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

Well, good afternoon, everybody, and thank you once again for joining us for the Sixth annual Oncology Innovation Summit. I'm Yaron Werber from the TD Cowen Biotech team. And it's a great pleasure to have with us today, really needs the introduction, Andrew Peters, Senior Vice President of Strategy, and a former very well esteemed a Wall Streeter. So Andrew, thanks for joining. We appreciate it.

Yes, thanks for the invite. Love doing these sorts of things.

So lots to cover. We were just talking, we only have 25 minutes. And with Exelixis, there's really a lot going on these days. So let's kind of dive right into, let's talk about commercial first. So cabo had a very strong Q1, driven by several things. Number one, prescriptions continue to go up. It's obviously continuing to capture share in RCC. There was a $12 million clinical trial order, but for the audience, historically, that's range between $4 million and $22 million per quarter. In the last 2 years, it's kind of ranged between $4 million and $12 million. So it kind of fluctuates up and down a little bit. There was very little, you said, on the NET approval, the neuroendocrine tumors. It was only approved a week. There was a week left in the quarter. And the gross to net was mostly in line. So I guess the first question is IQVIA -- the trackers really didn't do a good job tracking this quarter. Usually, they do. I know there was usually a gross to net benefit or a Part D. The Part D reset, I think, was also a tailwind. You don't have to pay under SG&A for the co-pay support, but that's an SG&A line. That's not a revenue line. So I guess the question is, why -- what else will be missing? Did something happen in the 340B channel? Why wasn't IQVIA tracking it well this quarter?

Yes. So great set of questions there. So kind of -- we'll jump right into it. I guess, before I start, actually, want to -- as a reminder, are going to be making some forward-looking statements today. So please see relevant risks and disclosures in our regulatory filings around any of the forward-looking statements today. So obviously, a couple of weeks ago, reported 1Q results, very strong results. I couldn't be more excited about how kind of the business is shaping up. And as we've talked about, we think we've been on this cusp of a breakout for a while, not only kind of with the core cabo business, but everything we're going to talk about later with zanza and the pipeline and all of that. But really at the heart of it is the continued success and momentum we have with kind of that core cabo-based business and then the newly nascent neuroendocrine tumor watch. So within that, we think really kind of there are a bunch of components to keep in mind. The first one is all drugs and their success commercially come down to 2 things, the data and the team. And as it relates to kind of cabo and this continued momentum that we've had, it really is an outlier. So if you think about most drug launches tend to hit steady state 5 to 7 quarters post new indication launch. And we're now 4 years plus into cabo/nivo and frontline RCC based on the back of the 9ER data. And so we're clearly an outlier there, and the question becomes, why? A big chunk of that, as I mentioned before, is the data. So at ASCO GU in January, we actually had the 5-year kind of final survival data, 5-year update. And kind of the key message from that data set is something that resonates kind of on the KOL side, resonates on the physician side, certainly resonates on the patient side, is that erosion that often times you see as trials progress really hasn't been seen in the 9ER study. And so the data continues to remain robust and that's really why we think it remains the #1 IO-TKI combo and then also kind of the #1 TKI as a monotherapy as well. So data. Then the second part, and as Mike likes to talk about, as I like to talk about, it's really about the team as well. And so if you think about kind of who Exelixis is, we describe ourselves as a big small company. In the big side of that dynamic is that our team, we think is not only the best in biotech in our little sea of the world, but really the best in biopharma. So we have the ability with just focusing on kind of that GI oncology solid tumor landscape to go out and really excel. We don't have distractions from other drug launches. We don't have distractions from being kind of in that big pharma ecosystem that can have various polls on all the reps. We have a team that's focused on the cabo data, that's focus on the cabo mission of really kind of making sure that cabozantinib, CABOMETYX is part of the patient journey for every patient who has RCC. So kind of those 2 dynamics really kind of what we think kind of drive results. As to kind of the dynamics around IQVIA, I think the reality is, it's an imperfect metric. It's an imperfect tool to try and help everyone, us included, get a sense of kind of how real-world data are tracking. The asymmetric information here, kind of the challenges is we see every day kind of that real-time sales in IQVIA essentially uses really sophisticated algorithms to take a little sliver of the overall pie and try and extrapolate as to kind of what the pie looks like. Directionally, it can be accurate, but there's certainly some seasonality or kind of changes within that can make it somewhat challenging. You mentioned gross to NET, as Chris talked about, Gross to NET was a little bit higher in the first quarter. But one of the dynamics that we didn't see this year was actually kind of relative to 1Q '24 that phase in of the rebate period of the IRA change really was something that was new and novel for a lot of practices last year. And January was kind of chaos, February was a little bit better, March was a little bit better than that and kind of by April and the rest of the year, these practices understood kind of how the new rebate rules and changes around IRA actually worked in practice. And so that kind of impacted some of the year-over-year dynamics as well. So 1Q results ultimately I tend to think about a lot of that stuff as the noise. It's really much more and as P.J. talked about, kind of a demand-based, team-based, database results that we're seeing that continued momentum in the base business. and what drove not only kind of our increased guidance, but frankly, the enthusiasm that Mike and P.J. and Chris and all of us talk about around how we see cabo growing from kind of the $2 billion plus/minus franchise now to $3 billion by 2030, not only on the back of the net launch, but certainly continued momentum in that base business.

Okay. Yes, that's terrific. The -- so maybe let's just focus on the biotech small manufacturer rebates that phase in because that's not -- we don't hear that mentioned often, that's about a 1% rebate. So can you explain what that is? Is it -- when one looks it up, it talks about Part B like boy, you're obviously much more Part D, like dog. So it has to do with rebating over -- of price increases over the CPI. But you've not been really -- so maybe talk about the recent price increases and why this -- why you qualify?

Yes. I mean there's a lot in there and to kind of get into the weeds, get into the minutia of it. We probably take the rest of the time. But I think in general, you correctly highlighted, it's a 1% rebate phase in this year. And then we qualify simply because there's certain thresholds and metrics around percent of revenue dedicated to essentially Medicare business. and we qualify under that metric. One of the things that I often joke about is any time you try and kind of extrapolate it so what's going to happen in the future as it relates to what government programs are going to do, no one knows. But I think the best way to think about it is, for this year, it's kind of that 1% rebate as opposed to kind of the differences that pharma phases either in the phase-in or the catastrophic period and that's around that kind of 80% threshold that we qualify for.

80% of sales, right?

Yes.

Related to that drug. But you do not get that rebate from next year onwards, right, based on the IRA?

Again, I'm not getting into the specifics, it's a phase-in period over time that the small manufacturers qualified for us. So it's 1%, and it grows incrementally from there. But again, kind of there's a little bit of -- we'll wait and see as to how that actual change actual implementation goes over time.

So that's a 1% -- that's literally 1% of sales to Medicare.

No. It's a little bit more kind of complicated than that. It's not a 1% of sales. The total sales is more the threshold around do you qualify for the exemption or not. The rebate period is the 1%, rebate amount.

Got it. Okay. But that's a rebate back to the company, right? Of what you don't need to pay to Medicare? Or what...

It's related to kind of the overall discount that -- I mean, the purpose of the overall legislation was to ultimately impact how the burden that the patients face. And so the percent of that burden that falls on various participants in the ecosystem, whether it's the manufacturer, whether it's the insurer, whether it's Medicare, et cetera, in the patient. And so it's -- that component that the small manufacturers...

In the catastrophic phase. Yes.

Correct. That our treated differently than, say, large conglomerate pharmaceutical.

Right. It's out of the 20% in the catastrophic that the industry is on the hook for...

Yes. And again, I mean a lot of that's just kind of green [indiscernible] from -- really kind of the way that I have conceptualized. And I think about as it relates to our business is really that 1% is relatively de minimis to the overall hit of our business this year.

Yes. Great. Let's talk about the NET launch coming up or that's ongoing right now. On the call, there was a question about what -- do you expect a bolus? And I mean, historically, right, we both know. And when you're launching into an unmet need refractory solid tumors with a new product with great data, there's always going to be patients who are going to want to come and get treated and physicians are going to want to use a new drug pretty quickly, whether it's a bolus because of warehousing or just initial typical curve, right? Why shouldn't this launch go pretty quick, just given the data?

Yes. I mean so P.J. talked a little bit about this on the 1Q call. I mean, one of the dynamics that we consider as we think about bolus of patients or just launch curve trajectory and dynamics is the relative state of the patients who are likely to get treated. And what P.J. has talked about is given that these are later line, more advanced patients, they don't necessarily have that ability to just remain untreated, while they wait for cabo approval. And so given the advanced state of in-stage of these patients, we don't really see kind of that bolus dynamic as necessarily happening, much different than other tumor types where you have kind of more of a watch-and-wait situation where maybe patients are coming in for regular scans, but they're not being treated currently. So the physicians have the ability to withhold therapy or kind of continue to watch and wait until next available therapies on market. And so with cabo, given kind of the nature of these advanced patients, we really don't see that dynamic playing out as much as it has in other analog launches.

Yes. And so you essentially got a fairly broad label, which population do you see coming on therapy, kind of the fastest?

Yes. So I mean one of the things that's always jumped out to me kind of when I listened in and sat in on a lot of the market research and kind of ad boards and KOL panels and patient panels that we've done is really kind of the breadth of the label, not only kind of from a regulatory perspective, but NCCN guidelines as well is really that the cabinet data show that cabozantinib has the potential to really have a positive impact for the pretty wide range of patients. And so what has never jumped out to me is individual pockets of pNET or epNET or any of those dynamics, who we see is especially likely to kind of move towards coming on to therapy. It's more that the response has generally been near universal. I always joke that it's really rewarding and heartening to see in this industry. When data come out, you see 0.2 and 0.4 in front of the HRs on TFS. That really means you're having quite an impact on these patients' lives. And the totality of that cabinet data really resonate across the spectrum of NETs. And because of that, I don't really think there's going to be any sort of pocket of accelerated uptake relative to the others.

Okay. What about Lutathera, right? That's -- it's not the easiest drug to be on. And that chart is actually moving up. So how much of a void? Is it really creating? How fast is it really moving up?

Yes. I mean Lutathera's relative to the oral options is a little bit of a somewhat unique dynamic. I think you correctly identified some of the challenges that patients and physicians have with Lutathera. And again, coming back to some of those ad board discussions, I've heard anecdotally around patients who are trying to work through whether or not they're going to go on to something like Lutathera, given the fact that you're functionally radioactive for a certain amount of time, you can't be around children. And so if someone say a kindergarten teacher or something like that, how does that influence their decision-making around whether to go on drug or not. So it's kind of a unique dynamic that's starting to emerge in the marketplace. But really, again, what I'd point to is when we've talked about that $1 billion total addressable market across the oral options for these patients, that tends to be kind of on the later side of things as you point out, if Lutathera goes early. So it's much less around taking share from Lutathera, but identifying kind of who are those patients right now that currently get some of those oral cytotoxics. And then how does cabo in the cabinet data fit in. And with our team, our voice share, how do we kind of go out and compliantly market to that data to make sure that patients and physicians understand the potential benefits of that cabinet data set. That voice share dynamic is certainly something that is probably underappreciated. When you think about that segment, whether or not patients get everolimus, SUTENT or CAPTEM, those are on generic options right now. So there's really not a voice in the market kind of advocating and really kind of driving utilization. So we think we have the opportunity with our team to kind of go out there and appropriately frame the cabinet data and the breadth of the impact that it has potentially has for patients. And so that's kind of ride. You'll always hear this enthusiasm from us because we really think this is a great opportunity.

And the -- or the SSAs, Mycapssa, is that branded, Chiasma that's part of Amryt Pharma. Are there any sort of branded SSAs at this point?

Well, so the SSAs are kind of a slightly different bucket. So somatostatin analogs, depending on if the patients as STR positive or negative, they're kind of always used. So if you look at the cabinet data set, for example, cabo was used on top of background SSA for a pretty good chunk of patients. I always think it's analogous to say like a prostate cancer market where patients remain on background kind of ADT and then additional therapies are layered on top of. Obviously, it's different based on SSTR status. But it's something that is probably more familiar to a bigger group of investors, I mean live and breath the NET world as much as we do.

Yes. Okay. Let's move to zenza, a lot to talk there. So let's maybe move first to the -- specifically to the CRC upcoming data in the second half of the year. So you're at this point now elevated. This is the STELLAR-303 study, elevated the liver mets patient to be a co-primary on survival.

Dual primary.

As a dual and [indiscernible]. Before it was really the endpoint was in nonliver mets, what -- and the data is obviously blinded. You're able to see a blinded data set. What led to that decision at this time point?

Yes. So we talked about on the call and subsequent to that is really pretty simple. So if you think about it, we see blinded event rates coming in, in patients with liver metastases in patients without metastases in the liver, tend to have functionally pretty distinct diseases. If you think about it, it makes sense that if you have a tumor that's in the liver, you tend to have much worse prognosis, much worse outcomes and unfortunately, you're much likelier to expire in a shorter period of time. So if you think about it from kind of a blinded event rate perspective, we were seeing differentiated rates coming in, in those 2 populations. And so the relative maturity of those 2 data sets allowed us to make this change so that we can really have the opportunity to have the widest or largest group possible. We've talked about the liver met and non-liver met populations being roughly equal from a market size perspective, even though the non-liver met group is about 30%. The reason for that is that non-liver met patients tend to do better, tend to live longer, they tend to be on drug longer. So even though kind of the live met group is much larger, the opportunity set is similar. So making this change based on a temporal analysis of the relative event rates between the 2 groups essentially allows us to have the opportunity to evaluate the biggest group possible to potentially have the beneficial outcome for more patients. So it really was about kind of the difference in the temporal event rate between the 2 groups that really makes a lot of sense based on the physiology of those patients.

But you would expect to have benefits in both?

That's the hope. Yes. I mean if you look at the STELLAR-001 data that we presented at ASCO GI earlier this year, that's what drives a lot of my enthusiasm and drives a lot of our enthusiasm because you can see, again, 303 is comparing the combination of tezo/zana versus regorafenib. And so if you compare the ITT data there as well as the data in the non-liver met group. We think that if those data hold up in 303, they certainly would compare favorably with what you would expect based on kind of historic rego outcomes. And so combination of all of those things.

Yes. And then STELLAR-305 is the go/no go based on the Phase II portion in head and neck. This is zanza with KEYTRUDA against KEYTRUDA alone. The LENVIMA, the LEAP-010 study failed, LENVIMA KEYTRUDA actually did worse than KEYTRUDA alone in the Phase II, which was a surprise relative to the Phase II. I think there's a thought that it was because of tolerability. So why would zanza be really better?

Yes. So I mean, I think it's a good illustration of our approach in general. So obviously, with 303, we've made amendments to that study to, in our mind, increase the probability of success, including learning from other contemporaneous trials, like in the case of CRC, looking at the LEAP-17 results to understand some of those important dynamics around trial design. Similarly, with LEAP-010, so you mentioned that len/pem actually showed a detriment and was not a successful study. But importantly, it wasn't a successful study on overall survival. The doublet actually showed pretty robust improvements, not only on response rates, but PFS. But those -- the benefit that those patients saw was ultimately very, very short-lived. And because of what we think are tolerability toxicity issues drove kind of that inversion of the survival curve. So what we thought with 305 was really to say, okay, we've generated really compelling data, we think in a prior kind of smallish Phase II IST with cabo and pembro. So clearly, a patient population that we think is sensitive to a cabo-like drug, but Ken/zanza, which we envision, which we designed to be a more user-friendly, more combinable, potentially more tolerable can those benefits that you see that are on response rate in PFS actually translate to overall survival. Because if you look at the LEAP-010 data and you look at the discontinuation rate, what you really have are 2 groups of patients. patients who discontinued the len arm. So on -- depending on the durability of the time on that doublet, what you're really doing is you're randomizing survival pen versus pen. And then the second group of patients discontinued both therapies due to [ tox ]. And so again, you're having a group of patients, which is functionally placebo versus pem on a longer-term kind of survival look. And so unsurprising, if you're seeing a lot of this heightened tolerability concern with lenvatinib not necessarily translating to a survival benefit. And that's something that unfortunately has been seen with a lot of the LEAP studies that Merck has run over time. So really kind of the question that we wanted to ask with zanza is can that more combine a more and more potential user-friendly, potentially more tolerable TKI partner with pembro to drive survival in these patients. So that's really the goal of the 305 study.

And the Phase II component is that looking at ORR and mDOR? What drives the go/no go?

So we actually haven't broken out kind of what that go/no go decision is based on obvious -- for obvious competitive reasons. But I think an important dynamic for you to consider and for investors to consider is that we're actually not going to see that data. So understandably, as you imagine, in order for that Phase II portion of the data to be used in the overall analysis. We don't see that we remain blinded to it because otherwise, if we saw that data, we'd essentially have to restart the Phase III study. And from a temporal perspective, again, that's not super practical. And so we're just going to get a decision around is the study going to get going to continue or not.

Yes. And at that point, you'll communicate it to us. I mean, presumably, it's based on ORR some kind of durability, I imagine it's going to be way too early to look at survival.

We just haven't said one way or the other.

Okay. So that's just a go-no-go announcement basically?

Yes.

Okay. And then maybe I know we're running over now the -- maybe a non-CC RCC, I mean, that trial design makes a lot of sense because cabo is not formally approved, it's on the NCCN guidelines, what's the risk to that study? I mean, that study really should work.

Yes. I mean that's the point of running these studies, so to speak, but it's one we're particularly excited about One of the things that I've always found interesting is that there haven't been large randomized studies done in the non-clear cell population. It's one of the reasons why we're doing it actually. Utilization is really driven by a lot of kind of guidelines based on single arm on the randomized data. So what 304 is really an opportunity to define a new standard of care in that nonclear cell segment of RCC. So we're excited to share that data later this year. Obviously, it's event-based. So we're kind of monitoring that real time, but certainly something we're looking forward to.

Yes. And that second half. And then for going back to first-line RCC, I mean, given that you have a collaboration with Merck, I mean they're not trying to salvage KEYTRUDA at this point. At some point, it will be biosimilar. They're interested in [indiscernible], you're interested in combo, and you're in the business of better outcomes for patients, right, as you say. The best outcome right now is Nevocabo, so that's the control. So you potentially can go KEYTRUDA, zanza that's pretty -- that's for SK, but maybe doing a well reg pem/cabo would make sense. Anything I'm missing because that was a [indiscernible] market someone for you.

Again, so we agreed with our partners, Merck, not to share additional details on the zanza studies until they're up and running later this year. So kind of stay tuned there. Certainly, a lot to talk about, but we've just agreed with our partners to kind of keep that a little under reps, obviously, super competitive space. So I want to make sure that the studies are up and running before we really kind of flush out a lot of those details.

Yes. Okay. And then maybe finally on -- for the early pipeline, I know we're at 3:00. So maybe I'll -- you have a lot going on in the early pipeline. Maybe -- is there 1 drug you want to highlight to us really quickly in the Phase I stages?

Yes. I mean we're -- as we were talking about before this got started, kind of we're all in that pre-ASCO reading up on anything phase. And seems like bispecifics are the topic du jour. So 628 is a program that recently went into the clinic. And I think I and a lot of folks have been surprised at the interest and enthusiasm for that program. So that's a PD-L1 NKG2A bispecific that, in my mind, really reflects a kind of novel approach of taking 2 well-understood mechanisms combining them to really get that adaptive and innate immunity and kind of the same molecule the biology behind, it's super interesting. And when we've talked with kind of these KOLs about it, that's when you see kind of the lights going off in their eyes -- in their head around, "Oh, man, this really is kind of a something that's different. And so ultimately, we're in the business of P values as we like to say. This 1 is in the very earliest stages of getting that going. But when I hear that Oh, this is different. Oh, this is unique. I'm really excited about it. It's something that I always internalize and think, okay, this is one that I like to talk about. But they don't have favorite kids, so to speak. Ultimately, the data is going to have to show which of those programs are going to raise their hand for us to really invest and run with.

And where would that go? I mean NKG2A that's been historically AML lymphoma. It's been tested in autoimmunity. There's a little bit of a gut access to...

It's really kind of a combination of what I briefly mentioned before of how do you co-localize, co-locate the NK cells into the tumor microenvironment in solid tumors. So it's not only kind of the activity of the PD-L1 side, not only the activity of the NKG2A side, but kind of that colocalization dynamic of the bispecific. And how do you form that trimer, can you form that trimer of kind of the tumor cell and the NK cell. And that's something that I think is unique. We had some data earlier this year on that, that I think you should check out, but it's really about some of that novel biology. And as I mentioned before, as we head into ASCO bispecific is certainly on top of a lot of people's minds. So kind of making sure that people are aware of that program.

Yes. Well, terrific, Andrew. Always great to see you. We're out of time.

Yes. Good to see you.

Appreciate it, and we'll see soon.

[indiscernible] flying out to Chicago, and I'm sure I'll see you around.

I'll see you there at the airport as usual.

Yes. Thanks.

Thank you.