Deanne Tockey – IR Bassil Dahiyat – President and CEO John Kuch – VP, Finance.

Michael Schmidt – Leerink Chris Marai – Oppenheimer Arlinda Lee – MLV.

Good day ladies and gentlemen, and welcome to the Xencor Third Quarter 2014 Earnings Call. [Operator Instructions]. I would now like to turn the call over to your host Deanne Tockey of Stern Investor Relations, please go ahead..

Thank you, operator, good afternoon this is Deanne Tockey with Stern Investor Relations and welcome to Xencor’s third quarter 2014 financial results conference call. This afternoon we issued our financial results and business review press release which is available at www.xencor.com. Today on our call Bassil Dahiyat, Ph.D.

President and CEO will discuss the company’s business and scientific highlights from the quarter, then John Kuch Vice President of Finance, will review the financial results. And then we will 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 research and development, future financial and operating results, future market conditions, the plans and objectives of management for future operations and the company’s future product offerings.

These forward-looking statements are not historical facts, but rather are based on Xencor’s current expectations and beliefs and are based on information currently available to us.

The outcome of the events described in these forward-looking statement is 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 its most recently filed quarterly report on Form 10Q.

With that let me pass the call over to Bassil..

Thanks Deanne. Good afternoon everybody. Over the last quarter and last few months, we’ve advanced our pipeline on a number of fronts and have a number of milestones lined up to the end of this year and in the early 2015.

For starters we regained right through our lead Phase 2 program XmAb 5871 and planned to advance in a clinical testing for the new, the rare newly defined IgG4-related disease in 2015. We also put into announce top-line Phase 1b/2a clinical data for 5871 in patients with moderate to severe rheumatoid arthritis by the end of this year.

In January, we planned to announce preliminary Phase 1a data for XmAb 7195 or novel IgE reducing antibody. Just last week we announced the data update on our bispecific antibody programs and it will present some encouraging primate pharmacology results at ASH in December.

And our partner Morphosys also announced that they’ll present Phase 2 NHL data on XmAb 5574 more to a weighted ASH. Now today, we are announcing that one of our partners Alexion as advanced the molecule using our extend technology for antibody half-life extension into clinical development. So, I’m glad to review some more of this progress in detail.

I’ll start with XmAb 5871. It’s one of our internally discovered program and it’s a first in class monoclonal antibody to target Fc (gamma) R2b through its Fc domain, anti-CD19 to inhibit of B-cell function. We’ve seen very potent yet reversible B-cell inhibition in the Phase 1 trial with 5871.

And this encouraged us to consider a variety of possible indications for development. Both large and small for 5871 were B-cells could be driving the pathology.

And we also realized even if we see positive data from the completion of the ongoing Phase 1b/2a RA trial, pursuing smaller indications with less mature commercial landscapes would be a better match for our corporate strategy. So, we pressure our partner Amgen to end our original collaboration.

Our goal with the greater economic stake in the program and the freedom to pursue alternative clinical in commercial test. So in October, Amgen agreed to terminate our prior option in collaboration agreement and executed a new writer first negotiation agreement with us.

And we also announced that we planned to pursue future development in IgG4-related disease. We’re still exploring possible developments in other autoimmune diseases with B-cell inhibition just promised. Now little more on IgG4-related disease, it’s a rate fibro-inflammatory autoimmune disorder that affects approximately 10,000 to 20,000 Americans.

Now it’s newly defined and that unifies a number of previously recognized conditions, because the realization that there is a common cellular basis for disease that can be absorbed from a defined set of histopathological characteristics, so microscopic observations.

Now there is currently no proof therapies and corticosteroids of the standard of care. So there is an opportunity to bring a target agent with – a more beneficial profile that of course corticosteroids.

Now B-cell inhibition function, which we’ve seen in Phase 1 testing for 5871 in our Phase 1a trial as significant potential in this indication due to the likely role of IgG4 positive plasma cells which are progeny of these cells in this disease, as well as, some promising physician experience with B-cell intervention to-date in small investigator sponsor trial.

Now we’d remain on track to report our top-line data from the ongoing RA trial of Phase 1b/2a in moderate to severe RA by the end of this year. However, we’ve decided to not pursue any further development for 5871 in RA.

The data from the study is going to be informative though, because it is the first look at this new mechanism of action at treating the manifestations of an autoimmune disease.

We do plan to start clinical testing in IgG4-related disease in 2015 and are discussing clinical plans with physicians that are experienced in identifying and studying this disorder. And we’ll have more information on that in the coming months.

Next I’ll turn to our lead program XmAb 7195, which in Phase 1 clinical development for the potential treatment of asthma and other atopic diseases. 7195 targets IgE with its variable domain, and uses our XmAb immune inhibitor Fc domain to target Fc (gamma) R2b, resulting in multiple mechanisms of action for reducing IgE levels.

So, we’re currently studying XmAb 7195 in a Phase 1a study for the treatment of asthma to look at safety PK, and immunogenicity of a single ascending dose of 7195, so it’s a first domain study.

This study is also going to evaluate the effect of the agent on free and total IgE levels in addition to looking at immune cell biomarkers that are relevant for IgE signaling. Now this is being healthy subjects as well as, a portion of the study is being done allergic subjects with elevated IgE levels.

We’ve planned to report preliminary data from the healthy volunteers’ portion of this trial in January of 2015.

Following successful results, we planned to start a subsequent Phase 1b trial a multiple ascending dose study in healthy adult volunteers and in patients with mild to moderate asthma to study safety PK and IgE reduction in a multi-dose setting.

As we stated previously, it was a tremendous submit need for the treatment of severe asthma, were significant proportion of patients are poorly controlled on existing therapies and on oral corticosteroids even.

We think 7195 has the potential to apply this first class mechanism of action for reducing IgE that could address the full spectrum of severe asthmatics including those, the hardest treat people with very high IgE levels. Next I’ll turn to updating on our extend platform technology.

This is our technology for improving that circulating half-life monoclonal antibodies, it’s one of our Fc technologies. So, I’m very excited to report that our partner Alexion advanced undisclosed molecule using our proprietary extend Fc domain into Phase 1 clinical testing very recently.

It’s the first use of the company’s half-life extension technology in humans today. And it’s a third of our XmAb Fc technology to enter the clinic following our atopic Fc domain and of course our immune inhibitor Fc domains which are in, which is in 5871 and our 7195 molecules.

Now I’ll turn and discuss our bispecific antibody program that uses its own novel Fc domain to serve as a scaffold for antibodies with two different antigen binding domains. So, we create molecules that can bind two target simultaneously, we made a lot of progress in the last 12 months and we’re excited to see these programs move forward.

Just last week, we announced preclinical data from three programs using this bispecific Fc technology.

The data show that targeting CD123, CD20 and CD38 antigens each activated T-cells to rapidly kill their respective target cells from a single dose IV bolus in cynomolgus monkeys and demonstrated prolonged half-life of approximately one week in mice from these molecules that bring together a CD3 targeting domain to bring T-cell killing to the targeted tumor antigen.

Now we also announced the selection of our lead preclinical candidate from the set that’s XmAb 14045. It’s an anti-CD123/CD3 bispecific and we’ve advanced that into IND-enabling studies. We expect to begin clinical trials by mid-2016.

Now we believe that by using a plug and play Fc domain basis for our bispecific structure, we can develop a flexible approach which creates candidates by combining really any two binding domains or even any two molecules. While potentially maintaining full length antibody properties such as favorable in vivo half-life and simplified manufacturing.

So, we also look these modularity’s allowing us to engineer potency levels that improve the tolerability of cancer immunotherapy and particular directed T-cell therapy.

Now the preclinical data that I just mentioned is well an additional data on primate pharmacokinetics, primate efficacy and tolerability is going to be presented in three poster presentations at the upcoming American Society of Hematology Meeting, the 2014 Annual Meeting in December.

So, now I’ll move on to more to away which is formally known as XmAb 5574, that’s a drug candidate that target CD19. It’s an antibody and uses our cytotoxic Fc domain to enhance tumor cell killing. It is partnered with Morphosys under a license agreement we signed in 2010.

Now currently Morphosys conducting Phase 2 clinical trials, a test more to await as a monotherapy and B-cell acute lymphoblastic leukemia or BALL and non-Hodgkin lymphoma or NHL.

In addition there is an investigator response of Phase 2 clinical trial of chronic lymphoblastic leukemia in combination with lenalidomide or Revlimid and that began to generate in 2014.

So, Morphosys announced that it’s going to present first clinical data from the Phase 2 study in NHL at ASH, as well as final data from the Phase 1/2a clinical trial in chronic lymphoblastic leukemia also at ASH in December.

They also mentioned that more to a receive fast track designation from the FDA for diffuse large B-cell lymphoma that’s particularly aggressive form of the NHL. Their abstract for the Phase 2 NHL study reported very promising data in this indication in DLBCL with a 29% response rate including two complete responses in the first 14 patients.

So, really to wrap up, I’ll mention some changes or additions last stated the team here at Xencor.

In September, we announced two important appointments to really broaden and strengthen the management team, Debra Zack, joined us as Vice President of Clinical Development; and Lloyd Rowland, joined us as Senior Vice President, Chief Compliance Officer and General Council.

Together Debra and Lloyd bring more than a combined 30 years of experience to Xencor in drug development and biotech. And we’re confident that both, the collective experience from both Debra and Lloyd will be very valuable to Xencor. As we continue to grow the pipeline and advance our compounds to the clinic.

So with that, I’ll turn the call over to John to review our financials..

Thank you, Bassil. Revenues for the third quarter of 2014 were $0.8 million compared to the $3.2 million in the same period of 2013. Revenues for the nine month period ended September 30, 2014 were $3.9 million compared to $8.4 million for the same period in 2013.

The decrease in revenue for the three and nine month periods in 2014 relates primarily to revenue earned under our Merck and CSL collaborations in 2013 and a $3 million milestone payment received on our Morphosys collaboration 2013.

Research and development expense just for the third quarter of 2014 were $5 million compared to $4.2 million for the same period in 2013. R&D expenses for the nine month period ended September 30, 2014 were $13.5 million compared to $12.9 million for the same period in 2013.

The increase in R&D expenses for three and nine month period ended September 2014 relates primarily to increase spending on our XmAb 7195 development program and on our bispecific programs. General and administrative expenses for the third quarter of 2014 were $2.2 million compared to $0.8 million for the same period in 2013.

G&A expenses for the nine month period ended September 30, 2014 were $5.5 million compared to $2.4 million for the same period in 2013. The increases in G&A expenses in 2014 reflect increased compensation expenses, professional fees, the cost associated with being a public company.

Non-cash share based compensation expense for the first nine months of 2014 was $1.1 million compared to $54,000 for the first nine months of 2013.

The net loss for the third quarter of 2014 was $6.3 million or $0.20 on a fully diluted per share basis, compared to a net loss of $1.8 million or $57.87 on a fully diluted per share basis for the same period in 2013.

For nine months ended September 30, 2014 the net loss was $15.1 million or $0.48 on a fully diluted per share basis compared to a net loss of $56.6 million or $4.10 on a fully diluted per share basis for the same period in 2013.

The lower loss on per share basis in the three and nine months ended September 2014 compared to the same periods in 2013 are primarily due to non-cash expense of $48.6 million related to a loss on settlement of convertible notes, as reflected in the 2013 losses and the additional shares reflecting the 2014 per share calculations as a result of our initial public offering in December 2013.

In this afternoon’s press release, we reported cash balance is totaling $60.9 million as of September 30, 2014. Based on current operating plans to expect to have sufficient cash to fund research and development programs and operations through 2016 and we estimate that our 2014 year end cash and cash equivalents will be approximately $54 million.

With that, we’ll now open up the call for your questions.

Operator?.

[Operator Instructions]. Our first question comes from Michael Schmidt with Leerink. Your line is open..

Hey good afternoon, thanks for taking my question. I had one on your bispecific antibody program.

I was wondering you what considerations were taken into account for choosing CD123 as lead target for the program, it’s seems to be a fairly competitive space in that stage in AML? And what are your thoughts on that?.

We consider sort of the magnitude of the unmet need were really for many years AML has been a very difficult, so AML would be the primary indication for this agent for targeting CD123. AML certainly an unmet need it’s a very difficult disease to treat, it’s a very poor prognosis.

There are competing biologics in this space; I would characterize them all as relative early stage in the clinic. And I think that we felt our product profile could be competitive, because of the combination of T-cell engagements, so the mechanism of action being really driven by cytotoxic T-cells are very compelling MOA we would all agree, I think.

As well as having extended duration of action and promising half-life. So, a half-life that maybe pretends being able to dose and deliver this agent like more typically you were with the regular antibody rather than some of the emerging immune therapies, whether they would be cell-based or some of the bispecific.

So that was really the thought that we had something to offer that might be compelling..

Okay, makes sense.

And then, on more to, I saw in the ASH abstract there is data, the abs contains data on the first stage of the study and I was wondering if you could comment on what we could expect for this presentation at the actual conference with respect to the dose expansion cohorts?.

I have no idea. I’ll be waiting for their presentation myself..

Okay, great. Thank you so much..

[Operator Instructions]. Our next comes from Chris Marai with Oppenheimer. Your line is open..

Hi good afternoon guys, thanks for taking the questions. Congratulations on the quarter and the great abstracts.

First, I was wondering just with respect to the anti-CD123 bispecific, looking at your abstract it appears that it was relatively well tolerated; I know that some folks on the street have been worried about, marrow talks, I was wondering if you had seen any talks there if you can comment any further on the safety profile of that therapy?.

We’ll characterize the sort of safety profile that we observed in cynomolgus monkey and activities we saw in forth the poster. We did see that we could deplete target cells in the marrow, which is of course a good thing, that’s where the cancer really ultimately has to be treated.

I think the more, a more thorough characterization is going to be available on the poster and I think ultimately really this question of the kind of talks that people are concerned about; it’s going to be answered in the clinic.

I mean, I think a lot of that supposition is based on preclinical data of C123 and how it might, how it might cause depletion of certain cell sets and I’m not aware of any clinical related that speaks to that for any program yet..

Great that’s helpful, thanks. And then just, thinking about your bispecific platform technologies and broadly your business development plans going forward.

Given what some competitors in the space have done with respect to competition, with respect to partnering, I was wondering, how are you looking at potentially partnering these assets or developing them further, I imagine you’ve been broadly receiving much interest from outside parties regarding this.

Could you perhaps comment on that strategy?.

Our strategy right now is, we’ve selected a lead candidate, we’re going to advance to the clinic or certainly examining a multitude of other molecules that we have in our research phase as well as the other two preclinical leads the CD20, CD38 to see which other ones we want to try to advance in the clinic.

We want to have our own molecules that we get clinical proof-of-concept and before we partner. Now that’s balanced of course by the nature of the technology itself, which is part of our Fc tool kit which is plug and play, which means we can not only generate lots of molecules at the discovery stage and have sort of thought for partnering.

But we can license the tool in a way that is very efficient and does not really require any of our own resources, much like we have done in the past with our cytotoxic Fc or half-life extension Fc.

Now the technology itself is very new even in our hands, we’ve really only nail down within the last 12 months, the Fc 12 kit built our CD3 component and really this is the public data we have on this whole platform. So, we are examining how to partner this plug and play tool kit going forward and we’ll just have to see the kind of reception it gets.

I think we offer something compelling in terms of long half-life simplicity and activity..

Great, thanks. Congrats on the quarter..

Thank you..

Our next question comes from Michael Schmidt with Leerink. Your line is open..

All right, thanks for taking the follow up. I just had a question on the Alexion product.

Can you comment on potential dosing frequency that they might look out for this?.

I really can’t, all the details of that program are really something that Xencor has to refer to the partner, because we are not – we’re not at liberty to disclose the specifics of their program. So, we would have to refer to Alexion..

Okay understood. Thanks so much..

This ends our Q&A. We do have a question from Arlinda Lee with MLV. Your line is open..

Hi guys, thanks for taking the question.

Can you remind us of what upcoming milestones might be coming if they start Phase 1 or what the next development milestone would be?.

Are you referring to Alexion?.

Yes..

Well, the specifics of the deal, I don’t think are completed disclosed. So, however I think what has been disclosed is that there are clinical milestones that are still for various stages of clinical, I mean as well as, a license exercised fee, a commercial license exercise fee, they right now had a research license.

They would have to exercise the commercial license prior to certain stage of clinical development. And so those are the pieces that you would expect to see over the next few years, I would say..

Okay, thank you..

Thank you. This ends our Q&A session. I’ll turn it back to management for closing remarks..

Thanks very much. Before we sign-off, I would like to reiterate our upcoming milestones. So, by the end of the year we expect to announce top-line data from the Phase 1b/2a trial of XmAb 5871 in RA as well as to present a fuller data set from our preclinical bispecific programs at the ASH Conference in December.

Following that we expect to report preliminary Phase 1a data for XmAb 7195 in January of 2015. And with that, I would like to close. Thank you very much for your attention and we look forward to updating you again soon..

Ladies and gentlemen, thank you for participating in today’s program. This concludes the program. You may all disconnect..