Exelixis, Inc. (NASDAQ:EXEL) Cantor Fitzgerald Global Healthcare Conference Call October 2, 2018 9:10 AM ET
Michael Morrissey - President and CEO
Chris Senner - CFO
Alethia Young - Cantor Fitzgerald
Hi. I’m Alethia Young. I’m one of the large and small midcap biotech analysts here at Cantor. I’m very happy to have Exelixis; Michael Morrissey who’s the President and CEO, and Chris Senner who is the CFO. What we’re going to do is there’s a breakout after this so I will figure out what room that’s in and let everyone know in the room. But I’m going to let Michael make some introductory comments and then we’ll be doing a fireside chat. If you should have any questions, feel free to shoot me an email to email@example.com.
So with that Michael, please go ahead.
All right. Well, good morning and thanks for the invite. Good morning, everybody. Great to be here. Congrats to you on the new gig here at Cantor. It’s great to have a new voice at Cantor and certainly with all the [indiscernible] movement going on in the sell-side. It’s great to have you back online. But we’re happy to be here today. We’ve got a lot going on. Had strong third quarter.
Exelixis is a successful commercial stage oncology biotech company. We have several products on the market including CABOMETYX which has been now in the market for a couple of years and approved for all stages of advanced renal cell kidney cancer or renal cell carcinoma. We have historically I think done a pretty good job of navigating all the ups and downs of biotech in terms of early stage, raising money, trying to generate a platform, working through all the preclinical and clinical obstacles to get our first drug on the market.
We have a second drug called cobimetinib, COTELLIC. It’s partnered with Genentech for melanoma. But our main focus is on the cabozantinib franchise and building that, growing that. We have over the last couple of years since our launch in kidney cancer going back to 2016 really I think done a pretty good job of launching the molecule, being able to compete with a variety of other TKIs with immunotherapies to be able to build the brand which we think is very strong to help patients with this disease at different stages.
We’re certainly investing a lot right now in terms of new approaches, new combinations to be able to build a franchise around this molecule, and while we do that generating free cash then to reinvest in the business in terms of initiating early discovery and doing deals that will allow us then to rebuild our portfolio. So, lots going on in this space, lots going on at the company and looking forward to having a good dialogue today.
Great. So maybe just kind of start with the commercial performance of CABOMETYX in advanced kidney cancer, just kind of the dynamics and just for some of us who may not all be familiar kind of just walk us back through when you launched and kind of who are the players in this space and then just bring us to the time as to where we are in this launch?
Sure. Kidney cancer has been an area of active interest for big pharma and certainly biotech for the last decade or more. If you go back to the 2005-2006 timeframe when sunitinib and sorafenib were launched with initial pivotal trial data really framed the opportunity for small molecules that target the [digestive] [ph] pathway to be able to have an impact on this disease. So when we got our positive top line data from the METEOR trial that was a second-line trial looking – comparing cabozantinib to everolimus in the second and later-line setting, at that point in time there were probably seven or eight different competitive molecules in this space.
So it’s somewhat humorous to me to hear about the current competition when competition has been a big part of our story literally from day one. We’re competing at going back to that early pivotal trial data with the likes of BMS, Pfizer and Novartis, Bayer, others with a lot of experience, a lot of time under their belt in terms of being in this market. So it’s a very mature market. Patients are triaged in the [appropriate fashion] [ph] towards medical oncology after surgery both with advanced or metastatic disease and it’s one that is very well understood in terms of current standard of care.
We came on this space again with our data in July of 2015 and then got approved in April of 2016 and launched immediately. We were ready and raring to go. We had a very solid dataset including doubling of CFS relative to everolimus, a clear survival benefit, a very strong response rate with the disease control rate [indiscernible] in force 90% in terms of best response.
So we had a very strong dataset which is further supplemented by the CABOSUN data that came out a year or so later which showed that cabozantinib beat Sunitinib head-to-head in a randomized Phase 2 trial that was sponsored by the NCI in the Alliance Cooperative Group. So that totality of data has really given us a very strong platform to be able to talk about the benefits cabozantinib can bring to patients with all stages of advanced RCC and certainly helped us launch the drug in a very strong fashion.
So since – if you look at our vector, our growth since again April of 2016 and you compare that to what’s happened in the small midcap space since the beginning of 2014, the RCC launch for CABOMETYX has been probably the strongest launch both in oncology but across the small midcap space in the biotech commercial arena. So we’re happy with that. Certainly made a lot of progress.
It’s been a very competitive interaction in terms of trying to help physicians understand the benefits CABOMETYX can bring to their patients but it’s one that we’ve [had to] [ph] really worked at. It was a combination of great data with a great team that allowed us to make a lot of headway and we’re happy with that but we’re not satisfied there relative to where we think we can take it as we gradually go forward. So we can talk about the future activity developments as we go on.
I wanted to just go back and take a step back and it is very intriguing how there are huge players in this space and how you’ve been able to kind of come onto the scene with a pretty significant launch upfront. And I guess some of it is perhaps the data but some of it is the groundwork that you’ve laid. So I guess if you can talk a little bit more about the groundwork or just your perspective on that? Certainly it’s formidable.
Yes, nobody gives their market share easily and we understood that going into this operation. And you kind of have to put that in the context of where we were as a company in 2014 and 2015, we had a pretty strong effort in prostate cancer, ran two pivotal trials. Those failed. We got down to a pretty Spartan staff to be able to get the RCC trial over the goal line. And then finding ourselves with better than expected data in terms of both the PFS benefit and at least at the interim a near hit on survival as well.
So we had a lot of different levers to pull in terms of managing our cash, managing a balance sheet that favored debt more than cash as well as operationalizing a launch really with very little time to actually do that. So we were fortunate to have P.J. Haley in place who was one of the last remaining commercial guys on the team who was helping us launch the initial tiny thyroid indication and he had experience in launching RCC with Avastin when he was in Genentech.
So around that nucleus of him and a few other people then we built this broad team of commercial people across really all aspects, all components of the business; market access, sales, marketing as well as comm ops in a way that we could within three or six months have a team that was sized but also had the right talent to be able to compete with the BMSs, the Pfizers and the Novartis of the world in a way that we could then launch within literally couple of days of actually getting the approval in April 2016. So again, there’s lots of moving pieces here.
We did a good job of marshaling the right people, the right talent, the right experience to launch and then to evolve that launch as more data came online say from us or from others to be able to be competitive. But in general, it should be a newsflash but the entire oncology sector is very competitive right now. It’s the number one therapeutic area across all of pharma, all of biotech. So it’s one that we certainly engaged in and engaged in with the right level of critical mass and talent to be able to really compete. And that momentum, that foundation will take us forward as we add indications, as we add compounds, et cetera, and build Exelixis into a large cap really important company going forward.
And so maybe building on that just commercially, where are some of the future plans that you have as far as like building out the franchise, where you’re going to go directionally with that?
Yes, that’s a great question. So as I’m sure you’re all aware, we have positive data in second line liver cancer from the CELESTIAL trial that I read out last year, strong dataset, the only non-sorafenib-based molecule to show survival to-date in HCC. So we’re certainly very excited about that. It’s a very notable accomplishment relative to what’s been a very hard tumor type to actually show a survival benefit. So we have that file in place in the U.S. It’s under review currently with the PDUFA of middle of January 2019.
The CHMP just in last week or so has given a positive recommendation in Europe, so again expecting that to move forward as well. So that’s a large underserved population. It’s one that is a very difficult disease without a lot of good drugs to be able to help those patients. Consequently, the actual patient flow globally is really suboptimal in terms of those patients being split between interventional radiologists being held by their hepatologists and then really only a small fraction going to the medical oncology area.
So good drugs will help pull those patients towards more effective systemic therapies like cabozantinib hopefully upon approval and we think we can again help more patients on a global scale with what we think is a better opportunity for therapeutic intervention. So certainly a great deal of work is going into that right now. Certainly on the commercial side that has been an incremental build. We’ve talked about how the vast majority of prescribers for HCC have [indiscernible] in RCC as well.
So in the U.S. we don’t need to add a lot of people to be able to really cover that market, but certainly we’re very excited about that as we go forward. Beyond that, it’s really the main focus for the company as we sit here today talking about development activities, we have a large set of opportunities. Cabozantinib has broad activity as a single agent or in combination with other molecules. We’ve seen a single agent activity in 20 plus different tumor types in terms of bona fide, confirmed RECIST responses.
So the molecule has broad activity and certainly over the last year or so we’ve really invested a lot of time in looking at different cabo ICI combinations to look at as really combining two different kinds of modalities, two different approaches mechanistically to be able to bring better outcomes to patients. And we’ve got I think pretty encouraging data in things like bladder, in renal, other tumor types that we’re looking at right now.
So we’ll start seeing over the next few months a next wave of pivotal trials and looking at more thyroid types of indications, more renal, bladder, potentially more liver, some lung et cetera, that we think cabo either by itself or in combination with IO therapy can again benefit patients to a large degree. So a lot of work to do but we believe that cabo has franchise potential and our goal now is to make that vision a reality.
And so as far as the sales force you don’t really need to add many more people for liver?
Yes, for liver it’s a small incremental build. We’re launch-ready right now. By our view of the market especially in the U.S., 95% of the HCC prescribers are covered by our current sales force. So we’ve added a few more people in terms of market access or field-based marketing and a couple more reps for KOLs and we’re basically covered. So that’s a relatively easy one. The question is in the future if we go into other therapeutic areas, do we need to add more? But it’s a good problem to have as we have that data to support that move.
So how is the revenue currently split between the U.S. and ex-U.S. and just talk about a little bit of the economics ex-U.S. as well?
Yes, so it’s really interesting. So we’ve taken the approach that we’re going to focus our commercial activities in the U.S. for only a variety of reasons but mainly to keep ourselves focused on the U.S. market. The kinetics in terms of pricing or reimbursement as well as just launching is much faster in the U.S. than it is ex-U.S. and the expense and the expanse of working outside the U.S. certainly would be a financial drain as well as just a distraction.
So I think our strategic focus right now is going to stay in the U.S. We’ve got great partners for cabo ex-U.S. We have Ipsen as a partner ex-U.S., ex-Japan. We have Takeda then for Japan. So we’ve got the world covered in terms of having these partnerships in place and we again with our exclusive ownership of the U.S. rights have approximately half of the global market by keeping the U.S. rights. In terms of – we’re now in Q4. We’ll have our Q3 call in a month or so. We’ll talk about those numbers then.
If you look at Q2, cabo the franchise did $146 million in the U.S. Ipsen reported about $40 million in Europe and again that’s probably two or three quarters which is less shifted from what you would normally see based upon normal launch. So the combination was 185-ish or so, so we’re certainly on our way to having $1 billion brand after about eight quarters with this RCC launch. So again, we’re happy with that. We think we can do more.
I think there’s more room to cover relative to RCC and then we add on HCC hopefully first approval and then more indications as we go forward and we really envision a scenario where this brand grows over time. I would say over the last two, two and a half years, if you look at the amount of actual cash we’ve generated since the beginning to 2016 when we partnered cabo with Ipsen ex-U.S., ex-Japan and a few months later with Takeda in Japan, we generated about $1.2 billion in real cash related to cabo whether it be U.S. revenues or ex-U.S. upfront milestones in royalties from Ipsen and Takeda.
And we’ve used that cash to then right-size to really fix our balance sheet for generating free cash to then reinvest in the business with an eye and then expanding our overall approach. So it’s been a very effective way to go, say, from the nadir in early 2015 when we had almost three times more debt than cash in the kind of dark period where we were just struggling to kind of keep our eye focused on getting over the goal line with RCC now to a point where we I think ended Q2 with $600 million in cash and looking to generate a significant level of free cash every quarter as we go forward.
So a real turnaround and a lot of credit goes to the team, finance, Chris. Everybody else has been able to help us keep a high degree of really disciplined expense management, but certainly with the eye on investing as we go forward. It was never a strategy to be the cabo-only company. It was a tactic to get over the goal line, fix the balance sheet and then go forward with real strength in that overall foundation. But I think we’re there now and we’re certainly very excited about being more aggressive on the BD [ph] side and certainly very aggressive as we market the drug going forward.
Okay. So maybe just one last one on the commercial just with the broad label kind of where in terms in the treatment lines is kind of cabo being used right now would you characterize?
Yes, I would say based on market research if you look at the data for CABOMETYX in RCC, we’re covering really all three if not more lines of therapy for organ cancer. The CABOSUN approval in December of 2017 gave us access to the first-line population and we’ve always been strong second, third line based upon the METEOR data and that approval back in 2016. I think the recent NCCN update around their guidance for treatment algorithms was very clarifying in terms of the role the KOL world sees cabo playing.
Certainly the preferred TKI in second and later-line RCC which makes sense based upon the METEOR data and then also the preferred TKI for first-line patients with either poor or intermediate risks. So if you do the math on that, we’re covering 90% plus of the population as the preferred TKI which I think really dovetails nicely with our cake and certainly our messaging based upon the totality of the data that cabo is really the best-in-class TKI here for RCC. And there’s been this kind of – then the I/O bogyman has been kind of following us around for the last two, two and a half years since the nivo second-line data came out.
And there was always a narrative around I/O is going to dominate the TKI space and will take all the patients and leave nothing left behind for the TKIs. That’s just not really been the fact of what’s happened and never been an either or. It’s been how do these drugs – how are these different MOAs used together in sequence, because unfortunately there’s very few cures here. Patients progress basically on all drugs and so what’s the best way to help these patients prolong their lives with minimal disease progression as they go forward. So there’s lot of opportunities here to be able to sequence effectively to be able to help those patients. Yes, please.
Q - Alethia Young
Yes, let me repeat the question for everybody [indiscernible] basically one that I was just getting to next, so thank you for that. Just on nivo, give us an update --
Yes, sure. So the question is around CheckMate 9ER, a combination of cabo plus nivo versus ipilimumab in first-line RCC. That’s still enrolling. It’s enrolling well. Global trial. Looking at that combination we have – that trial is based upon work that was done at the NCI by Andrea Apolo. That data showed a 50% response rate, nearly 100% disease control rate, 18 months PFS, so solid data there. Certainly the field is evolving with I/O, I/L [ph] and eventually I/O TKI combinations to the first-line setting. It’s not a big surprise to us in terms of what’s happening in that space relative to all the Phase 1b data. Again, the vast majority of those patients will progress and need other therapies and again we think cabo is uniquely set up to be able to help those patients as they progress in the second-line study.
Let me repeat the question. So with Merck and afatinib [ph], why did that dynamic happen and has that affect your --?
Yes, sure. So again, I wouldn’t want to speak for why they would – why Merck and [indiscernible] does what they do. You have to ask them to get those details. That was a broad clinical and commercial deal especially on the commercial side looking at a global collaboration. Again, that’s a deal that we wouldn’t do. We want to keep the U.S. rights to ourselves in terms of having exclusive marketing rights for the U.S. region. We had plenty of those discussions, plenty of interest for that kind of a deal early on in the 2015-2016 timeframe and we passed on those, right, because the U.S. market is so valuable to us obviously for all the reasons that we talked about today. So again, it’s a very competitive space. It’s always been a competitive space. That shouldn’t surprise anybody.
We think our data of nivo/cabo and nivo/ipi and now cabo and atezo where we’ll have some of the first data at ESMO in a couple of weeks really underscores the potential of those different combinations. Cabo again best-in-class, TKI by itself. I think the survival advantage that we have as a single agent in RCC and liver is notable. It’s a pretty rare combination to have survival in either of those, much less together. So we’re very happy to have that molecule, happy to have complete freedom to combine it with any I/O that we choose if not all. If you look at what’s happening in ClinicalTrials.gov today, you’ll find a number of different trials across the board either company sponsored or IST looking at other cabo I/O combinations. So we like that optionality and we think we can really maximize that and monetize that as we go forward.
Okay. So maybe just a question on the AVEO which is common I think in third line, just how you think about them as a competitive threat as well?
Yes, hard to say. TIVO has a long history there with lots of drama in terms of how they ran their first trial years ago. Hard to comment on something that doesn’t have data published yet, so certainly TIVO is a potent sledge [ph] of our targeting TKI. It doesn’t have the broad kind of target activity that cabo was designed to have in MET and AXL that have proven to be pathways of resistance in terms of driving patients to be [indiscernible] VEGF inhibitor therapies. So again with some of the kind of standard VEGF targeting molecules, I’m not too…
Okay. Maybe we can talk a little bit more about liver. I think Bristol has Checkmate-40 [indiscernible] TIVO and liver cancer. So maybe just talk about the status of that study and the rationale for those combinations with your drug?
Yes, sure. So again I think the biological mechanistic oncological rationale for combining a TKI with an I/O makes a lot of sense. That’s certainly been the case so far if you look at RCC latter other tumor types if you look at the intersection of the tumor biology of liver cancer, the pharmacology of both ipi/nivo and then cabo, it tends to make sense to go after that combination. So the 040 study added a few cohorts looking at the doublet and the triplet. It’s been fully enrolled. Certainly interesting approach and it’s one that we think is very important relative to cabo I/O combinations relative to how a compound like cabo which has shown a survival advantage with second-line HCC in a molecule like nivo or other [indiscernible] molecules in terms of the combination can actually benefit patients.
So the data I’m sure will be presented at some point in time later and what will probably happen before that is the discussion and launch of other pivotal trials looking at cabo I/O combinations in this space. So we’re very committed to that. We think it makes a lot of sense across GI indications, GU indications, thoracic indications, head and neck indications. The COSMIC-021 study which is a broad basket study of looking at the combination of cabo with atezolizumab, the PD-L1 molecule from Roche and Genentech have 18 different expansion cohorts across all those different tumor types [indiscernible] indications to be able to help us understand molecules or the indications that have some level of activity already with cabo that we see additive to relative activity there. So a lot of work going on in general but it really gets to this point of can we expand the opportunity for cabo, can we expand the franchise for cabo.
And do we know when that’s due to be present [ph]?
We haven’t announced that yet. Again, we have the first update on cabo/atezo in first-line RCC from COSMIC-021, the dose expansion cohort. That will be at ESMO coming up.
And therefore we don’t know yet.
Then [indiscernible] approved in second line, you have an ongoing study for the first line. Do you feel like the checkpoints are going to move into that space as well ultimately?
Well, that’s certainly the goal, right. If you look at some of the trials like the Checkmate-459 study, that’s looking at TIVO versus sorafenib head-to-head. It’s certainly an important trial both for patients but also for the indication. Again, I think liver cancer is a good example where there’s such a huge unmet medical need based upon better therapies to help draw all these patients really towards medical oncology away from say interventional radiology people that [indiscernible] for example or the hepatologist.
So the better the compounds work, the better the data we have I think since the more flow we’ll see towards medical oncology earlier which will only benefit. So we’re excited about that. Certainly whether it be single agent PD-1 or a combination or a PD-1 with a TKI like cabo, our job is to really generate the data that we need to help change standard of care, help move patients more towards the whole medical oncology area which will benefit them.
Maybe just talk to the catalyst over the next 12 months with a lot of kind of milestones and events going on and --
Yes, pretty sure we do. Certainly coming up with – as we continue to progress on the launch with cabo, every quarterly update is important to show performance and growth and really put those numbers out there. The medical meetings that we normally talk to around, certainly ESMO, both ASCO-GI and GU in the early January early spring timeframe and then ASCO, we certainly expect to have a lot more data coming out over the next year or so for those different meetings which is really important to help people understand where the combinations are going.
Without a doubt, certainly new partnerships in terms of early-stage pipelines, importantly we have got several discussions ongoing right now. So I expect to see more like the ones we’ve talked about with some StemSynergy and Invenra, small deals, small upfront, backend loaded [indiscernible] success as we rebuild that pipeline. And then whatever we can do to move the company forward around building that pipeline is super important. We have the ability to generate free cash and we’re doing that on a regular basis and we want to be able to reinvest that free cash back in the business to be able to have a broader pipeline then to develop molecules that could help more and more patients every year.
So maybe just talk about the rationale for solid tumors with cabo and like what you’re kind of doing there when I think about the COSMIC-021 study?
Yes, so it’s a pretty simple concept. So as I talked about before, cabo has got a pretty broad profile of clinical activity. We’ve been now in the clinic for more than 10 years. So we’ve studied a variety of different tumor types. As I mentioned before, we’ve seen bona fide, confirmed RECIST response just now in 20 plus different tumor types over the years. We’ve also seen in terms of different ICI combinations with cabo. We’ve got great activities and tolerability in select [indiscernible] especially GU indications, renal, bladder, others as well that really give us more confidence in the ability to those two MOAs to work together as an unifying approach for attacking the tumor, activating the immune system, attacking the tumor vasculature, activating the immune system.
So across the board very strong level of tumor biology that’s driven by the pharmacology versus agents working together. So the question now is, is how broad is that and how deep is that and then what’s our priorities for moving those combinations in the pivotal trials? The first wave is pretty clear to us. More renal with a triplet, more liver in terms of cabo ICI combinations first line, certainly a bladder data from the NCI is pretty interesting. Again, 50% response rates, 24 months duration of response, CFS data on small datasets. So it looks really encouraging. We’ve got 50% plus response rates say a single agent cabo in differentiated thyroid cancer, so broad activity there.
But beyond that there’s lots of opportunity across GU, GI, thoracic, GYN, head and neck indications. So COSMIC is really focused on helping us ask the question of really what should be the next wave, the third wave of pivotal trials that we’ll initiate in 20. So we just need more data. There could be a fast regulatory path there if we have data which looks kind of really outstanding, but that’s always kind of high risk.
But certainly we want to generate data, understand the kind of conditions to be able to then make that choice of how we go forward. So there’s a lot to do. The development team is just incredibly solid right now. We’ve added a lot of people over the last year or so both in terms of clinical, ClinOps [ph] as well as bio staff and then really a challenge to be able to then help us take the company to the next level based upon generating more and better data as we go forward.
Great. Michael, Chris, thank you very much. There’s a breakout I think across the hallway.
All right, awesome. Thank you.