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

Thank you, everyone, for joining us today. I know this is the last session of the day and hope you are enjoying the conference. My name is Tarun Soni, and I work in the health care investment banking group at JPMorgan. And it is my pleasure to introduce to you the President and CEO of Exelixis, Michael Morrissey, who will walk us through the presentation. Great to meet with you, Michael, and over to you. Thank you.

All right. Fantastic. Thanks for the intro and the invite. Great day of one-on-ones. This is the last session today, so I think I'm standing in between all of you and a glass of wine. So I will make this brief, and we'll have Q&A. And then we can all go out for a cocktail afterwards. So it's great to be here. Happy 2023. Just some business before we start. I'll be making forward-looking statements, so please see our SEC filings for a description of the risks that we face in our business, number one. Secondly, we have preliminary financial results for Q4 and full year of 2022. These results are unaudited, and we will have final numbers on our Q4 call in February. All right. So I could probably spend the rest of the time on this slide alone. I think it's a good summary of where we're at, where we've been, where we're going as an organization. 2022 for Exelixis was a very, very strong year focused on execution and on really moving forward all of our key initiatives around the cabozantinib commercial performance across various approved indications as well as moving the pipeline forward with cabo and then in our really focused efforts on building a diversified pipeline of molecules that can raise the bar for standard of care with a variety of different patients with cancer -- types of cancers, going across modalities, small molecules, biologics, single-agent combinations, using internal sources of discovery, a very broad network of collaborations in the oncology space as well as some, I think, some interesting new deals towards the end of the year that we talked about on the Q3 call, where we're looking at later-stage assets either in the clinic or near the clinic where we can really frame option-type deals to be able to move some of these assets forward. So we'll talk all about this today. I think it certainly sets us up well for a very strong 2023, and we're across the bay in Alameda and really looking forward to making very impactful year. As we talked about last year, we're building a strong presence on the East Coast as well outside of King of Prussia in the Philadelphia area. So this whole issue of being bicoastal in the U.S., I think, really sets us up well to be able to move on a global scale commercially when we have that opportunity with some of these new compounds that are currently in the clinic. So exciting times for us. Everything is really focused. Really, it comes from our ability to put gas in the tank, and that is obviously driven by the cabo commercial story. We had a strong year last year. Our preliminary numbers for 2022 net product revenues, we netted out at about $1.4 billion, so a strong year globally with -- almost hit this in Q3 and certainly are hitting this in Q4. We're at about a $2 billion a year run rate through the -- both our efforts and the efforts of our partners Ipsen and Takeda. So really pleased to have this homegrown molecule that we've been working on for a decade or more driving so much benefit for patients on a global level. And I think -- and we're all working as a team to be able to do this again and again and again, okay? The lens of cabo frames everything that we do in terms of how we do discovery, how we do development, how we do BD and how we'll do commercial on a broader scale with new agents as we go forward. So it's really a very exciting time for us, and I'm really pleased to be able to kick off the year with a brief update on kind of where we're at and where we're going. Just some numbers. I won't go through these line by line, cell by cell but give you a sense again for total revenues. Again, top line numbers for the year, did about $1.6 billion in total revenues for 2022. Again, net product revenues were $1.4 billion. You can see for Q4, the numbers in terms of revenues was $415 million and then net product revenues of $375 million. R&D expenses were up relative to Q3. I'll mention here that of the $340 million that we spent in R&D, approximately $150 million was either on upfronts or milestones for our various BD collaborations and transactions that we've either done in Q3 or previously. So again, really showing the investment that we're making, investing in innovation, investing in the pipeline, investing in platforms that's driving new molecules into preclinical and clinical development from the team. So certainly very exciting times for us in that regard as well. In terms of our guidance for the year, again, these are shown here. Again, we're expecting to see a strong increase in total revenues and net product revenues, the commensurate increase in R&D spending. Again, we're investing revenues that we're generating from cabo into R&D very effectively. We expect to have a wide range of pivotal trials going with cabo, going with zanzalintinib, XL092, as well as moving -- hopefully moving XB002, our tissue factor ADC, into full development later this year. So lots of investments. The discovery and development teams, along with our manufacturing group, are working very hard to coalesce all the different activities to make sure we can continue to drive growth. To be quite frank, there's very few companies sitting here today that have been able to build one franchise molecule like cabo and to have the impact globally that cabo is having today. Our goal is to do that again and again and again, and that's going to take a lot of hard work and the appropriate level of investment going forward to make sure we can maximize our chance of success there. So very pleased with that. And certainly, just excited to be able to be running a profitable business while we are, at the same time, investing so much into the R&D framework of our business. All right. So let's talk a little bit about cabo. I really like this slide for a number of reasons because it really highlights, again, what we've done in the past and where we're going in 2023. And these slides will all be online after the presentation. So please see our website and download them when they're available. Very strong performance and momentum last year going into this year. Right now, we are the #1 prescribed TKI in a combination in the first-line setting for advanced RCC. And that's based upon the balance of efficacy, safety, tolerability and quality of life data that was seen from the 9ER study that we did in collaboration Bristol-Myers Squibb. The -- important to note is that we expect to have 3-year follow-up data from that study at ASCO GU in about a month here again in San Francisco. So we're excited about having that data at hand -- in hand to be able to further highlight the long-term follow-up from that study. But clearly, cabo is well positioned as the first line -- TKI leader in first-line RCC. And that's based upon the totality of that data. We've seen consistent increased levels of both new patient starts as well as stacking of patients due to the long duration of therapy that we saw in 9ER in terms of the PFS, and that's certainly translating its effect into the clinical setting -- into the commercial setting. Cabo, the total scripts grew about 30% year-over-year, '22 versus '21, which in the second year of launch, I think, is pretty impressive relative to what's normally seen with traditional launches nowadays in the oncology setting, showing really that the totality of that data really resonates with both investigators and prescribers and really importantly gives our team, our commercial organization, which is really best in class, and kudos to them for all their efforts this year in 2022, to be able to educate physicians and prescribers and nurses about the data from 9ER and to really help them help their patients with advanced kidney cancer. And overall, again, #1 prescribed TKI for RCC and certainly part of the combination that's the #1 prescribed in RCC as well. So very exciting. I think this slide really summarizes kind of, again, where we've come from and where we're going. 9ER was approved in January of 2021. So you can see the growth over the last couple of years. In terms of market share points, we've gained about 12 points in that time frame and clearly seeing about a doubling of revenue as well. So to see that performance, it really relies on 2 things: great data and a great team. And I think that combination has really come together well. And we're working very hard to help physicians help their patients with this regimen. And we think we have a lot more growth going forward. As you saw in the guidance for 2023, we expect additional growth from the brand relying predominantly on the frontline RCC setting as we go forward this year. So certainly, a lot -- tons of work to do, but we're, I think, in that zone right now, and we have a lot of momentum to be able to make 2023 very successful as well. In terms of how we continue to move the cabo development plan forward, we have 3 ongoing pivotal trials. COSMIC-313, the triplet cabo/nivo/ipi versus nivo/ipi, read out last year for PFS. We're still accruing events for survival. So we hope to be able to see that result later this year as well as top line data for CONTACT-02 in -- for second-line metastatic prostate cancer as well as CONTACT-03, which is both CONTACT-02 and 03 combinations of cabo with atezolizumab, CONTACT-03 looking at second-line RCC, that combination versus cabo. So important readouts that, if successful, along with 313, would allow us to push the envelope in terms of where we take this brand forward over the next several years. All right. So I want to focus the rest of my time on the pipeline, and I'll do a high-level summary. And I'm sure we'll get into more details on the Q&A, if necessary. But this has been our main focus over the last several years. Again, we have a strong history in drug discovery and drug development. Certainly, cabo has informed us about how we do that and what we've done in the past. But we've expanded our repertoire of modalities and targets and pathways to be able to be effective in that regard. Give you a top line summary here. Again, XL092 is the next-gen cabozantinib that we think we have improved in a number of different ways. Again, the new name is zanzalintinib, even I can't say it, zanza for short, great nickname. It's a, again, next-gen, multi-targeted TKI based on the overall cabo inhibition profile with a shorter clinical half-life. We had data at ESMO last year that was certainly very encouraging, showing -- I'll show a slide while I'm doing that right now, showing good activity in advanced, very heavily pretreated RCC patients, including more than 2/3 having seen cabozantinib showing good overall clinical activity in terms of response rates as well as duration of therapy. The vast majority of these patients had clinical benefit for more than 6 months and for those who had seen cabo on top of other IO therapies as well. So very encouraging there from the standpoint of that overall profile. We expect -- we have 2 pivotal trials going to date, STELLAR-303 in microsatellite stable colorectal cancer as well as STELLAR-304, looking at non-clear cell renal carcinoma. So -- and we expect to start additional pivotal trials for this molecule, for zanza, this year. XB002 is our first biologic that we're pursuing. This is a molecule that we were able to access through a collaboration with Iconic Therapeutics. This is a very interesting molecule that targets -- it's an ADC, antibody-drug conjugate, that targets tissue factor as its biological target on tumor cells with a next-gen linker-payload from Zymeworks. The binder, the antibody, we think, is very interesting because it has a novel mechanism of binding. So it doesn't compete. It's not competitive with the factor VII, which can then basically catalyze the coagulation cascade. So the expectation based upon both preclinical and clinical data was that we would see less bleeding, and that's the case in the clinic. But certainly, we have very important signs of early differentiation in the clinical setting that I'll talk about in a few minutes. XB -- I'm sorry, XL102 is a potent, selective, irreversible orally bioavailable inhibitor of CDK7, really important probe to start asking some key questions around the biology of this target and that pathway. So that -- we had early clinical data, which really kind of confirmed its overall profile and certainly looking forward to moving that forward this year as well. A variety of early-stage programs. We have 3 molecules as development candidates marching towards IND from our internal pipeline. I mentioned that we have a number of collaborations, the most notable one with Cybrexa and one with Sairopa that we'll talk about more in a few minutes in terms of late stage or late preclinical, early clinical assets that we're pursuing. And we expect more of those in 2023. And I'll note that XL114, a molecule that is in the one pathway, we have discontinued. All right. So let's move forward here. Here's a snapshot of some of the XB002 data. I think one of the key points of differentiation that we've seen early in the process, early in the Phase I study is a very clear signal of differentiation around the stability of the ADC as well as the exposure difference, if you will, between the ADC and the free payload compared to TIVDAK that also targets -- a molecule that targets tissue factor. And you can see here from this slide that we see about a twofold enhancement of exposure of the intact ADC at the MTD dose for TIVDAK where we're seeing more than tenfold less of the free payload. And we think that's very important from the overall stability and potentially impact on safety but -- of this molecule compared to what's out there right now. So very important so far. We had Phase I data at the ENA meeting late last year, seeing, I think, really interesting -- this interesting PK data for sure as well as signs of very good safety. So early days, a lot more work to do here. We're enrolling the dose expansion trial of XB001 (sic) [ XB002 ] as a single agent as well as having combination work going with different cohorts with the nivolumab combination and the bevacizumab combination. The important point is because of the noncompetitive nature of the tissue factor binding, we're seeing no bleeding to date in what we published so far. So that's encouraging. And again, it really reinforces the fact that we're able to design a molecule and access molecules that are different than what's out there and potentially give us an opportunity then to improve upon the activity that we've seen so far. So that's, I think, very, very encouraging. And here's just kind of a snapshot of what's going to happen this year in terms of enrolling these different cohorts. Once we get to the recommended Phase II dose, then we have a wide expansion very similar to what we did with COSMIC-021 with cabo/atezo, really looking for signals, again, at potentially higher -- certainly higher exposures but with hopefully good safety that will allow us to articulate and find sensitive tumor types that we can move relatively quickly into full development. All right. And then importantly, the deals with Cybrexa and Sairopa, very important next steps in our business development process from the standpoint of being able to find, again, later-stage assets that are either in the clinic showing clinical activity like Cybrexa's molecule or near IND as in the case with Sairopa. We like these option-type deals a lot, and you'll certainly see more of those going forward from the standpoint that we can put a little bit of money up front. We have our new partners doing the work in terms of the actual clinical evaluation, which is a great way to off-load some of those efforts. And then if we like the data with another 100 or 200 patients, we can opt into that molecule, take over development, pay up -- pay the appropriate milestone and then move forward. So it's a good way to, again, spread the risk or look for diversity in our targets, in our modalities, in our assets and really increase the probability of success in finding the next important molecule that we can move into full development. Just some data here with CBX-12. Again, this is a tecan-based peptide approach similar to ADCs. It doesn't target any one specific binder. It really focuses on the pH differential with tumors and the ability for that molecule to form an alpha helix, embed into a membrane, deliver the payload and then do that in a more selective manner. But you can see here, you're seeing -- they're seeing very interesting activity so far, very early, in the first 18 patients in terms of both tumor shrinkage as well as duration of treatment, a couple of responses, including a CR in a patient with ovarian and a nice PR in a late line patient with breast cancer. So certainly showing signs of activity. And they need to optimize the dose. It looks like the weekly schedule will probably be the best way to go, but it has to be proven. And once we get that done, then we'll move into the expansion cohorts that will then drive the data that we need for the opt-in. Similar thing with Sairopa. Again, this is a SIRP-1 alpha antibody, again, involved in the don't-eat-me pathway around CD47. Similar -- this is really what we believe is a best-in-class molecule that has the potential to really help elucidate how you deal with macrophages in the tumor microenvironment from an anticancer point of view. So we're excited about that same general scheme option deal. They'll be filing the IND shortly. And once that's active, then do the Phase I work with the idea that they'll expand into single-agent and combination cohorts to be able to get us to an option decision relatively quickly. So we like these approaches a lot, certainly looking at later-stage assets as well from a broader strategic point of view. But I think this kind of optionality allows us to put our balance sheet at work. And the fact that we're profitable and generating free cash every quarter, we can use that money very, I think, very judiciously and very carefully in a real disciplined sort of way, but put -- make really good bets based upon compounds and companies that we have a lot of conviction in because that's going to help us drive innovation going forward. In terms of our internal work, these 3 antibodies or 3 biologics are shown here. I won't go into great detail just to save some time. XB010 is a next-gen ADC targeting 5T4 target of interest in terms of oncology, using the Catalent SMARTag technology. XB014 and XB628, new molecules, are bispecifics both targeting PD-L1 with one arm, if you will, of the bispecific and then going after either CD47 or NKG2A, which is involved in natural killer cell or NK cell triggering. So again, important biology, blazing new territory to a certain degree, especially with XB628, and trying to make better molecules like XB010, better ADCs for a target that, say, in the past has been targeted with first-gen technology. So I think our view here is, quite simply, construct good molecules, get them into the clinic quickly, ask the appropriate questions. If they look good, then push them forward rapidly. If they don't, put them to rest and move on because we have a diversity of assets and opportunities that we're going to pursue, right? So here's the kind of the pipeline in terms of what's happening and what's moving towards the clinic led by cabo but covers all the molecules that we talked about just now. And then secondly, a very good summary, and kudos to the -- Susan and Varant for putting this slide together because it really captures all of our different -- really the depth and the diversity of the network of collaborators that we have around biologics and around the whole discovery framework to be able to move so quickly from a standing start a couple of years ago to having this rich, deep pipeline of biologics that we are hoping to move forward into the clinic as quickly as possible. And here's a sense of what's happening in discovery with both biologics and small molecules. And beyond these molecules, there's another large number of programs targeting novel targets, small molecules and biologics in discovery that are moving towards the development candidate status. So we're certainly very excited about where this is going and the momentum that we have across the continuum of R&D and manufacturing with the idea that we can push this forward as quickly as possible, use the momentum we have with cabo, the later-stage assets with zanza and XB002 to build this diversified pipeline of late-stage opportunities that, if successful, could then drive growth in the future. So I'll stop here. A key highlight of our corporate objectives for the year, obviously, the commercial success of the cabo franchise is absolutely critical to continuing to invest in innovation across the R&D continuum. So that will certainly continue. I think our 2023 growth is going to be driven predominantly in the first-line setting for RCC based upon the 9ER data, which is continuing to evolve nicely. Obviously, we have other pivotal trials here that, if successful, could drive that further as we go forward. In terms of full development for zanza as well as the plan for the tissue factor ADC, XB002, it's very important in that those are key priorities for us to be able to have a suite of late-stage assets that we can then leverage going forward. And then all the great work that's going on inside the company across this network of collaborations, small molecules as well as biologics, I think, puts us in a very, very strong position to be able to maximize our chance for success across the pipeline as we try to grow the business and help more patients. So I will be happy to stop there and take questions. Okay. Thank you.

So if you have any questions, please raise your hand. And people listening on the webcast, please feel free to drop your questions through the online portal.

Why don't you start? Just have a dialogue here and...

Sure. Absolutely. My first question is can you please talk a little more about the next-generation TKI which you alluded in your presentation, XL092, and also about your other product, which is the tissue factor ADC, how is it differentiated compared to TIVDAK? And what kind of opportunity lies ahead for you?

Sure. So again, at a high level, XL092, zanzalintinib, zanza for short, the whole idea behind that was really keep the overall target inhibition profile for zanza similar to cabo. Cabo is a great drug, again, franchise molecule, helps a lot of people globally. The one area that we thought we could improve upon was the half-life. It has a 100-hour half-life, which makes dose adjustments, which is a necessary part of any TKI dosing, somewhat challenging. You have to wait for the drug to wash out. That can take a week, 10 days, 2 weeks sometimes, and that's a long time for a patient to be, a, off drug. And then once they're off drug, it's not all that uncommon for them to move to a different drug. So the whole idea was to make the experience with zanza more user friendly with a shorter half-life but while retaining the muscle behind cabo from the standpoint of its antitumor activity. And I think we've shown that pretty effectively with the data from ESMO last year in terms of being able to -- and again, 2/3 of the patients that had seen a variety of different anticancer kind of targeted and ICI-based therapies in RCC, including cabo, to be able to clinical benefit to them. So I think that's really encouraging, right? So there was never a point to try to optimize the inhibition profile. The point was to make it more user friendly from a clinical point of view. With XB002, it was -- I think it was a whole different mindset where you look at the opportunity to make a binder that has a noncompetitive binding mode, where the whole idea around could you get around some of the bleeding issues that's seen with the first-generation molecule was a very important part of that. And that's just clever protein engineering to be able to find a different epitope on tissue factor that really worked out well. And we're actually using that. Now certainly, the first-gen molecule with XB002 uses the Zymework technology. But we have -- with the deal that we did at the end of '21 and announced in January of '22, we have the ability to make other ADCs with other linker warheads with that same antibody. So we're doing that now, and we have a tecan-based ADC on that same antibody from 002 now moving through preclinical development. So again, we have the optionality with the suite of collaborators and network of partners to be able to mix and match different attributes to be able to really refine our activity for specific tumor types. So that's encouraging as well. But we certainly like the clinical data that we saw from ENA. The fact that we see this window between the free stable ADC with free payload of about 20 compared to the first-gen molecule, we think, is very meaningful. And we have to be able to follow up on that now with the idea of pushing the dose further.

Got it. Okay. One quick question, which is a good segue that you mentioned about the ADC, and you have been building your ADC collaboration network as well as internally investing in your own pipeline as well on ADC. So which -- what areas within oncology are you looking at specifically or you are most interested in?

Yes. I'm going to call Peter Lamb up to answer that question because he's much more qualified than I am to answer it. And he's got a much better accent, too. So...