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

All right. So we're going to go ahead and get started. I'm Steve Willey, one of the senior biotech analysts here at Stifel. I'm glad to have with us here from Exelixis, Chief Executive Officer, Mike Morrissey. We're going to have a pretty informal discussion here, just about the state of things at Exelixis. If anyone has a question, feel free to raise your hand. We'll get your question asked and addressed. And Mike, always appreciate the time. I'm not sure if there's any kind of opening comments you want to make before we get into Q&A or little feedback.

There you go. It's good, yes. Well, thanks for the invite. Thanks for the intro. Good morning, everybody. Before I begin, I'll just remind you, 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. Opening statements. Exelixis, commercial stage biotech company focused on oncology, strong history of drug discovery, drug development, getting molecules approved and then into the commercial market. Cabozantinib is our lead product, obviously, since we've launched in 2013 for MTC and certainly built a strong franchise in renal. I'm sure we'll talk about that today. Last 2 years, with very good cash flows as well as build cash position. We've been working on building out our pipeline to be able to generate a diversified offering of both small molecules and biologics. And I'm guessing we'll talk about that, too. So glad to be here. Great to chat.

No, thank you, as always. So maybe just base business -- because I think a lot of the stuff I want to talk about is maybe kind of more on the clinical and pipeline side. But on the base business, obviously, another good year of growth. How would you attribute the growth that you've seen this year to frontline RCC specifically? I know that you've had a tailwind with DTC going online. Seems like you've been gaining some momentum in liver cancer. But can you speak to kind of what component of this growth you've seen this year is kind of due specifically to frontline renal?

Yes. I would say the vast majority is frontline.

And so when you think about that frontline RCC growth, how much of that is attributed -- further attributed to either extended share gains versus this notion that these are patients who are going to be treating for 1.5 years? And so you get this extended treatment duration benefit that kind of serves as a tailwind in the model.

Yes. So both, right? So we're growing market share. We had our best NPS quarter ever in Q3, 6 quarters in since we got approved. Certainly, stacking of patients year-over-year to the long duration of treatment is an important part of the process, and I think that plays well into not only the clinical data that we've got, but the fact that the quality of life seems to be improved with the cabo/nivo combo versus sunitinib, which is unique from other combos as well. So we've been real pleased with uptake with the education process. It's a competitive space, but that's where differentiating data comes into play. And I think our marketing team, our sales team and certainly the clinical data that we've got resonates well with prescribers, and we're seeing good growth. So Q3, we had 39% year-over-year growth. It was the eighth consecutive quarter of growth in terms of both demand as well as revenues. We're just -- and we think that will continue as we go forward. So we're not going to give guidance today on '23, obviously, but...

You're not going to give guidance today.

Yes. Sorry. Yes. But -- I get that question a lot. But we'll look forward to, again, continued growth next year as well.

Okay. And just on the base business. So in terms of the market share gains that you're seeing in frontline, is there a specific risk subgroup that you seem to be gaining traction in still? Or is it kind of spread across the...

Yes. It's really hard to glean that information from the commercial side. We don't -- scripts don't come in with. This is a high risk, medium risk, low risk patient. They just come in, right? So we're seeing good uptake across the board based upon surveys that we do and kind of deeper dive intel, but there's -- it's really hard to pin that to the overall population, right? So...

But I guess does the data that you see suggests that there's this erosion of maybe ipi/nivo to the extent that you're kind of cracking some of that intermediate and poor risk...

Not clear, and that's part of the problem is intervals -- confidence intervals for all the data -- all the publicly available data that we see is pretty high. So if anything, the single-agent TKIs are shrinking over time. There seems to be a trade-off between the pen-based regimens with axi/pem versus len/pem are more or less stable, and we're growing. So that's -- growth is key. And long as we can continue to see that stacking effect play off of the duration of therapy, it's a good way to build a business for sure.

Okay. Maybe we can talk about the CONTACT studies -- the Phase III contact studies. I do believe you've talked about before how this is going to be kind of like the last registrational hoorah, correct? So we do get -- the first of these to readout will be CONTACT-01 and long before the end of the year. I think it's a relatively small study to the extent I think it's only 350 patients, and I think there's some question around what a docetaxel number looks like in a post-IO population. And we've actually gotten a little bit more data, I think, around that. But what's your just general level of enthusiasm here? And if successful, what would this mean in terms of cabo label expansion and addressable market opportunity?

Yes. So clearly, we're not based upon the sizing and the powering of the trial. We're not looking for a small treatment effect here, right? So whatever we see, if it's significant, it should be clinically meaningful. And that's great because that population of patients post second, third-line non-small cancer post IO, either IO by itself, IO chemo, either by itself combined or sequentially. I mean there's really not a lot for those patients. And obviously, that's a huge market in the U.S. and globally. So a win there would be -- would certainly be a big win for us. Our estimate is between $500 million and $800 million a year bump, depending upon market share and duration and those kinds of things. Obviously, lots of variables come into play there. But it's in the data. We're in the game of P values and raising the bar for standard of care, and this is a good example where there's not a lot of historical contemporaneous good data around what the control arm would be. So I like the idea that we embrace the concept that we need to prove the data that we hope to generate through randomized pivotal trials, and we do that, I think, really well. And this is another example of that. So like with 313 and with 9ER and come back to EXAM in 2012, it's just we understand the way the game is best played both clinically and commercially and to the benefit of patients and shareholders is you've got to make those investments and pull the trigger and win those trials. So with 1, 2 and 3 in the CONTACT sphere, those will be reading out starting this quarter, and fingers crossed.

Okay. CONTACT-03, I think these time lines were just pushed back into the first half of next year, which I believe is kind of a Roche -- Roche is the sponsor here, right, correct?

Roche is -- well, we're co-sponsoring or co-funding. Roche is running CONTACT-01 in lung cancer, CONTACT-03 in second-line renal, and we're doing prostate CONTACT-02. Yes.

So this, to me, kind of seems like a little bit of a higher probability of success maybe just kind of given the fact that we've seen a lot of IO/TKI retreatment data in this setting. What do you think a label here does to the second-line market opportunity? Is this going to be something that grows cabo in the second line as a function of more share gain? Or do you think that this is going to be kind of like maybe 9ER, a little bit of a play on extended treatment?

Yes. I think potentially both. Obviously, we'll come down to the data, how that looks and how things play out. Cabo -- single-agent cabo is the second-line leader in RCC. So whatever we can do to support that, protect that, grow that, it's certainly in the interest of us as a company and shareholders and patients, obviously. Our partner here would love to get into the renal space, not speaking out of school, but that's an area of potential growth for them as well. So it's a good first step, if you will, in terms of how we can use potential doublets and maybe more kinds of more triplex maybe in this space as well going forward. So again, looking to raise the bar in terms of standard of care. We have to push the envelope. And it's not clear what's driving resistance here in terms of frontline IO combinations. Is it angiogenic mediated? Is it IO-mediated? So we're going off and testing a hypothesis here, but makes sense and certainly looking to do this in other ways going forward in the frontline setting as well as in later lines with 09, too, as we go forward.

Do you guys see any, I guess, anecdotal evidence of real-world retreatment with immunotherapy, right? Because -- and I guess I asked the question because I know in melanoma, for instance, right, there's no approved IO and second-line patients, but every single doctor goes IO and then IO again. Renal is obviously like melanoma to the extent that it's pretty immunologically sensitive. Are you seeing that in the.....

Well, I would say anecdotally absolutely. And I think that's the beauty of having multiple different flavors of IOs, TKIs combinations, whether they be IO/IO or IO/TKIs. You give physicians and patients more options to try things if there's an efficacy issue, a tolerability issue, whatever, right? So we see a lot of it. And that's what makes some of the kind of analysts in the commercial data so challenging, is that when we get our script for cabo and we can trace it back to a first -- to a combination with nivo, it's never really clear to us if that's a first-line patient or maybe kind of a 1.5 line patient relative to what they've seen before. So it's just part of the dynamic. But I think, as you said, some of the real-world data would suggest that some of these combinations can be quite effective after seeing a IO or a TKI or both. So I think it's a great move for patients. And certainly we want to be able to understand better as we go forward.

Okay. And then maybe just the last CONTACT study, which is 02. I think this is going to complete enrollment first half of next year. So I know that you're defining the patient population in this trial, which is prostate, as being high risk. And I know we've had some KOL discussions around this, and there seems to be a little bit of kind of mixed feedback with respect to kind of how you're defining high risk in this patient population, specifically as it pertains to those patients with the extra pelvic mat. So is that feedback that you've been able to kind of bounce off of clinicians? And I think most seem to agree that the visceral met component of it is high risk, but I think where we get some of the pushback is around just the extra pelvic mat.

Yes. We got some pushback on that, too, as the trial was being envisioned and designed. And there's not a lot of solid randomized data that would support the idea. Certainly, a lot of anecdotal data from, I would say, KOLs on our steering committee that felt petrol that going outside the pelvis was just a worse prognosis for those patients. So we did what we did, makes sense based upon the data that we've got in the Phase II setting. The issue is there's really good interest in the trial. We have to find the patients, right? And we have to find the patients on a global level who've progressed on a -- to first NHT, which can be sometimes a bit challenging in terms of some of the countries we're looking at outside of the U.S. So it's enrolling well. We've got lots of sites up. So we'll get that done in the first half of next year and wait for the next group.

So that, I guess, will be the last hoorah of cabo on the registrational side. And I know that you're now kind of emphasizing XL092, which is the next-gen version of cabo. I think the first Phase III that you've initiated here is the STELLAR study in metastatic colorectal. I guess as I look at the data that was generated to initiate that Phase III, it -- to me, maybe it seems like there's a little bit less data there than typically what Exelixis tends to generate to make those Phase III decisions. Would you say that is an accurate statement or...

We had 25 patients in a Phase Ib trial with single-agent cabo in RCC driving the METEOR study. So I think that's -- it's, I would say, relatively typical if you look at what we had with lung or with prostate for CONTACT. So look, we're in the game of asking the right question at the right time with enough data. Feel good about the activity that we've got here. There's a -- if you will, looking at cabo data and then transposing that onto 092. And the 092 -- the first clinical update for 092 was at ESMO and clearly has good activity and overall performance in the late-line population. So we feel pretty good about the activity of 092 relative to the activity of cabo with some attributes in terms of potentially rescuing patients that progress on cabo and RCC, emerging different AE profile, very little, if any, hand-foot syndrome type AEs, lower fatigue, lower GI effects. So no, we feel good about that. It's -- you look at third line MSS CRC, it's -- the bar there is really pretty low. I mean regular afib has got a 2% response rate. It's a big population of patients who are widely underserve the KRAS wild-type population, certainly needs other options. So it's the right move. And with what we have going on, it was the first of what we think will be many pivotal trials here, again, investing in running randomized trials to get key data that if successful we can file on and use to help drive the commercial uptick.

Okay. For XL092, I guess, where is head and neck in terms of a priority for you, right? Because I don't think it is yet one of the prespecified expansion cohorts that you're interested in. But you showed us some data in the refractory setting at SITC last week. I think we saw some frontline data maybe at ESMO earlier this year, which looked also, I think, kind of interesting. So what can you say about head and neck as a priority for STELLAR and XL092? And do you think a path forward there is going to be better served in either frontline patients where you have data or in the refractory setting?

Yes. So obviously, as you did a great job of -- I mean, there's a lot of emerging data with cabo. They're different -- with different IO/ICI combination partners that looks pretty interesting and kind of vectoring all in the same direction. So it's an important priority for us as is head and neck in general with other modalities as well. So stay tuned on what we do and how we do it in the near future, but that's one that we think is really important to be able to pursue pretty aggressively.

Okay. And then maybe a similar question but related to a tumor type that you are actively interrogating right now is bladder. And I guess we saw some COSMIC data in bladder, I think it was at ASCO looking at both frontline patients, right, CIS eligible, CIS ineligible, post checkpoint patients. I think those response rates were anywhere between kind of like 10% and post IO to 30% and maybe CIS ineligible. So how does that data now shape your perception of the opportunity for 092 in bladder, which I know is a focal point of the STELLAR study right now?

Yes. So that -- I would say the STELLAR histologies were chosen prior to a lot of that data coming out. And certainly, bladders. There's a lot of moving pieces there. It's on the ADC side, on the IO side. So I would say if anything, that's being deprioritized to a certain degree. It's a good connection point with cabo relative to looking at 092 with different combination partners from the ICI class, but I wouldn't say it's a priority from a full development perspective right now. There's just too many moving pieces that need to get settled relative to how standard of care will evolve before we start investing there, right? So...

So maybe pipeline related beyond 092, we just saw some of the tissue factor ADC data at the triple meeting. Looks like you actually have some very kind of clear pharmacologic and safety advantages relative to what we've seen with the competitive drug in that setting. When do you think we're going to be able to -- or when do you think you'll be able to complete dose escalation and be in a position to declare a recommended Phase II dose schedule and then provide us with another update for a data?

Yes. Hard to predict. Wouldn't want to speculate on timing. Obviously, this is something that's very important to us relative to -- we saw some of the early, I would say, PK differences and stability differences in terms of the intact ADC versus free warhead. That shows some level of differentiation with other molecules in the class. The fact that we bind -- our antibody binds differently, we see literally no bleeding so far based on kind of what we've published. So yes -- no, it's really interesting is obviously, looking at single agent get to the MTD as fast as possible, the fact that we have 2x higher exposure than TD at the 2 mg per kg dose is really interesting. We're seeing literally 1/10 of the amount of free payload, which we think can really help on the safety side. So I don't want to get to the MTD too fast because that means we're going to be in that kind of 2 margin per kg range, but we'll get to the right dose as a single agent. We have the 002 nivolumab combination going already, and that's, I think, really encouraging from the standpoint of how fast that's going and what we're seeing so far. And we announced that we're going to start doing the combination with bevacizumab as well, which obviously has its own level of bleeding risks. So the fact that we're looking at a molecule like 002 with less bleeding potential because it doesn't interrupt with the binding of Factor VII could be really interesting. So -- and there's more beyond that. So I think, again, this is something that the focus on diversifying the pipeline, moving non-cabo, non-092 assets into full development as quickly as possible. That's a real priority for us on the standpoint of what we think we can do here and the Phase Ib expansion for both single-agent 002 for the combinations are pretty well defined. So we'll play that kind of that COSMIC-021 game to a big basket trial, look for signals. If we can get -- if we can continue to see higher exposure with good stability, right and lower kind of adverse events at the MTD, then we feel pretty good then we might be able to uncover other tumor types that are sensitive here, right? So that's the goal. I mean cervical is really important, but that's just one, right? So we want to be able to expand that. And if we can make this into a franchise molecule like cabo, then so much better for patients and for us.

Okay. So it does sound like then you're interested in trying to establish a footprint in cervical, which obviously that's where Seagen's TV is. But given that Avastin is kind of a critical component of standard of care there causes your ability to not exacerbate that would...

I would say cervical is certainly very interesting, but we want to go beyond that as quickly as possible, right? And ask the important questions clinically is, what's the range of opportunities? And how broad can we go? How deep can we go? And play the combination game to extreme. Yes.

Okay. I guess another pipeline asset, XL102, I think you're going to have some data at San Antonio next month, dose escalation data. This is a CDK7 inhibitor. And I don't think there's been too much data kind of put out into the public domain around this target. We have seen a couple of programs that I think kind of struggled with therapeutic index a little bit. How do you think about your drug relative to what was presented previously on the competitive front? And what are the differences? And why do you think this could be a little bit of a narrative shift around...

Yes. Yes. Well, again, I'll just reiterate the fact that this is a target that needs to be validated clinically. And to do that, our view is you want to have the optimal tool, probe, if you will, to be able to ask the right questions in the clinical setting and get kind of really definitive go and no go answers around the pharmacology and the clinical upside based upon having the right probe, right? So we feel 102 is that, right, we've seen -- it's highly potent it's highly selective. It's irreversible. It's got a short half-life. [indiscernible] front around the data that we'll have at San Antonio, but it's certainly appears to fulfill the safety kind of tolerability side of the equation. So it's looking like it's the right probe. What that means clinically relative to how we can navigate that both as a single agent and combination in breast cancer and prostate cancer, some of the more obvious indications, we'll see. So it's just -- but it's making sure you've got the right tool to ask the right questions. This is different than cabo. It's different than 002 where we've got very clear, I would say, validation of the target and the class. This is an open scientific question. So stay tuned there.

Yes. Okay. So I know both -- I guess both the tissue factor, ADC, the CDK7, both a byproduct of relatively recent business development efforts. I know you just announced a couple of more transactions, I guess, a couple of weeks ago. And I guess a lot of the BD that we've seen to date has been kind of relatively bite-sized just with respect to the upfront cash flows that are required of those deal structures. How motivated -- or I guess what is the company's opinion or perspective just on maybe doing something a little bit larger, a little bit later stage? Would there be a situation where you guys would somehow take on additional leverage and go out and do something aggressive?

Yes. So it comes down to there is the math to do the deal, right, and there's the conviction that goes into feeling good about that math, right? And we've got a full cross-functional multidisciplinary team looking at BD, right, looking at small BD, midsized BD like we did with Cyberexa and [ Syropa ] at earnings and bigger BD. For us, it really comes on to conviction, right, from the standpoint of do we believe enough in the data, whether it'd be early clinical, mid-stage clinical, even late clinical to think that a, it's going to be differentiated from a clinical point of view; and b, we can monetize that if successful. And I can tell you there's been a lack of conviction on a lot of the mid- to late-stage assets that we've looked at across the board, right? And I would say the relative small number of big pharma M&A, I would say, maybe supports that from the standpoint of what's out there right now versus what's available from kind of more organic sources, right? So we have aspirations to build the pipeline. We have -- I think we've proven that we can convert good clinical data into meaningful revenue growth and certainly cabo -- when you think about cabo -- I mean cabo did globally with us and Ipsen and Takeda just like $497 million in global revenue in Q3. So that's truly a global franchise molecule. So that experience of all the drama with the early days of cabo and then success informs us. So we have a pretty good filter for what we're looking for, and we don't see a lot of those kind of molecules and opportunities out there. So if we do, we'll be aggressive. And if there's games we have to play, we'll be able to make that work and so be it. But we have to have the conviction fundamentally on that's the right investment to make going forward, right?

Okay. So I guess the absence of maybe any later-stage BD is a byproduct of just scarcity value around these assets. But then to what extent does your focus on earlier-stage BD, how is that connected to your confidence in the cabo exclusivity runway from a patent perspective?

Yes. I think we have a high degree of confidence on the LOE discussion getting to 2030. And we'll see if we have to go through one case or 2 to get there. I think the approach of building a pipeline and moving quickly is paramount to any plan that we have going forward, right? We have to be able to convert early clinical data into full development into a p-value and a pivotal trial to be able to monetize the asset. And I think doing that one with cabo and doing it time and time again with cabo has certainly informed us how to do that. So we're very confident we can maneuver. But it's driving growth and taking the appropriate level of risk and investing wisely as we go forward, right? So that's the key.

So I know there's been some increased noise at FDA regarding some of these mandates that they [indiscernible] out there. And you obviously have this IRA legislation that's been pushed through, but how are those things, if at all, influencing decisions that you make and/or assets that you look at on the business development side, right? So I guess are you already considering kind of the merits of the small molecule versus a large molecule per based upon what's in IRA? Are you looking at earlier-stage assets through BD with the understanding that these guys may not have checked the box on some of these project optimist mandates? Has this become more complicated for you?

Yes. Has it become more complicated? Probably not. I mean we were -- if you look at the deals we've done and the molecules that we've pushed forward in development over the last couple of years, I mean, there's a real biologics focus prior to IRA being passed. And that was done for a variety of reasons and, certainly, coalesces nicely with some of the nuances of the IRA relative to 9 years versus 13 years, whatever the numbers are, right? So -- but we think that's an area that can -- we can maximize the value of as a platform. And the fact that we can do a lot of this stuff ala a carte through collaborations and managing resources externally and be able to generate molecules that we can then move forward like 002, I think, is a great way to play. So the fact that they coalesce together is great. It's more circumstantial than an overall play, but we're going heavily into biologics, and that makes sense to us. And I think we have much more optionality there than with small molecules anyway, right? But we'll still invest in small molecules. And we've done deals there, and we have molecules that are in the clinic with 102 and 114 and others soon to come. The FDA stuff, look, they make the rules, right? And they've -- the oncology division has done a really good job of changing industry's behavior by being clear about what they want to see calling people on the carpet when they don't kind of play by their new rules. So -- and we're -- we've got a great regulatory team. Our clinical guys are very well aware of that. So the -- whether it be optimist or front runner, yes, we want to optimize the dose because that's the best thing for patients. And obviously, with cabo, we've done that. It took us a while, but we did that. The 40-milligram dose is the right dose, right? Front-runner is all about running pivotal trials and trying to peel off accelerated approval from that, and we've embraced that, too, right? So we're more aligned with them theoretically and philosophically than most companies and [indiscernible] are to begin with. And I think that's why some of the changes in some of their kind of new rules is looking at things don't really have that big of an impact on us. It just kind of maybe modifies a little bit how we operate early in the clinical setting, right? So -- okay.

That's all we have for time. Mike, I really appreciate it. .

Good to see you again, Steve. Thank you. All right.

Thank you. Take care.