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

Thank you for joining us at the BofA Annual Healthcare Conference. My name is Jason Gerberry. I'm one of the biotech analyst at Bank of America, and I'm pleased to be introducing our next company presenter, Exelixis' CEO, Mike Morrissey. So Mike, thanks for joining us.

Great to be here. It's been a long time since we've done this live. So good to see you.

Yes. Of course. So coming fresh off the print 1Q results, which seems your volume growth on cabo really impressive Q-over-Q growth. It seems like you're getting the benefit of some patient stacking in the new frontline RCC indication. So things are going well there. You've got patent trial. You've got a lot of pipeline coming to the surface in the second half of the year, that was earlier stage. We're going to have some data to be talking about. So these seem like really the topics we should be discussing today.

Sounds good to me. Yes. Just before we begin, 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, okay? So take it away.

Yes. I guess, let's just talk about the impact that 9ER has had on cabo. It's been pretty profound. It sounds like you're getting really long durations of treatment. You're not seeing with a competitive disruption from another IoT care that got approved. So typically you've been growing NRx share in this space. So maybe if you can just kind of frame how things are going? And if you feel like we'll kind of get to a point maybe end of year where you've kind of hit like the high-water mark in, say, the U.S. and then it's kind of a stable business and it's really about indication expansion from there with cabo.

Yes. We're real pleased with the performance over the last year. Again, we launched in January of 2021. Data really, I think, speaks for itself. And I think it reinforces what we try and do. And that's -- our job is essentially to raise the bar for standard of care for patients with cancer. And I think this is a good example where combining cabo with nivo and doing the right trial at the right time in the right population really, really paid off pretty well. We made some important tweaks to the story in terms of using a little bit lower dose with the cabo for the 40-milligram dose. And with the idea that we would have potentially good activity, good efficacy, potentially better tolerability, really paid off dramatically. And the quality of life on top of the efficacy, safety overall really resonates well. So coming into the launch with certainly a strong second line share and the cabozan first-line kind of momentum certainly mean that work out really well. So we're very excited about being able to build off that base going forward, 313 reading out in July. And I wouldn't want to speak to when things may or may not level off. But as you said in your intro, patient stacking is a real thing, and that was really the goal behind using the lower dose and maximizing the opportunities. So also off we go. So -- but a great team effort, really pleased with the performance of the whole commercial side and having the ability to work off this great data to move the company forward is great now for sure.

Yes. Well, on the decision to go to 40, right, it seems like that's really proved beneficial with the combination and the duration of treatment. And as you go to triplet therapy, adding sort of a maintenance cabo to what is now in a nivo type of regimen, right? Maybe talk about a lot of people focus on safety with the XL092 update and the importance of that. And I know you guys have sort of said, "Hey, we're more focused on maybe white space opportunities with 092." But it seems like there could still be an opportunity to incorporate that in the future into renal studies. So just curious how you...

Oh, absolutely. So again, I wouldn't want to send the message that we're not interested in looking at existing indications with 092. I think the question is, can we find the right novel combinations to again raise the bar on the standard of care, right? I think that's always the goal. And I think as with the 092 opportunity to look at other triplets across the board with either IO/IO 092, IO X092 that optionality is there. So the space is really wide open for us. And I'm super proud that we're one of the leaders, in fact, the first triplet regimen in RCC for a little company like us is great. And I think that's the underlying kind of gestalt with the company. We want to push the limits of what we've got scientifically, clinically and then be able to maximize the value of that for patients. So I think that's a real important part of who we are. And as we grow as an organization, both in size and stature and the pipeline and compounds, that whole attitude needs to continue as we go forward for sure.

Yes. And new IO-based therapies in the adjuvant RCC setting. Are we seeing any signs or indications that, that's disruptive at all to the flow patients into frontline disease or is that just something that's too early to tell?

Yes. I think it's early. It's been a quarter or so now. And certainly, our Q1 performance in the market basket and Q1 would say it hasn't had a big impact yet. So we'll see.

Okay. Okay. And yes, so I think it's pretty self-explanatory. I think in terms of the KEYTRUDA/Lenvima combination and where we're seeing, I think, TKI volume share is kind of shifting, right? So clearly, you guys are seeing nice growth and setting up parts pretty straightforward. Maybe it sort of dovetails us into COSMIC-313, right? And the idea that's out there that ipi/nivo might have a different profile of a prescriber, right? This academic focused so much on driving the durable OS outcome, wanting kind of more of a treatment-free kind of -- you want to give nivo basically in your maintenance. And so, do you fundamentally see a difference in the prescriber type 4 in ipi/nivo, say, versus the IO/TKIs as we think about basically trying to contextualize what 313 could be to the treatment algorithm?

Yes. Yes. I think it's a really good point. And certainly, there's nuances in the marketplace around prescribers and their belief system around the data and what their therapeutic intent is in terms of IO/IO versus IO/TKIs. I think we view it a bit more pragmatically. Can we just gain individual market share points? We know what that's worth to us based upon 2021 and the performance of cabo and nivo relative to growing our top line revenue numbers. So our whole goal again is to raise the bar for standard of care to generate better data and be able to help more patients and be able to then market appropriately if that data is there and we get approved. So I think we have a really good understanding of the individual players in the academic world and the large, either GPO kind of framework. So we understand how to play those different nuances really, really well. And again, we just need data and that momentum to go forward. But it's pretty exciting, obviously. And if it's there, we're going to push it really hard, push it.

Yes. Okay. And I think the 313 to us, there's a lot of nuances to the data. And I think because the bar has been set so high, it often takes several years post-treatment followup minimum OS, maybe a followup of several years to really understand how these treatments differ. But commercially in the markets, perhaps you get out there, if you have a profound PFS benefit, I assume that, that endpoint in and of itself would drive a regulatory outcome, right?

I think that's the assumption, and that's certainly been the precedence for RCC, and we'll see how that goes going forward based upon the data. Again, as you look at the CheckMate 214 data, there's a couple of different ways you could win here relative to whether you have -- you can decrease the amount of patients that have primary progressive disease, right? Because you're right shift PFS because cabo and most TKIs have a pretty high DCR rate. Does that move the needle in terms of right shifting all the appropriate Kaplan-Meier curves? Can you also raise the bar in terms of survival as well? So we'll see. We like the idea of certainly using cabo/nivo in the maintenance phase based upon 9ER data. So there's different ways to look at that even almost algebraically in terms of how that goes forward. But it's all going to be in the data. So I don't want to get ahead of myself in terms of how that could play, but there's plenty of ways you could see this winning potentially and helping more patients as we go forward. So it's all about getting the data in place and then if appropriate, pushing it very, very aggressively.

Yes. Yes. And so it sounds like initially, the focus is really on the totality of data and from what we've seen with IO/TKI-containing agents have generally outperformed ipi/nivo on PFS. So that seems optimistic from our vantage point, putting words in your mouth, but -- and then landmark OS rates even look a little bit better in that year 1. So it seems like fingers crossed, but...

Well, the question is, can you take the best of IO/TKI and the best and only IO/IO and mix those together and, again, raise the bar for patients, right? So that's the goal. We'll get the data perfect, yes.

Okay. And you guys have learned a lot about sort of managing the tox profile to optimize that. And so can you maybe just talk a little bit about the learnings from the triplet cohort in 9ER that you had as well as sort of the subsequent Phase I studies and how you guys look to improve upon that? I know that's an area of Wall Street focus here.

Sure. So I mean, I think all the data is out there. If you look at the Phase Ib Apollo data that's been presented numerous times and published. We have the -- in fact, in HCC, the CheckMate 040 data looking at the doublet and the triplet, so there's data there. And then some of the recent data from the 9ER Arm B with the 50 patients. So again, it's all focused on liver enzymes for the most part, how you manage through that. There's really good examples of how we can do that and good knowledge there. So I would just reflect that the 9ER Arm B data was generated in the early phase of that study, which entered -- started ruling patients in 2017. So early days of the whole cabo story as well. So again, bottom line is that's why we run large global pivotal trials is to get the data that we need to be able to understand the cosmic truth in terms of how these different combinations work and then file if appropriate. So that's going to be here in July. So stay tuned.

So I imagine we'll have a much different conversation about XL092 next year when we have some data. But in terms of -- I feel like the messaging historically was you might start initiating Phase III trials even before you read out your top line data for XL092, you're going to be starting the CRC study, where we've seen the data there. Can you just talk about plans for kind of getting Phase III trials up and running for XL092 into the second half of the year?

Right. Well, hopefully, we'll start with this first half of the year with CRC and then we have more coming in the second half, at least one, if not more. And then from there, I would look at things in terms of waves of pivotal trials starting. So we have a lot of confidence in that approach. We certainly like the idea of having a new and improved next-gen cabo that has all the positive attributes of cabo with potentially -- it's more user-friendly clinically in terms of a shorter half-life, maybe better safety. I have to get more data there, but certainly looking like that as we go forward. So lots of opportunities, lots of across the white space, across the white space of indications in terms of combinations, lines of therapy, new indications that we might have some early data with cabo, but it never really pursued in terms of its broad pivotal trials. So lots to do there, and it's going to be a mainstay for what we're doing going forward for sure as we build a pipeline with other compounds, other modalities, small molecules, biologics, ADCs. So it's going to be an important part of what we do for sure.

Yes. So you've certainly bolstered your Phase I pipeline in the last few years. And I know that you had that phase as a company where all heads down, focused on cabo and getting that to be a commercially viable and blockbuster drug. Now you've been investing. There's been this narrative would Exelixis be interested in doing BD activity of a larger size and scale, maybe to bolster the mid- or late-stage pipeline. Valuations have always been a little bit hefty for lack of a better term in your therapeutic area of focus. Not so much anymore. So I don't know, is there -- yes, any differing views regarding BD in general?

Our view hasn't really changed. I mean valuations aside, we're focused on quality and looking at quality of data and quality of the opportunity. So our lens in terms of looking at everything we do, internally and externally, is around conviction around what it means to have a molecule that's clinically differentiated or a combination that's clinically differentiated. And then how you convert that clinical differentiation into commercial success, right? Treating more patients, bringing better benefit to them than they currently have with standard of care. So -- and I think that's been the -- certainly, over the last few years, that's been limiting in terms of looking at this kind of broad sea of opportunity out there in the oncology world where money was relatively easy to get to. A lot of companies went public early with little or minimal clinical data, where there's really hard to look at and say, based upon what's there, is it really a viable approach based upon the conviction we have around clinical and commercial, that continuum. So valuations aside. I mean, certainly, there's been, I would say, kind of a rightsizing of the valuations in our view over the last year or so. There's still a lot of questions in our view around quality of data, quality of assets. And we saw that today with some of the news in lung cancer from one of the big pharmas, right? So it's a really, really tough business. And we want more molecules like cabo. We want -- we don't want to invest a lot of money in a molecule that has a micro-niche, nano-niche population where if you're lucky you're going to print $15 million, $20 million quarter, that's just not interesting for us, right? So it's that balance. So we have a very active effort around looking at targets. It's a full team effort. We don't do BD with a couple of people in the room looking at screens. We have full court best in terms of R&D, finance, commercial, regulatory, everything to understand the different levers we can pull and push, and it's a full team effort. So I think we're thoughtful, we're pragmatic and we're not going to just jump in because valuations are down 50% for the year. It's really a matter of what makes sense to us because valuations aside, if a molecule doesn't really warrant the investment, then why make the investment.

Yes. I mean it sounds like a message we hear from a lot of the large pharma to that there's just a glut of early-stage stuff that's not well characterized.

Yes. Yes. I think that's pretty telling sign because we have a great balance sheet. Theirs are usually bigger than ours, and there's not a lot of movement there, right? So...

Okay. Fair enough. Tissue factor is an interesting program. So maybe let's just switch there. I think investors are very interested in the ADC investments that you guys are making. So maybe at a high level, can you talk about what makes you guys excited about this program? And how the early clinical experience offers an initial proof point for excitement? You guys want to differentiate on the leading profile. And is this something that you can elucidate and tease out in some of the early clinical updates?

Yes. So again, I don't want to front run the data. We'll have an update later this year about the first clinical experience with XB002. It's been very, very, I would say, important for us as a company to get our -- jump in the pool, get our feet wet in terms of this whole area, which has been, I would say, historically, kind of viewed as more of a black art than actual kind of hardcore what's going on because it's complicated, right? You've got a binder, you've got a linker, you've got a toxin, you've got stability issues, usually got different drug antibody ratios. It's just -- it's a very complicated really sea of different variables that can change, right? So we're super excited with what we've done around 002. So having that molecule in the clinical learning a lot, seeing a lot. I won't go into the data, the details here, but it's been very enabling for us in terms of what's happening there and what that means for the broader program. And then we've been building pieces through either internal work or through collaborations to be able to really have almost an à la carte menu approach, where we can pick binders, we can pick linkers, we can pick different warheads that allow us to maximize potentially efficacy and the therapeutic benefit for patients with cancer. So it's been a really fun part of the overall approach. And we have this fundamental foundation around biology kind of understanding what's going on in the tumor microenvironment to be able to then make some, I think, pretty good guesses around blinking, if you will, like, binders with toxins in a way that can bring more benefits. So -- but 002 is really interesting, and I'm really excited about bringing that forward. And I think we've learned a lot and talk about kind of why we're -- with data, why we're excited about that going forward. But again, it's full core press as you heard Vicki Goodman say yesterday, we're pushing single-agent dose escalation. We're starting combination approaches right now as well with 002. So it's -- again, we're certainly gated by data, but the assumption is that it's going to go into full development relatively quickly.

Okay. In your own data side, do you have a sense of the average time of onset of the bleeding with TIVDAK...

Yes. TV. I don't have that on the top of my head right now. It's certainly pretty pervasive. I view bleeding as a kind of a front runner for tox in general, so there's other issues there as well, right? So I just -- I would keep an eye on the broad -- bleeding is important, obviously. Question is, can you raise the kind of the exposure to the MTD based upon not having that be the earliest thing you normally see, right? So...

yes. So there's obviously a question out there around the opportunity set for tissue factor. And can you speak to the tumor types that you're seeing, Phase I enrollment? Just kind of curious, I think cervical is the lead approach with Daiichi...

Yes. Yes, again, I don't want to go into the details in terms of what tumor types we're looking at in Phase I. We'll talk about that when we get into the actual data release. I think what we talked about those explicitly is our Phase Ib expansion cohorts are broad. I mean kind of -- I think it's 10-plus different indications right now that we're going to look at in that approach. So we have a lot of interest and a lot of confidence in the data that we're generating and the idea that, again, if we can push the dose higher, we can get the exposure higher then we might be able to see activity either as a single agent or a combination where TV hasn't shown that yet because of dose-limiting toxicities, right, in terms of exposure. Okay. Stay tuned.

Yes. So second half, maybe on the cabo expansion front or indication expansion front. You've got an important lung readout so to a few other competitors potentially. I think other competitors have pointed to interim OS updates potentially in the back half of the year. Have you guys been as specific or not clarifying and maybe when we could have a potential update on that front?

We have not been more specific from second half of the year -- yes. And that's true for CONTACT-001, that's cabo/atezo in second, third-line non-small cell lung cancer and then CONTACT-003, which is cabo/atezo in second-line RCC after IO frontline. Yes.

And when you do the second-line lung, can you talk about how do you guys take into account? We hear so much about post IO, your comparator arm on chemotherapy, presumably, those patients will do a lot better. And so you have that dynamic, you have the dynamic where another IO/TKI failed in the frontline setting in pembro/Lenvima. So how do these all factor into your thinking regarding the viability of the program?

Yes. So I don't -- I guess I haven't heard -- I haven't heard a lot of that in terms of those patients doing a lot better. I think it's a very heterogeneous population of patients, some patients blow through it. And after they fail either the combination or they fail the sequential IO in that setting, they're actually in pretty bad shape. So yes, that's -- but that's why you do a randomized trial and large enough to be able to ask some of those key questions. So there's really no good, I would say, systematically study data around what docetaxel does post IO on that. So we're going to find us. So we're doing some basic science here, which is going to be important for the whole field as well.

And can you just remind, historically speaking, data that we've seen with TKI in the lung setting that sort of gives you confidence regarding the activity? Or is it more of a mechanistic hypothesis that drove that? I mean, obviously, you had the open-label data that showed ORR that was in a favorable area.

Yes so we have more data that we'll have at ASCO. So stay tuned on that. We have combination data and single arm data for cabo in that setting. So we'll have an update there at ASCO.

Right. And the last update that you had versus this is going to be significantly longer in terms of...

More patients, longer follow-up have the cabo arm as well. So yes, it will be a pretty complete data set. Yes. Yes.

Yes. And so as it pertains to your investments and where you're placing your chips. Wherever you've done with the CONTACT program to expand actually utility of cabo, I presume that there's a pivot point probably at the end of this year once you have elucidated 092 and that will be kind of more of the go-forward approach with you.

Yes. So we've -- again, so we've explicitly stated that when the CONTACT's program ends, then that will be the transition over to 092. So we're not anticipating doing a lot more with cabo in terms of pivotal trials. And that's a perfect time -- perfect set for that 092 to then fill in and do a lot more there with novel doublets and triplets across different indications and lines of therapy. Yes, for sure.

Okay. Your CDK7, maybe you could talk a little bit about how it might be differentiated from some of the competitor molecules from at least a pharmacologic perspective, right? Because I think one of the pushbacks that we get from investors is perhaps the limited activity that we're seeing with some of the competitors CDK7s.

Yes. So it's still early. I think that the trick there is that we're looking at new biology right now, right? And maybe framing it as a tool molecule. We're all generating tools that allow us to then interrogate the pharmacology in the right species, i.e., man, right? So we like 102 because it's selective, it's very potent, it's irreversible. So it has all the right attributes to be able to now go into the -- and based upon what we've seen so far clinically, go into man, go into patients with single-agent or combination and as some of these key experiments. And I guess I would question some of the earlier compounds or competitor compounds have the same viability as a tool agent to be able to ask those questions. So as is often the case, I talked about this before we started with the whole RAS area, right? It's too rare that the first compounds are the best compounds to be able to ask some of those key questions, and I think that's the case here as well. So -- but we're blazing new trails here, and that's exciting. And that's obviously can be viewed as high risk, but that's the business that we're in, right? So but you need to have the right tools to be able to ask the right questions and do the right science to then be able to say, okay, that's worth going after or that's not worth going after. So it's going to be attrition here along the way, and that's part of the business. But if you have the right tools and you have the right questions, then you can live with that, and you can learn a lot from that going forward for sure. Yes.

At a high level, you guys could have a lot of decisions to make next year from an R&D standpoint, right? You're going to have 3 programs where you're going to have your first-in-human data effectively or you're going to have more human data. A lot of decisions to make on those programs, advancing them to presumably mid-stage trials so that give some work that's already been started on cabo follow-on type of studies and other assets that you're bringing on board. Can you just talk about your processes and how intertwined the assessment of the clinical versus commercial and your thresholds for making investment decisions as you think about you're in a good spot cash-wise and you've got a cash count on cabo? So just kind of thinking about the focus on driving profitability. It's not something that a lot of biotech companies focus on, they want to focus on the investment opportunity. So where you guys are at as a company?

Well, we're investing heavily, and I think that's been the approach for the last few years, but we also want to invest wisely. And that's the -- I think that's the challenge that a lot of companies face. And we're in a, I think, a unique position where we have with a pipeline that's growing with molecules that are active with very, very, I would say, deep BD bench where we're looking for new assets. We have the opportunity to be able to really flex here and do the right science and the right combinations and the right approach. We want to be aggressive, right? Because there's certainly a first-mover advantage that we see time and time again, but we want to be wise about doing this. So we have a full kind of view in terms of what makes sense mechanistically, what makes sense clinically and is there going to be a commercial payoff there to -- if we're successful to then warrant the investment, right? And I think we've done that well over the years, right? We made the decision 5-plus years ago to not go into these nano-niche indications for, say, lung, where there's certainly a very high patient need, but there's very few patients. So what's the best way to kind of allocate capital in a way that can drive growth going forward. So doubling down on cabo made sense relative to those investments that were maybe less likely to be successful commercially, right? So I think we do that on a regular basis. And having the commercial team and having the marketing approach and having the whole competitive intelligence side so well worked out now. I mean we're fortunate to have the ability to generate the cash that we can and then invest that wisely, so we're making the right decisions based upon the totality of that perspective, that data. And a lot of companies in our spot can't do that, right? Because they don't have the depth of resources that we got. So we're looking to grow. We've got Exelixis East that's picking up a lot of momentum. I want to see us double or triple the size of development over the next couple of years. Discovery is growing leaps and bounds as well. So it's a time to invest more. It's a time to take bigger risks in terms of the science that we're doing and to really push it because there's so much more room for us to grow as a company and so much more work we can do to help patients with cancer that the momentum is there. And we're in a spot now where we're generating so much cash that we can really invest heavily and use that to make a difference for cancer patients and for our shareholders as well.

Okay. And any lingering impacts that you see what we having on the business? So I know at one point, your cancer patients were coming into see the doctor diagnoses were down. I imagine that's normalized. And then clinical trials, there still are companies talking about how that can impact trial enrollment. So just curious...

Yes. We really haven't seen that. That thing stabilized at the end of '20 for us in terms of the market dynamics, kind of clinical trial execution, those kinds of things. So it's hard for me to kind of project into what other companies are saying relative to that. There are certain other issues. I mean the war in Ukraine is certainly having an impact on, I would say, broad kind of clinical trial enrollment, I would say, kinetics in Eastern Europe, but that's not us, that's everybody right now. But look, we're back, we're growing. We've been back in the office, more or less full steam now for the last year or so. We have just tremendous momentum and energy, especially as the downturn kind of in small, mid-biocaps -- biotechs has happened, we're seeing recruiting kind of pick up again in a major way. So we're looking to grow and we're looking to put all this money to work in a way that could help patients for sure. That's the goal.

A minute left. So next week, patent trial. So I know you can't say much. So my question though is, I think historically, you guys have said your operating assumption was 2030 internally. Do I have that correct?

That is correct.

Okay. You do have some multiple patents to go to 2033, 2037. And so I would just -- I believe that those were being enforced were part of the litigations. So I'm curious if investors should think about those patents as potentially part of a scenario that could be longer than your...

Yes, I think we've been pretty conservative there, right? So yes. Okay.

Okay.

Okay.

All right. Great.

Good. Thank you. Good to see you, you bet.