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Exelixis, Inc. (NASDAQ:EXEL)

Piper Jaffray Health Care Conference Call

November 29, 2011 3:30 PM ET

Executives

Mike Morrissey – Chief Executive Officer

Frank Karbe – Chief Financial Officer

Charles Butler – Investor Relations

Analysts

Ted Tenthoff – Senior Biotech Analyst, Piper Jaffray

Ted Tenthoff

Thank you very much for sticking with us. Please come on and join for the next presenting company Exelixis. My name is Ted Tenthoff. I’m a Senior Biotech Analyst here at Piper Jaffray, and before I begin, I’m required to point out certain disclosures regarding the relationship between Piper and Exelixis, which are located both at the back of the room and also at the registration desk.

I’ve covered our next presenting company for over eight years believe it or not, here at Piper Jaffray, and I had to say that last 18 month has been a wild rollercoaster ride to say the least. I mean you guys are definitely you will improve that.

Last summer partner Bristol-Myers Squibb written rights to XL184 which is now known as cabozantinib, then last fall at EORTC in Berlin, I got to see first handed remarkable unprecedented activity in bone scans in prostate cancer patients.

Then just last month, we’ve got positive Phase 3 data from the EXAM study at medullary thyroid cancer. But now we’ve filed negotiate an SPA for FDA with prostate cancer. So it’s just up down, up down. But I think you guys have made really very considerable progress over the last 12 plus 18 months now since you taken the helm.

So here today to discuss Exelixis with us is CEO, Mike Morrissey; also Frank Karbe, the CFO; and also Charles Butler, who does a fantastic job on the IR side.

So, again, a lot has happened since you’ve taken over as CEO as I was starting to mention. Let’s start off with the really good news. The EXAM trial achieved highly statistically significant results in medullary thyroid cancer. Walk us through this data and what are your plans are for filing?

Mike Morrissey

Okay. Very start though I think we need to read a Safe Harbor. Charles?

Charles Butler

Yeah. Just to our quick disclosure statement. During the course of this presentation, we will be making forward-looking statements regarding future events or the future performance of the company, actual events and results of course could differ materially. I’ll refer you a document that the company files from time-to-time with the Securities and Exchange Commission, specifically company’s most recent Form 10-Q filed October 27, 2011.

These documents contain identify under the heading Risk Factors, important factors that could cause actual results to differ materially from those contained in any forward-looking statements including risks related to the future -- the potential future failure of cabozantinib to demonstrate safety and efficacy in clinical testing, Exelixis’ ability to conduct clinical trials of cabozantinib sufficient to achieve a positive completion and the sufficiency of Exelixis’ capital and other resources, the uncertainty of the FDA approval process.

And, with that, we’ll now turn to the questions.

Mike Morrissey

Charles, thank you very, very much.

Charles Butler

Can you repeat the question again?

Ted Tenthoff

Yeah. I think, maybe I should. So, again, EXAM great results walk us through the data and what are your filing plans?

Mike Morrissey

Okay. So, again, we had a topline data we put out few weeks ago for our EXAM trial, which is a trial we’re looking at patients with progressing medullary thyroid cancer. One of the important criteria with that our patients had progress psoriasis in the last 14 months. You’re looking at a very late stage population, topline data was pretty interesting. It has a ratio of 0.28 million benefit of PFS for cabo of 7.2 months over placebo, so very encouraging sign in tumor activity.

We have in terms of we’re moving forward. We have a pre-NDA meeting coming up at the end of December, which we hope, again get the FDA ability or the approval of the agreement to then enrolling filing, if all goes as plans. Our high level plans are the [FDA] filings in the first half of the year.

Ted Tenthoff

Oh! I should mention before I forget, you guys are also hosting an Analyst Day here in New York on Thursday. I forget where…

Mike Morrissey

At the Roosevelt…

Ted Tenthoff

At the Roosevelt Hotel, so why do, I mean the same for itself. If you don’t get all of your Exelixis’ questions answered right, please join us on Thursday.

Mike Morrissey

Yeah. Actually, if I can just, but it will be a great opportunity to hear from the team of Exelixis’ along with five different KOLs, we’ll have Howard Scher and Ethan Basch from Sloan-Kettering, two experts in prostate cancer phase along with Dr. Matthew Smith from Mass General and Dan George from Duke. So really strong prostate cancer panel and then Steve Sherman from MD Anderson to talk about the thyroid cancer opportunity and data in both MTC, and differentiate thyroid cancer, so it will great day, I hope you to see you there.

Ted Tenthoff

So, I guess, trying to steal your thunder a little bit tell us about this MTC indications and what is the current standard of care there? I think maybe what sort of drug that was just approved in last year or two…

Mike Morrissey

Vandetanib.

Ted Tenthoff

Yeah. Vandetanib, exactly, so how does the activity differ and what you guys see as that opportunity?

Mike Morrissey

Yeah. So, MTC is about 3% to 5% of all thyroid cancer patients as medullary thyroid cancer. So it’s a rare sub-type of all thyroid cancer. It can be a very indolent disease, patients can live with that disease for a decade or more, once if he comes more advanced, more progressive, the median survival is approximately two or so years.

So once whatever that second generic switch that is turn on, if turned on it becomes a very, very advance, very, very aggressive tumor type that can lead to a variety of morbidity and ultimately the death of the patients.

So, we have certainly a long standing interest in MTC, our Phase 1 data in terms of the initial work with cabo and the dose escalation phase of that work showed that we had a good activity with several partial sponsors in the dose escalation phase.

In order to expedite the process we enrolled an additional 35 patients into a Phase 1 MTD expansion cohort. We saw a 30% or so response rate in that population, good durability of response. We have patients on that trial now with durable responses for three, four plus years now, so good overall durability of that activity.

It’s a relatively small commercial opportunity. It’s about, approximately thousand or so patients in the U.S. with that disease similar number in Europe. I mean, only a fraction of those patients actually have the more advanced form of that disease.

So relatively small commercial opportunity, that being said, you will see how the ratios with the 0.2, very often so we’re certainly excited about that data and we think it will lay the good foundation for, really the opportunity for cabo as important anti-cancer compound. Obviously, we have activity beyond that now in prostate cancer, breast cancer, ovarian cancer that we’re excited about, but we can certainly move off that foundation.

Ted Tenthoff

Maybe its worth even just taking a step back right now and kind of reviewing what the molecular profile is and targeting profile is of cabo since you start to mention some of the activities that you’re seeing, this broad activity, lets go back a little bit and tell us about what this...

Mike Morrissey

Sure. Great point. So cabo is designed to be a dual inhibitor of MET and VEGFR. MET is a very interesting target that’s been, I think we’re well studied now over the last four or five years in terms of both preclinical and clinical work.

Our initial observations biologically was that those two targets and their signaling pathways work in conjunction in the tumor to really make tumors grow, proliferate, become very resistant to a variety of chemotherapy and targeted therapies. In fact, MET has been shown both preclinical and clinically to be one of the main drivers of resistance for EGF inhibitors or VEGF inhibitors, as well as for hormonal-deprivation in prostate cancer.

And in fact, if you look at newly formed legions in the bone of patients with prostate cancer, you can see a good up regulation of MET with the idea that ADT or androgen deprivation therapy becomes -- is effective at controlling prostate cancer earlier that when patients and their tumors become resistant to that, that’s often because VEGF regulators making those tumors more invasive and much more metastatic.

So our approach was to combine the activities of both VEGF and MET into the single compound like cabozantinib the preclinical data which we published extensively I think highlights it. The utility of that approach, clinically speaking, we’ve seen very robust activity today with cabo. We’ve seen RECIST objective responses in 12 of 13 tumor type’s to-date and we’ve seen activity in nodal disease and visceral disease and CNS disease and bone disease.

So we’re very excited about that overall profile clinically and looking forward to now moving forward in docetaxel in prostate cancer, but also with recently announced data that we have with CTEP expanding the repertoire of indicating recently study of cabo.

Ted Tenthoff

So obviously the larger indication as you start to delay out of the focus for Exelixis going forward is prostate cancer, review the remarkable activity that you’ve shown with the bone scans and now in bone pain?

Mike Morrissey

Well, the index patient if you will at ASCO 2010 was a patient from University of Michigan, Dr. David Smith whose in the Department of BioOncology with (inaudible) made the observation that patients that was put back to care with extensive bone disease in terms of metastatic bone lesions has to be observed by bone scan.

The patients have a large nodule in his lungs, large high PSA, great deal of pain which is very common in this disease, with the absence of cabo over between six and 12 weeks really a remarkable response in the single patient past 18 months ago.

And that was the bone scan complete result. Pain decreased dramatically there is the one nodule trunk at the point of the confirmed RECIST response PSA went down. So a very unique profile, one that is certainly different than other compound that was studied at that point in time to date, immunotherapy, targeted therapy, thermotherapy, chemotherapy, radiotherapy, is very unique differentiated clinical profile.

In the last 18 months we have enrolled approximately 275 patients to-date and have been able to really confirm that very unique differentiated clinical profile with cabozantinib and our challenge going forward right now is to then convert that unique differentiated clinical profile into a differentiated commercial profile by having a label that potentially have survival benefit, pain reduction, narcotic due to reduction of deterioration, as well as the bone scan response, so that’s our main focus going forward.

Prostate cancer has had a lot of success recently on the survival side. There have been more compounds today that have a little bit of pain. This is a very important clinical medical manifestation of that disease really impacts patient’s quality of life, really correlates well with poor survival. The more pain you have, so at the time of the overall survival, so it’s an area that we think we can make some serious traction based upon this, this, I think now well-documented clinical differentiation with cabo.

On the pain side, we had an update at EORTC a few weeks ago and early updates from our non-randomized extension cohort, is a trial looking at patients that were post-docetaxel that had some level obtained an entry. We looked at 29 patients that had moderate to severe bone pain, so using the brief pain inventory at pain of greater than 4 on an 11.3 scale, so significant pain.

We showed, I think, some very, very encouraging results there using again, using the BPI. About half the patients that were studied had a 30% decrease in their overall pain score. Several had almost 100% decreased in their pain score. About a quarter of those patients had some completely discontinued their narcotics, approximately 2% of those patients had a decrease in narcotics. So, overall, it was very, very robust signal in a population of patients that had late stage disease was a significant milestone.

Ted Tenthoff

Now, also at the EORTC, you guys showed some data looking at lower doses of cabozantinib and tell us what some of the toxicities that you’ve seen at and above 100. I mean, I was pleased to see that the MTC data so well tolerated. But in these prostate cancer patients we are seeing more toxicity. So maybe walk us through that, I mean, what you see with some of the lower doses?

Mike Morrissey

Well, we’ve seen very, I would say, patient population specific toxicity based upon any kind of baseline, more ability that patient might have depending upon how their tumor impacts the overall system, if you will.

With prostate cancer you have elderly men’s who have been through often surgery radiation chemotherapy, other therapies. So these are gentlemen who are greatly fatigue to begin with and we, certainly cabo have shown at 100 milligram dose an increased level of fatigue.

But to kind of put that in perspective, so if you look at the Cougar 301 data that was presented at ASCO, ASMO and published, the level of grade 3 or 4 fatigue in the placebo population, grade 3, 4 fatigue with just placebo is approximately 10%. Okay, that kind of orients you on kind of how fatigue these patients are to begin with.

In our RTB data we had about 15% grade 3, 4 fatigue rate. So certainly more than baseline to fuel as we kind of doing apple to orange comparison with those two trials, but I think really reflecting the fact of the fatigue population which cabo has set those very good.

We also see hyper syndrome, we see hypertension, we see some GI issues. So certainly the compound has got good activity but comes at that dose with wins of (inaudible). Now at the lower doses, the 40 milligram dose and certainly at the 50 milligram dose we see attenuated adverse events.

So Matthew Smith, again, Mass General work with us to design and investigate responsive trial, so really as a very simple one, as I’m sure you all know finding a good dose in oncology is relatively straightforward, finding the best dose is often challenging because you have limited patient populations, you have a limited, if you will response rate by which to judge the activity of a compound.

So you are always trying to bracket doses based up on the limited data of traction, often you see, we optimize those kind of in Phase 4 after you have approval when you have more patient access and you can do that more effectively.

With prostate cancer and cabo, we have a unique opportunity. We have a lot of patients, number one. Most of those patients have bone disease as of 90% of patient with prostate cancer have existing bone METs by bone scan. And then thirdly, the majority of those patients with bone METs appear to be sensitive to cabozantinib and resolving those bone METs right now. So we had a really great opportunity that goes through factors to ask the question about dose early in the process which we have done with cabozantinib.

So if you looked at starting at a 40-milligram dose and as -- again, those questions could that dose at starting at 40-milligram in these bone scan response that being said. We saw that in I think nine to 11 patients. We were able to confirm that in eight of 10, actually 12, so very robust response showing that we had activity at the 40-milligram dose.

Going down a one step, the 20 milligrams really our response rate, in terms of bone scan response was lower than only about 20%. So we’ve seem to have found a less effective dose which has a quality pharmacologist and most happy to see the low effect, no effect dose, but some purely reinforced and real phenomenon. So that was great and now Mathew and his team are expanding 40-milligram dose to look at another 13 patients, but also look at broad, big analysis in terms of also doing whole body MRI, to be able to look at tumor in the bone and how that correlates with the actual bone scan response to it.

Very exciting data, the 40-millgram dose was very well tolerated. We had one patient out of 12 who had worsening of fatigue and anorexia out of all those patients. No dose interruptions. No dose reductions, which is very different where we saw at a 100 and then we also use the 40-milligram dose in a Phase 1 study in Japan, where we saw surprisingly two confirmed positive responses in patients with non-small cell lung cancer at the 40-milligram dose, which is again a very different tumor type but appear to be sensitive. One it was EGFR wild-type and EGFR mutated, so good overall activity profile across those two somewhat different tumors relative to that dose.

Ted Tenthoff

Now, I think you’re taking the 60-mg dose going forward, right?

Mike Morrissey

Right.

Ted Tenthoff

And you guys did not come to terms for an FDA for the bone pain endpoint for the study 306. So walk us through what these differences are and what would an FDA have really gotten you there?

Mike Morrissey

Differences in the dose or the FDA?

Ted Tenthoff

No, no. Between you guys and the FDA?

Mike Morrissey

Yeah. Okay.

Ted Tenthoff

You know where the difference have you -- what did you learn and what would an SPA really have gotten after all that?

Mike Morrissey

Yeah. Well, I think an SPA would have been certainly to prefer really to go relative to having a loss in agreement on a trial which we believe is a very important part of the process relating to how we hope to again build this commercially differentiated profile for cabo.

That being said, we had a very good dialogue with the FDA. We’ve gone into great detail on the call we’ve had back in October and I think in all the different documentations. We have -- in that dialogue we had two-step process, if you will. We had a pre-end of Phase 2 meetings before ASCO. We’ve got some of the documentation after ASCO. The first set of feedback that we got in the August timeframe was actually very encouraging. We were -- a number of enhancements were suggested to put a protocol around inclusion criteria, response criteria, narcotic optimization, the nature of the bone scan response and primary what’s their endpoint.

All things that we, I think we’re very happy to deal with and include in the protocol relative to the fact that we had very high level of confidence in the bone scan response data that came from the RDT trial, as well as but we were seeing not from the normal randomized that was recently published now at EORTC.

I think the difference came into play on the second round of feedback, where I think the magnitude of the response was being to be small or too small relative to the potential for inability to under winding by the differential AE profile of cabo versus mitoxantrone.

We had a 17% delta in the confirmed team response rate between cabo and mito/prednisone. Cabo was the trial was designed at 25% confirmed response rate for pain, for cabo 8% was mitoxantrone/prednisone. And the feedback was that well that’s probably through small to be able to get around the idea of underlying with chemo.

And that was a judgment issue, I think at that point in time we had pretty clear picture of what the agency was looking for in terms of the overall protocol, importantly the magnitude of the effect of 25% versus 8% was reasonable. We think we could probably beat that certainly the -- if you look at the NRV data from EORTC that the number of patients that had about a 30% reduction was about half the patients that we studied, so using that as kind of a good metric for what we might see in 306, one could imagine we had a much higher confirm pain response.

We weren’t prepared to commit to a higher level, why raise the bar for a trial that obviously is important one too, I think the issue is the data will define the utility of that lead out relative to a label and we don’t really response for that, the data will speak for itself. We’re planning to run the trial very, very carefully and collected exhaustively and we’re confident in what we’ve seen so far from a data point of view relative to this impact on pain.

Again, this is a different profile and we’re seeing some other compounds to-date. Our goal ultimately is to have a survival trial i.e. 307 and the pain trial 306 lead out at approximately the same time where we’re modeling in the first half of 2014, if that is to be the case maybe a little bit sooner, we would be able to then again have a strong foundation to go forward with a label that would support both the survival we have, but also a reduction in pain, reduction in narcotics both in response.

So ultimately it’s that differentiated commercial opportunity that will drive value and we, again, based upon the data that we have from the last 275 patients its going pretty good as how that’s going to go.

Ted Tenthoff

Yeah. That’s very helpful. And I haven’t understood to that degree so I really appreciate going into the details. Do we have a question? Yeah.

Unidentified Analyst

(Inaudible)

Ted Tenthoff

So the question is what other indications make that?

Mike Morrissey

Well, we had a lot of data there and I think the question is how we use these in the announced data that we have. ISPs that are either planned to start ongoing or we’ll start in the future, other opportunities to prioritize the different indication, but to-date we’ve seen activity in terms of RECIST confirmed responses in 12 or 13 tumor type test, including lung cancer, hepatoma, PRC not yet that’s one that we plan to study going forward, melanoma, breast cancer, hormone positive breast cancer, which goes to the bone in a manner similar to prostate cancer, differentiated thyroid cancer, renal cell cancer with bone involvement, still we see a wide variety of activity I think.

Unidentified Analyst

(Inaudible)

Ted Tenthoff

And the question was how will biomarkers impact prioritization?

Mike Morrissey

Yeah. That’s a very important component. I think the right now the best biomarker we have is a revolving bone scan for prostate, for breast, for thyroid cancer, the very, very pivotal signs there. But we are certainly looking a lot there, doing a lot of, again a lot of the investigators sponsor trials at the level of the bone, at the level of plasma looking at particularly tumor cells. We are talked about at ASCO this year. We have a seen a very dramatic decrease PPC, as well in prostate cancer looking at as another steroid and marker for activity. Please go ahead.

Unidentified Analyst

(Inaudible)

Mike Morrissey

Okay. Why don’t we talk afterwards? Okay. Thank you. Okay.

Ted Tenthoff

So we are actually just about out of time and I want to make sure the one question for Frank to make his trip across the country worthwhile, I will appreciate coming to be part of the, so you guys in the third quarter with, I think over $300 million, $330 million in cash. I believe you’ve now retired all of the GSK data, if I’m not mistaken, still owe some money to Silicon Valley, still owe money to Deerfield. So where does the balance sheet stand? How long does that last to and, we didn’t even touch on any of the other partnering opportunities? But how this partnering either cabo overseas or some of the rest of the pipeline fit into that strategic thinking?

Frank Karbe

Ted, you are correct. We have fully retired our GSK loan with the certain final tranche in October, with two remaining pieces of debt outstanding, $80 million note with Deerfield and another $80 million term loan with Silicon Valley Bank. Importantly, both of these do not mature until 2015 and 2017, so well after the anticipated timeline for approval, are based on 306 and 307.

Secondly, with regards to cash, we actually are in a pretty good position at the moment. We’ve guided that we expect to end the year with approximately $300 million in cash. That certainly gives us enough of a run rate to support all of our operational plans for 2012.

Longer term, we have a couple of options to bring more money into the company. Most importantly, as you know we own 100% of the franchise of cabo, which gives us some optionality how we may monetize certainly portion still off.

Secondly, as a result of our many years of deal making, we have a pretty well sourced pipeline of partnered assets, some of which are now getting to the end of Phase 2, beginning of Phase 3, which opens up the opportunity to monetize some of those partnered assets as well, either through a specialty fund or through our partners directly.

And then thirdly, we still had some proprietary assets other than cabo, which of course left over from our restructuring activities and those as well could be monetized at some point.

Ted Tenthoff

Okay. Excellent. Well, with that we’re out of time. Mike, Frank and Charles, I want to thank you guys very much. Don’t forget the event that they are hosting on Thursday, if you can make it. And thanks very much for joining us today.

Mike Morrissey

Thanks Ted.

Frank Karbe

Thank you.

Charles Butler

Thank you, Ted.

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