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

So good afternoon, everyone. I hope you're all doing well. I have the -- for those who don't know me, my name is Akash Tewari. I'm a biotech analyst here at Jefferies. I have the pleasure of hosting Mike Morrissey, President and CEO of Exelixis. Mike has been kind enough to join us even after going through ASCO, which I can't imagine would have pain that must have...

It's been a long week. Yes.

It's been a long week for him, but he is nice enough to still join us. Mike, why don't I give it to you for just some brief introductory remarks, and then we can get into the space together.

Thanks again for the invite. Good to see you again.

Absolutely.

Appreciate the time and everybody's attendance today. Again, Exelixis is a commercial stage biotech company focused in oncology, our lead molecule cabozantinib, its generic name is a, I guess, it's safe to say a true global blockbuster in the oncology space, leading tyrosine kinase inhibitor for RCC, did close to $1.1 billion in net product revenue in the U.S. in 2021, really on the strength of the -- really very compelling CheckMate 9ER data that we got approved on in January '21, and we're building a company with global ambitions to be able to help patients with cancer on a global scale with a big pipeline of drugs that move the needle. So before I begin answering questions, I'll be making forward-looking statements today and get that out of the way. So please see our SEC filings for a description of the risks that we face in our business.

Understood. Understood. So I will not start off with cabo. Let's start off on the pipeline a little, I think that's a nice change of pace. And look, I think if we talk to a lot of investors, there's interesting stuff going on the CDK7s, the tissue factor ADC. It's not real enough to be pound the table. I need to own Exelixis right now for the -- because some of it is just really early. I think one of the most interesting signals we've seen is, a, you significantly expanded your tissue factor ADC trial. You originally had 190 patients and you're now going to 450. You're adding 3 cohorts, and we know you're going to have data on that mid to the back half of this year. And a signal there could certainly change how we really feel about the pipeline for this company. So I think why don't we talk about the rationale of that tissue factor ADC, what were you really trying to accomplish when you were thinking about that asset preclinically. The decision to expand the trial and really what drove that and why those indications -- those cohorts that you added, I think, there's NSCLC, something in head and neck as well, what kind of drove the decisions to expand to a 450 patient Phase I/II trial, which you don't often see in oncology [indiscernible].

Sure, sure. So let's take a step back. I mean, obviously, we're very fortunate with a lot of hard work and maybe a little bit of luck over time to have a blockbuster franchise and cabo. I think the challenge having established that is how do we build the pipeline, how do we invest appropriately across a range of internal, external collaborative activities to be able to go from one blockbuster to many. We -- at the same time, we were thinking about that really wanted to broaden our approach and become much more agnostic. We have a fundamental background and, I would say, deep expertise in biology, understanding tumor biology pathways targets, how to, to a large degree, mix and match emerging approaches with the idea that cancer is so complex. Rarely can you target a single molecule, single protein, single pathway and have a broad impact on even a single tumor type, much less across tumor types. So we really wanted to go into biologics as well. Talking about XB002, our first ADC antibody drug conjugate. It's -- in some ways, that technology, that platform really marries biology and chemistry. You want a binder that can be used as a targeting mechanism to get into tumors, and then you want to have the right payload, you call it a payload or a warhead or a toxin with the appropriately design linker to be able to keep the ADC intact and then, obviously, release the toxin at the appropriate time. So there's been a lot of work there. We certainly weren't on the believing edge there, and there's -- even at ASCO this week, there's been a lot of, I think, really important developments with various ADCs, some early stage. Others are at late stage, showing the potential success for patients by that approach. So XB002 is a molecule that we were able to access from a collaboration with Iconic Therapeutics. They were a company focused on ophthalmology, and tissue factor, which is the target that the antibody for XB002 binds to is certainly very important in the ophthalmologic area, but has really wide applicability for oncology and cancer as well. So we're very interested in that. We like that molecule because we think it's potentially a better next-gen version of other tissue factor targeting ADCs, very clever antibody construction by that group led to the discovery of a binder, in this case, the antibody that binds to tissue factor in a way that does not compete with Factor VII binding. So the less potential for bleeding, which we've seen in some of the first-gen molecules to a pretty extensive degree. So there's one potential advantage there. And the other is that using a truly next-gen potentially optimized linker warhead in side-by-side experiments showed good stability, maybe even better stability than first-gen molecules with better payload, warhead delivery and better overall [ cell ] potential. So we like having -- being, in this case, second, kind of like cabo. Cabo was in the first VEGFR targeting TKI to hit the market, but it was optimized in a way to take the learnings from all the clinical work with others and then make a better molecule, which has certainly been the case from a clinical and commercial point of view. So same general idea with XB002, but had that molecule in the clinic for little bit more than a year now. I've been real pleased with what we've seen so far in terms of the overall profile. We'll have a data presentation on that later this year. I think most importantly, in the short term is that back in end of last year and then in January, when we announced it, we expanded the collaboration with Iconic to basically dot the Is and cross the Ts and gain all -- literally all rights to that molecule in terms of the binder and the ability to make additional ADCs with different linker warheads which is ongoing right now. And then really expand the use of that and really own all the rights to that. So we're really excited about that. As you mentioned, we've expanded based upon the data that we've seen. We've expanded now the single agent Phase Ib to include a combination arm with nivolumab, which again makes perfect sense and certainly has a lot of -- I think, a lot of real upside potential relative to how those 2 different mechanisms can work together. And our goal is to move this forward as quickly as possible and get this into full development once we see the appropriate signals from both an efficacy and safety point of view going forward.

Understood. And for the data presentation we're going to get later this year, it's been in the clinic for a year. Is there a sense -- are we going to get levels where you feel like you might have reached your MTV, you feel like you've reached your go-forward dose? Is this going to be a robust enough data presentation where we're going to have a real signal on efficacy and strong rationale why you're expanding to enter some of the cohorts that you recently got anything?

Yes. Again, I don't want to get into the details of what you'll see later in the year. I think what you'll see is the supporting data, which highlights why we are so interested and excited in this asset and what's driving us forward relative to the opportunity with XB002 in the context of other molecules and where they have been and where they're going, right? So it's all about -- obviously, it's a very competitive space. And it's one that we think from the outset, we need to have really signs of differentiation clinically to really warrant further investment and we're certainly seeing that here.

Understood. Understood. Now maybe also let's hit on son of cabo, your next generation. And I think one of the things that people are trying to figure out, is this going to be like ULTOMIRIS type switch where every single patient Alexion has on SOLIRIS, they're going to try to put on the next-gen molecule. Your switch strategies or at least what's laid out on son of cabo isn't necessarily that. It seems more like an extension of what the studies you were going to run in a TKI setting anyway, let's do it with the next-gen molecule with potentially some differentiating features on safety. But you're also going to have multiple Phase III studies, and this is going to become a very real product relatively soon. So if we were to think about a year from now, 2 years from now, what indication opportunities do you think your next-gen cabo really could stand out? And then where do you feel like The Street is just not understanding the opportunity from a commercial perspective?

Well, it's still early. And I'm not surprised The Street is not getting it because I think our mode of communicating is based on getting data and talking about that data and having the data and the plans speak for themselves without a lot of hype in hyperbole going into it. So look, quite simply, we've talked about the vision where 092 doesn't necessarily need to replace cabo. We need to build upon the legacy of cabo, the 50 years of data we have with cabo, the broad set of indications that we have not pursued yet with cabo for reasons of time and money and focus and taking really the learnings of having 20-plus different tumor types which cabo either as a single agent or in combination with various other molecules has shown bonafied RECIST 1.1 responses. So objective tumor shrinkage and clear clinical benefit for patients and to be able to translate that then to a full development program for cabo going forward. So I think MSS stable, RAS wild-type CRC is a good example. 303, that pivotal trial will start imminently. It's -- again, we've got a very solid database of activity with cabo there with various IOs that we had at ASCO GI this year. It's a very easy switch from cabo to 092 from a mechanistic point of view. And it's one that -- again, the level of unmet medical need is very high. The control arm is regorafenib, which arguably has a label there, but has -- leaves lots of room for improvement. And with the data we had at GI this year, really underscores the potential there for the value we can bring to patients, both radiographically and from a kind of overall survival point of view. So it's that kind of making. Now certainly, there will be some, I would say, crosstalk between current cabo indications in future 092 indications. But there, again, we're not looking to have it be a switch, right? We're looking to actually improve patient outcomes relative to what cabo might have. And actually, I mean, our job as drug discovery and developers is to really always raise the bar for patients in terms of current standard of care. We've got to do better by patients because that's what our job is, number one. And that's the only way we're going to be able to really monetize success here. So I would -- I think, the vision we have is to run a large global development program with 092 with various either existing or potentially new combination partners, doublets and triplets, again, COSMIC-313 is the first triplet IO/TKI combination that is going to read out shortly in first-line RCC. We can see doing more of those with other novel triplets across renal, liver, lung, prostate, et cetera, as we go forward. And I think the job we have to do now is to really define what those look like and then get those trials going as quickly as possible.

Now let's touch a bit on cabo and kind of the commercial sales performance. You've talked about getting to a $1.5 billion. Now it seems like you're on track for that and I think a big part of that is also that duration of response is significantly longer with your CheckMate data and as long as you can get into kind of the 14-, 15-month range, you're going to be at that $1.5 billion run rate. A question that I think investors and we're trying to figure out is if you look at consensus models, right, that last $500 million to $700 million, which is really in consensus, right, consensus around [ 2 2 ] for cabo, what's going to drive that, right? Is that going to be really continued uptake in first-line RCC, given it's a $5 billion, $6 billion market. You guys have a very competitive regimen. Or is there another indication or expansion into something that we're not really paying attention to that's going to drive that last leg of growth, that's probably going to occur next year? Yes.

So potentially, all of the above. Again, it's all in the data, and we're in the we're in the P value business, and P values drive a lot of value creation or not based upon what you've got and what you can do with that, right? So if you look at 2021 performance, just taking RCC as a simple pneumonic, we can value what a market share point gain gives us, right? So 313 is a really important study that we'll read out shortly. And again, we're on track for a July top line result there. Because again, if we can -- we've gone from 30% market share to 36% market share between Q1 '21 and Q1 '22. If we have good data with COSMIC-313 and you can continue to add incremental growth in terms of just frontline RCC with long duration, that's going to move the needle for us from a revenue point of view, pretty dramaticly, right? So it doesn't take a lot more of those points to actually drive that. I mean we gained close to $350 million in revenue last year in 2021 with a 5 or 6-point jump. So you can make that math. I can make that math for easily myself, right? So it's a very important part of just incremental growth and how that data can drive that going forward. But beyond that, we've got lung, we've got prostate, we've got more second-line RCC. I would say right now, we're probably just starting to see stacking of patients who were put on frontline RCC from 9ER in 2021, now stacking in 2022. So that's -- we had 11% TRx growth in Q1 over Q4. So we're seeing, I think, very strong momentum. So the aspirational kind of view of success that we talked about in 2020 at the JPMorgan meeting was it's all predicated on this is what success looks like. If we get the kind of data we hope to get kind of P values that we need, we can add indications, then we can really drive revenue going forward. So consensus is what it is, you guys model, we model. We'll see what that is at the end of the day. But we're not kind of sitting back, resting on our laurels in terms of driving that going forward. It's a very important priority for us from the standpoint of development, regulatory and then commercial to maximize really every day possible for patients and to drive growth going forward.

Understood. Maybe touching a bit on CONTACT-01. That's a study, I don't think comes up in a lot of investor discussions. It's not something that I think is necessarily top of mind right now when we're thinking about the cabo readouts. And the data with COSMIC-012, it seems kind of mixed in terms of -- you don't necessarily see a huge improvement on PFS. What are we missing about the CONTACT-01 study? What makes you confident that the trial is going to have signs of success? Are there any precedent data sets that you're pointing to for investors to really instruct why that trial was designed the way it was?

Yes. So CONTACT-01 is a second, third line population with non-small cell lung cancer post either checkpoint inhibitor in combination with chemo or sequential, right? So -- and to be quite frank, we're on the leading edge here. There's other contemporaneous trials being run here, but there's no -- really no good precedents for even the control arm in this setting relative to how fast that field is moving. So -- but again, that's what our job is. Our job is to look at unmet medical need, understand where our molecules, in this case, like cabo can fit in. I think we had pretty compelling data in this space, both at the previous ASCO a couple of years ago, and this ASCO follow-up with more patients. I like the -- it looks active on the standpoint of its response rate in PFS relative to others and certainly has a strong hints of activity in terms of extending overall survival with all the caveats of a single-arm, not a randomized study. So at the end of the day, people generate -- and we do, too, I think, interesting Phase Ib, Phase II data. But you've got to run the right experiment in the -- under the right conditions on a global randomized level to get to that COSMIC truth in terms of what the P value say. So we're doing that right now, and that will read out in the second half of the year. So I think people can [ hand wave ] about what ASCO means and doesn't mean in blah, blah, blah. But at the end of the day is you got to open the envelope is what the P value is, right? And that's what we do.

Understood. Now I always feel like when we think about first-line RCC, it's such a binary debate. Are you better than Merck? Is Merck better than you? Who's going to be the winner here? And it's clear if we look at the guidance that you've kind of put out, you don't need to necessarily win that entire market. You need maybe a 25% to 30% chunk of that, and your checkmate data certainly indicates that's doable. But can you talk about -- you guys are having continued growth we're seeing on IQVIA with cabo scripts over time. But you never want to be in a scenario where like, okay, scripts are maybe flattening out and everyone kind of starts to overreact. So when we think about the competitive dynamics between your regimen and Merck's and how that's going to change uptake for cabo over time, could we see a scenario where maybe sometime in 2023, cabo scripts are starting to flatten out and we've gotten kind of -- we've hit the wall in terms of first-line RCC uptake, or it's really not that type of paradigm and this is going to have continued uptake for several years because of how large the market really is?

Yes, yes. So let me start by saying, I guess, statement of the obvious is that there's no therapeutic area in biopharma that's more competitive than oncology right now in terms of the -- obviously, the revenue potential, the science, the, I would say, opportunities that to compete or collaborate has driven just a huge level of investment in this area over the last 15 years or more. So nobody should be surprised that things move quickly. Competition is fierce. Somebody you're competing with today, you're actually going to -- you may collaborate with tomorrow because it's all about finding the right tools and the right data to be able to help patients live longer and recover faster and have high quality of life. So it's just a nature of the situation, right? So I will say though, in that context, we're think about who we're competing with in terms of large pharma, right, Pfizer, BMS, GSK, I would say, Novartis, Merck. We have done, I think, a pretty extraordinarily amazing job of being able to deliver that quality data and then translate that data into educating docs and seeing pretty impressive top line revenue growth. And my view is that, that can continue, right? And it's based upon the data that we've generated, the ability, and we have this fantastic commercial organization across sales and marketing and market access that helps educate docs on the value of what this regimen brings, either cabo as a single agent first-line, second-line combination with nivo first line, potentially, again, 313 works, the triplet, et cetera. I think that's what's driving the interest and the growth. And I think, again, we -- TRx grew 11% Q1 over Q4, we had revenues grew 45% in 2021 versus 2020. We have to make sure that we're continuing to make all the contacts that we need, build the marketing messaging so that doctors can respond to that, while we're generating the next wave of data, 313, CONTACT-03, starting trials with 092, et cetera, to be able to keep that momentum going. So there's no time to sit back and do high fiving and kind of pat off on the back, you just got to -- you have to stay engaged pretty much 24/7 because that's the way the competitive nature really caused us to operate. We see what we do.

Maybe lastly, gross to net for cabo has started to trend up over time. Not that surprising, you've seen kind of a similar dynamic with oral cancer medications in Q1. There's also -- some people are like, well, the gross in net just going to go into the 40s. Now I don't necessarily see that being the case. But if we were to think about -- remind us from last year, what was the seasonal dynamics you see with gross to net? What happened in Q1 where -- maybe Q1 last year versus Q1 this year, there is some incremental increase in gross to net. And when we're thinking about where these settle out from a long-term perspective, is the mid-30s gross to net kind of a fair run rate assumption here?

Yes. I wouldn't want to give even modestly long-term guidance. So we're guiding to have 29% average over the year. We were at 31% in Q1. That was certainly higher than Q4 of '21 and Q1 of '21. So there's been some movement there. Q3 and Q4, 340B chargebacks were seasonably or uncharacteristically light relative to earlier in the year and then Q1. So there seems to be some variability there. Obviously, Q1 is when most -- the [indiscernible] happens, most [indiscernible] change if they're going to change insurance, they change insurance. Then these high deductible plans can certainly complicate co-pay assistance, et cetera. So -- but it's a problem and a challenge within the industry. But in some ways, it's a good problem to have because if you have a successful drug, then you're going to see more of that from the standpoint of a relative chargeback. So I think we're navigating that pretty well, and we're on track to hit our guidance for the year. So I'm excited about that, and we'll have more to say about that on the Q2 call later.

Okay, good. We can sneak in one more, just one more on drug pricing. And it's not really that much to say at this point. But there is what senator mention and Chuck Schumer, they're having these kind of closed-door discussions. And for the first time, people are asking about drug pricing since it feels like the halo retreat. What's -- how closely are you kind of monitoring that situation? Is there any color that you think is important for investors to pay attention to, especially over the next couple of weeks?

Yes, certainly, it's a topic that has come back a bit into the mainstream, we'll see what happens with whether it's build back better or whatever in the context of some of the larger issues that are happening now in the hill. I think our job is to make sure that we continue to make the case very, very clearly that the value that we're bringing to patients as an ecosystem as an industry and as individual companies, is due to the large amount of R&D that we fund and the risk that we take with capital to be able to front end large efforts in discovery, in development and then educating docs upon approval. And I think that's a message that we're the global leader in health care innovation for a reason and that's because of the investment that the private industry makes biopharma across $100 billion a year in R&D makes to be able to drive that innovation. So I'm really proud to be part of that and certainly, we engage with our government affairs group on The Hill and within Congress and others in Washington to make sure they understand the value that we bring and the importance of that for patients across the country.

Certainly needs to be brought up more because I think we take it too much for granted. Very great point. All right. Good. Thanks.

All right. Thank you.