Exelixis, Inc. (NASDAQ:EXEL) Q3 2023 Earnings Call Transcript
Exelixis, Inc. (NASDAQ:EXEL) Q3 2023 Earnings Call Transcript November 1, 2023
Operator: Good day, ladies and gentlemen, and welcome to the Exelixis Third Quarter 2023 Financial Results Conference Call. My name is Gigi, 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. Please proceed.
Susan Hubbard: Thank you, Gigi, and thank you all for joining us for the Exelixis third 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; Amy Peterson, our Chief Medical Officer and Dana Aftab, our Chief Scientific Officer who will review our progress for the third quarter 2023 ended September 30, 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 refer to 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.
Mike Morrissey: All right. Thank you, Susan. And thanks to everyone for joining us on the call today. Exelixis had a strong and very active through quarter across all components of our business. We're excited to see the Cabozantinib franchise continue to grow, both in size and potential scope, while we advance a range of discovery and development programs to build the Exelixis’ pipeline of the future. Our singular goal is to improve the standard of care for patients with cancer. Key highlights for the third 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 GKI for RCC. Third quarter of 2023, Cabo franchise and net product revenues were approximately $426 million and approximately $586 million in the U.S. and globally respectively.
Chris and PJ will update our progress in the quarter and provide additional commentary on our financial and commercial activities. Second, Exelixis’ top priority in R&D is to deliver a pipeline of clinically and commercially differentiated medicines for large populations of cancer patients with high unmet medical needs. We'll highlight our integrated strategy spanning discovery, development, and commercialization activities that builds on past and recent Cabozantinib of success at our upcoming R&D investor event on December 12th in New York City. Amy and Dana will highlight our third quarter progress at a high level today and I'm excited to have them join me and PJ as we dive into the details in December. Our upcoming R&D day is the first we've had in many years and we look forward to the opportunity to elaborate more broadly on our strategy to propel the organization forward and serve more patients with cancer.
All in our continued efforts to generate sustainable long-term value for shareholders. Third, business development activities remain a priority as we continue to seek opportunities to access clinical assets, potential to generate differentiating clinical data, and solid tumor indications. In September, Exelixis and Insilico announced an exclusive license agreement granting Exelixis Global Rights to develop and commercialize XL309, a potential best-in-class small molecule inhibitor of USP1, which has emerged as an important target for synthetic lethality in the context of BRCA-mutated tumors. Fourth and finally, the second MSN trial took place last week at the U.S. District Court in Delaware. The case is now submitted and we don't want to get ahead of the court by commenting or speculating on any components of the trial for a potential ruling, either today or in the future.
We feel very confident in the case we presented last week and the overall strength of our Cabozantinib patent state. So with that, please see our press release issued an hour ago for our third quarter financial results and an extensive list of key corporate highlights achieved in the quarter. I'll now turn the call over to Chris.
Chris Senner : Thanks, Mike. For the third quarter of 2023, the company reported total revenues were approximately $472 million, which included Cabozantinib franchise net product revenues of $426.5 million. CABOMETYX net product revenues were $422.2 million and included approximately $14 million in clinical trial sales. As a reminder, clinical trial 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 third quarter of 2023 was 27.8%, which increased slightly when compared to the second quarter of 2023. Based on our gross to net in the first nine months of 2023, we are estimating gross to net will be between 28% and 29% for the full year of 2023.
Our CABOMETYX trade inventory increased by approximately 400 units when compared to the second quarter of 2023. Total revenues also included approximately $45 million in collaboration revenues, including approximately $38 million of royalties earned from Insilico incident decay on their sales of Cabozantinib in their respective territories. Our total operating expenses for the third quarter of 2023 were approximately $490 million compared to $392 million in the second quarter of 2023. The increase in total operating expenses sequentially was primarily driven by higher R&D expenses in the third quarter of 2023, which was primarily related to the $80 million up-front payment associated with in-licensing of XL309. Our SG&A expense declined in Q3 2023 when compared to Q2 2023.
This decline was attributable to lower proxy advisory fees, partially offset by higher stock-based compensation expense. Provision for income taxes for the third quarter of 2023 was approximately $4.8 million compared to a provision for income taxes for approximately $19.2 million for the second quarter of 2023. The company reported GAAP net income of approximately $1 million or $0.00 per share on a fully diluted basis for the third quarter of 2023. Third quarter net income in EPS were impacted by the increase in R&D expense, primarily related to the $80 million up-front payment to Insilico. The company also reported non-GAAP net income of approximately $32 million or $0.10 per share on a fully diluted basis. Non-GAAP net income excludes the impact over approximately $31 million of stock-based compensation expense net of the related income tax effect.
Cash and investments for the quarter ended September 30, 2023, was approximately $1.9 billion. This increase, the level of cash and investments supported 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 third quarter of 2023, we repurchased approximately $280 million of Exelixis shares at an average price of $21.08. Since the commencement of this program, the share repurchase program, we have repurchased approximately $345 million of Exelixis shares at an average price of $20.35.
We remain committed to fully executing on the $550 million share repurchase program this year. And finally, turning to our financial guidance for the full year 2023. Given where we are in the year, we are tightening our revenue guidance, and we are increasing our R&D and SG&A expense guidance. The increase in the R&D expense guidance is to reflect the Insilico deal we announced in September. Please see slide 14 of our Q3 earnings presentation for further detail. I'll now turn the call over to PJ.
PJ Haley: Thank you, Chris. The third quarter of 2023 was a strong quarter for the Cabozantinib franchise. Team continues to execute at a very 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 immuno-oncology combination in first line renal cell carcinoma. In terms of the business, CABOMETYX TRX volume grew 8% year-over-year in Q3 2023 relative to Q3 2022. Furthermore, the business remains strong both in terms of demand and new patient starts. CABOMETYX continued to perform well in Q3 from both a marketplace and competitive perspective. CABOMETYX again led the TKI market basket in TRX share at 38%.
As we had discussed previously, the first line RCC market is extremely competitive and Q3 was the fourth full quarter in which CABOMETYX plus nivolumab was the number one prescribed TKI plus immuno-oncology combination in first line RCC. Positive physician experience with CABOMETYX plus nivolumab continues to be reinforced as we highlight and promote the 44 month long term follow up CheckMate -9ER data. With median overall survival, for the CABOMETYX plus nivolumab arm, 49.5 months, representing an improvement of 14 months over the comparator arm submitted with a hazard ratio of 0.70. These data fortify the leadership position that CABOMETYX has in the RCC marketplace. Looking forward, we are excited about the positive top line results for CONTACT-02 and metastatic castration resistant prostate cancer, as well as the recent data from the CABINET trial in neuroendocrine tumors.
Both studies are in patient populations with significant unmet medical needs and pending potential regulatory approval will provide the opportunity for continued growth for CABOMETYX in the coming years. At our R&D day in December, I look forward to further discussing these two potential opportunities for the Cabozantinib franchise. Additionally, I'm excited to share at our event a commercial perspective on our emerging pipeline assets. Our experience with Cabo informs our strategy and ambition for zanzalintinib XB002, XL309, and our pipeline as we focus on bringing drugs to market in areas that will provide significant impact to patients and value to Exelixis. And with that, I'll turn the call over to Amy.
Amy Peterson: Thanks, PJ. I want to first state how thrilled I am to be here at Exelixis. Our research and clinical pipeline are broad, both in terms of modalities and targets, representing a variety of development opportunities which combined with our translational and clinical development capabilities provide an exciting and high-potential platform for growth. And I'm looking forward to bringing into fruition and sharing progress at our upcoming R&D day. Today, I will provide a high-level update on our clinical pipeline with the intent of going into much more detail in December. Let's start with our most mature compound, Cabozantinib. In late August, we announced positive top-line data from not one, but two phase 3 CONTACT-02 which evaluated Cabozantinib plus atezolizumab in patients with Metastatic Castration-Resistant Prostate Cancer, or mCRPC, and CABINET, which evaluated Cabo in patients with pancreatic or extra pancreatic neuroendocrine tumors.
I'll begin briefly with CONTACT-02. This is a randomized open-label study of Cabozantinib plus atezolizumab versus second novel hormonal therapy, or NHT, in patients with mCRPC. This study has multiple primary endpoints of both PFS and OS. PFS is determined by blinded independent central radiology review and per-resist 1.1 So, for example, progression by PSA only was not considered a PFS event to best informed an endpoint. Eligibility was restricted to patients with measurable disease. That is, bone-only, non-measurable disease was not allowed. In August, we issued a press release noting the statistically significant PFS benefit in favor of Cabo-Atezo and a trend also favoring Cabo-Atezo in overall survival. No new safety signals were observed and adverse events were on par with what is expected from either Cabo or Atezo monotherapy.
Based on feedback from the FDA, we will discuss a potential regulatory submission when the OS results are more mature. Also in August, we announced positive results from CABINET, a Phase 3 study conducted by the Alliance for Clinical Trials and Oncology. The study evaluated Cabozantinib versus placebo in two independently powered cohorts. One in previously treated patients with pancreatic neuroendocrine tumors or pNET. The other in patients with extra pancreatic neuroendocrine tumors or epNET. So there's really two positive phase 3 studies in one. Data were recently presented at ASMO by Dr. Jennifer Chan noting PFS hazard ratio of 0.27 and 0.45 in the pNET and epNET populations respectively. In pNET, the median PFS for Cabo was 11.4 months versus three months for placebo.
And in epNET, the median PFS for Cabo was 8.5 months versus 3.2 months for placebo. No new safety signals were identified for Cabozantinib and we look forward to discussing these results with the FDA once we bring the data in-house. I will now turn to zanzalintinib. Our STELLAR-001 and 002 phase 1B2 trials are evaluating Zanza monotherapy, Zanza in combination with PD-1, PDL-1, immune checkpoint inhibition, and also triplet combinations of Zanza, anti-PD1, and CTLA-4 leg three targeted therapies. As you can see from the slide, we have multiple expansion cohorts in a variety of tumors testing these combinations. Data generated from these cohorts will serve to support expanded development for Zanza. Indeed, we previously shared early, yet promising data with Zanza mono therapy in patients with clear cell kidney cancer where compelling and durable responses are being observed in both Cabo naive and Cabo pretreated patients.
These data have been accepted as late-breaking oral abstract for presentation by Dr. Monty Pal on Friday, November 10th at the International Kidney Cancer Symposium, taking place in Nashville. Turning now to our registrational studies with Zanza, enrollment continues into STELLAR- 303, evaluating the combination of Zanza plus Atezo versus regorafenib in patients with non-MSI high, non-DMMR refractory metastatic colorectal cancer. This study was revised to evaluate outcomes first in patients who do not have liver metastases, non-Liver Met or NLM, followed by an evaluation in the ITT population. The sample size for both NLM and LM patients is capped to ensure adequate number of events in each of these analyses. STELLAR-304 is our phase 3 trial, which compares the combination of Zanza plus nivolumab to Sunitinib in patients with previously untreated metastatic non-clear cell kidney cancer and is now enrolling in multiple countries.
And last but not least, STELLAR-305, our phase two-three trial, which will evaluate Zanza in combination with Pembrolizumab versus Pembrolizumab alone in patients with untreated PDL-1 positive advanced or metastatic squamous cell carcinoma of the head and neck was just posted to clinicaltrials.gov and we are full gear into site activation mode. Given the emerging favorable activity and tolerability profile of Zanza, we believe this combination of Zanza plus Pembro may result in improved outcome versus single agent Pembro and has the potential to offer patients a chemo free option. We're excited about the emerging data with Zanza as monotherapy and in combination with ICI. This combined with clinical data generated with Cabo provide compelling rationale to move Zanza into broad development programs that will address patients with unmet needs.
We will continue to evaluate the treatment landscape to inform the design and initiation of additional pivotal studies for Zanza. I'll turn now to XB002, our antibody drug conjugate which targets tissue factor and incorporates a modified aura statin as the payload. We've initiated expansion in multiple cohorts at two different doses which will allow us to determine the best dose to take forward into registrational studies and combinations while also fulfilling project optimists. Combinations with nivolumab and with bevacizumab are also underway and data here will serve to inform a broader clinical development program. Finally, I'm very excited about XL309, our recently acquired USP1 inhibitor. We anticipate full transfer of all obligations towards the end of this year and are in the process of assessing how best to aggressively and urgently advance this asset through dose escalation both as monotherapy and in combination.
We believe this to be a best-in-class molecule that has the potential to not only deepen response seen with DNA damaging agents or agents that inhibit DNA damage repair like PARP inhibitors but also to broaden the addressable population beyond those who carry a BRCA mutation. In summary, we're advancing a robust pipeline of molecules while maximizing the potential benefit to patients from our flagship asset, Cabo, in unmet needs indications. I'm optimistic about what we can do for patients who, despite significant advances, still need better treatment options. And I'm very much looking forward to sharing more detailed information about our progress and the recently presented data at our R&D day in December. And with that, I'll turn the call over to Dana.
Dana Aftab: Hi, thanks, Amy. I just want to start off by saying how excited I am to be working with Amy as my partner in R&D. I've known her for quite some time, going back to the days when we were working with Genentech on cobimetnib, and having her here on the team now has brought a lot of energy and focus into our organization. We've been working together preparing for R&D Day next month, and I'm excited about what's in store for that event. So what you'll hear from me today will be just some brief highlights of what I'm planning to discuss in greater detail next month. In the third quarter, we made solid progress toward our goals of advancing existing development candidates toward IND filings and advancing early discovery programs to developing candidate status.
We are on track to file four new INDs next year, three of which will be from existing pre-IND biotherapeutics programs, and one of which will be for XL495, a new small molecule development candidate that we recently added to our pipeline. For our existing pre-clinical biotherapeutics programs, we are on track with IND enabling activities and expect to file INDs for three programs next year. The first will be for XB010, our 5T4 targeted antibody drug conjugate that carries a cytotoxic anti-tubulin payload, which we expect to file around mid-2024. The second IND will be for XB628, our bi-specific antibody that targets PDL-1 along with MKG2A, which is on track for IND filing in the second half of 2024. And the third IND will be for XB371, a tissue factor targeting antibody drug conjugate that carries a TF-Topoisomerase 1 inhibitor payload.
This program is on track for IND filing in late 2024. So, as I mentioned earlier, we recently added XL495 to our pipeline. XL495 is a potent and selective small molecule inhibitor of PKMYT1 that was generated from an internal discovery program. Inhibition of PKMYT1 is synthetically lethal in the context of increased CCNE levels, which occurs across a wide range of tumors, including ovarian, endometrial, and colorectal. Our molecule was designed to be best-in-class and is tracking toward IND filing around mid-2024. In addition to these programs, we expect to nominate several more development candidates from our biotherapeutics discovery programs by the end of this year. We are currently on track to reach our stated goal of up to five new development candidates this year, which in addition to XL495 will include a monoclonal antibody targeting a novel immune checkpoint pathway and some new antibody drug conjugates.
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 back over to Mike.
Mike Morrissey: All right. Thanks, Dana. As you heard in the call today, Exelixis had a strong third quarter 2023, and is moving quickly to capitalize on our momentum in the fourth quarter. We're excited to advance all our efforts to help many more cancer patients as we discover and develop our pipeline of the new future. We look forward to sharing our latest strategies and science at our R&D Day in December. I'll close by thanking the entire 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 clear urgency and focus to build on our long history 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.
Operator: [Operator Instructions] Your first question comes from the line of Michael Schmidt from Guggenheim.
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