XNCR - NASDAQ

Good day and thank you for standing by. Welcome to the Third Quarter 2021 Xencor Conference Call. [Operator Instructions] I would like to hand the conference over to your speaker for today, Charles Liles, Head of Corporate Communications and Investor Relations. Please go ahead.

Thank you, and good afternoon. Earlier today, we issued a press release which outlines the topics we plan to discuss today. The press is available at www.xencor.com. With me on the call today are, Bassil Dahiyat, President and Chief Executive Officer; Allen Yang, Chief Medical Officer; John Desjarlais, Chief Scientific Officer; and John Kuch, Chief Financial Officer. After the remarks we'll open up the call for your questions. Before we begin, I would like to remind you that during the course of this conference call, Xencor management may make forward-looking statements, including statements regarding the company's future financial and operating results, future market conditions, the plans and objectives of management, future operations, the company's partnering efforts, capital requirements, future product offerings and research and development programs. These forward-looking statements are not historical facts but rather are based on our current expectations and beliefs and are based on information currently available to us. The outcome of the events described in these forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including but not limited to those factors contained in the Risk Factors section of our most recently filed annual report on Form 10-K and quarterly report on Form 10-Q. With that, let me pass the call over to Bassil.

Thanks, Charles, and good afternoon, everyone. We've used our array of modular protein engineering tools that create our internal development portfolio in oncology and autoimmune disease that currently includes six bispecific antibodies, either in Phase 1 or Phase 2 studies and two cytokines in Phase 1. Our portfolio approach allows us to take multiple, simultaneous shots on goal in the clinic and the proof-of-concept data we generate guides, which programs we advance, which we terminate or which we partner. Today we've announced data from the first of our cytokine programs, XmAb306, a reduced potency, long-acting IL-15-Fc fusion protein in co-development with Genentech, which Allen will touch on momentarily. But first, a quick update on our collaborations. Last month, we entered a global collaboration license agreement with Janssen to advance plamotamab, our CD20 x CD3 bi-specific antibody to create novel CD28 bi-specific antibodies against malignant B cells to combine the plamotamab and potentially other CD3 biospecifics in lymphoma. The HSR waiting period expired last week, and the agreement is closed. We're delighted to expand our ongoing CD28 work with the Janssen team and to plan plamotamab’s development together. We believe collaborating with Janssen is the best way to broaden and accelerate our efforts in lymphoma and to maximize the opportunity to plamotamab to bring benefit to patients in a very promising and crowded field. Just a few other updates across our partners’ programs, which incorporate our plug and play XmAb Fc domains. Now in August tafasitamab, which was created and initially developed by us was granted conditional marketing authorization by the European Commission in combination with lenalidomide, for the treatment of adult patients with relapsed or refractory diffuse large B cell lymphoma who were not eligible for autologous stem cell transplantation. In the EU tafasitamab is marketed by Incyte as Minjuvi, while in the U.S. it’s co-marketed by Incyte as MorphoSys as Monjuvi. We're also pleased that our partners, Vir and GSK continue to receive emergency or temporary authorizations versus sotrovimab their investigational SARS-CoV-2 antibody that incorporates our Xtend technology in countries across the globe for the treatment of mild-to-moderate COVID-19 in high-risk adults and pediatric patients. So, with these two products Monjuvi and sotrovimab, along with Ultomiris from the Alexion unit of Astra

Thanks, Bassil. Today we'll be touching on recent updates across several clinical stage programs starting with XmAb306. Today we have announced encouraging initial dose-escalation data from our first clinical-stage cytokine, XmAb306, which is co-developed in collaboration with Genentech, a member of the Roche Group. Exceptional NK cell expansion of 40- to 100-fold increases compared to baseline has been observed, and with good tolerability to date. As we continue to escalate, we are now observing signs of effector T cell proliferation in the periphery. XmAb306 safety profile, biological activity and preliminary signs of anti-tumor activity at this early stage provide initial validation for our reduced-potency approach to engineering XmAb cytokine therapeutics, and we are considering new trials to study combinations with a range of NK and T-cell recruiting therapies. Shifting to plamotamab, as you probably saw, we announced that an abstract was accepted for presentation at the American Society of Hematology Annual Meeting in December. In a few weeks, we'll present updated clinical results from the Phase 1 study in patients with non-Hodgkin's lymphoma. We identified a dose regimen, 50 milligrams flat dosing every two weeks after step-up dosing that is much higher than we have previously reported by weight-based dosing. And due to our new step-up schedule, it’s generally well-tolerated with encouraging monotherapy activity. We believe that the best opportunities for patients require a focus on setting unique combinations of plamotamab with chemotherapy free partners and we are working to initiate our randomized Phase 2 combination study with tafasitamab and lenalidomide, a highly active regimen now approved in relapsed lymphoma with a label in second line and later. Plamotamab CD-20 targeted T-cell redirection of tumors and tafasitamab’s CD-19 targeted, enhanced ADCC tumor, killing, combine distinct immune pathways and tumor associated antigens. And we think the combination is differentiated approach for treating patients with lymphoma. This study should be initiated in late 2021 or early 2022. Going forward alongside Janssen, we look forward to investigating additional mechanisms that avoid the downsides of systemic chemotherapy, such as novel CD28 bispecifics that are anticipated under our collaboration. Moving on to Vudalimab, which was formerly known as XmAb717, we have started dosing patients in a Phase 2 study of the PD-1 CTLA-4 dual checkpoint bi-specific antibody. The study is enrolling patients with metastatic castrate resistant prostate cancer that we classify by molecular subtype as a monotherapy or in combination, depending on the subtype. This is an indication with a high unmet need and is currently without much checkpoint inhibitor use beyond MSI high tumors. But earlier studies suggest that PD-1 and CTLA-4 inhibition has promise in prostate cancer. Therefore, dual targeting a PD-1 and CTLA-4, with a potentially differentiated tolerability profile, could meet an important, unmet clinical need. At the same time we're initiating a second Phase 2 study in patients with advanced pelvic tumors, including gynecological malignancies, which represent another opportunity for dual targeting of PD-1 and CTLA-4 to address an unmet need. In addition, this study includes a cohort of clinically defined high-risk, metastatic, castrate resistant, prostate cancer, which will allow us to study the Vudalimab monotherapy in a specific population of aggressive prostate cancer, independent of molecular profiling data. Later this week at SITC, we will present mature data from the ongoing Phase 1 study’s expansion cohorts with a focus on patients with prostate cancer, renal cancer, and a basket cohort of tumors without approved checkpoint therapies. These cohorts are those for where the data we're still immature at SITC 2020. Next Tidutamab is our CD3 bi-specific that targets SSTR2. And last week we presented additional follow-up from the Phase 1 study in patients with neuroendocrine tumors. The poster is available on our website. The results from the study indicate that Tidutamab was generally well tolerated with a low incidence and severity of cytokine release syndrome, and it induced meaningful T-cell activation in the challenging disease setting. We've begun dosing patients in the Phase 2 study in patients with Merkel cell carcinoma and small cell lung cancer, which are SSTR2 expressing tumor types known to be responsive to immunotherapies. Finally, as we noted in our press release, we do not intend to develop additional internal resources to furthering the development of vibecotamab. The CD123 x CD3 bi-specific antibody. In addition, Novartis is terminating its right to vibecotamab, which will be effective early next year. This decision reflects our broad portfolio development strategy require which requires us to make difficult decisions like these. So we can dedicate resources to our most promising programs and lay room for exciting new drug candidates to be tested in the clinic. So moving on those, I'd like to turn the call over to John Desjarlais our CSO. John?

Thanks, Allen. We've dedicated a lot of effort and research years to using the full range of our protein engineering tools to turn native cytokines into therapeutics. Our approach seeks to create drug candidates with a long duration of therapeutic activity that remain under the threshold for toxicities that is limited the clinical use of cytokines historically. First we make small changes in the cytokines to selectively reduce binding affinity to its receptors, and that lowers its potency. This alone creates a better tolerated, longer acting and far more sustained immune stimulating activity in clinical models. We take a further step to enhance stability in pharmacokinetics by fusing the cytokine to an XmAb bispecific Fc domain, which includes our extend mutations to further enhance persistence. We're beginning to see clinical data that is now validating our approach as reviewed by Allen with XmAb306. And our second cytokine program designed with the same principles as XmAb564 are wholly owned IL2-Fc fusion engineered to selectively activate regulatory T cells or T-regs for the treatment of autoimmune disease. The Phase 1 study for XmAb564 is ongoing. At our next cytokine program scheduled at the end of the clinic is XmAb662 our preclinical IL12-Fc program. IL12 is a potent pro-inflammatory cytokine that promotes high levels of interferon gamma secretion from T-cell and NK cells increasing their cytotoxicity and the immunogenicity of the tumor micro environment by making tumor antigens more visible to the immune system. It's previously been demonstrated that IL12 can have anti-tumor activity, but this has been the case across therapeutic cytokine development historically, it has a narrow therapeutic index that limits its utility. We believe that XmAb662 which was designed with our cytokine engineering methodology to lower the potency and to prolong the duration of action could be a significant advancement toward IL12 that could be therapeutically dosed. We anticipate submitting an IND for XmAb662 in 2022. Shifting to our antibody work, we have two bispecific antibody candidates that we anticipate will advance the clinic before that: XmAb819 and XmAb808. Later this year, we submitting the IND for XmAb819, our ENPP3 x CD3 bispecific for renal cell cancer. That's our first internal program engineered with reduced potency CD3 binding combined with a multivalent 2+1 bispecific antibody format. Using two antigen binding domains to the tumor target provides for more selective binding to cells with high ENPP3 density like tumor cells compared to lower density that may be found on normal cells. We believe the XmAb 2+1 format opens up a wide range of potential solid tumor targets to T-cell redirection. For example, we've incorporated a 2+1 format into our most advanced wholly owned lead CD28 bispecific candidate, XmAb808 which targets B7-H3. We intend to develop the candidate for potentially broad solid tumor use, including in prostate cancer where B7-H3 is highly expressed. We anticipate a 2022 IND submission for XmAb808. Finally, I'd just like to mention that we're presenting four preclinical programs at SITC this week. XmAb662 that the IL12 program we discussed. Second one our PD-L1 by CD28 bispecific antibody program. Poster on our TGF-beta platform and our initial disclosure of NK cell engager platform, these programs show the power of our platform to create XmAb drug candidates that access new biologies and continually supply our clinical pipeline with differentiated molecules. With that, I'd like to hand the call over to John Kuch, our CFO to review our third quarter financials. John?

Thank you, John. A critical part of our business is leveraging our protein engineering capabilities through partnerships, collaborations for XmAb drug candidates and technologies, which generate multiple revenue streams. As Bassil mentioned, there are now three marketed products that have been developed for the XmAb technology that we earn royalties. Additionally, our second chances in collaboration will generate a significant upfront payment, potential milestones and royalties, and the opportunity to share development costs for our plamotamab program with our partner Janssen. Revenues from these and other partnerships allow us to maintain a strong balance sheet to support our broad portfolio bispecific antibody and cytokine programs. Cash, cash equivalents, receivables and marketable debt securities totaled $537.9 million at September 30, 2021 compared to $610.2 million at December 31, 2020. The decrease reflect cash used upon 2021 operating activities offset by proceeds from royalties, milestone payments and the sale of an investment security. The September 30 balance exclude payments due to us under our second Jansen collaboration, which includes $100 million upfront payment and $25 million payment for the sale of Xencor common stock, which we expect to receive before year end. Based on current operating plans, we expect to have cash to fund research and development programs and operations into 2025. And we currently estimate we'll end 2021 with between $575 million to $625 million in cash, cash equivalents, receivables, and marketable debt securities. Now I'll review our third quarter nine month financials. So revenue for quarter ended September 30, 2021 was $19.7 million compared to $35.4 million for the same period in 2020. Revenues in the third quarter were primarily related to revenue earned on their company's first chance collaboration and royalty revenue. Compared revenues from the same period in 2020, which was primarily a milestone payment for MorphoSys. Total revenue for the nine months ended September 30, 2021 was $121.1 million compared to $80.8 million for the same period in 2020. Revenues for the nine months were primarily earned from research collaborations with Janssen, Genentech and Novartis; milestone revenue for MorphoSys and royalty revenue compared to the same period in 2020, which is primarily milestone revenue for MorphoSys and licensing revenue from Gilead and Aimmune. Research and development expenses for a third quarter are $50.6 million compared to $44.5 million for the same period in 2020. Total RND expense for nine-month period were $141.5 million compared to $121.9 million for the same period in 2020. Increase RND expenses for the third quarter and nine-month period over the same amounts for same periods in 2020 were primarily due to additional spending on our IL-15 drug candidate programs and other early stage programs. Additional spending on XmAb819, our ENPP3 x CD3 candidate also contributed to increased RND expenses during the third quarter. General and administrative expense for the third quarter were $10.4 million compared to $7.6 million for the same period 2020. Total G&A expenses for the nine-month period were $27.5 million compared to $22.1 million for the same period 2020. Increased G&A expense for the third quarter and nine months period over miles for the same period 2020 were required due to increased G&A staffing, spending on professional services and facility costs. Total other income for a third quarter was $1.1 million compared to $4.2 million at the same period in 2020. Other income for the nine-month period was $57.5 million compared to $7.5 million in the same period in 2020. Other income for the nine-month period includes real life gains on a sale on investment equity security, and an increase in unrealized gains on the company's marketable equity investments. Net loss for a third quarter is $40.2 million or $0.69 on a fully diluted per share basis compared to net loss of $12.6 million or $0.22 on a fully diluted share – per share basis. For the same period in 2020, the increase net loss report for third quarter compared to the same period in 2020 is primarily due to lower milestone revenue and higher operating expenses in 2021. For nine-month period ended net income was $9.6 million or $0.16 on a fully diluted per share basis, compared to net loss of $55.6 million or $0.97 on a fully diluted per share basis for the same period 2020. Net income reported for the nine-month period compared to net loss reported for the same period 2020 is primarily due to higher collaboration revenues and realize an unrealized gain from equity investment securities in 2021, compared to 2020. Non-cash stock based composition expense for the nine-month period was $26.6 million compared to $23.1 million for the same period 2020. And total shares outstanding were $58.5 million as of September 30, 2021, compared to $57.4 million as of September 30, 2020. With that we now like to open up the call for your questions. Operator?

Thank you. [Operator Instructions] We have our first question from the line of Ted Tenthoff of Piper Sandler. Your line is now open.

Great, thank you very much. And first on the IL15 data: can you share a little bit more in terms of where you and Genentech intent to take tests? And also remind us, do you guys have the ability to do studies on your own? Thank you.

Yes. Thanks Ted. So I'll start with the second piece. We do have the ability to do studies on our own under the contract with Genentech. Obviously we have to meet certain conditions like the agents we're going to combine it with, have to make sense. We have to go through the kind of process with Genentech to make sure everybody is aware and understands what we're doing. But yes, we do have the ability to do studies on our own, both with compounds in our portfolio, as well as with molecules that that we don't control. Now as to where we're going, we can't speak to Genentech's plans exactly. They do lead the collaboration for things that happen within the collaboration. So distinct from the trials, we are going to run ourselves. But we do know they have a lot of engagement and expertise and a lot of potential combination partners in their own portfolio. Now it's for the things we're interested in, we can't – we can't sell specifics yet, and there's a number of possibilities across both NK cell therapies and T-cell therapies we could combine with. So NK cells are critical for the ADCC function of molecules like Rituxan, Monjuvi, Erbitux, of course daratumumab in myeloma. There's an excellent mechanistic rationale for an agent that boosts NK cell number and activates them, or drives them to be more mature like an IL-15 [indiscernible]. So we think that's a direction to go as the NK cell angle. And then on T-cell directive therapies, of course, we're already combining within the collaboration with atezolizumab, their PD-1 inhibitor, and we can certainly imagine our own programs like vudalimab potentially benefiting and even our CD3 bispecific as well. So there's a lot on that. We love to consider. We're going to guide them when we have specifics, but I think we view it as what's the best NK cell approaches to leverage. And what's the best T-cell approaches to leverage with this kind of agent. If the results we're starting to see in the Phase 1 continue to bear fruit.

Yes. Fair enough. And looking forward to all the data [indiscernible].

Thank you.

Our next question comes from the line of Mara Goldstein of Mizuho. Your line is now open.

Great. Thanks. Just continuing within, I suppose on that line of questioning with Ted's question. I'm just curious about, so you've reached the point in which you have reached in a therapeutically active dose or, and so I'm curious as to how you would have us think about benchmarking results seen to date relative to other agents in the space. What I guess, should we think about from a quantitative perspective that would allow us to see the potential activity that you're seeing so far?

Right. So I think there's two pieces to that. How we think about that. Within this as we continue to escalate, by the way, we're not done escalating, just to be clear correct.

Correct.

While you maintain – if you can maintain a tolerability profile that's acceptable and we feel good about the tolerability profile we've seen to date. And what you want to look at are the effector cell populations and the amplification that you're doing of them, how that's sustained, how you can maintain them that would be NK cells and T-cell. So particularly CD T cells you want to look for. So that's one metric, the levels, the durability you can start getting into details of subtypes. The other metric is when you get into combination studies, what kind of efficacy you see? Now this early of a stage, we think that you want to look at the magnitude of increases of NKs as we're clearly very active for NK cells. We're starting to see the T-cells proliferation signals, and we think that the initial anti-tumor activity we're seeing, unconfirmed responses, monotherapy and in combo with atezo, though small numbers and so unconfirmed just indicates there's immunological activity happening at the tumor site, which is what you want to see. So I think the presence of that is encouraging. So that's one piece to benchmark. And then you can't really extrapolate beyond there. Do you see something happening in the tumor and then the magnitude and durability of the effector cell populations like NKs and Ts.

Okay. All right. Thanks. I appreciate it.

Our next question comes from the line of David Nierengarten of Wedbush Securities. Our line is now open.

Well, continuing on the NK cell therapy, an enhancement question theme here. I was curious if you had any thoughts or ways to benchmark the activity or the enhancement of NK cell activity in patients compared to engineered NK cells, especially of course, ones that have the IL-15 engineered to essentially be constituently active in those cell therapies? I'm obviously curious about that. Thanks.

So I know John wants to have a few things to say about that. John Desjarlais, our CSO. I think two parameters, count how many cells are there? And are they the right subtype or the active and you want to...

Yes. I'm trying to remember. However, I did that back of the envelope calculation, and I was comparing to one of the NK therapies, because they state how many NKs they actually engraft into the human. And I think we are at about 100-fold higher. So basically, you could think of the NKs as they sort of the mile of late and then they replace the NKs that were there with their engineered NKs. We're taking the NKs that exist and expanding – expand those hundredfold higher.

And so that's – it's like about 100-fold more cells than you see with the allogeneic approaches that have been reported to date from, again, our back of the envelope. So it's a lot more cells, and we're certainly seeing the mature phenotypes, which have characteristic markers like CD16 on them. So imply they're active and can do the job. Beyond that, it's going to be – how do things go as we start doing the clinical trials in combination.

And you touched on this before, but I wanted to be a little bit more explicit with Genentech. Do you need Genentech to sign-off on you guys doing a study with this in an NK cell engager, for example? Or can you pursue that without their say so?

We can pursue studies with any third-party agents that we want as long as we don't create undue-safety risks to drug supply or we can't duplicate something going on within the collaboration. For example, we couldn't do our own study in combo with atezolizumab, right, we simply can't do that. But outside of that, as long as we check basic governance boxes, and we're responsible, then we have a lot of flexibility.

Cool. Okay. Thank you.

Our next question comes from the line of Kaveri Pohlman of BTIG. Our line is now open.

Yes. Good afternoon. Thanks for the updates, and thanks for taking my questions? My third question is regarding vudalimab. Your last readout showed a couple of responses in patients pretreated with EPNPD-1 combinations. But do you know what's driving a response there? Is it that the higher doses allow you to push the buttons harder safely?

Gosh, I'll let Allen take that one, but this is delving into the realms of the unknown.

Yes. So I think what you're asking is why we're seeing responses with vudalimab, formerly 717, a patients who had previously been treated with other checkpoint inhibitors, either PD-1 or ipilimumab in combination. The answer is we don't know for certain, but what we do know is that the way that the molecule was designed was to favor PD-1 binding and to diminish the CTLA-4 binding. So in other words, you only get CTLA-4 being employed after PD-1 binds, and we believe that that minimizes the toxicity but encourages the dual activity. So one of the things is we think that it could be more tolerable and you can get more doses in or more specifically, you could be recruiting T cells that are both PD-1 and CTLA-4 expressing. So the ones that are enriched in the tumor, and so that dual targeting in a single molecule may have a molecular advantage over giving the agents independently. I don't know if you want to add anything, John, or...

No, I think you covered it. I mean it's – yes, you're potentially zeroing in on the most tumor-reactive T cell population.

Got it. Thanks. And for tidutamab study, how much do you think that the recent data is an indication of the limitation of the approach? Because you have a very cold tumor, but you're dragging T cells there. Do you think that tells us that the approach is unlikely to be useful and really cold tumors? Do you need some neoantigens or perhaps some priming cytokines like IL-12?

That's an interesting question. I think the one thing I will say that we are seeing the biomarkers we reported for the tidutamab study were in the periphery. So a lot of increased T cells in the periphery, a lot of activation of them in the periphery. You raised a good point. We don't know what's happening. There's very limited biopsy data in the tumor. Could that be enhanced by other therapies that change how the T cells behave, have them home or migrate, have them be more pro-immunogenic? Quite possibly. I mean that's part of the driver of us going into small cell lung cancer and Merkel cell carcinoma, which are hotter tumors for immunotherapy. But your question there that we don't have a perfect answer for is why we have reagents that we're building to make our next programs come along.

Yes I'd also like to add we mentioned our XmAb808 program or B7-H3 x CD28 bispecific. I mean one of the whole points of interrogating the CD28 bispecific antibodies is they could potentiate CD3s, particularly in the cold tumor setting because CD28 causes a much stronger proliferative signal.

And I would add along those lines. There's been a lot of investigator interest in combining tidutamab with either a PD-1 within our portfolio or later on with the CD28. And I think there's a lot of interesting science there. However, immediately we're going to test small cell lung cancer and Merkel cell cancer. That Phase 2 has started enrolling and address an important scientific question that you're asking, is it the seed or the soil hypothesis, which is an ongoing debate on oncology. But clearly, Amgen has seen responses with their AMG 757. So we're very excited about our Phase 2. And if we see responses, I think that will add a lot of information for the field.

That's helpful. Thank you.

Sure.

Our next question comes from the line of Charles

Hey guys. Thanks for taking my question. Congrats on the early XmAb306 data. You obviously have considerable expansion of the NK cells with this drug. And on that note, I was also kind of wondering, to what extent are the peripheral effector T cells potentially driving any early signs of efficacy that you're observing? And any potential color you can also provide around things like peripheral versus intratumoral presence of these cells?

Yes, I don't believe we have data on intratumoral biomarkers or cells yet. I think maybe, John, if you want to go to the mechanistic mystery of T cells in the periphery and what do they do?

Yes. It is a big mystery. I mean, it's – I don't think anybody knows if you need a particular level of T cell expansion in the periphery to promote antitumor activity. Really, the big question is what's going on in the tumor. Again, we don't have any data on that yet. And there's a lot of hypothesis for why you would see more activity in the tumor T cells than the peripheral. In particular, we had shown early on in preclinical data that when you stimulate a T cell, say, through CD3 engagement or TCR engagement, it actually upregulates the IL-2 receptors, which, of course, are the same receptors that IL-15 works through. So you can imagine those intratumoral T cells actually being more responsive to IL-15 than the peripheral T cells.

Yes. But I guess to really get at the point of what might be going on in the tumor. If you can observe tumor shrinkage, whether it's combination with a checkpoint inhibitor like atezolizumab or even in monotherapy, I think that in a sense and a marker of what's happening in the tumor immunologically, right? Because these are immunotherapies. These are in very advanced solid tumor patients who've exhausted all prior therapies, so many of them would have seen checkpoint inhibitors in the past and progressed on those or not responded to those. So I think that's an important piece of the pull when you put it together with the biomarker data you're seeing and the kind of increases in cell counts in the periphery. We don't know exactly what's going on in the tumor yet. We're eager to see that biopsy data as it starts coming in, but obviously much harder to get than the blood itself.

Got it. Got it. Thanks for that color. And maybe just one more big picture question for me on this front. So you have multiple different approaches of engaged – multiple and distinct approaches of engaging the immune system through multiple different means, whether it's recruiting T cells, recruiting NK cells, and now it looks like you're also going to be able to make them proliferate as well. And a lot of your combination partnership strategies seems to have been more external facing, I guess to what extent are really more internal combinations on your mind? And what are your thoughts around potentially realizing synergy of something like an NK cell and tumor-specific NK cell engager with an NK cell expansion agent? And also, what are your thoughts on potential for synergistic toxicity as well?

Regarding the toxicity question, it's hard to say, of course. We do know that that NK cell mediating mediated agents like the classic antibodies Rituxan, or Gazyva, or Tidutamab [ph] tend to be fairly well tolerated with regard to their immune stimulation, right, infusion related reactions are what they see. I think from a potential of internal combinations, that's really why we're making these agents for combination. Of course, the nearer term opportunity might be with marketed agents, but we want to be able to create an internal pipeline that has the best combination partners say with the best checkpoint inhibitor. We hope we can establish vudalimab as an important option because it has a differentiated profile for both PD-1/CTLA-4 inhibition. We think our CD28 bispecifics as well as the cytokines we're trying are giving us those tools to figure it out. It's an experiment to figure out which combinations. And I think we mentioned Monjuvi as a potential combination partner for NK cell expansion. Recall, we created that molecule and we still have a pretty important economic stake. So, the while not internal, it is important to us. And we are, I think, talking about some of our NK cell engaging novel molecules at SITC this week. So that's really the big driver for it, where the short-term piece is to do the combinations with external parties.

Got it. Thanks.

Our next question comes from the line of Gregory Renza of RBC Capital Markets, your line is now open.

Hi, this is [indiscernible] on for Greg. Thank you for taking our questions and congrats on the progress. Maybe first question on XmAb808. Can you remind us the rationale of selecting B7-H3 as your first target for the CD28 platform versus the more tumor-specific approach? And how does your design methodology give you confidence in the safety profile that could avoid some of the concerns from the past program? Thank you.

Yes, sure. I mean, really, it was a pragmatic decision selecting B7-H3. First of all, it's a very broadly and high-density expression of B7-H3 across multiple solid tumor histologies. I kind of wanted a one-size-fits-all solution that could potentially couple with PD-1 inhibitors or other checkpoint inhibitors as well as CD3 bispecific. And the justification for going with a fairly broad tumor expressed antigen was that CD28 engagement by itself, and we've shown this in all of our preclinical studies, doesn't – it's not expected to do anything unless there's also a signal 1 coming from a TCR recognition of a tumor cell or in combination with the CD3 bispecific. We had also thought some of the drug conjugate programs that are out there seem to be safely targeting such a broadly expressed antigen. So, all of those things put together led us to that as our first target. But of course, we are considering more tumor-specific markers as well.

Great. Thank you. And then maybe just another one on the IL-2 program. When should we expect to learn data from that program? And what's your development strategy ultimately considering the recent pharma interest as well as your strategy with other autoimmune programs?

So, for XmAb564, we hope to have initial data from the single ascending dose in healthy volunteers next year. That trial is ongoing. In terms of development strategy, we see this new modality that's in early phase development at a number of parties Treg expansion, right, Treg stimulation as really an unproven therapeutic hypothesis. We think that as that validation happens in Phase 2, we want to have our irons in two fires. One of those is in smaller indications, perhaps rare or at least uncommon indications that have a high unmet need that you can try this new mechanism in and one is in more – larger indications with perhaps other established therapeutic mechanisms of action, but where you can rapidly understand whether you're actually impacting disease because you have clear endpoints and clear markers. So, you really want to have both of those pieces of ground covered, something that you could be really pioneering in to maybe accelerate development opportunities and create your own little [indiscernible] and then really answer the scientific question crisply and clearly, not one or the other or both.

Great. Thank you.

Our next question comes from the line of Peter Lawson of Barclays. Your line is now open.

Hey thanks for taking the questions. Thanks for the update as well on TrisJust around that. The responses you've seen for three, do you think they relate with the CD16 isotype the high-affinity CD16 on NK cells? Just your thoughts there. And then what kind of CD8 T cell expansion do you think you'd want to see if that's a relevant question here?

Yes, we have no idea whether there's – what the phenotype is of CD16, whether it's the highest anity-vailing 158 or the lower affinity penalanine. I mean it's not clear what the underlying mechanisms are that are driving response. Even though you, again, are seeing just the beginnings of T cell proliferation markers in the periphery, that doesn't tell us what's happening with the T cells in the tumor. The NK cells, I think, NK cells are very much underappreciated by the way, across all the different oncology indications because they're part of driving immune responses more broadly than just maybe the obvious ADCC function. But we don't have any correlation or understanding on that. And what number of T cell increase do you need to see in the periphery? I think we talked about that earlier. There is no clarity there, right? I think you'd certainly want to see activation markers just to let you know that your molecule is doing the things it ought to do, and we're certainly seeing activation and proliferation markers of T cells. And in addition to this really encouraging and dramatic and NK cell expansion that can play in a lot of different ways. But mechanistic understanding, I think, we're still ways off.

And does that T cell – sorry, does the NK cell expansion correlate with activity or that's too simplistic?

Too few patients and too few data points now to understand that. Whether it correlates with activity, I couldn't tell you. I do think that within the realm of ADCC-driven antibodies, like, for example, Rituxan, there is growing literature validating that NK cell counts in patients, high NKs versus low NKs correlates with response or likelihood of benefit. I think even not even response actual clinical benefit like OS. So, that's pretty clearly established. More NKs or better for ADCC antibodies, in particular, Rituxan has been well documented, and I think suggestions of that for a number of other antibodies. For T cell-mediated therapies like checkpoint inhibitors, nobody knows the role of NKs. But there's a lot of opportunity, we think, in NK cell-driven therapies. The current generation, we think there's going to be a lot more on the horizon in the future, in particular, now that you're starting to have tools like these cytokines to make more NKs when you want.

Yes. There's also a school of thought that with a lot of patients under a lot of different checkpoint therapies in various T cell therapies that NK cell tools are going to be more important over time as the MHC status of those patients changes due to selective pressure.

Got you. Thank you. And then the recent Novartis or yourself kind of moved away from your CD-123 construct, any details there would be great. And then is that a target you would pursue with your CD28 construct as well?

So, I'll answer the first one, and John can talk about the CD28 construct concept. So, the landscape in AML has gotten, I think, a lot more challenging as venetoclax has become more and more entrenched with an earlier line and now we've been a later line. So that's changed the landscape a minute more challenging and the opportunities, I think, shrunk. But also, CD123 is a difficult target with a very narrow therapeutic window, and challenges in PK dosing frequency. And so, in spite of the very encouraging early complete remissions that we've had and continuing additional activity we've seen, all those pieces make the product profile and the competitive landscape, tough, really, frankly, tough for us to want to pursue and our partner, Novartis, agree. There's certainly investigator interest in niches, and we're very supportive of trying to help patients when sophisticated investigators think there could be a role for the agent in trials. Maybe the CD28 combination with CD123 intriguing, but...

Yes. But again, due to the competitive landscape, I'm not sure that's where we want to put our efforts.

Got you. Okay, thanks so much. Thanks for the updates.

Thank you.

Our next question comes from the line of Arlinda Lee of Canaccord Genuity.

Hey guys its Ben on for Arlinda. Thanks for taking my question. Bleated congrats on your Janssen partnership. I just wanted to dovetail on the most recent comments you made about CD28. Does the Janssen partnership give you flexibility to pursue collaborations with other partners in CD28 combinations? And is there an appetite for it?

The Janssen collaboration is very narrow to within B-cell malignancies. So, B-cell malignancy targets, combined with CD28, and it's got a time bound on it. Whereas targets that we don't advance to certain development stages within the two-year collaboration period, that's it. So, we like to control things. So, it would be a very limited number of just B-cell target. So, we could go and partner with whomever. I think now that we've gotten the ball rolling with XmAb808, which is a broad tumor marker. And now that we've got – Janssen is pushing hard in prostate cancer and is going to really work with us on plamotamab and really accelerate that program with the CD28, we think that it might not be – now is the time to sort of pull in and focus on internal work for CD28, not really look at partnering around the CD28 platform now and wait until we've really built up a data set and understand its full potential and value after we've been in the clinical.

Okay. That makes a lot of sense. Regarding the Janssen partnership itself, can you give us an idea of what the next term milestones will be after you get the stock purchased on this quarter?

Let's see. That would be, I mean, of course, as part of the collaboration, we're going to start our tafasitamab lenalidomide trial either late this year or early next year. And we would expect to get the subcutaneous formulation of plamotamab in the clinic in 2022 as well. We're well on our way, manufacturing it and having a formulation we think is quite promising to use in humans next year. And then with the earlier collaboration, our collaboration around prostate cancer, with a CD28 bispecific, the next milestones, we can't guide exactly on timing because it's up to them, but would be taking a candidate into full development into IND-enabling development. We've been making rapid progress on that collaboration. It's been less than a year now, and we've gotten along the way.

Great. That’s very helpful. Thank you very much.

Our next question comes from the line of Alethia Young of Cantor Fitzgerald.

Hi, thanks for taking my question and congrats on all the progress this quarter. This is Nina for Alethia. We were curious if you could speak more on your CD28 program with Janssen? And how it differentiates in the competitive landscape? And also, if you think at ASH, if you'll get high enough doses that we may be able to make? Any conclusions around efficacy? Thanks.

So, I guess on the first one on the differentiation, I think, we believe we have now with a good monotherapy step-up and up to a much higher dose we had before now 50 milligrams. We're very encouraged by both the tolerability profile there as well as the efficacy we're seeing in admittedly a relatively small number of patients at that dose. But I think the real differentiation is about the development strategy. Allen, do you want to speak to that?

Yes, I think biologically, it will be hard to distinguish these antibodies from each other. But the development strategy is key here. So, we've sort of gone for this chemotherapy-free sort of strategy mining with tafasitamab and lenalidomide, the CD19 versus CD20 targeting, the ADCC versus the T cell engaging and the potential that lenalidomide could potentiate both. On the other front, another chemo-free strategy would be combining with a B-cell CD28 directed modality, and that's our partnership with Janssen as well. So, we think that the molecules look fairly similar early on. And the data today, I think, we have a good activity, and we've seen good activity, we'll be reporting additional activity. I think we've done a lot of time sort of figuring out our dose and schedule to optimize much higher dose than previously reported with a very good step-up strategy, which minimizes CRS. And so we're excited into moving to the next phase, which is our randomized Phase 2 in combination with tafasitamab and lenalidomide.

And to be clear, that additional data will be presented at ASH with still a small, but we think it's a growing number of patients, giving us a clear picture where we are on efficacy and safety with this new step-up regimen.

Thank you.

There are no further questions at this time. I'm now turning the call back to Bassil Dahiyat, President and Chief Executive Officer. Thank you.

Thank you very much, operator. And thanks, everybody, for joining us today. We look forward to updating you guys again over the coming weeks, and have a terrific evening. Bye-bye.