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

All right. So we'll get started. Good morning, everybody. Thanks for attending our 45th Growth Stock Conference this year and for your interest in Exelixis. I'm one of the biotech analysts here at William Blair. Before we get started, for a full list of disclosures and conflicts, please visit our website. So it's our pleasure to introduce Andrew Peters, Senior VP of Corporate Strategy. So Andrew, I think let's get started maybe with a quick intro, and then we can dig into various different topics.

Yes. Great. Thanks for having us. Thanks for the invite. Always like the conference, always like the crowd here. Before I begin, we'll be making forwarding statements today, so please see relevant disclosures around risks in our business and our regulatory filings. So yes, glad to be in Chicago. Look forward to this conference every year in part because it's coming off of the heels of ASCO. ASCO, obviously, a big meeting for us, not only in terms of the data that we've presented from our kind of key pipeline programs, zanzalintinib. But frankly, I think one of the most heartening points of feedback I heard kind of throughout the weekend was around our presence in the kind of exhibition hall and from kind of our commercial booth and our MSL booth. And I think someone described it as kind of Exelixis was standing among the Redwoods. And what that means was we were there really among the big pharma players. And I think that's a good way to think about our business. So CABOMETYX, our main drug is one of the standards of care, the leading I-O/TKI or TKI in kidney cancer. And the success that we've had with CABOMETYX to kind of define the standard of care and really be that #1 player is just a good example of what good data can do and what a good team can do. And so when I was walking throughout that kind of hall and seeing the robust presence we had, not only just kind of in the scale of our booth, but the people that were there and the clinicians and all the conversations that we were having not only about RCC, but our newest indication in neuroendocrine tumors, it's just something that, to me, resonates where we are as a company. So I think we've been kind of at this verge of a breakout for a while as a company. So obviously, over the last several years, we've had to work through the dynamics of an ANDA challenge and kind of patent litigation and all of that stuff. But really starting in the third quarter of last year, once that was resolved, we had an opportunity to essentially redefine Exelixis for the Street, for stakeholders. I say this is who we are. And who we are is a commercial oncology company doing roughly $2 billion a year in our main drug, CABOMETYX, with guidance or aspirational guidance to grow that to $3 billion by 2030. And then kind of fast on the heels of that, zanzalintinib, our key pipeline drug that I mentioned before in 6 planned or pivotal studies or ongoing pivotal studies that has the potential to help kind of our top line grow through that end of LOE for cabo in 2031. And so big picture, if cabo's potential $3 billion, we gave a number for $5 billion for zanza by 2033 and really understanding either through our pipeline investment or external innovation that we can be opportunistic with -- given our balance sheet and kind of financial wherewithal, can we find that third drug? Because simplistically, as a strategy guy, our industry is pretty simple. The more patients we treat, the more patients we help, the more value we can create. And so we're certainly doing that with cabo. We certainly have aspirations to do that with zanza. And then whether it's new data coming from our pipeline or seeing at a conference like ASCO, another drug that we have the opportunity to bring in, aspirationally, we want to help more patients. And when we do that, we think we can create a lot of value. And given that we have this kind of scale and expertise as a big, small company, we want to do that again and again and again and again. And so big picture, we think we're kind of at this breakout point and just want to continue on that momentum.

Great. I think we could spend a lot of time talking about the fundamentals and drivers, but I wanted to get one thing out of the way is the share repurchase. You talked about some of the drivers that can fuel top line growth, but some of the accretion you see in the bottom line can be driven by some of the stock repurchase. So $1.5 billion done, another $500 million. Can you just talk about maybe how you're thinking about capital allocation and...

So kind of capital allocation, I guess we think about it in 3 buckets. The first is continuing to invest in our internal pipeline. So we spent about $1 billion a year in R&D. And one of the dynamics about Exelixis that I think is especially relevant in a conference like this is that we have a kind of a funny thing is we run Exelixis like a business, not a biotech. And so what we mean by that is we're pretty disciplined in terms of how we spend and how we think about spend. And that $1 billion is probably more of a flat dynamic going forward than a lot of companies just think of R&D as an ever-growing line item. So that's kind of bucket one. We think $1 billion is a lot to spend in R&D. And within that, we obviously want to prioritize what we think is going to be successful. We want to invest in the winners and kill the drugs that aren't going to establish new standards of care as quick as we can. So that's kind of point one. Bucket 2 is kind of external opportunity, external innovation. And we want to be strategically positioned to have that optionality that if we do see that high conviction external asset that can fit well within our portfolio, we want to be able to move on that quickly. On that front, that what I mentioned before, this big small company dynamic. What we mean by that is if you look at Exelixis from the outside, in our little sleeve of the world, kind of GI, GU oncology, we probably look more big pharma like than anything. Certainly, our commercial organization can execute and can scale with all of our peers. And as a company, we've run 20-plus pivotal studies. And so we have that ability to really at scale, invest and maximize value for any particular asset. We think we can through a differentiated lens, understand, is this a good drug or not? How does this look like in our hands versus what does it look like right now? And how do we create value? And then lastly is that kind of third bucket of stock buybacks and kind of more of the shareholder-friendly focus. And I think the success that we have around cabo and hopefully with zanza allow us to continue to kind of invest in those 3 buckets and be opportunistic and how we think about value creation overall.

Great. I wanted to dig a little bit deeper into the Q1 dynamics. Stock reacted super favorably afterwards. It's a beat and raise quarter. The competitive dynamics have been pretty stagnant, I would characterize in the past 3 years. Now you have cabo in Q1 taking market share from every single competitor in the TKI space, especially pronounced in the new patient segment. So I guess everybody is trying to figure out what's going on there?

Yes. I mean it's -- at the end of the day, it's about the data and it's about the team. And I think on the first part, we had the 5-year update to the 9ER study at ASCO GU in January. And to us, it really just emphasizes that the data set of cabo in combination with nivo really is suggestive of a best-in-class therapy, and there are a lot of kind of nuances to that. And those are the sorts of things that our team goes out and markets to. But to the latter point, we really think we have kind of a best-in-class in biopharma commercial organization. We have the ability to really hyper focus just on cabo and really go out day after day after day after day with our foot on the gas and recognizing that as other companies either shift priority or frankly, just take their eye off the ball, we have the ability to immediately kind of grab share. So we have sophisticated analytics organization. We have a sophisticated just commercial organization in general that we think allow us to kind of continue to maximize every opportunity that we can see. And so when we talk about, say, 2030 cabo guidance, a big part of that is just continued momentum in the base business. And to us, it's a bit of an example of why we are an outlier in our business. So if you look historically, most drug launches tend to hit steady state around 5 to 7 quarters after approval. We're now 4-plus years into 9ER, and we're still growing. And so I think, again, that's a testament to the data, but it's also a testament to the team and how we can kind of continue this momentum and expect to continue this momentum.

Okay. Maybe moving on to one of the newer indications in neuroendocrine tumors, kind of going back to small company running on large-scale commercial infrastructure. You said you basically detailed 70% of the prescriber base in the first few weeks. So kind of talk about that dynamic, right? You basically have clinical operations also kind of running alongside commercial organization at the same time. Commercial is launching in cabo and clinical operations enrolling patients with zanza. Can you kind of talk about that? Is there a synergy that can be derived from those 2 initiatives?

Yes. I mean, obviously, kind of we want to grow into the market leaders in neuroendocrine tumors similar that we're the market leaders in RCC, whether it's true across kind of the clinical landscape, certainly on the commercial side. As we think about the NET launch, in the past, kind of we've talked about some unique or especially favorable dynamics that we have. So as an example, what we've said, 75%, 80% of NET prescribers, neuroendocrine tumor prescribers already write cabo scripts for another indication. So there's this inherent familiarity with cabo as a drug that I think is certainly favorable. With any new drug launch, you kind of have this learning curve on the physician side, on the prescriber side to really understand the -- how do you give this patient? How do you manage them through tolerability issues? How do you just deal with reimbursement issues and all of the kind of practical things that can be challenging. So the fact that we had such a significant overlap with our existing kind of cabo business really starts us off on a pretty favorable footing. And then secondly, in that kind of 20%, 25% of prescribers who haven't written cabo, we found that the vast, vast majority of those were actually in centers that were already prescribing cabo. And so I like to talk with our commercial folks because they have all these funny expressions and jargon about stuff. And they talk about things like windshield time, which makes sense. Reps are driving from office to office in front of a windshield. And so from a windshield time perspective, if they're already going to an oncology center where they're seeing someone, say, for RCC, but that a NET specialist happens to be in the office next door, that's kind of an inherent, again, built-in synergy that we can really take advantage of. And so maybe the prescriber may not be as familiar with cabo, but the back office and all of the kind of operational things that are involved with getting patients on drug and working through insurance and all those dynamics. So they may be there. And so when we think about the NET launch, one of the reasons we've been so optimistic is not just about the data, which I think, again, coming back to my earlier comment, it's about the data and it's about the team. The data in CABINET are particularly strong. We're super excited about it. And all of our market research has been consistently favorable. But then it's about all kind of the other things that I think we do particularly well. So NET has been something that we've been especially excited about.

Yes. Yes. I want to also talk a little bit about the broad label, right? So the label did not specify any sort of grade specifications, any sort of pretreatment kind of restrictions. So how does that kind of fit into the launch planning?

Yes. A similar question kind of came up earlier today in a chat with an investor. And I think the way that I tend to think about it is the label reflects the study. CABINET study was a broad population across pNET, epNET, and it really showed a consistency of effect that patients do benefit from cabo. And so the market research has been pretty consistent in that there's probably much less of a delineation between all of these different smaller subtypes of NET as opposed to kind of this emerging view that, frankly, cabo is effective in broader neuroendocrine tumors. And so that's something that's a dynamic that plays out. What I always say is we have sat in the back of some of these ad boards and market research sessions. And when you present on a blinded basis, the CABINET data, any time you have a 0.2 and 0.4 in the HRs tend to react pretty favorably. But then when we unblind it and say, oh, this is cabo, kind of this light goes off. And it's like, oh, okay, yes. And so one of the things I think we've talked about is that, we've been pretty heartened to see that we're seeing scripts for 40-milligram dose for cabo being written. And that's really indicative of a familiarity with the drug in this population. So as a kind of a reminder for the audience, cabo is approved at several doses, 60 milligrams is monotherapy, and that's what was studied in CABINET. But the dose that's used in the 9ER study is 40 milligrams. The idea to kind of rewind the clock a bit around that was in combination with a checkpoint inhibitor, maybe we want to take a little bit off the top in terms of efficacy, but it's a more kind of user-friendly dose. And so the fact that it's a dose that physicians are comfortable with, they kind of know the nuances of how to treat through these adverse events. It just shows that a lot of the things that we had hoped for as we were looking ahead to the launch are starting to play out.

Interesting. Okay. So this is the first kind of broker conference after ASCO. So it's a good opportunity to kind of talk about the poster presentation, actually the oral presentation along with the poster presentation at ASCO. So the RCC cohort largely mirrors of that what was presented for CheckMate 9ER. So can you talk about some of the takeaways maybe from an efficacy perspective, largely very similar tolerability perspective, right? That's the kind of the hypothesis that went into the design of zanza inspired by cabo -- takeaways.

Yes. So obviously, kind of hot off the presses on the heels of this weekend at ASCO. Kind of key takeaway, zanza is highly active drug in RCC. And to kind of take a little bit of a step back and remind the audience of kind of the hypothesis around zanza, we think cabo is a very effective drug, obviously, commercially very successful. But when we were thinking about how to improve it, we had identified kind of its one liability, so to speak, is it has a particularly long half-life around 100 hours. And so what that means from a practical management of patients' perspective, if you think about a patient who is on cabo either as monotherapy or in combination, all patients on TKIs ultimately see an adverse event. And when you see an adverse event, you dose hold for resolution of symptoms and then rechallenge it at a lower dose. But given the half-life, given the accumulation in plasma, that kind of dose hold washout period can be 10 days, 2 weeks, sometimes even longer. And so what that means is you have a metastatic cancer patient who's not being treated. And when you layer on the fact that we think the future of oncology is likely in multimodality combinations, any time you have one drug that's being held, you may not be able to know, is it cabo that's causing this particular event? Or is it the other one? So do you dose hold both? It gets particularly challenging from, say, just a treatment algorithm perspective. And so the genesis, the idea around zanza was can we phenocopy the kinase inhibition profile of cabo, kind of the sweet spot, the secret sauce of why we think it's effective, but change the half-life to make it more user-friendly. And so what our medicinal chemists were able to do was to take that core cabozantinib scaffold, engineer a metabolic liability into really kind of the nonactive portion of that scaffold and take the half-life from about 100 hours to a little under a day, around 23 hours. And so all of the data that we've presented so far are roughly consistent with that hypothesis that we've been able to kind of maintain that highly active TKI with a much shorter half-life that presumably is more user-friendly and combinable and blah, blah, blah. Unsurprisingly, when you change the half-life, you change some of the physical properties of the drug around, say, things like tissue distribution, amount of drug that's in plasma versus tumor that sort of stuff. And so that's where early days, but we're potentially starting to see some differentiation on tolerability, say, things like PPE or hand-foot syndrome, certainly look different. But from our perspective, the way we think about the world is the cosmic truth around what cabo looks like is ultimately going to come from the pivotal data. As much as we all like to go and look at posters and orals and all the fun stuff at ASCO, really kind of the key stuff is the Phase IIIs. And so the ASCO data were certainly consistent with a highly active drug, certainly an interesting kind of emerging tolerability profile. But personally, I'm looking ahead to the 2 pivotal readouts that we have later this year, first in third-line colorectal cancer in combination with atezo and then later in combination with nivo in a non-clear cell RCC frontline population. And so there, we'll kind of get a much better understanding of what zanza is and what it's likely to be. But I look at the ASCO data, and I think it's clearly indicative of a good drug.

Great. Good segue into the next set of questions that we have, which is kind of digging into some of the topics around the Phase III. So first one is with the 303. There's been some changes, right, in the primary endpoint. I've got a lot of client questions after the call about what's driving that change. Personally, I actually am very enthusiastic about the change, right? Cabo has shown really good activity in visceral metastases across all solid tumors, liver, prostate, kidney. So you basically kind of can really detect that signal by going the ITT. So maybe for the audience and for those listening on the call, can you kind of go through that history, what drove some of the changes, version 2.0, version 3.0, where we landed?

Yes. I mean I think throughout our history, we've had experience or we have an expression internally. Ultimately, we're on the business of p-values. P-values drive new standards of care, new standards of care drive revenue. And so we don't want to be in the business of running trials. We want to be in the business of running successful trials. And so when we first started 303, it was on the heels of a couple of interesting data sets of cabo with Durva or cabo with atezo in kind of a similar patient population. And then after that trial was initiated, Merck had a study called LEAP-017 or LEAP-17 looking at pembro with one of their multifunction TKIs or multi-target TKIs called lenvatinib and in a similar patient population. And we looked at that data and came to the conclusion that while we're certainly paying attention to some of the emerging signs and signals from our early cabo experience, the caveats around limited interpretability of Phase I data certainly apply. And so we recognize and believe that there's likely much more to learn in these large randomized studies around how patients are likely to respond, what patient population or stratification factors matter and all of that. And so we recognized in kind of LEAP-17 that, say, something like RAS status was probably less relevant from an overall probability of success perspective than, say, something like does the patient have liver metastases or not. And that was this emerging theme in kind of all colorectal cancer studies that there are almost kind of 2 functionally different groups, patients with and without liver metastases. And so that first amendment that we made actually kind of focused on that dynamic, and we had instituted let's call it a hierarchical statistical analysis around first looking at that non-liver met group and then on the liver met group. And so we amended the study, made some changes there to kind of focus on that and some other things. And then as kind of the study began to mature, we started seeing unsurprisingly a differential event rate in kind of the 2 groups. So the reason I say it's unsurprising, if you think about a patient who has a metastasis in their liver, they're functionally likely to do much worse. And unfortunately, they're likely to die sooner than someone who doesn't have liver mets. And so if you think about overall survival as the primary endpoint in the study, on a blinded basis, we were seeing kind of this differential accrual of events in the 2 populations. And so the amendment that we made that we talked about on the third quarter call, really simplistically was more of a temporal one. Given the fact that we were seeing a difference in event accruals across the 2 arms, what it allows us to do is essentially left shift the analysis and frankly, look at a larger group of patients, the ITT versus the non-liver met group. From a market opportunity perspective, we've talked about the non-liver met group being roughly equivalent to the patients with liver metastases. The reason for that is even though the NLM population is about 30% of patients, because they tend to do longer, they tend to be on drug longer, from a market opportunity perspective, it actually kind of balances out. So if we think about the third-line colorectal is a roughly $1 billion opportunity, what this latest amendment does is it allows us to essentially temporarily shift the analysis into a much larger group. So we're excited about the change that we made, and we'll see data later this year.

Okay. And then maybe moving on to RCC, which is kind of the bread and butter of Exelixis basically a repeat of the highly successful 9ER study, but in a different histology. You also have, I guess, the PET MET study, right, from Dr. Powell showing cabo head-to-head better than SUTENT. So I guess my view is it's technically a very low-risk study. But I'm curious, in the event of a positive readout, the ongoing message from the KOL community is through the -- a large number of TKI/IO combinations out there, learn one and use it as well. I'm curious about how this data could really break that message.

Yes. The non-clear cell segment is a little unique and interesting to me. When we were first thinking about the 304 study, kind of struck me and I think a lot of people is interesting that there had never been a Phase III run in that indication in that population. Part of the reason for that is any drug that has approval in kidney cancer, it's inclusive of both clear cell and non-clear cell. The label doesn't really delineate between the two. And so kind of use is technically everything is on label. And then adoption tends to be a little bit of a hodgepodge based on NCCN guidelines that are kind of driven by unrandomized small single-arm studies that really don't provide Level 1 evidence as to kind of what a standard of care or what the standard of care in the indication is. And so what we think 304 allows us to do is to essentially provide that, that randomized pivotal data against a standard of care in non-clear RCC that has the ability to essentially define what patients should get or could get in that population. And so it's a trial we're excited for, one that we're going to be kind of on the bleeding edge, so to speak, is kind of that first pivotal data there. But really kind of that was the rationale behind it is that use and utilization tends to be based more on kind of smaller studies that we all recognize can be complicated to really draw meaningful conclusions from. And so we wanted to essentially define the new standard of care with a large pivotal study.

Okay. Great. Well, thank you so much, Andrew. So our breakout room is Burnham A on the second floor, so we can continue the discussion that way. But thank you very much for your attention.