Exelixis, Inc. ($EXEL)

Well, good morning, everyone. I really do appreciate it. My name is Akash Tewari. I head our firm in biotech efforts on the research side here at Jefferies, and I have the pleasure of hosting the Exelixis management team which, again, is a commercial stage company that is in several different tumor types and as a leader kind of in renal carcinoma. But then also has ambitions to really think about VEGF inhibition and a broader subset of diseases, and that's what they're explaining -- looking at with zanza, Andrew, why don't I hand it off to you for some intro remarks, and then we'll get started.

Yes. Thank you for the invite. Always a great conference. Great set of meetings today. Always good to meet with investors. Just as a reminder, we're making forward-looking statements today [indiscernible] disclosures in our regulatory filings for risks related to our business. But I would certainly agree with you, I mean Exelixis is -- I don't know what generation of the company it is at this point, but we're kind of in that important transition point from going from our first franchise product in cabozantinib to our next franchise in zanzalintinib. And that's kind of the lens that we view the world of drug development, the world of oncology is kind of through this franchise mode where -- not only are we investing kind of broadly in each molecule. But within each tumor type, for example, we're also kind of broadening our investment there. So whether it's RCC, we're going to continue to be the leaders in RCC or a newer area like colorectal cancer with zanza, not only kind of this later line setting with the STELLAR-302 study, but investing, say, in the 316 study and the earlier line and then layering on our pipeline as well, say, XP 371, our tissue factor ADC, which we really view as a colorectal asset as well. So it's kind of that franchise mode that we're really using to kind of define our 2026 and beyond. But happy to get into a lot of the details there.

I want to start with more of a conceptual question. And -- it's interesting. I still remember back in 2020, I think Mike had put up like the $4 billion number on cabo. And obviously, okay, cabo didn't get there, fine. It still became a multibillion-dollar product. There were a lot of successes. But I think I don't know if Michael ever admit it, but I do feel like you guys learned from kind of that second wave of drug development with cabo and you're applying a lot of those learnings to zanza. And I think that's actually quite interesting, right? I don't see a lot of studies like COSMIC-303, right? I see a lot of studies where you're looking at adjuvant settings, post maintenance settings, areas where there's really defined clinical unmet need. Can you talk about kind of -- is that perception correct, right? And what learnings did you have from kind of that development you had with cabo that you're now applying to zanza that you feel like maybe investors are missing?

Yes. I mean I would certainly say kind of taking a step back, everything we do at Exelixis is kind of through what we call the cabo lens. Learning what's been successful learning what to do right and learning kind of areas that we should avoid in the future. But I would correct one thing. We certainly continue to be excited about the growth profile for cabo going forward. So it's something that as we look ahead to, say, we're still certainly excited about it. But that cabo lens is really a couple of different things. Cabo has been successful commercially because we've been able to define a new standard of care in the areas that we've developed it, whether it's second line RCC first with the METEOR study then as a monotherapy in first-line RCC and then in combination with nivo. The reason cabo is used is because it helps patients live longer and helps patients live longer without their tumor progressing and all of the important decisions and drivers for utilization there. And so what that means is that we're in the business of running studies that we think have the potential to really define that new standard of care. The second piece is we're also in the business of running successful studies. We're not in the business such as running trials for the sake of doing it. And so we try and be particularly thoughtful around probability of success trial design, statistical powering, understanding kind of appropriate comparators to really make sure that the data we're generating enables physicians and patients to really drive those treatment decisions. And so that kind of cabo lens is really when we apply it to zanza, it's what are areas of unmet need in large market opportunities. What are studies that we can run to kind of help define and plant a flag in the ground for zanza to be the new standard of care and can we do it in a way that's capital efficient. I'm sure Chris will talk about this later, but one of the models that we really liked with cabo was working with clinical collaborators, whether it's Bristol, Roche, Genentech or now Merck, kind of splitting costs, splitting risk, splitting expertise, splitting capability and being efficient in how do you run pivotal studies. We'll sell a lot of Bristol sells a lot of nivo in RCC. We sell a lot of cabo, kind of that same dynamic with zanza is certainly an approach we want to do going forward. And so kind of taking a step back, as we think about that zanza franchise approach, it's about all of those learnings and lessons in that cabo lens and applying it to what we think is a best-in-class molecule in areas of high end need where we can define a new standard of care.

I mean I think maybe let's start with kind of first-line RCC. And again, you mentioned you go where the puck is headed. Can you give us some perspective about really what your overall long-term strategy is in first-line A? Like is there an ambition to ultimately run that CheckMate 9ER trial? And what would that look like? Because you've alluded that might go with maybe even partnerships outside of Merck. And then number 2 is what is the opportunity in the post pembro setting, right? And if you were to think about that commercial opportunity to what you have currently in first-line RCC. Is there an argument to be made that actually the post pembro maintenance is a larger commercial opportunity?

Yes. So I think both of those questions are somewhat related to kind of our core -- one of our core strategic principles is basically again, through this franchise lens, we want -- we're the leaders in RCC, and we want to continue to be the leaders in RCC. Our kind of view on it is if cabo is the TKI of choice in RCC for the 2020s, we want to run a series of trials to define zanza, the TKI of choice in the 2030s. And so you mentioned kind of our efforts so far. We have the 3 studies ongoing in RCC. And I think just to kind of answer your question on market opportunity, given rough guidance for a little over $2 billion in that space across those 3 studies. But the way we think about it is where you said how is standard of care evolving over time? How is that patient's journey and kidney cans are evolving over time? As more patients are diagnosed earlier as more patients who are diagnosed kind of in that more localized setting, get adjuvant therapy adjuvant pembro. This question of what should they get afterwards starts to come up, and that's the [indiscernible] study. We really want to define what that is. And then similarly, kind of as the treatment journey gets redefined for patients in that later line setting, the combination of zanza and bells we're evaluating versus bell's monotherapy. So both of those, we think we have reasonably high likelihoods of being successful, again, to kind of define the new standard of care. On the question of frontline, we think we kind of have half of that covered right now that frontline but post pembro adjuvant.

The 15,000 patients?

Yes, plus/minus. I think it depends on kind of how we see and how someone views the evolution of that utilization over time as well as the evolution of when patients are diagnosed, does the advent of improved diagnostic modalities kind of changed some of that time course of metastatic diagnosis versus prior. So it's a multifunctional kind of dynamic. But when we think about that kind of de novo metastatic first-line space, it's certainly an area that we want to invest in, but it's one that we want to be thoughtful about how we invest in because our own experience with COSMIC313, as you mentioned, as well as the recent Light Spark 12 data show that you have to be particularly thoughtful and careful about rational combinations -- where does the biology suggest that what are those combinations that have the potential to shift the standard of care? Because say, going back to COSMIC-313, that was a successful study on PFS, but as we looked at the opportunity and kind of the lack of survival data and again, this patient journey dynamic in RCC, where there are now multiple lines of therapy understanding the trade-offs between PFS benefit with additional talks without survival versus sequenced therapies, that's just a dynamic that's relevant for every patient who has kidney cancer. And so Mike talked about it. Dana talked about it. One of the dynamics that we're certainly thinking about is we think zanza is a best-in-class TKI. We think it has a potential to be a backbone therapy and a shorter half-life and all of its profile lend itself to kind of being that sort of backbone. And the question becomes, what are the sorts of mechanisms orthogonal mechanisms particular, that you can kind of come at the cancer from multiple different angles to try and really drive the most robust benefit because at the end of the day, we don't want to run a study to generate similar data to what we've seen before. We want to run a study to be successful. So that's where we're being really thoughtful about. But I think, as Mike has said, we tend to view zanza in terms of waves of development in that kind of next wave in RCC, we're excited to share.

I mean -- so look, to that point, I guess the kind of nuanced question there is, do you think it will ultimately be a triplet regimen or a doublet regimen, right? Because you'll talk to maybe some of your peers in the space that are more on the HIF-2 alpha, right? Where they're like, look, we're not -- we want to go with a doublet regimen. And ultimately, we think that would be beneficial and Merck ultimately [indiscernible] triplet and that was really the error. But really that doublet combo is good enough to be better than, let's say, CheckMate 9ER, the LEAPS trials. There's another view of like, well, no, I mean, we are going to need 3 different therapies here. They need to all be combinable and they need to be tolerable so that you can actually get that OR but we're not comfortable with just, let's say, HIF2 alpha TKI combo first-line as better than CheckMate 9ER. What's your team's kind of internal thinking there, doublet or triplet when you do ultimately go into that frontline setting?

I guess the answer candidly is kind of it depends on what those are. The reason I mentioned the orthogonal mechanisms for us. If you think about kind of the HIF space in VEGF TKIs, we think that the secret sauce, special sauce for zanza is that it is kind of this whole other neighborhood of Med [indiscernible], the TAM kinases, et cetera. That's kind of why we think it's different. But at the end of the day, one of its core efficacy drivers in RCC is kind of the VEGFR kinase inhibition. Well HIF and VEGF are kind of on the same access. So you're kind of doubling down there. And so from a cancer biology perspective, it certainly makes sense to want to bring in an alternative mechanism to make sure that you're kind of attacking the tumor from as many different angles as possible. So your question of whether it's a doublet or a triplet it's, I would say, somewhat semantic because take, for example, XB628, or PD-L1 NKG2A bispecific. A theoretical combination of that brings in adaptive immune system and an immune system and then kind of the kinase inhibition piece, so that's probably a doublet, but it's incorporating multiple mechanisms of action as well. So that's kind of an example of the sort of thinking that we have around, let's say the biology make the decision, drive the decision, let's let the data drive that decision and really understand how do we really, again, run a study to right shift that survival right shift that PFS curve, all while doing so in kind of a way that's not adding additional tax for these patients. Because again, in RCC patients are living longer and longer. And we're certainly -- it's the best part of our job to be part of that, but you have to understand that clinical benefit risk trade-off as well.

Understood. I mean, I can't agree with you more, but then the tricky question becomes, well, okay, if it's maybe like there's 3 options here in my mind, you have something where it's a next-gen IO approach. You have T cell engagers and then you have ADCs, right? I don't think I've seen anything early on right now, whether it's in a pharma pipeline or in a SMid-cap pipeline, where I'm like this is a step order improvement. But maybe I'm wrong here, because I'm when do you think about those 3 modalities when adding on to zanza, where do you feel like there is this kind of natural synergy in first-line RCC? And maybe what am I and maybe what are investors missing about how this market is actually evolving over time on the pipeline side?

Yes. I mean, I think kind of the latter question is really -- we're the leaders in RCC, and we're going to continue to be the leaders in RCC and invest appropriately to do so. That cabo lens dynamic that I mentioned before is also that we want to make sure we're appropriate stewards of shareholder capital, and so we're going to run the right study. We want to run positive ROI studies that have a high probability of success that have that opportunity to be commercially successful. Whether it's one of those modalities or others, that's kind of TBD. I think I probably am a bit more optimistic on what's out there, especially what's out there in potential combination with zanza. One of the challenges that I think the industry has and certainly, folks like you have is trying to extrapolate the potential for later line data for modality X into an earlier patient population. I certainly think that we have the ability kind of through the Exelixis lens to kind of understand some of those risks a little bit differently. So we're excited. We're having a lot of conversations right now about what those combinations could look like. But I think it's suffice it to say kind of the 2 key points are we're going to make appropriate investments, and we're going to make sure that we're really having a thoughtful, strong opportunity in kind of that frontline space.

And are there any targets that you think you might call out, whether it's emerging in China or otherwise, I know like there's ENP3 bispecific data that's getting generated. There's next-gen ADCs out there. I mean anything that you think is particularly interesting?

Yes, but I won't call them out.

Worth asking. Okay. Understood. Now when we think about LITESPARK-001, and obviously, Merck is going to have a regimen that will, let's say -- look, it looks supportive of displacing cabo in a second-line setting over a period of time. But I also find it notable that Merck right after that data is also running the exact same trial with you with zanza but now displacing bells. How do you think about -- like what is Merck see with zanza, especially in that kind of second line setting where they feel like maybe there's room left on the table from the LITESPARK-001 data to actually improve the standard of care for patients. And how do you expect to show that case with -- I know you have a Phase III trial that recently started there.

Yes. I mean I think honest answer is, I don't really want to put words in Merck's mouth. But from our perspective, I think we certainly view zanza as a best-in-class TKI. And the totality of data generated for any of those combinations would suggest that tolerability is really important. Combinability dose selection is really important. And so can the combination of zanza as a best-in-class TKI in belz is a highly efficacious kind of very good HIF inhibitor can that have the potential to generate strong data, both from an efficacy perspective, but also from a safety and tolerability perspective. Because, again, how you combine how you double down on kind of the VEGF access is really important. And so understanding the differences, say, between len and zanza is particularly important. But again, I think it's also in part on how kind of patients will be treated in the future. So that's just as I mentioned before, that's one of the key considerations that when we have conversations with our NAV partner, that's where a lot of that begins.

Just closing loop on second line. I mean my sense is it's maybe like a 300 to 600 or somewhere that a, let's say, let's say, it's about $500 million in second-line RCC for cabo. But your team has been kind of a, I know you guys have never made that, so that's me. But number two, you've kind of said like, look, as use in first -- like second line goes down, there's potential uptake in first line in patients -- doctors are really thinking about stratifying different therapies. So when you think about the absolute impact on the LITESPARK-001 data as that regimen gets onto the market as we think about to the end of the decade. Do you think there will be any impact on absolute cabo sales? Or no, you're going to see this natural switch of a second-line use declines in a subset of patients, there's going to be an offsetting increase in first-line usage?

Yes. I mean, without kind of getting into guidance on guidance kind of long-term outlook, I think that's probably directionally consistent. I mean the most simplistic way to think about it is if a physician has come to the conclusion that len/pem is probably their go-to treatment of choice in second line, what it probably means is they would no longer use len/pem or len/belz second line. They would no longer use len/pem in the first line because you wouldn't [indiscernible] twice. And so what that means, functionally speaking, is for those patients who are likely to get IOTKI, [indiscernible] becomes kind of that frontline modality of choice. And if you think about, generally speaking, over the last 3 to 5 years, that dynamic of trying to drive every additional market share point in frontline RCC. That's been our primary focus anyway because the frontline market, just factually speaking, tends to have longer duration, longer time on drug. So it tends to drive incrementally higher revenue kind of first line versus second line. Still TBD, a little bit early to see kind of how all of these new combinations get adopted in the market, whether share is coming from single-agent TKIs or len/av, which is another regimen that's used right now. There's kind of a lot of moving pieces, but directionally speaking, that's probably a reasonable way to think about it, at least right now.

Understood. Now can you touch a bit on -- I know there was data at ASCO presented with cabo, actually running at something similar to what you're running in nonclear cell against initinib in first line. A, can you talk about your early thoughts on that data set obviously was Phase II in academic run. And then -- so a, how do you think a clinician will look at that data? And then number two, how do you -- what's your level of confidence? I know you have a Phase III in nonclear cell that's reading out later this year about whether your drug will differentiate there? Or what's kind of the magnitude of improvement you're expecting over [indiscernible]

Yes. I mean it's a good example of one of the unique dynamics around the non-clear cell space in that honestly, when we first started thinking about it, I was surprised that there had never been a Phase III done in that setting and I -- the way that I kind of conceptualize it is utilization in part is essentially driven by this idea of which small on randomized Phase III do I trust more as a physician and a patient because we all know the caveats and limitations of these smaller studies, patient selection, frankly, investigators are really good at identifying and selecting certain patients for these trials, which is a dynamic that you don't see and really can't do a large randomized Phase III studies. And so it's a group over here of utilization being all over the map because it's defined by a bunch of different ISTs or single-arm studies. And then 304 being the opportunity to kind of plan to flag in the ground and say, this is the standard of care potentially in the non-clear cell space. And so there are kind of 2 different things. And so I think the way that we look at it, and certainly, our market research is emerging in that [indiscernible] is that physicians will be comfortable using what drug or what combination has level one evidence of showing an advantage over standard of care. It's just that nonclear cell for a variety of kind of historic reasons, utilization is driven by inference and driven by the fact that all kidney cancer drugs are approved for both clear cell and non-clear cell.

Right. Understood. Now saving back and Andrew, this is a conversation you and I have had about how much do you think by side and sell side analysts of the [indiscernible] indications, you have 3 trials announced. How many of them are actually in people's models, I think it's probably 2 or 3? And then relative to the trials that you actually have ongoing -- for the -- for us, we haven't modeled -- those are the 5 indications, right? What are your favorite children, right? What are those markets where, again, it fits that profile of really clear unmet need, point and shoot. So you have high confidence that zanza will get established into standard of care. And then number two, you think the commercial opportunities are really underappreciated.

Yes. I mean, it's an honest answer in saying, I think we've been particularly thoughtful around each of the studies. Our goal for and beyond is to really show that zanza is a franchise molecule. And we're certainly excited about [indiscernible] in the launch and kind of priority 1A as a company but it's really kind of setting the foundation for zanza as an opportunity. And so we think about it as a franchise and collectively across all of those studies where individually, think they're all tenably-sized, if not very large market opportunities with high probabilities of success. . And so honestly, my view is look at each one of them individually and have a conversation, have an understanding, do whatever work you need to do to understand is this study likely to succeed? And if it exceeds what is the commercial opportunity here? An example of that, say, like Solar 316. So that's another area where we're essentially defining a new standard of care because right now, with the advent of Natera Signatera test, there's this new patient population that if they're ctDNA positive now find themselves at very high risk of relapse. Until that kind of new diagnostic modality was available that dynamic didn't really exist. And so we're looking at either zanza monotherapy, zanza combination with subcu pembro against watch and wait, placebo. And so that's an indication where we've already shown a survival benefit in a much later heavily pretreated population that we know is sensitive to the sort of therapeutic modality. And so it's an example where we're defining a new patient population. There are a lot of these patients who really do need a therapeutic intervention because right now, they're being told there's a really high risk of their cancer recurring, but there's nothing you can do about it. And so that kind of anxiety, that kind of unmet need is very palpable. And so it's a sort of thing where simplistically, again, any time you can randomize a large global or large randomized study against placebo, it's probably...

The size of that commercial opportunity, let's say, relative to RCC and first line. How should we think about that?

I think at the highest level, we've said there's 12,000 plus/minus patients. How that number evolves over time is kind of that availability and utilization of the Signatera test improves. Similarly, if there is a therapeutic intervention is there a higher likelihood of on people getting tested, but treated. It's a reasonably sized market. And then kind of at the end of the day, the math's pretty simple. It's number of patients, time share, times price times [indiscernible] .

Chris, for you to kind of wrap it up. It's funny. Your stock has tripled, not funny. That's credit to what you've done, but it's interesting a lot of investors are like, "I don't get it. Why are they still buying back their shares." And normally, when a company buys back their shares, the obvious announcement is we think we're undervalued, right? But you're also at this point, as you approach the cabo LOE, where there is this question of like, well, what's the allocation between external BD buying back our own shares? And then also pursuing other kind of Merck partnerships where you can really dive up the capital cost. What's the right balance for you now that you've already -- you've gone to this new level in terms of valuation and investor expectations, should we continue to expect this level of share buybacks on a go-forward basis? Or is this more of like a temporary dynamic?

Yes. So I mean, from a capital allocation perspective, we look at it not mutually exclusive in any way in 3 buckets, right? R&D expense that we have every year, potential BD, M&A and then share buyback. And like I said, they're not mutually exclusive. So we've committed to spending $1 billion or less in R&D for the time being. We continue to look at assets from a BD M&A perspective. We haven't -- record as shown. We haven't found that many things that we really like, but we're continuing to look. And then we've been buying back shares for the last 3 years almost since first approval on March '23. And you kind of touched on the undervalued part, right? When you look at the -- how the analysts are modeling it and how -- the Street generally is modeling zanza which is our next potential franchise molecule. There are not a lot of the indications in there. The ability to continue to develop zanza in a way that will drive sales in the 2030s, as Andrew talked about, the TKI, the 2030s we think -- we continue to think we're undervalued, and that's one of the reasons.

I know [indiscernible] going to be guidance, but I will take this question is, do you think you're undervalued? And you guys have given long-term perspectives on zanza. This is a question you got -- you're partner with [indiscernible] Bristol's common of like, is there a trough? Is there growth? It seems to me like a lot of the zanza Phase III start to read out before the end of the decade, and you're going to start to get uptake. Is there a possibility you have just straight growth through the cabo LOE? Is that how investors should be thinking about this?

Yes. Like you said, I'm not going to give guidance on that. But I think we're very excited about the opportunity that zanza brings and the potential that at the end of this decade, the beginning of the next decade, that and allows us to grow through that LOE for cabo.

But maybe the -- any potential of like JPMorgan from a few years ago where you call your shot and give kind of a 4-, 5-year commercial outlook on sands and the uptake. Is there appetite internally to do that anytime in the near future?

That's a tough question, Matt. I mean it depends, right? It depends on -- we did that because -- we did that back in 2020 because we weren't getting a lot of credit for 9ER or the potential of 9ER and then the other indications we're developing. And if we see that situation again, and we'll evaluate everything.

Okay. Understood. Thank you so much. I really appreciate it.

Thank you.