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

We'll get started here. Last fireside of the day for me, but very excited to have Exelixis here. We have Andrew Peters, SVP of Strategy from the company. Andrew, great to have you. I look forward to the discussion here.

Yes. Looking forward to it. Thanks for the invite.

Yes. Maybe just to start off, kind of give us kind of high-level status of the business kind of update what's going on kind of commercially but also within the pipeline, then we can kind of drill down on some of these more specific questions that we have.

Yes, sounds good. And as I said, thanks for the invite. Glad to be here. Great set of meetings this morning, a lot of good engaging conversations. Before we begin, again, we'll be making some forward-looking statements today. So please see relevant risks and disclosures in our regulatory filings with the SEC. So yes, so cabo, it's a pretty exciting time for Exelixis, pretty rare that you can have 2 positive Phase III studies in the same week with CONTACT-02 and then the CABINET study. And so really good to see kind of that momentum and most importantly, ultimately, we're in the business to help patients and those data are really important from that perspective. So cabo itself, it's a global now $1 billion franchise. I think we did little over $400 million in the U.S. for CABOMETYX this past quarter, guidance for the year, $1.575, $1.675 in U.S. product revenue. So certainly, a rarity in biotech these days. One of the things we framed on the first quarter call is cabo is actually the most successful biotech launched oncology drug since it was approved in 2016 or so. And that's something that we're especially proud of. That's something that we want to continue to execute well on. And then as we look to our clinical stage pipeline, really use that cabo as the gas to invest in the Exelixis engine. So looking at kind of our next-gen VEGFR TKI, zanzalintinib or Zanza and then XB002, the tissue factor targeting ADC. So it's those 2 programs and then kind of a lot of stuff coming up behind it from our internal portfolio and then being opportunistic on the external innovation side from a business development perspective. So firing on all cylinders going forward and just an exciting time to be with the company.

Awesome. Well, a lot to unpack there. So maybe starting with cabo, I guess, as you said, great launch, continued growth, like where do you kind of see the growth trajectory from here? And I guess, again, is the incremental growth being kind of more penetration into existing areas or, again, really coming from what you were just kind of talking about like CONTACT-02, for instance, and some of these other opportunities. So -- how do you kind of -- if you put the growth drivers in separate buckets, like what are those buckets?

Yes. So I kind of don't want to specifically get into what drivers of what drivers of each are. But what I can point to is something like the ASCO GU data. We presented a 44-month update of the 9ER study. That was pivotal study looking at the combination of cabo and nivolumab in frontline RCC. And as that data continues to mature, we think it further differentiates it versus other IO/TKI combinations. A lot of the messages coming out of that data set, a lot of the conversations that we were having with physicians at the conference are really around kind of the totality of the data, the balance of the data. It's not just about efficacy, it's about tolerability, it's about things like quality of life, it's about things like discontinuation rate. Unsurprisingly, 1 of the things that we think are so compelling about the data set is as that overall survival signal continues to remain steady, we think it really has to do with the fact that the discontinuation rate is so much lower. And so unsurprisingly, patients benefit from drugs that they're on, patients don't benefit from drugs that they have to come off of because of tolerability issues. And so that's 1 of the key kind of differentiating aspects for the cabo combination there. And then you rightly pointed to the opportunities for new indications going forward, whether it's the neuroendocrine tumor side and the CABINET study or the castrate-resistant prostate cancer from CONTACT-02,so those are certainly 2 data sets that we're quite excited about and looking forward to sharing those data because Ultimately, we're in the business to help patients, and we think those data will certainly help inform that.

Got it. Yes, we'll touch base on that. But I just want to understand in terms of how you think like at least in renal cell with cabo. Obviously, you have a really solid tool there, solid franchise within kind of the treatment landscape. Like how do you think about competition in the future? And like kind of other emerging therapies in that space and kind of the moat that you've created around cabo and the durability of that moat?

Yes, there's really kind of 2 key drivers there, 2 key dynamics there. The first is, ultimately, the data are what drive utilization. And just talked about the 44-month update for 9ER, and that's really kind of the anchor that really drives a lot of the utilization. Beyond that, it's about being innovative. I think if you look at our 2 most recent studies in RCC, first COSMIC-313, that's the triplet combination of cabo plus ipi/nivo. And we compared that against ipi/nivo. We've guided to the next interim overall survival to occur later this year. So we'll have an update there. And then CONTACT-03, that was in a second-line population looking at the combination of atezolizumab plus cabo versus cabo. So Exelixis, as a company has really been on the kind of forefront of clinical science in RCC. And it really makes me proud as an employee to hear kind of that messaging from the podium at a conference like ESMO and a Plenary to really have our company small mid-cap biotechs really called out as being kind of at the forefront of clinical science there. And that's something that we're going to continue to do. And as we look forward to Zanza, certainly, we have the opportunities to look at novel doublets, novel triplets. That's the sort of thing that we'd expect to do going forward.

Understood. Got you. Yes. So back to CONTACT-02, obviously, maybe just kind of put the results or kind of the opportunity into context of where you can really focus in prostate and kind of, I don't know, quantify that opportunity for us, whether it be patients or kind of like how you think about the market size there?

Yes. So this is an opportunity where we're quite excited about. Certainly, Exelixis as a company in cabo has kind of a long and deep history in the prostate space. But ultimately, what the positive top line data on PFS show is that this is a chance to have the first novel combination of a TKI plus a checkpoint inhibitor in this really high unmet need population. So right now, the current standard of care in this setting is really a second NHT or novel hormonal therapy. And unfortunately, kind of that second NHT isn't particularly effective. One of the reasons it's the most commonly used agent though, is the alternative is generally chemotherapy. And if you think about the kind of later-line prostate population, they tend to be older men, they tend to be relatively frail. And so this ability to delay progression on to chemotherapy is actually a pretty substantial benefit. And so when we looked at kind of that opportunity set, what CONTACT-02 was, was really a chance to ask kind of the cleanest question in a really high unmet need population. The question being in a patient population with visceral metastases or extra pelvic adenopathies, at baseline does the combination of a TKI plus a checkpoint inhibitor improve disease. And on a RECIST 1.1 basis on a progression basis, the answer was positive, and we're excited to share the data at a point in the future. And so that's kind of really how we see it as there's some specific nuances about contact of 2 that we think really kind of clarify the opportunity set and it's just a high unmet need given the fact that, frankly, the second NHT has been particularly effective.

Got it. I mean I know there's some questions to whether you can get approved on PFS or you need overall survival. I mean any kind of updated thinking there? And I guess -- obviously, the data just came out. So like obviously, there's probably going to be some discussions with the FDA on that. But any timing on that?

Yes. So as we talked about in the press release, we look forward to having discussions with regulators at the appropriate time. Regarding kind of the PFS overall survival dynamic, as a reminder, in the press release, we did highlight the fact that we did see differences in overall survival. Data is still obviously mature. It didn't hit the threshold for statistical significance, but looking forward to kind of updates on that in the future. As it relates to kind of PFS as to an approvable endpoint, again, I'd kind of point back to -- while there are examples of agents that have been approved on PFS really kind of that specific population of the visceral MEMS plus extra pelvic adenopathies I think is -- it really gives the cleanest test of whether or not the drug is having an effect. If you think about kind of a lot of other agents that look at more of an all-comers population, 1 of the challenges with a bone predominant or bone-only disease is that measuring progression can be complicated whether it's the challenges with bone scan or PSA. It's in -- it's a challenging measure to understand how someone's disease is actually progressing. So by focusing on the specific population, that's why it gives the cleanest test of the hypothesis of does the combination have an effect or not?

Got you. Okay. Yes. And then do you want to talk about CABINET and just kind of -- I mean, obviously, another data set that was positive, but just how -- again, that could help maybe drive future growth, but just kind of walk through that...

Yes. So another population that we really view as kind of a high unmet need disease setting. So if you think about CABINET, it's actually 2 separate subpopulations, kind of the pancreatic net and the extra pancreatic net or kind of the 2 studies. And the study was stopped early through the efficacy across both. And so it really speaks to not only kind of the benefit of cabo, but also the unmet need there. Obviously, you don't want to get ahead of the data when we ultimately present it. But I think it just further kind of adds to the idea that cabo is a very effective agent across a wide range of tumor types. And as we look at the future I think about things like Zanza it adds to kind of our conviction set about what can we do with the cabo-like molecule like next-gen cabo to really kind of help patients live longer.

Well you led me right into my next question. So in terms of like all these data sets that you've generated, thinking about Zanza, so I mean do you think looking at all these, these should be derisking for Zanza. And I guess how tight is that in terms of like understanding how derisked Zanza could be based on the cabo data.

Yes. So just for those in the audience who are less familiar, so Zanzalintinib or Zanza is our next-generation VEGFR targeting TKI. In the same vein that cabo was really developed to improve upon known liabilities or challenges with earlier generations of VEGFR targeting TKI is mainly the biological hypothesis around the addition of MET inhibition, AXL [indiscernible] TAM kinases, et cetera. Zanza was really designed to improve upon 1 of kind of the core liabilities of cabo, which is its relatively long half-life. So cabozantinib is on a 4-day half-life. And 1 of the challenges that presents clinically is that all patients who are on VEGF targeting TKIs tend to develop adverse events and have to be dose reduced, dose managed, et cetera. But with a long half-life, the accumulation you actually see can be on the order of 10 days 2 weeks, et cetera. And so from purely a patient management perspective and adverse event management perspective, that's complicated. And so the oftentimes, frankly, the inertia needed to get a patient back on to drug after a relatively long washout period can be challenging. And so coming back to the comment I made earlier, patients don't benefit from drugs that add on. Really, the idea was to introduce a metabolic liability into the core kind of cabozantinib scaffold, where we're retaining the kinase inhibition profile of cabo, but improving the kind of PK properties. And the data that we've presented so far clearly show that we've been successful at that. So Zanza's half life is a little under 24 hours and so greatly improved. And so 1 of the reasons, 1 of the kind of big advantages we think we have is that we can use all of our learnings from the cabo experience given the similarities in the kinase inhibition profile to inform where we're going to go in the future. So if you look at the studies that we've announced so far, STELLAR-303, that's a late-line colorectal study. STELLAR-304, non-clear cell RCC and then STELLAR-305, which we recently announced in head and neck cancer, all of those are greatly informed by the cabo experience, where we can point to highly encouraging data sets from cabo plus checkpoint inhibitors or even cabo alone to help inform what are the populations that are -- that could potentially benefit. What are the advantages of cabo or Zanza plus IO have relative to kind of current standards. And so -- we think that's really a value add for us because it lets us not only derisk development but also accelerate development as well. So that's something that we're particularly excited about.

You want to walk through kind of the development plan for Zanza in the ongoing trials and I guess, some of the updates that we might get in the near term?

Yes. So I guess in terms of the development plan overall, 1 of the things that historically, we've framed Zanza is about the breadth of development. Coming back to this -- to our discussion earlier around using cabo to inform that both as a monotherapy as well as in combination cabo has shown to have real tumor responses, RECIST 1.1 responses in about 20 different tumor types, tumor settings from indications. And so that shows the potential breadth of development. And so then when we think about Zanza going forward, it's about the opportunity set of not only where haven't we gone with cabo that maybe we could with a more user-friendly, potentially better tolerated version of it. But what are the sorts of novel doublets and triplets that we can improve upon the cabo profile in sensitive tumor types like RCC are there novel triplets? Are there novel combinations? Are there -- is there the potential to move earlier line -- into earlier lines given the potential differences in adverse events that we've seen so far. So that's kind of informing how we think about it from a very broad perspective. Specifically to the ongoing studies. So STELLAR-001, STELLAR-002 are kind of our 2 Phase Ib studies that are looking at both Zanza monotherapy in dose escalation, dose expansion as well as Zanza in combination with nivo, other checkpoints, Nevorella to really give us an idea of where we can go kind of in the future. STELLAR-303, -- that's our first pivotal study there. So that's a study in late-line colorectal cancer. Looking at that against regorafenib. And so the original idea behind both 303 and 304 was these were kind of the 2 low-hanging fruits, so to speak, of the Zanza development portfolio. Rego, unfortunately, isn't particularly effective. And so there's a real unmet need there and a pretty significant population. We've seen some pretty compelling data looking at Zanza in combination with atezo and COSMIC-021 or cabo in combination with atezo and COSMIC-021 and then cabo in combination with durva and the IST, the CAMILLA study. And we've seen some pretty compelling response rates and that kind of drove interest in 303. We recently announced a slight change to the protocol there focusing on the non-liver met population, and that's really informed by kind of an emerging consensus, so to speak, in the clinical community that specifically in colorectal cancer, patients with liver mets tend not to do well on checkpoint inhibitors. LEAP-17 is kind of the most contemporaneous large randomized data set to essentially confirm that. And so we looked at that data and really in consultation with ad boards, all of our experts, advisers and really said to really increase and maximize the probability of success of that study, what can we do? And it's really to first, on a hierarchical basis, look at the non-liver met population and then see if some of the differences between Zanza and Lenvima which was the TKI and the LEAP 17, can that drive the improvement in the overall population as well. So that's colorectal, non-clear cell that's the 304 study that really builds upon all of the experience of cabo and cabo/nivo in that population. And then 305 builds upon some data that was presented at ASCO of last year, which showed a 54% response rate of cabo plus pembro. And that's in contrast to a sub 20% response rate for pembro alone in that setting. And so conceptually similar if you think about why the initial idea behind cabo plus a checkpoint in RCC. It was really to provide kind of that initial debulking of the tumor to drive some of the immunogenicity to add to the checkpoint. And so given that pembro alone isn't particularly effective from a response rate or PFS perspective in head and neck, we really think there's a compelling opportunity there. So that kind of is a little bit of a flavor of our late-stage programs.

Yes. No, that's great. I mean how does the development time line for Zanza match up with kind of cabo and probably multiple patent expiry scenarios. Basically, again, in terms of like if it were to go, I guess or expire or go generic like 2026 -- are you going -- will [indiscernible] be approved? Or do you think it'd be on market by then? Like just trying to match up in terms of the different scenarios that could play out there.

Yes. So it's still too early to kind of comment on when a lot of these data sets will read out. Really kind of our focus going forward is on kind of development of cabo or development of Zanza, development of 002 and continuing to kind of invest in those franchises and then frankly, execute commercially on cabo. We do have an upcoming trial for our ANDA with cabo in October. We continue to be highly confident in that -- it's probably the single biggest question we get today, single biggest question we get from most investors and frankly, been probably the biggest headwind or overhang on the stock now for a couple of years. And so we're going to continue to kind of operate and defend our cabo franchise while beginning to -- or while continuing to execute on our earlier-stage portfolios. kind of our strategic path forward.

Got it. Helpful. And then, again, maybe if you want to provide some background on 002 and kind of your thoughts there on that program. And ultimately, there is already approved drug similar MOA. So just kind of where is the differentiation? There's also others that are in development. So again, like, where do you guys think you kind of are different.

Yes. So I guess taking a step back, I think the way we view our portfolio, not only Zanza-002 or earlier-stage pipeline is really through the lens of the cabo experience. As I said before, cabo was developed with the understanding of validated biology that we think we can improve upon. So either novel kind of first-in-class or best-in-class perspective. So Zanza, as I said before, is kind of validated through the cabo experience and improves upon the shorter half-life and subsequent potential advantages because of that. XB002 takes a validated target for an ADC tissue factor, which is a highly compelling target expressed on a wide range of tumor types and really takes that reference product, TIV DAC from CGEN and Genmab and says, okay, how can we improve upon it? How can we differentiate it. So if there are really 3 components of the ADC, it's the antibody, the linker and the warhead. We think that XB002 is actually differentiated across all components of that, and that's what drives our enthusiasm about it.. So first, on the antibody side. One of the challenges with tissue factor as a target even though it's broadly expressed TIVDAK antibody is actually competitive with Factor VII. So if you think about the role of Factor VII in the coagulation cascade, a competitive antibody can actually be pretty challenging from a safety and tolerability perspective, notably about bleeding risk and unsurprisingly, to have that in their label. And so kind of XB002 targets tissue factor in a slightly different way where it's noncompetitive with Factor VII. And so it's differentiated and presumably, we wouldn't expect to see the same bleeding risks. And the data that we presented last year at the ENA Triple meeting, certainly confirm this. Then on the linker warhead side, again, at that ENA conference last year, we presented some data to suggest that what we're really seeing is a much more stable ADC. So if you think about kind of pharmacology 101, what do you want to see from an ADC, it's about exposure and it's about less free drug. Because free warhead is often what drives a lot of the tolerability and adverse event issues, things like neuropathy, things like neutropenia, which can be hallmarks of kind of the MMA class. And so again, unsurprisingly, TIVDAK does see fairly high rates of both of those. And so the data we presented last year essentially show an equivalent doses of 2 mg per kg see about twice the exposure in 1/10th the amount of free drug. And from our perspective, that's a really compelling starting place when you're looking at an ADC that targets an antigen that is well validated through TIVDAK. So as we see their data, we can use that as kind of a guidepost on where are we going to go forward with the development with the perspective that we think frankly, 002 is a better ADC with a potentially much wider TI that allows us to look at a broader set of indications because as I mentioned before, tissue factor is highly expressed. Just to kind of add to that, we've recently started talking about XB-371. So that's another tissue factor targeting ADC that we have but instead of an auristatin warhead, which is what XB002 has as a topo warhead. So the reason that, that's important is that tissue factor is widely expressed but not all tumor types are actually sensitive to an auristatin chemo. And so when you see things like colorectal cancer where tissue factor is highly expressed, but it's not sensitive to in auristatin, that's where a topo ADC would be quite effective. So we take a very kind of empiric and what I think is a rational approach to ADC development. It's not on a one-size-fits-all approach. It's how can we leverage this differentiated antibody in this wide expression profile, tissue factor to make sure that we're kind of covering the bases there.

And so when would we get kind of the next update there in terms of data.

Yes. So I guess kind of our standard playbook, so to speak, is we generally present data when it's stable, mature in our philosophy is this is what the data are as opposed to a lot of companies tend to put dribs and drafts out there. And this is what it could be and try and hype the stock and raise money. We're a profitable company. We have a strong balance sheet. So we're not out kind of trying to hype and raise money. And so the way that we think about XB002 is it's a couple of steps behind Zanza. So if you think about our disclosure philosophy around Zanza at last year's ESMO, we had the dose escalation data, which basically said in an all-comers population, it is the drug behaving like we think it should be. And if you compare kind of the initial cabo experience to the initial Zanza experience, very similar, but a lot of the PK differences were clear. We were successful in kind of doing what we set out to do. Then we looked at expansion cohorts in what were known to be cabo or sensitive tumor types and that's the recent data that we presented a bit earlier this year in May, around the 50% response rate in cabo naive patient, 30-something percent response rate kind of in an all-comer setting. So it's really kind of using that first dose escalation experience to validate were we successful in kind of doing what we were trying to do and then confirm that in tumor types, more homogenous populations known to be sensitive. So similar to that, with XB002, last year at the triple meeting, we kind of talked about a lot of that original kind of PK exposure, free drug data. And then we've continued to escalate. We talked about on the last earnings call that we've now hit kind of -- we have our Phase II dose. And then let's go into expansion cohorts to really test that hypothesis around is this differentiated? What are -- what's the activity profile and what are tumor types that are known to express tissue factor. So that's kind of the next step going forward.

Yes. No, great flavor there. Maybe last couple of questions. So you've got an R&D Day coming up in December, people are very excited about it. I guess maybe give us a little flavor of like what we should expect there in terms of like where the focus will be? Will it be on some of the Zanza programs and going deeper there, as we just kind of discussed or kind of the really early-stage programs to understand like new targets like -- or it could be a blend. Like so where do you think -- or what are you planning to kind of...

Yes. So I don't want to kind of preview that too much. So still got a bit of time to pull all of that together. I think kind of somewhat of a statement of the obvious is that we're really at an important kind of point for the company where we have this successful cabo franchise that's allowing us to invest in all these different areas in the future. And we have a lot to talk whether it's Zanza, whether it's 002, whether it's our earlier-stage portfolio in terms of XP010, that's our 5T4, targeting ADC, our overall research phosophy. So it's really about kind of framing the company overall. And so again, I don't want to get too ahead of anything for the R&D day. But it's certainly going to be exciting.

Yes. We look forward to it. And maybe just a question on kind of your cash and obviously, this commitment to buy back stock, I mean, you came out with the share repo. So I mean, I guess, One, how active do you think you'll be in the second half of the year? And also, is this indicative of other times, like once you kind of do the full repurchase. Is this something that you could see consistently from you guys in terms of, again, driving shareholder value that way?

Yes. So we've committed to completing the buyback by the end of the year. Chris talked about on the last earnings call a little bit more detail around the progress we've made so far. I don't want to speculate in terms of what can we do in the future -- but it's 1 of the things that I think is a strategic asset for us is the strength of our balance sheet. Gives us kind of the ability to do to a fairly wide range of opportunity sets, whether it's buyback like we announced earlier this year, or business development, licensing transactions or frankly, even potentially something larger if there's an asset that we have a high conviction level in that we think could make sense to bring in our portfolio. So we think having a strong balance sheet is really an asset for us. We want to make sure that we're maintaining that.

Yes. And maybe what kind of what is the ethos for you guys in terms of M&A and business development? And again, do you feel that's a priority in terms of like having to do a medium to larger size deal? Or do you want to just kind of focus more on licensing and kind of smaller business development? Like what's where do you guys kind of want to play right now.

Yes. So external innovation, which is pretty encompassing a wide range of transactions. It's certainly a main priority for us, a high priority for us. Mike talked about it in his prepared remarks, even on the last earnings call that it's something we're certainly focused on as a company what that looks like when that happens, how it looks like is probably more driven by our conviction level on the asset. I think from a philosophy perspective, what we're not going to do is go out and do a deal for the sake of the deal. We don't want to put a couple of bars on a pipeline chart just to kind of no deep down that probably going to go away in a couple of years. We want to make sure that we're doing the right thing taking the right amount of risk for the right amount of value and understanding how do we have an advantage? Is it on the clinical side? Is it on the mechanism cancer biology side? Is it on the commercial side. This is a market that we know really well. And so that's how we approach all of these things is what's the compound? What's the indication what's the competition. These are all things that we've done really well. We've been successful with cabo. And so that kind of informs again the cabo lens is how we view all of this. But I think it's suffice it to say that external innovation, whether it's BD, whether it's M&A, whether it's a mix of anything, whether it's more of these option deals, we did a couple of those at the end of last year. certainly a priority for us, and we want to, again, continue to use the cabo gas to fuel the Exelixis engine and BD external innovation is certainly a part of that.

Perfect. Well, Andrew, let's leave it there. Thanks so much for joining us. All right. Good too see you.