XBIT - NASDAQ

Meg Lewis - Unidentified Company Representative John Simard - Founder, President & CEO Mike Stecher - Medical Director

Rahul Jasuja - Noble Finance Monish Bahl - MHB Justin Kim - Cantor Fitzgerald

Good day, ladies and gentlemen and welcome to the XBiotech Incorporated Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode and later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Miss Meg Lewis. Ma’am, you may begin.

Thank you, operator. Before turning the call over to our CEO, John Simard, I would like to make the following remarks. During this call, forward-looking statements including declarations regarding management’s beliefs and expectations will be made. In some cases you can identify forward-looking statements by terminologies such as may, will, should, would, could, expect, plan contemplate, anticipate, beliefs, estimates, predicts, reject, intend, or continue or the negative of such terms or other comparable terminology although not all forward-looking statements contains these identifying words.

[Indiscernible] and thank you all for joining us for our third quarter 2016 update. I look forward to taking you through some highlights of XBiotech's recent progress and after my update we will then provide an opportunity for Q&A from the audience. I will start by telling you about a major development this past quarter with respect to our manufacturing platform. For much of the last decade, we have been pursuing an approach to manufacturing but by all measures stands transformed industry expectations. When we embarked on a mission to develop next-generation therapeutic antibodies, it was envisioned that we would do so with an equally revolutionary manufacturing process. The reasoning was simple. If we were to find a way to share the human color of antibodies derived from healthy human volunteers then we should also find a way to get back to better produce these antibodies in a more cost effective way for the benefit of millions in need. We needed a more efficient way to quickly scale up the production of antibodies isolated from volunteers and we needed to find a way to manufacture the dramatically reduced infrastructure and costs. After years in the making, our disposable bioreactor system has simplified the manufacturing process in such a way that we now can quickly and efficiently build production capacity with unprecedented flexibility and output all the while maintaining the highest degree of quality control. But new ideas especially those that challenged the assumptions of industry incumbence were always met with scepticism at some level. And for us this was no different. For years, as we pursue this manufacturing technology, doubts were raised by nay sayers with rest of the interest in the status quo. While with our announcement in October the naysaying quietly came to an end. Last month, we announced that we had indeed received GMP certification to allow commercial production. The EMA, the European Medicines Agency has determined that our manufacturing platform met requirements for commercial operations. With this announcement, no articles appeared in the Wall Street Journal nor the New York Times. Few were told the remarkable story about how this manufacturing platform pursued by a little known biotech company in Austin, Texas represented a breakthrough for the industry. The reality, however, is that the news of our certification was the commencement of a new era of production technology, proof that biological drugs could be made with a fraction of the infrastructure and with a fraction of the capital outlays that have so much characterised the industry for the past 40 years. With this one unceremonious announcement from XBiotech, the technology and the cost to produce some of the world’s most important drugs of today and tomorrow have changed forever. Only one month before receiving our GMP certification, XBiotech held the grand opening of a new manufacturing facility that was designed specifically to support our new production technology. This clearly [ph] gained little attention with media, but the nearly 40,000 square foot facility built on our own 48 acre property, which I should add we owned outright without any debt, intermedized [ph] value proposition of our manufacturing technology. The [production] facility will have an output capacity of around 800,000 barrels annually. The simplified infrastructure of the process reduced the cost of the facility to perhaps 5% of what other drug manufacturers would invest consumer production capacity. And it was a mere 14 months from ground breaking to opening of the facility, which is year’s best lead time than industry expectations, not bad. That our innovation of course doesn’t end with our manufacturing. Our GMP certification was granted in the context of a marketing authorisation, application for our antibody therapy Xilonix, which is being developed for the treatment of colorectal cancer. The Phase III study which forms the center piece data for the application must be among the most innovative approaches ever taken to evaluate the cancer therapy. Consequently, we have faced scepticism in this clinical study not unlike that which we faced with our manufacturing program. But as we have continued to analyze and understand the findings over the past quarter, and indeed over much of the past year the more remarkable and powerful the clinical study design and its primary endpoint seems to be. Let me just review that Phase III study once again here. The study could really have been understood as having few separate and distinct purposes. The first was to examine the novel primary endpoint for its importance as a measure of treatment success. I can say that we have now analyzed this endpoint exhaustively, and I can tell you that combined with dual energy x-ray technology with patient reported outcomes, as we did for the primary endpoint clear to be a remarkably informative means of accessing patient response for therapy. Our new measure identified patients that had not only reduced tumor progression, but it also identified patients that had 150 incidence of disease related series interest [ph] events and these individuals had improvement in every other measure of health status, as well as three fold improvement in survival. The second objectives end of the study was best to investigate whether Xilonix could move more patients towards achieving the primary endpoint compared to placebo. As we have reported elsewhere there were significantly more patients that met the primary endpoint in treatment versus placebo. This finding is the crux of the marketing authorisation, which we seek with EMA. We are very close to hearing from EMA on marketing approval. The EMA will provide us the decision by the middle of December. This decision can be a granting of marketing authorisation and outright denial or possibly request for more information. In the latter event, we would have full day to respond and then there would be a final 30 days for the EMA to evaluate and decide on our responses. So a decision outcome could come as early as mid-December or as late as mid-February, we will update you as soon as something definitive develops here. As many of you know we do have another conventional regulatory path, the product approval in colorectal cancer. Our second colorectal cancer program is an U.S. FDA fastrack global Phase III study being conducted in 18 countries. There is several blinded placebo controlled study as overall survival as its primary end point. While this study is conventional in terms of primary endpoint, many of the same measures that we did in our European study are infact being performed as secondary endpoints. This study is well on track to achieve it readout as scheduled, in fact the fourth and final data monitoring committee meeting was held on November 7. The committee reported no safety related concerns and recommended for the study to continue without any amendment to study design. A clinical study with overall survival as a primary endpoint means to chart sufficient time to allow an accurate assessment of survival duration of patients. We are now in the phase of study where patient follow up is our primary focus. We continue to consider other possible oncology indications for Xilonix particularly as combination therapy. We believe Xilonix may vote for example to improve the efficacy of chemotherapy where immuno modulatory effects of treatment will be partly related to the disease progression. We are convinced about Xilonix’s potential as both monotherapy and in combination therapy for achievement of various types of cancer and will continue to explore these treatment opportunities. Of growth, we have withdrawn from the plan collaboration with NCIC Clinical trials group for a combination therapy with an EGFR inhibitor. This decision was not based on our assessment of the potential for Xilonix in combination therapy, rather this decision was the result of our inability to reach -- was an appropriate clinical research agreement with the NCIC. The interest in combining Xilonix with an EGFR inhibitor was based on results which we published in investigation of [Indiscernible] Jones recently of treatment for non small cell lung cancer patients who have previously been treated with an EGFR inhibitor. Patients receiving anti EGFR therapy prior to Xilonix had considerably better outcomes than those that had not received EGFR inhibition. We will continue to look for opportunities in combination therapy for non-small cell lung cancer and other indications involving anti EGFR treatment. Now to briefly discuss some of our non oncology clinical programs. I will start with our ongoing work in dermatology. Enrolment of the Phase III study of MABp1 and subjects with pyoderma gangrenosum has completed and data is being analyzed. Our plans to pursue a regulatory path to seek marketing approval to treat this rare disease will be under evaluation following further data analysis. We will let you know more about this data and their plans in pyoderma in June, our next stop. We also recently completed enrolment in a double-blinded, placebo-controlled study for hidradenitis suppurativa, an inflammatory skin disease of such severities that is often treated through surgical removal lesions. 20 patients with moderate to severe hidradenitis that had compressed on standard therapies will enroll in the study. Patients received antibody therapy for 12 weeks and will then follow an additional 12 weeks to observe durability of treatment. The primary endpoint of the study has changed in hidradenitis suppurativa clinical response score, which is measured from baseline to week 12. Currently, all patients have concluded the 12-week regimen. Remaining visits for patients offer the 12-week follow up portion of the trial only. Response data is still blinded and final results will be available in the first quarter of 2017. Now, I will turn to our lead anti-inceptive program where our antibody 514G3 is being used to treat serious life threatening Staphylococcus bacterial infections. The 514G3 antibody is currently the subject of a double-blinded randomized placebo controlled Phase III study. XBiotech recently attended the Infectious Disease Week Conference in New Orleans where we presented data and met with key opinion leaders. XBiotech had Tea Poster Presentations at the conference, which highlighted the science and other aspects of the ongoing clinical study. This study remains on track with potential completion of enrolment by year’s end. We should be able to update you on these findings in the first quarter 2017. We continue to utilize a powerful discovery technology develop -- to develop our pipeline of True Human antibodies. We have now shortlisted several anti-C. difficile antibody candidates and we are soon commencing in-vivo efficacy studies in C. diff infection models because of these lead candidates in our planned all antibody therapy. The isolation of antibody begins influenza and herpes zoster also continues and we will provide updates on these programs as they occur. Our discovery engine is more tuned than ever. We continue to confirm the remarkable potential for new therapeutic antibodies present in a naturally immune population. We will continue to select drug candidates in research projects for further development on an ongoing basis in response to the medical needs of the community and the potential impact for new therapies. On other business, we recently reported that the securities class action lawsuit filed in 2015 in Texas was dismissed. The court granted our motion to dismiss with prejudice, meaning the plaintiff is barred from re-filing the claim. We intend to seek the same outcome in the related California suit and we will announce any material developments as they occur. I will now say a few words on our financials. From inception through September 30th of this year, the company has accumulated a deficit of about $167 million. During the past quarter, the company had about $12 million in operating expenses, which was $1.23 million more than our expenses during the third quarter of 2015. As of September 30th, XBiotech had cash and cash equivalents of approximately $46.8 million. Expenditures during the quarter were largely attributable to significant enrolment in our global Phase III study in which we had the largest number of active subjects on trial to date and for which we had brought on a number of sites in new countries. Significant expenses were also incurred as we completed the build-up of the new manufacturing facility. The company filed the shelf registration during the quarter in which 7 million shares were registered for potential offerings. Half of these shares were the subject of a common stocks sales agreement between XBiotech and H.C. Wainwright & Company. This sales agreement provides for at-the-market transactions to enable issuance of treasury shares with a purpose of fundraising. The use of the ATM or otherwise the sale of equity is being evaluated on an ongoing basis. In summary, we are on track with all our important programs to establish XBiotech as a leading developer and manufacturer of breakthrough therapies for cancer, chronic and infectious disease. I’m pleased with the outcomes of operations during the quarter and I look forward to our next update. Thank you for your attention. This concludes this portion of our quarterly update. I will now open the call to questions from the audience. Operator, please go ahead.

Thank you. [Operator Instructions] And the first question comes from the line of Rahul Jasuja from Noble Finance. Your line is open.

Okay. Thank you. Thank you for taking my questions. Just a couple of questions. So, what kind of interactions have you had with CHMP reviewer and I’m just trying to get a sense here? You talked about this a little bit. So, I’m assuming that you are expecting a CHMP decision in middle of December followed by the EMA decision after 60 days, is that the thinking or are you guys expecting that there may be some request for information from the CHMP and the CHMP decision might be delayed until February instead? I’m just trying to get a clarification there. And in terms of the publication of the European Colorectal Cancer Federation, also what’s the status of that, when can we see that publication? And also for the European trials, when is the interim analysis expected and what is going on in terms of enrollment there like when do you expect to complete enrollment there?

Well, the first question related to the EMA reactions, we’ve been following a pretty standard course, nothing extraordinary. As I mentioned the response that we’ve given them to their standard questioning procedure is being evaluated and we will hear back from them by the middle of December as you mentioned, which gives them time to again potentially respond to more questions. But it could also mean that in the middle of December there is a definitive outcome. We could very well be granted approval by the CHMP at that time and we will proceed to mobilize our marketing goal. With the question regarding the status of the studies in Europe, I think you are talking about -- are we talking about the dermatology program we have going or what are you -- are you talking about the Phase III global studies that is also in Europe? I’m not sure which…

No, I’m asking about the publication. You guys had said before that you guys are working on publishing the European Phase III colorectal trials. So what’s the status of publishing that in the medical journals and then I’m talking about the global clinical trials? So, how is enrollment going in those trials? Obviously, you talked about DSM-IV giving you a go ahead with nothing as planned? So, when do you expect the interim data from those trials?

Well, I would let Mike answer that. Mike Stecher who is our Medical Director is here. But I can tell you that the publication of the results from the European Phase III study are in the works and they should be coming out fairly soon. So, we would expect to see that in a similar timeline as the approval result. So, we will keep you posted on that but we are pretty advanced in that process. Mike, did you want to comment on the U.S. Phase III study?

So to confirm, the FDA colorectal cancer study and we are on track to have that completed and we anticipate as you know the primary endpoint is overall survival and it’s based on the number of events that are necessary to analyze the data and we will have -- we project a interim analysis in the first quarter that will be done by our data monitoring committee. So, we should have our first interim very soon.

Okay. And in terms of non-small cell lung cancer, obviously the EGFR combination is not going ahead but the focus is shifting on immuno-oncology agents like anti PD-1s. So is there any plan to do any trials like at least pre-clinical analysis using anti PD-1 inhibitors or what are the plans in non-small cell lung cancer given that you are not going with the EGFR, so what are the plans there?

The decision wasn’t that we weren’t moving towards EGFR inhibitors. We still think that that’s a very good combination and that’s something that we are still looking to move forward with in non-small cell and in other indications. Regarding the PD-1 inhibitors, we have had quite a bit of interest from investigators wanting to combine PD-1 inhibitors with Xilonix and that’s something that we continue to evaluate on an ongoing basis as well to look for the right opportunity.

Okay. Great. Thank you so much for taking my questions.

Thank you, Kumar. Thanks for calling in.

Thank you. And our next question comes from the line of Monish Bahl from MHB. Your line is open.

Yes. Thank you. Good morning and congratulations on your progress. Just a couple questions. One with regard to your cash position. You mentioned cash of $46 million or $47 million roughly and you used basic part of your ATM in the quarter. Can you talk about your cash burn for the next 6 to 12 months given that the manufacturing is basically complete now?

So, our cash burn is going to drop dramatically from all the capital investments we made and the two Phase III studies that we performed this year are wrapped up and performed. So, our cash needs are going to drop but I can tell you that with ATM, we did put the ATM in place. But the use of the ATM thus far has just been to get the system up and running. We sold 100,000 shares and it wasn’t at-the-market. It was actually through a direct transaction just to get the system going and make sure that it’s in place and operational for when we want to use it in earnest. So, we haven’t really done any fundraising yet. We are waiting to see the decision of the EMA and look to going out and doing a substantial raise at that time.

Okay. Either way right, so it’s a positive or negative, correct and then you would cash either way I guess based on those?

Yes. We do need cash either way but we have very optimistic expectations for the outcome, so we think it would be prudent to do our fundraising after that outcome.

Okay. Great. What are the sources of potential capital with the partnerships? Is that something you are actively pursuing?

We have been in discussions in fact for some time. Over the years, we haven’t found the right deal. We do have a fairly complex situation because we have a molecule that works in a number of different indications. It’s pretty hard parsing it out but we do still have active discussions and we do have interest in regional and specific types of deal structures on that.

Okay. I got it. And then just last question was with regard to Xilonix and EMA as well as the broader study. I know you can’t predict this and I know you’ve done everything what EMA has asked with regard to your Phase III study. But with regard to Xilonix trials that’s bigger in the U.S. and other countries, do you think that you want to wait for that data to give you dispositions at that point in time?

No, we’ve had no indication of such. You know the study was designed independently and directly with EMA. It had no connection to any other studies ongoing or otherwise and so you know we don’t see that there is any connection with the two studies, in the EMA’s view and that’s the way we are proceeding with it.

Okay. Great. Thank you, good luck.

Thank you very much. Thanks for calling in.

Thank you. And our next question comes from the line of Justin Kim from Cantor Fitzgerald. And your line is open.

Hi, guys thanks for taking the question. Just had few questions on manufacturing readiness. Could you tell us that approved what the timing would be for the launch of the product and for what type of meeting factors would follow an approval?

You know we are expecting to be able to launch very quickly upon the approval, the official complete approval done by December 15 ratification of that would be in the middle of February and very shortly thereafter we look to be launching into part of the EU5 [ph] market. So our manufacturing everything is ready to go for that launch date.

Okay. Great and then in terms of I guess partners for that and a launch date you know if you envision your partners have started any conversations to pursue those options?

You know we may get some help, but you know we have -- we’re putting the marketing sales, medical [Indiscernible] the whole team in place. This is an initiative that we are taking on directly with XBiotech but you know we are always open to partnerships. So we keep our eyes open and ears open with that and we’ll see how it goes. But we are definitely launching this as an independent company.

Okay, great. Thanks for the color. I’ll jump back in the queue now.

Thank you.

Thank you. [Operator Instructions] One moment for questions. And it looks like we have no further questions. Ladies and gentlemen, thank you for your participation in today’s conference and this does conclude the program. You may now disconnect.