Welcome to this session of the Morgan Stanley Global Healthcare Conference. Let me read a quick disclosure before welcoming Zenas BioPharma to the stage. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. I'm Judah Frommer, one of the Biotech analysts here, and I'm excited to welcome Lonnie Moulder from Zenas BioPharma. Thanks for being here, Lonnie. This is a big year for Zenas BioPharma with some important catalysts coming up. Before we dive in, can you give us a brief intro to the company for those who may be less familiar with the story? Sure, sure. Thank you, Judah, for inviting us. This is a great conference, and we look forward to the discussion here. If we back up and just take a look at Zenas BioPharma and what we're all about, we're just over five years old as a company focused in autoimmune diseases, and we're leveraging a business model we've implemented in prior companies that have been successful in bringing important medicines to the market and commercializing and ultimately delivering a lot of value to shareholders. Our approach led to an opportunity around a key model molecule called obexelimab. It's a molecule that was designed by Xencor, and it's applicable to a variety of autoimmune diseases in that it targets CD19-expressing cells, which, of course, is a broad array of B-cell lineage. Importantly, the antibody was engineered such that the Fc portion binds to Fc gamma R2b, also known as CD32b, and that's the natural inhibitory pathway for B-cell lineage. This co-engagement shuts down the B-cell response, which is critical to treating a number of diseases. Importantly, this potent deep inhibition impacts antibody production, cytokine release, antigen processing, and presentation to T cells. When we licensed the molecule, five studies had already been completed, three in patient populations, one in rheumatoid arthritis, one in systemic lupus erythematosus, and an additional in IgG4-related disease. That served as the basis to move to a pivotal Phase III trial for IgG4-related disease or IgG4RD. That trial last patient out of the Phase III registration trial will be mid-November, and that leads to top-line results around year end. We're preparing the BLA now as we speak. We have efforts in Europe and in the U.S. for pre-commercialization, including deployment of our medical affairs team. A really important moment in time for a young company to have Phase III results and get ready for a launch. The molecule has other applications, and we're in global Phase II trials, one for systemic lupus erythematosus we can talk about and another for multiple sclerosis. The multiple sclerosis, specifically relapsing multiple sclerosis, Phase II trial is a classic MRI lesion trial, and that will report out early in the fourth quarter. Quite a few data releases coming up. Company's well-positioned with capital. We finished June 30th with $275 million on the balance sheet and recently completed a synthetic royalty financing transaction with Royalty Pharma, $5 million down the road attached to lupus. A quick overview. Maybe just before jumping into the programs, a bit more on obexelimab, and maybe you could just highlight for us why it's differentiating from other B-cell therapies and the advantage of inhibition versus depletion in your view. Yeah. There are a few things to consider. One is really practical. This is an at-home subcutaneous administration. For patient convenience, to be able to get their case packs shipped to them once a month from a specialty pharmacy and just pick a day a week, do your 10-second injection, and have continuous control of your disease, I think differentiates immediately from the other approaches, whether it be CD19 or CD20, that are mostly IV infusions. Specifically in the IgG4-related disease market, the one product that was recently approved is an infusion. As you know, with protein infusions, antibody infusions, patients need to schedule time in an infusion chair. Here in New York, it may not be that difficult, but there is a shortage across the country. That is a challenge. Go several hours in advance, be premedicated for hypersensitivity, receive a 60 or 90-minute infusion, then be monitored for a couple of hours before you can go home. It is just not convenient for many patients. I think the at-home subcutaneous administration is important. In addition, and this is nuanced, being a specialty pharmacy product as an at-home administration is covered under Medicare Part D. You may know that as of January this year, Medicare Part D out-of-pocket for a patient is capped at $2,000 annually, whereas an IV infusion is Medicare Part B under Medicare. That requires the patient to pay 20% of the cost of the drug. In this case, that is more than $250,000 annually. Of course, patients can buy co-insurance and cover a good part of that, but that also is out of pocket. Convenience reduces the at-home burden. Importantly, from a clinical efficacy standpoint over time, I think the opportunity with this at-home administration, with weekly dosing, continuous target coverage, could lead to better outcomes. If you think about it, depleting antibodies, of course, are effective. We know they profoundly deplete B cells in the blood. In tissue, less so. CAR-Ts are really good at depleting B cells in tissue. Antibodies, less so. We know that, first from the MS field, that many patients who receive a KREVIS every six months begin to have a wearing-off effect prior to their next dose. That is well documented in the literature and read the patient blogs. We even know from the approved CD19-depleting antibody for IgG4-related disease that at the 6-month and 12-month point in their published data, the B cells begin to reconstitute. In fact, 15% of all the patients in the pivotal trial for that agent had normalized B cell counts prior to the next dose. If we can maintain target engagement coverage, we could provide over the long run, perhaps, ongoing activity and keep the inflammation down in this disease. The clinical studies measure flare. Flare is a score on a scale. Patients under that score still have ongoing inflammation, and we could provide potentially benefit there with the continual dosing. Those are the things that stand out right off the top of my head. Okay. No, that's great. That's a really good backdrop to move into the clinical program. I know you mentioned IgG4RD is the leading indication, but given the proximity of the Phase II Moonstone MS study readout, I figured we could start there. What is the strategic thesis or mechanistic rationale behind pursuing relapsing MS with obexelimab? Yeah, excellent question. If you think about what we just discussed a moment ago, we have CD20-depleting antibodies that are the standard in relapsing MS. Almost 60% of the market, north of $10 billion in revenue from anti-CD20 antibodies. We think targeting CD19 should be every bit as effective as CD20. We know that our molecule is a potent deep inhibitor of B cells, and not only, of course, in the blood, but also in tissue. Secondary and tertiary lymphoid tissue is important to the B-cell-T-cell interaction that's happening in the periphery that then moves on into the CNS and leads to, obviously, the neuroinflammation. Having a B-cell-targeted agent that's potent and has demonstrated non-clinically and clinically how potent it is, I think is a nice alternative from a KOL and investigator standpoint. They like this concept of the continuous dosing because of the coverage and lack of escape. Importantly, they're really considering what does it mean to deplete B cells in this patient population that has a 10, 20, 30, 40, 50-year journey with their disease. Should they deplete B cells continually for decades and decades? There's this thought that an inhibitory approach would be highly desirable. You know that there's been a lot of work on BTK inhibitors, for instance, because there's a desire to have an inhibitory approach. As we think about the patients and the journey they have underway with their disease, having this alternative at the decision when a patient is diagnosed or they're having symptoms and they need to move to another therapy, should I continue depleting or should I think about an inhibitory approach? I think we'll offer a really convenient and important product in that setting potentially. Okay. That's great. Maybe just help us with what the Moonstone study is powered to show. How should we think about the relationship between the Phase II endpoint here and how that could translate to a Phase III endpoint? Yeah. The study is a classical RMS Phase II study where we're using an MRI endpoint. The MRI endpoint is looking at T1 GAD-enhancing lesions. That's standard. It's been replicated multiple times by a variety of agents, anti-CD20 antibodies, BTK inhibitors, anti-CD40 ligand. Other agents have gone through this same approach. Our study is looking at a cohort of patients. Over 110 were enrolled. We measure the lesions at week 4, week 8, and week 12. We use a cumulative endpoint at week 12 for new T1 GAD-enhancing lesions. The trial's two to one, randomized versus placebo. That primary readout is at week 12. That's pretty classic. All patients in the obexelimab arm continue, but patients in the placebo arm are then crossed to obexelimab also. The trial plays out another 12 weeks. We have almost 20 secondary and tertiary endpoints, exploratory endpoints at week 24. Some of those are quite novel. Some of them are more recognized biomarkers like NFL, a measure of neurodegeneration, brain volume, T1, T2. Importantly, some novel scanning techniques are going to be applied to really build the scientific evidence on why this approach wouldn't just reduce relapses. You probably know in RMS, it's annualized relapse rate that is the primary endpoint in Phase III trials. The need is this underlying progression that continues even if relapses are controlled. If one was to go to a Phase III study now, the concept would be to use this newly validated, somewhat newly validated clinical endpoint as a key secondary called PIRA, progression independent of relapse activity. This translational medicine work out of those exploratory endpoints will build a scientific basis that we can impact progression. That's this disability progression, the silent progression. Ultimately, if we move to Phase III, once we see the 24-week data and consider the next steps for the program, we could potentially include PIRA, which would be an important differentiator if that decision is made. Okay. Has there been any regulatory interaction on kind of defining endpoints for a pivotal program yet? For us, too soon. Yeah, obviously, we have to have the Phase II data before we would interact with the agency. Okay. That makes sense. I think in the past, you've mentioned that relapsing multiple sclerosis could lead to multiple development paths, including non-relapsing secondary progressive multiple sclerosis and RSPMS and primary progressive or PPMS. What do you need to see in the Phase II to pursue those subtypes maybe in a subsequent trial? The RMS Phase II trial, again, is standard. Those drugs that are being investigated in PPMS and SPMS are conducted with similar RMS Phase II trials. It's an indicator of activity, of course. As I said, the secondary and exploratory endpoints will tell us more about the potential scientific foundation that would be developed to hit the disability progression. In PPMS and in SPMS, it's the disability progression that you're looking at as the primary endpoint. You may know that OCREVUS, of course, is the only agent in the U.S. approved for PPMS. The data is reasonable. We know agents that have performed well in Phase II studies, MRI studies, tolerant of a BTK inhibitor did well in a Phase II RMS study, and it succeeded in an SPMS study. Okay. That makes sense. I do think you've also suggested that maybe you would need a partner or maybe be interested in a partner to advance RMS. How are you thinking about that going forward? Strategically, because these are larger trials, take a bit of time. From a commercialization standpoint, we're very comfortable with being able to create a franchise in multiple sclerosis. We spend a lot of time with the key opinion leaders, a lot of investigators, patient support groups. We're comfortable moving into that therapeutic area. It's really the overall development program and the capital required to execute on that that we have to think about. We have some time to think about that as we head towards the 24-week results in the first quarter as to what our strategy may be. Okay. Perfect. Now, moving to the leading indication, like you said, IgG4-related disease. Before we get too deep, how does the recent deal with Royalty Pharma support your work in this indication? Like you said, the vast majority of that deal is leveraged to IgG4. Maybe just help with some of the work that was done there and how you're feeling about the program. Yeah. I think, as you know, Royalty Pharma is a leader in this field. I can tell you they do very deep diligence over a prolonged period of time with some expert people. We are quite pleased that they were aligned with us, not only in the probability of success of our Phase III program. I think a lot of people have landed on that because the Uplizna Mitigate study, Phase III study, is a quite similar design to our obexelimab Indigo study. From a technical success standpoint, they got there. They also did a lot of work on the market opportunity. I think people are beginning to recognize, especially with how well Uplizna sold in the second quarter of this year, that the market is substantial in IgG4-related disease. You could call that validation. I think people recognize it that way. The initial $75 million that we brought in supplements our $275 million we ended on June 30. That $75 million will get us through to the launch. That's first. We have a milestone, another $75 million that can come at around the end of the year with the Phase III, right? Another $75 million would come at the time of approval. Not only does it get us through the launch, it supplements our needs around other development that we're doing for obexelimab and overall general corporate purposes. It's a really helpful transaction for us. We are obligated to pay them a 5.5% royalty going forward on sales in key markets. Okay. I guess just in terms of automatic need you're solving for here, you touched on it a bit with inhibition versus depletion and the advantages there. What key element of the Phase III readout would be considered meaningfully differentiated from Luplizna and defining the character of the molecule in this indication? Yeah. If we step back and think about this disease, we have about 20,000 patients diagnosed in the U.S., with most people believing the number is approaching 40,000. As you know, in autoimmune diseases, early in the development of the treatment paradigm in the market, when there aren't new drugs, there's less diagnosis. Now the first drug is launched. It's been like five months now. With us coming forward, a patient support foundation now in place, a lot of education at the big rheumatology meetings and other medical meetings, I think the diagnosis will be ramping up here. We have an opportunity, I think, to bring a differentiated product to this market that already has a price point set at over $250,000 annually for this patient population, which is about right. In the U.S. alone, if you take that 20,000, about half those patients require continuous therapy because of their frequency of flares. That would be a $3 billion opportunity in the U.S. that we could bring our product to. In Europe, because we have work in drug designation and there's not benchmarking of pricing when you have that, that market obviously could be at least 50% or as much as 70% of the U.S. How do we enter that? I think it's what I said before. Immediately, there is a challenge for IV infusions for a number of patients. Subcutaneous convenience and in the U.S., less economic burden, I think could give us a reasonable share immediately of that $3 billion peak opportunity. From a clinical differentiation, of course, which I think was your core question, obviously, the endpoint of time to disease flare is an important output from the study. We learned from the Mitigate Phase III study that the placebo control arm flares at about a 60% rate in 52 weeks, which is the length of the study. That drug had a 10% flare rate. We know that obexelimab in a Phase II induction and maintenance study that the flare rate was under 10%. We would see the flare difference in the two arms and ultimately the time to disease flare being in the same range, and that's important. Where we could have differentiation goes back to what I said before about our continuous target coverage and the gap that happens because of the every six-month infusion of that CD19-depleting antibody at month 6, month 12. That's measured in a clinical endpoint, key secondary endpoint in the Phase III trials called complete remission. Whereas there was 90% flare protection in that Phase III study, the complete remission was in the 30+% range at six months and 50+% range at 12 months. Why is that below the 90% flare protection? We think it may have to do with B-cell repletion. Our continuous dosing and suppression of B-cell activity, we believe, could allow our drug to stand out on the complete remission endpoint, which is really this underlying smoldering inflammation that patients have that still leads to organ damage and fibrosis, just like this underlying smoldering activity in MS. You need to hit that. Okay. Great. I think it's clear that there could certainly be kind of an efficacy benefit versus standard of care. On the safety side of things, can you highlight where you could improve there? Just on convenience of administration, like you were discussing, how important is it to beat the bar being set by standard of care versus maybe just meeting it if administration is more efficient? Yeah. I think there's two things. First of all, we meet the product profile from an efficacy, safety standpoint, the product profile that's already out there. We have subcutaneous administration, and we have a less economic burden on the patients. I think you can assume a reasonable share right there. On this complete remission endpoint that impacts the underlying inflammation that's occurring to differentiate there, I think you see even a higher potential for share. Either way, it's a really meaningful product for a new company. The other thing that's pointed out to us a lot by the investigators that we think is interesting, and we're studying this, is that during the pandemic, there were patients receiving rituximab, for instance, in the rheumatology setting, whether it was for rheumatoid arthritis, which is a labeled indication, or maybe some off-label use where the patients actually succumbed to COVID because they couldn't mount an antibody response to the vaccine. Any investigator or KOL, and most of them within their overall group practice, had that experience, and it stays with them. It's a patient that otherwise should not have succumbed. The opportunity with an inhibitory approach where you could potentially pause the drug, vaccinate, wait two, three weeks, restart, they think is a significant differentiator. They want to be able to give these patients their required annual vaccinations, whether it's influenza, because they have comorbidities, a lot of these patients, or it's COVID, or it's an older patient that's the first time they need Shingrix, or on and on. That's an interesting differentiator too. Okay. That's great. Makes a lot of sense. I guess assuming we get positive IgG4RD data, how are you thinking about commercialization plans, US versus Europe? You mentioned the open designation in Europe. What steps have been taken thus far? In our prior companies, we've successfully launched both in North America and in Europe. We have a strategy in mind that's quite similar, and we have some of the same executives at Zenas BioPharma that we had in those prior companies. We already have our Chief Commercial Officer, Head of Marketing, importantly, Head of Market Access, Head of Data Analytics, and Market Research in place, doing a lot of work to really identify everything from the journey patients go through to how people are feeling about our product profile versus product profile of the competitor. Importantly, our Medical Affairs team is already deployed with Medical Science Liaisons in Europe and Medical Science Liaisons in the U.S. We attend all the key medical meetings. We support the patient group that's advancing patient education and supporting the disease, with a lot of educational programming at the large medical meetings. We have a whole stable of key opinion leaders that advise us on how we think about bringing this important drug to market. We will be well positioned. With the Royalty Pharma deal, we have the capital to successfully launch. Okay. That's great. I want to make sure we touch on lupus as well. You are pursuing obexelimab in lupus. Can you briefly walk us through what you saw in the Phase II SLE study and what changes have been made in the current trial design? Yeah. There was an SLE study, a lupus study already conducted, a Phase IIa. It was a smaller study, about 50 patients per arm, which I think on retrospect, and Xencor, who conducted the trial, would speak to this. It was probably undersized and didn't have the power. There was an assumption that the control arm would only have a 10% benefit, and that's how this trial was sized. Although the intent to treat population on the primary endpoint delivered an effect size over placebo of 17%, it didn't hit the P-value. We spent a lot of time before we in-licensed the drug looking at every one of the patients in that study and the outcome. 17% is reasonable if you think about the two approved lupus drugs, the GlaxoSmithKline drug, the AstraZeneca drug. The effect sizes in their pivotal trials were in the teens also. Yep. That's modest activity, but it's all that's available out there. Interestingly enough, when we really went into the data and we did some work that involved a PK efficacy analysis across the prior studies, we found that in the lupus study, those patients that received dosing that delivered a C trough above the median, so your quartile C trough, first, second, third, fourth, all the patients in quartile three and four were responsible for that benefit. There's a C trough, which is target engagement and coverage need with this molecule. Looking at that patient population with a C trough in quartile three and four, the effect size went from 17% to 35%. It doubled. You need to deliver the drug and keep it on board. That was with an IV formulation of the drug, which was a high C max, low C trough. We brought forward the subcutaneous administration that Xencor had developed, and we selected a dose that provides five times the C trough exposure that the IV did. All the patients that we dose are at quartile four or above, actually, from that study. We think we've optimized the dosing regimen. That helps in all of our studies. The prior IgG4RD study that was compelling was with the IV formulation. We have a better formulation in that study too, our Phase III IgG4RD study. The lupus study that we're conducting uses that regimen, so a more efficacious regimen possibly. We believe so. The study is sized appropriately, 95 patients per arm. We have the statistical power. Importantly, and this may sound like nuance, if you reflect on lupus studies, they've been tough. Frequently, the reason that some of the studies haven't succeeded is because of the control arm outperforming. Why is that? The patients and the patient population in the studies frequently don't meet the actual inclusion-exclusion criteria that you would categorize as moderate to severe lupus. Many times, mild lupus patients are entered into the trials. It's because the clinicians want to get their patient on a trial. At that moment, the measurements that you use don't quite stack up to moderate to severe. Maybe six months ago, they did. These patients slip into the trials and they dilute the effect. Unfortunately, that set the field back. All of the patients in the study, once the investigator reviews them and checks the boxes on exclusion-inclusion and sends them on, then go through an adjudication committee, and they're re-reviewed. Interestingly, we end up having many of those patients that the investigators sent forward actually rejected. What does that mean? It means you have a high screen failure rate, which we assumed. It means you have to plan for the timeline that will be prolonged, and we did. We're over 50% accrued in the trial now, and we anticipate having results the middle of next year. We think we have the right patient population in our study, the right dosage form, and the right sizing of the trial. Okay. I guess that that teens improvement, is that what you'd want to see in order to move into a pivotal study? What are you looking for? Yeah. I Yeah. I think something in the teens on the effect size is not as interesting. Yeah, the trial could succeed, but we need to do more than that. We believe we've optimized the dosing to provide the best possible effect here. We're not going to declare a specific number. The other thing to consider is, out of the Xencor work, they had each sequenced 70% of the patients, and they found two groupings, gene expression groupings, that when you put them together, it makes up 30% of the lupus population. We've validated this in other data sets. In that population, the effect size went over 50%. In our Phase II study, we're evaluating 100% of the patients with this biomarker approach, even though it's an all-comer population. If we see something in that biomarker population, now that we're doing it more prospective, we could take back to Phase III if the effect size is a new gold standard effect size. We have some decisions to make. Will we do an all-comer population? I'd say most likely. It may be some hierarchical testing around a biomarker. Think of oncology studies. Think of PD-1. Think of PARP inhibitors, how you do that. You look at biomarker, and then you look at the overall. Depending on the outcome of the Phase II, we may just do the overall population. We have some decisions to make when we have data in hand. Okay. With that in mind, it seems like you might have some decisions to make down the road, but where could you see the drug fitting into the treatment paradigm for SLE? Yeah. I think, with our expectations and what we want from this drug and this disease, if we deliver that kind of clinical result, I think we'd leap ahead of the two marketed drugs. There are other drugs being evaluated that are going to leap ahead of that too. There needs to be a new standard. You need to have, you know, 20%, 30% better effect sizes to really make a difference for these patients. I think obexelimab could be one of several drugs that fit into that new standard of what meaningful clinical data is. Okay. Perfect. In the last couple of minutes, I just want to run through kind of a mini survey. We're asking all the biotech management teams at the conferences here. With biotech more exposed to external and macro factors of late, we're asking all the management teams to follow in three questions. The first is on China's rise in biotech, how are you thinking about your competitive position here? Will this influence R&D or business development strategy in any way? Absolutely, it influences it. It has always influenced it. Just a little history. We actually built the company from day one, having a global perspective. We have a small team in China that manages our Asian clinical trials. Historically, I sit on the Zai Lab board. I have a view to China. We spend a lot of time in business development interacting with Chinese companies where outstanding science and development is being done. I would say probably because we're a business development and licensing company at the core, that's in our DNA. That's how we built all our prior companies, that more than 50% of the opportunities we look at from a licensing standpoint come from China. That's always been part of who we are, and it continues to be. Great. On AI, how are you currently leveraging AI at Zenas BioPharma and thinking about AI's future disruption potential, both positively and negatively for this space? Yeah. I think we'll take more deliberate steps here. We have an initiative in-house where we're identifying what would be the appropriate agent for us to be used. You have to think about when you're putting data, when you're asking questions, sometimes you have to put data in, right, to see what comes out of it all. Where does that data go? Ensure it's blinded. You have to have appropriate controls in-house to protect your data because your data is the lifeblood of who you are and your intellectual property. We're being thoughtful about that. Next year will be a year when we really figure out what we want to do. If you think about a young biotech company formulating its first BLA, this is a BLA that's based on an agreement with the agencies, a single pivotal trial of about 200 patients. We can manage all that the old-fashioned way. We don't need AI writing of our study reports. We actually have to be conscious of that going forward. Right now, we're just deciding where we want to go with AI. Got it. Lastly, just on the regulatory side of things, changes at FDA, pricing, tariff, anything that comes up on the regulatory side that's a particular focus for Zenas? Yeah. Obviously, everyone's paying attention to what's happening at the agency. I would say across our programs, we haven't had any disruption. The same people we communicate with are still there. Some of the leadership has changed out. We're not feeling it. We're all being cautious, but haven't observed anything that's concerning at this point specific to our programs. Speaking to a lot of my colleagues, most of them aren't seeing anything yet that directly impacts their programs. From a tariff standpoint, we've diversified our supply chain. We have a supply chain out of China, but we now have a U.S.-based supply chain. We did that before the tariff concept. It was more geopolitical considerations. Do we need a U.S.-based supply chain? That will supply our commercial product going forward. Got it. Okay. With that, I think we're out of time. Thank you very much for your insight. All right, Judah. All right. Thanks, Lonnie. Thank you.