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

Hello, everybody. My name is Andy Hsieh, one of the biotech analysts here at William Blair. I cover Exelixis. I'm required to inform you that for a complete list of research disclosures and conflicts, please visit williamblair.com. With that, it's my distinct privilege to introduce Mike Morrissey, President and CEO of Exelixis. Mike, thanks for participating. I'm not...

Andy, how are you doing? You're doing good?

Very good. Very good. So from the trend lines, I'm optimistic of maybe we can do this in person next year.

I hope so. I am done with Zoom. I'm ready to get back on a plane and certainly love to come to Chicago next June. That'd be awesome.

Great. Great. Great.

So the theme of the conference, as you know, it's growth. So I think it's a great way to start maybe by taking us back to a very transformative 2020, highlight some notable accomplishments or achievements and then maybe inform us about potential growth drivers for the near term and midterm.

Yes, absolutely. And thanks again for the invite. Always great to chat, again, preferably live, but we'll do that next year. So before I begin, let me remind everybody 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 yes, 2020, it seems like that's about 10 years ago, right? It's about 2019. I have to go back to my notes. But yes, look, 2020 was really an amazing year for us. Certainly, with all the challenges around COVID and the pandemic and going out and sheltering and working from home. I thought the team did just a remarkable job with their focus, their urgency, their resilience and just the complete dedication to helping patients with cancer, I thought would be -- it was really a time of where the cream of the crop rises up to the top, and I thought they did that across the board. So let me just give them a quick shout out there. So you think about 2020, we started the year putting out some really, I think, really important kind of future aspirational numbers. We came off 2019 with nonstop narrative around 9ER. How do you compete? How do you get survival? Is it going to work? We had hundreds of meetings talking specifically and exhaustively about 9ER. And then to have that data pop up in April and kind of get the ball rolling relative to having what was really compelling top line data that we then filed on. We talked about, led to the approval in January of '21 really was the, I think, the highlight of the year. On top of all the other work we did in terms of fully enrolling 311 or at least getting to the point where we could run the analysis in terms of the response rate in PFS. Saw great progress in 312, 313. Initiated the contacts, kept 092 moving forward, looking at combinations there. Our pipeline with XB002, the tissue factor ADC as well as 001 -- 102, the CDK7 inhibitor moving forward. So we're coming out of COVID, 15, 16 months later, stronger than we were when we entered it back in Q1 of '20. So I think that's a remarkable state of affairs for us. And obviously, our job is to keep that moving forward very aggressively and to make sure that we're executing well, that we're disciplined with how we invest and continue to make the most of what we have with cabo and 092 in this growing pipeline so we can help even more patients going forward. But I'm thrilled to be where we're at today and certainly very optimistic about where we're going in the future.

Great. That's a great intro. So maybe kind of a tangential to that. ESG has become kind of a very important issue for investors. I think you guys kind of highlighted in the annual report. Maybe this is a great opportunity to kind of remind investors what you guys are doing there and what you're most proud of.

Yes. No, I'm really happy you raised that you asked that question. I think this is probably the first question we've gotten in any kind of health care banking meeting to talk about ESG. And we spend so much time focused on that. We talked about trials and data and revenues, but the foundation of the business in terms of our focus on building a sustainable business going forward, is really based on the concepts within ESG, right? So environmental, social, governance are all really important parts of what we do. But that comes down to, right, people, ethics and then the planet, right? And can we maintain? Can we be good corporate citizens? Can we do the right thing in terms of those different components? And I think we've really focused on that going forward. And I'm proud of all the different aspects, we could probably spend the next hour talking about our different ESG initiatives. And I would -- anybody that wants to learn more about the details I'd recommend going back to the annual report, where we talk about that, we have on our website, too. I'm really proud about what we're doing relative to the planet. We've been very, very focused on making sure that we are good citizens from an environmental point of view. 1951, which is going up right there. You can see in the back of my last picture there. Will be, hopefully, if we're successful, a lead certified building, carbon-neutral. We have numerous EV charging stations. We've been very aggressive around having -- giving employees options to be able to commute to work together, keep the footprint -- carbon footprint down as much as we can from the commute point of view, which in the Bay Area is a huge issue as I'm sure it's in Chicago and L.A. and other urban centers. So we're really happy about that. Our governance structure, which we've invested in heavily over the years and really between the Board and management tried to streamline and try to make sure we cover all the bases is really focused on making sure we're an ethical organization and our employees operate with the highest degree of integrity across the different functions that we choose to pursue. And I'm really pleased with that because we want to compete. We want to win whenever we can, but we have to play by the rules that are out there. And that's true on a local level, that's true on a global level. And I think the culture that we've got here is so enabling in that regard. So I'm thrilled about that, too. I would say what I'm most happy about is the team and the people component of this. Socially, we have been, I think, really driving the culture forward over the years. We've been growing dramatically in that time frame. We want to have a diverse workforce that is not only comfortable in their own being, their own skin and contributing, but really feel like they belong to a team that has a mission to help cancer patients. And you take that individual makeup that we all have, we're all different people and have different ways of viewing the world and problem solving, but to combine that together in a team where everybody can really thrive to help us do our job better to meet the mission that we have in terms of helping cancer patients live longer and recover stronger is just -- it's a great way to organize it. We've grown dramatically even during COVID. We added about 300 employees during that time frame. So it's just reflective of the -- I think, the vibrancy that we've got as a team and the depth we've got as a team and the diversity we have as a team. So I'm very excited about having everybody feel like they belong in the organization and can really contribute as we go forward. So it's a great topic. Love to go on more, maybe a workshop sometime. I know you and Peter talk about science a lot, but it'd be fun to maybe talk about ESG as a separate topic some day when that -- when we have time.

Yes, yes. No, absolutely. This is kind of a side that Exelixis and we're not really -- we typically don't get the purview into. So thank you for that insight. So kind of going back to your original comment about 9ER, the data heavily integrated -- interrogated by the investment community and medical community. So perhaps you can give us an update regarding how you feel about the launch since the approval in January. And yes, and what kind of differentiation do you see on the ground level?

Yes. So it's a really good, I think, case study for what it means to compete in the oncology therapeutic area today, right? Oncology is clearly the most heavily invested in therapeutic area by far and away in terms of biopharma, big pharma, small pharma, mid-cap pharma. It's just -- everybody is in that space because the disease complexity is so great and the unmet medical need is so -- continues to be, even with all the advances, so large. Our job is to constantly raise the bar on standard of care. And that's how we look at how we define success in terms of both clinical and regulatory, but also commercial. And the 2 go hand in hand. If you can generate differentiating data that allows you to help more patients in a way that other past molecules haven't then not only do the patients benefit, but then you'll be able to build a market on that data. And I feel -- we feel like that's what we did as an example, with 9ER, right? We made some, I think, some really strong decisions early on about using a 40-milligram optimized dose that obviously is very active, but maybe left a little bit on the table in terms of activity with the idea that we would be able to maintain good activity, good disease control over a chronic setting and keep patients healthy and their quality of life high. And that was the hypothesis. And I think it's really rewarding to see the data come out where we've got strong efficacy, strong survival data, doubling of PFS response rate. I think the lowest discon rates amongst all the various trials that have been done and quality of life data that really, I think, sets the 9ER data set apart from all the other combinations that have been out there since then. So I think it's a really strong data set. It resonates well with community docs, the academic docs across the different segments of the RCC continuum in terms of risk profile. So we're thrilled about that, gotten off to a strong start, certainly as the COVID pandemic starts to wind down with all the vaccinations now domestically. We're out there in the field more and more, but we're getting very, very strong support from prescribers, and we feel good about the fact that where we can take this and what this means for us as we now go through the next set of milestones for DTC and frontline HCC and prostate cancer, et cetera, so lung cancer. So there's lots of moving pieces there, but it certainly helps us put a really big stake in the ground to say we're here, we're going to compete, and we've got data that allows us to make a difference in patients' lives every single day.

Yes. Great. Thanks for that. And so in terms of looking across the field, the RCC field, it's kind of interesting to see the long-term OS data from ipi/nivo, right? So 47 months versus 27 months versus pembro/axis, that's 46 versus 40. So I'm just curious about your interpretation of that data set. And I guess the second part is maybe does that kind of alter your view on your hypothesis in terms of 313, the triple combination?

Yes. So I think you have to maybe take a step back, again, the ipi/nivo long-term survival data is for the intermediate per -- poor risk population, whereas the -- I think, the 426 data looks at the favorable on top of the intermediate poor. So favorables do really, really well. So I would imagine you see some right shifting with adding that in. I haven't looked at the intermediate poor versus intermediate poor side by side. I'm not sure how that compares yet. So look, it's all about moving the needle, again, right shifting those curves, right shipping those medians. Obviously, salvage therapy can play a big role there, too, in terms of the longer-term follow-ups. I'm interested in looking at the tails as well. I mean how many patients say, with either regimen have these long, durable, stable disease patients that can basically -- they're functional cures, right? Is that 30% for ipi/nivo, What is that with axi/pem? What is that with cabo/nivo? Those are all important questions that we have to ask. With 313, the -- I think the key question was a little bit different is can you take best-in-class IO-IO and best-in-class IO-TKI with cabo/nivo and look to improve either one by adding, say, cabo to ipi/nivo or ipi to cabo/nivo in a way that gives you, I would say, a broader degree of activity and moving more and more patients in terms of that right shifting of the various parameters, right? If you look at some of the initial 214 data, patients that did really, really, really well with the patients that were highly PD-L1 positive, PD-L1 negatives did okay, but not great. And you can see how the smaller population of PD-L1 positives really dragged the curve to the right based upon just the fivefold improvement in some of the parameters versus sunitinib. So the whole idea is, can you drop down the number of patients say that you would normally see with primary progressive disease? Can you extend the PFS, which isn't a real strong suite of ipi/nivo, et cetera, while maintaining all the longer survival benefits that you see. And can you raise the tail? So those are all key questions. But again, I think 313 really gets back to the idea of what I talked about before. Our job is to run the right experiments with the right compounds, the right combinations and to push the envelope so we can raise the bar on standard of care. That's all we do, right? At the end of the day, we're looking to improve standard of care every single day. If we just -- If we can't do that, then we're not benefiting patients, we're not benefiting shareholders. That's success because clinical success there, differentiated clinical data drives commercial success. So 313 is, I think, a really important part of that. And I'm really excited that we're doing the first triplet in this big field, big opportunity with the frontline RCC, the first to do a triplet study, which I'm really proud of, right? So great job for the team for sure.

Right, right, right. So maybe a little kind of detail. So in terms of the primary analysis, is this the same as 9ER, where you first take a look at PFS, and at the same time, you also take a look at OS?

I would say for -- the answer is yes, but that -- I think that's true with most trials. PFS by itself is a great endpoint, primary endpoint, but you've got to be able to prove to regulators that you're not having a decrement on survival as well. So you look at survival almost always when you're doing PFS anyway, just to have that first -- that first interim gives you some level of look relative to what's happening on the survival side, right? And there's -- a good example of that is the favorable risk population in CheckMate 214, where it was -- the hazard ratio was greater than one. So you just need to be able to run the experiment and then kind of check that box from an overall safety, survivability point of view to make sure that things aren't backwards. And certainly, that's been the case with 9ER and with median and others. So that's kind of standard fair for us, for sure.