Charles Liles - Associate Director and Head of Corporate Communications and Investor Relations Bassil Dahiyat - Co-Founder, CEO, President & Director Paul Foster – SVP, Chief Medical Officer John Kuch - SVP, Chief Financial Officer & Secretary.

Ted Tenthoff - Piper Jaffray Companies David Ruch - Leerink Partners Arlinda Lee - Canaccord Genuity Limited William Tanner - Cantor Fitzgerald David Nierengarten - Wedbush Securities Tom Shrader - BTIG.

Good afternoon, and welcome to the Xencor Third Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call up for your questions. Please be advised that this call is being recorded at the Company's request.

At this time, I would like to turn the call over to Charles Liles, Associate Director and Head of Corporate Communications and Investor Relations at Xencor. Please proceed..

Thank you, Operator. Good afternoon. This is Charles Liles with Xencor. Earlier this afternoon, we issued a press release, which outlines the topics we plan to discuss today. The release is available at xencor.com.

Today on our call, Bassil Dahiyat, Ph.D., President and Chief Executive Officer, will discuss the Company's business highlights; Paul Foster, M.D., Senior Vice President and Chief Medical Officer will provide an update on Xencor's clinical programs; and John Kusch, Senior Vice President of Finance and Chief Financial Officer will review the financial results for the third quarter of 2018.

Then we will open up the call to 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, plans and objectives of management for future operations, 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 Xencor's current expectations and beliefs and are based on information currently available to us.

The outcomes 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 Factor sections of Xencor's 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 welcome aboard at Xencor, and good afternoon everybody. At Xencor we engineer monoclonal antibodies with dramatically enhanced biological functionality and performance versus their natural counterparts.

Our proprietary XmAb technology focuses on the bottom half of an antibody structure, its FC domain which we tweak to produce antibodies with improved potency along our half-life or bispecific structure.

Now over the last 15 years, we’ve created a large intellectual property base around these novel FC domains which has enabled us to build a broad and diverse portfolio with 12 XmAb based candidates currently being evaluated in the clinic both internally and by our partners. Recently, we announced data from two internal programs.

The topline results from our Phase 2 study of XmAb 5871 in Systemic Lupus Erythematosus or SLE out in October, and just last week, encouraging initial data from our ongoing Phase 1 clinical trial of XmAb 14045 in acute myeloid leukemia or AML which we will present more fully next month at ASH.

Now, as you know, XmAb 14045 is the lead candidate from our bispecific oncology pipeline, and while the first in human data from our bispecific platform is a milestone for Xencor, we also believe it is reflective of the emergence of bispecific antibodies as a major part of the field of antibody therapeutics.

The concept of bispecific antibodies has been around for decades, because the idea of binding two antigens at once has greatly increased – to greatly increase the breadth of biology that antibodies can do is highly attract it.

The field is only just starting to make progress towards that potential because of the creation of new molecular engineering tools. We believe this situation today for bispecifics is analogous to that for therapeutic antibodies around 20 years ago.

After a decade of limited utility as a therapeutic class, humanization technologies emerged only when they were able to avoid immune rejection by the body, which started the massive expansion of the field. That was the development of huminization technology, and in parallel now, the field is developing bispecific antibody technologies.

Now the main challenges with bispecific antibodies had been that they lack a long half lives in vivo, high stability and ease of manufacturing that regular antibodies have, because to create bispecific binding which is a non-natural property, most designs eliminated FC domains and simply stitched two different antigen binding domains together.

These missing properties are what make antibodies such good drug platforms however. And those properties in a large part – they in large part do come from antibodies having FC domains. Now about six years ago, we began working to create bispecific antibodies that contain FC domains. We used our long experience in FC engineering.

We engineered domains that spontaneously formed bispecific structures and can be decorated with nearly any antigen binding domains. They can be made using standard antibody production techniques, and they have antibody like half lives.

Now this plug and play platform is very flexible and has enabled the rapid and simultaneous development of a wide range of bispecific molecules addressing a breadth of targets. We’re able to put Xencor at the forefront of the next wave of antibody engineering, which has the potential to deliver new treatments in oncology and other areas.

Now I will come back to this later. For now, I will turn it over to our Chief Medical Officer, Paul Foster to review our recent clinical data readout starting with XmAb5871. .

Thanks, Bassil. XmAb5871 is our first-in-class monoclonal antibody that targets CD19 with its variable domain and uses our XmAb immune inhibitor Fc domain to target FC gamma receptor 2b, a receptor that inhibits B-cell function.

While B-cell inhibition is a proven strategy for many autoimmune diseases, we believe 5871 offers patients and physicians, a potentially differentiated therapeutic option because of its subcutaneous delivery format and its highly potent and broad blockade of B-cell activation occurs without depleting or destroying B-cells.

This means that the natural immune system is able to function normally once treatment is no longer needed.

We are currently advancing 5871 for the treatment of IgG4-Related Disease or IgG4-RD, a newly defined disease characterized by tumor-like swelling a variable degree of fibrosis, and potentially irreversible organ damage plus lymphoplasmacytic infiltrate in the affected organs.

Following encouraging data from our Phase 2 trial last year, and because IgG4-RD is a reasonably characterized disease with no therapeutic options or regulatory precedence for approval, we have been working closely with the U.S. Food and Drug Administration to finalize the trial design and protocol for our proposed Phase 3 study.

We expect to initiate a randomized placebo-controlled, double blinded Phase III study evaluating the addition of 5871 to the standard of care corticosteroids in approximately 200 to 250 patients with IgG4-RD by early in 2019.

In SLE, we reported encouraging top-line results from our Phase 2 study of 5871 at the American College of Rheumatology or ACR Annual Meeting in October.

As we described before, this study uses a novel trial design intended to more rapidly assess 5871’s effect on SLE with a shorter time to endpoint and the fewer patients compared to standard SLE studies. We enrolled a 104 patients with moderate to severe, non-organ threatening SLE.

Patients continued their background immunosuppressive medications – sorry, discontinued their background immunosuppressive medications after receiving a short course of IM steroids to quiet their SLE disease activity.

Patients who achieved the required dose improvement were then randomized to one-to-one to receive 5871 or placebo every 14 days for up to 16 doses.

The primary endpoint of the study was the proportion of patients with no loss of improvement or LOI in the efficacy valuable population defined as those who completed day 225, experienced LOI, or discontinued due to a drug-related adverse event.

LOI was defined as an increase of greater than or equal to 4 points on the SLE disease activity index or SLEDAI scale, or a new British Isles Lupus Activity Group or BILAG A or B score, and importantly in physician intent to treat with rescue therapy.

While the study design achieved statistical significance on the primary endpoint, data trended positively with improvement maintained at day 25 – 225 by 42% of the patients treated with XmAb5871 compared to 28.6% of patients treated with placebo.

Additionally, the efficacy evaluable population excludes 10 placebo patients and two XmAb5871 treated patients who withdrew from this study for reasons other than LOI or adverse events. These exclusions led to higher placebo response rates compared to the intent to treat population.

And the intent to treat population improvement was maintained by 40.4% of patients in the XmAb treated arm compared to 23.1% of the patients on the placebo arm at day 225. Pre-defined secondary endpoints included the valuations of time to loss improvement and safety and tolerability.

XmAb5871 treated patients in the efficacy evaluable population experienced a statistically significant longer time to loss improvement compared to placebo treated patients. A 76% improvement in median time to LOI and a 47% reduction in the risk of LOI. Safety was consistent with previous trials.

We are encouraged by these results which marked the third autoimmune disease demonstrate responsiveness of XmAb5871 treatment. As we devote our internal resources developing 5871 and IgG4-RD, we look forward to exploring potential partnership opportunities to further develop XmAb5871 for SLE. I will now turn to our bispecific pipeline.

At the American Society of Hematology Meeting next month, we will share initial clinical data from our ongoing Phase 1 trial of XmAb14045, a CD123 x CD3 bispecific antibody in development for acute myeloid leukemia and other CD123 expressing hematologic malignancies.

As we discussed in the abstract released last week, these early data show encouraging signs of efficacy in a heavily pre-treated population for weekly administered 14045. At the time of data cut-off, 63 patients with relapsed or refractory AML and one patient with B-cell acute lymphoblastic leukemia were enrolled.

These patients had a media age of 61 years that experienced a median of three prior therapies and 30% had undergone prior allogenetic stem cell transplantation.

Today, the maximum tolerated dose has not been determined as expected cytokine release syndrome or CRS was the most common adverse event occurring in 77% of patients and was generally managed with pre-medication. Seven patients or 11% experienced grade 3 or grade 4 CRS.

Regarding efficacy, 23% of evaluable patients at the two highest dose level study, 1.3 and 2.3 micrograms per kilogram with AML achieved here a complete remission or complete remission with incomplete hematalogic recovery.

While the AML treatment landscape has improved in recent years with the approval of the new drugs, there remains an urgent need for effective new therapies. Based on these early data, we believe 14045 may have meaningful potential and we look forward to continuing to optimize our dosing regimen as we progress through Phase 1.

I’ll now turn it back to Bassil to review our bispecific antibody platform and early stage pipelines. .

Thanks, Paul. As we outlined at the start of the call, all our bispecific antibodies are built on our proprietary XmAb FC domain to preserve natural antibody stability, long half life and ease of production.

This plug and play approach provides great flexibility presenting a range of different bispecific structures and to-date we’ve created seven bispecific oncology candidates which can be grouped into three distinct classes. The first and most advanced group are our CD 3 bispecific antibodies, XmAb14045, 13676, and 18087.

These compounds are tumor-targeted antibodies that contain both the tumor antigen binding domain and a cytotoxic T-cell binding domain, CD-3 binding domain. They activate T-cells at the site of the tumor in order to potently kill malignant cells. Now, all three of these CD-3 bispecific antibodies are in Phase 1 development.

In addition to the XmAb14045 data described by Paul, we expect to report initial clinical data in 2019 for XmAb13676 or CD20 x CD3 bispecific antibody for B-cell malignancies and XmAb18087 or SSTR2 x CD3 bispecific antibody for neuroendocrine tumors and gastrointestinal stromal tumors.

Now our next class of bispecific antibodies are our Tumor Microenvironment Activators. Rather than directly bridging a T-cell with tumor cell, our TME activators seek to more effectively reactivate tumor reactive T-cells in existing therapies. By engaging multiple T-cell targets simultaneously, such as checkpoints or agonists.

That this approach not only eliminates the need for the multiple antibodies usually used for combination therapy, but allows for more selective targeting of T-cells with high checkpoint expressions, which are typically overrepresented in the Tumor Microenvironment.

We currently have three TME activators in development, each testing a distinct mechanism for TME activation. First, XmAb 20717, a PD-1 x CTLA-4 bispecific antibody is currently being evaluated in Phase trial for patients with advanced solid tumors.

We dosed the first patient in this study which we call DUET-2, in July, 2018, we expect to report initial data on safety tolerability, pharmacokinetics, pharmacodynamics, immunogenicity and preliminary anti-tumor activity in 2019.

Additionally, the IND for XmAb23104, or PD-1 x ICOS bispecific antibody was recently allowed to open by the FDA and we expect to initiate a Phase 1 trial in patients with select solid tumors in 2019.

We also plan to submit an IND for XmAb22841 or CTLA-4 x LAG-3 bispecific antibody by year-end and to initiate a Phase 1 trial in multiple oncology indications next year.

Finally, we are developing a suite of bispecific cytokines which can end both cytokine and cytokine receptor demand to selectively expand and activate immune cells that can be recruited against tumors.

First of these programs is XmAb24306, an IL15 therapeutic which we designed specifically to create sustained T-cell and NK-cell expansion via modulated potency and built it upon an XmAb bispecific Fc domain that contains our Xtend technology for longer half life.

We hope that it will provide a more druggable version of IL 15 with improved tolerability, slower receptor mediated clearance and prolonged half life. We expect to submit an IND for XmAb24306 in multiple oncology indications in 2019.

We believe this broad pipeline of bispecific oncology candidates provides us multiple distinct opportunities to impact the frequent of patients with cancer and we are committed to exploiting the full potential of our bispecific platform both internally and through potential collaborations.

To that end, business development remains a key pillar of our corporate strategy in large part due to the flexibility of our platform.

Licensing transactions provide us with multiple revenue streams that help fund the development of our most promising wholly-owned product candidates, while requiring limited resources from our internal team and providing external validation of our XmAb technology.

Today, eight pharmaceutical companies in the National Institutes for Health are advancing novel drug candidates that were either discovered at Xencor or that rely in our XmAb technology for bispecific structure, higher cell toxicity, longer half life or improved stability.

Four such programs are currently in clinical development including MOR208, a compound which we discovered and initially developed internally at Xencor and which more focuses evaluating in multiple pivotal trial for patients with relapsed refractory large B-cell lymphoma, or diffused large B-cell lymphoma or DLBCL.

Further, a compound called AMG424, CD38 x CD3 bispecific antibody, Amgen – is being progressed by Amgen into Phase 1 for patients with multiple myeloma and they initiated that trial this past quarter.

Additionally, in the third quarter, we received $9 million in milestone payments from Alexion in connection with their submission of marketing authorizations for Alexion 1210 to the FDA and EMA for the patients with paroxysmal nocturnal hemoglobinuria or PNH.

In October, Alexion announced that it has an additional submitted a marketing authorization to regulatory authorities in Japan and that the USFDA had set a review date for its application in February 2019.

Under the terms of our collaboration with Alexion, we will be eligible for additional milestone payments of up to $28 million in regulatory milestone payments, and sales milestones up to $30 million in addition to royalties on future sales of Alexion 1210.

And with that, I will turn the call over to our Chief Financial Officer, John Kuch to review our third quarter 2018 financial results. .

Thank you, Bassil. Xencor continues to operate from a strong financial. In this afternoon's press release, we reported cash, cash equivalents and marketable securities totaling $547.8 million as of September 30, 2018, compared to $363.3 million on December 31, 2017.

This increase reflects net proceeds of $245.5 million from our underwritten public offering in March 2018, partially offset by cash used to fund operating activities in the first nine months of 2018.

Before turning to our third quarter P&L, I'd once again like to remind everyone that our financial statements reflect adaption of Accounting Standards Codification, ASC topic 606, the Financial Accounting Standard Boards revised accounting rules and revenue recognition, which went into effect this year.

The company earns revenues from technology licensing fees and milestone payments from our partners for license of our drug candidates and use of our proprietary XmAb antibody engineering technologies.

As such, we adapted ASC 606, effective January 1st of this year and revised revenue report for the prior period ending September 30, 2017, to reflect this new standard. Revenues for the three ended September 30, 2018, were $29 million compared to no revenue reported for the three months ended September 30, 2017.

Revenues for the nine months ended September 30, 2018 were also $29 million compared to $16 million for the nine months ended September 30, 2017. Revenue in the three and nine month periods ended September 30, 2018 were from revenue recognized under our Novartis collaboration and milestones received under our Alexion collaboration.

This compares to revenue from the same period in 2017, which were for milestones received under our CSL and MorphoSys collaborations. Research and development expenditures for the three months ended September 30, 2018 were $21 million, compared to $19.4 million for the three months ended September 30, 2017.

R&D expenditures for the nine-months ended September 30, 2018 were $70.4 million, compared to $51.4 million for nine-months ended September 30, 2017.

R&D spending in the three and nine-months ended September 30, 2018 over R&D spending in the same period of 2017 is primarily due to additional spending on our expanding pipeline of bispecific oncology candidates.

General and administrative expenses for the three months ended September 30, 2018 were $7.4 million, compared to $4.2 million for the three months ended September 30, 2017. G&A expenses for the nine months ended September 30, 2018 were $17 million, compared to $13.1 million for the nine months ended September 2017.

Increased G&A spending in three and nine months ended September 30, 2018 over G&A spending in the same period 2017 reflects additional compensation costs including increased stock-based compensation charges.

Non-cash, share-based compensation expense for the second [third] quarter ended September 30, 2018, was $15.5 million compared to $10.2 million for the same period in 2017.

Net income for the three months ended September 30, 2018, was $3.2 million or $0.05 on a fully diluted per share basis, compared to a net loss of $22.7 million or $0.48 on a fully diluted per share basis for the same period in 2017.

Net income for the three months ended September 30, 2018, over loss reported for the same period in 2017 is primarily due to revenue recognized from our Novartis and Alexion collaborations in 2018.

Net loss for the nine-months ended September 30, 2018 was $52.2 million or $0.98 on a fully diluted per share basis compared to a net loss of $45.9 million or $0.98 on a fully diluted per share basis for the same period in 2017.

The increased revenue for the nine months ended September 30, 2018 over amounts for the same period in 2017 was offset by increased spending in R&D in 2018. The earnings per share loss for the nine-months ended September 2018 was equal to earnings per share loss in 2017 due to the increase in shares outstanding during 2018.

Total shares outstanding was 56,212,449 as of September 30, 2018, compared to 46,955,365 as of September 30, 2017. The increase in total shares reflect our underwritten public offering of approximately 8.4 million shares in March 2018.

Based on our current operating plans, we expect to have cash to fund research and development programs and operations into 2023 and to end 2018 with approximately $525 million in cash, cash equivalents and marketable securities. With that, we would now like to open the call up for your questions.

Operator?.

[Operator Instructions] Our first question is from Ted Tenthoff with Piper Jaffray. Your line is open. .

Thank you very much for the update guys. And I’ll save the questions on the ASH data for presentations out in San Diego. I have kind of a higher level question.

Just, as the bispecific pipeline advances, obviously this isn’t going to be data-driven, but how do foresee balancing kind of which drugs to keep, which drugs to potentially partner, how will you be making those kinds of decisions with such a rich pipeline?.

Thanks, Ted.

So, we’ve been stating our strategy for a while now as use both the data and the market potential and clinical and commercial cost and infrastructure needed for our program to sort of guide our thinking on a program, and we’ve always worked to create a diversity across those different parameters within our pipeline, and we’ve selected some indications as small ones with very high unmet need, small in terms of the number of patients, in terms of the kind of marketing approach you would have to have, because we do have ambitions to be a commercial organization one day.

Those small indications would be exemplified by our molecules in AML, XmAb14045 in neuroendocrine tumors and GIST XmAb18087, those are molecules that if the data bears out, could be molecules we could potentially take forward alone, and I’ll remind you that for 14045 though, Iit is partnered with Novartis commercially in the outside of U.S.

territories. In the U.S., we have full commercial rights. I think for other assets, like our tumor microenvironment, bispecifics, we’ve been stating this since we kicked off those efforts a couple of years ago.

We view those as ones where we want to build scientific knowledge of the different hypotheses we are testing for the tumor microenvironment between say, XmAb2717 versus XmAb2241.

And as we build data around this hypotheses, for the ones with the strong data, we feel we'll be very well-positioned to find partnerships that can let us retain a larger fraction of commercial potential though we do think that broad solid tumor drug development in the late phase, in particularly in immuno-oncology would be challenging as well as marketing could be even more challenging for a small organization, so we sort of balance it that way and I hope that gives clarity on how we view the specifics of our pipeline.

.

Makes a lot of sense. I appreciate it. Thanks so much..

Thank you. Our next question is from Jonathan Chand with Leerink Partners. Your line is open. .

Hi guys. This is David Ruch, dialing in for Jonathan. Thanks for taking my questions and congrats again on the progress.

First question, could you help to set investor expectations ahead of the ASH in terms of how much more data we could see versus what was disclosed in the abstract?.

Yes, it’s only a few months of additional time between data cut-offs. And we'll, of course, show any new data on patients that we didn’t have to disclose prior and be able to discuss some of our thinking for going forward around regimens, but perhaps not in exquisite detail.

Does that sort of answer your question? I mean, I don’t want to suggest anything about data we might show in a few weeks right now..

No, that’s helpful. Thank you. Second question is, just with regard to other CD123 presentations, expected at ASH, and we touched on this a little bit on the call already.

But how are you thinking about the competitive landscape there? And what are some things you'll be looking for in those competitive presentations?.

Well, I think, for us, we’ve tried to be the leader in having an agent that can be delivered intermittently, that is our initial dosing schedules weekly. We are obviously going to work on optimizing the regimen, but our goal is to have something that can be delivered in that weekly timeframe, at least at steady state.

And so, that’s how we sort of position ourselves. That’s an important, I think, movement for the whole bispecific antibody field having dosing that can be done.

As a regular therapy, when you come into the hospital, come into the physician’s office to get your drug and then you don’t have to be there or have to have drug continuously infused, I think that’s an important differentiator or a parameter that we view as really important for our whole CD3 portfolio.

And then, I think you have to look at that sort of combination of how tolerability and response rate play off of each other. I think, we’re well positioned in both at the outset of our work in this Phase 1 and now we are getting down to the next step of trying to find the best possible regimen..

Great. Thank you and congrats again..

Thank you. Our next question is from Arlinda Lee with Canaccord Genuity. Your line is open. .

Hi, guys. Thanks for taking my questions.

First on the patients that were enrolled in your Phase I 14045 trial, can you characterize these patients and whether those overall patient characteristics were representative of those treated at your go forward, 1.3 micrograms per kilogram dose and the higher one, 2.3?.

Well, first I want to caution, we don’t – we are not posing those as go forward dose. Those are where we got to in our weekly and we are also looking at other doses and dosing regimens.

But putting that aside without getting ahead of ourselves, just to be clear we understand your question is, how representative were the patients of those two dose levels of the overall population in our trial, because what we disclosed in the abstract was sort of the overall population.

Nobody was selected or satisfied, I don’t know, Paul if the details you can even really get into right now?.

I can’t get into right now. I don’t have it on my fingertips. But we don’t expect any different from the overall population..

Okay.

And then can you talk about the overall population, the 30% allogenic stem cell transplant? How –maybe in three prior therapies, those strike me as fairly sick patients, but I'd love to hear what you guys think how sick were the patients that you enrolled?.

Yes, this was the relapsed refractory disease and we were trying to dose escalate. So, it was really – I mean, there were excluding criteria. It was a pretty broad set. We got a lot of really sick patients.

Paul, if you want to elaborate on this?.

Yes, they don’t get a whole lot of extra therapy in this disease. So you relapse couple times and that’s usually as long as they survive. So, this is a very sick population. We took all comers that were relapsed refractory. The allo transplants, these are patients who failed allo transplants.

So they either get relapsed after that or primarily refractory to that transplant. So, very sick population. .

Okay, thanks. And then, maybe one for John, on the milestones, what constituted the rest of the $20 million in revenue? Thanks..

Yes, well, there was a two pieces revenue, the $29 million was the milestone from Alexion and $20 million was recognized under the Novartis collaboration related to a delivery of a one of the bispecifics under the contract. That was just out of deferred revenue. .

Okay, got it. Thanks..

Thank you. Our next question is from Bill Tanner with Cantor. Your line is open. .

Yes, thanks for taking the question. Bassil, I had a couple for you if I could on 7195.

You mentioned the likelihood of partnering the asset for SLE and I think you’ve talked in the past about keeping IgG4-RD and just want – just some commentary on being able to thread the needle there in terms of being able to keep something in partner, something depending on the circumstances, sometimes that’s maybe less tannable than others? And then, the other one on – I mean, on 5871, sorry.

And then the other one on 5871.

Just on the SLE results, just any read through or not any commentary on IgG4-RD?.

Yes, so, on the partnering front, so, just to be clear, I would anticipate a partnership for this program would be around all indications. .

Okay..

And I know that can get tricky when you are juggling multiple indications. I think that the way I’ve tried to pose it has been, in a going along scenario, where a lupus trial had not worked out in a way that suggested there was future potential and we think it certainly did work out in a way that suggests its future potential.

But in that scenario, we would pursue alone IgG4-related disease and try to build, there is a smaller indication. It’s not a deep competitive landscape there like in some other autoimmune diseases like in rheumatoid arthritis.

In the context of partnering, you really do need to put all the indications together, but I think that a partnership that we could sort of – we could draw with this most successful kind of partnership be, it would involve us retaining some kind of commercial rights around all indications by territory.

So, ideally in the United States, I think that’s where one that makes sense and retaining some portion of that commercial marketplace for ourselves. That’s how we view partnerships now in the context of having lupus data that suggests there is potential going forward in that disease, yes, we wouldn’t split indications.

If I’ve suggested that, I am sorry for the confusion. .

No, no, no. sorry, you didn’t suggest. I was just wanting.

So, you would contemplate that the partner would likely carry most of their freight for the SLE?.

Yes, yes, yes. That’s right. .

Yes..

On the issue of read through from Lupus to other diseases, like IgG4-RD, Paul, do you want to comment on that?.

I mean, we’ve seen a positive trend now in rheumatoid arthritis and IgG4-RD and lupus. So we think this was a very active molecule in the autoimmune space. It’s hard to try and correlate response in one, two very specific disease. But we think it has potential broad applications..

Got it. And then, Bassil, maybe then back on 7195 that I misspoke about it first. I know you’ve been talking for a number of quarters about potential partnering. Any progress there? Anything to share? And then maybe….

It’s been challenging. I’ll be clear. It’s been challenging. The landscape in asthma allergy disease has shifted a lot in the last couple of years with the advents of a number of other agents, biologics as well. And that’s been difficult. We still see that there is value in the asset. But it’s been a hard fog. .

I mean, are people looking then at, more drug cytokine blockers then as cleaner, perhaps as they were?.

I don’t know about cleaner. I think the most simple mechanism for block allergic responses it’s still blockade of IgE which is at the base of how that response and expands from – just the base of going from allergic condition to act with a cascade of inflammatory consequences. I think it’s been a combination of new agents.

Those new agents having – I would say, challenging launches or maybe not quite as explosive as was hoped and just overall the landscape is getting a little more crowd and it seems a little tougher commercially. .

Yes, okay. All right. Thanks very much. .

Thank you. Our next question is from David Nierengarten with Wedbush Securities. Your line is open. .

Hey, thanks for taking the question. I just had a quick couple.

Maybe to follow-up on a earlier question to be clear, have you continued dosing at higher levels for 045? Or are you working on different dose schedules or you just stay up continuing the dose escalation?.

I would say, yes to both. .

Okay, fair enough, yes. Higher doses, maybe difference, okay, good. And then, a second, yes, okay, cool. And then the second one, I think you had prior guidance for starting the four IgG4-RD phase 3 this half and you are talking about early 2019.

Is there any reason for pushing it out a little bit? Is it getting sites on board or anything else I wish you know about. Thanks. .

I think, currently, we are in the midst of working through the process with FDA and finalizing trial specifics. Since this is the first randomized study in IgG4-RD and we are trying to be very thoughtful with trial design to best support the establishment of clinical benefit at the end of the trial. .

Okay. Thanks. .

Thank you. [Operator Instructions] Our next question is from Tom Shrader with BTIG. Your line is open..

Hello. Thank you for taking the questions. I just wanted to get a little bit of a sense of the SLE data.

Is there anything you could have seen that would have made you say, this is the one or was it always just sort of a quick way to get a read on inhibition to B-cell? Just your thoughts there and along those lines, did you have a good sense of what really good data would look like based on kind of a novel trial design?.

So, just to be clear, when you say that this the one that if this trial design – I wasn’t clear on that first part..

I mean, what would it have taken for you to say, if this we are going to fund Phase 3 here or was that never on the table?.

Well, that was never on the table that we would fund Phase 3 ourselves, because, the combination of the safety data you would need, the infrastructure you would need to do the trials that would have to be large enough in order to power things properly.

And I think, I’ll let Paul speak to what our thoughts were, what meaningful effect would be and how that drove the powering of the study and then, what we did see. .

We picked what we thought would be a clinically meaningful effect in terms of response over placebo like we do in most trials. We didn’t quite hit on this trial, but we think this is a positive trend. Most people we talk to all things, this is a true signal. The trial design itself, this is not a registrational trial design.

This is a trial design that really stresses – or it puts stress on showing a positive response, because you are in fact, inducing a situation where these patients are going to relapse, because you’ve taken them off their background immunosuppressants.

We pool them down initially with the corticosteroids and then, they will all eventually have a flitter. And so, we put the drug in that situation and we’ve shown that we are able to – we set a certain landmark in time, have a greater proportion that didn’t flair and those that did we have much longer time to that event occurring.

So, we see this as very positive. .

Okay. And if I can – on the DUET trial, is it really response data that matters or do you think demonstration that you can push doses or get the dose levels or inhibition levels that can’t be gotten to with the individual antibodies.

Are you going to look for that kind of stuff? Or are we really looking for response data here?.

Yes, so you are talking about the XmAb 20717 study with the DUET 2 study which is our PD-1 x CTLA-4, what you are getting at is, people have tried and have been forced to try a lot of different dose level combinations, because of toxicities that emerge in particular probably from CTLA-4 blockade, right?.

Right..

I think, it is very important to see how high we can escalate dose if the selectivity of the dose into the molecule that favor binding and therefore in blockade of the two targets on the double positive cells to see of that changes therapeutic window, I think that is an important metric, but I think we do want to tie that maybe with that higher therapeutic window into some kind of response activity.

I think, we got to be careful in the very small number of patients we'll have in our first few data – our first data readout to try to not to direct head-to-head numerical comparisons, but I think response data activity of the molecule being demonstrated early, it is important for us to have confidence going forward. But you hit on a good point.

Can we open up that therapeutic window and will that allow us the possibility of having higher response later in studies when we have more patients. .

Okay. Perfect, thank you. .

Thank you. And that does conclude our Q&A session for today. I’d like to turn the call back over to Xencor for any further remarks. .

Thanks very much, operator, and thank you all for joining today's call. We look forward to updating you again soon as we conclude 2018 and enter 2019 with several data readouts and new clinical trial initiations on horizon. Thank you again..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today’s program and you may all disconnect. Everyone have a great day..