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

Good day, everyone, and thank you for joining the H.C. Wainwright 23rd Annual Global Investment Conference. My name is Mike King, and I'm a Senior Biotechnology Analyst and Managing Director at the firm. While we are virtual this year, we're confident we're going to be able to provide value to you with over 850 presenting companies at the conference as well as via your interactions through one-on-one names. For those of you that don't know us well, H.C. Wainwright is a full-service investment bank dedicated to providing corporate finance, strategic advisory and related services to both public and private companies across multiple sectors and regions. We have a total of 19 publishing senior analysts and over 560 companies covered across all sectors. Please visit HCW CO on our website for more information. From a logistics standpoint, please make sure to reference your virtual conference online portal that provides your individual links to your meetings in all presentations. Also, please join us for our corporate presentations and panels that will be available live and streaming on September 13 through 15. And with that said, we'd like to welcome our next presenting company, which is Exelixis, which we have a buy rating on a price target of $64 on. And we're delighted to have President and CEO Michael Morrissey, joining us here today. We're going to structure this as a fireside chat format. And so hopefully, that will be more helpful to everybody's elucidation upon the Exelixis story. So Mike, thanks so much for joining us.

Yes, Mike, thanks for the invite. Great to be here. Hope you're doing well.

I just want to take a quick moment and just express our condolences for the team members that were lost from Exelixis just recently. Personally knew Gisela for quite some time, knew her back to her days at Abgenix, always a lovely person. I just can't say enough about her. Didn't know Jon Berndt, but obviously, he was very important to you from an organizational standpoint. I don't know if you want to just say a word or 2 about that.

Yes, thanks for those kind words. Obviously, it's been a really tough week for us. It's so sad to see 2 people that you respect and work with and love for years and years and years pass on. They were both remarkable people, great leaders, just fantastic, I mean, certainly moved the needle for patients both individually and collectively over the years if you think about what they did at their -- at Exelixis and some of their prior jobs, just phenomenal. So yes, a lot of really said people. Our hearts go out to their families, and we're doing everything we can to help mitigate and help them with their loss. But...

I'm sure they want you to carry on. And...

Well, that's...

Keep their legacy and...

Yes, we talked about that a lot yesterday, right? People think about legacy in terms of looking to the past. And my message to the team yesterday was their legacy is really us and how we move forward as an organization to help even more people who have cancer. And that's -- they were both literally working to the end of their lives to help patients with cancer. And it's a remarkable testament to their dedication and their commitment. And that foundation, that platform, that foundation is something that we have to build on going forward. So there's a lot of people who are hurting here right now, Gisela's office is literally about 20 feet that direction. So I walk by there 10 times a day, there's flowers there. There's a picture there. So think about her a lot. I think about Jon a lot. He was an amazing -- just an amazing leader and father and just tremendous friend, and we have a lot of work to do to keep their legacy alive and to help more people. So that's the goal, for sure.

Well, and maybe that's a great transition into -- hate to be, sort of, not too [ blunt ] about it, but it's a great transition to the recent spectacular quarter because both of those folks laid the foundation in the form of the CheckMate 9ER study results and getting that -- getting cabo out into the patient world in the hands of physicians who are prescribing it. So maybe we'll kick off from there and just talk about the -- well, more about the quarter. As I like to joke, it's almost as if something happened during the first quarter to drive that pump in sales. But was there a -- do you believe there was some kind of warehousing effect? Or were -- docs saw the ASCO GU results and just said, "Oh my gosh, I got to get this out there". Maybe you can give us some color on those kind of dynamics.

Yes. So we launched at the end of January this year. There's certainly something to be said for having individual molecules that were best-in-class as single agents in their category before the combinations came online. I'll -- I've said this before publicly, and it's always been somewhat remarkable to me that sometimes the predictions, kind of, work out. When we had our top line data from METEOR, that's single-agent second line trial of cabo versus everolimus back in July of 2015, about at -- we had our press release at about premarket, probably 5:00 a.m. or whatever. A couple of hours later, the BMS press release for nivo, single-agent nivo came out again -- against everolimus. The phone was ringing within half an hour of those press releases coming out more less back to back from all the investigators saying hey, we should combine cabo with nivo, it would be great, efficacy would be fantastic and really move the needle blah, blah. That was 2015. So people have been thinking about that, talking about that, both hypothesizing and putting together, I think, pretty interesting early data to show that was a viable way to go. So for us, it was to see the 9ER data, the top line data that came out in April of 2020 and then having the presentation and New England Journal of Medicine paper and then the -- ultimately, the approval kind of all come in a good cadence. Data speaks for itself. We always talk about -- our job as R&D -- as an R&D team is to build molecules, develop those molecules either by themselves or in combination that can generate differentiating data. The oncology therapeutic area is so intensely competitive right now. There's just so much going on in big pharma on a global scale, midsized biopharma, obviously, every small company and their brother in some shape, manner or form is probably working on oncology. So it's a very, very competitive space. And you just have to generate data that can differentiate what you've got from everybody else playing in that space. We did that with METEOR and CABOSUN and then 9ER as well. And I think the momentum we're seeing commercially is, when you have that kind of data set with, arguably, a best-in-class commercial organization that has just really -- led by Jon on the sales side, Jon Berndt, and just his great team that he and P.J. Haley built across the organization to be able to make that work. So we're thrilled with that. But at the same time, quite frankly, Jon had renal cancer and it just really underscores the importance that while we've got a great compound, and we've got great data, there's so much more work to do, and we're so committed to that, it's a reminder for us that you can't spend too much time looking backwards. You got to look forward and you've got to plan for the next trial, the next drug, the next combination because there are patients like Jon that need better therapy...

Right, right. We definitely want to spend some time later in our talk about the triplet that is going on right now. But just from a standpoint of, as you know, the market is a tough discipline area and is a very what have you done for me lately kind of thing going on. I mean it's obviously a remarkable uptick in sales, but should we expect more of a leveling off? Because I know that after the quarter, and you gave the guidance, I think people got a little concern that, oh gee, your guidance is, kind of, conservative given the numbers that you just put up. So I don't know if there's anything else you want to add to that or...

Yes. Yes. I think we've had a very conservative approach towards guidance over the years. For a long time, we didn't give guidance because it just didn't seem to make a lot of sense with all the moving pieces. And I think being conservative and meeting or beating is probably the way to go. And certainly my style. I'd rather measure their model and go with real data as opposed to what might happen. So it's -- we're -- it's a very competitive space. Other combos are now online in terms of having approval. We're competing with a lot of big players right now, and we, kind of, revel in that level of competition. And we think we've got the data set and the team that can compete very well with anybody on the planet when it comes to GU oncology and certainly in renal cell. So yes, so bring it on, we're ready to go and we'll...

Well, let's talk about that because your competitors, I mean, Merck and Eisai with Lenvima and KEYTRUDA combination has not seen the same kind of uptick yet. I don't think it's as visible either because they're both larger companies with lots of products, but you seem to be holding your own against a Leviathan, literally. Maybe you can talk about, kind of, features and benefits of cabo that you think -- I'm sure the name recognition helps. But at the end of the day, you have to have the data to back that up. So what is the data that is really differentiating?

Absolutely. Well, we made some, I think, some really important decisions early on. And again, all credit goes to Gisela and her team for doing this. But we decided early on with the cabo I/O combinations was to pull back a little bit on the dose to really ensure that we had longer-term better tolerability than what might normally see with a TKI/IO combination. So cabo has always had this I'd say pretty wide dynamic range of activity we see. RECIST-type responses across different tumor types at 20 milligrams daily, at 40 milligrams daily, at 60 milligrams daily, 60 is the label dose for single agent, RCC, HCC, et cetera. But we -- based upon the early Phase I experience, our view is let's take a little bit off the top. We still saw great activity with the cabo in this case, nivo combination, but we had the idea that with -- we're looking to really treat patients for potentially years, not just months. So I think that decision which we made probably in the 2018 time frame really has paid off dramatically because we see great efficacy in terms of PFS, overall survival benefit, response rate. Tolerability I think, surprised a lot of people, low discount rates. And I think the quality of life data, which really resonates well with prescribers, with payers, with patients, I think, really helped us have that totality of data across efficacy, tolerability, safety and quality of life. That gives us the kind of -- again, the kind of differentiating data that we need to compete against 4 or 5 different regimens that are out there right now. So we're pleased with that. Again, pretty straightforward message for the team from a marketing and sales point of view to be able to get out there. And we're in the trenches every day as things kind of -- as the COVID and delta kind of open and close, people get -- let us in and don't. It's a simple message that resonates with a lot of people in terms of helping their -- giving their patients an option that I think really resonates across the continuum of stakeholders here.

Right. Right. What -- can you talk a bit about, from a commercial standpoint, the -- I'd say the one thing that -- it doesn't have as nice a product profile as -- Lenvima doesn't have as nice product profile as cabo does. But it does have a couple of indications that cabo does not. And when you think about payers and health care plans that are -- have certain TKIs on their formulary. Is there any concern on your part that because Lenvima might have some broader indications that they may be able to get into some plans that cabo has -- will not be or have you not experienced that kind of...

We haven't seen that yet. I think cabo's coverage across the board is very, very broad and deep. Kudos to the market access team, which we've -- when we launched cabo in 2016. We didn't look to do this on the cheap. We knew that if we were going to compete at every layer of the continuum relative to the commercial -- potential commercial success. We had to invest with talent, with energy, with the right people experience, and we did that. And market access was certainly no exception there. So that team has really done a great job of making sure that we've got every possible aspect of coverage in place and kudos to them because it's really paid off because, again, cabo's success as a single agent, I think, laid the foundation for then combination success going forward. And the doublet's going well, and we're certainly interested in expanding indications with other CIs, the triplet you talked about, et cetera. So there's lots of moving pieces. It's a relatively slow build in terms of how this works. And I'm not sure we always get credit for it from the street perspective, but my job -- our job is to make sure that we are exceeding expectations for patients and the patients who are experiencing some level of clinical benefit from cabo and all the molecules in our pipeline grows over time. And that's the focus, and we're just absolutely clear eyed about what it means to be successful as an organization. So it's good.

Okay. Well, you mentioned the triplet, maybe we can get an idea from you sort of -- not necessarily that they're in a race against one another, but cabo versus 092 in the triplet combinations, where do we stand on both of those?

Well, for -- I mean, the first triplet is the 313 study. That's, again, frontline renal in the poor and intermediate risk population, looking at the triplet of cabo and nivo and ipi versus ipi and nivo. You look at the CheckMate 214 data. And certainly, as that's matured over the last 5 years or so, it really shows really, I would say, remarkable staying power from the standpoint of having the tail kind of raise up in terms of patients who have these long, durable both responses and survival. And just shows the power in the right patients and what a IO-IO combination can do. So the whole goal was can you -- whether you look at it from an IO-IO point of view and adding a TKI like cabo on top of that or maybe a 9ER point of view with cabo/nivo and then adding ipi on top, can you bring more benefit to patients by having a little bit more power added to the IO side or can you address some of the -- maybe the higher level of primary progressive disease you see? Can you increase the PFS, can you again raise the tail even more, et cetera. So we think it's a really exciting study. It really reinforces the notion that we need to be on the cutting edge of clinical research. This is the first triplet that's being done in RCC to my knowledge ever. And I think that's a fantastic, I think, vote of confidence from our side about what we're doing about cabo, about the BMS collaboration that we've got in place and has been there for years, if not a decade or more. So we're really excited about that. It's fully enrolled, lots of excitement about the trial. Obviously, it's like everything else in terms of a randomized pivotal trial, we're counting events. And when we hit the event number, then we'll roll that out as we normally do. But it's certainly -- it's good to be on the cutting edge, looking to generate differentiating data that can potentially help even more patients, right? So stay tuned...

The good news is that, as you know, RCC is very immune friendly. And I noticed in the recent monthly data from IQVIA that Yervoy sales are enjoying a bit of a resurgence. It seems to me that be a function of the medical community figuring out that it's kind of maxed out the PD-1 [ at aside the ] access and it needs to start bringing in the other side of that, so...

Yes. And that could be from some of their lung focus as well. They're certainly hitting that pretty hard right now. So we have a lot of -- we do a lot of market research and a lot of surveillance, both between kind of public syndicated data, but also we do a lot of deep diving into the data from a claims point of view. So we feel really good about cabo growing its market share. Certainly, the first half of the year, both from a TRx and NRx point of view, we've seen just tremendous growth in the first half. And we talked about that on the Q2 call. So it's -- we're going to keep our eye on the ball. Going to keep cranking here to make sure that we can help every eligible patients as we can going forward and bring in -- if we have the opportunity, to bring in new regimens and new doublets, triplets, whatever. We want to be a leader in kidney cancer for the foreseeable future. And 9ER is a great place to put a stake in the ground now, but there's more. There's 313, there's CONTACT-03, that's the second line study of cabo and atezo post an I/O failure. So there's lots going on there. And what we're doing in R&D, we think could also potentially impact that as well in terms of some of the ADCs that we're thinking about, too. So we have a long-term commitment to this tumor type into the patients that have kidney cancer, those that have it now and those that may have it in the future. And our goal is to help as many people as possible.

That's great. I mean we've spent a long time just talking about renal, but there are other potential indications as well. Two that I want to spend a minute on are HCC and prostate. It's, I guess, a bit surprising that the HCC study came out the way it did. Is there anything salvageable about that? Are you still waiting for the final data to come in before making any decisions? Will you turn that histology over to 092, how are we thinking about HCC because that seems to me to be where renal was 5, 6 years ago. So it's a major opportunity.

Yes, I agree. Yes. Yes, I think the 312 study was really interesting. We're hoping to have the full data set presented later this year, again, with things going. There were a lot of live meetings scheduled that are now going back to virtual. So we're navigating that all right now. But I think we've got a pretty good idea about how that's going to [indiscernible] in terms of having that data presented. It's a strong data set, certainly big win on PFS. The survival was -- wasn't as we had hoped, but we think we understand why that is and we'll be able to, I think, tell a pretty convincing -- provide a pretty convincing narrative around what happened there as we go forward. So it's -- the feedback that we've gotten from KOLs pretty consistently, and most of it has been unsolicited, has been kind of like, guys, this is a positive study, you had 2 primaries, you -- one-on-one, and there is no decrement on survival. So congratulations, number one. Number 2 was that a lot of prescribers don't use BEV/atezo in patients that have either gastric or esophageal varices, which are prone to bleeding and it could really be a problem, especially when you've got a 28-day half-life with your anti-angiogenic. So their view was PFS is actually really good here and...

I mean, it's a remarkable...

Yes, exactly. So if I have a choice between using a single agent TKI or this, if it's approved based upon the PFS data, then I'll use it, right? So we've actually been pretty encouraged by that. And you've got to jump through all the hoops that we have to jump through in terms of having the FDA discussions and the filings and all that kind of stuff. So there's still some work to do, obviously, but I think we're encouraged by the data and the feedback that we've gotten from KOLs. And as we talked about back in January, we had top goal for the company this year was to have, again, pending regulatory alignment, 3 sNDAs filed for thyroid, which is in prostate and liver, and those are basically in progress in some shape, manner or form. So a lot of work to do. Again, lots of moving pieces and certainly COVID and sheltering in place. And now the tragedy around Gisela and Jon have been important things to kind of consider in the context of what we're trying to get done, but I got to tell you, the team is just locked in and their level of resilience and spirit and energy under pretty dire circumstances has been remarkable. So I couldn't be prouder and we're just going to keep our eye on the ball here and get done what we have to get done.

Well, it helps to have a great molecule to work with, and you got that. I don't know if you have any -- you mentioned just prostate [ in passing ] I don't know if there's anything else to add there or, again, waiting for further data FDA guidance it involves.

Yes, I think I covered it all pretty well. We'll talk more about any kind of regulatory discussions when appropriate. We have a late breaker for the 021 data at ESMO coming up in 1.5 weeks or so. So we're excited to get the data out. There's lots going on there. We're really excited about prostate 092, covering a lot of ground there as we go forward. We're looking at a very -- not niche, but certainly small population within prostate, those patients with measurable disease. And obviously, this is a bone-predominant disease. So we've seen good data there in the past with cabo and certainly want to expand that with 092. So there's lots of plans and lots of things moving forward there as well that we're super excited about.

I'm old enough to remember some of the early data that Matt Smith generated with like 80 milligrams or 100 milligrams. All right. Well, why don't we turn over to 092. I was just checking clinicaltrials.gov again, and this is an enormous undertaking. I mean it's an 800-patient study, multiple arms. Just in general, is there anything you'd say about a potential for a fast-to-market strategy for 092? Or is it your intention to try to build as big a franchise for 092 as you can when it first rolls out?

Well, it's really both. We certainly -- and again, kudos to the product development team, to the clinical team for putting together what I think is just a fantastic plan and building collaborations now with 3 biopharmas to be able to look at different -- I guess, 4 even, look at different 092 combinations with various ICIs and different flavors and scopes. We have -- I think we have some really interesting fast-to-market approaches. The goal has been to roll out a pivotal trial this year. That's still the goal, and we're working very hard on that right now. But I think the real crux is how big can this franchise be? How many tumor types can we cover? How many important new combinations doublets and triplets can we go after? So it's really -- I want to think about this in terms of the depth and breadth of the scope of a very large program, right? If you think about what's happening right now across the board in oncology. And I really can't think of too many examples of a tumor type or a combination where adding a very potent active well-tolerated TKI can't help that in some shape, manner or form from the point of the tumor, the tumor vasculature and the immune system. So we think 092 is primed for that. The feedback that we've gotten from investigators is that the shorter half-life really makes it much easier to dose adjust, which we think is super important as well relative to some of the complications with cabo and its 4- or 5-day half life. So we're excited about that. Again, full pedal to the metal here in terms of making it go fast and navigating all the different parts of the business that we have to do to make sure it happens. But having collaborators like BMS and Roche and Merck KGaA and probably more as we go forward. Looking at different -- again, doublets and triplets, I think is a great validation of their interest and our interest in the ability potentially to really help -- have 092 help move the needle so.

Yes. I don't know if you can -- obviously, we're not going to hold you to this and not treat this as guidance. But if you thought about -- if you think about 092, 10 years from launch. Do you think that it's bigger in conjunction with IO-based molecules? Or do you think it's going to be more traditional TKI?

Yes, I would really focus on IO combinations, right? And the question is, as standard of care evolves across tumor types, across lines of therapies with either single agent IO, which is probably less likely or IO combinations. How does 092 play across that multidimensional chessboard of combination partners, tumor types and then lines of therapy. So -- but again, and that could be true with our internal pipeline as well. I mean there's -- we're already thinking about does it make sense to combine 092 with 002 relative to some of the tumor types that are implicated, say, for tissue factor expression. And for renal and for lung et cetera. So I think as we build this multidimensional, very diversified pipeline of, really, modality-agnostic agents, can we layer 092 on top of that and then control and own the whole pie, right?

Right. Okay. Well, we're running a little short on time. Let's spend the last moment here talking about the pipeline and relative to value creation because the one thing that a number of companies get stuck in -- and I just saw some sell-side notes talking about Merck and how Merck is depending too much on KEYTRUDA. We've seen situations in the past where AbbVie, heavy dependence on HUMIRA, Celgene heavy dependence on the IMiD franchise, how does Exelixis avoid that trap. And given your cash position, your cash flow, how do you create additional value for shareholders given the franchise that you have today?

Yes. Yes. I think we -- I think the overall plan is we invest in a very disciplined fashion. We have a good lens for either compounds that we're developing ourselves or that are out there for partnering or acquisition. And I think that disciplined approach doing -- we've done a lot of early stage again, back-end loaded deals, which, again, builds the pipeline, diversifies the pipeline. We're on the nonstop hunt for good assets that we like. And I think our challenge, as is the challenge of everybody else, is separating the really good stuff in finding the nuggets of the kernels of missing data that can drive a deal, a transaction that gives us the value that we need at the price that we like. And we're not going to -- we're not a big pharma with a big pharma balance sheet, we can't overpay for assets. So we've got to be very wise and disciplined as we have been and patient as we certainly will be going forward. But we're looking to be very, I think, very thoughtful and pragmatic about how we do this. But it's something that we -- we talk about literally every day. And between the internal efforts and what we're doing in partnering and what we're thinking about from the standpoint of M&A, I think it makes a lot of sense. And it's a strategy so that we can execute on very effectively to build value for both patients and shareholders going forward.

Right. So not to put words in your mouth, but it sounds to me like the preferred strategy for you is the kind of structure -- a deal structure that you've done here before, which is licensed a molecule...

No, not necessarily. I think the preferred structure is the -- is deals that make sense from a clinical, commercial and economic point of view. Those can be small deals, those can be big deals. It just has to make sense, and we have to have -- the keyword here is conviction that what we're doing is going to lead to clinically differentiated molecules that then we can monetize effectively in the marketplace. So I think and that's the...

That's the key with...

That's the beauty of having this commercial organization, right? Because we can -- we have built-in stakeholders from a commercial point of view that understand the marketplace and can help us think about it, model it, poke holes in it as we go forward. So again, I don't have Merck's cash flow. I can't do a $5 billion deal once a quarter. And if it blows up, it blows up, we have to be -- I think we have to be a little bit more...

You've got a good cash position. You've got equity. There are creative things. I'm sure you got a lot of unsolicited advice from people like me.

We certainly do. We certainly do.

Not that I would talk my own book or anything like that.

No, no. It's fine. It's good. Yes, yes, it's, you know, part of the work.

Well, yes, we'll fire at you when they cross the...

More ideas are better. For sure.

Right. Well, look, we've run a little bit long, but it's always a pleasure talking with you guys, really big fans of the company. Let me just close by saying we want to thank Mike the team at Exelixis for a very productive and informative presentation. We appreciate the time that they took to be with us today. For our companies as well as the investor audience, we hope our next conference will be one that we can hold in person rather than virtually. But in the meantime, we're grateful for everybody's flexibility and presence online this year, given the current circumstances. And from where I sit and from the H.C. Wainwright team, we want to thank everybody for their participation, and wish you a good rest of day. Take care, everybody.

All right. Mike. Thanks. See You. Bye.

Thanks, Mike. Thank you.