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

Good afternoon, everyone. We're now on the third day of the SVB Securities Global Biopharma Conference. I'm Ken Shields, Vice President of Equity Research, helping to cover the targeted oncology universe of companies. I'm excited to have Exelixis join us, and we have Chris Senner, Executive Vice President and Chief Financial Officer; and Peter Lamb, Executive Vice President, Scientific Strategy here. Thank you both for spending some time with us.

Thanks for having us.

[Operator Instructions] So just jumping right in. Perhaps, you guys can start with a brief overview of Exelixis and help refresh those in the audience that may not be as familiar with the business.

Okay. So yes, thanks for having us, and Ken, thanks the opportunity to talk here. So I guess I'll start. From a Exelixis perspective, we're a commercial-stage oncology company. We had product revenue last year, about $1.4 billion, primarily related to CABOMETYX, which we launched back in April of 2016. We're a research-based company. We have about 1,200 employees globally. We've had -- we've got many clinical trials ongoing for both cabo, COSMIC, CONTACT-02, CONTACT-03, and also COSMIC-313. We also have other products in the pipeline, XL092, which is zanzalintinib; XB002, which is tissue factor; ADC. And then we've also done recently some business development deals and actually, historically, but more recently, at the end of last year, some larger business development deals to continue to bolster that pipeline and that's part of our strategy, both internal discovery, but also bring in external innovation. I think anything else that I might have forgotten?

No. That was good. That's it.

Okay. Thanks for that introduction. So CABOMETYX, a lead products, had a strong year commercially in 2022. As you mentioned, $1.4 billion in sales, which is roughly 30% of an increase relative to 2021. So what were the primary growth drivers for cabo last year? And what do you see as the key sources going forward to continue that growth for the franchise?

Yes. So we've actually grown pretty steadily since January of '21 when the 9ER indication, the cabo/nivo indication was approved. We've actually seen almost a doubling of revenue since then. We're about $750 million back in the end of 2020. As I talked about and you mentioned, $1.4 billion at the end of '22. That -- the vast majority of that growth is coming from that 9ER indication. And the fact that patients are on drug a lot longer than they were just on the single-agent cabo. I think the PFS for the cabo/nivo indication is around 18 months. And so that long duration of therapy we get, the patients continue to stack up as they stay on therapy longer and that drove our sales both in 2021 and 2022. And actually, when you think about our guidance, which we put our guidance at earnings last week, but really initially at JPMorgan at the beginning of the year, we're looking at $1.575 billion to $1.675 billion of product revenue primarily coming from CABOMETYX in 2023. And that growth continues on both the stack -- continue stacking patients, the dirt caused by the duration of therapy, but also, to a lesser degree, the new patient starts that come through as new patients come on therapy as a first-line therapy.

Okay. That's definitely helpful. So just jumping a bit ahead, you have some data readouts for 2023, some ongoing Phase III trials, as you mentioned in the introduction, the COSMIC-313 in first-line setting and CONTACT-02 study in prostate cancer, and then obviously, the second line CONTACT-03 study. Can you provide a status on these readouts? How should we think about how they will layer into the growth? And what it could mean for the cabo franchise?

So for COSMIC-313, we expect the second interim analysis to -- which is OS, to read out sometime this year. And then based on those data, we'll discuss any potential regulatory pathway with the FDA. For CONTACT-02, we're expecting enrollment completion this year. That is the prostate trial and topline via PFS, which is the primary end point, sometime in the second half of 2023. And then CONTACT-03, looking at -- which is cabo/atezo post an ICI in RCC. We expect that readout to be sometime in the first half of 2023. Looking forward to the potential for all those indications with positive data.

Okay. Is there any that you feel particularly confident in or could provide the biggest upside in terms of these different opportunities?

Yes. It will all depend on the data. I mean we're excited about all of them. Obviously, CONTACT-02 is in prostate it's a new indication. CONTACT-03, as I mentioned, is in RCC post an ICI, that could continue to expand our RCC -- our penetration of the RCC market, which we're excited about. It has the potential for creating longer duration of therapy also in the second line, similar to 9ER, creating a longer duration of first line. You'd have the ability to potentially, based on data, create a longer duration as a second-line therapy in combination with atezolizumab.

Okay. So sort of sticking with the pipeline a little bit. I mean, historically, you guys have been known for your small molecule expertise. But over the past few years, you've ventured a little bit into biologics with the various BD deals you've done. I believe you have an ADC now. Can you maybe talk about this transition and your expertise in that setting, and where you see the balance of modalities within the company going forward?

Yes, absolutely. So I mean you're right. We've been a small molecule company by history for more than 20 years now. With the initial success of cabozantinib and having that revenue enable us to look at building a pipeline beyond cabozantinib, we made the decision pretty quickly. But yes, of course, we're going to invest further in small molecules and rebuilding our own internal small molecule discovery group, which is ongoing, but we very much wanted to have the ability to add biologics to the pipeline as well. There's a couple of reasons for that. It just expands the universe of addressable target, and we wanted to be able to match the kind of right therapeutic modality with the right target. And obviously, there's been a fair amount of success in terms of developing biologics in oncology, many of the big oncology drugs that you know of biologics. As we looked at that in a little bit more detail biologics can cover a lot of ground there. We ended up focusing in on ADCs primarily, but also bispecifics, and there's reason for that as well. I mean the ideas behind ADCs and bispecifics have been around 25-plus years. If you look at the history of ADCs, there was some initial success in Mylotarg [indiscernible] type approvals. But then a lot of [indiscernible] clinically usually around lack of a reasonable therapeutic index. Agencies just won't tolerate it. But a lot has been learned from that in terms of how we mitigate some of those issues with exactly how you build the ADC and that's, obviously resulted, I think, in a pretty clear renaissance in the whole field, thinking about a dozen approvals, I think, over the last 3 years. So we very much want to be part of that wave. And XB002, which is our tissue factor targeting ADC as our first foray into biologics. It's an agent that we licensed. It's a clinically validated target, tissue factor tisotumab vedotin from Seagen has approval in cervical carcinoma. But we felt there was space for a next-gen agent, which improved upon the properties of growth of both [ two effects ]. So we're excited about that one. We had some data come out late last year. I think there's an emerging profile, I think, that really gives one kind of belief that, that molecule could be advanced potentially multiple different solid tumor types, and ones beyond cervical carcinoma. And then if you look back at the pipeline, you can kind of see the kind of emerging set of biologics coming, but a couple of other ADCs in the pipeline preclinically right now. 5T4 targeting ADC and then a kind of next version of a tissue factor targeting ADC, but this time with a different payload. So ultimately, we want to be able to match the tumor type with the payload that we believe it will be most sensitive to. And then a couple of bispecifics as well, PD-L1, CD47 and the PD-L1 NKG2A preclinical development. We've done the biologics effort largely through collaborations. We didn't feel it was worth kind of setting up our own in-house antibody discovery, for example. There's a lot of that expertise out there. So we partly focus and provide us with an ongoing libraries of antibodies. We partner with people who have cutting-edge site-specific conjugation technologies to enable us to control exactly how we're making the ADCs, and also [ partner ] focus has given us a range of different payloads that we can add and mix and match. So [indiscernible] all expect the pipeline in general will be a mix of both small molecules and biologics. We'll see how it goes, but I expect both of them to be in there for the long-term.

Okay. So just diving a little deeper on 002. I mean you mentioned the comparison to Seagen's TIVDAK. Can you talk a little bit about the differentiation there? I know that drug has been a little bit limited by ocular toxicity. I think it has black box warning. Can you maybe talk about how you see them competing commercially? What are the key differentiators?

Yes, absolutely. So if you look at that profile of TIVDAK have been cleared and is active in cervical carcinoma. You commented on the ocular tox, which is sort of goes along with the kind of first-gen or statin payload that it has. Notably, you see a fair amount of bleeding, I think, in the label it's of 62% of patients either get epistaxis or hemorrhage. So it's a notable side effect from TIVDAK along with other side effects like alopecia, peripheral neuropathy, for example. So when we're looking at XB002, it has been constructed somewhat differently. First, it's a different antibody. So it still binds to tissue factor, but it does it at a site which does not interfere with the binding in Factor VII that TIVDAK does block the binding of Factor VII that interferes with coagulation and then results in bleeding side effects. So 002 does not interfere with coagulation in multiple different preclinical assays, and then in the clinical data that we released last year that we've seen no bleeding to date. So I think that's one clear point of differentiation. I think the other one is, it looks like 002 is a more stable molecule. So the other piece of data we're particularly excited about is the initial PK. So the 2 mg per kg dose, which is the same dose as in the label for TIVDAK, we see twice the exposure of the intact ADC, but only 1/10 the exposure of the free payload. I believe free payload can contribute to side effects. So we think that differentiated PK profile should lead to a better therapeutic index. And I think that gives us some confidence that we may have the ability then to move beyond cervical carcinoma in terms of different indications. The initial Phase I to TIVDAK, they did see some activity in other solid tumors [indiscernible] I think a PR in lung, for example, but it was fairly limited. But we think with the extra intact ADC exposure, we'll be able to build on that, and hopefully, get some more impressive efficacy data beyond cervical carcinoma. So that's a strategy. It's certainly a goal for us this year to push 002 forward pretty hard. We're kind of in late dose escalation right now. The plan is to go -- once we have a dose to go into 10 different expansion cohorts, multiple different solid tumors is a second finding exercise. And then we've also initiated some combo studies either with nivolumab, or with [ atezolizumab ]. Again, we're able to do atezolizumab combo because we don't have the bleeding effect. I think it might be challenging to do that with TIVDAK just because of the overlapping side effects there. So it's a plan for 002 and the reason we're excited about it.

Okay. Very helpful. So shifting gears a little bit. Obviously, one of the biggest overhangs on the stock right now is the ANDA. How is it important for you to get this resolved? And what's the courage of your conviction about your patent estate? And what's next to come with the trial in the fall of this year?

Yes. So I mean you're right. It's probably one of the biggest overhangs that we have right now is the ANDA and the outstanding trial we have in -- or the upcoming trial we have in October of this year. It's very important to us to get that resolved but appropriately, and we're confident in the patents that we have in the trial or at stake here. So I mean, I guess it's really around all the modeling we do internally is through 2030. We're confident in those patents and the patent estate that we have generally for Exelixis. And like I said, it's important for us to get that resolved, but do it appropriately so that we can take it to trial or the other avenues of getting that resolved over the next year or so.

Okay. So I'm just looking at investor questions on a related point. Success in maintaining validation of 1 patent in either the Teva or the second MSN trial enough to keep all generics away until 2030.

I can't tell I know the answer to that question.

Yes.

I can't tell you I know the answer to that question.

Okay. No worries. Let's circle back. Can you talk a little bit about zanzalintinib, formerly known as XL092. What was the rationale behind the design of this molecule?

Yes. So when we reside doing internal small molecule drug discovery, we were looking for our first project. And at the time, of course, we were sitting on a pretty expansive set of cabozantinib clinical data. And what we've seen there was, it's a broadly active molecule. We've seen activity in about 20 different solid tumor types. Obviously, we haven't developed in all of those. We focus on a few key ones. So we knew that the target profile of cabozantinib was driving broad efficacy and we also knew that it had great potential in terms of being combined with immune checkpoint inhibitors. So we like that pharmacology a lot. So we wanted to see if we could come up with the next-generation version of cabozantinib essentially. And the one thing that we tied in on was the pharmacokinetics. So cabozantinib has [ under around a ] half-life. When patients initially come on, the drug accumulates for about 3 weeks. We have to advise physicians. For example, if patients start getting an adverse event during that 3-week period that they have to sort of be on top of initiating dose holds with those reductions, so that the drug wash out. Likewise, in the general course of treatment if a patient needs to be dose-held. There's a washout period that they need to go to before they come back on treatment. And we think that provides some inertia essentially whereby a patient could decide during that [ period ] they want to switch to a different drug. So they come on cabozantinib for a week or 2, and then they want to go back on something else. They maybe go on something different. So we really wanted a version where we thought the a, management side of things would be easier. So we wanted to keep the same target profile that cabozantinib has, but reduce the PK half-life. So that was the goal with zanzalintinib. I believe the data that we've put out late last year, and I think certainly clearly demonstrates that we've achieved that. Target profile is the same. And the half life is about 20 hours, and it really doesn't accumulate that much during the initial dosing. So we think it's going to help from a compliance point of view. We think it may help from a -- if you being a bit of a friendlier combination partner going forward as well. So that was I thinking behind zanzalintinib.

Okay. And I believe you've initiated 2 pivotal Phase III studies so far and guided to multiple additional Phase IIIs coming online this year. Is there any color you can provide at this point on which indications you're looking at for the next wave of pivotals?

Yes. So generally speaking, what we're looking to do, it's not -- we're not really looking at this as just a drop-in replacement for cabozantinib. We're really looking to expand on the kind of universe of things where a cabozantinib-like profile, we think, will provide benefit. So we're trying to fill in the white space where we didn't go with cabozantinib from a registrational trial point of view, but it's all based on data that we have from earlier-stage studies that were run with cabozantinib. So first trial, 303 for example, STELLAR-303, in colorectal carcinoma, we had data with cabo/atezo in CRC, which gave us some confidence that we see a reasonable activity profile. We like -- once we get into the third-line CRC, options are limited. We go up against regorafenib, which has a fairly modest PFS and OS benefit. I think PFS benefit -- or regorafenib in that setting is around 2 months OS. So to us, that -- I think that's a great example of going into a different tumor type, but we didn't get registrational data with cabo, but we can go there with [indiscernible], but based on what we knew about the cabo profile. More broadly, I think the other thing we're looking to do obviously is, [indiscernible] as a background for putting together some novel combinations. We've initiated certainly a combination with nivo with the new checkpoint inhibitors, but again, looking to then add on to that in indications like RCC, for example. So we're also looking at combining it with relatlimab, the LAG-3 antibody from BMS. So again, it's not just going to be carbon copying or same trial that we run through with cabo, we don't have to go up against cabo. That's not going to -- it doesn't make any sense, but we're looking to build -- to provide additional benefit with even novel combinations of new tumor types.

Okay. That's very helpful. Just following for some investor questions here. Okay. So we have one. What is the physician feedback for the 3-year CM 9ER data? I guess how has that been received?

Well, it's -- I guess we'll find out this weekend. I mean it's getting presented at ASCO GU. I think, certainly, we always say strong data set, we got 44 months follow-up now. It's pretty much, I think, the longest follow-up from any of the competing kind of trials. The overall survival data has matured really quite nicely. We're getting about a next 2 year of benefit from the last analysis. So our view certainly is that this adds just to the whole story around the cabo/nivo combination in terms of the strength of the data set and the amount of benefit that it's given. And so certainly as we've talked to you today, we're pretty enthusiastic about it.

Okay. Okay. I guess maybe we can talk a little bit about XL102, covalent CDK7 inhibitor. It seems to be a little bit different from zanza and XB002, and not the target pathway aren't as clearly validated. Can you provide some insight into why you chose to take this approach to targeting CDK7? And what are your expectations for the program?

Yes, absolutely, and you're exactly right. I will put it in a different bucket. I think as we commented with 002, there's some clinical validation for targeting tissue factor with an ADC. Obviously, with zanza coming validation from the cabozantinib data set, but i guess CDK7 is a much newer kind of agent on the block. It's still relatively early days in terms of clinical development of CDK7 inhibitors. So there isn't a clinical proof-of-concept at the moment. I think, generally speaking, from a pipeline point of view, we're going to be developing both kinds of agents. When we can do next-gen versions of things, I think that's always attractive, and we're certainly going to be doing more of that. But yes, we also want to advance the more novel type mechanisms or action to try and expand the types of therapies that are available in various tumor types. So CDK7 has popped up as a target of interest for a number of reasons. It's certainly come out a lot of kind of genetic screens for cancer cells rely on in order to grow. It sits upstream with CDK4/6. So that's probably the closest kind of drug interaction there, I don't know if there is some precedent being able to CDK4/6 inhibitors approve. So it has a rolling and controlling in the cells cycle from that point of view, which means it may have a potential at least to have board activity. But it also controls aspects of transcription and transcriptional response, particularly in the context of nuclear hormone receptors, specifically estrogen receptor and androgen receptor. So combinations with fulvestrant or [indiscernible] in breast and prostate, respectively, make a lot of sense. So with CDK with XL102, we wanted a compound that was obviously potent. We wanted to be very selective. We really don't want any spill -- or significant spillover into other CDKs. That's what the profile is. We actually work with a covalent inhibitor. So we bind CDK7 covalently, and then sits there until the protein turns over but also went with a compound that has a relatively short plasma half life. So it kind of washes out of the circulation fairly fast. That's really intended to maximize the pharmacodynamic duration of action at the target whilst minimizing the opportunity in a sense to have off-target activities in tissues outside the tumor. So again, we've published some initial Phase I data last year on this compound, basically showing that profile dose escalation is ongoing. But I think the data that we have now says that we have a really good tool, a very good product essentially to explore the pharmaco CDK7 inhibition in cancer.

Okay. That's very helpful. So maybe we can talk a little bit about the recent clinical option agreement with Cybrexa and Sairopa announced in November. Can you talk about why you're excited about the deal and CBX12 as well as ADU-1805? And what drove your interest in these assets?

Yes. Well, we've been obviously looking to build our pipeline, not only through a internal kind of activities, but also through collaborations, partnerships, and licensing-type deals. And we've been looking very intensively over the last couple of years at a broad array of agents, both biologics and small molecules, late preclinical, early clinical. We certainly looked at later clinical as well, that's a smaller space. And really based on that, it's -- we really like the kind of option way of doing this because we don't have to just rush and buy the agent upfront that when it's in Phase I with really very limited data, mean failure rates from Phase I in oncology are still pretty high. This way, we get to potentially stack together a whole series of these kind of option deals exploring different mechanisms of action where we're not committing that much money upfront, but we have the option to buy in once an agreed-upon packaging for clinical data is assembled. So for [indiscernible] specifically, CBX-12, in a sense, you can view it as an extension of the ADC approach [indiscernible] drug conjugate. The payload here was [indiscernible], and the pH is a -- sorry, the peptide is a PH-sensitive agent. So normally, in circulation, whatever pH, 7.2, it's not structured. But as it gets near the tumor and the pH drops because tumor like to excrete lactic acid, pH goes down. Peptide some amounts of helix, which allows it to translocate across the membrane and it drags the [indiscernible] with it. So it's a way to enhance payload delivery to the tumors that depends upon the pH difference not upon the expression of a particular tumor-specific protein, which is what ADCs rely for the antibody to be [indiscernible]. So it's potentially applicable to a really broad set of solid tumors. So we like the concept a lot. It's novel. I think this is the first agent of this type that's gone into clinical trials. There was an initial Phase I data that was published late last year. It's been exploring a number of different dose schedules, start to see activity in solid tumors. Certainly, nice PR in breast at the 20 mg per kg weekly dose, which is a dose that's currently being -- or schedule has been further explored. So yes, we are excited about that one just because of the broad potential and it sort of fits with the ADC approach, but it's tumor antigen agnostic. So Sairopa side is a monoclonal antibody against SIRPa. So that will binds the CD47, which is the partner most people are familiar with. And at this point, I think the kind of profile of CD47 binding agents of various kinds in the clinic has been pretty well established. There is a fair amount of CD47 certainly expressed on tumors, but also expressed in all tissues. So what you tend to see is a PK sync, but you also get side effects of the CD47 direct, specifically anemia and thrombocytopenia just because you're blocking the novel cycling of those particular cell types. So the SIRPa approach is attractive because the expression SIRPa is significantly more restricted. It's just expressed on myeloid cells. There is a SIRPa monoclonal that's already in the clinic. And what that's shown is one greatly reduced PK symptoms, you don't get the anemia and thrombocytopenia. So there's a clear differentiation from that point of view. It's also started to show efficacy that particular antibody both as a single agent a little and in combination. Well, feature of that antibody, however, is it finds that only 3 of the 10 known SIRPa alliance. So patients have to be geno typed to come on study to make sure they actually have the appropriate [indiscernible]. The [ Sairopa ] antibody, however, binds to all [indiscernible] there's no requirement for genotyping there. So in a sense, we can follow what's going with the antibody that's in the clinic and then just coming with an antibody that's fully [indiscernible]. It's going to be applicable to a broader pool of patients. So yes, we were excited about that differentiated approach, and I think it was just a very well constructed and kind of thought out antibody. So [indiscernible] for that has just been filed. So we look forward to starting to see clinical data over the next year or so.

Okay. Fantastic. So it looks like we're coming up on time, but maybe we can just end with a general theme of cash and capital allocation. I mean there's also an investor question coming in here generally on how you're planning on returning shareholder value. So obviously, you have strong balance sheet, over $2 billion in cash. How are you going to utilize this cash position to drive shareholder value? Are you thinking about buybacks, maybe a structural dividend? How are you thinking about returning shareholder value?

Thanks for the final question there. So yes, I mean, we do have -- we have a little over $2 billion of cash. We continue to look at ways to invest that cash in the pipeline. We had several years where we didn't have a discovery organization. We're building out the pipeline for Exelixis. Peter just talked about the Cybrexa and Sairopa deals, which are capital-efficient, which allow us to put some capital at risk and get -- and ultimately, get to a point where we can make a decision to get -- make a decision on going forward with more data. And we'll continue to do deals like that. We'll continue to look at larger deals that may or may not be out there and try to continue to grow the company, and that's the primary focus of our capital allocation. Now we do talk about buybacks internally here all the time. We just feel, at this point in time, the investments between getting a decision on the ANDA, but also building out the pipeline, that is the primary focus of our capital allocation for the company, but we do look at other capital allocations -- potential capital allocation opportunities.

Okay. Well, with that, I think we're out of time. So thanks for attending and giving this presentation. We enjoyed the conversation. It was very informative. And with that, we'll end the webcast.

Thanks.