XOMA - NASDAQ

Ashleigh Barreto - Investor Relations John Varian - Chief Executive Officer Paul Rubin - SVP, Research and Development and CMO Thomas Burns - VP, Finance and Chief Financial Officer

Ted Tenthoff - Piper Jaffray Yatin Suneja - Cowen & Company Matt Kaplan - Ladenburg Thalmann

Good afternoon, ladies and gentlemen, and welcome to the XOMA Corporation's first quarter 2015 financial results conference call. [Operator Instructions] I would now like to introduce your host for today's call, Ashleigh Barreto, Investor Relations at XOMA. You may begin.

Thank you, operator, and good afternoon, everyone. Joining us on the call today are John Varian, Chief Executive Officer; Paul Rubin, Senior Vice President, Research and Development and Chief Medical Officer; and Tom Burns, Chief Financial Officer. Before we begin, I'd like to remind everyone that this is a conference call that will contain forward-looking statements about the company. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call. We will undertake no obligation to revise or publicly release results of any revisions to these forward-looking statements in light of new information or future events. Factors that could cause our actual results or outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in our most recent filings on Form 10-K and other SEC filings. I would now like to turn the call over to John.

Thanks, Ashleigh, and thank you for joining us everyone. We actually did not expect to have this call today, as we anticipated we would be in a self-imposed quiet period. We are one exacerbation away from being able to close the EYEGUARD-B study database. That's right, one more patient with Behçet's disease uveitis needs to exacerbate. We had our second to last exacerbation just over a month ago, and the recent exacerbations have occurred about once a month. So the first thing I've done every morning for the last month is check my phone and emails, expecting and hoping for the news. It looks like I'll be doing that again tomorrow morning. We know we can expect the final exacerbation any time, since we know that in clinical trials exacerbations most frequently occur in patients during the first 90 days. Since Servier has enrolled 12 patients in EYEGUARD-B since the beginning of the year, and since spring is settling in across the northern hemisphere, we should be getting to that final targeted exacerbation any day now. In preparation, Servier has created and provided us with a detailed timeline of events from database lock, until we'll have preliminary topline data to announce. Based on this schedule, we are on track to be able to announce the primary endpoint results approximately seven weeks after the final exacerbation occurs. When we announce the final event has occurred, we are going into a self-imposed quiet period until we announce the data. No one at XOMA or Servier will know anything for the first six weeks, as it will take that long to rollup the data from around the world, clean the database and to lock it. Only after the database is locked can the placebo drug randomization code be broken and applied to the locked data, so the unblinded data analysis can begin. But we want to avoid any unnecessary volatility based on how some one perceives our tone of voice, how many cups of tea I drink in a given day or any other speculative factors people can dream of. We all remember Alan Greenspan's briefcase and speculation of what the outcome of his Fed meetings would be based upon its thickness. Now, since we're right at the finish line, I am going to give you some additional color. Servier has performed a Herculean task to bring this trial to this important moment. While I can't be exact, I think it's important to give you some general background to reflect how hard they've worked on the study, which they've consistently shown is extremely important to them. EYEGUARD-B had an original target enrollment of more than 50, but less than 100 patients, which Servier hit last June. The study is a double-masked one-to-one 60 milligrams of gevokizumab to placebo randomized trial. The targeted number of exacerbations we've been chasing to allow the unblinding of the study is approximately one-half the number of patients originally targeted for enrollment. So while we can't say the exact number, I hope you can appreciate that we were a long way down the road, when we were a handful away, and particularly now just one. In the early months of the study the exacerbation rate was running at Servier's expected rate. What neither our partner nor we expected was that once patients progressed through the early months of the study without exacerbating, we would see a virtual cessation in exacerbations. Since Servier anticipated patients would continue to exacerbate in later months, it has taken more time to reach the preset exacerbation target than anyone would have predicted. Once we realized this was happening, in order to achieve the targeted number of events, Servier continued to enroll patients in EYEGAURD-B on the original targeted number. As of today, they have enrolled approximately 20 additional patients. The majority of this effort occurred since last December and has enabled us to reach the doorstep we stand at today. We believe the increase in patient numbers and extended length of time we've experienced in EYEGAURD-B helps generate important additional information, since long-term control of Behçet's disease uveitis is so crucial. Based on our assumptions, the study has 90% power to detect the difference between treatment groups. The study's endpoint is the time to first exacerbation between the gevokizumab and placebo arms. As I said, if the database closing goes as planned, we'll be announcing the results approximately seven weeks after we report that final exacerbation has occurred. Now, before you ask the obvious question, are we going to be able to disclose the results exactly seven weeks to the day from the announcement of the last exacerbation? The answer is of course not. But I can tell you that everyone involved at Servier and here at XOMA is going to put their best foot forward to meet these timelines. Right now, we're expecting data in the seventh week and that could mean plus or minus seven days. So we wait, but we wait excited and preparing for the future. We're doing the things necessary to request a pre-BLA meeting with FDA, if we receive positive results from EYEGUARD-B. We're also driving the other EYEGUARD studies forward. Both Servier and we are experiencing nice uptick in enrollment of both EYEGUARD-A and C studies since January. If the pace continues at the current trends we will achieve full EYEGUARD-C enrollment this fall. If it accelerates, it could be sooner. April enrollment was a tie for our second highest month ever. The primary endpoint in this study occurs six months after the study is fully enrolled. The pace of enrollment in EYEGUARD-A has picked up, with April also coming in as the second highest ever in EYEGUARD-A. With that said, the pace of enrollment in countries outside the U.S. needs to increase substantially to achieve full enrollment in EYEGAURD-A in 2015. The primary endpoint in EYEGUARD-A occurs two months later, at which point we can unmask the data's primary endpoint. The fact we haven't lost momentum, the momentum we saw earlier this year, adds to our excitement that we will know how gevokizumab performed in the broader non-infectious uveitis population in 2016. So I've told you a lot about Servier's outstanding efforts and the conduct of the EYEGUARD-B study. Paul is here with me to answer your questions. We've indicated in the past that the blinded data are encouraging, but being blinded they mean nothing in the overall schema things. We have absolutely no way of knowing whether the study result will be negative or positive. During today's Q&A, when we're so close to the real data, it would be inappropriate for us to answer any questions, which would cause us to conjecture based on blinded data. It becomes counterproductive to do anything, but wait at this point. I saw Tom Petty in 1983, I believe, and I recently added the song, the waiting is the hardest part, to my phones playlist. I'm sure you can imagine why? I'll turn the call over to Tom Burn, to review the financial results. Tom?

Thanks John. Starting today we'll be taking a different approach to the financial discussion on our quarterly calls. We no longer think that reading through the financial statements is a valuable use of your time. So going forward, I'm only going to highlight a few elements of the financial, as full details can be found in the press release and 10-Q filing. There are two items I would like to touch on today, the Hercules loan agreement and the revaluation of contingent warrant liabilities. In late February, we entered into a $20 million loan and security agreement with Hercules Technology Growth Capital. We used a portion of the proceeds to pay the remainder of our debt agreement with GE Capital. The GE Capital debt is now fully extinguished. Moving to accounting for warrant liabilities. The revaluation of contingent warrant liabilities was insignificant this quarter compared to $20 million for the year-ago quarter. And therefore, we did not see the normal significant non-cash swing we have become accustomed to. Our expectations for cash used and our ongoing operating activities during 2015 remain unchanged. Therefore we reaffirm our prior guidance of approximately of $60 million to $65 million, which assumes we will receive license and contract-related revenue during the course of the year. With that, we'll open up the call for Q&A.

[Operator Instructions] Our first question comes from the line of Ted Tenthoff with Piper Jaffray.

I don't to ask anything about the data specifically, and John thank you very much for the update in general, I think that's really helpful and a lot of good detail, and I think we're all waiting at this point, and I love the Tom Petty reference. What are you guys doing kind of behind the scenes sort of to prep for the data in terms of commercialization, also in terms of the work around PG, manufacturing? Maybe you can kind of give us sort of a sense of what else is going on behind the scenes, beyond just waiting for the final exacerbation and the data readout?

It's a really great question, Ted. And as I've said many times, we are not waiting, right. So we're waiting, but we are not waiting, right. And so when it comes to the package that will be required for both the pre-BLA meeting request and the hope for BLA submission itself, I'm going to let Paul talk to that in a few moments. And we've made incredible progress on the manufacturing side, preclinical side, and then some of the early clinical data. So I'll let Paul talk about that in a moment. What we will be doing in probably our next call with you is really talking in detail about what we've learned on the commercial side. So we've brought in our Chief Commercial Officer, Tom Klein, about just over two years ago. And then he's assembled a team of three strong professionals within the commercial team over this last couple of years. His second hire was a market access person, really reflecting how important pricing reimbursement and access to the payors is, so great deal of work going on around where the product will sit in the marketplace. And probably one of the more important themes is, I will have him talk to you and the rest of the investors and analyst about is, what we've learned is that having the label for Behçet's uveitis is incredibly important when it comes to how the drug should be perceived by physicians, patients and payors in the marketplace. And we've learned that very directly and we're doing additional work on that. But having the data and having hopefully the indication for Behçet's uveitis will be important, because these are the patients who, this patient subgroup are the patients where within the whole non-infectious uveitis spectrum, which are typically the most difficult to control, they are the ones that you have to make sure you keep under control consistently, because they will exacerbate often and during the exacerbations you get quite a bit of damage. So that's probably one of our key learnings. And so starting with Behçet's uveitis, we think it's going to really benefit us across the rest of the non-infectious uveitis population, but also even beyond that in PG and other things. So Paul, if you'd like to add to that and talk more about our other works.

Well, just by treating this group of patients that are of the most severe in the spectrum we believe this can help us to position the drug as a drug that can be used and has the best chance of success in your hard to treat patients. So that becomes I think valuable for the positioning of the drug and the way we want to determine value. So along those lines I think that we're prepared for that. During the course of this whole trial, we have been closely monitoring data patterns, even of the mass data, to make sure that we have in our statistical analysis plan we haven't missed any relevant analyses. So in fact, we spend a lot of time studying the data in a mass manner to determine other potential analyses we can do. And to be able to ask for those priorities, so it's not viewed as a post hoc analysis. So in fact by viewing these data, as we get along, we have learned a heck of a lot about the kind of the patterns of the disease, and it has allowed us to enhance our statistical analysis plan. And then on the preparation of the BLA, I mean, obviously the clinical data is important and without it you can't have a successful submission. But we have virtually completed all the work on both the manufacturing front and on the preclinical front. So we've also spent the time creating those sections of BLA. So those will be both be done long before we even get all the final clinical data. So we'll be ready to go. I think we've said before that we've had a nice smooth technology of transfer for the manufacturing process. If you recall, it was originally developed here, but we transferred that process to BI, and all work is done with that transfer, and it was done successfully. And then if you recall, all the preclinical toxicology work has been done, so we're able to summarize all that data about the tox and the pharmacology studies that will go into the preclinical portion of the BLA. So as John suggested, we are waiting for these final events, in this case the final event, singular, don't misunderstand me. But during that process we haven't just been sitting on our hands. We've been actively preparing to submit this dossier.

Well, John, I hope you're going to be putting and learning to fly on your playlist instead of free following, so good luck with that.

What I just added based on Paul's comments was now I am ready to start. So we'll go with that.

Our next question in the queue comes from the line of Yatin Suneja with Cowen & Company.

One more on the timeline. So let's say you have the data, how quickly will you be able to schedule a meeting with the FDA? And then, let's say everything goes according to the plan. They agree that one trial is enough to file for BLA along with Phase 2 trials. When can you submit the BLA?

It's a great question and we are building those timelines internally. And I can tell you we're building them as tightly as we can humanly expect to be able to do it. So the clinical data itself will have to be analyzed. And as Paul implied a moment ago, put into a document that will be sent to FDA, so the FDA can actually see the data, understand the data and hopefully we make our case with those data. So that's the piece that still has to be done. That will take not days, but it will take weeks, but probably not months. So we think of it that way. Once we've requested the pre-BLA meeting, then they have 30 to 60 days to grant the meeting typically. So we'll try to get as quickly as possible. And then after that it's really up to us. That's the race to the finish line. And I can tell you that my head of regulatory, and Paul and I, spend lots of times negotiating predicting that and trying to make sure that that can happen in as compressed way as possible, but that's not weeks, that's months, right, but I do think that that we are in a position to do it as quickly as it could be done. So that's all I can commit to you at this point in time is we're trying to compress each of those piece along the timeline as much as possible.

Maybe just one more question. Could you talk about Servier's proof of concept trial? They selected diabetic nephropathy as an indication and they're doing a big trial. So how did they selected that indication and are they pursuing any other indication in proof of concept?

Yes, so I'll let Paul speak to that. And the answer is yes, they've got several other proof of concept studies. This one is kind of well beyond, kind of typical proof of concept study as you imply. That's the 370 patient studying. We actually work with them to help identify indications that we both think would be good ones to work with and we really like this indication. And Paul was an important part of discussions in selecting this and so we're really happy about this. Paul, do you want to speak to that?

I mean, that's kind of a multi-component answer. It starts with the fact if you recall, Servier was responsible for choosing indications in the cardio-metabolic arena, so they did extensive analysis and they determined that the first indication they want to pursue that lies within that is this diabetic nephropathy and to a great extent. Although, they have done other studies look at vascular as well, but this is one they regally got excited about and it was based on a couple of things. One, so in this literature that suggest that IL-1 beta is important in the pathophysiology of not only diabetic nephropathy, but other forms of nephropathy as it pertains to both leukocytic infiltration as well neutrophilic infiltration and activation plus ultimately IL-1 beta does also result in a stimulation of other side of kinds of cytokine, so it's TGF-beta, which ends up in the fibrosis of this disease as well. So with that literature based argument that they went an actually did an in vivo proof of concepts in rodents where they showed and they published on this data that gevokizumab actually does quite well in preserving renal function in this model of nephritis and they also got a sense of what concentrations would be active. So taking the literature based argument coupled with their own in vivo proof of concept, they elected to go to this proof of concept, coupled with this fits into kind of their sweet spot of what they like to commercialize as well. So you put all those factors together and they elected to go with this. Plus the endpoints for this, from a clinical basis are very well validated and quite objective, so it's a nice model for study as well.

And then, Paul, the other three proof of concept studies they have?

So they're doing additional proof of concept studies that are ongoing. They're doing a study in another inflammatory skin disease, a dermatomyositis, there's polymyositis involves the skin and muscles, that study is ongoing. They're doing a study in something called giant cell arteritis, which is typified by something called temporal arteritis inflammation; the temporal artery resulting in severe headache and visual loss, if not treated. And most of these patients require chronic high-dose corticosteroids. And they're also doing a trial in a very ultra-orphan, small as orphan disease called Schnitzler syndrome, which seems to be very dependent on interleukin-1 beta, and could conceivably provide another means of submitting a dossier assuming that they're going to get a positive data in these trials.

Our next question comes from the line of Matt Kaplan with Ladenburg Thalmann.

Just one follow-up and then couple of other questions, but what do consider to be the rate limiting step to filing the BLA. Thanks for description on some of the aspects to doing it?

Well, really gauged this is the agreement of FDA that our package fits their requirement and that's probably the biggest hurdle is to get their agreement with that strategy. We are relatively optimistic based on fact that Behçet's uveitis is a very severe disease with high morbidity and low prevalence. So there are many examples of that type of indication that ended up being approved just a single pivotal trial coupled with the fact that we have I think very good Phase 2 data that supports us. So in total we believe this is certainly the total package can suffice and there are good examples historically of similar types of indications that have been proved on even less data than this.

And in terms of, can you give us an update in terms of some of the other trials that you have ongoing including the non-infectious anterior scleritis, the PG study and also importantly the EYEGUARD U.S.

Scleritis trial, the one that we gave kind of the topline data presentation, which was performed at National Eye institute, their complete enrollment has completed in that trial. So they're continuing to follow these patients, but the study from enrollment perspective is complete. We believe the data we're quite promising. We reported the fact that that of the eight patients that were enrolled all had active disease, all had been on other therapies continued to show bad disease and we showed six out of eight patients that had a predefined response, as part of this trial. So we saw a 75% response rate. This is an extremely complementary indication, especially if we get successful results from the trials that are ongoing right now. So the idea now is to obviously wait for our Behçet's data and then ultimately the, [indiscernible] uveitis data. And try to determine the best way to go forward with scleritis, especially in the event of positive data of the uveitis trials. So that's sort of where we are right now. We're talking with a number of scleritis experts to determine the best trial to do. And what we're hopeful for with scleritis in their present phase as well and if we do get the uveitis indication, that scleritis if we elect to go forward, would require only a single pivotal trial for a supplementary NDA. So again, that's what we're doing on that front. The pyoderma gangrenosum trials, both studies, both the U.S. only as well as the U.S. plus rest of world have enrolled patients. We're in the process of getting the complete complement of centers up and running. Once we have them all up and running, and we get some enrollment data for a month or two, we'll be able to better predict the rate when that will complete to the rate enrollment. So we are a little low to speculate right now, because we're still working on getting the remainder of the centers up and going, but that is going quite well. We've had good meetings not only with centers in the United States, but we spoke the regulatory agencies of every country that we intend to start up studies, and we've had good interactions. And there is a lot of excitement about the potential utility of gevokizumab for the treatment of this very serious disease.

And then in terms of U.S. studies EYEGUARD?

So the EYEGUARD U.S. study, so if you recall we believe that this study really to show that there are patients in the United States, that's the main purpose of this. So it's supplemental to the pivotal trial. The majority of the centers are up and running. And in fact, the enrollment is going quite well on that trial, and we're optimistic that this will also complete in a reasonable timeframe. Behçet's uveitis is rare, and in fact it's less common in United States and places like Turkey or the Far East. But in spite of that we've had good participation among the experts, and we're enrolling a little ahead of schedule. But we'll just have to wait and see if that continues over the next few months.

And we said it several times, Matt, but just for you to answer to your next question. We think that that study will not be required. We believe that that study should not be required for the FDA to allow us to go forward with our BLA submission. If they do require any information from it, it could be partial information. What we learned in a number of patients, we've seen at the time of BLA submission. But ultimately if we have to complete it, we will. But we don't think that we have to complete it prior to the BLA submission. But that's when Paul said the rate limiting step is securing that from the FDA, that's absolutely correct.

That's more of an assurance policy, so to speak.

We designed it in a way that whatever we hear from FDA, we think we can use this trial to be able to move forward.

And remind us what the target enrollment in the U.S. study is?

For EYEGUARD U.S.?

Yes.

I'm sorry. Paul flew back from New York, and he's brought a cold back to all of us. I'm sure I'll be coughing in today. I don't know if you can hear that, but ask that one more time, Matt.

What is the target enrollment for EYEGUARD U.S.?

It could be up to 28 and it's up to 28.

And I guess one last question for Tom, the Hercules loan agreement, have you accessed all of the $20 million under that agreement?

Yes. All of it's in our bank.

So that's included in the $67.5 million at the end of the quarter.

Yes.

Thank you. And at this time there are no further questions. I would like to turn the call back over to John Varian for closing remarks. End of Q&A

Great. Thanks everyone. We wanted this to be a shorter call. We all know what everyone is waiting for as are we. And we also know this is the busiest day of reporting of the year, we've been told. So we're all very excited to see the EYEGUARD-B data. And I am personally particularly glad, I no longer have to answer questions like how many fingers does Mickey Mouse have on his hand. Hopefully you won't have to wait much longer to start the count down clock. And thank you again everyone for joining us.