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

All right. Good afternoon, everyone. I'm Stephen Willey, one of the senior biotech analysts here at Stifel. I'm glad to have with us to close out the day, Exelixis, represented by Chris Senner, who is the Chief Financial Officer; and Andrew Peters, who heads up their business development efforts. I think normally, I would ask companies to make an opening statement with respect to who they are, what they do, but I'm pretty sure everyone knows who Exelixis is and what Exelixis does.

So maybe we can just kind of get right into the discussion here and start off by talking about the cabo launch into front-line RCC. I know that we're coming off sequentially down 3Q in terms of net sales. I know that demand metrics looked pretty strong. And obviously, your guidance suggests that that's not going to be the case again in 4Q. But what's your level of confidence just regarding additional share gains that are to be had in front line? How do you expect this extended duration of therapy associated with front-line treatment to flow through the top line over the coming quarters?

Thanks, Steve. Yes, so I guess before we get started, just thanks for having us here and as part of the conference. The other thing, too, is during the course of this presentation, Andrew and I will be making forward-looking statements. So for a full listing of the risks associated with our business, just I recommend referring to our SEC filings, which we update from time to time. So yes, so going to your question, we did -- as you mentioned, we did have good -- if you look at our TRx growth, I think there was around 7% TRx growth if you look at Q3 versus Q2. So good underlying demand there. NRx growth was around 8% if you look at Q3 versus Q2. We did, from a reported net sales basis, have a decline Q3 versus Q2. And as we talked about on the earnings call 2 weeks ago, there's 2 primary elements to that. One was there was inventory build in Q2 that was associated with the demand that happened primarily in the first half of the year and we had about 50% growth in the first half of the year. So that demand growth created inventory growth, and we didn't see the same level of inventory growth in Q3. The other element that was in there also was comparator sales, which we had in Q2, which didn't reoccur to the same degree in Q3. But from an overall perspective, our market share has continued to grow this year. We were at 30% when we ended Q1. We ended Q3 at 34%, so a good, consistent growth. And Q2 was around 32%. So we're seeing good, consistent growth there. I think from an RCC competitive market perspective, it's been competitive since we launched back in 2016 and it continues to be competitive. And with the [indiscernible] approval during Q3, we continue to compete, and we gained market share in all of the quarters and including the quarter which they launched. So the team is doing a great job, and we continue to gain share in the quarter. Yes, your question around financial guidance. Yes, I mean during the first 9 months or year-to-date, 9 months, we did around $774 million, $775 million of revenue. And if you look at the bottom end of the range, which is $1.5 billion and the top end of the range is $1.1 billion. If you look at the bottom of the range, we'd be -- you would have growth of the $263 million number we had in Q3 to get to the bottom end of the range. So still thinking that there's growth here. And as we've talked about, we continue to feel like the totality of the data from 9ER helps us compete. I don't know if there's anything, Andrew, you wanted to add?

No, I think you covered it. The continued kind of demand growth that we're seeing just kind of speaks to the strength of the data and kind of the overall profile that cabo/nivo.

Okay. Great. I know there's a bit more discussion around COSMIC-313 now just given the proximity to data time lines. And how important do you think that study is to the longer-term sustainability of cabo growth in frontline RCC? I guess do you have a good sense at all of how the 9ER regimen has been -- has penetrated certain risk group or patient risk subgroups? And COSMIC-313 be kind of an [ opportunity ] immediate focused study, do you think that this data provides opportunity to further expand utility into that segment?

Yes. So I mean taking a step back, the 313 study is certainly an opportunity to potentially improve the standard of care in frontline RCC. We certainly have a good sense and a lot of data kind of internally, understanding where, how cabo/nivo is used, but we really haven't provided kind of detailed breakdowns of that, but we have said that we've seen pretty broad uptake across both risk groups as well as across both kind of academic and community centers, community physicians. The way we think about 313, again, kind of from a big picture perspective, is it's an opportunity to really understand what is the combination of a best-in-class I-O/TKI look like with the best IO-IO profile, potentially bringing together the best of both of those worlds in terms of improving the overall profile. So as we announced during the last quarterly call, we're expecting that data in the first half of next year. Again, it's an event-based study, but we're certainly excited to see the readout and see how it can potentially improve the lives of patients.

Okay. And I think the question that we tend to get a lot to hear from investors is whether or not a win in PFS improvement or a win in PFS, i.e., an improvement will be sufficient kind of in isolation to drive share gains amongst what is thought to be kind of a mostly academic prescribing base, right? I think the perception is that ipi/nivo is probably skewed a lot more towards academics than it is maybe community doc. So how important do you think some of these secondary endpoints like overall survival, complete response rate will be? Do you think that a preliminary top line disclosure that you guys provided might provide some context around the secondary points for us to better understand this?

Yes. So I guess, regarding the disclosure, historically, we've certainly provided a lot of information to kind of help digest the readout, and we're certainly as excited as anyone to see that data. But in terms of your question, I think I'd certainly agree that one of the things that's really kind of come through as we look back are currently in the 9ER launches. It's really about the totality of the data. As we talked about and even had a slide on the second quarter earnings call, one of the things that jumps out to both patients and physicians about the 9ER combination is really the balance of efficacy, tolerability, quality of life. And so it really brings together kind of a lot of those different data points to help kind of patients and their physicians make a choice as to which regimens will ultimately go with. And so 313, we're going to be generating a lot of data. It's not just about PFS or not just about any 1 endpoint. It's certainly going to be about a combination of all of those things to ultimately help patients live longer, better lives, which is really the ultimate goal here.

Okay. So you talked a lot about some of the frontline dynamics. But how do you think about longer-term stability of cabo market share in the second-line setting? I mean I would imagine we'll probably need a little bit of distance from these frontline launches to really kind of assess any impact here. But how do you think about stability and/or the longer-term competitive dynamics in second-line RCC?

Yes. So I guess, from a historical perspective, our first approval for CABOMETYX was in second-line RCC. And it's become the standard of care in second line. And we've seen -- as we talked about on the call 2 weeks ago, we've seen second-line share remain relatively stable so far. And with the share we have, let's call it, 34% share now or as of Q3, there's still a lot of opportunity there with the rest of the market with those that aren't on a cabo regimen to move into the second line. So we still think there's a lot of opportunity in second line to -- it to gain share or to keep share stable going forward.

And then maybe just kind of jumping away from RCC for a bit. It sounds like you now have regulatory guidance from FDA regarding the path forward to NDA filing in frontline HCC. This is based on the COSMIC-312 data, and I think we'll be seeing data this weekend at ESMO Asia. How would you characterize the contribution of cabo thus far in later-line HCC? And do you think that getting a frontline label here significantly expands the opportunity for this drug in this tumor type specifically?

Yes. So we haven't really provided a breakdown historically between RCC and HCC. But I think it's somewhat of a statement of the obvious. And when you think about the relative patient population that frontline HCC is certainly -- would be meaningful from an opportunity set perspective. And we're excited to share the data this weekend. You highlighted it's going to be out of the ESMO Asia meeting, and so it's something that we're excited to share. And then you mentioned kind of the update we had on the recent earnings call about planned FDA filing. It's still an opportunity that we're excited about even with kind of atezo, bev use growing. There's still kind of a clear unmet need out there for patients, especially those with kind of baseline risks, things like esophageal varices, et cetera, that really kind of limit the ability for bevacizumab to be used. And so there's certainly an unmet need, and that's one that we're going to be paying close attention to going forward.

Okay. And then we just saw some additional COSMIC-021 data at SITC for a few different tumor types that we, I don't think, have seen before, at least not from this trial, triple negative, ovarian, endometrial. I thought the magnitude and depth of responses that were observed in some of these heavily pretreated patients, especially triple negative and ovarian look pretty interesting. Can you say whether or not these are opportunities for you guys that you intend to pursue with cabo? Is this something now that you kind of perhaps earmark for XL092 development? And should we be expecting any more COSMIC-012 (sic) [ COSMIC-021 ] data to emerge over time? Or is this kind of the conclusion of the program in terms of signal [ surging ]?

Yes. So we certainly agree that we're encouraged and excited by the data. And this certainly isn't kind of the last and final readout of the 021 study. I'd expect more data to come out next year from that program and kind of really speaks to the sort of broad encompassing clinical programs that I think we certainly execute and have shown that we can do. In terms of kind of the cabo development program going forward, what we've said is between 313 and then the contact studies that are ongoing, that's kind of the end of the cabo program and really kind of a lot of the utility for the data presented this weekend and, as it continues to be generated, is really to help kind of inform some of the decisions around what are the indications, what are the tumor types, what are the opportunities that we can look at going forward with 092. Again, that's a program I'm sure we'll get to in a bit, but we're particularly excited about, not only about the opportunity that we've said that we're going to start the first pivotal study from that program in the first part of next year, but about kind of the longer-term breadth of that program as well. And certainly, using things like 021 in the encouraging data that we've seen as kind of a guide to help inform some of those decisions.

Okay. And then I guess speaking of 092, I know that you guys kind of provided an overview of what this clinical development program is going to look like at SITC at least the ongoing one. And it seems like you're emphasizing a lot of opportunities for both single agent and combo use in those tumor types where cabo doesn't yet have a label. So stuff like nonclear cell and breast and colorectal and, I think, various lines of bladder. So should that development program outline, I guess, and maybe this kind of aligns with what you were just talking about, but should we be thinking about the broader development strategy here as kind of more focused on expanding opportunities beyond cabo as opposed to trying to replace cabo as kind of a life cycle extension strategy in some of the already labeled indications?

Yes. So I guess the way that we think about 092 and kind of the development program, and we've outlined this a bit before, is really about several waves of trials. We talked about our expectation for the first pivotal study to get underway next year. But that's kind of the first wave of these fast-to-market pivotal studies and then expect to add on kind of the second wave and the third wave. And that second and third wave is really about looking at kind of the white space, the greenfield or places where cabo doesn't have a label, as you said, but has shown kind of signs of activity. And so if you look at the cabo development plan kind of going back over the last 10-plus years, we've seen real RECIST responses in over 20 different tumor types. But for various reasons, we haven't developed cabo in those indications. What 092 does is it gives an opportunity for a drug with an improved or shortened half-life that could add to the potential combinability that can add to potentially improved tolerability profile. Those are the sort of things that we're looking at, not only using data from 021 from cabo, as I mentioned, but looking at the STELLAR studies. The early 092 study is looking at both combinations with atezolizumab, avelumab, nivo, BEMPEG as well as in monotherapy. And so it's really envisioning kind of a broad-based program looking at activity for both 092 and then signs and signals from earlier studies that really asked the question, does a program with a phenocopied kinase inhibition profile with a shorter half-life, where could you see some activity there and applicability to kind of a broad program. So we're clearly excited about the program and excited to kind of share details next year.

Okay. Let's talk about the pipeline. And I think having Andrew here will certainly help facilitate this conversation a little bit and then Chris can speak to it. But obviously, there's been quite a bit of an effort here from a BD perspective to build out the earlier-stage pipeline, and I think as part of this, you have made a broader push into biologics. You've got the tissue factor targeting ADC, I think it's XB002, which is the furthest along there. For that asset specifically, how do you position the differentiation of that versus SGEN and Genmab's tisotumab, which was just approved for cervical. Should we anticipate that there's going to be or might be an update for XB002 at some point next year?

Yes. So I guess just on the last question, what we mentioned in the last earnings call is to expect data from not only 002 but 092 and 102 as well. Our CDK7, I-O/TKI all next year. So 2022 is certainly going to be active from kind of an early data perspective. Regarding 002, we're excited about the program, and I'll get into kind of some of the specifics and some of the reasons why. But as you mentioned, it's kind of the latest or furthest along of our effort to kind of expand into the biologics space. And that's something that we've been particularly thoughtful and pragmatic about, but also kind of leveraging external partners to gain access not only the assets like XB002 through our collaboration with Iconic but through collaborations with companies like Invenra, NBE, Redwood, Catalent. We're able to kind of put together a suite of technologies that can really add to our capabilities in areas like ADCs or bispecifics or antibodies in general. So turning to 002. One of the things that excites us about it is we think it could ultimately prove differentiating across all of the aspects of ADCs. So if you think about just ADCs in general, there's the kind of the antibody, the binder aspect of it and then the kind of the linker warhead. And we've presented some preclinical data that we're certainly excited about that shows potential advantages around things like the antibody side. The fact that it's noncompetitive with Factor VII and the potential implications there on the coagulation cascade and potentially reduced bleeding risk. And then the linker warhead, the XB002, utilizes the ZymeLink platform. It's another one that we're particularly excited about. And if you go back to that earlier data set kind of walk through some of the evolution of the differences in the linker payload aspect of that. And so it's a program we're excited about. As I mentioned before, we're going to start sharing some data from that next year. But it's one that as kind of a first foray into biologics, we're certainly super -- very happy with.

Okay. And then as part of this push into biologics, have you had to significantly scale up R&D in order to kind of keep up with all of these all these efforts? I mean historically, you've been, I think, more of a small molecule-focused company. Or do these collaborations that you have in place kind of help with some of that heavy lifting?

Do you want to...

Go ahead.

Yes. So yes -- so I mean, we've significantly built out our R&D organization over the last several years, including this year, we opened up a new building -- discovery building here. We are using our partners, too, as part of this -- part of the development of the drugs. And so we have that ability to source the biologics from third parties and then utilize their technology, and then also we're building out our own organization within Exelixis to support that.

Yes. And just to add on that, as I touched on kind of briefly earlier, I think what we've built with our kind of network of collaborators is really the ability to scale up a biologics portfolio across a suite of technologies. And one of the things that we believe about ADCs is it's not just a one-size-fits-all approach. Each target needs a unique binder, a unique antibody. And then the same linker, same warhead doesn't work for every target given the different biology and mechanistic implications of each of these targets. And so what it does is it kind of gives us the ability to mix and match across -- rapidly mix and match across each of these different technologies to understand for any particular target we've identified, what is the suite of technologies, what are the different combinations that we can use to really maximize the profile of an agent there. So it's one that kind of -- has enabled us to, not only build upon all of the work that we've done internally, but then leverage a lot of that external expertise to really give some optionality there. So it's an approach that we're very excited about.

Interesting. Okay. You mentioned 102 -- XL102, this is the CDK7 inhibitor. I know we saw a couple of updated presentations of some competitor, CDK7 inhibitor data, at the most recent ESMO meeting. And I think those agents appear to be challenged perhaps a little bit by some therapeutic index issues. I know that 102 is a little bit different. Can you maybe speak to those differences and whether or not you think they'll translate to a wider therapeutic index and perhaps maybe even improve clinical outcomes?

Yes. So that's one of the programs that I mentioned before. We're going to start seeing kind of data from next year. And just to kind of not preview the data, but to give some context around it. Historically, we haven't been in the habit of giving a handful of patients' data here and there. When we tend to report data, it's what does the profile look like as opposed to what could it look like if the numerator changes, the denominator changes, et cetera. So when we do report data next year, it's going to be a pretty encompassing view of what that looks like. We haven't really gone into a lot of specifics around what we think is potentially differentiating. But what we have said is between selectivity, potency and, importantly, bioavailability, that's some of the -- those are some of the areas that we think kind of could potentially differentiate 1 of 2, given that we do think it's a really interesting target and a lot of the preclinical data would suggest that targeting CDK7 could have broad applicability, not only as a monotherapy, but in combination as well.

Okay. And then maybe bigger picture question, what is your vision for the pipeline look like over the next couple of years? And I think you and I have talked before about how it's a bit of an opportunistic approach with respect to BD. But given that you've built in all this optionality now, I guess, on the earlier stage front, do you try to take a bit more of a longer-term kind of portfolio management approach and start to address gaps in the pipeline with respect to stage of development? Or do you guys just continue to be fueled by opportunism on the business development front going forward?

Yes. So maybe I'll start, and Chris can chime in as well. I think the way that we view external innovation is really about conviction. That's kind of our internal mantra here as we think about external opportunities. It's not about trying to just in-license things for the sake of adding another bar on a pipeline chart. It's really being thoughtful around what's the profile of this program. We're looking at asset. We're looking at what's the clinical risk, what's the regulatory risk and, importantly, what's the commercial risk. Historically, we've been somewhat skeptical around programs where the clinical may be very compelling, but the commercial opportunity just won't be there. And I think you mentioned a portfolio approach, we've taken the view that adding another program that maybe does $15 million, $20 million a quarter wouldn't necessarily be particularly additive or value driving for our portfolio in general. So we tend to look at opportunities that have kind of the -- we want to find the next cabo in terms of multiple indications, large market opportunities, and areas where we have a particular insight into either the target, the biology or what can we do from a clinical development perspective that can kind of inflect that risk curve to help drive value for us and shareholders. And so it's certainly about being opportunistic but with the eye that -- our ultimate goal is to bring more medicines to more patients because ultimately that's what we're trying to do at the end of the day. And the more patients we can help, that's a good thing. And so through a combination of building out our internal discovery effort, as Chris mentioned, before and externally sourced programs as well, that's really the ultimate direction we're hoping to head.

Okay. Chris do you want to add anything?

Yes. No, I was going to say like we look at the entire scope of our current pipeline and then what we've done commercially. And we look for opportunities either early stage or late stage for -- largely, we haven't found anything late stage that we really feel -- meets the criteria that Andrew was talking about around the commercial opportunity and following the science and also following the commercial opportunities. So we do have -- as I talked about on the last call, we do have $1.8 billion of cash on hand, and we guided towards ending the year in that range. And we've looked at our pipeline, and we've also looked at the fact that between 2012 and 2018, we really didn't have a discovery organization and we need to really fill that gap of time and feed that -- feed the pipeline with both internal opportunities and external opportunities. And so that's our focus right now.

Okay. And then assuming you do identify something high conviction, later stage, bigger scale, something that you'd be willing to commit the resources to bring in-house?

Yes. I mean if it meets the criteria, and we feel like we can add our execution because I think one of the biggest things that we do is execute and, if we can take somebody else's asset and execute on it with our capital resources, yes, we definitely take a look at it and potentially act on it. We have that financial capability now that we didn't have even 2 years, 3 years ago.

All right. Well, I know we just ran out of time. Thank you, guys, as always, for participating. Always good to catch up. Best of luck for the rest year. And have a great rest of the day. Thanks, everyone.

Thank you.

Thank you. Bye.

Bye.