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

Ladies and gentlemen, thank you for standing by, and welcome to the Exelixis, Inc. Annual Meeting. [Operator Instructions] I would now like to hand the conference over to your speaker today, Michael Morrissey. Thank you. Please go ahead, sir.

Thank you. And good morning and thanks for joining us today. The meeting will now please come to order. I want to welcome all of you to the Annual Meeting of Stockholders of Exelixis. I'm Michael Morrissey, President and CEO of Exelixis, and I will be presiding at this meeting. Also joining me for the meeting today are 2 Board members: Stelios Papadopoulos, the Chairman of the Exelixis Board of Directors; and Charlie Cohen, the Chair of the Exelixis Compensation Committee; and members of the Exelixis management team, including Gisela Schwab, our CMO; Peter Lamb, our CSO; Chris Senner, our CFO; and P.J. Haley, our Head of Commercial. Jeff Hessekiel, our General Counsel, will act as secretary of the meeting. Jennifer Drimmer Rokovich, our SVP of Corporate Legal Affairs, has been appointed to act as inspector of election. Joe Muscat, a representative from Exelixis' independent public accounting firm, Ernst & Young, will -- is also present at this meeting. During the question-and-answer period at the end of the meeting, he will be available to answer questions concerning the corporation's financial statements. For this year, our annual meeting is being held virtually via live webcast in the interest of protecting the health and well-being of our stockholders and employees during the ongoing COVID-19 pandemic. We have designed the format of the meeting to ensure that our stockholders who attend virtually will be afforded the same rights and opportunities to participate as they would at an in-person meeting. Accordingly, as stockholders, you will be able to listen, submit your questions and vote your shares online during the meeting. Each of you has registered through the virtual meeting portal by using your 16-digit control number provided on your notice of Internet availability of proxy materials, your proxy card or your voting instructions form that accompanied your proxy materials. If there is any of -- if there are any of you who have joined as guests, we welcome you to the meeting, but please be reminded that you will not be able to vote any shares or ask questions during the meeting. Both the agenda and rules of conduct for the annual meeting are available in the virtual meeting portal in the lower right-hand part of the screen. To conduct an orderly meeting, we kindly ask that participants abide by these rules. As stated in the rules of conduct, the business of the meeting will follow the agenda provided, and only proposals to be voted on will be those included in the Exelixis proxy statements. Should you desire to submit a question or comment during the meeting, please type it into the designated field in the virtual meeting portal located in the lower left-hand part of the screen. We ask that you restrict your remarks to the items in the agenda. Thank you for your cooperation with these rules. A list of stockholders at the close of business on the record date showing the number of shares held by each holder of record is available for inspection which any stockholder can access by clicking on the link at the bottom border of the virtual meeting portal. The secretary has delivered an affidavit of mailing, establishing that the notice of this meeting was duly given. A copy of the notice of meeting and affidavit of mailing will be incorporated into the minutes of this meeting. All stockholders of record at the close of business on March 23, 2020, are entitled to vote at the annual meeting. Our first order of business at the meeting is to determine whether the shares represented at the meeting, either in person or by proxy, are sufficient to constitute a quorum for the purpose of transacting business. Mr. Secretary, do you have the report?

Yes, sir, I do. The stockholders list shows that holders of 305,733,496 shares of common stock of the corporation are entitled to vote at this meeting. We are informed by Ms. Drimmer that there are stockholders present or represented by proxy holding in an aggregate 260,037,389 shares of common stock or approximately 85.05% of all the shares entitled to vote at this meeting.

Thank you. Because holders of a majority of shares entitled to vote at this meeting are present, in person or represented by proxy, I declare this meeting to be duly convened for the purposes of transacting such business as may properly come before it. All right. The next order of business is a description of the matters to be voted on at today's meeting. The first proposal before the stockholders of the corporation is the election of 11 directors to serve until the next Annual Meeting of Stockholders in 2021. The Board of Directors has nominated and recommends the election of the following persons as directors of Exelixis: Charles Cohen, PhD; Carl Feldbaum, Esquire; Maria Freire, PhD; Alan Garber, MD, PhD; Vincent Marchesi, MD, PhD; Michael Morrissey, PhD; Stelios Papadopoulos, PhD; George Poste, DMV, PhD, FRC; Julie Anne Smith; Lance Willsey, MD; Jack Wyszomierski. No other directors have been received in accordance -- no other nominations have been received in accordance with Exelixis' bylaws. The Board of Directors recommends a vote for each named nominee. The second proposal is to ratify the selection of Ernst & Young LLP as Exelixis' independent registered public accounting firm for the fiscal year ending January 1, 2021. The Board of Directors recommends a vote in favor of proposal 2. The third proposal is to amend and restate Exelixis' 2017 Equity Incentive Plan to, among other things, increase the number of shares authorized for issuance by 21 million shares. The Board of Directors recommends a vote in favor of proposal 3. Finally, the fourth proposal is to approve on an advisory basis the compensation of Exelixis' named executive officers as disclosed in the 2020 proxy statement. The Board of Directors recommends a vote in favor of proposal 4. If any stockholders would like to submit a question or comment regarding the matters to be voted on at today's meeting, please submit your comments to the virtual meeting portal. All right. It is now 10:07 Pacific Time by my watch, and the polls are now open for voting. Any stockholder who has not yet voted or wishes to change their vote may do so by clicking on the voting button on -- in the virtual meeting portal and following the instructions there. Stockholders who have sent in proxies are voted already via the telephone, Internet or postal mail, and who do not wish to change their vote, do not need to take any further action. [Voting]

Okay. It is now 10:08, and I hereby declare the polls closed. The inspector of election will now proceed to count the votes.

[Audio Gap]

Okay. Will the secretary please report the preliminary results of the voting?

We've been informed by the inspector of election that the votes have been counted and that the nominees for election to the Board of Directors have been duly elected. Ernst & Young has been ratified as Exelixis' independent registered public accounting firm for the current fiscal year. The amendment and restatement of Exelixis' 2017 Equity Incentive Plan has been approved, and the compensation of Exelixis' named executive officers as disclosed in the 2020 proxy statement has been approved.

All right. Excellent. Thank you for joining us for the Exelixis 2020 Annual Stockholders Meeting. The meeting is concluded. I will now give a presentation providing an overview of Exelixis, after which, we will have a brief question-and-answer period. During the presentation today, I will refer to financial measures not calculated according to generally accepted accounting principles. Please refer to our Q1 2020 financial results presentation, which is posted on our website, for an explanation of our reasons for using such non-GAAP measures as well as tables deriving these measures from our GAAP results. During the course of this presentation, I will be making forward-looking statements regarding future events and the future performance of the company. These statements about possible development -- developments regarding clinical, regulatory, commercial, financial and strategic matters. Actual events or results could, of course, differ materially. I refer you to documents we file from time to time with the Securities and Exchange Commission, which under the heading Risk Factors identify important factors that could cause actual results to differ materially from these expressed by the company verbally and in writing today, including, without limitation, risks and uncertainties related to the continuing COVID-19 pandemic and its impact on our operations, product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners, and the level of costs associated with commercialization, research and development, business development and other activities. All right. So with that, I'm going to navigate over to the slides. There they are. Are they up, Susan? Can you see them?

Yes, Mike. They are live on the site.

All right. Fantastic. So I just read the safe harbor, so I'll move on then, talk about Exelixis today. I think that slide is not there. Okay. So as many of you know, we have been in business for 25 years now. We celebrated our 25th anniversary in 2019. We have been very fortunate to have success over that time, starting out with our initial technology platform, focusing on model system genetics and evolving into a drug discovery, development and now commercialization company. Four products from our labs are now approved in different regions of the world. The most important ones, obviously, are derived from cabozantinib, both CABOMETYX and COMETRIQ. Both have been on the market now for several years. 2020 certainly is building off the success and the hard work that the team did in 2019 and 2018 in terms of our broad discovery and development platform. As we talked about throughout the year, we expect to have 12 ongoing or planned pivotal trials that could be label-enabling in 2020. And we have 20 various assets in preclinical discovery and development across our discovery platform. So a very busy time for us relative to focusing on expanding cabozantinib indications as well as diversifying our product offering through drug discovery and drug development of new assets. First quarter financial results. We had our earnings call a few weeks ago. Again, strong Q1. Not sure why the slides are moving. Strong Q1 in 2020. Total revenues for the quarter were 200 -- nearly $227 million. Product revenues were close to $194 million. Our non-GAAP net income was $59.4 million or $0.19 per share diluted. We currently have -- we ended the year, I should say, in 2019 with more than 610 employees. And 2019 was the first year where, on a global basis, net revenues for cabozantinib exceeded $1 billion. So certainly, looking to build off that momentum in 2020, had a busy year so far. Got off to a, I think, a strong start in January with the JPMorgan presentation that I'll allude to during this brief presentation. Obviously, the COVID-19 pandemic has had a modest impact in our business and certainly impacted the entire world in terms of that event. We have, I think, responded fairly well in terms of making sure that we're able to continue to conduct business at a high level of efficiency and impact while working from home and sheltering in place at headquarters, and we have focused our sales team to virtual touch points to out of -- really focusing to maintain their health -- the health of our employees and certainly the health of our patients. In terms of business continuity, our #1 priority is to ensure that we have maintained access to our drugs through both clinical trials on a global basis as well as through commercial channels. And the team has done, I think, a very, very strong job of, again, focusing on our patients and the doctors we aim to serve relative to making sure that our drugs are available. And I'm very proud to see the team reach out locally and across the country in terms of helping people who are impacted, both patients as well as the general community, impacted by the COVID-19 pandemic. Looking at -- again, building on the success of 2019 and focusing on 2020, obviously, we have a tremendous opportunity going forward to be able to really move our company forward, move our development plan forward. Certainly, there's been a lot of discussion this year around the important clinical discovery, IND and commercial milestones, that we are moving forward. Again, as we talked about at the beginning of the year, kicking off the year with the JPMorgan meeting, we're on track to have 12 label-enabling studies enrolling by the end of 2020 with 6 top line data readouts that we anticipate throughout the year. It's been a very busy year so far for us in terms of data with ASCO, with the 040 data at ASCO GI, with prostate data from the 021 study at ASCO GU, recently had, again, the top line data from the cabo/nivo combination in 9ER, which was, again, generated some very, very positive data that I'm sure we'll talk more about it in a few minutes, as well as -- then the ASCO abstracts came out last week where we had encouraging preliminary data from 021 for lung cancer and bladder cancer with a reprise and some biomarker workup from prostate cancer. So a lot of work going on, on the development team. And certainly, Gisela and her team are very focused on making every day count to be able to maximize our chance of success there. In terms of our early pipeline, again, 092, next gen cabo is -- version of cabo is in the clinic, moving into ICI combination trials -- cohorts later in the year, and we have plans to file up to 3 new INDs from either internal or collaborative efforts from our network of collaborations. We have, again, continued to, again, financially perform in terms of generating sizable free cash flows that have led to our cash position and our profitability over the last 13 quarters. Next slide, just a brief summary. I'm sure everybody knows these. We've been able to build a strong network of partnerships around the commercial setting. Certainly, our partners, Ipsen and Takeda for cabo as well as with Genentech and Daiichi for the other molecules that we have now in the market. Strong support in terms of clinical collaborations with Roche/Genentech as well as BMS as our main collaborators but also with Calithera and the NCI, and then a variety of drug discovery collaborations that help us, again, find new assets, develop new assets that we can then move into the clinic. Main focus for the company, obviously, is around cabozantinib and certainly CABOMETYX as the main brand. I won't belabor every bullet on this point. But certainly, it's been a strong growth driver for us in terms of revenue, in terms of broadening our clinical focus, in terms of how we're trying to add indications through both single agent and combination approaches. Very unique molecule, which has demonstrated a wide degree of clinical success. Only tyrosine kinase inhibitor with overall survival benefit in both RCC kidney cancer and liver cancer to date. So very excited about that. And certainly, our push now to look at combinations approaches with immune checkpoint inhibitors with, again, the first example of a pivotal trial reading out with 9ER recently, I think, highlights the potential for that approach with very, I think, very strong efficacy and very good tolerability. In terms of our commercial performance, cabo has been and continues to be the #1 prescribed single agent TKI in RCC, and we certainly aim to grow that now with the strong 9ER data as we move forward in terms of filing and potential approval in the future. We have great degree of depth in terms of our approach in terms of long-term growth potential, looking at various cabo/ICI combinations. Again, 9ER was first, but we're looking at frontline liver, metastatic prostate cancer, lung cancer, et cetera, all indications that we think we can, if successful, could really grow the business. So everything really is focused right now and certainly built on the success and the momentum over the last couple of years in terms of clinical development. Slide 10 highlights the range of different trials that we are either pursuing or plan to start shortly. Again, on the left-hand side of the slide are the existing trials looking at either single agent cabo, say, with the COSMIC-311 trial or a variety of combination approaches across the board in terms of company sponsors -- company-sponsored trials that we're funding ourselves, trials that we are funding in collaboration with either BMS or others on the right-hand side of the 3 new contact trials in non-small cell lung cancer, prostate cancer and second line renal cancer that will start shortly. But again, a very strong -- very deep roster of potential label-enabling trials that, if successful, we think, could really move the business forward. Some highlights in terms of data. This is a snapshot of the data we had at ASCO GU earlier in the year, looking at the combination of cabozantinib with atezolizumab in first and second line metastatic prostate cancer from the COSMIC-021 trial, the cohort 6, the first 44 patients. You can see, again, strong activity. We had 30-plus percent response rates across a late-line heavily pretreated patient population. Spider plot in the middle shows good durability of the activity. You can see those lines going out to over -- over many, many weeks, in some cases, many months. The duration of response for those patients that had responses were in the 8-month range. So very encouraging there, and with very good tolerability, too, and this is a trend that we're seeing now across the cohorts that we presented on so far from 021 as well as the top line 9ER data where we're seeing very good tolerability of a cabo/ICI combination where we use the starting dose of cabo in the 40-milligram level. So encouraging potential read through there across a whole variety of trials that we hope to start later in the year. Slide 12 gives you, again, the high-level top line results from CheckMate 9ER. Again, this is the combination of cabozantinib with nivolumab in first line RCC patients previously untreated. RCC patients, the comparator was sunitinib here. We saw very strong signs of activity, clinical efficacy. Hazard ratio for progression-free survival was 0.51, highly significant. Secondary end point of overall survival was also highly significant with a p-value of 0.001 and hazard ratio of 0.6 with a strong response rate, long duration of response and, again, a very favorable safety and tolerability, which we think is very important if you want to keep patients on this combination for as long as possible, which we think is what's driving the activity we've seen, but the low discount rates due to adverse events was very notable. And we're certainly very exciting about presenting this -- excited about presenting this data in the fall to be able to get the full data set out there and give people a chance to see the data. Slide 13, again, summarizes the abstracts that were put on the ASCO portal for the virtual meeting last week. Lung cancer after treatment with IO second cohort looking at second line bladder cancer post chemo and then a reprise of our CRPC abstract and poster that we had at ASCO GU earlier in the year while looking at some additional biomarker data. Key update here is with lung cancer, again, 27% response rate, good overall tolerability here, PFS in the 4-month range in a very heavily pretreated population. Half the patients here were second line. Half the patients were third line. 90% of the patients had chemo. And about half the patients were primary refractory to their initial IO -- their initial PD-1 or PD-L1 that they received in the front line setting, which means that really had clinical benefit from that. They had progressive disease as their best response. So we're very, I think, encouraged by this level of activity and near 30% response rate in a heavily pretreated, highly refractory population, we think, is quite notable. And we're very pleased to have this at ASCO, and we're looking forward to the normal dialogue that takes place even with a virtual meeting format coming up in a few weeks. Moving quickly over to discovery. Again, we have -- as I'm sure many of you know, we have a very rich history in target discovery, target validation, pathway biology, drug discovery, lead optimization as well as then moving compounds into the clinic through INDs. That is continuing. We have built a strong network of both internal discovery people as well as outside external collaborations. It's really great to be back in the discovery game, again, looking at a variety of mechanisms of action and targets and pathways as well as expanding the modalities that we wish to really work with in terms of small molecules as well as biologics, as well as antibody drug complexes. So it's a variety of different approaches here, staying strictly in the oncology and/or hem/onc area. And again, we expect to have 3 INDs for new assets moving forward later this year. So really exciting to have that back in the game. Financial guidance shown here. I won't read all the numbers. We reiterated the numbers in Q1 that we gave earlier in the year, again, targeting total revenues in the $850 million to $900 million range. Net product revenue in the $725 million to $775 million range with the others -- other different components shown on this slide. And finally, my last slide is -- [ not sure ] that's happening. I can get there. Just a scorecard of the key milestones that we've achieved so far in 2020 as well as what we hope to achieve throughout the year. Again, it's been a very busy data-rich year so far. It's -- I think it's exciting for everybody on the team to be back in that mode of generating clinical data, generating really interesting results and then sharing that with both investors as well as with the community of oncology that we work with. So we're looking forward to doing more of that this year as we continue to move our trials forward and generate what we think could be some very exciting data. So that covers the presentation. Thank you for your attention. We'll be happy now to move back to the question-and-answer session of the meeting. And we'd like you to note please that we will only read and respond to those questions and comments that are germane to the meeting and otherwise comply with the rules of conduct for this meeting. So Susan Hubbard will read questions, if there are any, and then I will be the master of ceremonies to be able to then triage those to either Stelios or Charlie or the management team. Susan, go ahead.

Great. Thanks, Mike. This is Susan Hubbard, Exelixis' Head of Public Affairs and Investor Relations. And at this time, we only have one 3-part question that's directly relating to the potential impact of COVID-19 on our business. So specifically, the question is, what kind of challenges are you experiencing due to COVID-19? Are you experiencing sales declines or a slowdown in the FDA process?

Thank you for that question. I think what I'll do is I will parse that out to the Gisela and to P.J. so they can provide some context for that question. Gisela, would you like to start and then pass it over to P.J.?

Sure. Thank you, Mike. So of course, the COVID pandemic has presented certain challenges, and they vary globally, depending on the frequency of COVID infections observed in the various parts of the world that change over time. And the challenges that we are seeing are really related to sites, being able to see patients and provide the appropriate monitoring for patients and administration of study drugs with issues and challenges result in questions that we are very well equipped to address. And we have been monitoring this over the last few months and being busy addressing individual patient-related questions as well as site questions in order to ensure that, to the extent possible, patients can receive their study treatment and in a safe manner and also undergo follow-up visits or evaluation on the safety side and efficacy side as well in the form of imaging. So it certainly has been an evolving and fluid situation, but we've been, from the very beginning, very actively monitoring the situation, supporting patients in site. To this stage, we've seen a modest impact on clinical trial enrollment. And for the most part, things are moving forward on the clinical development side as planned.

Excellent. Thank you. P.J., would you like to say a few words about commercial?

Yes. Absolutely, Mike. Thank you. So first of all, I will mention that we did move to the shelter-in-place time. Similar for the company and before California did, we also stopped personal promotion at that point for our field-facing employees, our sales force. We believe that was the right thing to do. And we really shifted our focus to emphasizing nonpersonal and digital interactions, which is something we were already doing anyway. So doing more of that digital speaker programs, virtual speaker programs, compliant virtual launches, et cetera. So very proud of the team that we've been able to maintain a really good connectivity with our customers during this time. And clearly, our focus there is supporting the patients on CABOMETYX and the health care providers who treat them while maintaining safety for our employees. So we're very pleased with that. With regards to the business specifically, we mentioned in the earnings call in Q1, our weekly demand in Q1 relative to Q4 was stable. So haven't really seen an impact on the business. And at the same time, we've seen our second line RCC market share grow to 45% in Q1, which we're very pleased with. And that is a function of more patients progressing from the first line setting off of immune checkpoint inhibitor combination therapy in the second line, which is something we've been talking about for a while, sort of the kinetics of those patients progressing. And as more patients in the second line are pretreated with ICI, we continue to capture really the majority, about 70% or so of those patients progressing. So that's driving our second line market share higher. So we're certainly very sensitive to the situation and our tactics. We want to support our customers, make sure they're comfortable with the fact that we have significant drug supply and don't have concerns there and focusing on EASE, our Exelixis Access Services, to ensure that all patients who are eligible have access to CABOMETYX there.

All right. Fantastic. Thank you for that update. Susan, are there any more questions?

No, Mike. That's it. Turning it back to you.

Okay. So if that's it, then I want to -- we can end here. I want to thank you all again for joining us on today's call and for your continued support of Exelixis. Have a great day. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.