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

Welcome to our first fireside chat of the morning. I'm Robert Burns, the Managing Director and Senior Biotech Analyst at H.C. Wainwright. And I'm joined today by Chris Senner, the CFO of Exelixis; as well as Andrew Peters, SVP of Strategy at Exelixis. Gentlemen, thank you for joining us today.

Yes, Robert, thank you very much for having us.

Yes, thanks for the invite.

Awesome. So I guess let's start from a high-level perspective. Obviously, I would assume that a lot of people are familiar with Exelixis and its pipeline. But for those who aren't, can you provide a broad high-level overview of the company as well as what your lead assets are?

Sure. I'll start, and Andrew can fill in where things I've missed. But before we get started in the process of this discussion today, we'll be making forward-looking statements, and as such, involve risk. And so we refer you to our SEC filings for a full description of the risks associated with our business. So Exelixis has been around for 25-plus years. We -- our primary product is CABOMETYX. We've launched CABOMETYX for second-line RCC back in the spring of 2016, and we've added 7, 8 different indications since primarily in RCC, but most recently in NET or neuroendocrine tumors, which we launched in the second quarter of this year. We have about 1,000 to 1,100 employees. We're based in Alameda, California, and we have a pipeline of products come along, including zanzalintinib, which is another TKI, which we're developing in many different indications. But generally, we're a commercial oncology company. I don't know, Andrew, do you have any.

Yes. I mean, I think -- yes, thanks again for the invite. It's a good time to kind of tell the Exelixis story. As Chris highlighted, kind of cabo is our core product. Zanza is moving fast behind it, and then we have kind of the whole pipeline beyond that of earlier-stage molecules. And so kind of the focus in breadth is simply about treating more patients with cancer and building value that way.

Yes. So let's start with the commercial success of cabo. Obviously, there's going to be patent expirations coming relatively soon. So I wanted to get your -- to get a sense as to the financial guidance long term, what role does cabo play within the next 5 years? And then can you give us some insight into the launch of cabo in the GEP-NET situation?

Yes. So from a broad perspective, we put out aspirational guidance looking at cabo in 2030, which is around the time 2030, 2031 when we have loss of exclusivity around $3 billion, right? And so that's made up of primarily current -- the indications prior to NET, which is RCC and then NET, which we launched in the second quarter. We've launched really well. We had -- based on market research, we had about 35% market share for new patient starts. And we thought of it as about 4% of our revenue in the second quarter. And so that's about $20 million or so. So it's been successful. Our guidance for this year, the midpoint of the guidance from a product revenue perspective is around $2.1 billion. And so we've gone from in the last 8, 9 years from very small amount of sales to around $2.1 billion from the midpoint perspective.

Yes. And then kind of similarly on the aspirational guidance side, we also laid out what we think is the opportunity for zanza, kind of long term. And so we talked about by 2033, the clinical trials that we have running at the time represented about $5 billion in revenue. And so if you think kind of longer term, as kind of that cabo revenue is ramping up, rolls off in that 2030, 2031 time frame, that's right around the time that zanza is really kind of hitting what we think could be kind of escape velocity, so to speak, from a revenue perspective, if you look kind of across those indications. And so it's a story where we think the investments that we're making today in zanza is kind of a next-gen TKI set us up well to kind of -- normally, you see these patent cliffs. If anything, kind of we've been very deliberate and strategic about the indications we've selected, the market opportunities that we're pursuing to think of it more as a pothole, if anything, than anything different.

All right. So let's talk about the son of cabo, aka zanza. Obviously, you've got a very broad clinical development strategy here. Why don't you walk us through the clinical trials that you have ongoing and the ones you have planned as well that you're going to disclose later this year?

Yes. So before I kind of get into the breadth of the studies and really kind of why we think of zanza as a franchise molecule, I think it's helpful to kind of provide a little bit of context as to kind of what zanza is or how it was envisioned. As we look back at the development of cabo as kind of the next-gen TKI, VEGF-targeting TKI, really, the core insight there was to not only hit VEGF hard given the angiogenic drivers, a lot of different tumors, but also understand what are the potential resistance mechanisms that can often develop these patients, who are on anti-angiogenic drugs, such as kind of the first-gen TKIs. And so that was kind of the core concept behind cabo. And obviously, we've been successful, and it's now grown to be kind of the #1 TKI, both as a monotherapy and as well as in combination in RCC. But kind of the one liability or issue that kind of comes up with cabo is its relatively long half-life. So it's about a half-life of 4 days. And so from a patient management perspective, that can present certain challenges because all patients who are on these kind of chronic anticancer drugs, develop adverse events and need down titration dose holds, et cetera. And so with that long half-life, it can add some challenges from a pure patient management perspective. And so zanza was conceived to really understand, can we maintain those core kind of kinase drivers, that core efficacy profile of cabo, but engineer it in a way to include some metabolic liabilities into that scaffold to shorten its half-life. And all the data we've presented so far has certainly suggested that we've been successful in that way. So zanza is really kind of a next-gen TKI that kind of takes the best kind of the efficacy drivers of cabo in a more kind of user-friendly format that the hypothesis is to does it allow for increased combinability? Is there the ability to potentially in earlier lines of therapy, say, maintenance kind of dose for longer periods and things like that. So we have 5 pivotal studies up and running or soon to be running right now. And as we talked about on the second quarter call, a couple more that we're excited to begin as well as we, again, think of it as a franchise. So the first, obviously, is STELLAR-303. That's the combination of zanza and atezolizumab against rego in a third-line plus CRC setting. We top line that data earlier this year and are excited to share it as soon as we can kind of pending acceptances of abstracts and all of that. The next is STELLAR-304, that's zanza/nivo against SUTENT in a non-clear cell RCC population. And that's one where we think we really have a chance to establish a standard of care. It's always surprising to me kind of reflecting on that indication where there's never been a real randomized pivotal study in that patient population and can kind of get into a little bit more there. But to us, it's really an opportunity to define a standard of care in that patient population and kind of help with that next leg of the zanza story. Behind that, we have a clinical collaboration with Merck, evaluating zanza and belzutifan. Kind of details TBD, we've agreed with our partners to kind of hold off on those details until they're up and running, but we hope that those will be available and up and running by the end of the year. And then lastly, STELLAR-311, that's zanza versus everolimus, kind of as a first oral option in the neuroendocrine tumor space. And that really builds upon our experience and the success that we've had with cabo in that space. And so we really see the combination of all of those studies as really kind of the driver behind this concept that zanza is a franchise, the same way that cabo is a franchise. We want to go deep into multiple different indications. And then as I'm sure we'll get to later on, we think about franchises kind of multidimensionally, not only with zanza and kind of investing broadly, but within each of those indications, we want to make sure that we can be the market leader in NET, in colorectal with other programs as well.

Yes. I'm glad that you mentioned the STELLAR-303 results. Obviously, we saw the significant overall survival improvement. But it's a co-primary endpoint study and particularly in the non-liver MET, we're still waiting for that readout. So give us a little background as to why you have that as a co-primary endpoint specifically and whether the prognostic value of non-liver mets versus liver mets, is there a difference there?

Yes. So the liver MET, non-liver MET dynamic is something that's emerged over the last 4, 5-plus years in kind of the colorectal cancer landscape. And it's really kind of an empiric observation that these patients really had different prognosis. Unsurprisingly, that if a patient unfortunately has a metastasis to the liver, they're less likely to kind of live as long, unfortunately. The other dynamic there is patients who do not have metastases in the liver, there's, again, kind of this observation that maybe they were potentially more sensitive to something like a checkpoint inhibitor, at least that was the hypothesis. And so given kind of the expected differences or observed differences in past studies between kind of these 2 groups, STELLAR-303 was really conceived to understand can the combination of zanza/atezo be effective in either of those populations or ideally both. And so as we announced earlier this year, we hit on the ITT, which is reflective of kind of both of those groups. And at that time, the number of events that we had seen in the non-liver MET cohort or non-liver MET group was just immature. So kind of waiting for those events to mature and accumulate so we can kind of see an analysis there.

Can we expect that event accumulation to occur this year, by end of year? Do you think that we might see top line?

It's event-based, so kind of stay tuned on that, yes.

No, that's completely fair. Given the late-line nature of that data set, what are your plan to advance zanza into earlier lines of therapy within the colorectal space? I know you were thinking about the post-adjuvant setting.

Yes. So as I mentioned before, I think we really think about Exelixis and how we kind of build and create value is on that kind of franchise approach. So one is to really take that initial signal from 303 and go deep, go broad in colorectal cancer. And so as we looked across the CRC landscape, one of the things that certainly jumped out is the opportunity in that post-adjuvant space. I think there's a lot of really emerging compelling data to suggest that there's kind of this patient population that after they've had surgery and adjuvant chemotherapy, they're still at very high risk of recurrence, 15% plus/minus of patients basically understand that they're at high rate or high risk of recurrence. But currently, the standard of care is watch and wait. And so what we're thinking about zanza studies to really understand can kind of a therapeutic intervention like zanza, which we know colorectal cancer is sensitive to in a kind of maintenance type setting, is that enough to essentially delay recurrence in these patients. And so it's one we're excited about kind of doing a lot of work on right now to get that study up and running, but it's really kind of goes along with this idea that once we see a signal, we want to invest in. That's true for zanza, it's true for the pipeline and was certainly true with cabo.

Yes. Why don't we shift gears a little bit now to the clear cell RCC data that you presented at ASCO, which I thought was highly encouraging relative to CheckMate 9ER. But one of the things that I noticed is that you're still combining with Opdivo. Obviously, there's the burgeoning class of the PD-1, PD-L1, VEGF inhibitors. Any thoughts here on potentially combining with one of those agents instead of just the regular individual monospecific checkpoint inhibitor?

Yes. I mean, I guess the short answer is we're constantly evaluating how to best optimize development of zanza. I think kind of one of the core principles that we talk a lot about internally is everything we do at Exelixis is really through the cabo lens. What we mean by that is cabo is successful really because of its profile and the data that we've been able to generate. And that data, we believe, are differentiating and really have helped kind of shift to the right standard of care for patients. And so when we think about zanza development, it's through the lens of can this combination truly shift -- right shift PFS, OS for patients with cancer. And so as we evaluate opportunities to combine zanza with something like a novel bispecific, it's really asking the question, is it truly differentiated kind of versus today's standard? What are the opportunity sets that we can develop? And so certainly, these novel classes of bispecifics are interesting. I think kind of the industry at large is waiting to see how that overall survival data if it translates. But one of the things that I always bring up is we certainly are kind of developing our own portfolio of potential combinations as well. And so as we look at both internal and external combinations, again, it's through that lens of can we generate differentiating data because that's the only way we can be successful commercially and treat more patients and all of that. So stay tuned there. It's really a matter of can we get that conviction ourselves that this combination, whether it's a doublet, whether it's a triplet, really has the ability to kind of right shift that curve.

When we think about zanza, obviously, you put out some projections where you thought that it could generate up to $5 billion, right? And obviously, I saw that you called the potential for head and neck cancer not too long ago. So factoring in that change as well as the additional Phase III trials that you plan to initiate later this year, is that $5 billion benchmark that you sort of have put out there into the ether, is that liable to change higher or lower at this point?

Yes. I mean, again, as Chris mentioned earlier, kind of that aspirational guidance about what those 5 studies with zanza can do. What we talked about on the second quarter call is one of the things that I think is unique about Exelixis is we always say we run it like a business and not a biotech. And so what that means is that we make prioritization a key focus across everything we do. And so what that 305 decision ultimately was is did we think it was competitive with kind of the emerging profiles in that space as well as was this the best kind of use of our investment dollar relative to the opportunity set. And so what we've talked about is kind of the 2 studies, whether it's post-adjuvant CRC or the opportunity in meningioma, that's 2 to 3x kind of the market size relative to what we saw or what we thought in head and neck. And so it really was a prioritization decision at the end of the day where we wanted to make sure we were making the right investments in a space that we could truly own, again, unfortunately, for patients, the current standard in post-adjuvant CRC is watch and wait and meningioma kind of similarly, once they've exhausted options, either surgery or radiation, again, there aren't many opportunities for patients. And so it's really layering on kind of that cabo experience where we're able to kind of look at where we can best make that investment decision and prioritize. And so that was a key part of it.

Yes. And to the prioritization point, I mean, we've committed to keeping R&D expense at $1 billion or less. And so that really makes Mike and I and the team prioritize where we're investing from an R&D perspective. And if we don't see the value and we see better value somewhere else, we will make that decision to cut a program and pursue others that have better return.

Okay. Why don't we shift gears a little bit to your earlier-stage pipeline? And let's start with your USP1 inhibitor. Obviously, we've seen other players try to develop a USP1 inhibitor, but they have been since discontinued due to toxicity issues. So what do you think the differentiating factor is with regard to yours? And I want to get a sense as to why you believe that 309 won't suffer the same fate that those other USP1 inhibitors suffered.

Yes. So there's a couple of dynamics there. I think, first, it hasn't necessarily been surprising to us that we found ourselves kind of alone in the USP1 space, just given what we had thought were some kind of core liabilities with those other molecules. As it relates to 309, we think we have a particularly optimized molecule itself to really ask the question, can USP1 inhibition again, differentiate and shift that patient outcome curve to the right, either as a monotherapy in combination with PARPs. And so we think we kind of have the optimized molecule to ask that hypothesis. And really, what we're doing right now is just running those studies to answer it yes or no. And kind of our philosophy across the board to Chris' point on prioritization, we want to get that answer as soon as we can. We want to invest in the winners and kind of discard ones that don't really kind of rise to the top of really differentiation. So kind of stay tuned there. We're in the midst of kind of generating all that data. So we'll see.

Yes. You've got a few other earlier-stage assets. And one I'm highly intrigued by is your tissue factor targeted ADC. Obviously, TIVDAK has been very successful. So -- but when we think about the competitive landscape there, obviously, there are several other tissue factor targeted ADCs in development as well. So where do you see differentiation for 371 relative to those other ADCs?

Yes. So I think kind of the -- our excitement around XB371, not only is around the biology of tissue factor and why it's an interesting target from an ADC perspective, but really kind of incorporates 3 differentiating dynamics around the ADC. We think the antibody itself, given how it's designed to be noncompetitive with Factor VII, we think it's an important kind of point of differentiation, especially relative to something like TIVDAK. The linker technology is particularly stable. And then importantly, it has a Tecan-based warhead. The reason that Tecan-based warhead is particularly important comes back to this kind of franchise idea that I mentioned before, where we know that colorectal cancer, in particular, is sensitive to Tecan-based chemotherapies. And so given the expression profile of tissue factor, given the sensitivity of CRC to Tecans, this is an opportunity for us to kind of really go deep in CRC. And so excited to get that one up and running and generating data as soon as we can.

Well, it seems like we were running up on time. So I'm going to open up the floor to any questions if anyone has anything. All right. Thank you, gentlemen. Thanks, everyone.

Thank you.

Thank you.