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

Welcome to the Morgan Stanley Global Healthcare Conference. I'm Jeff Hung, one of the biotech analysts. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have Mike Morrissey, CEO of Exelixis. Welcome, Mike.

Hi, Jeff. How are you doing?

Good. For those who may not be familiar with Exelixis, can you provide a brief introduction?

I sure can. So Exelixis is a commercial-stage biotech company focused in oncology. We have a long, rich history of doing, I think, high-end drug discovery, drug development, and now, commercialization with our lead product, CABOMETYX for RCC, HCC, and hopefully, others as we go forward; a company of 900-or-so employees located in Alameda, California. We're really very excited to be able to move forward with the cabo franchise and a very, I think, diverse exciting offering of early-stage clinical assets. The goal is to help as many cancer -- people with cancer as possible. So great to be here today. I'll be making forward-looking statements today, obviously, too. So please see our SEC filings for a description of the risks that we face in our business.

Great. So let's start with CABOMETYX in frontline RCC. You've significantly grown your share in front-line since the approval of the combination with nivo from roughly 7% to 25% to 30%. So how much more do you think that you can grow your market share with the currently approved regimens? And where are you likely to take additional share from?

Yes. So we've been really pleased with our performance since we launched at the end of January. It's a very competitive space. Obviously, that's been the case since we launched single-agent cabo in second-line RCC back in early 2016. We're really -- we've always been focused on having differentiating data that allows us to put our very experienced and motivated commercial organization in the best position possible to be able to educate prescribers, physicians, et cetera, payers, about the benefits of our offerings. So certainly, that's been the case with the cabo/nivo combination. We've been very pleased to see us grow market share in the first half of 2021, see the uptake across all segments of the RCC landscape in terms of both community and academic prescribers across all different risk factors, so -- and doing that while keeping a very, very strong component of single-agent cabo in second and later lines. So it's best-in-class TKI, one that we're really proud of, and certainly, putting a lot of effort behind across the board, across indications. Where we'd go from here? I wouldn't want to speculate too much right now in the middle of a very important quarter, obviously. But we think there's room to run, and it's always going to be a competitive space. But at the same time, with the data we've got, with the team we've got, we're very, very motivated, coming off the tough week we're having with losing 2 senior executives. It just reinforces our commitment, our focus and the urgency that we have to help as many cancer patients as possible. And that's driving us right now. It's been a tough week for us as a team, families, obviously, just devastated by the loss of both Gisela and Jon, but it's one that we really take as a company, as a rallying cry, to really make their legacy our future success going forward. And I find that to be very -- and they're -- the way they live, very inspirational and very motivating. So we're doubling down here and very, very motivated to be able to help as many people as possible.

My condolences to the Exelixis' family. What do you see is the remaining opportunity in the academic setting since it tends to have early adopters? And then in the community setting, can you remind us of the initiatives that you have to expand there?

Yes. So from -- we had very -- as, I think, P.J. Haley talked about on both the Q1 call and the Q2 call, we had very early adoption of cabo/nivo in the academic setting. It's a relatively small segment, very important, obviously, because those individuals spend a lot of time on the podium, writing editorials, going on live talking about it. So we feel like we've done a really good job of having the uptake in that segment to be strong and early in the process. Again, these are the same people who were talking about combining cabo and nivo back in 2015 when the top line data and second line for both cabo -- individually, cabo and nivo came out on the same day back in July of 2015. So not all that surprising to me that they're going to be big fans and rapid adopters, and the 9ER data looks so strong across efficacy, safety, tolerability as well as quality-of-life endpoints. So we think we've got more room there, obviously. We're not -- with what we have with 9ER, and then with the triplet study with 313, we're looking to, as a theme for the organization, we constantly raise the bar for standard of care, right? Oncology is the most competitive, the most invested therapeutic area out there right now within biopharma. Standard-of-care can be -- can change rapidly. And we want to be driving that literally every single day for kidney cancer, for liver cancer, for lung cancer, for prostate cancer with new modalities as well. So we're really excited about that. And again, we're just going to push it because that's what our job is, to bring as much benefit in terms of new standard-of-care to patients as we can.

And what aspects of the combination in the 9ER data has resonated with physicians and their patients?

Well, let's see now, it's the classic totality of the data, right? We talked about this a lot back when the data was presented at ESMO last year, and then ASCO GU again this year and the Greenland Journal of Medicine publication as well as just the overall kind of gestalt around the totality of that data. So great activity from our radiographic tumor assessment point of view, tumor shrinkage, duration of response, PFS, just fantastic numbers there. The overall survival data, very compelling, and probably, the most important parameter for prescribers to look at. I think what really sets the cabo/nivo combination apart, it goes back to our decision years ago, and this is based on some of the early Phase Ib data that was generated with Andrea Apolo and all of her colleagues looking, really choosing to use the 40-milligram starting dose for cabo with full dose -- in this case, with 9ER full-dose nivo. That was a very important, and strategically, critical decision that Geisla and the team made because the idea that we had such strong activity at 40 with a little bit better tolerability, lower discon rates, the whole goal was to keep patients on the combination for as long as possible. They'll only benefit from the drug if they're on the drug, right? So she really drove that thinking to pull back a little bit from the 60-milligram dose to the 40-milligram dose to start, and then have that drive the efficacy, the great tolerability, the low discon rate. And very, I think importantly, the improvements in quality of life compared to sunitinib. So that totality of data together, and the quality of life plays into it, I think, really, really well. You want to keep patients on this combination for 16, 18, 24 months, whatever the number is, whenever possible. So you want to make sure that their quality of life is as high as possible, right? And that's important to patients, important to their families. And we've seen this personally, right, in the last couple of months with people very close to us, right? Quality of life really, really matters. And we think we have the data to support that and to help those patients, for sure.

And how has the success of the cabo/nivo combo changed the mix of cabo patients in RCC?

Well, it's had a dramatic impact on how we're enrolling and seeing prescriptions for first-line patients, right? So across risk factors, again, across prescriber settings, so it's been really -- we've had a 30% jump if you look at the first half of 2021, about a 30% jump in both TRx and NRx in terms of prescriptions. So it's really -- without losing very much, if any, on the second-line share, we've added a huge segment of the population in the first-line setting. So that's important. And it really reinforces, I think, our thinking that we've had in place back since the CABOSUN days when we had single-agent cabo showing superiority over sunitinib by itself, right? It was the whole idea that cabo was best-in-class, VEGFR targeting TKI with med activity, with actual activity really driving the blocking resistance as you normally see in patients with pure an/or selective VEGF inhibition. So the whole idea was we really believed, and I think that the data is now playing out, that every patient with kidney cancer should see cabo front line, second line, at least and maybe a little bit of third line. And that's how it's playing out right now. So we're pleased with that. There's a certain level of satisfaction to see that play out over a period of years, but we're not resting on our laurels. We have, like I mentioned before, the urgency and the mandate to do better by patients. And whether it be with the doublet, making sure we're educating all the prescribers effectively, and so they really understand the full data set; or the triplet of cabo/nivo/ipi from 313; or all the other studies that we're doing. It's -- we're on this mission to help cancer patients live longer and recover stronger, and that's what drives us every single day.

In April, the combination was approved in Europe. Any updates on the launch there?

Yes, I think it's gone really well. I think Ipsen has put up some pretty impressive numbers in terms of what they're seeing. Uptake has been, I think, pretty strong. Again, it's a little bit more complicated there with going through reimbursement, those kinds of issues. But they've been a really, really strong partner with cabo going back to the 2016 time frame. So we're very happy with their performance and happy with that collaboration. Same thing with Takeda in Japan. Again, we certainly didn't have the bandwidth and the, I would say, organizational kind of depth to be able to launch globally in 2016. So having these partners helping us reach more and more patients on a global level is very, very satisfying and very important to the overall strategy for how we want to build the cabo franchise. Obviously, as we go forward with other molecules in the pipeline that we're building and now profiling clinically, the plan is to keep those for ourselves and do the global clinical regulatory and commercial work as the data evolves and as appropriate. But it's all about making sure we can continue to find the right targets, find the right patients, build the right molecules, and then make that happen again and again and again. We've done that with cabo really well. It took us a while to kind of figure out the nuances, but now the challenge is to do that really on a massively parallel scale across the portfolio. And the team, and certainly, the Board and the management team are very focused at making sure we can be successful in that regard.

Great. So last year, in the third quarter, CABOMETYX faced some headwinds from lower demand, inventory drawdown and slightly higher gross-to-net. How should we think about the third quarter this year? Like, beyond potential headwinds from Delta variant, are there any other aspects or seasonality that are likely factors that investors should consider?

Yes. I don't really want to speak to what's happening in this quarter. You can -- you and others can look at the syndicated IMS numbers to see what's happening in the RCC market basket across at least different indications. Summer is always a little bit slower, globally. People go on vacation. People might buy drug early and use it for the -- for that time period. So -- but that's -- there's always an element of seasonality, and this year might be more exaggerated or not, who knows relative to Delta, relative to people kind of getting out, et cetera. So -- but again, we're -- you can look at the numbers. Things look, I think, pretty solid overall. So I'm excited about that, not seeing anything that concerns me. I'm really pleased with the overall performance of the team, of the brand, and the feedback continues to be really, really solid, both in terms of what we're hearing anecdotally from prescribers but also all the market research metrics that are either syndicated or we're following internally.

Okay. Well, your goal is to end 2022 with an annualized run rate of -- for U.S. RCC of $1.5 billion based on increased front-line share and longer duration with cabo/nivo as well as potential growth in second line. It's clear you've been growing front-line share. So how important is growth in second line to your projections for reaching the $1.5 billion annualized run rate?

Yes. So I think if you look at the simple math that we put together and you do a little bit of back of-the-envelope triangulation, we were doing $750 million plus or minus a year with second-line plus alone, if you look at some of the numbers pre-approval in -- earlier this year. So I think that would be the -- I think that's the way to look at it at a broad scale. We think we can maintain the second-line share that we've got, and then grow the front line to be able to get to that $1.5 billion target number that we have by the end of next year, probably ahead of schedule based upon the Q2 results. I don't want to triangulate that. People have asked about, are we going to going to change that number? Are we going to front-load it, whatever, left shift it? And the answer is, not formally. We certainly have our own internal goals. But the goal is the goal, and we're working towards that. It's -- certainly, I think, is indicative of how we view the potential impact of that combination in the kidney cancer space. And certainly, if you look at Q1 and Q2, we have, I think, continued to really exceed expectations around our ability to take really good data, differentiating data, and then make sure that prescribers understand it and use it in the context of their practices to be able to help their patients. So the oncology setting over the last 3 or 4 years, I think, there have been a lot of disappointing launches for a variety of new molecules that got approved and just kind of didn't do too well from the standpoint of uptake. I think we're the outlier there relative to cabo's performance. And that gets back to, I think, the data that the clinical team has put together. And then we have this very experienced deep commercial organization, which Jon Berndt was a big part of it, helped us build back in the day. But it's -- we've built things for success. And I think that's continuing to show itself to be true. And obviously, the urgency and focus that we have going forward will hopefully maintain that in the months and years ahead.

Great. Maybe moving beyond RCC, you have a December 4 PDUFA date for cabo in DTC. Can you describe the market opportunity in DTC and the importance of that indication?

Yes. So we have a long history in thyroid cancer. Obviously, the first approval we got with cabo -- single-agent cabo, was back in the 2012 time frame in medullary thyroid cancer, a very rare form of thyroid cancer. Differentiated thyroid cancer for patients who are RAI refractory is a much larger population, probably 10x or more than what we see with MTC. The COSMIC-311 trial was focused on second-line DTC patients who were -- who had either progressed or been refractory to a front-line kinase inhibitor. So there's no standard-of-care there. It's a relatively small population. $100 million, $200 million opportunity, probably, at steady state. But there's a lot of patients that need better therapies, and we certainly had, I think, very strong data. We'll have an update coming up at ESMO, I think, in a week or so. You don't see too many hazard ratios in the 0.2 range for PFS. So we were really excited to see that. No decrement in survival, so a pretty strong trend in overall survival as well so -- with crossover, which always complicates that. So yes, so that's going. The file is in with the agency, and I don't want to opine upon what's happening there, obviously, but it's a very important next milestone for us. And every patient counts, every opportunity to help somebody counts. And that whole idea has never been more crystallized for us than it is today, right? So we're excited about that data, and we'll continue to push that forward very aggressively as appropriate based upon future regulatory actions.

Okay. And you may be following sNDAs for cabo in front-line HCC and metastatic castrate-resistant prostate cancer. What is the current status of those programs? And have you had meetings with the FDA yet?

Yes. So we talked about this year being a big year for us relative to potential sNDA filings. Obviously, 311 is the first one based upon the data we had at the end of last year. Both prostate cancer as well as liver cancer are important options and opportunities there. You've seen a press release, top line data for both. We'll have a prostate cancer cohort 6 data at ESMO coming up in the next week or so. Really excited to have that data be presented in kind of full form, late breaker, Dr. Neeraj Agarwal will be presenting that at one of the oral sessions. So we're excited about that. The liver cancer data will probably come out later this year. We're working through some of the details there right now. There's lots of interest with investigators and KOLs in the liver cancer space to get that out because there's just -- I think there's just a lot of excitement about what that regimen could do, especially for patients with varices who are contraindicated for, say, a longer something like bevacizumab that has long half-life and could cause pretty significant bleeding risk. In terms of regulatory interactions, I don't want to speak to that while we're in that process. As we have more information to share, we'll do that when appropriate. So stay tuned.

Okay. Well, COSMIC-313, that's event-driven, and you're expecting data later this year or in early '22. Can you talk about the type of patients that might see a further benefit with the triplet versus cabo/nivo? And are you able to quantify like what's the incremental size of that population?

Yes. So it's a really interesting trial, and I'm really proud that we're doing that. I think it's the first triplet to ever be done in RCC. So a little company like Exelixis, we have big ambitions to help patients, and we're willing to swing for the fences here relative to really pushing potential improvements in standard-of-care. And this is a great example. When you look at it as, you look at the 214 data with ipi/nivo, you look at the cabo/nivo data with 9ER, if you combine the best of IO-IO and the best of IO-TKIs into one regimen, could you bring more benefit to patients? Could you have that PFS right shift relative to, certainly, 214, but also potentially 9ER? Could you raise the tail? I mean I think that's part of the really impressive data with the long-term follow-up from 214 is that you see this 30%, 35% survival benefit over a 5-year period, which is just, I think, really, really impressive. Now a lot of patients progressed rapidly on ipi/nivo. So if you add cabo in that mix, could you change that because you raise the CR rates? Because you improve the duration of response, et cetera? So there's lots of, I think, really important questions that we're going to be able to address here. I would say this is the first of potentially many triplets that we'll be doing, maybe not with cabo but with 092. Going forward, we think it's a great opportunity to push that envelope relative to novel either IO-chemo combination doublets or IO-IO doublets as we go forward. I have a hard time thinking of a scenario where adding a molecule like cabo or 092 into that mix can potentially bring benefit in some shape, manner or form at the right dose in the right population, et cetera. So we're excited about that. This is the -- again, first of, hopefully, many triplets that we'll be doing, but it's one that we're really, really excited about and just indicative of how we put a lot of effort and a lot of thoughts and really try and push the envelope for patients with cancer.

Speaking of XL092, you said you'd like to move that into pivotal studies this year, if possible. How are the prospects for that looking? And what are the key gating factors that you need to meet for that to happen?

Yes. So 092 is a huge priority for us. It's really, I think, one of those opportunities, as I talked about previously, where we can take the learnings from a decade or more of clinical evaluation with cabo, and then apply those to what's arguably a better molecule relative to shorter half-life, which makes it easier for prescribers and investigators to dose adjust as needed, to keep patients on drug longer and bring as much benefit as they can. So we've got a lot going on there. You've seen the clinical collaborations that are now moving forward with atezo, with either nivo, ipi/nivo or bempeg from Nektar. Really excited about the collaboration with Merck KGaA with avelumab in bladder. And again, the wave of pivotal trials, we're hoping to start this year, don't want to get into the guts of what's happening there across the board, but we're really -- we have, I would say, some low-hanging opportunities that we're going to look to pursue the first one, again, if things go well this year. And then, we have the wave that would come after that. So it's really an opportunity for us to follow up on all the kind of historical data that we've got with cabo that we just have to either have the time or the money to invest in, but also look at these new combinations, which we think are really exciting, and potentially, bring a lot of benefit to patients.

Can you talk about XB002? And how it's different from Seagen's tisotumab vedotin? And what advantages that may have? And are there any updates on when we might see initial data?

Yes. Everybody wants to know about Seagen's data. So look, it's a really exciting compound. It's our first biologic that we are pursuing now clinically. It's a really interesting molecule, and I'm really excited about it. And there's lots of interest across the board in terms of investigators, just basic scientists in terms of how this molecule binds to a tissue factor, and certainly, on the investment side, too. So it's -- we think it has the potential, and we, obviously, have to prove this. We've seen this preclinically play out, but that doesn't mean a lot relative to going into the clinic and getting clinical data. But it's different in a couple of ways. First, it binds tissue factor differently than other molecules. It was designed to be noncompetitive with Factor VII. So the ability of the antibody, the binder, to block the coagulation cascade, and potentially, lead to increased bleeding risk is much, much lower. And that's been shown preclinically both in terms of efficacy as well as tox models, which is encouraging, and we have to prove that now in the clinical study. We also have what we think is a better next-gen linker warhead here that, again, head-to-head with the first-gen auristatin-type warheads shows much better tumor cell killing, both in vitro and in vivo. So you put those 2 together, it really begs the question, can you go up higher in dose? And if you can do that, do you have more on top of having more drug in the system at the tumor, can you then have better cell killing that could drive better efficacy? So lots of questions that we need to pursue and understand clinically, that's where the action is at. But we're very excited, very motivated to make that happen in real time. When you see data, again, we're not in the game of generating 5 patients' worth of data and then having a poster at some meeting. We want to have a full mature data set to really frame the opportunity and frame where we can take this. We're already thinking about expansion cohorts. We talked about that earlier in the year, and starting the year, even at the JPMorgan presentation, we've got 6 different tumor types that seem to have pretty strong tissue factor expression that are big tumor counts, lung, prostate, et cetera. So excited about that. And the idea that we can potentially play this game around if we're correct in our kind of hypotheses around push the dose, less bleeding, blah, blah, blah, then can we think about novel combinations, including those that we have within our portfolio with 092, with other agents that we're developing that would allow us to bring potentially more benefits. So we're thinking rapid expansion. Early signals of activity and sensitive tumor types could lead to potential subpart H filings, if things work out well and then thinking about a broad program. So it's early days, but we've got big ambitions here for the molecule and one that we're really excited about, for sure.

Great. Maybe one last question. What aspects of the Exelixis' story do you think The Street either underappreciates or misunderstands?

Oh, gosh. I saw that in the questions that came up. I was going to turn it around and ask you that question back. It's -- people see us for what we are. The market defines, and I think, it's pretty efficient at understanding the different moving pieces of any organization. So we have the ANDA overhang that, I think, is going to get resolved some time next year. So I think that's a big part of the play. We have the good fortune and the challenge of being a one-product company, and it's a big product. And very few companies, I think, have the success that we've had. But then once you have that, then people ask, okay, well, what's next? How do you take that to the next level? Or how do you build a portfolio, et cetera? So we're in the mix of all those different issues. And I'm just thrilled to have the team we've got and the management team we've got and the Board's support to be able to navigate those with, I think, great, great clarity of purpose, great drive. We're very strong financially. We've got tons of cash in the bank. We're looking to use that from a BD perspective to be able to continue to reinforce the portfolio that we've got and the mandate to really move forward aggressively and help as many people as we can. So The Street is The Street and understand that -- to understand that dynamic, we've got our eye clearly on what success looks like. And over time, that will all converge, hopefully, as we go forward.

Great. Looks like we'll have to leave it there. Thanks so much for the time, Mike. Appreciate it.

All right, Jeff. Thanks, then. See you.

See you.