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

I am Andy Hsieh, one of biotech analyst here at William Blair. I am require to inform you that for a complete list of research disclosures and potential conflicts of interest, please visit our website. So thanks everybody for attending. This is our 43rd Growth Stock Conference, and it is my pleasure to introduce Andrew Peters, senior VP of Strategy from Exelixis. And this is right off the [ heels ] of ASCO, so thanks for attending.

Yes, thanks Andy for the invite and before we kind of get started, just as a reminder for everyone like we'll be making some forward looking statements today, so please see relevant disclosures in our SEC filings.

Great. So I think most of the audience is familiar with story given your long track record here at Growth Stock Conference, but maybe we can start with a brief overview of what the business is and a quick update?

Yes, so Exelixis, we're a public oncology company focused on solid tumors. Our lead product, cabozantinib is approved in several different indications, both as a drug called COMETRIQ as well as CABOMETYX. CABOMETYX, its main use is in renal cell carcinoma, did about $1.6 billion in top line revenue last year, and the way we frame it is really using cabo as the gas to fuel the Exelixis engine. Really, from a business perspective, pretty straightforward. Our strategy is to expand and defend aggressively the cabo franchise, invest in our 2 kind of pipeline programs, zanzalintinib, which is a next-gen iteration of kind of the VEGFR TKI franchise as well as XB002 that is a tissue factor targeting antibody drug conjugate. And then lastly, strategically invest in kind of an earlier stage pipeline, both internally and externally with a kind of mix of both biologics and small molecule programs. So those kind of 3 pillars are really what kind of drives us.

Great. And so obviously, the theme of this conference is growth. So maybe digging a little deeper into just maybe short-term, so maybe within a year, midterm out to 3 years and maybe longer-term, 3-plus years, outlined for some of the growth factors that the company looks forward to during these periods.

Yes. So again, to come back to it, it really is pretty well aligned with kind of those 3 pillars that we outlined. So on the cabo franchise, kind of it's a multifold focus. One, continuing to defend and grow our business in RCC, and that really is driven by the 9ER data. So as a reminder to everyone in the audience, 9ER was a pivotal study that we ran, looking at the combination of cabozantinib with nivolumab, OPDIVO from Bristol. And that has really become the #1 TKI IO franchise in frontline renal cell carcinoma. Kind of the core takeaway from that data set is, it's really defined by what we think is the most optimal balance of efficacy, tolerability and kind of things like quality of life that really actually matter for patients. And so we've recently presented earlier this year at the ASCO GU conference in ASCO was a big conference for us as well. We continue to generate data. We recently had the 44-month update from that trial that really continues to establish cabo as kind of the preferred #1 TKI option in RCC. Beyond kind of continuing to grow share and patients see the benefit of longer duration. From that, we have several ongoing cabo studies. The first is CONTACT-02. That's a study in NHT experience for novel hormonal therapy experienced castrate-resistant prostate cancer that we've guided to a readout of later this year. And then a final survival analysis from the 313 study. In that study, again, as a reminder, is looking at the combination of cabo plus ipilimumab in nivo, again, in frontline RCC. So we'll see that data. So that's kind of in the near-term, a lot of that is really kind of continuing to execute on the 9ER franchise and beyond. In the medium- to long term, that's kind of the latter 2 pillars of the strategy I outlined earlier. Zanzalintinib, first is kind of our next-gen cabo franchise. The way we think about it is other small molecule categories have seen kind of evolution over time. For example, the EGFRs have seen kind of the first gen, second gen, and now the third gen with osimertinib. And I think a lot of us here probably saw that plenary presentation. It's really good to see our industry really helping patients live longer. Similarly, in the VEGFR TKI space, kind of we have the first generation, the SUTENTS, the second generation, the cabos, the LENVIMA'S of the world and now the third gen, which is an zanza. So as a reminder to everyone, zanzalintinib was designed to really phenocopy the kinase inhibition profile of cabo, what drives the efficacy, but really engineer out what's kind of the biggest Achilles heel or limitation from that drug, which is a 4-day half-life. The reason that, that longer half-life matters is, from a patient management perspective, as patients develop adverse events on a drug like cabo given the accumulation long half-life, it can take a week to 10 days to ultimately wash out. And so purely from an AE management perspective, combinations, we talked about nivo earlier, it presents some challenges for patients. So what we did with zanza is kind of take that core kinase inhibition profile, engineer and metabolic liability into that cabozantinib scaffold to drive that 4-day half-life to a little under 24 hours. And so what that enables us is to have a kind of a more user-friendly TKI, a third-gen TKI, as I mentioned, that we think has the potential to not only be as good or better on an efficacy side, but from a tolerability and kind of ease-of-use perspective as well. We presented first data from that program last ESMO, and then we provided a recent update on our quarterly earnings call from the first expansion cohort in that study, which really kind of -- has borne out. The molecule behaves like we thought and then we're starting to see in cabo-sensitive tumor types, some really compelling signs of activity, both in a cabo-naive population. We reported about a 50% response rate, which does not include an unconfirmed response is yet to be confirmed and a 34% response rate overall, which includes some cabo-experienced patients. And again, looking at both kind of the rate and severity of adverse events is reported at ESMO, looking good at both levels. So kind of that medium growth story is defined by zanza. We've started 2 pivotal studies from that program first in non-MSI-high colorectal cancer, second in non-clear cell RCC. We kind of view both of those studies as the first wave, kind of the low-hanging fruit, so to speak, of a kind of broad development program given the profile of that asset. And we've guided towards the start of additional pivotal studies later this year. The next kind of growth wave, so to speak, is XB002, that's our first biologic. Similar to zanza in that, it takes kind of a more risk-appropriate approach to drug development in the same way that zanza is relatively de-risked given the volume of evidence and activity we've seen with cabo. Similarly, XB002 builds upon kind of the wealth of knowledge that we as an industry have gotten from the ADC space and more specifically from C-GENs TIVDAK. That's another tissue factor targeting ADC. So for those in the audience who aren't familiar with tissue factor, broadly expressed antigen plays a role in the coagulation cascade, which makes it an attractive target. Tissue factor highly expressed in a wide range of tumors. One of the things that I always thought was quite interesting and helps me understand like tissue factors, an interesting target for tumors is if you look at a lot of the coagulopathies that cancer patients tend to have, it can often be because of kind of the [ aberrant ] tissue factor expression. So TIVDAK from C-GEN approved on the market in cervical cancer, what XB002 does is kind of takes that validation of the target and build upon it. So if you think about the 3 kind of core components of an antibody drug conjugate, you have the antibody, the linker and then the warhead. XB002 kind of iterates across all 3 components of that. So on the antibody side, unlike TIVDAK, XB002 is noncompetitive with Factor VII. So if you think about the role of tissue factor and Factor VII in the coagulation cascade, what a noncompetitive antibody does is it allows you not to have kind of an impact on bleeds. And so unsurprisingly, TIVDAK does have bleeding risk associated with it, and it's found in the label, that's something that we think differentiates and builds upon it. Then on the linker warhead side as opposed to kind of an earlier generation of [indiscernible] MMAE linkers. XB002 uses an design link technology is modified auristatin, which we think has a much more kind of stable profile. We reported data from that program again last year and kind of the headline from that is looking at equivalent doses between the 2 programs, we have about twice the exposure and 1/10th amount of free drug. So pharmacology 101, that's a really good starting spot as we're continuing to dose escalate and then eventually move into expansion cohorts. Obviously, exposure is very important from an efficacy perspective, but perhaps equally as important is the amount of free drug. For ADC's, free drug is often what causes a lot of the adverse events. And so having kind of a stable ADC, we think, has the potential to really differentiate. So kind of that. That Last component of the kind of long-term growth story, again, is kind of that area of early investment, both internal as well as external. So on the internal side, we talked about kind of our historic small molecule capability, but our emerging biologics capability as well. ADCs are obviously an area we care a lot about, and we're continuing to invest there. I'm sure we can get into it a little bit later in more detail what we're doing there. And then externally, we've done a series of kind of risk and capital efficient transactions over the last couple of years, one with a company called Cybrexa and then another with a company called Sairopa, which were option structures, which are capital light, capital-efficient sorts of transactions that allow us to gain access to these technologies once proof of concept proof of principle is established. And so kind of low upfront paper success sort of deals is something that we certainly favor. And then just lastly, from a financial perspective, we have about $2 billion in cash or so, and we really view that as a strategic asset. So what that allows us to do is be opportunistic about looking externally beyond Cybrexa, Sairopa, et cetera, as we go to conferences like ASCO in Chicago this year, we have the ability to transact both on a partnering perspective and if something is particularly exciting to us, even larger than that, but that's kind of the growth story.

Great. That's a great overview of the future plans for the company. In terms of RCC, obviously, that's kind of the bread and butter for the current business, $1.6 billion the majority contribution to the $1.6 billion revenues last year. So maybe give us a sense of that, how competitive that market is, and how cabo differentiate from that competitive dynamic. One thing that really struck me after the first quarter or fourth quarter call was you or do have the market leadership in the first-line setting, right? There are 3 other highly competitive products out there. You can say that they are -- they look similar, right, in terms of clinical parameters. So what makes cabo special that can really bubble up to the top, especially for the first-line setting.

Yes. So as I mentioned before, in terms of the #1 TKI, #1 IO-TKI combination. We really think it's that kind of appropriate balance of data. That's what resonates with physicians. And importantly, that's what resonates with patients. We see a very compelling efficacy profile, obviously, further supported with that recent 44-month update. But it's really about kind of the tolerability and additional endpoints like quality of life, which really resonate. A lot of what's driving that, especially relative to kind of the competing programs in RCC is our decision to kind of optimize the dose and the combination and so 9ER was a study that looked at a slightly lower dose of cabo relative to our approved monotherapy dose. And we think it really kind of hits that sweet spot of efficacy and one of the challenges with virtually all anticancer agents is finding that balance. And some trials really kind of choose to push forward and drive that efficacy as high as possible, oftentimes sacrificing both tolerability and just quality of life issues. And so what we think that 40-milligram dose does is really provide that optimal balance. It sounds simplistic, but patients don't benefit from drugs that they're not on. So what that does is allows kind of a more user-friendly experience from a dose optimization kind of dose reduction, dose hold perspective, and so we think it's that kind of appropriate balance. And if you look at a lot of our messaging at a conference like ASCO and -- it was really heartening for me to see kind of the traffic at our booths. That's what a lot of that messaging is really about.

Got it. Okay. And so as we move from the first-line setting to the second line setting, CONTACT-03 was presented yesterday. What really surprised me to the upside was the 40% response rate, right, almost 11 months PFS, low discontinuation rate. So like all the efficacy metrics that are important that really kind of blew me away. So I guess, 2 things. One, maybe your interpretation of the data, and also, what are some commercial implications as you still retain that second-line TKI market leadership.

Yes. So I think there are a couple of things that came out of the conference in particular as it relates to CONTACT-O3. And so as a reminder for the audience, it was a study looking at the combination of atezolizumab in cabo versus cabo as a monotherapy and checkpoint experience RCC patients. And so again, what it did from our perspective is really kind of establishing -- kind of establish cabo as the #1 TKI in RCC. It's the most contemporaneous data set of second-line RCC patients. And the reason I bring that up is it really is a good illustration of kind of how care has changed over time how that patient population has changed over time, comparing the early METEOR data that's the cabo monotherapy to a more recent study, the CANTATA study, where cabo again was a control arm to now CONTACT-03. It just shows the evolution of outpatients, their overall characteristics change over time, especially in regards to being checkpoint experience and how patients from several years ago are a little bit different than patients today. But again, it really shows kind of the cabo continues to be kind of that #1 TKI there. The other thing that I'd mention just more from a kind of company perspective, that I was particularly heartened by and encouraged by was a lot of the commentary from the podium really framed Exelixis as being at the forefront of running these sorts of studies. We're certainly -- our job as drug developers is to shift the standard of care for patients. That's why we're here. We think as we can create -- help patients live longer lives, that's how we create value for shareholders. What studies like CONTACT-03 certainly do is it shows that we're at the cutting edge of running those kind of clinical experiments, and that's really how you gain credibility and that kind of awareness in the clinical community that we can then translate as we're starting to really develop in [Indiscernible] 02 program. And so as we look at a conference like ASCO, that data again, certainly cement cabo is kind of the #1 TKI, but also just show as a company kind of we're not afraid to run those studies that really are at the cutting edge of clinical science.

Great. So moving on to CONTACT-02, which is the prostate cancer study in the second-line setting right after novel hormone therapy treatment, Obviously, the landscape has changed dramatically since the start of the study. So I'm curious about what the position is for cabo atezo in that kind of second-line setting?

Yes. So again, that's a pivotal study that we're running in hormone experience and HC experienced patients, looking at the combination of cabo and atezolizumab versus a second NHT. As it relates to your question, I think you don't want to get ahead of that data later this year. Our experience has been is the data ultimately drives what that profile looks like. Obviously, huge unmet need in that population. Unfortunately, a second NHT is not particularly effective for those patients. And that's why kind of what drove a lot of the interest from our end. And so stay tuned later this year, but clearly kind of an unmet need, and we're excited for that readout.

Great. So going back to your comment about zanza, this is the kind of the second to third-generation TKI. I'm curious to learn what are basically the decision-making process in terms of first going after colorectal cancer and also the non-clear cell histology. You mentioned that these are low-hanging fruit opportunities, but can you lay it out for us what are some data that drove you to make those investments?

Yes. So kind of the best way to think about zanza, as I mentioned before, is kind of these waves of studies. And similarly, with kind of zanza as the kind of natural evolution of first-gen, second-gen now third-gen VEGF-targeting TKIs, what we have is a benefit of is really kind of learning from the cabo experience to help inform that. So we can look at a lot of cabo data to say, okay, what are sensitive tumor types to a VEGF, MET, AXL, MER targeting TKI looking at either the COSMIC-021 study, that was a 1,000-plus patient 20-plus cohort Phase II study that we ran looking at cabo atezo to help kind of shape and inform that then we can layer on emerging data from STELLAR-001 and STELLAR-002. Those are 2 trials with zanza looking at both zanza monotherapy as well as various combinations and kind of provide that mosaic of data to help inform that decision. So specifically, on the colorectal, there's really kind of 2 key trials that help inform that. Both cabo studies looking at COHORT-16, I believe, from COSMIC-021 and then the CAMILLA study, which looked at a combination of cabo and durva from AZ. Both showed very compelling data in that population. And in that 03 study, we're comparing it against regorafenib which, again, unfortunately, for patients, isn't particularly effective. And so that's a study that kind of define that first one. Similarly, with the non-clear cell with the 04 study, evaluating the combination of nivo and zanza versus SUTENT. That's taking a what we think what we know is a sensitive tumor type non-clear cell RCC and really running a study to provide the first label-enabling data specifically in that population. There have been previous studies. I think the [indiscernible] is the most recent cabo study looking at cabo in that setting. But this is really a chance to establish zanza as a standard of care there and really kind of define the treatment. So again, those are 2 that we're looking at. As we look ahead, similarly, we're going to use kind of a combination of emerging data from the STELLAR trials as well as the mountains of evidence that we have from historically with cabo to help inform kind of the path forward from there.

Great. I want to go back to your comment in ADC in terms of building that franchise out especially with XB002 validation, right? You have 2x exposure, not a lot of free drug. Some of the times, we get questions from investors saying that you're relatively a newcomer. You're building that franchise out. How do you effectively compete with other pure-play ADC players?

Yes. So it's -- I think the best way to think about it is, at the end of the day, data is going to define any profile. But I actually think about Exelixis as kind of one of the bigger ADC companies out there. The difference between what we're doing with XB002 as well as some of our newer ADCs, both XB010, that's 5T4 targeting ADC as well as XB371. That's kind of our next part of the tissue factor franchise that adds a topo warhead to that same antibody from XB002. It's really that instead of taking kind of a one-size-fits-all approach from a platform perspective, what we've done is through a series of technology access collaborations allows us to span and look at a wide range of options. Our perspective is there's no one-size-fits-all approach in ADC. And so what we've done is created a technology that allows us to iterate and optimize per target. So we can look at different versions of antibody, linker, warhead, different combinations and then optimize from there, iterate and optimize. And so the first kind of one to come out of our platform is XB010. Again, as I mentioned, that's the 5T4. But that development is really defined by kind of looking at all the various iterations of combinations from the linker antibody warhead perspective and then saying, okay, what's the best combination of those 3 for each particular target, each particular tumor type, et cetera. That's a little bit in how we think about the ADC space.

Great. I think that's all the time we have for today. Thanks, everybody, for your participation. Breakout room is in [indiscernible]. If you don't know where that is, feel free to stay here. We'll all walk up together in the next like 5 minutes. But...

Thanks.

Thank you so much for your participation.