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

Hi everybody. We're going to get going with our next company presenter at the BofA Annual Health Conference in Las Vegas. And I'm pleased to be introducing our next company presenter, Exelixis, and CEO, Mike Morrissey. So Mike, thanks for joining us. Hot off the press of your 1Q update.

Glad to be here.

So maybe you had some interesting updates last night, less so on the commercial front, which was an in-line quarter, but more on the early stage pipeline. So not sure if you want to maybe just set the table for the conversation today, sort of what you're excited about in terms of what's going on with the earlier to mid-stage pipeline, and then we'll jump into some more specific questions.

Sure. So thanks again for the invite. Great to be here again. This is a great trip for us because it's our flight as opposed to going across countries. So before I begin, 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, to get that out of the way. Yes. So we had a strong update yesterday. You asked what I'm excited about, and I would say I'm excited about everything right now. The pipeline, the company is really, I think, cranking on all cylinders right now. Certainly, cabo's preeminence in RCC continues to be documented and the growth and the impact that we're having on literally tens of thousands of patients every year. With cabo it's just fantastic for us to see the impact that we're having with our science and our clinical development prowess to be able to help a lot of patients. And we really want to do that on a much larger scale with the pipeline going forward. So yes, lots of moving pieces there. We had a kind of uber top line kind of update with zanzalintinib, zanza for short. This is our next-gen cabo-like molecule with what we think are improved profiles and properties that we've designed and moving into a range of pivotal trials that are either ongoing or about to start this year. We had, I think, the first full cohort now in terms of the expansion with single-agent zanza looking at clear cell renal cell carcinoma kidney cancer, 32 patients, median 2 treatments, all checkpoint exposed Interesting population, about half had actually seen cabo before. It's again, it's mainstay, so not so surprising and about half were cabo-naive. Using very strict RECIST 1.1 criteria, so no funny business with the numbers. The response rate for the full population, again, mix of both cabo-experienced and cabo-naive was 34%. In the cabo-naive population, the response rate, again, all confirmed was 50%. So seeing very strong activity in a late-line kidney cancer population, very -- I think, very interesting. We said safety was in line with what we said previously. Again, we're starting to see what we believe to be early signs of differentiation even with cabo from a safety and tolerability point of view, which we think is really, really important. So -- so we've taken that body of work with cabo that spans 15-plus years, both preclinically and clinically and I think done a really good job of translating that into a third-generation molecule, right, in terms of zanzalintinib and really excited about seeing the activity that we talked about yesterday in an arguably cabo-sensitive tumor type. So off to the races, looking forward to starting 2 more pivotal trials this year as well as other combinations that are in play right now in the Phase Ib area.

Okay. So my questions are sort of -- the ordering is a few general corporate matters then cabo and then we'll go and probably the what's most interesting part of it, which is the pipeline. You announced you're going to have an R&D Day, I presume sometime in the second half. And just -- maybe it's the logical inference here, but when you unveil the news and the institution you're looking for some signal finding studies with XB002, just in terms of like the likely agenda, I imagine we're going to have some sort of unveil of these sort of matters, It's -- I'm just kind of connecting the dots but...

Yes. So we have a lot going on in discovery, in preclinical development and development. It's -- we've had some time now to have things mature. You heard Dana Aftab talk about all the different discovery programs that are going on that are either in talks right now or heading in that direction. So that, coupled with all the information that we're generating around zanza and XB002, it's a good time to kind of talk about that stuff at a higher level with a broader population. Now the agenda and what we focus on, that's all TBD, obviously, but we haven't done one of these for probably a good 5 or 6 years. So it's a good time to get back in that game. And the focus of the company is, again, to build a pipeline of compounds and molecules that can improve standard of care for patients with cancer. That's what our job is. And if we can do that well, the impact on shareholder value is tremendous. And cabo, the lens of cabo informs that, right? We have a best-in-class molecule in the kidney cancer space that has -- to a large degree, I think surprised a lot of skeptical people going back almost 10 years in terms of taking standard of care and making it better. And we think we can do that again and again and again. And it just takes time and the science to truly evolve to the point where cabo right now. So yes, it's all in progress for sure.

Okay. And the elephant in the room with Exelixis is always the MSN litigation. And can you just talk a little bit about -- there's obviously a number of scenarios, they're pretty clearly defined, I think, in terms that could play out. How does that play in the portfolio planning for you, if at all? When you think about potentially sort of filling for a 2027 scenario versus sort of a later LOE type of scenario where you have more runway to replenish the pipeline?

Well, the clock is never our friend, right, in any scenario, right? We -- we're judged on growth, right? In terms of top line growth, expanding over time. And that takes investment in molecules in pipelines, smart BD, maybe smart M&A if that makes sense. But it's all about growth for us, and that's where we focus all of our energy. So certainly, with the fast follower approach with a next-gen TKI like zanza, that time line to pivotal trial reading out launch should be and is shorter. So that's the next leg of the stool, if you will, coming in online. And then you've got molecules like 002, which in a manner, it's very similar to zanza. We're building off prior success understanding where the liabilities are and looking to make a better next-gen molecule. And that, again, that's the cabo lens, right? Because, again, we weren't the first company to have a VEGFR targeting TKI. In fact, we are probably the 10th, if not more, right? But we made a better molecule. We sat down and we asked some very fundamental questions about the biology of RCC and what drives resistance and then made a molecule to address those hypotheses. And did a lot of real work clinically and have it's arguably a now a best-in-class leading molecule in that space. So we think we can do that with XB002 and the other molecules earlier in the pipeline really follow that same theme. We're not really looking to blaze all new tails with the biology, but we're looking to build upon success in a way that helps patients and patient outcomes going forward.

Got it. Okay. I have only one MSN question beyond this, and then we'll move on. MSN 2, which you've framed it as October, we framed this as the feet to fire case. The first case didn't have the sort of practical implications of freedom to operate for the generic. But the second case is the one that really, really matters. Have you been able to look at their ANDA litigation history? Just investors sort of wonder how do we handicap this entity and if they're willing to engage in constructive settlement discussions, which is an outcome, I think most people would just want and move on.

Sure. Well, it takes two to tango, right? And we're open to that dialogue. I wouldn't go into the details now, but we're always data-driven, and we're very analytically focused. The math is the math, and we understand the different degrees of freedom that are there to be able to, if possible, reach a settlement, right? So -- so if there's interest and there's a commitment to make that work, so be it. That being said, again, they filed their ANDA in September of 2019. And as of this morning, when I look, they still don't have tentative approval. The evidence from the first case was clear. Their form is both crystallographically and chemically unstable. So again, we have to look at the full picture of what that means relative to the math to understand how much we're willing to go in terms of a potential settlement discussion. So we're open. We'd love to be able to get this wrapped up and behind us, but it has to make sense financially and competitively relative to what we're hoping to do with cabo and zanza in the overall pipeline, right?

And then the recent share buyback, could you just talk a little bit about the rationale for that? For investors who are looking to own growth biotech, right, buybacks are typically not an element of the equation. And maybe if we can...

I've seen that, yes.

Yes. So just curious, your perspective on the rationale for that, why now?

Yes. So we've had those discussions at the Board level and the management team level for years. We have been looking to get back to the pipeline and the clock and everything else, looking very hard at the space from a big BD, M&A perspective. We've been very disciplined there. That will continue going forward. But having $2 billion in cash, especially in comparison to our revenue peers out there really isn't an excessive amount of money we've been profitable for the last 6 years, and we thought it was a good time based upon the fact that we don't really have a lot of conviction in going after a big M&A transaction that would use a lot of that cash to give some back to shareholders, which is relatively easily done. Especially in the fact that we've been profitable and we continue to be profitable going forward. So we can replenish that cash pretty fast too. So it's -- I think it's the right move at the right time. We have a banker who's our Chairman, who has been certainly very, very instrumental in helping us and the Board think about these things for the last couple of years. So we consider all options all the time, and this makes sense now for sure.

And then just one question just on some macro items and how it is affecting your thinking about shaping the company going forward. Project Optimus, I think in the past, you mentioned at a broker event that maybe you're focusing more on biologics, but it seems like you're still invested in both small molecule and biologic but certainly biologics have a longer runway before the exposure from an IRA perspective. And then with Project Optimus, we've even heard companies pursuing multiple different chemical matter to sort of circumvent perhaps because there's obviously indication sequencing in oncology. And so the IRA could have a negative impact there. So maybe as you kind of think about these, like ultimately taxes on the industry, how that alters your thinking in the space?

Yes. Well, again, just so we're clear, there's the IRA, which is more of a pricing kind of second LOE set of issues, if you will which will certainly get litigated. I mean there was the article in Reuters yesterday, which I think kind of reflects pharma's view of how they can kind of address some of those issues and inequalities in the proposals. Optimus is an agency-driven soft mandate. But again, they speak softly, but carry a big stick in terms of making sure that we're optimizing dose for patients earlier as opposed to later, right? And that's hard to do. When you have a new chemical matter, even in a tumor type where you have a sensitive tumor type, so you can actually ask the right question about dose efficacy safety. So you're going into Phase III with the right dose. Again, cabo -- classic example where we started at 140 as a single agent. And now over a decade of time, we're kind of still [ 140 ] as the combination dose, which is the best dose to maximize efficacy and safety in terms of combination approach. So really important parameters here. I support doing this. It makes a lot of sense in terms of the patient experience. We want to keep patients on our drugs for as long as possible. And if you're at too high a dose, that can certainly impact that. So to maximize patient quality of life and benefits having the right dose is a good thing. So but you're right. The industry and the pressures on that. And on companies like us and others, they're not going to go away. They're going to get more stringent. The bar is going to have to get raised time and time again, pricing pressure, regulatory pressure, competitive pressure, there's a lot there. It just means that we have to work that much harder, that much smarter and really focus on what it means to improve standard of care for patients with cancer because when you do that, then you can really revolutionize the opportunity for patients but also drive a lot of value for shareholders as well. And that's what we've done with cabo, and we think we can do that again and again and again.

Yes. Okay. Well, maybe shifting to cabo. This is a great success story, 9ER, #1 IO-TKI in frontline RCC. The growth algorithm is new script share, right, in frontline setting, you're stable in the second-line setting. And so as we think about the progression over the course of the year, it sounds like it's mainly just kind of continuing to grind execute on that new patient share and...

Maximized duration, too.

Right, right. What I wonder, if I look at the last 3 quarters, the new product revenues kind of stable-ish, right? There's the clinical trial sales, which makes it a little bit difficult to kind of like make a little bit of challenge, just kind of like looking in the past few quarters, but are we kind of hitting any sort of plateau here? What are the -- do you really think like the new patient script and the responsiveness to say, this 44-month OS data can really be a trigger for growth?

Well, I think it will certainly and the response we're getting back from the field on that data and their discussions with prescribers is really strong, right? We're almost at 50 months of OS Think about that relative to what that was -- what OS was even a couple of years ago, it's pretty impressive, right? So yes, but it's not surprising that 2 years after launch, the rate of growth is going to slow, right? And that's incumbent upon us then to generate appropriate new data within the indication and then outside the indication to continue driving growth. And that, I would say, is seen broadly across the entire biopharma industry, right? Time to time to plateau is shortening, right? Competition makes that more challenging. So you've got to keep investing. You've got to keep asking the right questions therapeutically as well as from a combination point of view to be able to keep raising the bar because that's the one way you can maximize that rate of growth is by adding new indications, new data, which helps you then educate prescribers around the value of your regimen. But it's got a be different. It's got to be better, right?

How do you feel this long-term OS data sort of positions you relative to the other options in the field?

Well, based on current feedback, really good. Yes, really good. If you look at the numbers compared across the board for the other doublets, IO TKIs and IO-IO, we're in a pretty good spot right now, yes.

And so it seems like, I guess, from an investor standpoint, as they look at the label expansion was a big focus of the story a couple of years ago. Now we're sort of focusing on basically 313 in prostate. And those will be a year or 2 to get to market. If you're successful with the OS follow-ups that you're looking for, I guess, really the investment focus shifts to zanza. As I think about -- and the incremental opportunity from, say, prostate 313, seems more incremental, but I don't know if you would push back on that.

Yes. No, I think that's probably fair. Look, we've -- since we've -- and this goes back a couple of years now, I talked about the kind of getting through with the contacts on cabo and then moving to zanza that's always been built-in. That shouldn't be a surprise to anybody, right? Because we've made it very clear that we were going to transition our investment in RCC and in VEGFR-targeting TKIs from cabo to zanza because we think zanza is a better molecule. Plus we have more runway on the IP side. The fact that it's really a third-gen molecule with the kind of data we had yesterday kind of supporting the notion that this is actually a better molecule from a potentially efficacy and safety side. It's still early in all the caveats [indiscernible] operational, but we're very, very optimistic about that. And then the question is, do we have the right opportunity for new novel indications as well as some of the white space that we haven't been able to explore yet with cabo. Could be really exciting for sure.

Yes. Okay. And you've been highlighting the CONTACT-03 data that you have at ASCO with respect to second-line RCC, which I guess you've got such a solid position in second-line RCC, I imagine that doesn't really improve in a big way. So what are the relevant read across from that data that you want to flag for investors? Is it really about the read across to potentially zanza in [indiscernible] patients there...

Yes. Again, I would say it was more -- even prior to the zanza update, single-agent cabo in that the control arm looks really compelling. And I think that's the focus, right? And so I think people understand that a standard of care across that indication grows, cabo can play a really important role in that, right? So that's all just interest going from METEOR to say, CANTATA, which is kind of a mid kind of mid-cycle update in terms of single-agent cabo with less than complete checkpoint -- prior checkpoint treatment to now. CONTACT-03, which had everybody at least one, if not more, gives you a very good sense of kind of what is more contemporaneous with what to expect in terms of duration. CONTACT-03 was never about market share, it was about duration. And we think we can cover that with what we've got with single agent cabo by itself right now.

Yes. So the STELLAR update that you had last night for zanza maybe if you can just talk a little bit about that and more of the practical importance, right, of that update as you think about future development of zanza. How much of that is just getting comfort that there's no negative trade-offs with efficacy as you move to zanza explore something that's safe or more well tolerated in combination versus the potential to maybe improve upon efficacy either a single agent or incorporated in combinations?

It's really all of the above. And with 30 patients, it's hard to put too much...

Welcome to my life.

Yes, well I know, been there, yes. I would frame it as -- I think it really puts a stake in the ground for the fact that it's active. There's a lot of, I would say, churn after the ESMO update last year where it was so Phase I multiple doses. Most of the patients with cabo are pretreated, response rates were a little on the light side. People were all kind of what does this mean? Is it as good, all the nay-sayers kind of came in the forefront. And it was -- we never doubted that. And to be honest, are not really surprised by seeing the data as good as it is, but it kind of reinforces the narrative that this is truly -- xanza's truly a third-generation molecule that potentially is different than the second gens and certainly the first gens of the world in terms of its activity efficacy, tolerability, safety profile, right? I think that's the important message. And now that plays out is up to us to then push forward rapidly in terms of existing cabo indications and then that white space that we haven't explored with cabo yet with novel combinations, right? The whole idea -- I mean the cabo playbook was go late line renal, go late line liver, late line thyroid kind of pushed that forward. I think in 2023, it's working first-line upfront. That's the push commercially. That's the push from an IRA point of view, hit the ground running, if you can in those big indications, make every day count there. And even from a regulatory point of view, there's a lot of nudging towards saying go upfront, have the biggest impact early in the process. So we're taking all those inputs and we're very excited about the opportunity to go early in a lot of indications that we think novel combinations can move the needle for patients for sure.