annual cost, which is $300,000 to that, that's how you get at $3 billion. What I'm not including in that is the first year of UPLIZNA, because there's an extra dose, it's actually $450,000 in the first year. So the $3 billion is maybe a slightly conservative way to look at it. We're not declaring our pricing for this type of disease, and the benefit that comes from that disease, and we've done some of the health economics work around this, that's a reasonable price point to consider for sizing the market as we enter it. We're not going to declare the price now, but that's in the range.

Okay. That's helpful.

Yes. No, that's great. And then maybe just kind of the second layer of that is you've done some payer and market access work already. What are you hearing on that front that kind of helps support your thinking on pricing? So this is an orphan disease. So from an overall budget and focus standpoint, it's not really moving the needle for the payer. And they look at orphan diseases like this a bit differently. It's not the type of thing that they manage. It's not a managed class or a managed disease. And as I said, on the pharmacy benefits side, there are no other approved drugs. And of course, Amgen has done a really nice job with their market access team, educating payers and others about the need in the disease.

Okay. And then, you know, you touched on kind of the armamentarium here. That has evolved, and obviously there's some off-label nature to it as well. But I guess when you talk to docs, is there a slotting dynamic that you expect to happen in terms of where Abexolumab could slot in terms of line of therapy, or you know, do you think, should we be thinking about this as, you know, first line for most docs when they use it?

We did market research before our Phase 3 study and after our Phase 3 study, and interestingly enough, regardless of what we put in front of them, we got the same answer that, and obviously this has to play out with our execution, but about 50% of the front line would be Abexolumab, and the remaining 50% would be split between UPLIZNA and Rituximab. So that's been confirmed in two large market research studies. Obviously, it's our job to make that happen. Yeah. And the reasons behind it, and we talked about this already, is the patient profile. That a lot of these patients are older, more susceptible to infections. If they have an infection, they have a lot of concurrent illnesses, which is more susceptible to greater morbidity or even mortality, and they think about that. That's top of mind for them. And then of course, the patient profile.

Convenience of the at-home sub-Q. Super helpful. All right, maybe we'll park IgG4 there for now, and then I want to make sure we touch on the SLE data that's upcoming in fourth quarter. It is an all-comer design trial. There's a biomarker sub-population analysis. I guess just maybe from a high level, talk about kind of what you're hoping to see. You know, is there any way to bifurcate that expectation by the overall population versus the biomarker-enhanced population?

And you had commented on the event we have coming up for IgG4-RD. We'll also be sending out invitations soon. Instead of doing a large analyst day, we decided to have two bites: first, IgG4-RD, commercialization, September 29th, and the invite will be for an R&D investor day in late October, and there we're going to spend a lot of time taking people through the SUNSTONE SLE trial, the design of it, the biomarker, the science behind the biomarker, how we're analyzing the biomarker, and we'll also touch on other pipeline programs. We'll talk a lot about the IL-7 or IL-17 inhibitor and putting context to the results we'll have later this year of the SAD and MAD study. But to your question here on the SUNSTONE trial, it's a trial that took all comers, and we were very diligent about the population we entered into this trial. Obviously, there's inclusion-exclusion criteria, but once investigators did their work, the patients were then put in front of an expert. And it's interesting how high the screen failure rate is because that expert discerned that a number of those patients that investigators initially determined were eligible truly weren't eligible. They tend to be a little more mild than they should with their disease, and that increases the placebo response in ruin studies, so we took care of that. And I would point to the Roche study with their anti-CD20 antibody that had a decent effect size, SRI-4 and BILAG, just over 20%. They had a screen failure rate of over [50%]. So think about our study more in that range. We worked really hard to get the right patients. But the primary is BILAG, but we'll display BILAG and SRI-4 results. And then the biomarker population, which was first identified in the original sponsor's Phase 2a, we've taken that approach and we've put it in the hands of more of a commercial entity to develop it further. We've worked with them. So we'll put out the overall population, the biomarker population side by side. And this Phase 2 study is really designed to help us design a Phase 3 registration program. So we're able to look at SRI-4, BILAG, overall population, biomarker-positive population, the effect size, and determine what we want to do next.

Okay. All right.

That sounds good. And then just, you touched on it, but the competitive landscape in SLE, it's active, but clearly room for improvement there. What's your sense of where unmet need stands and kind of what demand is for a product like this in SLE?