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

Good afternoon, everybody, and thank you once again for joining us for the 46th Annual TD Cowen Healthcare Conference. I'm Yaron Werber from the biotech team, and it's a great pleasure to moderate the next fireside chat with Mike Morrissey, CEO and President of Exelixis. Mike, good to see you.

Good to see you. Great to be back. Another one, it's March, must be common, right?

March -- and thank God, it's not, but it's not snowing. Thank God.

We'll talk about the weather later.

Exactly. So maybe a lot going on. Do you want to maybe say a few opening remarks?

I would love to. Yes, before I begin, I'll just say that we'll be making forward-looking statements. So please see our SEC filings for a description of the risks that we face in our business. Yes, look, we're Exelixis commercial stage, oncology-focused, again, commercially oriented, franchise-oriented biotech company. We've been around for a while. We have, I think, hit our stride in the area of building franchises. And certainly, with cabozantinib, we have the first one under our belt and looking to do more with the pipeline. We had an R&D Day in December where we spent a couple of hours talking about what we're looking to do to build a pipeline of franchises and how we think about franchises in multiple dimensions to be able to -- whatever we do, always improve standard of care for patients with cancer, first and foremost, and then move the needle for all of our stakeholders in terms of building global franchises that can really take cancer care to the next level. So we're doing that with cabo, hoping to do that with zanza, have a pipeline of early-stage assets that are really exciting, and I'm sure we'll cover all that today.

Yes. And if anybody has any questions at any point, just feel free to raise your hand. So let's start. We're all fresh out of ASCO GU and lots going on with -- this is -- RCC is an important market, and obviously, some other people have taken notice. Merck just released their LITESPARK-011 data in second-line testing [indiscernible] head-to-head against cabo. And we are waiting for LITESPARK-021, potentially data by year-end testing, there's another drug, but the important one is pembro [indiscernible] Lenvima against pembro Leni in frontline. And so -- and that's a PFS study with, I believe, survival [indiscernible]. So what was the impression of LITESPARK-011 and kind of...

Yes, sure. Let's talk about...

Is it going to find a role?

Yes. Let's talk about all that. So first kind of foundational statement, statement of the obvious, right? Oncology is hypercompetitive. We not only acknowledge that, but we've reveled in that over the years. If you go back and look at how cabo has maneuvered multiple indications since the first launch in second-line RCC based on METEOR, we've got 8 indications in our label, monotherapy combination, GU, GI, blah, blah, blah. So we're -- we acknowledge, we understand that this is a highly, highly, highly competitive space. It always has been. And our job is to navigate that by making sure we bring the best drugs forward, the best combinations forward to, again, singular focus on improving standard of care for patients with cancer. So cabo is the leader, leading TKI in RCC in general, but certainly in the second line and the first line TKI IO category as well, so we are super proud of that and looking to extend that as we go forward with cabo and then be able to transfer that over to zanza. Cabo as we talking about today and over the last couple of months the dominant TKI in the 20s and our goal to make zanza the dominant TKI in the 30s, right. So the data this weekend from 11 to be frank, kind of, met our expectations, we thought we would win on PFS, not surprised by the data at all. If you look at the data for cabo, the contemporary data for cabo from CONTACT-03 from the control arm of 11, you add that to belzutifan from 05, you would expect 15, 16 months of PFS, and I think they saw 14.5 or whatever that was. So not all that surprising. Survival isn't significant. We'll see if it crosses that threshold or not. Tolerability, safety, I think that was hit a little bit at the meeting, I think probably underappreciated some of the complications there. I think you can probably -- I don't want to speak for Merck, but you can probably infer from that data why we and they think zanz belz's combination looks potentially pretty exciting. Yes. So look, does that gain -- does that combination gain market share? We'll see. We're not really concerned about that because, again, all of our modeling kind of assumed this outcome. We're confident based on all the market research that if we lose anything second line, we'll gain that back first line because of cabo's just superior activity as a single agent, a lot of docs actually reserve it for second line. So they choose not to use it first line in combination with nivo. So there's a reason to change that dynamic that actually works for us. So we'll see. So in some ways, it's another day at the office, and we're excited to be able to keep our eye on the ball with cabo in all the indications, but certainly RCC and NET. And then this is the transitional year for zanza, where zanza filing is in, review is going well. We expect that will continue to be the case, and we're hoping to launch end of the year. And then we have a full suite of pivotal trials either ongoing or planned to start this year and the next wave coming. So that Exelixis story is really evolving from a singular focus on cabo to this broader focus on zanza and then the pipeline.

Yes. When -- so their p-value on the second for survival with a hazard ratio of 0.85 was 0.0608, something like that. But the alpha was 0.0245, and this is the interim. From IA1, the hazard ratio was 0.9...

Got all the stuff down, that's good...

Can they really even get that? Because it's...

I don't want to speculate. I mean -- how many events do they have left remaining? Do they over whatever. So I don't -- again, I don't want to get into that level of speculation. The feedback that we've gotten before the meeting, during the meeting, literally after the meeting, it's a classic question of is it better to combine early, kind of take all your shots upfront or sequence, right? And that's a question throughout oncology and the data really has to drive that, right? One of the things that we've heard a lot about belzutifan, which kind of makes sense is that docs like to use that a little bit later because it gives the patients a break from some of this long-term cumulative TKI tox. So if you think about it from the standpoint of somebody -- a renal patient has been, whether it's IO/IO or IO/TKI and then a TKI afterwards, I mean, they've probably been on drug for a couple of years probably. And there is this long-term chronic exposure tox that kind of creeps in. So I've heard numerous docs say, I like using belz a little bit later because it gives them a break from that. And they can go back to a TKI afterwards if they need to, right? So again, everybody is different. You've got the academics who are a little bit more aggressive. You've got the community docs who have a different mindset sometimes. So we're here to help patients with cancer. Certainly, kidney cancer is where our main focus is. We have very, very strong growth over the years. If you think about what we've done since we launched 9ER, we've essentially tripled revenues on the back of that data. We're excited about NET. And then there's this whole landscape ahead of us, this whiteboard of open space for zanza, colon, meningioma, potentially other tumor types that we're going to certainly want to explore as we go forward if the data continues to look good, that gives us a lot of opportunities there to build that, too.

Yes. Okay. So let's move to LITESPARK-033, the zanza [indiscernible] combo against -- I'm sorry, zanza [indiscernible] against cabo and the post-adjuvant...

I never heard Welly before either -- that's -- you should trademark that one.

Because you say belz...

Belz, yes...

Okay, I'll call it belz...

Either way...

So that's essentially post-cabo -- sorry, postadjuvant IO. So this is a frontline regimen essentially, but it's cabo mono is that relevant? And I imagine it's one study as part of -- I imagine it's a [indiscernible] right? So there's going to be probably another study. that is being planned with Merck in frontline. I imagine it's going to be a triple. So is the gating factor waiting to figure out the dose to then start the second study or maybe to zoom out what's the strategy for this combo in frontline for it to be competitive?

Yes. So I would say a couple of things. Merck will talk about the details of the second study when that starts. We've agreed that they're going to kind of control the narrative there, and I don't want to disrespect that agreement. So I'll leave that there. There's been a narrative that it might not start based whatever because of the light sparkle, [indiscernible], that's just complete hogwash. okay? That study to all knowledge I have, which is as recent as last week, Friday is basically it's planned to start. So details...

Starting early in the year.

Whenever. I'm not going to comment on timing, but it's just again...

That was the guidance, right?

Yes. Okay. Yes. Just stay tuned on that, okay. The other thing I would say is -- and this is really important, is you got to think about the next wave of studies, not in the context of 2025 and 2026, but in the context of the 2030. The question that we talk about a lot and we think about a lot is how will standard of care evolve over the next 5, 10 years because if you're aiming for what the target is today and things change over even a reasonably short time frame, then you're going to miss the mark, you're not going to be relevant. So we think the adjuvant setting in all tumor types, but certainly renal is ground for a lot of important improvements and a lot of important advances and to have a molecule in a combination like [ ZanzaBells ] that has the ability then to play in early makes a lot sense. So that is one approach, right? You think about what we're doing in renal, we've got basically [ 304 ] and then on [indiscernible] that should read out midyear, plus or minus. And then excuse me, then 2 Merck studies that's just the first stake in the ground, if you will, right? We're really excited about being able to pair [indiscernible] with orthogonal MOAs right, that allow us the opportunity to really see synergy across the continuum of RCC patients, right? If you look at -- if you look at the VEGF [indiscernible], that's all one pathway. The biochemistry is intimately related. One regulates the other, and that's been known for years, right? So you want -- again, doubling down there makes sense, but there's a trade-off in terms of additional efficacy versus safety. We're much more interested in asking the question. Are there other pathways in specialties -- and importantly, other bispecifics that we can combine Xansa with that give us more breadth of coverage biochemically and from a target pathway point of view, that could lead to better efficacy. Because for us, the name of the game is, again, improving standard of care. And you can only do that if you're taking kind of [indiscernible] goal -- so we're excited about that. It's early look at what you've got here, it's like with colon and net it's just the beginning. It's not the end all, it's just the start.

Yes. Is it possible that the Merck second study is in the adjuvant center?

I'm not going to talk about the second study. They'll talk about that at the appropriate time.

If I'm thought that collaboration was for metastatic, but maybe which is broadly [indiscernible].

[indiscernible] okay. .

Okay. Key maker is testing several different things. Can you talk about the key maker-U03 and where [indiscernible] in there?

Not much to say there. I think that's their basket. Again, you should ask them, not more than me. I think that's their basket study where they've looked at different combinations, and we're certainly using that to do dose range finding, part of the Xansa Bell's run up into pivotal. So...

Yes. But that's only has [indiscernible], right? No other...

Right now, it's just [indiscernible].

I'm just kind of reading between the lines, I mean, to your point, I don't see a triple coming down, but we'll see with pembro.

Yes. Again, I don't want to get into the details that we haven't talked about previously. There's -- question is again, broadly speaking, how do you define a triple? Is it 3 agents? Or is it 3 targets [indiscernible] so stay tuned.

Okay. Got it. Any questions from the audience? Can we talk about maybe just a little bit of the dynamics right now. I'm going to now go back a little bit commercially and talk about Q4 and the guidance for the year. So in the guidance for the year of [indiscernible] in Q4, you saw nice growth in that. There's always some lumpiness in gross to net ordering patterns and quarter-over-quarter RCC growth. It looks like the tailwind in that quarter was a net continues to grow really nicely. So as you think about fiscal year '26 and the guidance for [indiscernible], revenue guidance was about up 9% to 13% year-over-year. What's driving that? And what do you expect [indiscernible].

Both in the base business and in net. We haven't broken that out for obvious competitive reasons. We expect both to grow in '26. We had a strong year in '25, right? Revenues were up, I want to say I'm looking at Chris 17% year-over-year, demand was up 15%. So very small impact of growth on -- from price. And that is -- part of that was net. We did about $100 million, a little bit more than $100 million in net in 2025. And the rest was solid growth in the base business. So now quarter-to-quarter, it's choppy. We had a really strong Q3, a little bit lighter Q4, all the gross-to-net issues. So nobody should be looking with that much precision quarter-to-quarter since it's just lumpy and choppy, but we had a great year last year, and the transition from '25 to '26, we talked about muscling up more on the GI side at the end of last year. That's now done. We've got a full complement of our kind of field-based reps for the GI sales team in place today that complements the full field force we have in GU. So I mean, the mission there is to obviously, get the terminal velocity with net for cabo as soon as possible so that end of the year, whenever the approval comes for [indiscernible] and CRC, we can put our attention there. So we want to be able to, again, sequence and focus and deliver. The CRC opportunity is huge for us. It's a big population. A medical need is high, lots of interest in the Xansa atezo combination. Again, as we talked about previously. This is the first time a checkpoint containing regimen has actually worked. And third line plus non-MSI-high CRC after 4 failures with other checkpoint [indiscernible]. So again, [indiscernible] seems to be the special sauce there. And we [indiscernible] ITT population. Non-liver met should read out, again, midyear, plus or minus. So ideally, things work out to have that whole kind of data set in the mix for a launch, it would be great, right? It would be a great way to get out of the gate strong. And it's a big opportunity. And with the post-adjuvant trial that we're now planning to do with Natera that I'm sure we'll talk about later. I mean the buzz around Xansa CRC is really high, 303 and 316 play off each other. We talk to [indiscernible] they bring up the other in vice versa. So it's a great setup for what we think could be a really strong new franchise in CRC for [indiscernible].

Yes. So net did about $100 million in year 1. The market opportunity we thought can even be sort of $500 million to $1 billion, right? So the path ahead to getting there it sounds like you're mentioning that it's gotten good traction in the academic settings. Is it about moving to the community? Or what's kind of the game?

Yes. So the main focus now is to get the community uptake to be -- to match what we're seeing with the academics. And that's -- it's -- again, it's more dispersed, if you will, as it always is in the community opportunity. These patients -- this is an indolent disease, patients progress slowly. So therefore, the number of patients coming into any community site compared to some of the bigger tumor types is less. So you just need more face time, more nonpersonal promotion, more alerts, if you will, about what the data is and why they want to use it, right? So -- and that's all -- we've had this issue -- we had this issue with cabo in RCC back in 2016, 2017. There are docs we had survival of second-line RCC and there were docs in the community still writing the [ Phenotym ], right? Because they just it wasn't as familiar with them. So we know how to do this. We're pros at being able to kind of shift the mindset based upon high-quality data, and we're going to do that compliantly and off we go.

Okay. Maybe zanza for NCC RCC, we're expecting that data. This is STELLAR-304, right, randomized 2:1. zanza/nivo against sunitinib, primary endpoint is PFS. Data is expected midyear, I believe, right, in PFS. So cabo atezo or cabo/nivo, they showed 31% to 48% response rate, about 9.5% to 12.5% PFS. In [ PAP/MET, it's PAP/MET ], cabo alone showed about 23% ORR and about 9 months PFA.

That was single agent.

Single agent. Yes. Sunitinib did 4, just to give everybody a sense of 4% ORR and 5.6 months PFS. So pretty low and sunitinib is the comp. So if cabo/atezo or nivo/atezo comps, we're looking for a nice beat here, 30% to 40% ORR, 10 to 12, 10 to 13 months PFS, almost doubling PFS. Is that sort of what -- the way you're looking at the world for that study?

Yes. I guess I would frame it more of the comps in clear cell, right, and trying to recapitulate what we see in clear cell in this first, again, never been -- there's no existing pivotal trial in non-clear cell RCC to put a stake in the ground, have Level 1 evidence would be fantastic, right? So a win is a win. We'd love to be able to get the trifecta here like we saw with 9ER and Media or everything else where you've got PFS survival and response rate all going in the right direction. And that's the way to capture people's attention and to bring that standard of care up to par. So yes, so we're all in there. I mean it's -- again, it's the first stake in the ground for RCC. It's 15%, 20% of the overall market. And there's a lot more coming. Again, I'm not sure we're going to invest more in non-clear cell, but from the standpoint of being able, again, to look at orthogonal MOAs combined with zanza in a way that we can move the needle early in the treatment paradigm is the way to go with an eye for the 30s, not so much the 20s.

Right. Okay. But you're thinking clear cell-like data, the clear cell-like data would be even higher than the data I quoted.

Yes, I think we have to aim high. I mean we're going to get what we get. So it's just a matter of the more data we have that is compelling around the efficacy and safety endpoints, the better statement of the obvious.

Yes. Okay. So now going back to CRC with zanza, so back to STELLAR-303, and we're waiting for the non-liver mets midyear. So NLM originally outperforms the ITT. So is the hope here for stat significant survival benefit in that subset? Is it possible?

Well, that's the whole goal, Yes, for sure. And that's ideally what we would like to have. We have a win in the ITT population to be able to -- and we have a clear win statistically in the liver met population, right? So can we round that out with a statistically significant improvement in OS for the non-liver mets. That's the question, right? So to be able to have all 3. I mean you think about what that -- again, if we were able to achieve that and we get approved on that and all the caveats, but that's a pretty strong way to market the drug to physicians, prescribers and ultimately, their patients who are asking upfront, why can't I get a checkpoint containing regimen for my disease, right? So again, we always do the right thing. We always play by the rules, all that stuff. But I mean, that's the goal is to be able to have -- if it's there to have that offering to provide that. And I think that's a pretty compelling data set, right? There are obviously, all the chatter last fall. I mean that in some ways, I think the background noise has dissipated. The unmet medical need is there. The interest in this kind of regimen is growing with time. The idea that we're going to reinvest in CRC and 316 in this post-adjuvant study, just raises, I think, the level of enthusiasm for zanza here as well. So I think it's going together really, really well, and the team is executing at a very, very high level, and I'm really excited and proud of them for what they're doing right now.

The PDUFA is December 3, I was sort of hoping to get more of a priority review. I mean there is...

Sorry, I didn't deliver on that one. It's kind of my...

Why -- what's going on with FDA...

I wouldn't want to speculate on that. We've had great collaboration with them, great discussions with them. They have to make the call. I'm not privy to how they decide this kind of stuff. That's -- I'm happy to engage and however they want to engage and we'll get that done.

Okay. Is it that they felt that there's other regimens in that area?

I wouldn't want to speak to them.

Okay. Any questions from anyone? Maybe just before we go into the rest of the pipeline, stock buybacks. So as we look at your cash flow, it's going to accelerate in the future. I think you've been doing, let's say, right now about $750 million a year or so. We think that could accelerate...

If you look at our guidance, right, probably should, right?

And we should expect the same sort of cadence consistently? Because I mean the stock has been kind of -- it's not like the stock is diving down, you can go...

So look, our whole -- not just philosophy, but how we've executed on capital allocation is pretty simple, right? We want to invest the right amount of money in the internal pipeline development, and that's having the right level of stringency and prioritization around where we invest and where we don't. And we've done that historically I mean, going back to 2010, how we've done that. We basically killed everything in 2010 to focus on cabo and focus some more on cabo and then just kind of turn the corner in terms of once we had a signal. So I think we do that pretty well, and I think the whole management team is very, very aligned with making the right hard decisions about go-no-gos and about where we invest and where we double down based upon the data that we have versus where we pull back. So that will continue. But we're spending in $900 million to $1 billion a year in R&D. That feels about right. And then we have to make the best of that, right, in terms of where we prioritize and how we set. BD is absolutely critical, and I've talked about this publicly in terms of how we're looking for kind of later-stage assets. Early stage pipeline is full. We don't need to add more there, but later-stage assets that are either in pivotal trials or ready for pivotal trials is our sweet spot, and we're focused on that. M&A is unlikely. But the right BD back-end loaded pay-for-success kind of deals we think makes a lot of sense, and that will continue to go. And then, look, we -- our buybacks aren't just there to spend money. We're investing in a company that we really believe in that we understand, I think, better than anybody else, and we think is significantly undervalued. So why wouldn't we buy back our shares if we think the future value is much greater than is perceived with present share price. And I think we -- as I think Chris has said numerous times today, over the last couple of years, we've spent -- we bought back $2.2 billion of shares -- 77 million shares. At some point in time, if we're successful, we're going to be an EPS company. So the more we can pull that float down, the more that's going to help us on the EPS side in the future. And if [indiscernible] like we think we will, -- we get another molecule that can become a franchise, get the third [indiscernible] franchise, then we're going to be in that rarefied air, where our success is looked at purely through the lens of EPS. So then the more shares we pull off the table now when it's cheap, the better. So that's the plan.

The third orthogonal mechanism, is that something from the outside? Or is that something internal?

Either one, we're looking for this next -- the next franchise needs to stand up like cabo did like answered say, "Hey, super active. invest in me, right? So we like 628, the PD-L1NKGA2 bispecific, 371 is a tissue factor targeting ADC with a topo ligand that's designed literally specifically for CRC. So again, you can imagine things going in different directions. [indiscernible] I mean, the next wave of opportunities for pivotal trials where we think -- and we've gotten a lot of feedback from KOLs that the tolerability profile is such with [indiscernible] that it might be the TKI that combine with actual chemotherapy. So we're looking at Xansa say, docetaxel combinations starting in prostate cancer to ask the question since no one seems to be able to beat dose in prostate or lung could you combine a concrete. We need early data and everything else. But I think it's a very intriguing way. You can see if there's success there, what that could do to revenues. If you can play the second-line prostate second-line lung and really Yes, it's huge, right? So lots of options, but the focus is pipeline franchise molecules. That's the how we look at that lens of single compound, single indication just doesn't really appeal to us because it just doesn't make sense relative to how we can maneuver and really build this outsized success.

Yes. Well, terrific. I think we're at time. Excellent. Mike, thanks so much for coming.

Great to be here again.

Nice to see you.

Nice to see you. Thank you.