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

Great. Good morning, everybody. Thanks for attending our Growth Stock Conference especially after 3 long years. With me today is Mike Morrissey, CEO, President of Exelixis; and also the CSO, Chief Scientific Officer, Peter Lamb.

So I guess to start, we'll kind of start with kind of a rhetorical question, I guess. So if you look at the Exelixis performance, stock performance this year is actually up, right? I guess the backdrop of XBI, which is down 40%, which is -- it's been a tough market for biotech. So maybe through the course of the discussion, we'll kind of discuss exploring this topic and really dig into the growth potential for future years and also the business plan. So maybe just start, Mike, maybe this is a good area to kind of provide us with a high-level overview of the business, future growth drivers as you see.

Sure. Well, first of all, thanks for the invite. Great to see you again live. I don't think we've talked live since early 2020, maybe end of 2019. So it's great to finally reconnect. Good morning, everybody. We'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 again, Peter is here today, so he'll handle all the really tough questions, and I'll fill in some color commentary as needed. But yes, so Exelixis, look, we're a commercial-stage biotech company focused in oncology. A long history of drug discovery, drug development, now commercial success, as Andy alluded to, it's a tough time in biotech world, right, coming off a couple of very, very strong years. The entire sector has been really hurting this year. Companies like us with lots of cash and stable revenues, growing revenues, big business drivers, I think, are doing pretty well. And it's still a challenging environment. Obviously, you saw that at ASCO over the last few days down at the McCormick Place where there's just a lot of competition, a lot of new data, a lot of patients that need better therapies. So we're super excited about what we're doing, where we're going with our business. Cabo, I was -- I had some of the FDA guys run these numbers for us over the weekend. But we launched CABOMETYX in second-line RCC in the second quarter of 2016 -- off a base of just the medullary thyroid cancer approval in small commercial launch earlier than that. So if you look at the numbers from Q1 2016 to Q1 2022, revenue grew from about $9 million in Q1 2016 to $310 million in the U.S. in Q1 2022. So that's an 80-plus percent CAGR in that time frame, which I think is pretty interesting to see. Globally, with Ipsen and Takeda, you have global franchise numbers, we were well over $430 million in Q1. So we have a lot of success with cabo. Certainly, it's been hard-earned in terms of being able to build a label with 6 different indications in the U.S. And obviously, we have aspirations to grow that further. We have ongoing trials that will read out this year in first-line RCC with COSMIC-313, and then in second, third-line non-small cell lung cancer with CONTACT-01 and second-line RCC with CONTACT-03. Both of those are cabo/atezo combination. So cabo has been very well adopted in the GU space, in the RCC space. For those of you that saw some of the presentations in the GU section at ASCO on Friday, every other presentation or discussion talked about cabo in some shape, manner or form. So we're excited about that, and we're going to use that momentum to build a -- thinking really impressive pipeline of new compounds that's coming up now in the clinic and before preclinically, and we have a lot of good things going for us going forward.

That's great. So that's a good kind of historical review. Maybe we'll explore some future drivers down the road. But -- the other topic I'd like to discuss is really ESG. I think that's something that a lot of clients put a lot of emphasis on. So maybe you could use this opportunity to highlight...

Yes, yes. I think it's a really good point. We're a small company, 1,000 employees. Certainly have aspirations to grow and expand our reach both domestically on the East Coast as well as globally. The ESG concepts are very, very important to us, and I would guide you to look at our proxy from 2022, which has a pretty full disclosure, and we'll have a full sustainability report coming out second half of the year, Q3, Q4, that will highlight that. But certainly from the point of view of the environment, a new building that we've just taken -- just moved into in the last month or so. It really reinforces how we view our responsibility locally, domestically, globally on the environment. It's 100% carbon neutral. We have -- completely driven by electric power, half of which we generate through solar panels that are built now over the parking lots that we generated about a megawatt of power a day, which basically powers about half the building by itself, which is pretty interesting. So a lot of focus there. Governance certainly in terms of corporate governance, we have really reinforced over the last few years and that, I think, was front and center with our proxy. And then certainly, on the social side, DEI has come on very, very strongly over the last couple of years and certainly drives everything we do in terms of how we're building our culture and how we're working with patient, and clinical trials as well as with various vendors. So we're feeling pretty good about that. But go back to our proxy see that, and you'll see that our commitment there is very, very strong going forward.

Yes. Look forward to that report. So let's dig into the RCC kind of your bread and butter, kidney cancer space. So maybe let's start with how the treatment paradigm is evolving over time and how cabo fits? And then maybe future, as you alluded to a few trials reading out in the second half of this year. So maybe we could kind of discuss that.

Yes, let's use renal as kind of emblematic of what we do as a company relative to what our mission is, right? In essence, our job is to improve standard of care for patients with the compounds we make, how we develop them, how we get them approved and then how we market them. The level of both domestically and globally, the unmet need, even with all the investments that you've seen in pharma and biopharma, large pharma, biotech, continues to be very, very high. So our job is to continue to raise the bar for patients. That's what we focus on every single day. Just having a drug that's as good as somebody else isn't good. You got to make it better. And that's -- I think that focus is what's true with us in terms of how we develop cabo to really ask the question, how do we design molecules that are potentially differentiated? How do we prove that clinically? And then when we're fortunate enough to have that level of clinical differentiation, then how do we educate positions, how do we help prescribers see the benefit for their patients. So that's been the case across the board. We're very fortunate to have cabozantinib, both in terms of CABOMETYX, the tablet form be the #1 prescribed TKI for RCC. So when you think about, we're competing with the pharmas out there who are in this space, historically, it's kind of really, really gratifying to see that level of success with a molecule that was designed by Peter and his team years ago to be able to look at the biology of RCC, the pathogenesis and how that evolves and then make some very important hypothesis about how to make a better molecule that could impact. And certainly, both as a single agent and in combination with various immune checkpoint inhibitors. So we've seen very good activity there. So between the METEOR results, the CABOSUN results, now the 9ER results, we've built that position. And we saw with the 9ER launch that started in January of 2021, we gained 5 or 6 market share points in a very, very competitive deep marketplace. So we're very proud of that, but we never rest. We never look at where we're at and say that's good enough and certainly doing the COSMIC-313 study, which is the triplet of cabo with nivolumab and ipilimumab versus nivo and ipi in the poor and intermediate risk population. Again, trying to again raise the bar based upon what you see there with IO/IO or I-O/TKI as well as looking at the cabo/atezo combination in second-line RCC. Again, asking the question, can you -- by combining that actually generate better outcomes for the patient. So a lot going on, they're excited about having those trials read out this year and just kind of reinforces how we do business relative to discovery, development and then commercial.

That's right. That's right. So, Mike, you kind of alluded to the fact that ASCO was really productive for you guys. Maybe we can dive a little bit deeper into a couple of...

Lead the way.

So I guess, first, we can talk about lung cancer, right? So second-line data, 19% response rate, 4 to 5 months PFS, almost 14 months overall survival. Just think about -- what's the bar here? Obviously, investors want to do cross-trial comparisons and before the CONTACT-01 readout. So maybe kind of share with us your perspective on the data.

Yes. So we had real strong data for both the cabo/atezo combination in second and third line non-small cell lung cancer as well as with single-agent cabo to kind of provide how that comparison might look again. It's always challenging to do any kind of cross-trial comparisons with historical data. Patients change, patient populations and demographics where the trials changed. So I don't want to get into that level of comparison here today. It's just always challenging, and I'll be having one going to that. We're certainly very excited about the collaboration we have with Roche, looking at the CONTACT-01, 02, 03 in lung cancer, prostate cancer and second-line renal cancer. And again, that's why you run these pivotal trials is to get the right data in a randomized global sense and you see the cosmic truth, right? So we're in that business, and we'll hopefully have that data in the second half of 2022.

Right. Okay. And I guess the second trial that was really kind of jumped out at me was really head and neck data. So 54% response rate, 15 months PFS, over 22 months of survival. So I guess when I first looked at this -- this is kind of like frontline data, right? So maybe you can kind of provide also your interpretation of that -- and the future plans.

Yes, for sure. So that's a very interesting early data generated through an IST, best to get a sponsored trial. So single-arm, non-randomized combination of cabo with pembro in late line head and neck cancer. Again, you have the data, so I won't reiterate that. But certainly provocative signals generated a lot of interest at ASCO, both in terms of the actual presentation, the discussion afterwards and then all of the -- all the sidebar discussions that we had in planning with that. So I don't want to preempt all that work that's going on right now in terms of being able to follow up on that. But I think the public messaging, at least from the investigator was that it's really time to do a randomized trial, be able to ask the most important questions. So we have a lot more work to do to understand the different levers we can pull there, but it's a very, very provocative result and one that we think is very encouraging, and we should follow up. Stay tuned for the details.

Right, right, right. So I guess one interesting observation that I have was head and neck cancer was not explored in COSMIC-021.

It actually was -- it actually 01 was covered.

01 was covered and's STELLAR-1, STELLAR-2, but it's being explored for the ADC for the Tissue Factor...

That's right. Tissue Factor. Correct.

Great. Great. Great. So -- Yes, the other thing that is kind of interesting is the depth of response analysis from the 9ER. I wonder if there's any extrapolations you could make to the triplet study, 313, just because I think the hypothesis there is if you can convert the progressive disease patients from 214 to either save a disease or partial response, even complete response, that could really kind of extend the duration, maybe translate into overall survival.

Yes. Yes. So that's always been one of the -- I think one of the real attributes of a TKI-based IO combination around RCC as your disease control rate or your DCR is very high because your primary progressive disease rate is usually very low. And that certainly came out relative to the poster or the presentation that you described in terms of how depth of response, stronger responses, deeper responses drive better clinical outcomes, which is maybe somewhat intuitive, right? But it's good to see that documented with actual data. So 313 same as you mentioned, I mean that was the hypothesis. Do we potentially bring more benefit to patients by layering cabo on top of ipi/nivo to be able to really address, first of all, that population of patients, which in CheckMate 214 was about 25%. We have a rapid progressive disease. And can we kind of, again, right shift, if you will, the capital mines for both PFS and OS by doing that and also potentially raising the tail by having the maintenance space, having cabo/nivo versus nivo by itself. So all speculation, all hypothesis that's -- again, that's why we run these large global pivotal trials is to answer the key questions. And again, that should be reading out relatively soon.

Great. Great. Great. Okay. So -- so biotech news. R&D is so instrumental for biotech growth. I wanted to kind of maybe shift to Peter's franchise.

Okay, good.

So maybe, Peter, can you maybe highlight the differentiated R&D infrastructure that you have at Exelixis. It's -- the differentiated platform because you -- based on that, there's a 3 different molecules that's been approved by global regulatory authority. So maybe kind of walk us through that, giving us kind of a look into what you guys do on a daily basis.

Yes, absolutely, be happy to. And it's certainly, I think, probably the most exciting time for Exelixis R&D in the 22 years that I've been there. . Yes, you alluded to the 3 approved drugs that we got -- really came from our initial small molecules discovery efforts that went on mainly in the mid-2000s. That was very much based on -- with them will do large compound library. We screened a great deal of targets. I mean it was a very empirical data-driven approach. And based on some sound biological hypothesis, but I think one of the things we've learned, and I think the industry has learned certainly in oncology and probably other diseases as well, it's -- you need to have good hypotheses that you can pass, but you need to fester data on an ongoing basis and not just assume that you know exactly how things are going to go. So you need to give yourselves the opportunity in a way that hit a broad range of targets, very hard and exhaustively and kind of interrogate that with data. So I think in the current iteration of real company certainly by history, and we're very much doubling down on that right now. We've been opening new laboratory to the cliff on the small molecule discovery side. And it's really a kind of contemporary iteration of what we did earlier. I mean we're certainly bringing on new technology, new techniques that will complement what we used to do. You'll have seen we've done a number of collaborations in the area as well, which we're quite happy to do to add capacity, to add expertise that we don't have internally currently to enable us to maximize our ability to prosecute the targets we're most interested in. I would say in addition, as we were looking at building the pipeline going back a couple of years, we really wanted to include biologics in the pipeline -- for all the obvious reasons. Again, it just gives you the ability to broaden the range of targets that you can address, and we didn't want to be limited from that point of view that we've invested in, both internally and through a network of external collaborations and being able to advance biologic with various flavors. I would say we're particular excited about and interested in ADCs. Obviously, there's a huge renaissance in the ADC field over the last few years. I think there were 9, 10 approvals in the last 2.5 year. That comes on the back of a lot of painful learning that went on over 20 years of failing to develop ADCs with 1 or 2 exceptions. I think the reasons for that are now fairly well understood. I don't want to claim it's now easy to make ADC, it's still challenging. And again, it's still very much an empirical process for each one, but there are a number of, I think, aspects of what needs to be automated in a molecule that's now really well understood and things that you need to avoid. And there's a number now kind of next-gen technologies for making ADCs that we've certainly have been attracted to and have done various collaborations around. So we have our first ADC in the clinic now XB002, targeting Tissue Factor, as you are aware, have an ongoing effort preclinically. We had a new development compound late last year, kind of next-gen 5T4 targeting ADC, there's certainly more to come there as well. Now we say broadly, if you look at -- it's going to be a mix of small molecules and biologics going forward. There's going to be a mix of things like the Tissue Factor ADC, I mean, the reason Tissue Factor ADC was approved, it's a [ C-gen1 ], right. So we're doing a next-gen approach based on making very specific improvement over what's seen in the first-gen, which I think can often be a very attractive strategy. But it's going to be a mix of things like that and then a mixture of what I'll call kind of novel targets where we have an opportunity to first thing for us. So we basically want to amortize the overall pipeline and risk through that kind of strategy.

Great. I guess one interesting thing that was brought up by one of the KOLs at ASCO was this idea of immunogenic cell death using the [indiscernible] based payloads. I'm just curious if you have any thoughts on that, especially in the context of the XB002.

I do. Yes. It's a very interesting idea. There are a number of payloads, including the one XB002 the thought windows called immunogenic cell death. You're doing a number of things. Essentially, your primary immune system through direct tumor cell life is, you're releasing a lot of antigen, and it's just basically begging for a combination with a checkpoint inhibitor, which is obviously something we just initiated with 002. I think there's a lot of interest generally in the field in being able to do that. Down the road as well if you look more broadly at things like CABO-092, which have their own immune stimulatory properties, you can kind of start thinking about combination there as well. So -- yes, we're very much looking within our own emerging pipeline about what we can best combine not only with other folks agents, but also internally. So I think there's no great clinical proof of concept with ADCs and IO yet. It's cooking. But I think it's a very exciting area.

So how would you think about things that you have internally versus capturing things outside. So for example, like covalence binders, right, that's something that you kind of leverage externally, ADCs, and things like that. kind of how do you think about balancing those 2 elements?

Yes, exactly. I think we're in growth phase internally right now, and we don't want to under a number of targets that we are finding attractive. And I think it's a matter of matching the right approach and the right technology to the appropriate target. So the ones that we're going to focus on internally. There are others where other folks have expertise or platforms that we don't have yet, where we're quite happy to go out and partner and then use that technology, to give us the best compound that we can to advance against a given target. So pretty much kind of a bespoke approach, if you like, depending upon the needs of the target, what we think the overall profile of the drug needs to be to give us the best chance of success in the clinic.

And that's where the size of our balance sheet, right, and the depth of our pipeline gives us that opportunity to be really agnostic relative to making sure that we're always matching the best approach with the target relative to taking some of these shots on goal. So we really like that approach from the standpoint of being completely objective relative not pigeon hold into one technology that we have to prove. Our job is to make drugs that raise the bar for patients.

Yes.. I would say one thing. I mean back when you were a biotech -- raise money every year. You kind of have to put yourself in a bit of a box sometimes form a target point of view, right? We did kind of but that was kind of mainly other companies spoke on whatever it was, epigenetic tumor, I believe that's where they operate. I mean we're in a heavy position now where we don't have to do that. So scientifically, we can be just agnostic and go where we think the best targets and the best opportunities are and then match that up with the appropriate modality, be it biologics, more molecule covalent, non-covalent.

Great. Great. Great. So Peter, you mentioned about XL092. It was rapidly advanced, right? So I guess 2 years ago, we kind of discussed this publicly, and then now it's in the Phase III trials. So maybe talk a little bit about what you learned about cabo and how that was incorporated in the design of XL092?

Yes. Well, we learned a lot about cabo over the years from its initiation as a program, I think it was 2002. So -- and get an initial view of the biology that evolve of understanding of tumor biology generally kind of evolved. So yes, what we learned? We learned enormous amount preclinically and clinically. I mean one of the things, obviously, we learned about cabo is as a single agent, it's broadly active. And it's not something that comes around every day. So I think there's something special about the combination of targets -- [indiscernible] the cabo hits, it hits pretty hard. And we basically come to learn that activity is a result of multiple different aspects of the direct antitumor activity against the tumor cells, the kind of the anti-angiogenic component, stromal component. And then more recently, there was an appreciation for the impact on the immune system on both the adapted immune system. So it's giving a lot as a result of that spectrum of target, which, again, we think is special. So as we were thinking about 092, we really wanted to be able to exploit that wealth of data that we had around cabo. So we want to retain that basic target profile. So the 092 still have [indiscernible] pretty much it's the same kind of ratio as that cabo does, it does. We did the best we could to keep that pretty much the same from a preclinical point of view. But what we did do is tweak the pharmacokinetic profile. Cabozantinib has about 100-hour half-life in the clinic. When you initially dose, you see accumulation for about 3 weeks. We need to wash out. Obviously, it takes a while to wash out. So we felt there was an opportunity to have a compound with a shorter pharmacokinetic half-life in the clinic that may then facilitate adverse event management and we may then be able to get a dose. Now I have to deal with the accumulation that will end up with the same basic target profile, but helps with an improved patent profile. So that was the thinking behind 092. Happily, as it's gone into Phase I, and we've seen the PK profile coming out about 20 to 24 hours half-life, which -- that's pretty much exactly what we were hoping for. So still appropriate for once daily dosing, much reduced accumulation initially. And then obviously, we're looking at the emerging safety profile and efficacy profile pretty closely. So we'll have maybe more data on that later, yes.

Great. Great. So I wanted to explore a little bit about the immune profile of this -- immunomodulator profile of the cabo pharmacophore. So in the lung cancer space or any solid tumor, there's tremendous amount of interest in really kind of salvage IO-treated patients. So there's different definitions of that, right? So there's acquired resistance, right? You have a response and then you lapse. You just have PD refractory population. So is there any population that would fit based on your description of how cabo modulates the immune microenvironment that would work particularly well.

Yes, it's a great question. I mean, I think with respect to things like acquired resistance with checkpoint inhibitor, and that's still very incompletely understood despite a few years of effort there. I mean there are some specific mutations that have been identified that tend to either inhibit antigen presentation generally through, I don't know, HLA modification, for example, or inhibit responses to interferon, but that's really a minority patients who relapse on these therapies. So that's not understood in terms of that. Again, I think the advantage of the cabo pharmacophore and that profile, which we also see preclinically with 092, it's the breadth of its activity. I mean it's not focused on, okay, we're just going to increase CD8 positive team. I mean, that's great. That's important. But it's really the multimodality. I mean on the tumor cells, it actually tends to increase antigen presentation by [indiscernible] for example. On innate immune cells, it has effect on myeloid cells, has a very interesting effect on neutrophils, which are probably an understudied immune cell population. And it's known that we're preclinically at least that there are suppressive neutrophils that are often recruited to the tumor following checkpoint therapy. And that recruitment is dependent on that and adding cabo in those studies and the pre-clinical study, you get a much improved response. So I think the important part of it is its kind of a multimodal mechanism of action and -- yes, in a sense that it's not a hyper-focused single targeted drug.

Great. Great. So I think maybe this is a good time to ask if any questions from the audience? All right. So well, thank you very much for attending our Growth Stock Conference, and I forgot to make the disclosure earlier. So basically, for a full list of disclosures and cautions, please visit our website. All right. Thank you very much.

Appreciate it. Good to see you.