Exelixis, Inc. (EXEL) Earnings Call Transcript & Summary

All right, great. I'm Eric Joseph, one of the senior biotech analysts here at JPMorgan. And our next presenting company is Exelixis Pharmaceuticals. It's my pleasure to welcome CEO, Mike Morrissey, to tell us a little bit about the company. Just as a reminder, the breakout Q&A for this meeting will be across the hall in the Georgian Room. With that, Mike?

All right. Excellent. Thank you. All right, good afternoon, everybody. Thanks for sticking around late and hearing our story. I'll go through a pretty detailed deck this afternoon. Before I start, I thought it'd be important to put the last few days and 2020 into context based on where we came in 2019 and before then. Last year, especially, was a year of, I would say, hyper focus on 2 issues: our weekly IMS script numbers every Friday; and then lots of questions about 9ER, the front-line pivotal trial of cabo and nivo versus sunitinib in front-line RCC. And that was appropriate then. It gave us a chance to do a lot of work behind the scenes across the portfolio of different projects, different trials, our discovery engine, et cetera. But we want to start 2020 by level setting and by putting the full company in a whole different perspective based upon what we've done, where we're going, what we think we can achieve this year and next year and the impact in the out years. So we're so much more than looking at scripts. We're so much more than looking at a single trial, and I think my goal today and our goal for the week, starting with the press release on Sunday, is to put all that effort, all the development work, all the new IND work in the context of where we're going as an organization this year and beyond. So with that intro, I'll be making a lot of forward-looking statements today, so please see our SEC filings and these safe harbor statements for a description of the risks that we face in our business. We'll also be making preliminary financial -- giving preliminary financial results for the fourth quarter 2019 and full year 2019. So please review that -- this information as well, and relative to that information. And we'll certainly update those numbers on our Q4 call in February. So Exelixis today is, I think, captured pretty well in this slide. We are a company with the success and the good fortune to have a very important product that we have discovered ourselves, we have developed ourselves. We have pushed across a variety of indications. Some worked, some didn't. Certainly part of the drama of our story going back to the 2014, 2015 time frame. But it's one now where CABOMETYX and the generic name cabozantinib, is the #1 TKI as a single agent in both RCC, kidney cancer as well as second-line liver cancer. Again, this is a molecule that we designed in-house, we made in-house, we developed ourselves internally. It's the only single agent with survival benefit in both of these RCC and HCC indications. So a pretty important statement there in terms of what we've done to be able to make a better molecule to help patients, and one that we think we can go further with in terms of its development potential for patients and certainly commercially. Last year, we saw on a global level for the cabozantinib franchise, about more than $1 billion in global net product revenue. So we hit a very important milestone there in terms of our U.S. revenues and those from Ipsen. We now have approval for cabozantinib in 51 different companies -- 51 different countries, excuse me. So for a company of our size and stature to have that reach from a development and regulatories perspective, I think is notable. And we've made that progress but we think we have a long way to go still. And certainly, with what's happening in the clinic and development, we think we can make a lot more progress in the short term. This -- last year, certainly, this year is an investment year for us. We have 12, either ongoing or planned soon to start with potential label-enabling trials across a range of different indications, single-agent combo, combinations with cabo, some that we're doing, some that our partners are doing, some that the cooperative groups are doing. Really underscoring the potential value that we're trying to build with this molecule. So while the myopic focus on 9ER makes sense, relative to what's coming up with RCC, it's a much broader opportunity that we think is notable, and we'll talk about a lot today and certainly talk about in the context of trials reading out this year, leading to potential approvals next year and really hopefully driving revenue growth in the out years. We have a rich history in drug discovery. Many of you might know us from EXEL 2.0, when we had a large industrialized drug-discovery engine doing 2, 3, 4 INDs a year back in the 2002 to 2010 time frame. That work has led to the approval of 4 different drugs and we think that history, that discovery capability is in our DNA, and we've been able to reconstitute that over the last few years. We now currently have about 200 FTEs focused on drug discovery within our internal discovery capabilities and our network of collaborators globally. We have approximately 20 discovery programs from both internal and collaborative efforts. We have the opportunity to promote 3 -- up to 3 different compounds to IND status this year. So it's very gratifying for me as a scientist, as a discovery guy to be back in this game to come full circle and to do it now in a very sustainable business model, where we're generating free cash on a pretty significant level. And we're carefully and thoughtfully reinvesting that free cash in both discovery and development activities that we think can drive value as we go forward. We've -- again, on the theme of free cash. We've been able over the last few years, through revenues in the U.S., milestones, royalties from our partnerships, able to generate approximately at the end of 2019, $1.4 billion in cash and equivalents. We have no debt. And again, the plan is to target that money, if you will, that cash to be able to find new assets that we can move forward through partnerships, through acquisitions, again, to be able to diversify our pipeline and to go forward as a multiproduct company across molecules, across modalities, across indications. We have been profitable for the last 12 quarters. That's by design. We think we have a different way of doing this whole process where we can, again generate free cash, carefully invest that free cash in building the business. And that's an important theme that you'll see this year as we invest more in R&D, that we maintain our profitability and we build our cash position outside of BD. So this is who we are today, and I'll spend the next few minutes talking about where we're going as we go forward. We have a rich network of partnerships and collaborations. Again, we've partnered cabo with Ipsen and Takeda, ex U.S. Takeda has Japan; Ipsen has the rest of the world. We're working with a variety of clinical collaborators. The people in the groups in the middle, Roche and BMS, we work closely with these teams. And you've heard about that recently with the new Roche collaboration in terms of new pivotal trials with cabo and atezo, in various indications and as well as other collaborations, Calithera in the CANTATA trial as well as with the NCI and 2 cooperative group trials as well. So again, broad array helps us, again, get good ideas, get good people working with us. Some do trials for us. Some of the trials with us. But it's a very effective way to kind of spread the work, use financial vehicles to be able to help pay for that besides just us. So it's a very important part of our process and helps us, again, focus on that business side in terms of how we're generating free cash. Wide degree of discovery collaborations, I won't belabor the point here. Again, starting to see INDs coming from these collaborations in -- potentially in 2020 that we're really excited about. If I look at, again, talk about the Q4, the preliminary Q4 and 20 -- full year 2019 numbers are shown here. Again, these are unaudited. So they might change a little bit when we actually give our Q4 numbers. Again, revenues for the year, approaching $1 billion in total revenues for the fourth quarter in the $245 million range, cabozantinib net product revenue of $765 million, $200 million in the fourth quarter. We'll talk more about the details for that on the Q4 call. R&D expense is in line with guidance of $340 million for the year, about $100 million last quarter. SG&A, again, flat in terms of where we've been for the last year or so. And then our cash at $1.4 billion. In terms of guidance, this is the first time we've given guidance for the year. After 3 years now in the market, we thought it was time to put numbers out there that we thought were appropriate and conservative based upon the dynamics in both the RCC market as well as the emerging HCC market. We project having total revenues in the $850 million to $900 million range, a little bit less than last year from the standpoint of milestones coming from our partners. We believe our net product revenue in the U.S. will be approximately flat year-over-year, again, reflecting the market dynamics in the RCC space. COGS are in line. R&D will go up and you'll see that in terms of the investments. But importantly, we're keeping SG&A flat, and we're generating free cash and estimate that we'll add another $100 million or $200 million to our cash position. So to be able to do a lot, and really meaningful clinical work across a variety of different trials, bring forward new potential INDs, at the same time, generating additional free cash is a business model that we think makes a lot of sense for us and gives us really maximum optionality as we go forward. So this is probably the most important slide I'll show today, and it's a very simple slide, and it gives, I think, very clear information about where we're taking the company in 2020. And we spent time on this in terms of how we frame the press release. So everybody really understands that we're more than just 9ER from the standpoint of what's happening in frontline RCC. We have a range of opportunities here that we think can drive value going forward. So in terms of our 2020 focus, we expect to have 6 potentially label-enabling trials reading out this year. We believe, if successful, that could lead to 4 new indications for cabozantinib by year-end 2021, all while we're focused on building the next generation of Exelixis molecules with up to 3 new INDs in 2020. So it's a lot to do. We made a lot of progress on all these projects last year to be able to have confidence in putting this out there as part of both the initial press release on Sunday and the messaging over the last few days, but it's one that we're very excited about from the standpoint of this is who we are as a company, right? Multiple trials, multiple opportunities to help patients with a variety of different cancers, different tumor types and then bringing up new molecules to get back to our roots from a drug discovery perspective. Importantly, we're looking at much larger potential populations as we have in the past. And you can see that in this slide, in terms of the swim lanes and how the patients build. We focused primarily on RCC for the last 2 or 3 years, which makes sense relative to the building of -- building a best-in-class molecule and a best-in-class franchise there. Our data in second-line HCC, very encouraging survival data. It's a market that will also grow in time with our efforts and others in terms of bringing new molecules and new combinations into that space. But we have the opportunity now to work in bigger indications like prostate cancer, like lung cancer, that we think has a lot of traction for us relative to where we can go with the molecule from an activity point of view in combination with IO. And we'll talk more about that, certainly today and throughout the year, but we're very excited to be able to show that -- show updates on that data for the first time in 2020. And again, get trials fully enrolled and read out this year as we go forward. So this is, I guess a good snapshot of the year. And again, we'll make all these slides available. I see all the people taking pictures. All these slides will go up on the website after I'm done today, so you'll be able to download them all and have a chance to study them. Again, if you can take a second and look at, I would say the, kind of the 3 important quadrants. Again, 2020, we'll have 6 trials. We expect top line data for 6 trials: CheckMate 9ER, prostate cancer from the 021 trial, COSMIC-311 in second line differentiated thyroid cancer as well as the COSMIC-312 study, the combination of cabo and atezo in first-line HCC. We expect to start the 3 trials that we talked about in the context of the cabo/atezo combinations with Roche in prostate cancer, lung cancer and renal cancer. And if successful, right, we would expect to have 4 new approvals come out on the back end in 2021. And, again, front line RCC, DTC, frontline HCC as well as accelerated approval potential for COSMIC-021 in prostate cancer. So a question then, quite simply is what does success look like, right? If we are able to generate positive data, positive trials with these different pivotal trials, if we can generate differentiating data that we think we can compete with in the market against standard of care in these different indications, what does that look like? So we've defined success by doing all the obligatory, relatively simple math and assumptions that goes into what we think is a fair and balanced number around potential 2025 revenues, which we target to be around $4 billion across thyroid cancer, across renal cancer, lung, prostate and liver. The number -- again, it's not a DCF. It's not probability adjusted. It really defines what success could look like. All the assumptions that go into that, I'm not going to go through this cell by cell, line by line here. Again, we'll have this on the website. You can look at that. Here's our math. Here's our assumptions. I won't go into that. I think you'll agree with me that they're all relatively conservative, relatively focused on market shares, on population sizes as well as duration of therapy, the things that obviously drive revenue. But it's -- they're numbers that really we believe in as we look at what success could actually translate into from the standpoint of 2025 revenues. So again, take a look at that, download the slides, happy to discuss that with people as we go forward, okay? So I've got about 8 minutes left, and I want to just focus a little bit on our development activities here as the next framework. Obviously, we have a very well-established position in both RCC and HCC. Again, only TKI with survival benefit in both leading single agents in terms of second-line RCC and second-line HCC, so strong position. Obviously, we want to build upon that. Here's a snapshot of the 12 either ongoing or anticipated to start pivotal trials, label-enabling trials that we have in place. I won't -- again, I won't go through them all here. You can see that for yourself. And then this -- on the right-hand side highlights the ones that we talked about before in the context with the Roche collaboration. So company of our size and stature, to have that many ongoing label-enabling trials, I think is notable, and certainly can drive a lot of potential value going forward. Again, the obligatory 9ER slide that we've probably shown 50, 100 times over the last year or so. Won't belabor the point. Fully enrolled back last year. It's been kind of -- the clock's been spinning in terms of follow-up time. BMS is guiding top line results in the first half of 2020. We're on track for -- nothing has changed in terms of time lines. I know there was a little bit of confusion around the guidance that they gave in terms of early 2020 versus the first half of 2020. From our perspective, nothing has changed in terms of time lines. And the individual pieces to get to top line data. So stay tuned for that. 9ER, again, is our attempt to build on our leading position in the second-line setting. We have 2 pivotal trials here. 9ER, again, is the cabo/nivo doublet. 313 is the cabo/nivo/ipi triplet, which we're very excited about from the standpoint of taking the best of both worlds. IO/IO, from the CheckMate 214 trial, which is very, very interesting in terms of what it does in the poor and intermediate risk group population, and trying to improve upon that from the standpoint of adding best-in-class TKI there. So we're excited about that, obviously. ICI combinations now dominate the frontline setting. We think we've got a couple of good horses in that race. First to read out is 9ER but certainly with both cabo and nivo there. The brand name recognition, the success since, really, the end of 2015, when kind of when nivo was approved and then early '16 speaks for itself. So we think we can have a very strong impact on the market with good data from this trial. And then again, 313, again, shows the triplet -- randomizing the triplet against the doublet nivo/ipi, so. All right. Go to 312. Again, this is the front line HCC trial. Again, looking at the doublet, cabo/atezo versus sorafenib with a single-arm being randomized against cabo for the -- to show that, that has minimal activity by itself relative to the contribution of components. In this case, as is important regulatory requirement. Again, HCC is a, opportunity at the market that will, I think, undergo rapid evolution over the next couple of years. This is a large global problem, large global incidents in terms of both in the U.S. and throughout the world, certainly, Asia. The offerings of chemotherapies, targeted therapies, even immunotherapies have been really less than optimal from the standpoint of what these individual molecules do. The IMbrave study that I read out last November, I think, is the first stake in the ground, where a combination of atezo with bevacizumab showed very encouraging data. Survival benefit relative to sorafenib, PFS benefit, really a game changer in terms of moving IO up into the first-line setting as well as having a chance then, to improve survival relative to sorafenib. So that's fantastic. Again, CABOMETYX has survival data from CELESTIAL in the second line as well as we'll be able to show our first data set of cabo in an IO combination with nivo and nivo/ipi coming up at ASCO GU next week. So stay tuned for that. Real excited to get that data out. But again, just to reiterate, we expect to complete enrollment in the first half of this year, and then top line data from the interim -- first interim analysis at the end of 2020. CheckMate-021 -- sorry, COSMIC-021. This has been our workhorse in terms of a trial that's been meant to help us rapidly profile the cabo/atezo combination across multiple of different tumor types. We have the built-in flexibility to be able to expand rapidly based upon data. And we've done that twice now with prostate -- with the prostate cancer cohort and once with the lung cancer cohort. We can add cohorts as well. And we've done that routinely throughout this trial, to be able to flexibly and rapidly understand activity and then build upon that to either go down a traditional route of then prioritizing for a pivotal trial or when the data looks really encouraging, to contemplate accelerated approval pathways. And we're doing both right now, as you saw in the press release that we talked about on Sunday. Prostate cancer has been a main focus here for us. We have a rich history there. It's one that we think is an area that is ripe for new molecules and new combinations, based upon just what's happened with all the novel hormonal therapies moving up into the castration-sensitive population, into the nonmetastatic population, once these patients become castration resistant, leaving a really important opening for new molecules, new combinations in that metastatic space. A large population, both first line and second line, I've got some numbers here with really minimal treatment options: chemotherapy, radioligand therapy, Provenge, et cetera. So not a lot of optionality here. Single-agent -- low single-agent activity with cabo, lots of history with cabo in terms of prostate cancer from the COMETs that we've learned from. And I think it's important to reiterate that it's data like this, and learnings like this, that help us make advances, not in days or weeks but over years. The COMETs were -- did not work. And we learned a lot from those studies. We had the wrong dose. We probably had the wrong patient population. We certainly had investigators that didn't know how to use the drug. And over that time frame, all that's changed in the last 5 years, right? We've got a better dose. We understand, really with a better patient -- with a better subpopulation is with these patients and certainly have investigators now that have literally 4 or 5 years of experience with cabo in the GU setting of RCC. So excited about that. And again, we have encouraging activity based on measurable disease by RECIST 1.1. None of our response criteria revolves around bone scans, and we'll see the first data at ASCO GU in February. And here's a kind of a snapshot of where we've gone, relative to the different cohorts expansions here. Lung cancer, similar situation. We're maybe a half-step behind, relative to where prostate is. But again, large opportunity. Large number of patients coming off of IO, IO chemo, looking for treatment options as they become refractory there. We think we've got a good signal here. And we're following that up in terms of more work with 021 as well as within a pivotal trial with Roche. So I'm down to my last 30 seconds, which is typically what happens when I'm talking about discovery, but it's an engine that we're very proud of and a lot of history here. Again, 3 potential INDs this year around novel molecules, novel MOAs and many more beyond that as we go forward. So my last slide, the last few seconds, kind of gives you a sense of what to look for over the next 2 years. And I'll be happy to take some questions in the breakout room, starting now. So thank you.