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

Good afternoon. I'm Dan Barclay, CEO of BMO Capital Markets, and it's my pleasure to introduce today's Biopharma Spotlight Series. This is the fifth Biopharma Spotlight Series event we hosted this year, each covering a different area of therapeutics or technology, such as targeted protein degradation, AI-enabled drug discovery and innovations in GI. Today, we'll take a deep dive into the broad and important topic of oncology. We're joined today by some of the most innovative research and development companies across market caps, including Gilead, Amgen, Insight, Exelixis, Candel Therapeutics and Replimune. These companies have some exciting new developments and stories to share with you. First, Exelixis' CEO, Michael Morrissey, will discuss their targeted therapies and how the company has transformed itself from a drug discovery company into a commercial powerhouse, a feat very few companies have achieved. Candel and Replimune are working on the next generation of oncolytic viruses. Gilead and Insight are focused on transforming the treatment of hematologic cancers. And speaking of Gilead, they've had an exciting new addition to their team, and we're proud to be the first bank to introduce Bill Grossman, SVP of Oncology at Gilead to our investor audience. Bill will update us on Gilead's leading position in this space. Amgen's Head of Research and Development will discuss the recently launched LUMAKRAS to treat advanced lung cancer and what's next for this asset as well as the broader oncology franchise. At 2:40, we'll hear from our 2 esteemed opinion leaders, Dr. Abdul Mundia, Senior Partner and Assistant Professor at South Nassau Oncology and Mount Sinai Medical Center as well as Dr. Rammurti Kamble, Professor of Medicine and Hematology, Oncology, Cell and Gene Therapy at Baylor College of Medicine and Houston Methodist Hospital. Both will navigate the discussion on late-stage heme-oncology. Foghorn, Ikena and Kronos Bio will share their perspectives on novel treatment modalities and the targeted therapies on our emerging trends in oncology panel. And we'll close the day with Insight's corporate management team who will discuss their growth strategy as they diversify and develop novel cancer treatments. Each of these companies is embarking on a different stage of research and development with science-led approaches to treating life-threatening diseases. At their core, they're leaders in ESG, advancing our global health and improving patients' lives. If you've joined previous sessions, you've heard how we continue to expand on our health care coverage, both on investment banking and equity research. Once again, we're delighted to welcome to our most recent addition to the senior research coverage Etzer Darout. Etzer joined us last week from Guggenheim Securities and prior was at SVB Leerink. We look forward to future spotlights events led by Etzer. But today, Evan Seigerman and Matt Luchini, 2 senior biotechnology analysts from our New York office as well as Trung Huynh from our San Francisco office will lead today's fireside chats, demonstrating their extensive research in the biopharma space. So now I'll turn it over to Evan and Trung to introduce Exelixis and Michael Morrissey.

Thanks, Dan. Thank you for those kind words and the introduction. Just a quick word, and then we're going to jump right into our fireside chat with Michael Morrissey from Exelixis. Trung and I are thrilled to be here at BMO helping bring forward the biopharma research effort. We have a great panel lined up today, and we're very much looking forward to doing this in-person at some point very soon. Michael and I were discussing about how we missed -- the last time we saw each other was 2 years ago when we were doing a similar session at my prior firm. But with that, I believe Trung has dialed in due to a little technical difficulty, but I want to introduce Michael Morrissey, CEO of Exelixis. Michael, you're there?

I'm here. Good morning, everybody.

All right. I see Trung's photo up. So I'm going to -- if Trung's connected, I'm going to pass it off to you to start the chat with Michael and I might jump in if I have any kind of follow-up questions.

Sounds good.

I think, Trung, you're muted. So as Trung's figuring out his line, one of the things that we've observed with Exelixis over the past years is, you're really transitioning from a development -- research and development focused company to a commercial company, and that poses a ton of challenges. I'd love to hear you kind of outline some of the challenges and how you've managed to overcome them to help grow Exelixis into the business that it is today?

Thanks. Yes, great question. Again, thanks again to the BMO team for the invitation. Great to be here. Really excited to have a chance to talk about, I would say, some of the more strategic aspects of how we've built the business, how we run the business. So I really appreciate the opportunity. I'll mention 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 it's a really interesting question. I have to say one of the -- probably one of the more insightful ones that I've gotten recently is that early around the idea of how do you transition from a discovery development company to one that's vertically integrated into a commercially focused company? Again, cabozantinib, it's a big drug for us. It's past that blockbuster status globally for the last 2 years where we've done in excess of $1 billion globally with that molecule, and we expect to do more than $1 billion in revenue this year in the U.S. alone. So it's really truly been transformational for us as an organization and certainly, helped us focus the company on the pipeline and the next wave of compounds that we're looking to both put into the clinic, move through the clinic and ultimately get out of the market. But when I got a copy of these questions from Susan and Varant over the weekend, it really -- I actually spent a few minutes thinking about it because I think it's a really important one, and it's -- it really begs the question, what does it take to be successful commercially, right? And that's the ultimate goal of any company like us and any company in the biopharma spaces. What does it take to go from having ideas in the lab that you can prove have value for patients in the clinic and then expand broadly in the commercial setting. And I think it comes down really to 3 factors. The first is the patient population you want to study. And that really relates to the market, obviously. So big markets are better than small markets from a standpoint of driving success if you've got the right data. The second issue is really can you generate differentiating data in the clinic -- in the clinical setting and pivotal trials that will convince prescribers, key opinion leaders, KOLs, et cetera, that this drug is either better than or competes with has attributes that are different than current standard of care, right? And third is all about the team, right? How fast, how deep can you build that commercial focused team that will allow you to compete with biopharma in general, right? There's no easy wins anymore in oncology. It's the most competitive space within biopharma. The level of research and development and commercial prowess across the board is just overwhelming at times, right? So you've got to have the right population that you want to study, one that can move the needle if you're successful; the right data that allows you to have differentiating opportunities to show that you're better; your compound, your combination, whatever is either better or has better attributes than the competition. And then third is the team, right? Can your commercial organization and can your overall company compete with the likes of big pharma across the board in terms of how you then market and sell the drug, how you educate physicians? So I think it's been instructive for us. We talk about this a lot relative to the Exelixis' cabozantinib story going back 10-plus years now. We had a very clear view that populations like renal cancer, prostate cancer, lung cancer, liver cancer. Those are all very large global populations of patients that are afflicted with those different kinds of tumor types where standard of care is evolving rapidly. I think it's instructive to look at another very popular approach here over the years has been going after mutational drivers of cancer, especially in lung cancer, but you see other examples of that just is a good example of something that's happened to kind of come online over the last few years. Those are really important, but very, very small populations where you're constantly looking for patients to be able to find for your trials to be able to treat in the commercial setting. I think our view has always been look for larger populations that gives us a chance to if we have the data and if we have the opportunity with the team to then really go very broad in terms of the opportunity. So large population. Obviously, what we've seen with cabo in terms of the METEOR study, the CABOSUN study, the 9ER study in RCC where we're generating arguably best-in-class data across the board, and that gives us a very strong position then to then go in the commercial setting with a team that is very deep and very skilled with a lot of experience to be able to go and then compete head-to-head with big pharma as well as smaller biotechs. And if you think about where we were back in 2016 when we launched cabo as a single agent in second line RCC for -- off the METEOR study, we were competing with Pfizer, with BMS, with Novartis amongst others. And it was a stretch to be able to say that this small biotech company in the Bay Area could put together a team that could compete there. But the reality is that's exactly what we did. We went in strong. We couldn't -- there's no way we would have been successful if we had gone in with half a team or with a scale-down version. We went in big with the right people, the right management structure, the right governance, the right incentives and -- with great data, and we were able to compete there head-to-head literally from day 1. So those 3 things fly together. And I think the momentum that we have now coming off the success in renal, in liver, in thyroid fits us up well for the next wave of trials that we'll read out over the next year or so for cabo and then for the pipeline that we're developing going forward. So it's been super exciting, but it's one area that I think we have done. We've made that transition successful. And we're looking forward now to building the pipeline that we can do that again and again and again.

Excellent. Hopefully, you can all hear me. Some technical issues on our side here. But for those listening into the meeting, if you have any questions, feel free to e-mail in. And transitioning nicely from what you just spoke about, Michael, oncology as you said, it's such a hot area today. It feels like every man and [indiscernible] has some sort of preclinical, clinical asset that's going to be the next big thing. So as you transition and look at your pipeline, can you perhaps explain your strategy in identifying targets within oncology? And what the strengths are of your discovery engine is to just ensure that you differentiate from this crowd?

Yes, for sure. And it's all about differentiation as we talked about before. It's the -- you want to generate preclinical data and early clinical data that gives you the conviction that you can really generate differentiating clinical data that will then drive the conviction in the commercial setting. So it's that continuum that is so important. Our view on targets and pathways has been very, I think, focused and pragmatic in terms of -- it's -- again, it's very hard to find single driver mutations that can impact a large population of either a subtype of patients or broader than that across different tumor types. So we've gone after redundant pathways in general or historically, I should say, going after VEGF and MET and AXL with cabo and 092 where those different pathways impact really every important cell type in the tumor microenvironment so that you can cover -- again, with the right molecule and the right conditions, you can cover as much, I would say, tumor real estate as possible across indications, across combination partners, et cetera. So that's one -- I would say, one mainstay of our approach has really been around the idea that our deep knowledge of tumor biology and the components of the tumor micro environment has really played it well to our approach. Now as we've evolved and certainly have the heavy opportunity to kick-start our discovery operations back in 2017, we have taken, I would say, a more general approach. We are modality agnostic. We have -- as I'm sure, you've seen a lot of efforts now on the biologics side. We've built a deep bench around antibody drug conjugates, being led by XB002, our tissue factor, targeting ADC that has -- I think gives us a lot more flexibility going forward in terms of interrogating novel tumor biology. That will continue. We're doing a lot of early stage deals that covers, again, a lot of target real estate, a lot of pathway real estate from the standpoints of going after the tumor or going after the tumor vasculature or going after different aspects of the IO opportunity as well. So thinking about it broadly across tumor types and deeply across redundant pathways, too. So we're excited about that. We have, what, 4 compounds in the clinic right now and certainly more to come. But I think the investment is really around -- and just taking, I would say, our exquisite knowledge of tumor biology and then translating that into a variety of targeted therapies that are either small molecules or biologics that can help us gain insight clinically that will then move forward.

Fantastic. And with this clinical development that you have, how has it been working with the FDA during this like last 10-year period and where we are today? From an outsider looking in, it does feel like they're a bit more progressive today versus a few years. We know 9ER was approved under the Real-Time Oncology Review. And we had some discussions about maximum tolerated doses helped there. And I know it's a bit of a strange time at the agency at the moment, but how has your interactions been and how's that evolved?

Yes. So again, we have very strong relationships with, I would say, the regulatory authorities on a global level because we do developments globally, and we work with our partners Ipsen -- at least with cabo, Ipsen and Takeda, in terms of their global interactions too from a regulatory point of view. So we've got -- again, it's the relationship and the credibility that I think drives a very strong collaboration. We've had our ups and downs from a data point of view, and we've never shied away from talking about that either publicly or with the regulators, and we've done large number of pivotal trials now and had really great opportunities to gain either input and/or advice scientifically early in the process across the board and certainly, then as the review cycles have gone when we have positive data. So it's, again, important times. Obviously, COVID has had an impact across the board on the industry, and certainly, that's the case from a regulatory point of view as well. But again, we've been -- we have a strong regulatory team, a lot of experience there. And I think that will continue to be a successful collaboration both in the U.S. and globally as we go forward.

Fantastic. And as you transition to this commercial company, just for the benefit that missed -- the people that missed last week's 3Q call, perhaps can you describe how it's going with the rollout of cabo, specifically the 9ER combination?

Absolutely. So we continue to maintain our status as having cabo as being the leading TKI in renal cell carcinoma. We've seen strong demand growth for the CABOMETYX-nivolumab combination across all segments of the first-line RCC market, especially with continued growth in both NRx and TRx in the face of increased competition. So it's been a really, really strong launch since early in 2021. Third quarter, we had a 63% year-over-year growth in their product revenue. And I think we're well positioned to achieve our goal of exiting 2022 with a $1.5 billion run rate -- annualized run rate in the U.S. for RCC.

And can you perhaps talk about some of the dynamics you're seeing with the 9ER combination versus just monotherapy? You now have this very powerful first-line option. You're approved in the second-line with cabo monotherapy. How should we view cabo in that second-line setting today? Has this flattened out now? Should we see any growth coming from cabo, if people are using the first-line combination? Just any thoughts on that dynamic.

Yes. I would say in general, most of the growth that we've seen is in the first-line setting. Second-line has been remarkably stable as you would like to see relative to what's happening out there in the first line. So we've captured significant market share since the beginning of the year when we were approved for first-line -- when the cabo was approved for first-line RCC. And we're very, very gratified to see that our second-line share is very, very strong, which the way I would interpret is whenever -- whoever we don't get first-line with cabo-nivo, we pick up second-line with single-agent cabo. It really is the leading standard of care for second-line RCC. So we're thrilled with that. And the more positive data that we generated with RCC single-agent combination, it just reinforces the viability, the attractiveness of the brand. So we're very excited about that. And with that being said, we're not satisfied with the status quo ever. Our job is to really lift the bar in terms of standard of care for patients. So we're running the triplet, cabo-nivo-ipi versus nivo-ipi study in COSMIC-313, that should read out some time in the first half of next year based upon event rates. So our job is really encapsulated by that. Our job is to push the limits of standard of care beyond the leading edge of what's possible in terms of a clinical perspective. And I'm just thrilled to be this small little company in the Bay Area is leading the charge in terms of moving triplets now into RCC. And I think you'll see that trend continue across tumor types with XL092 as we move forward.

That's excellent. That transitions us nicely to the triple data coming up in 2022. So perhaps can you explain some of your thoughts around the positioning of the 9ER doublet versus this triplet? And secondly, OS secondary endpoints that we know, it's the gold standard people look at when you look at oncology indications. So it's an interesting one to me because we all know the effects of an IO on the survival curve, but you have this TKI element now with cabo. Just can you explain some -- the discussions or anything the FDA has given us or given you guys on how they view the OS component of this trial?

Yes. Look, I wouldn't want to speak to the discussions we've had with the agency. I think the way we've designed the trial speaks for itself. Primary endpoint is PFS. Secondary is OS. I mean, obviously, you want to have overall survival in your label. We've done that now for second-line and first-line. In fact, cabo was the first monotherapy TKI to have a survival signal in the second-line setting. So we certainly understand the importance of having that and the profound survival of benefit with 9ER reinforces that. So with 313, obviously, we're not going against sunitinib anymore. We're going against a very active comparator relative to ipi-nivo, which as we all know, has got strong survival signal that is -- and certainly extended. That's one of the real attributes behind that IO-IO combination is the 4- or 5-year survival. So obviously, we're going to look at that very carefully. Primary endpoint is PFS. If you look at the CheckMate 214 data, I think there's lots of areas for potential improvements there relative to, say, the overall PFS data. The primary, I would say, PD rates coming out of that study, et cetera. So we'll get to survival when it's there. Obviously, that will take some time, but the primary endpoint being PFS, we think can add a lot of value to patients right out of the box. So we'll run the study as planned and as we get more data throughout the ensuing time after we announced top line data, we'll be talking about that, too. So stay tuned.

Excellent. Excellent. As we have more sort of meaningful catalyst come up in 2022 with the CONTACT studies from -- with Roche, it looks like it's in a large number of very large indications.

Yes.

When could we start to see some data here? I mean lung is certainly a huge indication for that kind of -- it could be very, very interesting if it hits?

Absolutely. Yes. We're excited about all 3 studies. CONTACT-01 is in second-line post-IO non-small cell lung cancer CONTACT-02 is in for second-line prostate cancer after a single NHT. CONTACT-03 is in the second-line setting after an IO therapy. All of those studies are cabo combined with atezolizumab. And again, we've had significant experience with that combination from COSMIC-021, and we've started talking about some of that data, especially in RCC. So a very active regimen. So we're certainly excited about that combination in all 3 of those trials. We've had data now across the board there for lung, for prostate and for RCC that really, I think, highlights the activity for that. So we're going to finish up enrollment, and then we'll start talking about time lines for top line data. They're all event-based. So it's still early days there. So I wouldn't want to get ahead of myself and speculate on timing with a high degree of precision. But that being said, we love working with Roche-Genentech. They're great partners, and we're really excited about teaming up with them to help patients with cancer in those indications.

Fantastic. And the final kind of indication breakout you have on the horizon is the frontline HCC OS analysis. We know not everyone can take a VEGF inhibitor. So are you still confident in that early 2022 OS data coming? And based on what you've seen with the data, does it feel encouraging your interactions with FDA here or it does feel like the market is discounting this one?

Yes. Look, the market can do what it wants. We were very clear on the call -- on the earnings call a few weeks ago -- I guess, it was last week around the idea that we would file the 312 data once we had the final OS analysis in place, and we think that will happen in early '22. So I won't speculate on what else could go with that. We've had very good interactions with the agency. We've agreed on that approach, and we will do that. So stay tuned.

Excellent. And I'd be remiss not to ask about DTC. It got launched in September. How has the early feedback come back from this product? And perhaps can we frame the opportunity here?

Yes. Feedback has been really strong. Again, it's a small population. So I would temper any large expectations around moving the needle is probably at peak, $100 million a year indication. So it's relatively small compared to some of the other ones that we talked about a few minutes ago with CONTACT studies. But look, we were thrilled to be able to generate that data, present that data, provide patients with the first standard of care in the second-line setting. KOLs have been enthusiastic about using it and about the role it could play in their treatment approach for second-line DTC. So we're off and running and have, I think, a really, really strong history in thyroid cancer coming off the initial indication for MTC. So it's -- we're off to the races for sure.

And in terms of additional SG&A spend for DTC, is that simply just bolted onto your existing infrastructure? One of the things that you have is an absolutely fantastic infrastructure for selling in the U.S. So have you had to do a lot there for DTC? Or is that just simply bolted-on to what you have?

Yes. No, that's -- yes, that's a great question. It's -- and calling it a bolt-on is probably a little bit overstating it. I mean we have an existing sales team in place that's going to cover this. We'll do a little bit of marketing. So I would see a little bit of additional spend there, but we don't need to add heads or do a lot of, I would say, expensive growth here to be able to market that indication. So we -- again, with the history of being in thyroid cancer, we know all the prescribers really well, and it's a relatively simple straightforward kind of bolt-on to go forward.

Yes. I mean it goes towards the first question that we were talking about when your -- this commercial operation and you've got your sales force in place, it's really nice to just keep adding these indications which you're doing and hopefully not spending as much as people think that you're going to spend. It's fantastic.

Yes. Absolutely. And again, we've been so successful on the commercial side. And we built this team with the right level of depth and breadth and experience that we can either maximize the value without adding, say, for a small indication like DTC or even first-line RCC. That was a -- if you think about the investment that we made in that study and the output in terms of potentially doubling our revenues based on that -- based upon the fraction that we paid for with the study and then having the sales team more or less be the same sales team that we had before, it's a very economically efficient approach towards generating momentum and revenue. So we're thrilled with that, and we hope to be able to do it again with lung cancer and with prostate cancer, et cetera. So lots of opportunity going forward, for sure.

So talking about momentum, let's just talk about your pipeline. 2022, it looks like another very busy year for the Exelixis' story. So perhaps in the next 12 months, can you frame when the initial data for XL092, 102, your XB002? Perhaps can you walk us through some of the timing of these events for these 3 molecules?

Yes, probably not here. I don't want to get ahead of myself in terms of what we'll do, and we're still working out those details as we talked about on the earnings call. Our plan is to highlight that clinical data for 092, 002 and 102 starting in 2022. Details to follow. We certainly want to talk about mature data. We are, I think, pleased with what we're seeing across the board there and moving things forward rapidly. So -- but I think all 3 compounds have a lot of important updates to share. So stay tuned. As we finalize timing and the details around when we present, we will certainly let you guys know.

Awesome. And perhaps if we can delve a little bit deeper within this pipeline then. So [ 902 ], it's a multi-kinase inhibitor. Perhaps can you talk about some of the advantages of "the dirty TKI versus the clean TKI?" And then with this in mind, what are your thoughts of where it fits in with this targeted oncology approach here?

Yes. Yes. Well, the dirty TKI moniker is always used in somewhat of a [indiscernible] fashion. And that's -- if you look at the revenue that we're generating with cabo, which was designed to be multi-targeted on purpose to be able to go after VEGF and the pathways and targets that drive resistance to VEGF and how that has now become standard of care for things like RCC, for indications like RCC, it just reinforces the idea of using biology to drive design and the design then to drive clinical success. So multi-targeted on purpose is actually a good thing. When you look at the -- at some of these hyper, hyper-specific targeted molecules that go after a mutational driver in a given subset that are printing $10 million, $15 million quarters, I would much rather have a molecule like cabo that's doing the kind of revenue that we're doing because we're treating the disease as it exists in a large population. So our philosophy from a target point of view is match the chemistry with the biology and understand the biology well enough to design the better molecule, right? So -- and certainly 092 is an offshoot of cabo, was certainly designed with the cabo inhibitory profile in mind relative to wanting to maintain really phenocopy of the activity of cabo while improving the PK profile to make it just a little bit easier to use clinically in terms of dose reductions and converting a 4-, 5-day half-life for cabo into a 24-, 25-hour half life with 092. So the other molecules in the pipeline, we're super excited about. We think XB002 could be a real winner. We think we have a better next-gen molecule here. We have to prove that now. But certainly, early clinical data is very encouraging around the idea that you can make a binder that is not competitive with tissue factor, get around some of the bleeding complications that have been seen with previous molecules. We're using what we think is a better next-gen linker warhead 082 from Zymeworks, which I think has certainly some potential attributes clinically that we've seen preclinically that is pretty clear based upon what's been shown so far in the preclinical setting. So a lot of moving pieces there. But again, we have momentum, and we have a lot of interest with investigators and looking forward to talking about some of that data as we go forward. XL102, the CDK7 inhibitor, is moving forward nicely. We think we're really excited about that as well relative to some of the attributes relative to other compounds that we're seeing in the clinic. So lots of moving pieces, and we just announced the IND for -- XL114 is now active as well. So 4 compounds in the clinic behind cabo and many more to come in the months and years ahead. So stay tuned.

Okay. Excellent. And it would be remiss of me not to ask the obligatory BD question. How are you thinking about BD Exelixis at the moment? I know you've got a lot to get your teeth around with the cabo extensions. So is there -- do you have any thoughts around BD for the company at the moment?

Sure. Lots of thoughts. Obviously, we've been very active in terms of doing partnerships to help replenish our pipeline of early stage assets. Again, small molecule side, biologics side, thrilled with all the different ADC collaborations that we've done over the last couple of years. Our approach has always been quite simply, if it's worth doing, it's worth doing with a critical mass of people and technologies and the more optionality you have going into the clinical commercial kind of continuum the better. So I think the ADC biologics approach that we've taken over the last few years is really reflective of our focus on making sure we have critical mass of people and technologies and inputs to be able to really play the discovery game as well as we have in the past with, say, small molecules. So that will continue. Look, we have a very healthy appetite for later-stage assets. We're -- we have a queue of early stage assets that will -- you'll see move forward with a pretty predictable cadence. We spent a lot of time looking at later-stage clinical assets. And there, the goal is to basically generate the conviction internally that what we're looking at, which would certainly have come with a much higher price tag has the clinical data to support any semblance of commercial conviction around being a major cabo-like molecule for us, right? So that's much more in-depth level of diligence, a much more in-depth level of analysis. We've got a great team here that covers really all aspects of the company relative to not only just BD, but R&D, finance, commercial, et cetera, that helps us triage all those different opportunities. And there's so many of them out there right now with the capital markets being as effective as they've been over the last few years. There's lots of oncology plays out there right now with arguably very little data. Market caps and values have come down dramatically. So we're certainly in a good position with, what, $1.8 billion of cash, and we can certainly access more by leveraging our EBITDA. We have really unlimited opportunity here. The goal for us is to remain disciplined and pragmatic around what we eventually either partner or buy and make sure that whatever we do has the upside to be able to drive another commercial arm of success like we had with cabo so far. So lots to do, a great team behind us, and we're excited about ending the year strong and moving into '22.

Excellent. So I see the time ticking down. With this, I want to thank Michael and team for their time. You guys are a fascinating example of a company making it through the development phase and actually making it work on a commercial level. So absolute success over the last 10 years, and an example to what biotech companies kind of aspire. So with that, I want to say thanks. If we can hold on for a moment for our next set of meetings, which will be on oncolytic vaccines that's going to be hosted by Evan and Matt Luchini. So thank you very much for your time, guys.

Thank you.