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

All right. Let's kick it off. Right. Hello, everyone, and welcome to another session here at the Truist Securities Life Sciences Summit. Great pleasure to have the folks from Exelixis on. For our next session, we have President and CEO, Mike Morrissey. We have Chief Financial Officer, Chris Senner; and we also have Head of Investor Relations, Susan Hubbard, joining us today. Welcome, folks to our Zoom meeting on -- as part of our summit here. Before we start, I will read out our usual disclaimers. This call is arranged by Truist Securities Research, used by institutional investors and issuer clients as defined by FINRA. If you're not an institutional investor or issuer, please disconnect at this time. For the required disclosures, please see our website at truistsecurities.com or our equity research library. So, Mike, you have a very active year ahead of us. Why don't you just give -- most people on this call are going to be familiar with Exelixis. Why don't you give us like the quick introduction to the company and what you've got in store for this year?

Sounds good, and good afternoon, everybody. Asthika, thanks again for the invite, as we were talking about in the preview, this could be one of our last -- hopefully last virtual meetings, looking forward to getting back on the road and doing this live ASAP, certainly with you guys next year. So thanks again for the intro and the invite. Before I begin, I will remind you 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. I will also mention that we're in a quiet period. We have earnings in a couple of days on Thursday. So I won't be speaking to anything related to our performance in Q1. So it will be a bit of a greatest hits kind of overview today, but we'll have lots to say on Thursday. So go ahead. In terms of us, Exelixis, again, I think you're right. Most people know us. We're a commercial-stage biotech company focused on oncology. We've been in business for 26-plus years. Certainly, we're on the gambit of discovery, development, regulatory and now commercial success. Our lead product is cabozantinib, which covers various indications for thyroid cancer, renal cancer and liver cancer. Certainly exciting times now with the recent launch in first-line RCC with the cabo/nivo doublet and got a lot going on this year, heavy lifting across the full range of commercial, regulatory, clinical and discovery operations at the company, and we are growing and building and looking to help patients with cancer live longer and survive with better quality of life every single day. So go ahead. Let's start the Q&A.

Well, let's kick off. And just as a reminder to anyone, if you like to ask questions, please e-mail me [email protected], and I'll be happy to ask these questions as we go along. So Mike, I mean, with the label in first-line RCC, we're seeing a very nice trend already with the prescription data and I don't want to -- maybe not reflect on Q1, but on Q1 sales, on to that, but can you maybe provide us some high-level feedback that you're getting from your market research in the academic and the community practitioner setting? Maybe walk us through what these groups are thinking about cabo plus nivo over other available first-line RCC options.

Yes. So we're really pleased with the label we got, certainly with the regulatory traction we got both here and in Europe. Combination has been approved in Europe recently. The market research that we've been doing since we had top line data last April has been really consistent in terms of the -- you think about the quality of the efficacy data, the quality of the safety data, doubling response rate, doubling PFS, strong signal with survival. We went into all of these doublet cabo/ICI combinations with an optimized starting dose of 40 milligrams daily with cabo for the express reason to be able to take a little bit off the top in terms of efficacy, but really make that patient experience in terms of quality of life and tolerability much better, really trying to view these first-line trials as really chronic diseases and keep patients on drug and on the combination as long as possible. And the discount rates we saw certainly in 9ER were very compelling in terms of having patients stay on drug for a long time and the quality of life benefit relative to sunitinib was very clear. So it really plays that profile, great efficacy, great safety and tolerability, good improvement of quality of life over the control arm. All plays really well with a variety of different prescribers really across the continuum. So obviously, we'll have more to say about this on Thursday, but we're thrilled with the ability to get out there and launch right now. We've got a great team. We've got great data. We've been in the RCC space as one of the leading compounds and certainly the leading TKI since 2016. So it's great fun and a lot of work, and the team is very energized to make every day count for patients, and that's what our job is.

Right. And at ESMO, we found the quality of life data to be really interesting, too. And I'm wondering if you could maybe comment about how does that resonate with prescribers versus maybe some of the other quality of life together that's out there for some of the other combinations. But I don't see a whole lot of it, but that's what I thought when you guys made the effort and made that representation was very interesting.

Yes. Well, I think it's a consistent story. I think that for me is the most important part, where all those different variables, if they line up the right way individually, should travel together very nicely as well, right? So the feedback has been really, really strong. And I think it's just indicative of what the offering can do for patients in terms of helping them a little longer and recover stronger. And we use that moniker a lot, but it's really what drives us every single day with how we focus on the patients and making sure that we bring as much benefit to them as possible.

Got it. So I mentioned the script data, you're seeing already a very nice rise in prescriptions in the U.S. I'm wondering, Ipsen received the EMA approval for cabo plus nivo at the end of March, how soon would you expect to see similar type of like rise in use in Europe? Would you expect that to be kind of immediate like in the U.S.? Or does Ipsen need to jump through each country's price and reimbursement hoops first, but that starts really trickling in?

Yes. I would say a mix of both. Again, I don't want to comment on their business before they get a chance to. I think that's probably wise to let them generate some data and speak to some of these issues. Certainly, some countries move faster than others in terms of using the existing price. Think about Germany, other countries like that, that may have a little bit lower bar initially and then come into play later. So -- but we're really happy with the Ipsen performance, especially over the last few quarters in terms of being able to really push the issue with cabo in their territory, and Takeda got approved and they're online now as well. So it feels really good from our vantage point to be able to look at the global opportunity across ourselves and our partners and look at being able to add more indications as we go forward. And certainly, we got a lot of those coming up this year as well. So exciting times for us and certainly very happy and very, very fortunate to have such great partners with Ipsen and Takeda, really making this drug and soon these combinations, hopefully, available on a global level.

Got it. So cabo currently has a very good position as second-line RCC [indiscernible] monotherapy. And it's -- if you speak to a lot of the prescribers out there, they look at that as probably our best option for patients who are progressing on frontline nivo/ipi or frontline pembro/axi. The CONTACT-03 study should also add cabo -- add to cabo's positioning in the second-line plus setting, but we also see some competitors in kind of like the more medium-term horizon there, particularly one of the things we're watching is the Merck's, the HIF-2a inhibitor, belzutifan, which is kind of a new mechanism of action. Mike, I'm wondering, what do you think of HIF-2a? And maybe what are some of the ways that you could enhance cabo's position against it? And I'm wondering in the bus dev strategy side of things, are you looking at bringing on new mechanisms like that to bolster your position in RCC?

Yes. It's a really interesting topic, one that we've been talking about for 15-plus years, right? So the HIF story, the VHL/HIF axis isn't -- didn't just come out of the blue last week or last year. This has been around for years, if not decades, in terms of basically activating VEGF and other targets like MET and AXL when tumors become hypoxic. So we -- going back to the 2000s, 2002, '03, '04, had really good insight early on into the role that the VHL/HIF axis plays in driving the expression of VEGF and MET and other important targets when they become hypoxic. So I mean, I would argue that cabo is a direct result of insights into that biology, that tumor of biology in those pathways since they're all transcriptionally controlled by the VHL/HIF pathway. Early data with the HIF-2 alpha compound looks interesting with all the caveats that it's single-arm, nonrandomized. If you compare the data that was at ESMO last fall with the initial results from the 184-008 study, which is looking at -- and the first time we looked at cabo, in late-line RCC patients, the data looks pretty similar in terms of response rates, PFS, et cetera. So I don't know what to make of that. It's interesting. It's early. We're extremely excited about what we've got relative to cabo and its combinations going forward. If you fast forward to the future, what's the best way to rescue patients who become refractory to either IO/IO or I-O/TKI doublet, right? What's -- question is really what's driving that resistance? Is it a defect or some mutation or some escape route on the angiogenesis side? Or is it something going on, on the IO side, on the immune side that is driving that tumor to become resistant to those therapies. So it's -- right now, there's very little data to support either way. And we certainly like the idea that with cabo, we think we've got the angiogenesis side covered really well by going after VEGF and the targets that drive its resistance. So we're doubling down on the IO side with the PD-L1 cabo combination with [cabozantinib], with CONTACT-03. We have certainly lots of interest in other targets, other MOAs, other modalities for renal cancer, for liver cancer, for lung cancer. So spending a lot of time there. I don't want to tip my hand too much, but certainly looking at that rate. So it's all in the data, but we certainly like the -- what we have in place right now and what's currently actively enrolling in terms of CONTACT-03.

Yes. And I'll also remind everyone that there's also the COSMIC-313, which is you're looking at frontline with CTLA-4 plus PD-1 as well.

Yes, the first triplet fully enrolled, exciting opportunity there. Certainly, if the data looks good, would give us a chance to really differentiate across all the doublets. So arguably, it could be the best of both worlds in terms of combining the best-in-class I-O/TKI with IO/IO into one overall approach. So certainly very exciting, yes.

And there's been -- some people have raised the question about, oh, do you want to kind of sequence and kind of prolong that the PFS 1, PFS 2, but there's -- I think a lot of KOLs also seem to believe it's best to give you best therapy upfront. Any thoughts on that?

That's been the consistent feedback that we get from a variety of different KOLs that because so many patients drop off after first-line therapy before going into second-line therapy. And it's really hard to predict what patients will have the right factors to get a second line of therapy or not. The argument has been, you use your best options upfront and deal with what happens afterwards with the next line therapy. So one of our investigators liking it to using holding LeBron James back until the fourth quarter, right? And I would use Steph Curry there because I'm a Warriors fan, but same thing. You want to go in there, you want to really start from square one with your best options and looking at the totality of data in terms of efficacy, safety, tolerability, quality of life, we're pretty bullish on cabo/nivo. And if 313 other options work out, we'll push that hard too, for sure.

Got it. And just to wrap up on RCC. At ASCO GU, we saw some interesting data on cabo's efficacy in brain mets. We saw some of the data in papillary RCC, et cetera. So it looks like you're continuing to build like pillars of strength within RCC, if I can put it that way. And how do you see this data impacting overall cabo sales? And which do you think is going to have the most incremental impact on top of, obviously, the first-line indication?

Yes. So just to be explicit, we're actively, as a strategy, not trying to segment the market. We are going, and we think the data certainly supports us when you look at the totality of data we've generated with cabo and certainly with 9ER that every eligible patient could benefit from that doublet, right? So we're not looking to, say, focus on brain mets, focus on bone mets, focus on nonclear cell. Because we think that the data is supportive that every eligible patient in the first-line setting could benefit from that doublet. So certainly, more good data is better, right? We're in the data business. So we love to have that data come out and generated a lot of interest and enthusiasm at GU across a variety of different -- certainly, Monty Pal's data was -- just got incredible airtime and the brain met data that Dana-Farber had was similarly followed. So -- and that's all great because it kind of raises the visibility and makes the cabo halo that much stronger. But look, we're marketing to every eligible patient every single day and talking to every prescriber about every type of patient because we think we can bring that level of benefit.

Excellent. Maybe switch gears a little bit here. So something that we saw at ASCO GI and I think also recently at ACR was a bit of data that, I think, this is from Hopkins that looked at cabo's use in neoadjuvant HCC. An interesting analysis of the tumor tissue showed some signals like B cell, T cell infiltration, development of these tertiary lymphoid structures and which kind of, I think, contributes to the -- to that halo you're talking about because we're also interested in cabo synergy with IO. How do you interpret these data? I know it's very early and it's a single center, et cetera. But I mean that does this enhance your belief on the synergy potential of cabo with IO?

Yes, absolutely. And like you said, there's lots of caveats there with the data, but any time you have access to early insights from clinical data like the Hopkins team generated, it can really drive a lot of thinking and hypothesis generation around how to move forward with different combinations. Certainly, with 092, that's a big focus for us in terms of how we look at other doublets, other triplets, moving up into adjuvant, neoadjuvant settings across a variety of different tumor types. So it's very valuable for us to be able to understand, a, are we able to validate some of our hypotheses clinically in terms of cabo's impact on the immune system? And then the ability to ask those questions broadly with 092 as we go forward. So it's exciting for us, and we're certainly talking to those guys and others on a regular basis because we think they've got some novel insights, but it really adds to the knowledge of what cabo can do, right, which is what we're all about is learning and then applying that learning as we try to raise the bar on standard of care. That's in essence what we're doing every single day.

Got it. Mike, there's obviously a lot of inbound questions for us on -- as we talk to investors about Exelixis. But COSMIC-312, which is going to be one of your big catalysts hopefully for the year here. So let's segue to that, that can come any day now. I'm wondering, will this be 1 of 2 key filings that -- it's going to be 1 of key filings that you're going to make in 2021. First-line HCC, obviously, is a huge unmet medical need, and it's quite a large opportunity for cabo, even though you just got atezo plus bev recently approved and that's future competition. Can you make a comment about what cabo/atezo brings to the table, particularly in light of the atezo for bev?

Yes. I would say the situation here with that doublet in first-line HCC is very similar to the narrative that we had in most of '19 and part of 2020 around cabo/nivo and RCC, right? So bev/atezo set the bar, right, in terms of new standard of care, in terms of an IO antiangiogenic, in this case, protein or monoclonal antibody doublet for HCC, one on PFS, one on survival, certainly moving the market dramatically towards that regimen in the frontline setting. It's a market leader after just a couple of quarters. So the question is, what are the -- what's the bar for us, right? We really need to have competitive data, if not superior data, to be able to get out there and make the case that cabo/atezo is a suitable option, and that's going to be in the data. So I can't speculate on that. I don't want to get ahead of that, but I think it's a very analogous situation to what we talked about again and again and again in 2019 around 9ER. And that worked out as good as could be expected. So we have a lot of confidence here with the cabo/atezo approach in frontline HCC. We gave a little bit of data with a different ICI last year with the 040 data we had at ASCO GI with cabo/nivo and then cabo/nivo/ipi. And it was a complicated experiment. It was 2 different regimens of doublet and a triplet across a mix of both first- and second-line patients. But the data, I thought, was certainly pretty compelling across both radiographic parameters as well as looking at survival with all the caveats that are being single-arm and nonrandomized against the control. So look, we're locked and loaded. We understand what has to be there to even hope for commercial success. Again, you've got to generate competitive data that moves the needle and moves the bar in terms of standard of care. So we feel pretty good about that. We understand those parameters, and we're just waiting to unblind and get that -- open that envelope and see the hazard ratios and get the p-value. So stay tuned.

Yes. We're looking forward to that, definitely. So maybe we can switch gears into prostate cancer. This is also another filing that Exelixis is aiming to do in 2021. You've already fully recruited cohort 6, which is that the 130 patients from the COSMIC-021 study. Can you remind me, have you already done all the radiographic assessments for the patients in cohort 6? Is that still outstanding?

So the status on cohort 6 of 021 is it's fully enrolled. We have investigator data, and we're now doing the -- not we, but our contractor is doing the blinded independent review of the data. And that's the obvious rate-limiting data we need for any potential or regulatory filing. The single-agent cohorts have hit their initial milestone for enrollment. So that's gone well. And that really with middle of COVID to get that done is fantastic. So we're just basically waiting for the blinded independent review of cohort 6 to be able to move forward there.

And just to confirm, Mike, the cohorts, the 21 to 23, the single-agent contributors, are those all fully enrolled as well?

Yes. We have gone through the enrollment there. Yes, we have.

Wonderful. Okay. So look forward to that as well. Then the third finding for cabo in 2021 is in DTC, the COSMIC-311 data, which, if I'm not mistaken, we're going to see that at ASCO as well. This is -- and I'll be honest, this is a study where we don't get a lot of inbounds on. And even in our model, we don't have a lot of representation here. But can you maybe help us understand what is the potential market here? What is the potential opportunity and the growth opportunity for cabo from DTC?

Well, DTC is a relatively small indication. And we talked about that when we gave our 2020 kind of outlook for success at JPMorgan, that was the smallest of all the opportunities across renal, liver, lung, prostate. It's -- we're talking about 2000 patients, right? So it's a small opportunity. We had pretty compelling data with a hazard ratio in the 0.2 range. So certainly, the unmet medical need in second-line DTC is high. There's no approved agents there to date. So we feel good about the data. But I think we've been very clear that it's a relatively small opportunity, both in terms of patient numbers and revenue. So -- but hazard ratio 0.2s are hard to find, and we're certainly excited about that. And that -- so certainly, if you think about what's happening this year, right, in terms of 311 filing, 312 top line data and filing if data is good, same thing for prostate. We've got a lot on our plate right now. And I'm just really proud of the team for -- in the middle of this pandemic and as things wind down with the pandemic, they haven't lost a step in their ability to execute across the range of clinical and regulatory and commercial kind of topics and issues. So it's full speed ahead, obviously, lots of moving pieces here. But as we generate data, and we're able to dot the Is and cross the Ts, we'll get that out for people to look at.

Got it. So maybe it's -- now is a good time to talk about XL092, definitely a hot topic here. We know the Phase I trial is still ongoing. And -- and we understand that your experience with cabo means that you understand this molecule really well. Mike, in our previous conversations, you mentioned that you could be in position to start pivotal studies in 092 pretty soon in 2021. How are you balancing that starting the pivotal studies versus other objectives with 092 like presenting the clinical data?

So the most important thing for us this year, and I've said this numerous times, so I'll just repeat myself, is to get top line, is to get pivotal trials to read out positively in file. That is the most important milestones -- the set of milestones that we're trying to hit. Obviously, top line revenue grows with new launches and new launches are incumbent upon approvals, which you work backwards, you got to file. So it's -- in my mind, it's pretty clear, kind of the most important thing for us is to be able to get those, again 311, 312, 021, C6, gut it out an infra review ASAP. 092 is critically important to us from the standpoint of taking the decade or more of learnings from cabo and then being able to broadly, really broadly pursue a variety of different approaches, either as a single agent or a combination. That is an effort that is ongoing very aggressively in-house. And again, we hope to launch -- not only are you seeing us launch new collaborations, the Merck KGaA deal collaboration came out recently, and there's more on the way there, we've got a nice collaboration with Roche, and we're talking to other people as well about other collaborations. So we feel good about where that's going. And as data matures, we will talk about that data at the appropriate time. So we haven't given guidance on that because we have so much other stuff going on right now. We're presenting data on -- early data on 092 just doesn't really fall into the high priority list for us. But generating that data does, and being able to launch potentially pivotal trials is on the critical path for us this year. So stay tuned. Again, lots of moving pieces. I'm resisting the urge to put a stake in the ground and say you're going to see this data here, you're going to see this data there because there's just too many factors that are out of our control right now. The most important priority for us are filings in 2021 that can lead to approvals in 2022.

Got it. Okay. Yes. No, that's fair. Then something have just we noticed if I look at the clinicaltrials.gov was that with the study with 092, the expansion cohorts, you've now outlined that you -- for the expansion cohorts, you're going to be recruiting HR-positive breast cancer as well as prostate cancer patients, but lung cancer was a cohort that was an inclusion, it was removed. I'm just wondering what was the thinking behind that? And what -- how we should think about the use of this 092 in the future?

Yes. I wouldn't read too much into that. I think there's a lot of moving pieces right now in terms of how we're looking to stage 092 doublets and triplets going forward. So yes, without going into all the details that I'm just not prepared to go into right now. Yes, there's lots of moving pieces there that lead to a pretty compelling story. So I wouldn't make too much about one thing up or down relative to what you see in clinicaltrials.gov, yes.

Got it. Okay. Got it. Next up, we want to -- over the last 18 months, 24 to 18 months you've done quite a bit of business development work on your ADC capabilities and pipeline. And then today, there was also another deal announcement for -- with GamaMabs for an IO agent. Let's focus a little bit on the ADC pipeline that you're building here. You've got XB002 going to the clinic in the second half. Tisotumab vedotin also shares that same tissue defected target and that was just filed with regulators with some pretty interesting data in cervical cancer. Mike, I just want to get your thoughts. How does XB002 differ from TV? And where might you have an advantage?

Yes. So we look at 002 as a really interesting, potentially best-in-class molecule in 2 different ways. Number one, the binder. The tissue factor binder was designed to be -- to bind in a noncompetitive manner relative to Factor VII binding the tissue factor. So because you're binding in a noncompetitive fashion, you leave the coagulation cascade intact. That's not the case with the first-generation molecules that bind in a competitive fashion with Factor VII. So the question is, can you go up in dose? Can you see less bleeding? Can you push that issue? And potentially, again, it's all TBD relative to clinical data. Can you -- by going up to a higher dose, can you see better activity clinically, right? Same thing with the linker warhead. We're using a next-gen linker warhead from Zymeworks, and there's preclinical data, which shows that, that versus some of the earlier or statin warheads is more efficacious. It's a better linker warhead in terms of its actual tumor-killing activity based on preclinical data. So again, TBD, if it has to happen in the clinical setting, but we're certainly -- certainly like that kind of double-edged potential improvements for the mode of binding and as well as the linker warhead side of the equation. But it's -- going to start from scratch in the clinic and see what we get. So I don't want to overhype it. We're certainly very excited about it. It's our first ADC program that's entering the clinic. As we talked about previously, when we go into a new area, we go in with lots of bandwidth and a very deep approach here. We don't just dabble, but we go in, we go in hard. And you've seen all the collaborations that have come out with Redwood and with Catalent, and with Invenra to find new binders. We've got a couple of new ones with WuXi, GamaMabs today. Same mindset is going after good targets. And in the case of GamaMabs, an actual program that has an antibody that's ready for basically incorporation into our ADC platform. So lots of excitement there. And you can imagine, seeing more and more of this stuff evolve over the next months and time to come.

Yes. Mike, maybe you can -- since the deal was just announced on GamaMabs, can we dig into that a little bit more? Can you unpack what you're getting there because there's already an antibody that they have? And maybe there's some -- you saw some potential combinations with cabo, perhaps. And maybe talk about other plans on how you want to maybe look at adapting that into your ADC platform as well.

Yes. So lots of different really important parts of that story that I'm really excited about. First of all, it's a great target. AMHR2 is a good address, if you will, to target antibodies towards. So it doesn't have, I would say, overpowering biology by itself, but it seems to be expressed and overexpressed to use the mail analogy and a lot of zip codes that we're excited about, renal cancer, liver cancer, lung cancer, ovarian cancer, various GYN-type tumors. So it's one of these binding targets that we think is really a very important, and again, address to go after, right? As you know, and I'm sure your audience knows, the difference between doing small molecule work and biologics work is really where you invest the majority of your time, right? In small molecules, it's all lead up, right? You can spend a year or more fine-tuning the molecule to be able to have it be ready for a development candidate status. On the biologics, ADC side, that can happen in a matter of weeks. And we've seen that already with our collaborations with, say, Redwood and/or Catalent, where we have an idea for a target. They can make the binder complex within a very short period of time, get xenograft data quickly, qualify pre-DCs, and we're off to the races. The time investments on the biologics side is making the master cell bank, is making both first GLP and then GMP material. That can take -- that could take a year or more just to go through that kind of heavy lifting of making reagents on a scale that you need to run GLP tox and then go into [mab]. So the GamaMabs program was great because we're getting -- they have a master cell bank. They have an antibody. They have this done at production scale. So we can take those reagents, decorate them with various linker warhead complexes, and move forward very quickly, knowing that if something looks good, the next step to go forward in terms of GLP tox that the heavy lifting has been done by them already in terms of making these reagents and then getting those into the process. So it can -- again, if the pharmacology looks good, we can move quickly then towards tox and then towards the clinic. So it's a great mix of both practicalities of moving quickly with biology and potential pharmacology that we really like a lot. Makes sense?

That makes a lot of sense. We're up on time, but we have just one quick question that came in on e-mail. And so, with over $1.5 billion in the bank, it's the usual M&A or deal question that you always get, but I'm going to ask it anyway. How should we think about the next 18 months or so? What are you looking to add to in terms of capability, capacity, et cetera?

Look, for me, it's all about products and pipeline. We do a lot of these small deals, and we've done a lot of them very successfully, and we'll do more of those small deals, small upfronts, back-end loaded for success. Those are easy to do, and there's lots out there. We have a big appetite in terms of adding clinical-stage assets and/or later-stage assets, if appropriate. But that's all going to come down to the right data at the right time for the right value. And certainly, if you look at 2020, the value asymmetry was certainly skewed towards the small biotechs with a handful of patients in Phase I. That's changed since February 8, and it's becoming a much more even playing field. So if there's things we like and we can convince ourselves that it's worth the risk and the investment based upon our deep dive into the data, we could pursue those. But again, we're going to be very, very disciplined and very -- really focused on making ensure that the science and the value are correlating in our direction with what we want to see going forward. So you'll see us behave, I think, like we have in terms of small deals. And if there's a bigger deal to do that makes sense, then we will pursue that as well.

Awesome. That's a great note to end. Thank you so much for joining us today.

All right, Asthika. Good to see you, man. Thank you.

Take care. Bye-bye.

Bye.