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

All right. It looks like we're started. Thanks, everyone, for joining. I'm Stephen Sloan, an analyst on the biopharma research team here at Goldman. And I'm happy to present or do a fireside chat with Exelixis. We have Andrew Peters here, Senior Vice President and Head of Strategy. I know on the schedule it said Michael Morrissey, but we have Andrew Peters, which we're very happy to host. And so to kick this off, for those of you who might not be as familiar with Andrew, do you want to give a bit of background on yourself? This is very much in line with what Chris Shibutani would be doing. So let's kick it off here.

Yes. No, happy to be here. Thanks for the invite. And before I begin, likely to be making some forward-looking statements today. So please see our relevant SEC filings for appropriate disclosures about the risk to our business, et cetera. So yes, so I've been at Exelixis since about 2018 or so. I actually came from your side of the fence, covering sell-side analysts and had known the Exelixis story for quite some time. And really kind of what intrigued me about it was this idea of cabo's great but what's next. And my role in strategy is quite interesting in that I get to see across the whole company basically to understand what do we look like in 5 years, how do we get there, what are the sorts of areas that we should be investing in and really drive long-term value. And so really has been quite an opportunity, and it's an exciting time to be at Exelixis. I'm sure we'll get into it, but lots going on right now.

Yes, exactly. I think to frame it, this year will be poised to be the biggest year for cabozantinib sales as well as multiple pipeline assets to continue to advance. So yes, just to start off abroad, can you frame the company's key strategic priorities for the year? And then maybe you can dig into more strategy.

Yes. So I think when I think about Exelixis' big picture, there's really kind of 3 key pillars that drive the company and kind of drive our vision of long-term value. The first is to expand and defend cabo. You mentioned our guidance for this year is kind of continuing to grow and as a global franchise, hit about $1 million in revenue last year. So we'll continue to expand the franchise through continued growth, both in our kind of core existing businesses, and we do have a couple of additional clinical readouts later this year. That kind of success, that gas is going to then fuel the Exelixis engine, which is the second part of that is to invest in both zanzalintinib, which is kind of the next-generation VEGFR-targeting TKI, as well as XB002, that's our tissue factor-targeting ADC. And those 2 kind of both share the same vision of taking established products and derisking them to some extent with a differentiated profile and really kind of investing smartly. Then the third pillar is also investing strategically in both internal and external innovation to kind of build out that earlier-stage pipeline. So it's that cabo gas that's driving the engine, both on the zanza side as well as the earlier portfolio. So -- and I mentioned before, kind of lots going on. So it's exciting time.

Definitely. In terms of the pipeline, something that has been extremely topical over the past year, Inflation Reduction Act, IRA, and the potential drug pricing negotiation implications. Can you just comment on how this is affecting the way Exelixis looks at some of those capital allocation priorities, which pipeline assets to advance? Obviously, the later-stage pipeline is kind of [ still on the path ], but maybe earlier stage how that's influencing some of your decisions given the favorability towards biologics versus small molecules.

Yes. So I think the best way to answer it is to take a little bit of a step back and go back to 2018 or so and the restart in earnest of the Exelixis discovery effort. Prior to that, we had essentially shut down all early-stage discovery at the company really to focus on cabo development. So at the time when we restarted discovery at the end of 2018, we really had the chance to kind of step back and understand where is biology going, where is the industry going, importantly, where is the treatment of cancer patients ultimately going. So at the time, we obviously had a background and expertise in small molecule chemistry, and we're going to continue to that. But we also realize that biologics and largely combinations of both small molecules and biologics would play a real role in the treatment of cancer going forward. And so we were then able to kind of invest in earnest in a biologics capability as well. And really a blending of those 2 is really the antibody-drug conjugate space where we think we've really developed and built out what we think is an industry-leading capability. And so as we look at something like the IRA, it really is reasonably aligned with our kind of existing portfolio of programs right now, both on the biologics side and then the strategic investment in small molecule.

Okay. And then maybe one last strategics question, and then we can move into the pipeline and add specific questions. Exelixis recently announced a transition of a few Board members, including the 3 new Board members that will join. And just curious, I think this is a -- has been a hot topic for investors recently. Will this lead to any significant change in the way the company thinks about the R&D strategy broadly?

Yes. So I think it's been about 1.5 weeks since the new Board members joined. So still a little bit early in terms of seeing how that dynamic is ultimately going to play out. But a couple of things on that. I think historically, our Board has had very constructive and vigorous debate on how we should run the business overall. And I'd expect with the new Board members that sort of dynamic to continue. Secondly, as I laid out originally, kind of we think that we have a really kind of smart strategic plan for value creation. Ultimately, it may sound simple, but our job is to drive benefit for patients. And the better patients do, the better our business does. The better our business does, the more value we can drive for shareholders. And so ultimately, as we do things like expand and defend cabo and invest in zanza and 002, that's ultimately to drive kind of longer lives for patients, longer lives for cancer patients, and that's what we think drives value. So in terms of that debate, we're going to continue to defend what we think is a smart strategy. And historically, we've been pretty successful at that, I'd say.

Okay. Great. Obviously, Exelixis is very focused on oncology. We just came out of ASCO, one of the premier conferences where Exelixis did have a number of presentations as well as some investigator-sponsored trials and other studies looking at cabozantinib. Could you maybe highlight the key takeaways as it relates to Exelixis? Is there anything that you want to highlight? I know I do want to touch on CONTACT-03 and some of the investigator-sponsored trials, but just at a broad level first.

Yes. So conferences like ASCO were incredibly busy from our perspective, from my perspective, in particular, in that we kind of have multiple stakeholders that we're all meeting with in a meeting like that. So obviously, our commercial team is very active and engaged meeting with the clinician community to continue to drive those discussions about why cabo is and we think will remain the #1 TKI and #1 TKI combination in RCC. So it's kind of driving those conversations. Secondly, it gives us a chance to talk about kind of what's next. Zanza, I'm sure, we'll get to later, but ASCO provided a venue to have a lot of conversations with prospective collaborators, KOLs, companies with IOs because we really think that the emerging profile for zanza looks truly differentiated. And some of the dynamics that we'll get into later would certainly be suggestive of a good partner to combine with, both in novel doublets and triplets. And then really, I think you alluded to kind of the CONTACT-03 study. While that study was unsuccessful, I think it really further cemented cabo as kind of the preferred and well-established TKI in RCC. For the audience and those who are unfamiliar, so CONTACT-03 was a Phase III study looking at the combination of cabo plus atezolizumab versus cabo in a checkpoint-experienced population in RCC. And what it really showed and answered the clinical question that I think the entire community had been asking is, can you rechallenge a patient who had previous exposure to a checkpoint inhibitor and still see activity? I guess in hindsight, unsurprisingly, the answer is no. But in part, that's really driven by kind of the robust activity that cabo is a monotherapy saw. Again, in hindsight, unsurprisingly, those CD8+ T cells that were really activated on kind of that initial treatment with the checkpoint inhibitors aren't going away. They're still in circulation. And so when you're adding cabo on top of that existing activated immune system, patients are still seeing that benefit. And so what that does is kind of further establishes cabo as the evolution of the monotherapy activity from METEOR now to CONTACT-03. You're seeing this evolution of that second-line patient population, but it also really just shows that Exelixis truly is at the forefront of clinical innovation. Coming out of the discussion of that data and a lot of the conversations afterwards, it really made me proud as an employee of Exelixis that we're really kind of at that cutting edge. And we run the real right experiments to ask those questions, and it really engenders this goodwill and awareness in the KOL and the clinical community that we think is just so crucially important as we think about development broadly for something like zanza. So ASCO was a great conference and -- yes.

Okay. Now there are a few more in-depth points I'd like to cover here. I think for CONTACT-03 just post IO side that you were just referring to, there was some debate about the choice of the checkpoint inhibitor. And I believe also there's this thought that even though patients had been refractory to the checkpoint inhibitor, their disease progressed. There may have been still some biological activity of those drugs as they enter this trial, and so that maybe all patients were exposed in some sense to a checkpoint inhibitor still. Will you take any of those learnings? Or I guess what's your thought there? And would you take that into, say, a zanza study? I know you're not really continuing development of cabo here, but does that have the implications for zanza?

Yes. So as I mentioned before, with those patients having previous exposure, the CD8+ T cells certainly aren't going away. And so what it really shows is that going forward with these kind of novel combinations that we're planning for zanza, likely kind of the best use of that IO plus TKI combination really is in earlier lines of therapy. And so when we think about zanza development, our focus is really about breadth of studies that we're planning to run and looking at indications and lines of therapy where there are certainly sensitive tumor types or signs of activity from earlier studies, whether it's ISTs like CAMILLA, which drove our interest in CRC or the large 1,000-plus patient COSMIC-021 study looking at combinations of atezo. So we're really identifying those kind of signals for zanza to help inform going forward. But as it specifically relates to 03, I think one of the learnings there is certainly a focus on earlier with IOs is better.

Okay. Got it. Something that caught my eye, I think there were a couple of ISTs focused on various sarcomas. Cabo did have some interesting activity. Is that a potential area that you're considering with zanza?

Yes. So what we've said for zanza, again, as I mentioned, the way we think about it is really about the breadth of development because the profile of zanza -- and again, for those in the audience who are less familiar, what we did with that program is phenocopy the kinase inhibition profile of cabo, a profile we know drives pretty compelling activity, and then really engineered out what we think is the biggest Achilles heel for that, which is it's a 4-day half-life. What that means practically for cabo patients is once you do see these tolerability issues that inevitably pop up for all VEGFR-targeting TKIs, that dose reduction and washout period can be on the order of a week to 10 days or even longer. And so purely from a patient management perspective, that presents a challenge. Similarly, from a combination potential as a combination partner, it's also a challenge. And so what our team did was engineer a metabolic liability into that kind of core cabo scaffold to reduce the half-life from 4 days to a little under 24 hours. And so what that allows us to do is really have a more user-friendly cabo-type molecule that an early data has really shown to be potentially differentiated on the tolerability side and looks very compelling on the efficacy side, coming back to that data that we mentioned on the earnings call. And so your question on sarcoma and some of those early signals that we're seeing with cabo, certainly, we use the cabo-experienced to guide where we're going in -- with zanza and don't want to get ahead of the studies that we're planning on running, but we certainly use that to inform where we're likely going to go next.

Okay. No, we definitely look out -- look forward to learning more about that development program. So let's dig in more to zanzalintinib. I'll probably say zanza. It's a little easier to say. Like you mentioned, you recently disclosed some Phase Ib data in later-line clear cell RCC. At ASCO, we saw, I think, the trial and progress poster for STELLAR-303, the colorectal study. Just curious, can you give us a cadence or how we should be thinking about the cadence of data releases? I think a key question that investors ask us is, okay, how can I build confidence around this development program? Yes, there are learnings from cabo, but this is a different molecule. Like you highlighted, there's different PK/PD properties. So just talk about when we'll learn more about data and some of the indications that you're targeting in the Phase IIIs.

Yes. So I guess, again, taking a little bit of a step back, so we first reported data from that program at ESMO of last year. And from our perspective, it was exactly what we had hoped for. If you compare kind of that early Phase I all-comers late-line population versus the similar cabo-experienced, they were virtually superimposable. But importantly, kind of the PK certainly checked the box on that we were able to achieve that shorter half-life. And then on the tolerability side, there are really kind of 4 key adverse events that are often seen with VEGF-targeting TKIs. It's fatigue, nausea, diarrhea and PPE. And what we saw in that kind of early data was both a reduction in the frequency and severity of those kind of 4 horsemen of the VEGF TKI space. And so that early profile is really kind of what drove the enthusiasm. Unsurprisingly, kind of once we moved into more homogenous patient populations, these expansion cohorts, that's when we're really starting to understand more of the clinical profile a bit more. As I mentioned before, we teased that top line data in the clear cell RCC grouping. We saw -- I think it was around the 34% response rate in that third line plus population, but importantly, a 50% response rate in a cabo-naive setting. So kind of 2 key takeaways there. One, the drug is clearly active. As I mentioned before, I spent a lot of my time looking externally at smaller companies and opportunities from a business development perspective. And frankly, there aren't many drugs with a 5 in front of the response rate. And so to me, that's what drives a lot of our confidence and conviction. But secondly, the activity that we're seeing in the cabo-experienced population is certainly compelling and also kind of validates this approach of can you keep patients on drug longer. Once patients who were on cabo ultimately have to discontinue or dose reduce, that window of time that they're washing out provides, unfortunately, the cancer an opportunity to come back. And so if you're shortening that window, can that drive some of that activity? And so both of those signals, both in the cabo-naive and cabo-experienced patients, certainly drove our enthusiasm. And as I mentioned before, ASCO was an incredibly busy conference for us because while it may have gone largely unnoticed in kind of the sell-side Wall Street community, it certainly didn't go unnoticed from folks who do this kind of every day and think about those sorts of combinations. And so the fact that, that drug, in particular, is being signaled out is a real compelling opportunity. It wasn't lost on us.

Great. Now we look forward to seeing more of that data. And like you mentioned, one of the key aspects with zanza is tolerability for combination work. And I think so far, you've announced combinations with nivo, nivo and ipi as well as nivo and relatlimab, the LAG-3 antibody. Would you -- can you comment on the progress of this combo work? And is Exelixis considering additional combinations? And curious if you see one of these avenues of the combination as being kind of the right way to go mechanistically.

Yes. I mean I think, again, big picture, the way that we've used zanza development going forward is as part of novel doublets and triplets. We think that there's a very compelling mechanistic rationale for having a kind of zanza as a backbone therapy. And as we look to sensitive tumor types for various IO combinations, that's likely where we'll go. The STELLAR study, STELLAR-002, the nivo/relatlimab combinations certainly are ongoing, and we're really going to let kind of data drive that. So kind of stay tuned there. But again, kind of from our perspective, really, the key here is novel doublets and triplets with this user-friendly differentiated profile zanza as a backbone.

Got it. Okay. I think something that's attracted interest is STELLAR-304 zanza in combination with nivo in frontline non-clear cell RCC. This is an indication that cabo is approved for but doesn't necessarily have a recommendation or clear kind of leading data. This study could position zanza as having best-in-class data. Can you just high level talk about this indication, what it means commercially? And then I think we did see some data at ASCO KEYNOTE-B61 of Merck's TKI. Can you talk about the read-through to your study and how you're thinking about this?

Yes. So non-clear cell RCC that and colorectal were kind of the first 2 pivotal studies that we're running with zanza and the way we've really kind of framed and viewed those as kind of the low-hanging fruit, so to speak, of this waves of development. For non-clear cell, as you mentioned, while cabo's label does cover non-clear cell, it's -- there really hasn't been any data set to truly establish a standard of care in that setting. And so this is an opportunity to really identify zanza as that kind of label defined standard. There's been a lot of previous data looking at cabo in this non-clear cell population. So again, coming back to the conversation earlier, it's certainly a sensitive tumor type to a cabo, zanza-like study or molecule. And so this is a study that we think has a particularly high degree of interest and -- just from the community to understand can this combination be effective in this population that's about 10% to 15% of all RCC. So it's definitely kind of a good first part of this first wave of zanza studies.

Okay. And maybe can you speak to what you view as the current standard of care in non-clear cell patients frontline? And then the comparator arm for STELLAR-304, like if patients would be willing to go on that, if you think that could be an impediment to a speedy enrollment.

Yes. I mean I think the standard of care or what patients ultimately receive in non-clear cell is a little bit of a mixed bag. And I think it's entirely driven by the reasons that we said is that there's no real defined standard. All of the VEGF-targeting TKIs kind of have a label that covers non-clear cell. So it's a little bit of physician choice, physician preference, using some Phase II data to certainly inform that, the PAP study, for example, for cabo. But there's no kind of defining, driving data set that's suggesting this is the clear comprehensive standard in any one setting. So it's a trial design that we were particularly thoughtful about and we think gives us a good shot at being successful there.

Okay. Let's spend a minute on the CRC trial, STELLAR-303. We did see a poster at ASCO on the overall design where there is a focus on RAS wild type versus the RAS mutant population where I think part of cabo data suggested greater antitumor activity in that wild-type population. Could you just dive in there? Is there a biologic rationale why this population would be more prone to seeing responses here? And then how are you thinking about efficacy in that mutant population as well? I know they are being recruited, but they're not in the primary endpoint.

Yes. So again, as a reminder for the audience, so that's the first pivotal study that we're running with zanza, and that's looking at a combination of atezo and zanza versus regorafenib in that kind of third line MSI high colorectal cancer population. As I mentioned before, I really view it as kind of that initial first wave of relatively low-hanging fruit for zanza. And that's in part driven by what's relatively ineffective, unfortunately for patients, standard of care, regorafenib. The early data that -- or the cabo data that we used to help kind of drive our interest in that setting, both from 021 as well as the IST CAMILLA, both saw some pretty compelling data for cabo plus a checkpoint inhibitor in that population. As it relates specifically to kind of the KRAS versus wild type, the data certainly show a difference. I can't say that there's any one thing that we can point to as to what's driving that. But certainly, there's really clear and consistent and compelling differences. But as you mentioned, we're kind of looking at that overall population but also the differences between the 2.

Got it. Okay. Let's move on to XB002, what I would say is the leading ADC from Exelixis pipeline, tissue factor targeting. And I believe -- you can obviously give your view on this as well, but positioning to date has been that it's -- it doesn't -- it's not competitive with Factor VII. Those bleeding rates would be expected to be much lower than TIVDAK relevant competitor. And early data has shown greater drug exposure at similar doses with, I think, call it, 1/10 of the free drug exposure. So can you frame how meaningful these will be in terms of clinical efficacy, clinical safety?

Yes. So again, kind of taking a step back here. So XB002, as you mentioned, is our first foray into the biologics. And we really view it kind of along the same lines as zanza or even cabo, this idea that learning from previous generations, previous iterations of validated and well-understood biology. So in the instance of zanza, obviously, building on kind of the backbone of cabo. And for XB002, it's building on the TIVDAK, the approved tissue factor-targeting ADC from Seagen and Genmab. So one of the reasons that kind of first got us interested in this target is if you look at tissue factor expression, it's actually relatively broadly expressed across a pretty wide range of tumor types. And what's interesting to me is if you look at a lot of coagulopathies that cancer patients see, it's actually in part related to kind of that aberrant tissue factor expression. And so it establishes kind of proof of biology that this is a strong mechanism. Where the first generation of tissue factor targeting ADCs really run into trouble is around this idea of antibody that's competitive with Factor VII. So it impacts the coagulation cascade and ultimately drives some of the increased bleeds that you see and is reflected in the label. And so XB002 is differentiated, we think, on all the aspects of an ADC. On the antibody side, the antibody is noncompetitive with Factor VII. So we wouldn't expect and haven't seen the same bleeding risk in our early studies. And then on the linker warhead side, the stability relative to kind of that first-gen [ Val-Cit ] MMAE is much higher. And I think you mentioned that the data that we showed at the triple meeting last year really establish again that kind of the molecule is behaving exactly what we hoped for. At equivalent doses, we're seeing at least twice the exposure in 1/10 the amount of free drug. And so if you think about pharmacology 101, exposure is driving the efficacy, and with ADCs, that free drug is really driving a lot of the toxicities, whether it's the neuropathy, the neutropenia, the cytopenias. And so using that kind of profile as a starting point as we continue to dose escalate, go into combination studies and then expansion cohorts, that's a really good starting point. And so we think it's a differentiated molecule but built on a validated target that we can further improve upon from there. And then second to that, what we're calling our tissue factor franchise is we have XB371. And so that molecule takes the same antibody that we use in XB002 and add the topo warhead to that. Again, the reason that we're excited about that, as I mentioned before, tissue factor is broadly expressed across a wide range of tumor types. Some are particularly chemo-sensitive to auristatin-based cytotoxics. Some are more sensitive to topo-based cytotoxics. And so using this differentiated antibody, we're able to kind of cover the landscape, so to speak, in areas where we think tissue factor is a particularly relevant target.

Got it. And between those 2 molecules, would you anticipate any differential safety or tolerability profile?

Yes. I mean obviously, there are differences between auristatins or modified auristatins and topos. So it's really going to be kind of an understanding of the relative differences between those 2. But really kind of the idea behind having this multi -- multi-molecule franchise around tissue factor is that we do think it's a very compelling target, and we've been particularly rational about how we think about antibody drug warhead across all of these different tumor types.

Okay. Great. And data today on XB002 has included dosing up to 2 mg per kg. Could you just remind us of the initial study design, what doses you will be escalating to and if we should expect kind of meaningfully higher doses to be the go forward?

Yes. So we haven't broken out specifically kind of where we are in that dose escalation process. But it's not only just about kind of the absolute dose of XB002 but also kind of the exposures that we're seeing as well. And so as I mentioned before, kind of stay tuned as we go from finding the MTD to starting to look at these expansion cohorts to really get an understanding of how that molecule is behaving. So kind of stay tuned there in terms of the next update.

Got it. Okay. And in the last few minutes we have here, I wanted to talk about a few of the collaborative agreements that Exelixis has made recently, including Cybrexa and Sairopa. With Cybrexa CBX-12, this is a peptide drug conjugate. And it doesn't have necessarily a cellular target but rather is activated by kind of the low pH environment. Curious what got Exelixis interested in this technology. And kind of what areas of oncology do you see this to be most useful for?

Yes. So the Cybrexa molecule, that's biologically quite interesting in terms of its mechanism, and it's a pretty good example of how we think about external innovation. As we go kind of across the risk spectrum, so to speak, of assets, we're able to structure deals in a way that allow us to gain access to these technologies through option-type structures, where we're able to low upfront, capital efficient, essentially get to a proof of concept before we can formally opt into the program. And so we're running that study with our partners -- or they're running the study with our help to really get to that true POC. The molecule itself is quite interesting. It's kind of an unformed peptide in normal tissue, but it takes advantage of some pretty interesting biology and a pH differential in the tumor specifically where that unstructured peptide becomes specifically helical, which then allows it to insert into the cell membrane and then be taken into the cancer cell. And so it's a way to kind of similar to the antibody drug conjugate approach where you're using the antigen as kind of a signaling mechanism or a targeting mechanism, this uses the kind of interesting biology around PH differential to kind of accomplish a similar goal. With the Cybrexa compound, uses an exatecan warhead, which has been well established to be quite effective as a cytotoxic agent but poorly tolerated when given systemically. And so the approach here is, is this a better way to deliver a highly potent cytotoxic in a way to kind of spare some of those AEs. So stay tuned there, but it's a way for us to really look into some of this cutting-edge biology in a capital-efficient way.

Got it. That was very helpful. Maybe in the last minute we have here, let's touch on business development. Like I just mentioned, there were a couple of deals you've done recently. There doesn't seem to be necessarily a need, but can you talk about Exelixis' appetite for external business development, whether that's partnerships, acquisitions and what the focus would be there in terms of modalities, targets, indications?

Yes. I mean just in the last couple of seconds here, I think there's a strong appetite for really quality assets. And I emphasize that last aspect because we're not in the position. We're not thinking about it. Let's do a deal for the sake of doing a deal. If you look at the company over the last several years, we've been fairly disciplined in terms of how we think about external innovation in capital use. We're going to continue to do that. It's really going to be a mix of these capital-efficient option-type deals. And if we do identify something later stage or higher conviction that we do like, we view our balance sheet as a strategic asset that allows us to be opportunistic. And so going to a conference like ASCO and seeing compelling interesting data that lets us continue to do real deep diligence on this stuff, that's the -- that's how we move forward. But it's really about the quality of the asset as opposed to anything else.

Perfect. Well, Andrew, thank you very much. You're a great representative for Exelixis today. And we thank everyone for coming along and listening.

Yes. Thanks again.