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

Good morning. So the next company here is Exelixis. I'm pleased to welcome Andrew Peters, SVP of Strategy. Peters, welcome, and thanks for joining us.

Yes, thanks for having me.

So CABOMETYX has obviously been a huge commercial success for Exelixis in -- over the last year, a few years. At this point, how should we think about growth drivers as we head into 2023?

Yes. So I guess just everyone, thanks for having me here. This is a great event. As a reminder, I'll be making some forward-looking statements today. So please see relevant SEC filings for appropriate disclosures. So yes, Cabo, obviously, great product. One of the things that we talk about a lot internally is really what drives Cabo is a great team, great data. And we can point to something like the 44-month update at the recent ASCO GU conference as just another reminder that the 9ER regimen continues to generate what we think is really differentiating and compelling data that resonates in the marketplace, both from a patient and physician perspective, which is important. Really kind of the core of that is what we call kind of a balance. A balance of very compelling efficacy, which was even improved upon, at least from a survival perspective at ASCO GU but as well as tolerability and other key secondary endpoints like quality of life. Those are the things that really resonate and kind of really what's driving that increased market share. So what PJ talked about on the fourth quarter call in terms of kind of key drivers for growth in 2023, it's really a continuation of a lot of that momentum that we saw in 2022. It's all about competing for market share and driving market share and then longer duration. These patients are fortunately staying on drug longer, just because of that kind of compelling profile. And then you start to see that stacking of patients. Patients who are coming on drug last year and then new patient starts this year. So that's kind of the overall theme of growth this year that we'd expect to continue.

And as we think about the RCC market, I guess where CABOMETYX is gaining more share from? Is it from other TKI combinations? Is it from OPDIVO, YERVOY? Or is it perhaps other drivers?

Yes. In general, what we've talked about in the past, the dynamic is primarily from other IO TKI regimens. The dynamic that we're seeing in the market is a lot of market share is coming from Axi-Pem and both going to our regimen as well as others. So not necessarily from the IO-IO segment. And then there's obviously another component kind of historic legacy TKI monotherapy segment as well.

Right. And then you're obviously working on a number of label expansion opportunities for Cabo. We've seen recently the top line announcement of the RCC, the secondhand RCC study, how does that result impact Cabo use, if at all, in your opinion?

Yes. So the CONTACT-03 study, I think that's an interesting study from a bunch of different -- in a bunch of different ways. Big picture, one of the things that it does is it just continues to reinforce Exelixis as being a company kind of at the cutting edge of trying to push that standard of care forward. And the feedback that we've gotten on that study as well as something like 313, the Cabo-Ipi-Nivo study is we're really, again, at the forefront of running the right study. This was a question that needed to be asked in the clinical community. And I think there's this growing sense of we're really glad that a company like Exelixis is running it because it is a question. What do you do? What do you give patients after no longer responding to something like a frontline checkpoint inhibitor? And so the fact that we're able to be at the forefront there, just increases are really cements our position there. So in terms of the study itself, we're going to present the data at a medical conference later this year. But at least qualitatively, one of the things that we've said is one of the dynamics that was most surprising was really the performance of Cabo in that arm. As a reminder, CONTACT-03 study was. Cabo plus Atezo versus Cabo itself. And unsurprisingly, in hindsight, given that patients had seen a prior checkpoint inhibitor, if you do have those CD8-positive T cells kind of floating around, adding Cabo on top of that, you are still likely to see a benefit. So the fact that Cabo really did perform so well, we think, just again, further cements Cabo in the kind of RCC landscape. So studies that we're really proud of, both from a kind of how it positions us in the market but as well as, frankly, how Cabo performed.

Right. And then CONTACT-02 is another Phase III study that is pending readout later this year in CRPC. Just remind us of the opportunity here and how confident you are in Cabo's activity here based on the data that we've seen so far.

Yes. So this is a really interesting study for us. Obviously, builds on kind of somewhat of the historic legacy of Cabo in prostate cancer, but more importantly, really comes out of cohort 6 of the COSMIC-021 study. So as a reminder, there was a 1,000-plus patient 20-plus cohort, real randomized signal -- or not randomized, single finding study of Cabo plus Atezo. And that's the sort of real kind of [ needy ] study that we like to run and really gives a sense of what does the drug look like, what does the combination look like. That data showed a pretty compelling response and really drove us to start the 02 study. The key dynamic here is these patients have seen a prior NHT and we know that a second NHT in that population isn't particularly effective but we're looking specifically at a subset with measurable disease because we think that's the easiest kind of bar to really understand is this combination having a clinical effect. So as you said, we expect data later this year. This is a real high unmet need population, and we really think can kind of serve to further push the standard of care. Because ultimately, that's the business we're in. Our job is to shift that standard of care, help patients live longer, better lives.

Great. Then I have to ask about the IP trial with MSN as well. I know you can't say much, but as we to head into the bench trial later this year on the Wave 2 IP estate. Anything -- any takeaways from the court ruling on the initial trial last year that increases perhaps or changes your confidence in sort of heading into the second trial later this year?

Yes. So just as a reminder for everyone, kind of the IP or the ANDA case with MSN is really split into 2 parts. MSN 1, which went to trial last May and the decision from the judge came earlier this year. MSN 1 judge found that our core composition of matter patent was upheld and also found that MSN's S form of cabozantinib did not infringe on our Form M2, which was the specific polymorph that was at issue in that case. MSN2 is actually focused around kind of a broader set of polymorph patents. And so what we generally say is the 2 don't necessarily have a lot to do with each other, given its infringement versus invalidity. But we can point to, say, the European experience for cabozantinib IP where those same kind of set of broader polymorph patents were challenged. We were successful. They were appealed. We were successful again. And so overall, we remain confident in our intellectual property position for Cabo and are looking forward to the trial in October.

All right. Great. And then you guys have always been very active in expanding or building a pipeline beyond CABOMETYX, sort of balancing perhaps internal investment and business development, led by you, partly by Peters. Can you talk a bit about how your strategy there has evolved in recent years?

Yes. So I think if you kind of look at the through line both in our internal portfolio, [ dasatinib ] as well as XB002, our tissue factor targeting ADC as well as some of the recent deals that we've done. We think it really -- the key point is we want to look at lower risk opportunities ultimately that we do think have kind of upsized commercial opportunities as well. So not really focused on these smaller kinds of precision oncology markets just because I think it's borne out in recent commercial launches, they haven't really been there. So what do we mean by lower risk? So Zanza is a tyrosine kinase inhibitor that copies the kinase inhibition profile, phenocopies the kinase inhibition profile of Cabo, but we've engineered a kind of metabolic liability in the compound to change the half-life of Cabo from approximately 4 days to about 23 hours. And so we think that, that's actually differentiating from across a bunch of different aspects, including the combined ability potential for increased tolerability and things like that. So it's using kind of the Cabo foundation to derisk development going forward. Similarly, with 002, it's taking a validated target in TV from Seagen and iterating and kind of differentiating based on that, both on the antibody side, it's not competitive with Factor VII. So you're not likely to see the same bleeding risk. And then on the linker warhead side, kind of the key data that we presented last year, pharmacology 101 at the same 2 mg per kg dose, 002 has about twice the exposure in 1/10 the amount of free drug. So again, that's a really good starting place for us from a risk perspective to continue to invest in. And then from a BD perspective, what we've done in the past, last year, we did a couple of more option type deals. Those really led us to have kind of a capital-efficient model we can go in relatively low upfronts and pay for success. And so as those programs continue to mature, as we're generating compelling data, that's when you start to see kind of some of those milestones kick in. But frankly, that's a good thing because that means those programs are being derisked. So that's something that we're cognizant of. We've long said we run Exelixis like a business, not like a cash burning biotech, and that's something that we want to continue to do.

Right. And as we think about the IRI legislation, has that impacted your approach to business development at all?

Yes. I mean I think us, along with the rest of the industry are still kind of trying to ultimately digest what it means going forward. But what I'd say is coincidentally or however you want to look at it, we'd actually been kind of focusing more heavily on biologics anyway. One of the things that I think surprises a lot of people is if you look kind of at our company from a big picture perspective, we tend to see ourselves as one of the bigger ADC companies in the world. What we've done is, over the course of the last several years is put together a series of licensing deals that gain us access to basically a wide variety of platforms and ADC technologies. And so XB01O, our next ADC coming out of our pipeline is probably a good example of that, where we can kind of mix and match and optimize across all of the components of the ADC to say, okay, for this target, what's the appropriate linker warhead combination, what's the appropriate DAR, all of those sorts of things. And so we don't have kind of a square peg round hole problem where we're trying to kind of force our platform on to anything. It's we have the ability to say, okay, let's let the data drive where we're going and optimize programs going forward. So biologic is certainly a focus for us and it's going to be going forward.

Okay. And then maybe last question. As you think about the early-stage pipeline. Where will we see data this year, which programs are sort of moving along ahead -- moving along well. And how will this data guide next development decisions?

Yes. So what we've talked about kind of both at the JPMorgan conference to kick off the year and then on our most recent earnings call is really 2023 from a pipeline perspective is going to be all about execution. We certainly want to provide updates to both 002 and Zanza as soon as we can, but we need to focus on execution on getting kind of mature data sets. Frankly, we're just not kind of in a position as a company to want to generate 7, 8 patients' worth of data, have a handful of -- I think we all get frustrated when we're seeing these updates where the numerator changes, the denominator to resolve this stuff. What we don't want to do is kind of play that game. What we want to do is have a mature data set to say, okay, this is the profile of the drug. And so what we're doing this year is really focused on execution to kind of get to that point. And so when you see data, you say, okay, we really understand both as investors and importantly, for our investigators, for patients, et cetera when they kind of want to enroll in these studies, they know exactly what they're getting into. So execution and with the goal of generating data as soon as we can.

All right. Well, we'll keep our eyes wide open to look out for those data. And then with that, we'll wrap up. Thank you so much, Andrew.