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

Well, great. So good morning, everybody. I want to welcome you all to our virtual edition of William Blair's Growth Stock Conference. My name is Andy Hsieh, biotech analysts here, and I cover Exelixis. I'm required by law to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com. So it's my distinct pleasure to introduce Mike Morrissey, President and CEO of Exelixis. So Mike, thank you for your participation in our 40th growth stock conference during your 20-year anniversary, and congratulations.

All right. Great to be here. Good morning. Great to see you. Hope you're doing well today.

Absolutely, yes. Very well. So first and foremost, we're 3 months into the lockdown. So how is -- most importantly, how is everybody doing at Exelixis? How are you doing? And how -- what are you doing to make sure that everybody has high morale and everything is working optimally?

Yes. Well, yes, it's been an interesting couple of months for sure. 2020 is -- feels like it's been about a 5-year time horizon over the last 4, 5 months. But hey, before I begin, let me just say that I'll be making forward-looking statements today, so please see our SEC filings for a description of the risks that we face in our business. So look, yes, we -- like everybody else, we have been battling a new normal in terms of working remotely, having our business really impacted by a number of different forces kind of across the spectrum of the different components of our business, but we have a great team. We're a very resilient, focused, energized bunch. So I think what we've tried to do is really, really hypercommunicate with our team to make sure that everybody is informed, everybody is engaged, everybody understands what the priorities are, how to shift things, obviously, to make sure that they can balance what they have going on at work, what's going on at home with kids not having school, with remote learning, with parents who are at risk, all those kinds of things. So look, everybody is hyperfocused. I think everybody is hyperstressed right now. But we, like everybody else, have, I think, done the best we could in a very dynamic, fluid situation. And so far, so good, right? Things could still change and certainly get delayed over time depending upon if there is a resurgence in the fall and what happens with opening up and different regional issues. Certainly, May was somewhat of a light month in terms of enrollment with our clinical trials. April was okay. June looks like it's coming back online now. So we're just going to kind of go with it and be prepared to make the moves that we have to move to ensure that we stay on time lines the best we can and keep on track with our business. So, so far, so good.

So great. Yes, that's good to hear. So given the fact that this is a growth stock conference, I think maybe we can start out by talking about growth. So in the beginning of this year, the company kind of laid out this long-term goal, if you will. Basically, the goal is to achieve $4 billion in CABOMETYX sales in the United States by 2025. So if you kind of triangulate, that corresponds to a very impressive 40% CAGR in that 4-year span. So maybe kind of talk us through just different drivers for you to kind of go from here and realize that $4 billion goal in 2020.

Yes, yes. So we put kind of that aspirational view of what success could look like out in January. To reframe the discussion, as you'll recall, back in 2019, even a lot of 2018, the singular focus was on 9ER and how are you going to be competitive and the very negative narrative around how we maintain what we had with RCC. And I think part of the goal here -- and certainly, it's been a very -- with all the drama of the year, it's been a very productive year for us to get data out, which I think helps people see the foundation for what we're talking about, what we could achieve if we're successful across expanding indications, combination trials, et cetera, that would allow us to really build on the platform that cabozantinib represents and, certainly, the success that we've had in RCC and HCC and thyroid cancer. So look, it's a relatively simple idea is identify more patients who can be sensitive and can benefit from cabozantinib. I think we're certainly doing that. We expect to have 12 label-enabling pivotal trials enrolling this year, certainly on track to start the 3 CONTACTs around mid-year. We had 9ER readout in a very positive fashion. We had great data coming out for liver at ASCO GI, for prostate at ASCO GU and then at ASCO a few weeks ago, both lung and bladder, all with different cabo IO combinations that show good response rates, good duration of response, really encouraging tolerability starting at the 40-milligram dose of cabo. So I think we're in that zone now where we've got good data. We've got good momentum. I think 9ER will allow us to be -- we've got really good data there. People are calling that best-in-class data. So if we can continue to push that forward, get that launched as soon as possible, it could really help take us from a momentum point of view into 2021 and beyond. So...

Yes. Excellent. So I know that when you guys kind of put together the 2025 aspiration, if you will, the 3 CONTACT trials wasn't -- weren't really designed. So curious if, within the RCC basket, could CONTACT-03 be potentially an upside?

The RCC, if you remember, that table we had in our deck back in January, we had that broken out between first-line and second-line RCC. First line was a mix of single-agent monotherapy cabo from CABOSUN. And then we had a mix of doublets and triplets with both 9ER and 313. And then we had another whole column around second line. So certainly, look, our whole goal here, with everything, but certainly with RCC, is to make sure that we have the availability of really good data that helps every patient who has kidney cancer receive cabo, either first line or second line, right, with arguably really encouraging clinical benefit and then have them maintain that benefit for as long as possible. So it remains to be seen if the doublet can really extend that in the second-line setting. That's why we're doing the trial. But we certainly have a good control in cabo, right? So either way, we win, right, from the standpoint of understanding the benefit of cabo or cabo plus IO in that second-line IO refractory set. So -- but the goal is to basically extend duration of treatment for as long as possible in the RCC setting, for sure.

Right, right. And so I think our brokerage conference benefits from the scheduling. So we're probably the first broker conference after ASCO, so you'll get a chance to kind of discuss what was presented there. So there's couple observations in the RCC space. We'll get to that. But since you talked about 9ER, just curious, I mean, this is what investigators, prescribing physicians, Wall Street community will do is to cross-trial compare. So a lot of people, I think, focus on overall survival as a golden standard, but acknowledging that it's impacted by crossover, sequence therapy and that kind of stuff. So help us understand kind of, in a head-to-head, again, cross-trial comparison context what the role and the validity of using PFS to compare and get a sense of what is -- what you refer to as the best in class.

Yes. So look, I'll avoid doing cross-trial comparisons here since: a, it's somewhat always dangerous; and b, we have very little data out. So we -- certainly, in our 8-K upon the kind of the top line release, we had -- we've got a hazard ratio for survival of 0.6. We had a hazard ratio for PFS of 0.51. So both were highly statistically significant, both looked really good. There's honestly a ton of data behind that, below that kind of laying the foundation there that we'll talk about in the fall when the data gets presented, and I'm assuming published as well. We're really excited about what the data means from the standpoint of both efficacy as well as safety/tolerability. A hazard ratio of 0.5 -- in the 0.5 range for PFS is really encouraging, especially when you see some of the other combo trials. And there have been 3 now that have a wide range of that relative to their ITT populations, which are sometimes better, sometimes about the same, et cetera, in terms of the IDMC -- or the IMDC risk profile. So look, a 0.5 hazard ratio versus a 0.7 hazard ratio is a big deal. It's a big difference, right? And the fact that survival -- the survival box is checked at a relatively early look at the first interim is fantastic. I mean that was the ticket to the -- really engage here. Without that, that would have been hard to have a competitive offering. But we think, with certainly very, very good survival data, as good as anybody else has, relative to the ITT PFS, which we think is looking really, really promising. And as we talked about a lot over the last few months, the tolerability going with the 40-milligram cabo dose is just -- continues to really, I think, impress people relative to what we saw in 9ER and what we've published now in the 040 study in HCC, in the 021 cohort 6 study for prostate, in the cohort 7 for non-small cell lung cancer, low discount rates, reasonable level of dose reductions. So really -- I think that really blends well and complements the idea that to have great PFS results, you've got to keep patients on drug. And having a low discount rate, like we're seeing, kind of is in line with that as I'd like to see, as you'd like to see, right? So we'll get data out. It will make it easier for you guys to make your Excel tables and docs and compare these things side by side. We've done that already ourselves, right, obviously, to understand how we're going to frame this and how we're going to do additional market research. But look, we're thrilled with the data. We think it will be a very competitive offering. And again, working day and night to get the filing in and hopefully get this approved ASAP.

Okay, okay. Great. So there are some interesting developments in the RCC space. I think one of the things we saw from ASCO was the increase of CR rates for pembro/axi. So this is very interesting because I think the discussion before at this ASCO, a lot of doctors would prescribe ipi/nivo just purely for the CR rate. Now the CR rate is probably within range. So what is your interpretation of that? And how would that kind of change the perception of 9ER? People have -- historically, I think that maybe you have -- you get a shallower depth of response with this TKI/I-O combo?

Yes. There's been a lot of debate there on that. And there's a very, I would say, a bifurcated view on -- I mean, everybody wants to get complete responses, right? The academic community is really focused on that as the highest priority. They have a curative intent in how they treat their patients. I would say, in the community, which is the vast bulk of prescriptions that are written and patients are treated, I think they're much more focused on PFS tolerability, ease of use, avoiding these infrequent but often catastrophic IR, AEs, et cetera. So there's a balancing act, right? Certainly, I mean, everybody wants to have higher CR rates. You'll see ours when the data gets published. I'm very pleased with our numbers there. Again, it's not surprising that CRs might improve over time just as patients -- if you have a near miss and, over time, just tumor shrinks and tumor shrinks, et cetera, that doesn't surprise me. And I think that's seen a lot of RCC-based trials on a longitudinal basis, so not a big surprise there. The 426 OS continues -- hazard ratio continues to erode. Their median PFS data also continues to erode. I don't know if you saw this or not, but they had -- I think the medians were 15 months for the combo versus 11 months for sunitinib. So what does that mean on longer follow-up? So those are all important data points that will, I'm sure, be discussed ad nauseam by KOLs and by advisers and by the big prescribers in the community, which is why it's so important for us to get our data out there and start talking about it and make sure people understand the benefit that cabo/nivo can bring to a -- to the complete spectrum of patients involved with kidney cancer. So yes, it's a great time to be in the space. Lots of improvements. I think we're really excited about 313 and what that could mean in terms of taking the best of I-O/TKI and the best of IO-IO when combining that and got a lot more on the plate as well. So just very exciting times.

Right. Because what 9ER does, it kind of validates the so-called maintenance phase of the trial, right, because you got induction in ipi/nivo, cabo and then followed by the maintenance. So obviously, with that trial, tolerability is very important as well.

Exactly, exactly. No. I think cabo/nivo in that setting could be a very, very effective way to play based upon the 9ER results. Exactly right.

Yes. So kind of thinking about the maturity of data, kind of like what you said with 426, longer follow-up, kind of a deterioration of OS hazard ratio, but they do have longer follow-up just given the nature of when these trials got started, CheckMate 214, KEYNOTE-426, 9ER. And I think one interesting presentation is given by Dr. Plimack, and she kind of correlated the depth of response versus OS. I think the FDA did something similar in melanoma in a pure I-O context. So just curious about your thoughts on using that and kind of correlating with longer-term overall survival.

Yes. I saw that at ASCO, and I saw all the commentary. I guess I didn't find that all that surprising, right? I guess it's somewhat, at least to me, intuitive. If you have a better response in terms of tumor shrinkage and you have, therefore, less tumor burden, are you liable to live longer? And I think that's probably something that would be easily understood and acceptable, right? And you could use that on the nano range, 50% tumor reduction to 80% tumor reduction. Or you can use it on the macro stage, I mean, if you have 0% tumor reduction, just stable disease or maybe tumor growth versus tumor shrinkage. I mean we've shown that with all of our single-agent cabo studies as well. So that wasn't a big surprise, at least to me. Certainly, when you see our waterfalls and you see the duration of response that we're seeing even with only "18 months of follow-up" that I think you'll be pretty impressed with the data. And we'll do additional cuts as time goes on, and very curious to see how all the data matures relative to kind of what's out there for 214 and for 426, et cetera. So yes, work in progress.

Okay, okay. And so kind of looking forward to the potential launch. So this is interesting dynamic, right? So Opdivo is Bristol's, CABOMETYX is yours. How is this dynamic going to play out? Are you coordinating with Bristol in terms of detailing and -- because historically, it's kind of been an antagonistic discussion?

I wouldn't say antagonistic.

Yes, I think it's kind of probably -- okay, that's a little bit strong of a word. But now you're -- you have a common goal, so everything -- the -- your interest is aligned in this case.

Yes, yes. Well, it should be, right? So we have -- you're right. We each have a component of this combination. We also each have a very different business and a very different focus and very, I would say, different business outcomes. I mean their RCC business is much more complicated than our RCC business because they have 2 players. We have one, right? They have an IO-IO market. We just have cabo and how we want to build that going forward, right? So we're working through those details right now. I can see areas of alignment. I can see areas where we're not aligned, and that's fine. So we've got a very, very strong commercial organization. We -- cabo has fantastic name recognition as a solid best-in-class TKI brand in RCC. So we're not reliant upon anybody but ourselves to maximize success here. And I like that dynamic. I like the team. I like the data. I like the momentum we've got. And if there's ways to coordinate and align with BMS, that would be great. On some things, if there's other ways where maybe we have slightly different messages using the same data, that's fine, too. So -- but we're going to hit it as hard as we can. We think we have tremendous value to bring to patients and prescribers. And again, we'll be out day 1, and we'll be hitting the pavement or the airwaves or whatever virtual media as hard as we can to make sure that people understand the data and the benefit that combination can bring.

Yes. Okay. So since we're on the topic of sales reps, again, we have about 3 months of experience in. How is that coming along in terms of just the efficiency in terms of physician engagement, relying a lot of this virtual interaction, how is that coming along? And potentially, could it be more efficient as we look more longer term? Could this be an opportunity for margin improvement on the SG&A line?

Yes, yes. Sure, sure. It's hard to look forward and think about margins relative to how we -- how the business could evolve. The pendulum swings back and forth. And I think it's the new normal. It may not be that normal after a while. So we'll see. But look, we've got a very, very strong non-personal promotion, virtual effort platform that's been in place for years, right? So -- and our team is very savvy at historically working with accounts, prescribers, coordinators in whatever way they find most useful based upon their time, their practice, the -- kind of the depth of their knowledge, et cetera. So we've already been adept going into this kind of shutdown of being very, very in tune with meeting people's needs in a very virtual fashion, and that has continued. And I've certainly seen lots of successes relative to having the ability to have a virtual launch or educate virtually in a way that enables the process, plus the fact that we've got 4 years under our belts with cabo. So we're not launching a brand-new drug on day 1 in the middle of this crisis. We've got that -- those years of success and of clinical benefit and abuse that really helps us as we go forward here. So yes, for sure.

Yes. Okay. So I also want to use the opportunity to talk about the lung cancer data because it's new. So very heavily pretreated, a 27% response rate. And I think if you look at all the guidance documents or treatment algorithms, basically, they caution using IO after IO. So I'm just assuming that the TECENTRIQ component, maybe the contribution is a little bit -- it's probably on the low side. I tried to look up information about monotherapy cabo in this setting, and the best one is the E1512 and EGFR wild type, and that was 14%, so essentially double the response rate by adding TECENTRIQ. So maybe kind of put that data in context and what you like about the data, what are you so -- what are you encouraged about.

Yes. So it's another example where the cabo IO, in this case, atezo combination looks really encouraging with Phase Ib data, 30 patients. Again, as you said, it was a heavily pretreated, heavily refractory population. 90% of the patients saw chemo in some part of their prior treatment, whether it be a combination with IO or sequencing. So yes, I mean, it looked -- it looks really, really good. I think the individual components, we're going to be able to understand as we expand in both -- in terms of the single-agent cabo component in a contemporaneous fashion. Atezo doesn't have much activity, I agree, in this population by itself. But I wouldn't expect cabo to have much activity either. 1512 did not exclude patients with activating mutations, infusions, RET, ROS, MET, et cetera. So -- and we're doing that here. So it's a little bit cleaner question around the role of cabo IO versus driver mutation, which cabo hits, right? You can't exclude them all. But certainly, we try to exclude most of them. So -- but yes, it's a great start, and 30% plus or minus response rate in this population, as sick as they were, as refractory as they were, as heavily pretreated as they were with a low discount rate was, I think, really encouraging, which is, I think, part of the reason why there's such enthusiasm between us and Genentech to push this combination forward. A lot of -- tons of patients here, obviously, in terms -- this is where the big bolus lies as patients either become resistant or refractory to IO in this setting. And we think we've got a very novel combination that could provide a lot of value. So again, off we go.

Yes, yes. Okay. And kind of moving on to HCC. So TECENTRIQ, Avastin was approved. So you're running a very similar trial, basically kind of substituting Avastin with cabo. Arguably, TKI -- oral TKI is probably a more potent activity versus an antibody. But yes, kind of share with us your perspective, potential interim results by the end of this year from a timing standpoint. Yes, what's happening here?

Yes. HCC is, I think, one of the bigger growth opportunities within oncology. It's a large, large population of patients in the U.S., really large population of patients globally, especially in Asia. The treatment paradigms have been emerging slowly over the last decade or so. Lots of interest in moving IO up in line of therapy. There have been certainly some pretty dramatic misses in that regard. But the IMbrave data looks -- in terms of PFS and survival looks really, really good. So our expectation, and we talked about this in the context of even CELESTIAL years ago, is that IO moving up into the frontline setting, providing a more efficacious and arguably more tolerable opportunity than TKI monotherapy, especially sorafenib and lenvatinib, should really draw more patients towards -- when they're healthier, earlier in their disease setting towards medical oncology, right? And I think that's a win-win for everybody, right? I think they get better treatments earlier. They have a chance to have that long durable benefit and when they progress then, be able to move to compounds, like cabo single agents, in the second-line setting. So 312, like you said, it's essentially very similar to IMbrave. We're just swapping cabo for Avastin. I honestly like that swap a lot based upon the totality of data when you kind of look across the board with all the caveats between those 2 compounds. But you've got to run the trial. We've got to see how it looks at the end of the day. We're very -- we had very successful enrollments at the end of 2019 and into 2020. Obviously, it took a hit with the COVID pandemic, certainly, in Europe and Asia. That's more or less stabilized. We're enrolling well again. And if we get the events, and it's all event-based for both PFS and OS, we'll look at the potential interim at the end of the year. So -- but look, we're very excited about it. We've got a great team within development working on this. And again, we like the momentum from all the data we presented this year across the board, driving those events and those milestones in the second half of the year. So lots to do, for sure.

Great, great. So I think we're unfortunately out of time. I wish that we could talk a little bit about the pipeline in XL092, but we'll do...

Next time, next time.

For sure. Leave that for another time. So thank you so much, Mike, for taking the time to speak with us. Good luck. Take care, and best of luck to all the Exelixis teams.

All right, Andy. Have a great day. Again, really enjoyed being at your conference this year remotely. But hopefully, next year, we'll get back to Chicago after ASCO and get together live, okay?

Absolutely, absolutely.

All right, man. Thanks.

Thank you very much. Take care.

All right. Bye.