Exelixis, Inc. ($EXEL)

Company presenter. My name is Jason Gerberry. I cover pharma and biotech at BofA, and I'm pleased to be introducing Exelixis and CEO, Mike Morrissey. So Mike, thanks again for joining us.

Great to be here. Nice to see you.

So hot off 1Q and another announced share buyback. I figured I'd start with just a couple of questions on capital allocation before we go into kind of program-specific questions. So maybe just to start, as we think about capital allocation priorities longer term beyond this year, how are you guys thinking about kind of returning capital to shareholders versus like managing the next 4 years of cabo exclusivity and then the investments that you're making in zanza? Are there any specific, I guess, pivot points at all that you could see where, hey, maybe we want to invest more in zanza or some early-stage assets that look particularly promising, and you step off the gas a little bit from a share buyback perspective? Just trying to get a sense of the toggles there beyond this year?

That's great. I'll probably spend the next 28 minutes talking about that one topic, and maybe we will. So let me just say, great to be here. Thanks again for the invite. It's always great to be in Vegas, talking with the [ BAML ] team and all the investors that come. Before I begin, I'll just remind you that I'll be making forward-looking statements today. So please see our SEC filings for a description of the risks that we face in our business. So let's talk about capital allocation in the context of how we view the business, how we run the business, how we see it, how we've seen it in the past and how we're going forward in terms of some of the themes that we've talked about a lot in the last year. Certainly highlighted at our R&D Day in December around how we view building value for patients and shareholders, and that's through building franchise molecules that can improve standard of care for patients, and by doing that, drive good value return for shareholders. So our view has been to run the business very efficiently and to -- keyword is to prioritize how we do everything in discovery and development in the commercial world to make the right set of priorities based upon data and based upon how we see the landscape evolving, how we see early data, how we see the competitor data flow, as well as movement to be able to maximize our chance of success. Again, for patients, improving standard of care, and then having that then drive shareholder value appreciation. In terms of capital allocation, it's not one size fits all. It's not one lane that we look at in terms of temporal terms, sequential terms. We've been profitable on an annual basis since [indiscernible] largely, defined by our success [ with a molecule ] with different patients, [indiscernible] AI for our [indiscernible]. Last quarter, a good example of that, [ top PK NIRC top drug ] and second line plus net, highest [indiscernible]. So here's what we'll launch in that segment of business in frontline, but [indiscernible]. So just lots of [ moments ]. So in terms of how we see that success and how we think capital allocation, it's really not [indiscernible] generate so much test. We efficiently [indiscernible] placing the right [ bets behind molecule ] right going forward. So zanza right now, obviously, is our-- we think our next big drug, probably undervalued by the [indiscernible], we'll rectify that over time. But it's certainly one area that we keep driving those services. The way we framed it is cabo is dominated [indiscernible] to dominate [indiscernible]. That could actually surpass [indiscernible]. So we're investing a lot with zanza, but we're doing it in a very controlled [indiscernible]. As we deal with cabo, talk about how we did that back in [indiscernible], maximize then collaborate. But again, the risk within the zanza framework and company framework, certainly best [indiscernible] our internal [indiscernible] having the ability to prioritize that [indiscernible] kind of quarter-to-quarter basis, it's really something that we [indiscernible] as well. That ability [indiscernible] on the data would obviously see a portion of that. But you'd be surprised how much flexibility you have there with overall [indiscernible]. And then to be able to right price, right time, the right [indiscernible], have the ability to buy back our shares, still undervalued.

If I can summarize, it sounds like obviously, with the biotech company, things are fluid. But as you heard today, given the cabo-driven cash flow outlook, it sounds like you [indiscernible] Is that fair?

Well, again, I would say we will continue to deploy capital behind debt [indiscernible], which then, based upon our view with cabo [indiscernible]. So it's that we have the opportunity on priority [indiscernible] talk about that a lot, kind of [ census ] [indiscernible] that word a lot today. We have the ability to prioritize [indiscernible] but the focus is always on maximize [indiscernible].

So you talked about the efficiency of the organization historically [indiscernible] funding partners. [indiscernible] and this is not an attempt to sort of [indiscernible] directionally. Are we stepping into a time frame where stands now for pivotal trials? Does that create any upward lift on the R&D? It just seems like the consensus only model a plus [indiscernible] of R&D lift over the next 4 or 5 years of current levels. So I'm just kind of curious, are we not effectively moving into an area of higher [indiscernible]?

I wouldn't say that from an [ expense ] point of view because we have a pretty good [indiscernible] we're not starting all the trials [indiscernible] do it ourselves or we do with clinical collaborators. Our job and something that felt with others, top to bottom [indiscernible] So we have a very rigorous approach for the [indiscernible] kind of modeling, I would imagine you guide to maybe a level to be able to [indiscernible] what success [indiscernible] So flexibility is always [indiscernible] And now, we've always [indiscernible] our priorities. So not worried about scaling here or there [indiscernible] the cabo story.

Okay. So a couple of commercial questions before we get into the zanza program. You're going to have multiple products with the zanza approval coming end of the year. And so I'm just wondering [indiscernible] the latest cabo life cycle? How you go about strategy at all towards the tail end and focus [indiscernible] zanza, are there anything kind of modify as it pertains to pricing or resourcing of cabo relative to zanza as you get to the last couple of years of cabo cycle?

So the capital runway goes to 4.5, 5 years today, whatever that is. We don't -- I'll say the following. I don't want to give too much specifically point of view, but we don't take our foot off [indiscernible], right? We're not going to guide on one while the other [indiscernible] and put a lot of thoughts how to really navigate the clinical program narrative so that don't really cannibalize cabo [indiscernible]. So it's not -- again, they're not mutually exclusive. It's not [indiscernible], it's how do you run that [indiscernible] which is why we're focused [indiscernible]. There's so much you can [indiscernible] many people that need better therapy performance [indiscernible]. But again, it's not a matter of [indiscernible] Patrick talked about last week [indiscernible] probably. [indiscernible] segment. That's because we're focused on [indiscernible]. So we never consent, we're never satisfied. Cabo keeps growing, certainly [indiscernible] the first pivotal trials going to start at the second [indiscernible] non-small cell lung cancer. [indiscernible] Yes. Look, it's a high-value opportunity. We have to execute at the highest level, and we have to have the right [indiscernible] that always have data driving [indiscernible].

Okay. And then what [indiscernible] so far, like the early launch, successful in 2025, where the incremental losses side had [indiscernible]?

Yes. So we talked about that last week, too. Yes, we'll be pleased with the launch, certainly had the academics locked in from the dose signal opportunities [indiscernible] the scope is [indiscernible] almost immediately, having them now [indiscernible] because at the CRC [indiscernible] when later here, hopefully. So we again building up to this important cabo marketing, hopefully cabo. So it's all part of the grand plan and the [ real results ].

All right. The last cabo question, then we'll go to zanza. Competitive impact from the LITESPARK-011 readout for [indiscernible]. I don't think that got formal approval yet, but some of these anecdotal feedback because some doctors are moving to that as like a second line, but that could also be an opportunity for greater cabo frontline utilization. So what you're seeing now and your view on how that will evolve?

Yes. So that's been the narrative that we've heard too from KOLs, certainly. [indiscernible], et cetera, really important. Yes, we'll see. I don't want to speculate. I think the narrative that if we [indiscernible] second line [indiscernible] probably. The second line is certainly putting a lot of effort [indiscernible]. So -- but again, we are in the most competitive oncology elaborate with stay of our cabo program, certainly rent program. We're all -- somebody is looking either with each other or getting with each other to us. So we're all aligned on that. I did think of a service standpoint of no surprise that people that acceptance attain our position on the hill in and keep in [indiscernible].

And I know you've been asked this question before, but I'll ask it again just because things are fluid and changing in oncology at all times. But the rationale for the STELLAR-304 trial in [indiscernible], that's the next big clinical readout that we have, right? My understanding is a lot of patients are already [indiscernible]. So maybe you can talk about what you're trying to solve for in that space? Is it mainly about getting a stronger [indiscernible] recommendation and that can really drive commercial success for zanza? So as we think ahead to clinical success and how to define it, right?

So I guess if you look at the overall [indiscernible] so right framework of [indiscernible] so I go back to where we're at with [indiscernible]. So there is no Level 1 evidence [indiscernible] Certainly, when that cabo [indiscernible].

Last one [indiscernible], is PFS delta separation enough? Do you need meaningful OS separation to drive these recommendations to drive the clinical success in non-clear cell?

Yes, look, statement of the obvious. It's always good to have an overall survival signal in your label, right, in terms of marketing. I mean, that was the special sauce, if you will, with the first approval we got with [ METEOR ], right, was we had survival when no one else didn't and it would really help us differentiate. So survival, I'm not sure you need it for approval. But in terms of building a winning commercial position, survival really helps, obviously.

Yes. Okay. Fair enough. And then your clear cell strategy, and I guess, just your outlook, right, in lieu of the LITESPARK-011, maybe it's hard to answer this question without seeing detailed data, but just how you see the read across to the ongoing frontline studies? So you've got LITESPARK-033, 034, I guess that's the second line study. But just with respect to the ability to generate practice-changing data with like a zanza-welireg combination, given overlap in the combination mechanisms?

Well, I think that's one approach that we're taking. And I think that's juxtaposed with what we're looking at relative to the first line, where we've talked about, I think, pretty clearly that we're looking for combination opportunities with [indiscernible] MOAs. So before the fact, you've got hypotheses, and you have to test those hypotheses, right? And we're doing that, say, with zanza/belz in a couple of different trials. We're talking to a lot of people and are in pretty advanced discussions now around looking at the first-line de novo metastatic population opportunity with zanza plus/minus checkpoint, plus a potentially orthogonal mechanism that doesn't have the same overlap with either one of those. That gives you more room to play on the upside for efficacy and potentially minimize the downside on safety tolerability. So I think that's a really important component here, obviously working in the same pathway. And there's examples of that working well sometimes, other times not within oncology, but it's a fine balance. You really have to thread the needle in terms of efficacy and safety, right? So I think our view -- and we certainly have some experience here with COSMIC-313 -- is that you've got to pick your combination partners with care. And we're doing -- we've done a very careful survey and know the space really well, looking at a variety of potentially bispecifics or add-ons to a zanza checkpoint combination that we think could give us some really interesting opportunities in that frontline de novo metastatic space. So -- but again, we look at this as part of our, again, aspirational vision to take the success of cabo had in the 20s and translate that to a much larger scale through zanza in the 30s. So we've got some time to navigate all that and be able to figure that out and get that going and get that done. So I'm excited about that for sure.

One thing that your commercial org has done really well, like when you roll out NET is you have physicians that are highly familiar with CABOMETYX. And so they're maybe more inclined to be prescribers in the neuroendocrine tumor setting. As we think ahead to the CRC launch, you've expanded the sales force in the GI setting. So can you talk about the ability to kind of leverage that competency in perhaps a newer subset of oncology?

Yes. Well, certainly, the part of the charm of cabo is that we've had such broad success in the GU space that, again, in the community setting where the HCPs are much more generalist in terms of what they see in terms of patient tumor types. They have the ability to mix and match there pretty readily. And so using that then build off of zanza, certainly in colon is a really, really important part of that, right? So -- and we're building that awareness, and we're building that, I would say, that information. The good news about building out the GI team, and to a certain degree, the GU team as well over years now is that by location and by therapeutic area overlap. Most of our reps have experience, say, at Genentech within the oncology study with [ Avastin ], with [ Colin ], with other tumor types. So we have a very deep knowledge of that commercial space from a sales and marketing point of view, and I think that depth will play off dramatically in terms of a CRC launch, both for 303 if that happens in the near term and then the 303 and 316 play together really well. I like that idea of doubling down in these indications. Again, building franchises along that dimension of tumor types and multiple lines, multiple shots on goal, potentially combination partners. So it just gives you much more reach there as well.

Okay. So it sounds like you mentioned community a couple of times with respect to CRC. I would think third line would have been maybe more academic focus because it's a later line patient, but maybe I'm wrong. Do you see this more as a community...

It's really a community setting. Yes.

Okay.

Yes. Yes. And this is why it's so important for us to really make sure that we've got that covered on the GI side, going into that. Yes, for sure.

So I would say our your sales force probably plays pretty significantly in the community setting, correct?

We do well in both areas extremely well, right, for sure.

Okay. STELLAR-316, maybe if you can just talk a little bit about like the rationale for that study and what data points you saw, what really inspired the decision to go after that market opportunity that can really like expand?

Yes. It's a really exciting approach and one that, as I said before, 303 and 316, they just play together really well. So we're talking to KOLs about one, and they bring up the other one and vice versa, right? So it just reinforces our commitment to GI oncology, to all lines, all opportunities within CRC. The high-risk post-adjuvant population is truly high risk. Those patients can progress within 5, 6 months of their last round of adjuvant chemotherapy. So they're -- and they're in a tough spot because there's nothing really approved for them. Besides basically nothing, but they can go back on more chemo or go on to a clinical trial, but all that's kind of tenuous, right? So we saw that as a very important first step. The Natera technology, we think, works extremely well. The application to bladder within [ Vigor ] just highlights the opportunity there, where atezolizumab was shown to be successful at improving both DFS and overall survival with a selection process that was driven by the MRD positivity. So it's a very good way to find patients who are at risk, select them, if you will, study them as their own little group, or in this case, big group, and then go forward and run the trial. So we're very excited about that. The good news in terms of operationalizing a trial like that is that they have such a deep level of experience and data around both institutions and investigators that use that technology for late lines -- for post adjuvant CRC that it makes site selection and investigator kind of recruitment very, very straightforward. So we think this is a trial that we could get up quickly, run fast. We're going to enroll it only in the U.S. because that's where that technology is used. It will be a 3-arm study. It will be zanza monotherapy, zanza plus a checkpoint inhibitor that we'll talk about later versus best supportive care. So it will be a very straightforward trial using, again, MRD positivity as the selection criteria for getting into the trend.

How many cycles of zanza plus PD-1?

It's not limited.

Okay. And the motivating force here, was this more the [ ALTA ] study which looked at [ LONSURF ] and ctDNA positive in CRC setting or zanza PD-1 data in metastatic setting and seeing that synergistic [indiscernible]?

Yes, it's more of the latter. Certainly, some of the earlier data from the competition was enlightening. It wasn't that helpful because it was just such a complicated kind of convoluted study. I think the best way to frame the logic -- and we're almost done here, but I'll just wrap it up like this -- is if zanza plus a checkpoint was effective at improving survival for patients with radiographic tumor, a large enough tumor mass where you could see it on an MRI or a CT scan, then going after micrometastases with the same approach was a pretty good bet, right, from the standpoint of being able to go after the same mechanisms that are driving established tumors, in this case, trying to block micrometastases reforming, right? So the logic is kind of a no-brainer. It begs the question we've got survival from 303, which supports that, and we're super excited about being able to get that going very, very soon.

All right. Great. We're out of time. So thank you, Mike, for joining us.

You bet. Thank you.