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

Yes. I mean, obviously, we have a lot of experience in RCC generally. So I think we're -- from either a CABO or zanza perspective, I think we're ready -- we're definitely ready to go, and we've got all the relationships we need, both from a physician perspective and a payer perspective that allows us to be successful if the data is positive and we have potential approval. So we're excited for the opportunity if it comes about and looking forward to being able to go out there and capture as much market share in the non-clear cell RCC market as possible. As Andrew was talking about, it's not -- it's a fragmented market right now, and we'll have the first basically Phase III trial that will read out. And if that's positive, that will give us a lot of as Andrew was talking about earlier, from a successful company perspective, data allows you to be successful. That data is positive and allow us to be successful in the non-clear cell RCC market.

Yes. And that's really kind of the strategic logic, so to speak, of the franchise model, where we're kind of the market leaders in RCC as we layer on new indications, new products in that space, our commercial organization, our relationships across the organization in RCC, we're certainly going to leverage. And so that's kind of the best way to think about it, either with zanza non-clear cell or the 033 and 034 studies that Merck is running as our partner. It's kind of that franchise benefit, franchise strength that's driving a lot of that.

Okay. I guess, coming back to clear cell RCC, and I'm thinking about the LITESPARK-033 trial. Can you just speak to the market opportunity that's in scope here, which is the post checkpoint adjuvant frontline setting? Is there sort of an easy way to frame the size of that market opportunity relative to frontline untreated RCC?

Yes. I mean I think the best way to think about it is more how are patients treated in 2026 versus how will they be treated in 2031 or 2030. The evolution of the patient journey in RCC over time. And so what the pembro data in adjuvant, especially the overall survival advantage showed is that for eligible patients, this really should be the standard of care. Patients live longer if they get KEYTRUDA in the adjuvant space. And so it opens up the question, well, as more and more patients get adjuvant therapy with KEYTRUDA earlier, what actually is the standard of care there. And so that green space is expected to grow over time and LITESPARK-033 is positioned to basically be the first study to answer that question. So again, it's kind of an example of Exelixis kind of leading the way, so to speak, in defining a new standard of care, where right now, it's just kind of done by inference or guess or CABO used. A lot of things are used more by assumptions or guesses around, well, it's probably going to be active, but there's no real data to suggest it. And so the way we think about the market is more around an evolution over time because the number of patients treated with adjuvant pembro today is probably going to be very different than it's going to be treated in the future. And so that's kind of the dynamic that we like to think about. It's not are we generating a data set today or are we generating a data set to be the standard of care at some point in the future when we're kind of thinking about those markets.

Right, right, right. Okay. All right. And just from an operational standpoint on LITESPARK-33 [LITESPARK-033], just how is enrollment in that study tracking against expectation? Is there a rough sense of when you might be able to report on the primary endpoint?

Yes. I mean good news for us is this is a Merck study. So there's no better oncology drug developer in the world. And so we love having them as a partner. And so it's one of the benefits -- one of the great benefits that we have of working with them is operationally, there's just no better team. And from an execution perspective, we're very, very happy.

Okay. All right. Hopefully, we'll let you speak to the market side -- the market opportunity for LITESPARK-34 [ LITESPARK-034 ] there. I mean this is another Merck run study, but in the second-line clear cell RCC setting. I guess there, I imagine sort of the thinking going into that study is and along the same lines for 33. But from a sizing standpoint, can -- how are you thinking about sort of the size of that market opportunity in second line plus RCC?

Yes. Maybe just I'll frame it a little bit differently. A couple of years ago, we kind of framed or gave guidance around this is what success looks like for zanza if we were successful in all of the studies that were ongoing at the time. Said about zanza, a $5 billion TAM, 45% of that was GI, 45% was GU and 10% was a head and neck study that we had running at the time. And so that 45% of the $5 billion, that was across the 3 RCC studies. So non-clear cell, 033 and 034. So that's kind of a good sense of how we see the RCC or GU opportunity right now. What I'd say also, just to add to that, is subsequent to that, we kind of transitioned from 305 and head and neck given the kind of emerging and growing competitive profiles of that space and really said that our incremental investment dollar is much better spent with meningioma, which is a pivotal study we have up and running, and then the 316 study, which I mentioned earlier as well. And so those 3 studies, we think collectively those 2 studies collectively are probably about 3x the size of how we viewed head and neck. But the other dynamic here is we're not done with zanza. Kind of the first wave is out and ongoing, and it's a proud accomplishment, say, that we have these 7 pivotal studies up and running. But as we look to the next wave of zanza, certainly something like frontline RCC is now wide open. So you mentioned other LITESPARK studies. So LITESPARK-012 was actually unsuccessful earlier this year. And so what that future standard of care in frontline metastatic RCC looks like is kind of an open question. And so that's where we're being very careful in understanding how zanza can play a role there. What are the modalities, what are the targets, what are the combinations that the biology show us will be successful kind of in that space. What are the lessons learned from our prior studies? What are the lessons learned from other contemporary studies as well. So that's kind of how we're thinking about it. And then that wave 2 is going to lean into the RCC component, the GU component, but there's lots of other areas where we're expected to go. So kind of stay tuned there.

Just thinking about, again, the LITESPARK regimen, I guess, -- it's set up in a way where it does create optionality for Merck, right, in some ways. And it could end up being an alternate TKI combination with belzu where it's expected to -- or is and expected to use further with LENVIMA. I guess how should we think about the relative profiles or the tolerability profiles of zanza versus lenvatinib when combined with Blez's? And are there other aspects to zanza's profile that you think where you see it favoring or see it being the favored combo agent versus LENVIMA?

Yes, certainly. I mean, I think we view zanza as kind of a best-in-class TKI. Its profile certainly lends itself to that sort of moniker. So if you think about, say, even the comparisons between CABO and LENVIMA we're the #1 TKI, both as a monotherapy as well as in combination with IO and the data we've generated with CABO kind of support that. Zanza then kind of improves upon, so to speak, the overall profile of CABO and that it -- really the core insight around what we were hoping to do with zanza, both proactively and then fortuitously in how the data got generated is really CABO's long half-life can be somewhat of a complication from a patient management perspective. And so zanza takes that core CABO scaffold. We engineered in kind of a metabolic liability to impact its PK. So it's much more user-friendly from a dose titration perspective, AE management perspective, tissue distribution perspective. And so all of those things that support kind of this best-in-class profile right now for CABO, we think then layer on with zanza with a more user-friendly, somewhat gentler TKI. All of those things as you move towards multidrug, multi-modality combinations support that. And so that's why we're looking at it with belz, looking at it with all sorts of checkpoints. And then even we have some cohorts open looking at it, say, with docetaxel. And so if we're successful on that front, then the door opens up to a whole host of either docetaxel combinations or even something like an ADC combination, given the profile we think zanza has with them.

Okay. Okay. Maybe just coming back to NETs, the NET market here, where you're also developing zanza in the frontline setting. This is in the STELLAR-311 trial. I think you actually provided some update on the -- on your last call just in that you're seeing faster-than-expected enrollment into that study. I guess how should we think about just the kinetics of the dynamic when it comes to patient treatment in that setting compared with what you described earlier in the second-line plus setting where there's kind of some interim between taking up treatment. I guess speaking to perhaps what you think the pace of uptake might be in the frontline NET setting, if successful there.

I think it's probably something we're still teasing out. The data will certainly help inform that. But I would just note kind of the differences between, say, the CABINET-based adoption or label for CABO and the population we're studying for zanza is it's kind of that first oral option. So given that first oral option, you're not switching necessarily from everolimus to CABO. And so some of those dynamics are probably less relevant. But we'll still see that more indolent nature of NET probably impacting something. I think overall, the point being we view NET as a large and very kind of underserved population. And it's one that from a franchise perspective, Exelixis is increasingly investing in, whether it's kind of through the zanza programs or some of our earlier-stage programs, NETs is going to be a franchise that we're a market leader in. We're going to continue to be a market leader in because we think there's a real opportunity there and unmet need.

Okay. Okay. And I guess if we just kind of step back and take a look at everything that's going on, right, you have ongoing late-stage development here with zanza in addition to potential new product launch. How should we think about operating margins in 2027 and perhaps going forward?

Yes. So I mean, if you think about what we've said, we -- our expectation is to keep R&D expense in that $1 billion range for the foreseeable future or less. And that helps us continue to -- as revenue grows, continue to increase -- potentially increase operating margin. We've built out -- as Andrew was talking about earlier, we built out the sales force earlier this year. So that's in our guidance for this year, and it's in our run rate. And we have all the -- basically have all the launch expenses we need for zanza. And so we think that operating margins based on continued revenue growth, both for CABO and potentially for zanza and keeping R&D expense in that $1 billion range allows us to continue to have healthy operating margins. We do throw off a lot of cash. And so we're constantly looking at capital allocation and looking at investing in R&D, in potential BD deals and in share buyback. And so Andrew and I talk about this all the time. We're constantly looking at BD deals out in the market, and we're currently in the process of executing on a $750 million share repurchase program. Through the second quarter, we have purchased about $2.9 billion worth of shares starting in the second quarter of '23 through the second quarter of '26. So that's been an important part of our capital allocation. And the way we look at capital allocation, too, is we don't look at a mutually exclusive between R&D expense, BD or share repurchase. They're all important, and we look at them altogether. So...

One final question here. Our colleagues in tech are also running a conference this week, and so I'm kind of asking this on their behalf and thinking of their world. But it is a question that comes up or a theme that comes up in our space quite a bit, right, or just in general, which is really about just the use of AI or AI-driven technology and the extent it might be having an impact on your business. How is Exelixis today making use of AI-enabled tools within the organization? And how do you measure its impact?

Yes. So for AI, IT reports up through me, but AI is really driven by the business and the implementation is done by the -- in combination with the business and the technology team. We're using it a lot in commercial right now. It's been -- we've built that over the last several years, we've enhanced the way we're collecting data. And so we have this really robust data warehouse, commercial data warehouse that allows us to do deep insight. And actually, we've put tools in place that reps can do -- instead of just having canned reports that come out, reps actually can go in, type in their prompt and get, okay, who should I detail? Like who -- when was the last time? Whose prescription patterns have changed? And that kind of AI is actually very useful at the rep level, and that's enhancing how we go about detailing doctors. From an R&D expense perspective or R&D perspective, we have it both in the discovery organization. We use tools. We've used some kind of off-the-shelf tools in the development side. They haven't been as helpful as we would hope. So we're actually developing our own tools. And so allowing us to do things faster, more efficiently because that time is very important. So we're using it in R&D. We're using in commercial. And then from a G&A perspective, we're trying to use it everywhere we can, both in finance and in legal and other parts of the organization so that I've challenged my team, my finance team to basically not grow as we grow and utilize AI to do that and utilize AI to be more efficient. So we're using it in all different parts of the organization, and I think it's having a very positive impact on Exelixis, and we think it's going to have a bigger impact going forward.

Okay. All right. Great. I think we'll have to leave it there for time. Thanks so much, Chris and Andrew. Thank you.

Thank you.