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

All right. Welcome, everyone. This is Joshua Schimmer from the Evercore ISI biotech team. [indiscernible] President and Chief Executive Officer of Exelixis, we have Mike Morrissey. Good to see you. Welcome back to our health care conference. I'm thinking cabo is still is the primary value driver for Exelixis in the near term. So maybe we can talk about some of the trials that could drive that near-term inflection. What might be left after cabo for 092 and then hopefully have some time to talk about the evolving pipeline.

So as we think about the major growth drivers for cabo, both within renal and then also additional indications, what should we be looking for? And like what are your highest hopes?

Yes. So great to be here. Great to see you. Great to not have to travel. So thanks for doing this virtually. It's a much easier format for me to sit here in my office and chat. But again, thanks for the invite. Yes. So cabo is still a growth driver for the company, obviously, in the short term. We had strong third quarter. We did $363 million or [ $364 million ] in net product revenue in the U.S., just a shy under $0.5 billion in global net product revenue between us and Ipsen and Takeda. So pretty good numbers. So a $2 billion a year run rate globally, which is, I think, reinforces the idea that it's a go to TKI for RCC and strong player in HCC. We have strong hopes for what's happening with -- under renal, right? 313 read out positive, we're waiting for mature survival data. And then the 3 CONTACTs in lung cancer, prostate cancer, in second-line renal and that will wrap up the cabo development program as we talked about previously. So those are all important trials, supported by strong Phase IIb/Phase II data. So we're in the business of running pivotal trials and getting p values. And we'll see how that looks at the end of the day. But certainly, strong data set, which allows us to feel pretty good about the opportunity for cabo, upside is currently labeled indications.

Got it. How do you expect the 313 data to impact either market share or duration of therapy or both?

Well, we'll see how the survival looks. I mean that's certainly the gating factor right now based upon feedback from the agency. The feedback that we've gotten from KOLs and investigators is a lot of encouragement and a lot of excitement about what that triplet could do for the right patient, the right population based upon the data. So we'll see how that plays out over time. Right now, I mean, certainly, the launch based on the 9ER data has been extremely strong. We continue to grow the business and grow market share for 8 consecutive quarters. So any incremental gain from that would be fantastic to reinforce the cabo opportunity and certainly helping patients in the frontline setting. So but that's going to come with time. And certainly, it's the way things work, having mature survival data is certainly important for this next step in the process.

And when do you see CONTACT-03, the combo with Tecentriq potentially adding in the positioning for cabo?

Yes. So again, we're very fortunate to have cabo being the second-line leading agent in terms of post-IO, post IO combinations, et cetera. So whatever we can do to reinforce that. It's a pretty simple math, right? You can increase market share and/or increase duration of therapy, revenue goes up. So we played that game very effectively with the strong 9ER data from that standpoint. Totality of data really reinforces the idea that we can move the needle for patients in terms of efficacy, safety and tolerability, overall quality of life parameters. So anything we can do in the front line or in the second-line setting to help reinforce that would be fantastic, right? So great for patients and great for us for sure.

So as we get to a CONTACT-01 and then 02 in [indiscernible] non-small cell lung cancer, like we know that PD-1 antibodies beat docetaxel head-to-head already. So like if cabo and Tecentriq combined beat it, like, how do we know what cabo has added? Like how do you interpret that data assuming that it is positive as expected.

Yes, I guess I would reframe it a little bit. What you said is correct in the untreated population. That's not the case in a second-line, refractory population to an IO or IO chemo, either sequentially or in combination. So that population post IO is a very large, underserved population of patients who really need better therapies. So the question is basically, can cabo and atezo be superior to docetaxel. There's not a lot of data there in terms of this contemporaneous patient population. So we'll find out, but it's a large number of patients that either become refractory or resistant to frontline ICIs and it's an opportunity for us to really do some good for patients. And certainly, if that's successful, drive our top line revenue growth for sure.

Got it. And then maybe, I guess, I don't know if it's a similar or different answers when you think about the prostate cancer combo of cabo and Tecentriq versus an AR inhibitor?

Yes. Same thing, right? So we're looking at a well-defined kind of smallish population within that large population of patients. Again, we're targeting patients with known measurable disease outside of the bone. So it's a fraction of the overall population. We'll look at the other population with 092 going forward. But again, as a very specific question, and there's not a lot there for those patients in the second, third line post the initial activity with NHT. So we can capture that. We have good data. Again, it's all -- we all play the same game, right? It's all data dependent, but if we have the right data set and certainly the Phase II data that we talked about from CONTACT-021 looks really encouraging, if we can recapitulate that in global, randomized pivotal trial, we think, again, we can really grow the top line by helping patients which really need better therapies in this later-line setting.

Because as I'm thinking strategy for 092 is kind of an extension of cabo with some obvious improvements. It feels like in lung cancer and prostate cancer, the door is still open for a frontline-type trial. Is that kind of part of the game plan for 092? Or you just want to take it in a completely different direction?

Yes. No, I think the learnings from, I would say, 313 and what we hope to learn from some of the CONTACTS gives us a lot of opportunity with novel doublets and potentially triplets across a variety of histologies, including renal, liver, lung, prostate, et cetera on top of what we're doing in colon and other. So we look at the 092 opportunity as certainly the whitespace that we haven't explored with cabo, but we've seen activity to date with arguably a better molecule with 092. But also then doubling down, if the improved tolerability and safety that we're starting to see with some of the early clinical data is confirmed and continuous, then we have the opportunity to then combine and get -- oncology is a game of combinations. And we're really proud and excited to be the first company to run the triplet, cabo/nivo/ipi in RCC. And we think other triplets with 092 is the backbone to really be very productive. So a lot of work to do yet, obviously, but we have the mindset, the muscle financially, and I think the overall kind of framework to be able to do that really, really well, compete but also collaborate with those people who have those novel IO agents ready to go. So lots of work planned to going on. I'm looking forward to a productive '23 where we get some of this stuff rolling.

And what elevated colorectal cancer and kind of that the list of options to pursue for 092?

Yes. So that was really the low-hanging fruit. We had a couple of ISTs that we've read out last year and presented this year at ASCO-GI that showed very good response rates in the KRAS wild-type population. Somewhat analogous, I would say, to the [ 092 ] study with RCC, where we had 25 or 30 patients with pretty compelling response rates and signal of activity. So we saw that in the subpopulation and really regorafenib is a pretty low bar to go after. So again, unmet medical need is high, lots of patients on a global level. So made a lot of sense to be aggressive and move forward in that direction.

Got it. And then just kind of closing out cabo and 092, just refresh us where we are in that the patent litigation and what that the next steps in the ANDA challenger.

Yes. So the -- again, first trial was completed in the spring, waiting for a ruling from the judge. Again, we're guiding and expectation is that we'll see that sometime in Q4. Second trial, looking at the broader solid state patents as well as the impurity patent will happen next fall. We feel confident that we've got runway through the end of 2030 by one of those 2 avenues and it's part of the legal process. So we don't drive that bus, but we're certainly actively involved. And I think investing in the appropriate level of intensity and money and legal expertise to make sure that we can come out on top of it. So I can't say more than that, but it's a work in progress, but have a lot of confidence in the team and the data and the IP that we have underlying the entire cabo franchise.

So on the earlier stage pipeline programs, maybe focusing on the ADCs, you've got 002 that's got a kind of a microtubule inhibitor payload, you got the Cyberexa partnership now where I can see topoisomerase payload. How are you thinking of navigating kind of driven by that? Where does your payload best fit that isn't already being addressed by a different ADC with a similar warhead?

Yes. I would say it's a combination of rational design coupled with empirical data, right? So the 02 data that we had at the ENA meeting a few weeks ago, I think it's really encouraging in terms of its overall exposure and stability relative to other first-generation agents. We're certainly excited to be able to have that looking forward. We are close to -- we'll get the MTD worked out and then move into combination BASKET trials to be able to understand how to navigate that. We've got the nivo combination going already. We'll start the atezo -- sorry, the bevacizumab combination relatively soon as well. So there's a lot of push there. I would mention with the tissue factor antibody, we have a second program now using TICAM-based warhead as well. So again, looking to mix and match how we design best-in-class binders with the obvious hypersensitive kind of matching tumor types with different payloads. But certainly, playing that ADC game with what we've learned over the last couple of years with the different collaborations that we have has really given us a real boost in momentum relative to making that a big part of our overall approach, right? So you see a lot of those programs, probably investing more in biologics right now in the discovery area and small molecules across the overall portfolio. And that makes sense relative to how you can really surgically pinpoint where you want to put that toxin based upon really important addresses in terms of the binders. So a lot going on there and certainly see more of that as we move into next year.

Is there an opportunity to use 2 different warheads in the same target, in the same patient, we have doublet, triplet, chemo like...

Yes. yes. Absolutely. The question is, do you do that with 2 different ADCs or potentially 1 ADC that has 2 warheads built in a rational manner. So we're looking at that pretty carefully, too. Yes.

How do you think no one's really look to pursue that up until now?

Yes. No, it's pretty interesting. Now we've got -- and that's the beauty of ADCs where it's really the convergence of great biology and great chemistry. And we've got experience decades of that kind of in our corporate DNA. So we're pretty excited to be moving in that direction and again continuing to invest a lot there, both collaboratively as well as through our in-house efforts. Yes.

So you got a fair amount of cash on your balance sheet, which I'm sure you noticed, and I think you were recently asked about biz dev and you mentioned you're looking for conviction M&A ideas, and you've been looking for a long time. Do you feel like you're getting close, right? Like what are the check boxes that you need for something to be a conviction use of capital?

Yes. So again, certainly, the 2 option deals that we announced with Q3 earnings with Cyberexa and Sairopa, I think, are indicative of how we want to put cash at work in a disciplined manner that spreads the risk over an asset's lifetime, and we basically pay for success if we see good clinical data, right? So we've certainly been influenced through the lens of cabo, right? So, again, it's a global $2 billion a year run rate. We're not interested in either transacting BD or M&A on small little compounds with opportunities that are $100 million a year, if you will. And that's -- if you look at some of the deals that have been done, some of the targeted therapies that have been approved that are really focusing on nano niche populations, we track about 20 different launches that have taken place over the last 4 or 5 years, pretty carefully just from a kind of an educational perspective, right, in terms of what does the data say? We've avoided going after that kind of high conviction biology, regulatory and then chemistry, if you will, because the commercial upside was just light. And in fact, if you look at these 20 different examples, the median quarterly revenue in Q3 was, I think, $30 million, $35 million, right? In Q2, it was a couple of million dollars less; Q1, it was a couple of million dollars less. So if you get relatively flat plateau, relatively, early in the launch because you just can't find enough patients to make that work. So conviction for us and conviction for me is really kind of frame through the lens of cabo. We are franchise molecule that is doing really well, best-in-class. There's a number of different tumor types globally. I want more molecules like that, right. So -- and if I can't buy them and arguably they're just not there because, a, we looked, and certainly, if you look at the big pharma transactions there haven't been a lot of those that have been successful to date that we have to make them ourselves. And that's been the driver for all the early-stage collaborations and service some of these option deals, of which you'll see more of as we go forward, right in terms of how we can in-license early clinical assets and then kind of work our magic from a development point of view to be able to discern if they really have the value that we want to be able to invest fully and potentially take forward in terms of filings and broad commercialization. So look, it's a simple game to a certain degree. I look at M&A from the perspective of what we've got and our discipline, but also what's happened broadly within the industry. And there hasn't been a lot of M&A this year, and that's not for a lack of a, targets; or b, opportunities; or, c, value kind of changes, right? There's just not a lot of good -- really good stuff out there right now, right, so.

It makes a lot of sense. Is and/or how is the Inflation Reduction Act impacting your own development strategy, if at all?

Yes. I would say, it's certainly something that we look at very carefully. The dichotomy between biologics and small molecules if that stays intact with the new Congress and what happens in the out years, it could have a meaningful impact on where we and others invest. Luckily for us, we've been investing heavily in biologics anyway. So that makes sense from the standpoint of continuing to make those investments. The other big important part here that is -- can't be really denied is the idea that as we go forward, we need to make sure that the first indication is big enough to warrant further investment and path to investment in an asset, right? So I think the -- some of the rhetoric around small niche indications maybe not being explored, certainly not being filed upon in the U.S. is real. I think that's a real consequence of the way the IRA was written. And I think it's important for the politicians and Congress and future administrations to really think carefully about what that means for patients, what that means for innovation and how we'll all navigate that together. So it's got some real potential consequences. We'll continue to invest in innovation and new molecules and rapid development is that what we do. But we'll do that in a way that makes sense relative to some of the really framework and constraints that we have ahead of us, right?

Yes. It's interesting you've kind of really dove into the ADC field given -- I'm guessing how predictive and broad-acting the ADCs have shown themselves to be. Are you looking at any other related categories that you think are giving reproducible success across the large patient population? And if so, any hints what those going to be?

Yes. So we're continuing to invest in multispecifics as well. That's maybe less validated. But it's just a matter of time I think before that becomes more mainstream in terms of how you play the affinity/avidity game and how you choose targets, whether they'd be both tumor-based or tumor IO based in terms of how you want to bring cells together in the tumor microenvironment. I think going forward, we've avoided cell therapies because that's more of a process than a product. But I think that's going to continue to evolve. And we're watching that carefully, and it wouldn't surprise me if we jump into that at some point in time as well. So we're modality agnostic. We are focused on biology and patients and trying to tie those 2 components together, and that's been in our blood and our DNA for almost 30 years, and that will continue going forward.

Excellent. well, a lot of data points soon to come and many more after. That is all. So thanks so much willing to give us an Exelixis update.

All right. Very -- good to see you, Josh. Thanks.

Thank you, guys.