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

Hello, everybody. My apologies for the late start. My name is Chad Messer. I'm a senior research analyst in biotechnology here at Needham & Company. It's my pleasure to be speaking today with Chris Senner, the Chief Financial Officer; and Andrew Peters, the Vice President of Strategy for Exelixis. I'm going to go ahead and hand it over to Chris for some opening remarks.

All right. Chad, thank you very much, and thanks again for the invite to speak today. So just before I start, I'd like to remind everyone that we'll be making forward-looking statements during the course of today's discussion. So please refer to our regulatory filings for complete risk -- complete set of risks and disclosures relating to our business. I guess the other thing, too, is we are -- we're just closing up the quarter now, and we're in a quiet period. So we won't be commenting around the first quarter 2020 results. And I guess just before we start, for those of you that are new to this Exelixis' story, we're an oncology focused, commercial stage biotech company. Our products is cabozantinib, and the franchise is currently approved for MTC, RCC and second-line HCC. Globally, we did -- with our partners, we did about $1 billion of revenue in 2019. At the end of 2019, we had about $1.4 billion in cash and no debt. We've been cash flow positive for -- from an operating perspective for several years now. So we're on a strong financial footing. We continue to invest in clinical trials for the cabozantinib franchise to maximize the value and expand this label on new indications. There are 12 ongoing and planned potential label-enabling trials. We're also in the process of rebuilding our discovery pipeline. As many of you know that have been with the story for a while, we had shut it down back in the early part of the last decade. We restarted it at the end of 2016 and in real earnest in mid-2018 when we moved to our new facilities in Alameda. And from there, we're continuing to build out our internal discovery capabilities and efforts. We're also enhancing that with external collaborations to supplement our internal expertise in small molecules with other therapeutic modalities. So with that, Chad, I'll hand it over to you.

Great. Thank you for that introduction. Obviously, one thing on nearly everybody's mind constantly is the ongoing COVID pandemic. Maybe to the extent you're -- it's possible. I appreciate the quiet period. But to the extent it's possible, can you sort of discuss what impacts are on you guys, particularly as related to things like ongoing clinical trials, you've got quite a few, and things like supply chain?

Sure. So yes, I guess I'll keep it at a fairly high level because it's a very fluid situation, as we all know. We've seen it move from Asia to the EU to the U.S. I guess just to start out for the trials, we had made significant progress on our enrollment in our trials before COVID hit. We're still continuing to make progress during this COVID period. But as I said earlier, this is a very fluid situation. It will take some time to see if COVID will have any significant impacts on us or not? I just want to make sure -- it's clear, though, that we're not pulling back on any of our previous guidance. We don't believe there will be a major impact, but time will tell. Things are moving forward. And we're over the -- as necessary, over time, we'll continue to provide updates. We have been following the regulatory guidance that we've been -- that was put out by both the U.S. and the EU. We feel it's very helpful, and we're using those to guide what we do. From a supply chain perspective, we have a very robust mature supply chain. The vast majority of our production is in the U.S. We have second suppliers in place, and we continue to have very consistent supply. We've built a significant amount of safety stock, yes, in order for us to be able to weather any type of situation like we're facing right now as part of our business continuity planning, and it's something that -- with the financial capabilities we have, we're able to do these type of risk mitigation type procedures in order for us to have the consistent supply so that patients have the ability to continue to get product when they need it.

I appreciate that. And so maybe let's kind of dive right into cabo and some of the key studies we have study -- coming up. CheckMate is evaluating cabo in combination with nivolumab against sunitinib. The readout, I believe is supposed to come in the first half. Can you talked about where you think the efficacy bar is for a TKI checkpoint combo in the RCC indication?

Sure. I'll let Andrew take that one.

Yes, Chad. So the study is ongoing. So we're not going to discuss the data ahead of that expected readout. So stay tuned there. But I will say is that the available data on the combination of ICIs and the TKIs certainly point to the effectiveness of the combination. But it also frame it in the context of not only the single-agent activity of cabo, but the single-agent activity of nivo as well, really the combination of the only 2 agents in RCC with single-agent survival in their label. And so it's one -- a combination that we have a high degree of confidence in. We'd also point to the early data, the Phase Ib study, looking at that specific combination as another one that would help us kind of get comfortable and get excited about the combination. So it's a study we're all looking forward to. We're excited about the uniqueness of cabo and the combination of nivo is something that we're looking forward to the readout.

Great. And then we had one coming in from the audience also on CheckMate. So I'll do my best to try to read this year. The question is basically around what the trigger would be for locking the database, whether it's in interim -- whether it's a number of OS events?

Yes. So again, it's an ongoing study, and we're not going to talk today about any of the specifics around the trial design or the statistical plan. But what I can say is we're waiting to see the data, our partners, Bristol have guided for a readout in the first half of this year, and it's one that we're excited and looking forward to.

Okay. So as I think you alluded to, Cabos, probably one of the few TKIs that actually has distinguished itself in clinical trials versus others. Checkpoint inhibitors, maybe less so, but are there any characteristics that would define what an optimal checkpoint inhibitor to pair with cabo is?

So we're relatively agnostic in terms of what the CPI that we're combining with cabo is. We obviously have the ongoing nivolumab combination with the 9ER studies as well as the COSMIC-021 experience with atezolizumab as well as COSMIC-312 as well. And so we're agnostic to what the second agent could be. Our focus here is really to frame and to understand can cabo be that backbone agent of choice across multiple indications. And that's really the development plan that we're executing on with the 021 study and 9ER is certainly kind of the next readout for that.

Okay. And maybe you can touch also on 313 COSMIC. That's got a triple combo arm. What do you think would be an exciting result in there? I believe ipi/nivo had a 9% CR rate in this population.

Yes. So I think the way that we're thinking about 313 is really asking the question, when comparing a best-in-class TKI with a best-in-class IO-IO combo, does that give better activity? And could that translate to increased CR rates? Could that translate to perhaps longer PFS? These are the sorts of questions that, that study is asking. But certainly, the way that we're thinking about it, either adding ipi to cabo nivo or cabo to ipi/nivo, it's really the combination of 2 best-in-class options. And can you get kind of the best of both worlds from the IO-IO perspective as well as the IO TkI perspective. And so that's something that's really driving our interest in that study. So we'll see how the data play out, but that's one that we're excited about as well.

All right. And then maybe touching on cabo in HCC a little bit. I don't believe you guys have ever sort of broken out sales in that indication. But can you talk a little bit about sort of the dynamics of that market? And are there a lot of overlap between doctors that treat renal cell and liver? Or is this pretty much a separate call point?

Hey, Chad, it's Chris. I'll take that one. So I think we actually -- during the fourth quarter 2019 earnings call, we did say that it was about 7% of cabo's total revenue. Obviously, that's the U.S. side because it's our revenue. It was approved last year, January 2019. And there's a pretty good overlap between RCC and HCC prescribers, it's about 90%. So it's a very -- it's been a very efficient launch. It's actually given us access to doctors from the RCC side when we're going in and do HCC calls. So it's been great for both sides of the -- both indications of the brand. It is a market that needs to be built. It's -- many of the patients historically have gone down the interventional radiologist path. And so in the front line therapies, the previous front line therapies were effective, but not necessarily used very long. So it's an area that is probably more akin to RCC 15 years ago, 10, 15 years ago than RCC today. So like I said, it's a market that needs to be built. And what we're excited about, too, is in the front line, there there's a changing treatment paradigm there with bev atezo coming out and also the fact that patients will be going to the oncologist for bev atezo treatment, and therefore, they'll hopefully stay in the oncologist treatment path. And with cabo being the second-line HCC treatment, that should allow us to garner -- or more patients should come into the pipeline from an oncologist perspective, basically expanding the pie and allowing us to interact with more patients from an HCC perspective than the current treatment landscape with TACE provided. So hopefully, that answered your question?

Yes. No. It sure does. You sort of alluded to this shifting landscape in HCC. In many ways it parallels renal cell, wherever we're getting the checkpoint combos to the old standards of care, kind of moving in frontline. Are there other parallel, I guess, maybe compare and contrast a little bit more? I know you started to touch on this, how that is similar and dissimilar to what's going on in renal cell?

Right. I think renal cell, it's -- it continues to be a changing environment with the combination therapies in frontline have moved in over the last 2 years. Ipi/nivo getting approval, I think, in spring of 2018 and then pem axi in the spring of last year. So we've seen a lot of movement in the front line therapy. I think we've talked about it previously, ICI treatments in frontline over 70%, 80% of the market share as we left last quarter. And so there's been a big push there where TKIs have gone to -- to the second line. And as we talked about during the last quarter call, we're doing very well in second-line RCC. HCC is early. It's great that bev atezo -- the availability there and how that will change the patient flow. And like I said, it continued to expand the pie of patients that we can treat. So I think, like I said, in some ways, HCC is the way RCC was a decade ago, 1.5 decade ago versus RCC is a very mature from a treatment perspective, whereas HCC is less mature. And what we're seeing in RCC is a lot of introduction of new therapies, which are changing the landscape, but doctors know how to treat patients. I think in the HCC side, doctors are still seeing more patients than they see previously and then also understanding how to treat patients. So I think those are the compare and contrasts that you would see from RCC to HCC.

Yes. And so you brought up the bev atezo combo. Where do you think that -- with that combo out there, what do you think it sort of sets the bar for a combination therapy in frontline?

Yes. I mean I think it's -- the way we think about it is cabo versus bev, we definitely like cabo as our horse in the race. Atezo is there in both the 312 trial, but also the bev atezo. And we really think that having cabo is an advantage in the combination therapies when you compare them. Obviously, we need to see the data. But as we just look at it from where we are today, we'd rather have cabo in the combination than having versus having bev.

All right. And maybe move on to something else that has me pretty excited, and that's your recent data in prostate cancer. Arm 6 of COSMIC-021 had pretty impressive results. Can you maybe talk a little bit about those results and what your plans are for taking cabo forward?

Yes, Chad. So as you mentioned, we're very excited to share those data earlier this year at the ASCO GU conference. That was the cohort 6 of the COSMIC-021 study looking at the combination of cabo with atezo. And one of the things that we wanted to do with that cohort and we're most excited about was really look at the most unambiguous endpoint possible in oncology with real resist responses, so we can get a clear understanding of, is this an effective combination or not? Can it help patients? And really, we were excited for the data, both in terms of response rates as well as tolerability kind of across the board. And I think the excitement that we saw or that we had was also shared by the clinician community in terms of the feedback that we had both at the conference and afterwards. And so it's, one, it's an indication that we're excited about taking a step back. When we started this year, we outlined kind of our broader vision for the company over the next several years and laid out what could cabo be? What does success look like in terms of opportunities? And prostate was certainly one of those when we talked about the potential for $4 billion in revenue based on all the ongoing studies. And so prostate was an important step and important component of that. So it's an area that we're also particularly excited about because of the rapidly changing landscape in the prostate cancer space, the castration-resistant prostate cancer space. Specifically, when you look at the novel hormonal therapies, ZYTIGA, enzalutamide, et cetera, they've begun to be used and continue to be used into in earlier lines of therapy leaving patients -- leaving fewer options for patients once they do eventually become resistant or refractory to that earlier setting. And so there's a huge unmet need that's emerging now. And we think that the data -- the combo data from earlier this year certainly point to the potential for efficacy in that segment. So we're excited about that. We've talked about the potential for accelerated approval based on that data set. And yes.

Yes. You alluded to the very dynamic sort of marketplace that there is in prostate cancer. It's actually been one of the success stories where we've repeatedly sort of extended treatment options for these patients. But one thing that -- one topic that sort of comes up when you discuss this with KOLs is sort of delaying or maybe not getting to chemo. Can you maybe give a little bit of context to what cabo could mean for that?

Yes. So the question of the royal chemotherapy in prostate cancer is an important one. And we've actually seen a lot of data and a lot of encouraging data to suggest that there's a clear role for chemo even in the castration-sensitive space, and we're seeing increasing use in that setting. But the idea of delaying chemo is certainly one that we think has a lot of clinical relevance and a lot of relevance for the patients. If you think about it, these tend to be elderly, relatively frail patients. And so moving on to an agent like chemotherapy can be really a challenge for them. Looking specifically at the data that we presented earlier this year that bears out when you look at more than half of the patients who enrolled in that study had actually seen a second NHT instead of moving on to chemo. When the evidence is relatively clear that a second NHT after prior -- after being on a first one really doesn't have a whole lot of efficacy, but it just shows that there's this idea that the clinicians and the patients are really kind of don't want to go on to chemo, trying basically anything except that. And so we think that there's real clinical value and meaningfulness of this idea of delaying chemo, and that's where the combination of cabo/atezo can certainly play a meaningful role.

Yes, very exciting opportunities there in prostate. There a whole bunch of other possibilities for cabo in the future, 021 has many arms. Maybe you can just discuss some of those and tell us anything you can share on when we should expect more data and new indications. New worries?

Yes. So I can start and Chris can chime in with additional answers. But I think COSMIC-021, again, taking a little bit of a step back is a study we're particularly proud of and really shows kind of the scope and scale and capability of what Exelixis can do. This is a 1,000-plus patient study. It's a big, broad, asking the right questions. Can cabo be the backbone agent of choice across multiple agents? This is a multiple indications. This is a big pharma, big biotech like study that we think we're running kind of with the speed and efficiency on the biotech -- of a smaller biotech, and that's really something that we're proud of. But you mentioned before multiple different indications. We've talked at a very high level about some of those. We even -- we indicated earlier this year that we can expect to see data from the lung cancer cohort sometime in 2020. But there are a lot of different cohorts that continue to enroll. We're continuing to generate data, and we're excited to share those at the appropriate time.

All right. And then you alluded to in your opening remarks, I mean, although cabo is almost like a pipeline in of itself, Exelixis has sort of begun a bit of a reawakening of other discovery type programs. And you even done a couple early stage collaborations. Maybe just give us an update on the state of all that and when we might start seeing some data that you can talk about?

Yes, I can start and then Andrew, you can jump in. So yes, I mean, it's been -- as we step back -- as we started coming out of in 2016, we realized that not everything can be invented at Exelixis. So we started taking a broad look at the landscape of opportunities that are out there. Since we were still in the launch process of cabo in 2016, '17, we took it slow, and then we started doing some licensing deals with smaller companies, small upfronts, back-end loaded, reduced the financial risk and take some shots on goal essentially with the deals we did, StemSynergy and OriGene -- and excuse me, and [ Aavanira ] in 2018 and then Iconic and OriGene in 2019. Those are important parts of our overall pipeline. And we continue to work with our partners on those opportunities. And there are some exciting programs in there. Some of them we haven't talked about yet, but we continue to work with them. We also continue to look at the landscape and a lot of that is what Andrew has been working on. So Andrew, do you want to talk about that?

Yes. So I think it's somewhat of a statement of the obvious that we're really working hard to bring more products, build out the Exelixis pipeline. Chris mentioned before that we've already done a fair amount of earlier-stage transactions. But business development and bringing in new products is really kind of a core focus for the company right now. So we're taking a very broad look at the oncology landscape. We think we have the right team in place, the right skill sets to really understand the sorts of insights that we'll need to really understand what are the new products that we can bring, and it's one that we're excited about, we're engaged with. And it's a core priority for the company. So yes.

All right. Well, we are out of time. Chris and Andrew, it's a pleasure as always. Thank you so much for participating in our conference, and be well and stay safe.

All right. Well, thanks again for the invitation, Chad.