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

Thanks again for attending the Citi 2024 Global Healthcare Conference this year in Miami. Next on stage with us. Happy to say we have Andrew Peters from Exelixis. Thank you for joining us. Before we really kind of start digging in, could you walk us through the -- what has happened with Exelixis over the last couple of years? How has the company evolved? What your -- just from a top-level standpoint, strategy is going forward and now how the company is positioned?

Yes, happy to get into that, and thank you again for the invite. We have been in a great day of meetings and kind of excited to talk about Exelixis here. Just as a reminder, kind of before I begin, we'll be making some forward-looking statements today. So please see relevant risks to our business in disclosures in our SEC filings. So Exelixis actually really interesting and exciting time to be at the company. A lot of momentum recently kind of following announcement of a collaboration with Merck around zanzalintinib, not only in kidney cancer, but in head and neck cancer as well and then followed by kind of the long awaited, so to speak, decision from Judge Andrews around a long-standing kind of patent case that we had around cabozantinib. And then really kind of the third quarter earnings call, which not only kind of highlighted the success and continuing momentum we've had around kind of our core business but it also provided a chance to kind of say that now that we have this patent case behind us, what does the company really look like? And we used that time to really say, this is the short-term, medium-term and long-term outlook as to how we think about Exelixis, how we think about running the company, how we think about our strategy and kind of what those core pillars are. So if you think about what those core pillars are, it's really kind of 4 main things. Cabozantinib, continued momentum around our core business in RCC looking ahead to potential launches in neuroendocrine tumors. And then zanzalintinib, kind of a next-gen TKI behind cabo that is currently in 6 ongoing or planned pivotal studies, really kind of executing there ahead of our first pivotal readout in third line plus non-MSI-high colorectal cancer next year. Kind of the next pillar is then our earlier-stage pipeline and portfolio around 10 programs between DC to IND Phase I stage. And then lastly, from a business development perspective, how can we strategically use our balance sheet, how can we use our cash flows to bring in additional assets to complement our portfolio. Kind of really focused around that mid-stage to really complement everything that we're doing. And then just lastly, one of our comments that we tend to say is Exelixis runs the company like a business, not a biotech and making sure that we're remaining disciplined, not only on an expense perspective, but being mindful of creating value for all of our stakeholders and using a lot of that financial success, financial tailwinds that we've had to do things like buying back stock, which we've done $1 billion plus over the last 12, 15 months or so, and we'll continue to do so going forward. And so really exciting time kind of firing on all cylinders operationally, and just kind of looking to the future.

Now one of the comments we're talking about was the short term, the medium-term view and the long-term view and strategizing. And obviously, this is hindsight because we know the answer now relative to the patent, the IP litigation. But were there -- do we obviously had that litigation gone in a different direction. Doesn't -- the view theoretically would have had to have shifted in some regards to manage that. And I guess when I'm thinking about that is how much of your plan that you had outlined would have theoretically been at play for being tweaked relative to that litigation?

Yes. So there's a couple of things within that. I guess the one thing that I'd say is what we had with our intellectual property portfolio around cabo was confidence, but we didn't have that clarity. And so when we've looked -- when we were kind of at trial, either MSN1 or MSN2, we had that confidence in our portfolio, IP portfolio, but we were kind of waiting that clarity as to getting that final answer, which we inevitably did from Judge Andrews. Regardless as it relates to what those scenarios look like in some of those different outcomes suffice it to say, we're a company of planners, we're a company of scenario planners. When we think strategically about anything in the future, we're always testing and kind of confirming or double checking hypothesis around what we should do around any of our lines of business. And so when we think about investment in cabo and the net launch or when we think about investment in zanza in kind of that next study, those are things that we're always making sure is this the right incremental dollar to spend, are we likely to see a positive return on that. What's the opportunity set. What's the risk. These are all kind of dynamics that we pay special attention to, frankly, because this is a tough business. And we want to make sure that we're making those correct decisions to make this tough job that much easier and that much more likely to succeed.

Let's, I guess, start drilling into the commercial business. Second quarter in a row that you raised guidance. Can you walk us through what the drivers have been for the continued strength of cabo. Obviously, there's been a steady build of additional incremental indications. It's just been a growth over time from, frankly, a long time ago when it initially got approved for MTC. What is driving it right now? What are the primary drivers? And then we're certainly going to be going into the next leg of growth as well?

Yes. I mean kind of the short answer, and I think it's true not only for Exelixis, but for any commercially successful company, it really comes down to the data and the team. Obviously, Exelixis and the success we've had with cabozantinib has really been a bit of an outlier in our industry. So we're a very data-driven company. We want to run a lot of analytics kind of across our organization. And one of the things that we've kind of come to realize is you can generalize and say that on average, most oncology launches tend to hit steady state around 5 to 7 quarters post launch for an indication. We're now 12, 13, 14 quarters in after 9ER kind of our front line RCC approval in combination with nivo. And we're kind of still seeing that momentum. And again, coming back to it, it really comes down to the data, which as the longer-term follow-up, as we've presented at places like ASCO GU continues to resonate with patients and physicians in KOLs that really define us as kind of that #1 IO TKI combination as well as the #1 TKI monotherapy. So P.J., who heads our commercial team talks about this on our earnings calls, kind of the market share gains that we've continue to show. And so kind of that data is really something that differentiated data drives utilization, kind of full stop. That's what's successful in our business. And really, that's how we think about not only cabo as it relates to potential launches in nets, but also how we think about zanza and what we need to be successful in the future. Then the second part of that is really the team. And again, one of the advantages I think Exelixis has relative to many of our peers is coming back to this concept that we talked about at the R&D Day in December is we're a big small company. What we mean by that is that we're small in a sense that we can be fast, we can be nimble, we can be strategic. We can kind of make these quick investment decisions around a lot of things that may seem on the margin but have reasonably high ROIs, especially as it relates to kind of our commercial ops and commercial analytics decisions. And so we have that small company ability to move quickly, but that big company team and scale and execution history that really lets us and drives the success that we've had financially. So it's a combination of kind of all of those things that really drives not only kind of our continued momentum in the base business. But as we think ahead to say, the medium term, where on the third quarter call, we gave guidance -- or we kind of outlined a path towards $3 billion in cabo revenue in 2030, that's the sort of thing that drives our excitement and that opportunity is the combination of all of those things.

On those numbers, if you were to try to walk us through the assumptions, which -- of what those components are. I mean, obviously, we know frontline RCC, there's new approvals. But what would you consider the near term, so to speak, leg of growth versus the more medium-term leg of that growth? And what -- by time we get to 2030, 2033, what do you think will be the key factors driving the top line?

Yes. So certainly, kind of that 2030 $3 billion cabo number that we've talked about is really driven by kind of 2 main things. One, kind of continued success in that base business in RCC, kind of that -- those incremental investments that we can make to continue to gain market share, the stacking of patients as patients stay on therapy for longer, benefit longer and our goal, our job is to really help patients live longer, better lives. So from our perspective, the longer they're on therapy, the longer they're living, the better all of our stakeholders are doing. So kind of point one, the path towards that $3 billion is certainly continued momentum in the base business. And then it's looking ahead to potential launches in things like neuroendocrine tumors on the basis of the Phase III cabinet data. That's an indication that it's one of those areas where the more kind of analysis and work kind of thought we've put into what is a launch in that look like, kind of the more excitement we've gotten not only from an opportunity set perspective, where we've described kind of the current market using contemporaneous -- contemporary pricing the oral therapies that are used in that is sort of $1 billion right now. But also a lot of the dynamics that are important for any drug launch really seem to be kind of stacking up in our favor. As an example, when we've done, say, market research and kind of evaluated the prescriber base for neuroendocrine tumors, what we found is about 75% to 80% of their prescribers already give cabo for another indication. So as you think about any drug launch, there's kind of this initial time period where physicians need and patients need to get kind of comfortable with the tolerability profile, adverse event management profile, how to down titrate, how to dose hold. All of these things aren't going to be new for the vast majority of prescribers because they already are familiar with cabo. So it's kind of one of those things that when we go through the TPP, the target product profile on a blinded basis, they respond very favorably to the HRs of 0.2 and 0.3 in the 0.2 and 0.3 range in kind of the pNET and epNET across the cabinet cohorts. But then when you unblind it and say, "Oh, this is cabo, it is like a light goes off" and it's like, okay, great, I know that I got it. And so as we think about kind of the keys to kind of successful execution on that path towards a $3 billion run rate, those are the sort of things that we need to make sure we're keeping our eye on the ball we're executing across all of our kind of components of the business and how do we get to that number.

Now the zanza 2033 number is $5 billion. The cabo 2030 number was $3 billion. What accounts for the difference? Number one. And of course, after when we get to 2031, given the generic entry relative to Cabos on there, what's the plan at that point for those?

Yes. So that's kind of an interesting dynamic. And I always kind of joke with our team about -- we get this question a lot. We were starting to get this question a lot from investors. It's basically like, okay, now that the IP is resolved, what are you guys going to do about this new IP? Which is basically, we have settlements with Teva and Cipla around a generic entrant of kind of form M2 of cabo and [ 1131 ]. And so that was one of the things that we wanted to kind of proactively get ahead of on the third quarter call because we're now envisioning kind of this transition from a strategic focus from cabo to zanza. And so as I mentioned before, we have 6 ongoing or planned pivotal studies with zanza. And when we talked about that $5 billion opportunity, we're actually pretty explicit around the breakdown. So if you think about our current business, we're kind of -- and for those not in the audience, we're mostly GU focused and a little bit GI. And over time, as kind of the net indication comes on for cabo, we're going to me closer to the middle. But with zanza, it's actually, if you look across those 6 indications or 6 studies, it's 45% GI, 45% GU and 10% kind of the head and neck as it relates to kind of 305. The other thing that we've laid out is with data -- pivotal data expected for STELLAR-303, our first study in colorectal cancer for zanza reading out next year with the potential for approval and launch in 2026, the cadence of enrollment, the cadence of data readout and potential approval is basically 1 launch a year starting in 2026 for those 6 indications. And so partly by design, partly kind of by serendipity that kind of the timing has worked out. Is zanza is going to be launching in some of those earlier indications right as cabo is coming off in 2031 and then we're generating additional data from some of the more recently initiated and announced trials say, the 2 Merck studies and the NET study, STELLAR-311 versus everolimus. And so there's this really nice cadence and build toward that $5 billion opportunity in the U.S. And so that's kind of how we see longer term, how we're managing through that transition and then supplementing that with everything we're doing internally from a portfolio perspective and being opportunistic from a business development perspective, if we see an asset or assets that we think can be really complementary in value creating for our organization.

So let's drill a little bit more deeply on to cabo and zanza themselves. Specifically on cabo, you -- it was recently announced that there's going to be an AdCom for neuroendocrine tumors, I believe is March. Could you mean -- the drug has been on the market for quite a while. And so there's a panel for the drug with granted new indication. What is -- do you see as the panel's real objective in this process? What -- how do you see what their role is going to be? Is this going to be one of these panels where there's a vote at the end of the day? Or might it be more of a kind of an information gathering and how to use type situation?

Yes. So don't really want to speculate on the panel beyond anything that we talked about in kind of the press release announcing it. So kind of stay tuned as details and kind of information begin to mature. But I think the 1 thing that I want to kind of emphasize and really hit home is that we have and we'll continue to work collaboratively with the agency. Again, coming back to this idea that we're this big small company, given our history of approvals and regulatory -- working with regulators around cabo in other indications, kind of this is in our first rodeo, so to speak. And so we have relationships. We'll continue to have relationships with regulators, and we'll continue to work collaboratively with them to kind of ensure we're doing everything we can to get this product to patients because, as I mentioned before, we think the cabinet data certainly resonate with the patient community, the advocacy community, the physician community, and we want to do everything we can to kind of help this get this option available to patients.

As you said, this hasn't been your first rodeo. How would you compare and contrast the nature of this FDA application with what differences are there with applications that have been submitted previously?

Yes. Again, I think it's kind of everything is the same, but everything is different kind of thing. So probably too many things to get into a lot of the nuance in minutiae. But at the end of the day, the cabinet data represent a data set that's been especially well received. As I think back over the last 6, 12 months, kind of the presentation at ESMO, the concordant publication in New England Journal of the data and really the response from kind of all stakeholders in that neuroendocrine tumor community, that's really been something that's been partnering to me is kind of the thing that I think folks on the investors can often miss is kind of that patient dynamic that we see a lot more kind of and have a first row seat with. And so hearing come from that patient community about what the data could potentially mean to them, that's the sort of thing that really excites me and is why we want to continue to work collaboratively with regulators because that's how we can kind of work towards a potential approval.

In terms of what the sizing up the net market opportunity, how should we look at that population?

Yes. So as I mentioned before, kind of the 2 current oral options for patients in that. So everolimus and SUTENT, if you look at their current utilization given that both are generic, if you were to kind of assume more contemporary type drug pricing, branded drug pricing represents kind of like a $1 billion opportunity collectively, but between the 2. But one of the things that we've talked about and P.J. highlighted again on our third quarter earnings call was some of the similarities between, say, where RCC was in that 2014, 2015, 2016 time frame before cabo had launched and where net is today. So what I mean by that is back in, say, 2015, RCC wasn't really seen as kind of this robust large market. But lo and behold, when you have effective agents that generate compelling data to shift that Kaplan-Meier curve shift that standard of care to the right, patients benefit, companies benefit, the total addressable market has grown substantially now and RCC is something like a $10 billion opportunity. Similarly, I think in general, neuroendocrine tumors have probably been underinvested across the industry. There aren't as many kind of new novel therapies being developed there outside of, say, radioligand therapies. And so one of the things that we're excited about, not only is to kind of launch into this real high unmet need, but kind of have the opportunity to grow and become really the market leader in this space. And so we've talked about how we think that the kind of the total market as we think about some of the new therapies and new modalities coming into that space can grow to $3 billion, $4 billion opportunity. And so when you've heard us talk about why we're excited about nets and kind of why the launch of the cabinet data is priority #1 for Exelixis, it's really because we see that bigger strategic picture of how do we grow from becoming kind of the market leader in kidney cancer, but the market leader in kidney cancer and something like nets, which we think we can play a central role in growing that total opportunity.

So if we take a step forward to prostate cancer, success on PFS, OS, strong trends. How should we think about the path forward of the NDA approaching and whatnot? And would you be able to comment on any of the debates that some investors have had when trying to assess the design of the trial versus other trials?

Yes. So kind of taking a step back kind of before I dig into a lot of those questions. I think one of the intents and kind of unique aspects about CONTACT-02, that's a pivotal study we ran in that population was that we really wanted to ask a fundamental question of, can the combination of cabo plus a checkpoint atezolizumab have an effect on the tumor themselves. And so in this prostate population, we thought the best way and the cleanest way to answer that question was to look at a population who had visceral metastases at baseline because one of the challenges that we certainly have historic experience with in prostate cancer is there's -- a good chunk of patients have essentially bone-only metastatic disease and monitoring responses or lack thereof can often be challenging in kind of patients with bone-only disease. And so we wanted to ask kind of more of a simple straightforward question. And so CONTACT-02 was unique in that sense and that we specifically targeted it. But kind of the heart of your question is really around how do we think about the potential for cabo and prostate. And I think it's really kind of twofold. The first is we've continued to say we plan to submit the sNDA by the end of this year. But kind of the caveat to that or the other dynamic to that is when we highlighted that $3 billion cabo opportunity in 2030, we made sure to also highlight that it included a pretty significant risk adjustment that we apply to the prostate opportunity kind of suggests that going in eyes wide open about some of the dynamics, say, in that market, in that data set that we're very well aware of. And so probably kind of the best answer how do we view prostate is ultimately, we view it as a heavily risk-adjusted opportunity as we think about kind of that longer medium-term cabo number.

Very, very helpful. If we move forward to zanza, I guess, could you start by running us through the recent partnership with Merck?

Yes. So that particularly excited about because it's not very common in this industry, say, to kind of collaborate with your biggest competitor. So obviously, kind of in RCC, kind of the 2 leaders in the IO TKI space are us and Merck. And this collaboration is really a chance for us to work together to evaluate their HIF inhibitor belzutifan with zanza. And really kind of ask the question, how does this combination look? And how can it help patients? We've agreed with our collaborators, our partners, Merck, to kind of hold off on a lot of the specific details around the specifics around indication, trial design, et cetera, until those are a little more mature and kind of up and running because obviously, it's a little bit of a competitive space. But it's a deal that not only are we excited about. Merck running those studies, Merck funding those studies or partially funding those studies, which is a model that we like, we executed on with cabo, and we're going to continue to do with zanza but we also were able to then secure kind of a supply agreement on pembro. So as we think about STELLAR-305, our Phase III study in frontline head and neck cancer of zanza-pembro versus pembro that's a reasonably sized win for us just from a pure kind of clinical trial operations and cost perspective. And so kudos to our team and the countless number of people that are involved in a large collaboration like this. It really shows our ability to kind of execute and get things done and not only our excitement, but kind of the oncology world's excitement around what a next-gen TKI kind of that third gen VEGF TKI, like zanza can do.

Now while you can't tell us the specifics of indications and trial designs, is there some time line when you think you might be able to tell us?

Stay tuned is kind of all I can say.

Got it. Got it. So clearly, when zanza was designed, obviously, the basis for the design was on an already successful drug with some nuanced differences that might allow it to expand the opportunities of where the -- where your programs could go. Could you talk a little bit about the molecule itself and how that informed you and what tumors to pursue?

Yes. So I think kind of zanza again, is a little bit of a unique molecule and program in biopharma in a sense that it kind of builds upon this continuum of tyrosine kinase inhibitors and really is kind of the real third-gen VEGFR targeting TKI. So taking a step back, if you think about kind of the core insights around cabo being a second-gen TKI, it's really understanding what were some of the emerging and known resistance profiles to those first VEGF TKIs. And this hypothesis and this insight is, can we also target additional kinases beyond VEGF and kind of the angiogenesis pathway to kind of get in front of that resistance development and help patients stay on drug longer and ultimately drive standard of care to the right. And really, we were successful in doing that kind of across First METEOR and then CABOSUN and 9ER and kind of all of the success that we've had clinically. But similar to kind of the cabo hypothesis where we wanted to improve upon the really known and emerging liabilities of the first-gen agents. What zanza was envisioned was, is there a way to improve upon kind of the known liabilities of the second gen TKIs. And we think kind of that optimal kinase inhibition profile, VEGF, MET, AXL, MER, kind of TAM kinases. It's really been optimized in cabo, but it's one real liability, we think, is probably around its longer half-life around 100 hours. And if you think about the practical implications of that, the implications in clinical practice and as it relates to patient management, one of the challenges with a long half-life is all patients with any VEGF targeting TKI inevitably see some sort of adverse event. When you do, you need to dose hold down titrate until resolution. But the challenge of the long half-life is given the accumulation in plasma that period of washout can be 10 days, 2 weeks or potentially even longer. And so that time period where you're potentially giving subtherapeutic levels of kinase inhibition, are you giving the tumor a chance to kind of develop resistance? Are you finding that the inertia needed to get a patient back on to cabo as opposed to trying something else is reasonably high? And as you think about multidrug, multimodality combinations, do you just dose hold cabo? Or do you dose hold the other drug? And how does that work, especially if they're similar, but kind of overlapping toxicities. So just from a practical combination and combinability perspective, there's real challenges kind of with the half-life. So again, with the idea that we wanted to kind of move towards this third-generation VEGF TKI. What we did with zanza was phenocopy the kinase inhibition profile of cabo. But our team was able to engineer in kind of a metabolic liability to that course scaffold, which changed the half-life from 100 hours to a little under a day. And so what that means and kind of we've since proved that hypothesis is that we've been able to have kind of a more, more user-friendly potentially differentiated TKI. We've presented data kind of in the most apples-to-apples comparison population in kind of kidney cancer. And we've shown not only do we have as good, if not potentially better efficacy, all the caveats around small single arm and randomized trials, but similarly, potentially differentiated safety, again, looking at that IKCS data that we presented last year, not only is kind of there's a lower frequency but severity of some of kind of the core VEGF associated AEs and then kind of that more user friendliness, combinability of that shorter half-life, especially as we think about a lot of the studies that we're running in pivotal trials where zanza's in combination with checkpoint inhibitors, for example. And so how does that play out, especially in areas where keeping patients on drug is especially critical to driving that efficacy. So that's really kind of the key points of differentiation and why we're excited about it. And just lastly, I think one of the advantages we have as an organization is we can kind of use this 10-, 15-year history of cabo development inform where we're going to go with zanza because if cabo points us in the direction of where a cabo-like efficacy profile could be effective and then improved upon with all the things that I just talked about. So if you look at especially the first 3 studies that we've run, 303, 304, 305 in colorectal cancer, non-clear cell RCC, in head and neck cancer. Those are really all started based on data sets that we generated with cabo. And so we think we kind of have this advantage because not only are we continuously generating data with zanza kind of in an earlier stage setting in the STELLAR-001 and STELLAR-002 studies, but we have kind of this wealth of information that we can also rely upon to kind of help inform and shape things about how we think about risk, how we think about probability of success, how we think about patient populations, kind of all of those things that are really important.

So what should we think of in terms of cadence for when more data starts to come and we are able to start in our minds looking at derisking events for zanza across these indications?

Yes. So one of our kind of key points, jokes, we always joke around internally is at the end of the day, we're in the business of p-values. And so the big derisking event, so to speak, is really going to be that first pivotal data from STELLAR-303 next year. But ahead of that, one of the things that we outlined on the third quarter call is that 2025 is going to be a really busy year from a zanza data perspective. Beyond the pivotal readout kind of we're working to continue to execute in the background to enroll these studies. But we're also going to start to share data from some of the earlier STELLAR studies. One of the things that we've highlighted kind of time, location, TBD pending, acceptance of abstracts and titles being published, et cetera, is a smaller randomized study, say, zanza atezo versus zanza in colorectal cancer to again kind of understand the activity of that doublet as well as a monotherapy zanza in that population and kind of a contribution of components type dynamic. Similarly, we're going to have kind of more mature data from some of our combination arms or combination cohorts in RCC. So in the STELLAR-002 study, we looked across a wide range of checkpoints, PD-1, et cetera. And so we're going to start to share that data as well. Just from kind of corporate data disclosure philosophy, given that we're profitable, given that we're at a more mature stage, we generally don't do kind of the small cap biotech thing of here's 8 patients' worth of data, 4 unconfirmed responses in claim that's a 50% response rate, just so that we can kind of use the stock and raise money. That's philosophically kind of not how we approach data disclosure. And so when we talk about kind of 2025 being a big year, that's really a presentation or kind of a series of presentations, what we think are reasonably mature data sets to really help all stakeholders get an idea, get a sense of kind of what is the profile of zanza kind of emerging into.

Excellent. We've come up on the end here. Thank you so much for your time. I appreciate it, and look forward to seeing more in the future.

Yes. Thank you. Thank you once again.