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

All right. Welcome, everyone. This is Josh Schimmer from the Evercore ISI biotech team, and pleased to welcome back Michael Morrissey, President and Chief Executive Officer of Exelixis.

And I thought we would talk today about the house that cabo built or I should say that cabo is building. Should I kind of...

[ I like that. I think that was better ].

Take us through like where this process is, how much of the house is built, what's still under construction going forward.

Yes, sounds good. Well, thanks again for the invite. Sorry we couldn't be together live. Maybe this time next year, we'll all be vaccinated and traveling again and whining about the airports and the weather on the East Coast [ and the whole bit ], right? So yes, for sure.

Good old inefficient days.

Yes, exactly. Thanks again. Just some housekeeping. 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 yes, I would say it's the house or the campus that cabo is building and the opportunity to really take a lot of learnings and a lot of momentum with a lot of cash flow and a great balance sheet forward to be able to build a sustainable pipeline of compounds that we can move forward with for the decades to come. So we're -- we've been around for 25-plus years. We've learned a lot. We've done a lot, made a lot of money, made a lot of mistakes. Hopefully, won't make those mistakes again. But it's the -- we're at this stage now where we've got pretty good line of sight on what cabo could do. We've made what we think is a better cabo to take us into the 2030s and through 2040 in terms of XL092 and what that can do. We have -- along the way, we've made a lot of hard decisions. Stopping discovery from 2010 to 2015, '16 was a tough move certainly for someone like me who's a discovery guy at heart. But it was the right move at the time relative to what it took to get cabo over the goal line: multiple indications, differentiated clinical asset that looks like it's best in class in terms of its TKI profile across various different tumor types by itself, in combination with ICIs. I'm sure we'll talk about 9ER today. So we are -- we're growing. We're building. We have big ambitions. Our past -- some of our past drama has not -- never gone too far from our kind of forebrain in terms of what it means to not be successful. So we've taken those learnings and taken that momentum forward. So I think the good news is that even with COVID this year, we're -- we've done a lot of presentations on cabo data. We've built the pipeline, done new deals, certainly been able to work with BMS to unblind a very important first-line RCC trial that we think can move the needle for us starting in 2021 revenue-wise. And we're growing. So we're building buildings. We've added about 200 FTEs this year to our -- mainly R&D but also G&A infrastructure. We're fully vertically integrated in the U.S. And now it's a matter of scaling the organization to be able to do more, do it better, do it faster, maintain the culture that we've got as we go forward. So end of '20, it's been the proverbial year that will hopefully be like no others. But we're coming out of that, I think, with a lot of strength and a lot of momentum, and we're just jazzed about '21 going forward.

Got it. So as we think about the growth drivers for cabo, maybe 9ER is the place to start. And what do you think this does for the outlook? What's it going to take for that data to start to change practice?

Well, I think the data by itself is already pretty well digested and the narrative around it has been very positive, certainly, doubling of PFS, doubling of response rate, strong survival signal. I mean the narrative in '19 was that how are you going to show survival with all these other combos out there. It's pretty negative from the standpoint of what cabo could do, obviously. We -- I think we exceeded expectations there in terms of the trifecta of PFS, OS, response rate. Importantly, the tolerability was really superb using the 40-milligram starting dose with full dose nivo. We've seen that throughout the year in terms of presentations that we'd given in liver, lung, prostate, bladder, that the 40-milligram dose packs a pretty good punch when combined with I-O. And we've known that for a while as a single agent obviously, but the long durable responses we saw in 9ER, the improvement in health-related quality of life compared to sunitinib, the general idea that you've got to keep patients on drug to be able to see the kind of PFS -- 17-plus month PFS that we've seen as well as the long duration of response. So we're really excited about it. Neither cabo nor nivo are new to the market. We have a first-line label already based on the CABOSUN data. We have -- certainly, nivo does as well, and these 2 molecules individually have been the mainstay of kidney cancer oncology for the last 5 years. So for us, it's a matter of just reeducating the docs on the 9ER data and rolling as aggressively as we can. So we're excited about that. The team is all trained out and ready to go. We're just waiting for, obviously, feedback from the agency to engage fully, but we think it's going to be a big impact for us in '21 and beyond. We gave numbers on Q3 earnings about the 2022 exit run rate of $1.5 billion for RCC alone. We think that is certainly easily achievable relative to the duration of treatment we have with 9ER and the strong data that should drive market share growth. So we're ready to go and excited about that being the first leg to return back to growth in '21.

Got it. And then positioning the 9ER regimen cabo/nivo versus some of the other first-line combination regimens, I think you kind of touched on it, but maybe you can kind of delineate where you see the regimen is differentiated versus other first-line combo options.

Yes, for sure. Well, certainly, again, the trifecta with the doubling of PFS and response rate relative to strong survival data, that's a great place to start, right? The quality of life data is compelling since you don't often see that in these kinds of studies, and that's been the case, kind of mix and matching across the board in the combination so far. The tolerability is what I think has got people really excited because the idea that you can keep patients on for these long durations of PFS as well as duration of response, I think, can drive a lot of enthusiasm, too, right? So we've got all the pieces in place. Obviously, it's just a matter now of getting out there and educating. It's just -- it's an exciting time for us. And the idea that we're using 40 across all the other trials now, I think, is potentially a pretty good read-through for what we might expect there as well.

Got it. So maybe with the various COSMIC and then the CONTACT trials, what is it we're looking for in terms of the next growth drivers for the cabo franchise? Maybe you can kind of hone us in on which of these to pay most attention to and the time lines.

Yes. Well, they're all super important, right? Every win is a win and not only a win, but if you can generate differentiating data that is really required in the 2020s around having commercially successful offerings, it's critical. So you think about what we've got now with 311, 312, 313 on top of 9ER. It's a pretty compelling next wave of cabo trials. 311 is single-agent cabo versus placebo in second-line DTC, differentiated thyroid cancer. Tiny indication. Obviously, we have some expertise there. We know all the KOLs. It's an underserved market in the second-line setting. So that one is -- we should have data there, at least interim data for the first 100 patients in terms of response rates in the fourth quarter. So relatively soon. 312, first-line HCC, looking at the cabo/atezo, atezolizumab, combination versus sorafenib. Really important study. Obviously, the IMbrave data with bev/atezo that came out last year, was approved last year, has really changed the HCC landscape in terms of finally showing superiority over single agent TKIs, which have been the mainstay in that setting for the last decade or so. Very compelling data set. It's -- the 312 study is very similar to what's been done so far with IMbrave in terms of patient population, comparator, size of trial more or less. The one difference is cabo versus bevacizumab. I like having our horse in that race, cabo, if you look at all the comparisons we shouldn't do across trials but we always do, do. We certainly like having cabo in that mix relative to its activity as a single agent frontline -- or second-line HCC from CELESTIAL and then all the combination data so far. So that's a trial that we thought would read out earlier this year in Q4. Events have been accruing slower than we modeled. So that, we think, will be a first half 2021 event. It's -- they're all event-based trials for both PFS and OS. So when the events come in, we will crunch the data and get that top line press release out ASAP. So -- but that's a really important indication, large incidence of patients, really underserved globally. We've got great partners in Asia between Ipsen and Takeda that we think can do a great job, along with Roche, if we're successful in being able to push this combination forward. So we're -- it's, again, completely full-court pressure to get this done ASAP. And then 313 is, back in renal, in the first-line setting. That's the triplet cabo/nivo/ipi versus nivo/ipi in the intermediate and poor-risk population. This is really an interesting trial, right? It was a bit of a long shot, I think, early on when it was designed in terms of would cabo perform with nivo [ RET ] 9ER and then could that be translated over to 313. But certainly, the opportunity based upon the data you see with 214 as well as with 9ER, it really speaks to the potential of having best-in-class I-O/I-O, best-in-class I-O/TKI, working together, again, in a way that could, again, if [ it works out ] positive, move standard of care forward, right? Think about higher response rates, lower primary progressive disease and you see a fair amount of that with ipi/nivo, et cetera, longer PFS, longer survival, higher CR rates. All those things are there potentially if we're successful relative to adding cabo on top of that combination. So that's super exciting. That's enrolled well this year even with COVID, as did 312. So the enthusiasm for those trials globally has really driven enrollment there. So even with a couple of tough months earlier in the spring when COVID was really slowing things down globally in terms of enrollment, these trials have just come across really, really well and enrolled very quickly. So we're excited about that. This one is nearly fully enrolled. We expect this to read out sometime end of '21, early '22. Still early in the event count, so we'll see. But those are all important relative to what we're doing in terms of our near-term growth drivers from a revenue point of view. Then you couple that with the prostate opportunity from 021, that's cabo/atezolizumab, where we've got some really interesting data that we published now at ASCO GU last year and again, made a lot of progress in the enrollment segments as well as with lung, again, looking at cabo/atezo in that second-line post-IO indication. So lots of opportunity there. Pivotal trials are running with -- in that collaboration with Roche. So we're really firing on all cylinders right now relative to our ability to move ideas into actionable pivotal trials that could have a big impact on our future and our revenue ramp as we go forward.

I feel like I'm old enough to remember cabo's early signals were in prostate cancer actually. What's taken so long in terms of getting this back on track for prostate?

Yes, it's a tough business, man, come on. As I'm sure you know and I'm sure the audience knows, the COMET trials back in the 2014, 2015 time frame did not work. I mean it was just -- it was a clear fail in terms of improving overall survival as a single agent in a late-line setting. We took a lot of time and learned a lot about what went wrong in those trials and tried to fix that as we went forward. We arguably had the wrong population within CRPC in terms of these post-NHT, post-chemo, very, very late-line elderly frail patients. That patient phenotype really could not tolerate the 60-milligram dose. Our dropout rates were in the 30% range. So it's hard to show any clinical benefit when patients are dropping out at that level so quickly as well. And we really, to a large degree, didn't have investigators. And this is back -- prior to the RCC launch, who knew how to use TKIs. That expertise really resided in the GU space, but in the GU space within renal, not within prostate. Those -- that phenotype of investigator had their eye on chemo and had their eye on the NHTs, but not really at TKI, which is a very different profile. So we've learned a lot. We did a lot of work on understanding how to maneuver there and when you think about what we've seen so far, say, with 021 where we have 30-plus percent response rate, good durability of response in these high-risk patients with measurable disease. We've got the right tool for response assessment. We're using RECIST 1.1. So we've taken the bone scan drama out of the equation completely and just using plain old RECIST in those patients. Second, we're -- we have investigators who now know how to use the drug because they've had 5 years of experience in the RCC space. And then maybe more importantly, we've dropped the dose down to 40 milligrams. So we've -- again, we've learned. We've optimized, and we're back in the game now with, I think, pretty compelling data in the 021 trial, along with some very, very promising trials going now in the pivotal trial space.

So it feels like you're almost pulling a page in the pipeline from the IMiD story where, for the longest time, we weren't quite sure how the IMiDs were working. And then with a lot of care and understanding, Celgene was able to come up with some better IMiDs. Cabo, it feels like we weren't exactly sure which of the kinases it was [ ticking ] to do what it was doing so well. But now you've been able to come up with 092 that you're positioning to be the next better cabo. So help us understand the biology here and what is 092 bringing to the table that cabo hasn't been.

Yes. So at a high level in pretty simple terms, we kept the target inhibition profile the same. We really like the idea that cabo is hitting all the key cell types, all the key pathways in the tumor microenvironment that drive tumor cell growth, proliferation, resistance, angiogenesis and then activating the immune system. So mostly by design, a little bit by fruition, we're covering pretty good real estate in the tumor microenvironment. And we don't want to mess with that, right? Especially with a multi-targeted TKI, you're never exactly sure, is hitting target X important for this or that? Or is it some combination of targets that is doing this? So we kept the profile the same. We phenocopy-ed cabo's inhibition profile, and we simply changed the half-life. The big knock against cabo over the years has been the half-life is too long. When I have to dose reduce, it takes weeks instead of hours or days. Give me something that has a shorter half-life. And that's what we've done. We've taken a -- cabo's half-life is 100 hours, and we've knocked that down to between 20 and 28 hours. So once-a-day dosing, but very easy to dose titrate when patients invariably will have some need for dose adjustments. So that's been the innovation, the very simple chemical modification there. But I like your analogy to the IMiDs because that's exactly the way we frame it, right? This is our -- we've kind of modeled 092 after Revlimid with what Celgene did after thalidomide. They learned a lot. They applied those learnings to a better molecule, and then they cranked. And we're doing the same thing here. The opportunity -- the I-O whitespace is so broad to be able to look at novel doublets and triplets and maybe even quads with 092, gives us a lot of room to run with a very long patent life and with the knowledge, the momentum and now the kind of the structural integrity of our business: lots of cash, great cash flows, no debts, growing. So we can do a lot here. And I think what you're going to see starting next year is the first wave of many waves of 092 pivotal trials that will help us redefine the business beyond cabo as we build this other pipeline of novel assets as well.

Got it. And then maybe a quick word in the final minute or so on the ADCs and how you're finding room to navigate in that ADC field?

Well, it's -- I really think it's wide open. We've got a few major players here. There's been, I think, a lot of recent success in the ADC space, but there's lots of targets where you can build binders for. You can build better binders, as we have in our collaboration with Iconic looking at tissue factor, something that doesn't compete with, say, with Factor VII where the first-gen molecules do. Better linkers, better warheads. It's almost playing this game ala carte. You mix and match different technologies and different sources of binders, linkers and toxins to be able to make molecules that you think can be really compelling, and that's what we're doing to complement our small molecule work. So you'll see more of that this year. We've got 3 collaborations going already. First IND is on track for 2020 with the ICON -- or the Iconic tissue factor-targeting ADC with the Zymeworks linker [ and bind ] and warheads. So a lot more to come with our NBE and Catalent collaborations.

Excellent. Looking forward to the updates. Thanks so much for [ dropping ].

All right. Thank you. See you.

Take care.