Exelixis, Inc. (NASDAQ:EXEL) Q2 2023 Earnings Call Transcript

Exelixis, Inc. (NASDAQ:EXEL) Q2 2023 Earnings Call Transcript August 1, 2023

Exelixis, Inc. beats earnings expectations. Reported EPS is $0.22, expectations were $0.16.

Operator: Good day, ladies and gentlemen, and welcome to the Exelixis Secod Quarter 2023 Financial Results Conference Call. My name is Tawanda and I’ll be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. You may begin.

Susan Hubbard: Thank you, Tawanda, and thank you all for joining us for the Exelixis second quarter 2023 financial results conference call. Joining me on today’s call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; P.J. Haley, our Executive Vice President of Commercial; Dana Aftab, our Chief Scientific Officer; and Vicki Goodman, our Chief Medical Officer, who will review our progress for the second quarter 2023 ended June 30th, 2023. Peter Lamb, our EVP of Scientific Strategy will join us for the Q&A portion of the call. During the call today, we will be making financial measures not calculated according to generally accepted accounting principles. Please refer to today’s press release which is posted on our website for an explanation of our reasons for using such non-GAAP measures, as well as tables deriving those measures from our GAAP results.

During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company. This includes statements about possible developments regarding discovery, product development, regulatory, commercial, financial, and strategic matters. Actual events or results could of course differ materially. We refer you to the documents we filed from time to time with the SEC, which under the heading Risk Factors, identify important factors that could cause actual results to differ materially from those expressed by the company verbally and in writing today, including without limitation, risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners, and the level of costs associated with discovery, product development, business development and commercialization activities.

And with that I will turn the call over to Mike.

Michael Morrissey: All right. Thank you, Susan, and thanks to everyone for joining us on the call today. Exelixis had a strong second quarter across all components of our business. We’re pleased to see continued growth of the cabozantinib franchise, while at the same time we expedite a range of discovery and development programs to build the Exelixis pipeline of the future, with the goal of helping many more cancer patients. Key highlights for the second quarter include, first, strong performance of the cabozantinib business with continued growth in-demand and revenue in the US. CABOMETYX maintained its status as the leading TKI for RCC in both the first-line IO/TKI market and the second-line monotherapy segment. Second quarter 2023, cabo franchise net product revenues in the US were approximately $410 million and grew 18% year-over-year compared to second quarter 2022.

Global cabo franchise net product revenues generated by Exelixis and its partners were approximately $577 million in the second quarter of 2023 and also grew 18% year-over-year compared to second quarter of 2022. Chris and PJ will update our progress in the quarter and provide additional commentary on our financial and commercial activities. Second, EXEL’s top priorities in R&D is to deliver a pipeline of clinically and commercially differentiated medicines for large populations of cancer patients with high unmet medical need. Our singular goal is to improve standard-of-care for patients with cancer. More patients we help, the more value we create for patients, their families, healthcare providers and our shareholders. We have an integrated R&D strategy spanning drug discovery, development and commercialization activities and are developing a pipeline of biologics and small molecules.

They have the potential to significantly move the needle for cancer patients. Dana and Vicki will highlight our second quarter progress later in the call. I’m pleased to announce that we’ll present our R&D efforts at an investor event on December 2nd, in New York City. Third, business development activities remain a priority as we continue to seek opportunities to access clinical assets with the potential to generate differentiating clinical data in solid tumor indications. We have several late-stage discussions ongoing and while there is no guarantee of success in closing these transactions, we look to continue using this approach to fortify our product portfolio. Finally, fourth, Exelixis entered into a settlement and license agreement with Teva to resolve patent litigation where Exelixis will grant Teva a license to market its generic version of CABOMETYX in the US beginning on January 1st, 2031, if approved by the FDA and subject to conditions and exceptions common to agreements of this type.

Our attention and resources remains squarely focused on the second MSN case which goes to trial in October. We will continue to vigorously protect our intellectual property rights. So with that, please see our press release issued an hour ago for our second quarter financial results and an extensive list of key corporate highlights achieved in the quarter. I’ll now turn the call over to Chris.

Christopher Senner: Thanks, Mike. For the second quarter 2023, the company reported total revenues of approximately $470 million, which included cabozantinib franchise net product revenues of $409.6 million. CABOMETYX net product revenues were $403.3 million, and included approximately $21 million in clinical trial sales. As a reminder, clinical trials sales have historically been choppy between quarters and we expect this to continue in future quarters. Gross to net for the cabozantinib franchise in the second quarter of 2023 was 27.3%, which is lower than the gross to net we experienced in the first quarter of 2023. This decrease in gross to net deductions in the second quarter of 2023 is primarily related to lower Medicare Part-D and co-pay assistance expenses.

Based on our gross to net in the first half of 2023, we are projecting gross to net will be between 29% and 30% for the full year 2023. Our CABOMETYX trade inventory decreased by approximately 340 units when compared to the first quarter of 2023. Total revenues also included approximately $60 million in collaboration revenues, including approximately $37 million of royalties earned from Ipsen and Takeda on their sales of cabozantinib in their respective territories. Additionally, in the second quarter of 2023, we earned an $11 billion milestone from Takeda for their achievement of cumulative net sales above $150 million. Our total operating expenses for the second quarter 2023 were approximately $392 million compared to $380 million in the first quarter of 2023.

The increase in total operating expenses sequentially was driven by higher SG&A expenses in the second quarter of 2023, which was primarily related to costs associated with the 2023 proxy contest. Provision for income taxes for the second quarter 2023 was approximately $19.2 million compared to a provision for income taxes of approximately $8.3 million for the first quarter of 2023. The company reported GAAP net income of approximately $81.2 million or $0.25 per share on a fully-diluted basis for the second quarter of 2023. The company also reported non-GAAP net income of approximately $100.3 million or $0.31 per share on a fully diluted basis. Non-GAAP net income excludes the impact of approximately $19 million of stock-based compensation expense, net of the related income tax effect.

Cash and investments for the quarter ended June 30th, 2023 was approximately $2.1 billion. This level of cash and investments, supported by our ongoing cash flow from operations provides Exelixis with the flexibility to invest in internal discovery activities, to pursue external business development opportunities to expand our pipeline, and allows us to return capital to our shareholders through the $550 million share repurchase program we announced in March of this year. During the second quarter of 2023, we repurchased approximately $127 million of Exelixis’ shares at an average price of $19.22. The second quarter share repurchase activity commenced a few days after our first quarter earnings release on May 9th. We remain committed to fully executing on the $550 million share repurchase program this year.

And finally we are reiterating our full year 2023 financial guidance, which is detailed on slide 14 of our earnings presentation. I’ll now turn the call over to PJ.

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P.J. Haley: Thank you, Chris. The second quarter of 2023 was a strong quarter for the cabozantinib franchise. The team continues to execute at a high level, which has resulted in CABOMETYX continuing to be the number one prescribed TKI in RCC and second line HCC. Additionally, CABOMETYX in combination with nivolumab remains the number one TKI plus IO combination in first line renal cell carcinoma. In terms of the business, CABOMETYX TRx volume grew by 9% year-over-year in Q2 2023, relative to Q2 2022. TRx volume for CABOMETYX grew 4% in Q2 compared to Q1 this year. Additionally, new patient starts and demand remains strong in the second quarter. CABOMETYX continued to perform well in Q2 from both a marketplace and competitive perspective.

CABOMETYX again led TKI market basket in TRx share at 39%. As we have discussed previously, the first line RCC market is extremely competitive and we are pleased with the performance of CABOMETYX in combination with nivolumab in this setting. Q2 was a third full quarter in which CABOMETYX plus nivolumab was the number one prescribed TKI plus IO combination in first line RCC. Uptake in first line RCC is broad across clinical risk groups and practice settings. Importantly, physicians continue to report a positive prescriber experience which is consistent with the balance of efficacy, safety and quality of life seen in the CheckMate – 9ER data. These perceptions were reinforced at ASCO which was a very productive meeting for Exelixis and provided a great opportunity for us to continue to highlight and promote the 44 month long-term follow up CheckMate – 9ER data.

You may recall, the median overall survival for CABOMETYX plus nivolumab is 49.5 months, representing an improvement of 14 months over the comparator arm sunitinib, with a hazard ratio of 0.70. The overall survival data are differentiatig relative to the TKI plus IO competitors and also compelling the prescribers who view these data is clinically meaningful. Furthermore, physicians believe that the data support their experience of using the combination in terms of efficacy, safety, tolerability and quality of life. Prescribers believe that this balance of data and the low discontinuation rate of CABOMETYX plus nivolumab enable patients to stay on therapy longer to achieve these results. Additionally, the CONTACT-03 data presented at ASCO reinforces the body of evidence with regards to cabo monotherapy, given the strong results of the cabozantinib controller.

Collectively these data reinforce the leadership position that CABOMETYX has in the RCC marketplace. We believe these data position CABOMETYX for continued momentum in growth as our entire team works every day to ensure that appropriate patients have the opportunity to benefit from cabo. And with that, I’ll turn the call over to Dana.

Dana Aftab: All right. Thanks, P.J. So during the last earnings call in May, I discussed our overall strategy for drug discovery which is designed to prioritize targets based on the strength of the science and to leverage internal discovery capabilities for both small molecules and biotherapeutics to address the highest priority targets. Today, I’m going to go into a bit more detail regarding where we’re at in terms of filing INDs for the current development compounds in the pipeline as well as progress towards the nomination of new development compound. As a brief reminder, our biotherapeutics programs are focused primarily on antibody-drug conjugates as well as bispecific and monoclonal antibodies targeting innate immunity.

Our internal biotherapeutics discovery team leverages several strategic partnerships that supply antibodies and various types of specific linker payload technologies, all of which have contributed to a significant level of productivity over the past several years. Our small molecule discovery programs are focused primarily on synthetic lethal targets which are attractive because they present clear patient selection strategies and drugging them typically results in a good therapeutic index. But we’re not limiting ourselves to this approach and in some cases, we’re pursuing drug, the target dominant oncogenic drivers like in KRAS where patient selection is straightforward and opportunities towards achieving best-in-class are apparent. So here is the pipeline beyond cabozantinib with the preclinical assets highlighted at the bottom.

These four biotherapeutics were declared as development compounds last year and are progressing toward IND filing. Three of which are expected to be filed in 2024. The first IND we expect to file for these will be for XB010, which is the next-generation antibody-drug conjugate that targets 5T4, a broadly expressed tumor antigen and delivers the cytotoxic anti- tubulin payload. XB010 uses Catalent’s site-specific conjugation and proprietary linker payload technology and as a result, shows improvement in TAK antibody-drug conjugate pharmacokinetic and reduction in free payload compared to the most advanced competitor. XB010 also represents the first five therapeutics that we have had full responsibility for and oversight of all stages of chemistry manufacturing and control or CMC.

As I’m sure many of you are aware, the manufacturing process for antibody-drug conjugates is highly complex, and I’m happy to say that our internal CMC team which comprises highly experienced scientists and leaders from the likes of Genentech, Merck, Novartis and AstraZeneca, has expertly managed that process for XB010. Our GLP-compliant toxicology study is underway and we are on track for delivering the GMP material next year which will enable us to file our IND for that program around mid-2024. The second IND expected from these programs is for XB628, a first-in-class bispecific antibody that combined the known pharmacology of PDL1 inhibition with inhibition of NKG2A, a complimentary natural killer cell checkpoint. XB628 is designed to simultaneously address both adaptive and innate immune checkpoint and to act as a natural killer cell engager, promoting the activity of cytotoxic T-Cells and the robust tumor cell activity of NK cells.

We expect it to be active in tumors such as renal and lung that are sensitive to first-generation immune checkpoint inhibitors, targeting the PDL — PD1 pathway alone. This program is targeted for IND filing in the second half of 2024. The third program expected to reach IND filing is XB371, a next-generation tissue factor targeting antibody-drug conjugate that follows on from XB002. XB371 also uses Catalent’s site-specific conjugation and linker payload technology and carries a Topoisomerase 1 inhibitor payload instead of the microtubule targeting payload on XB002. This program is on track for an IND filing in late 2024. Finally, XB014 is a bispecific antibody that carries the same PD-L1 targeting arm present in XB628 that combines with inhibition of CD47, a complementary macrophage checkpoint.

This program is progressing more slowly than the others due to a potential safety signal we observed in non-GLP toxicology testing, which is required additional modeling and experimentation to determine if we have an acceptable, predicted safety margin to move forward with an IND filing. In addition to these programs, we have multiple programs in discovery at earlier stages of maturity, both small molecules and biotherapeutics, from which we expect to nominate development compounds this year. We are currently on track to reach our stated goal of up to five new development compound this year, which will potentially include new antibody drug conjugates, a monoclonal antibody targeting a novel immune checkpoint pathway and small molecule addressing synthetic lethal targets for well-defined patient populations with substantial unmet need.

All of these programs represent first or best-in-class approaches and have the potential to meaningfully contribute toward our mission of helping cancer patients recover stronger and live longer. And with that I’ll turn the call over to Vicki.

Vicki Goodman: Thanks, Dana. Today I will provide updates on the progress of our clinical stage pipeline, focusing on our most advanced program Zanzalintinib and XB002, as well as the cabozantinib registrational trial. XL102 continues in dose escalation and we are focused on reaching a go-no-go decision later this year. As we continue to refine the strategic approach for each of our pipeline assets, we retain a strong focus on clinical trial execution to rapidly advance our pipeline molecules with the ultimate goal of improving outcomes for cancer patients. I’ll begin with Zanzalintinib, our next-generation tyrosine kinase inhibitor, which entered full development last year. On our last earnings call, we shared top-line results for a fully enrolled cohort of 32 pre-treated clear cell renal cell carcinoma patients from STELLAR-001 demonstrating robust activity with responses in both cabo naive and cabo pre-treated patients.

These data provide evidence for the activity of Zanzalintinib in a cabo sensitive tumor type and provide additional support for leveraging cabo data to inform the Zanza development program. An abstract with the complete RCC dataset has been submitted to an upcoming medical conference and we’ll share further details as they become available. We have also completed enrollment on several other STELLAR-001 cohorts and looking forward to sharing the data as they mature. In STELLAR-002, enrollment of the Zanza plus novo doublet expansion cohorts is ongoing and we have now completed enrollment on the dose escalation cohorts for the triplet combination of zanza plus nivo and relatlimab and established a recommended dose. This combination is now advancing into multiple solid tumor expansion cohorts.

Data from STELLAR-001 and STELLAR-002 will inform future registrational plans for zanza. Turning now to our Zanza Phase III studies. STELLAR-303 compares the combination of zanza with Atezolizumab versus Regorafenib in patients with non-MSI high, proficient MMR late-line colorectal cancer. We are currently amending the trial based on emerging data, including data presented for the LEAP-017 trial of Pembrolizumab plus Zanzalintinib versus standard-of-care at ESMO GI last month, which suggests that colorectal cancer patients without liver metastases at baseline appear to derive more benefit from IO combinations including IO/TKI combination compared to subjects with liver mets at baseline. Based on recent Phase III trial performed in similar settings, the prevalence of liver metastases appears to be around 63% to 74% of late-line metastatic CRC patients.

In the amendment design, a total of approximately 874 patients will be enrolled regardless of RAS status and including patients with and without liver metastases. Stratification factors, which already includes the presence or absence of liver mets will not change. The primary endpoint will be overall survival in patients without liver mets with the secondary endpoint of OS in-patients irrespective of the presence of liver mets, which will be statistically tested if the primary OS is positive. This will preserve the possibility to demonstrate benefit in all comers, while increasing the probability of success by focusing the primary analysis on the patients most likely to benefit. STELLAR-304, a Phase III trial comparing the combination of zanza and nivolumab to sunitinib in patients with certain non-clear cell RCC histologic subtypes who have not previously been treated for metastatic disease is also enrolling.

With these two Phase IIIs now underway, we are also on track for the initiation of additional Phase III trials this year. We are pleased to announce our next planned registration-directed study, STELLAR-305, a Phase II/III, which will evaluate Zanzalintinib in combination with pembrolizumab versus pembrolizumab alone in patients with first-line PD-L1 positive recurrent or metastatic squamous cell carcinoma of the head and neck. The study will enroll approximately 500 patients and PFS and OS are dual primary endpoints. Pembrolizumab as a single agent received approval in this setting based on overall survival. However, fewer than one in five patients have an objective response. With a 54% response rate seen for cabo in this setting, in an investigator-sponsored trial as well as the favorable emerging safety profile for Zanzalintinib, we believe this may provide an opportunity to improve outcomes versus single-agent pembro with a regimen that is tolerable for this population with multiple comorbidity.

Moving on to XB002, our first antibody drug conjugate, which targets tissue factor. We have now established a recommended dose, and we are carrying that dose along with a lower dose to fulfill FDA’s Project Optimus requirements for dose optimization into expansion cohorts in multiple solid tumors, which are now open to enrollment. I’m pleased to share that the first patient has now been dosed on one of those expansion cohorts. These signal detection cohorts will inform the drug safety and efficacy profile and allow us to pivot quickly into registration-directed trials. Additionally, we continue to enroll on the dose escalation cohorts with nivolumab and bevacizumab combinations to determine a recommended dose for each combination to carry forward into expansion, and we will continue to seek out other promising combination approaches in sensitive tumor types.

For cabozantinib, we expect the readout of the progression-free survival primary endpoint for CONTACT-02, our Phase III study in combination with atezolizumab in metastatic castration-resistant prostate cancer this year. The second interim analysis for OS for COSMIC-313 is also on track for this year. In summary, we continue to make progress advancing our pipeline molecules and believe that the emerging data for both Zanzalintinib and XB002 are encouraging. We look forward to sharing the emerging data at upcoming medical conferences as they mature and continuing to expedite the development of these promising assets for the benefit of patients with cancer. With that I’ll turn the call back over to Mike.

Michael Morrissey: All right. Thanks, Vicki. As you heard on the call today, Exelixis is off to a great start in 2023. We’re excited to have the momentum from our cabozantinib franchise drive increased growth across all components of the business as we at Exelixis work to help any more cancer patients as we discover and develop our pipeline of the future. We look forward to sharing our latest pipeline results and plans at our R&D day in December. I’ll close by thanking the Exelixis team for their collective efforts to support our discovery, development and commercial activities. The team is highly motivated to achieve our mission to help cancer patients recover stronger and live longer. We drive our results every single day with urgency and purpose to build on a foundation of innovation and collaboration.

We look forward to updating you on our progress in the future. Thank you for your continued support and interest in Exelixis and we’re happy to now open the call for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Asthika Goonewardene with Truist. Your line is open.

Asthika Goonewardene: Hi, guys. Good afternoon and thanks for taking my question. First off, I want to congratulate the team on just another quarter of consistent revenue growth. Good to see that. I guess I got a bunch of questions for Vicki. So Vicki, on your Phase I STELLAR-001 study, you’ve mentioned on the slides here that you completed enrollment for several dose escalation and expansion cohorts. I was wondering if you might be able to tell us which expansion cohorts have you completed enrollment so far. And then I’ve got a couple of follow-ups.

Vicki Goodman: Yes. So — yes. So as I mentioned in my remarks that we’ve completed enrollment on a number of cohorts. We’ll be prepared to share more details on that as the data mature. I think you’ve seen on our last earnings call that we shared the data for the Clear cell RCC cohort, which had not only completed enrollment, but also had adequate follow-up to make an assessment. So more to come on that.

Asthika Goonewardene: Got it. And then maybe at ESMO, sorry, at a medical meeting where you will be presenting data later this year, will they have multiple cohorts or just one cohort?

Vicki Goodman: Yes. Those data to clarify that point are specifically the clear cell RCC cohort, the 32 patients. We’ll have updated data, including both efficacy and safety in that presentation.

Asthika Goonewardene: Got it. Okay. And then, I guess, at the last earnings call, you mentioned that in that — you mentioned the 34% and a 50% ORR. And since then, I was wondering, you had one patient who was unconfirmed the last time we spoke in May. Did that patient end up becoming a confirmed PR? And any chance you might be able to tell us what in STELLAR-002 if the zanza, if the triplet that you study, is that exclusively zanza, nivo, rela or does it also include zanza, nivo and ipi as well?

Vicki Goodman: Yes. So again, we’ll share the updated efficacy data in the presentation. So you’ll get more details on an updated response rate as well as, again, the safety data. As for STELLAR-002, we have ongoing expansion cohorts for zanza in combination with nivo, and we’re now advancing the rela-triplet into different cohorts as they make sense in the different tumor types.

Asthika Goonewardene: Got it. All right. Thanks a lot. I appreciate all the color.

Vicki Goodman: You bet. Thank you, Asthika.

Operator: Thank you. Please standby for our next question. Our next question comes from the line of Jason Gerberry with Bank of America Securities. Your line is open.

Jason Gerberry: Hey, thanks for taking my questions. Just two for me. Just wondering quickly if you could — of your roughly 30% gross to net deductions on cabo, like roughly, is a big proportion of that the catastrophic coverage cost and donut hole cost? Just trying to get a sense directionally IRA implications around cabo pricing. And then just on the Teva settlement that you guys announced, it looks like a very positive and favorable deal for you guys. Wondering if there’s anything in that, that precludes you from giving MSM, you’re — the lead challenger, slightly better terms? Thanks.

Michael Morrissey: Yes, Jason, thanks for the questions. Chris can help with the gross to net, and I’ll speak to the Teva settlement.

Christopher Senner: All right. Jason, it’s Chris. From a gross to net perspective, we do — as we’ve talked about before, we do see higher gross to net. The donut hole piece is not necessarily catastrophic, but the donut hole piece has a big impact in Q1, particularly when we have those patients that roll over from the prior year to the current year, and they roll through — many of them roll through the donut hole when we — because of just being on cabo as they roll over the year. So a lot of its donut hole and not necessarily on the catastrophic side of things.