Okay, thank you so much. Good morning. My name is Peter Lawson, and one of the biotech analysts at Barclays. Welcome to Barclays Global Healthcare Conference. We're in Miami, and if you have questions, I'm on Bloomberg. My associates are also online, so do ping your questions if you have any. Any questions from the room, do let me know. Really pleased to have on stage with me from Exelixis, the management team. We've got Andrew Peters, and we've got, sorry, mind's going blank, CFO?
Chris Allen.
Thank you, Chris. It's been a long day.
Yeah.
And first question really is, you know, just as we think about IP, I know there's not much you can kind of say around IP, but just how much time does it kinda take internally? How much effort as you kind of plan around IP? That would be a kind of a good starting point.
Okay, good. Yeah, so, during the course of today's discussion, we'll be making forward-looking statements, and we refer you to our SEC documents that show the risks and risks encompassed in our business. So your question is around the IP and how much time does it take? I mean, it takes time. It's really Mike and the legal team that it takes time for. And, you know, it's really around now, it's we're kind of on the glide path to the, you know, to the decision in which, as Judge Andrews said back in October when we finished the trial, that the decision—his plan was for the decision to come in the spring of this year. So, you know, it's... We're getting towards spring here.
Yeah.
So.
Yeah, we get a lot of questions this week of the East Coast spring-
Yeah
... West Coast spring, California spring.
Yeah.
You know, it's spring is spring.
Spring is spring. Okay, there's, there's no kind of final guidance. Do you, do you get kind of heads-up of when the decision's coming, or how does it work? Do you-
I don't actually know if we get a heads-up or not. You know, that's part of what the legal team does, so I don't... I can't tell you, you know, I know the answer to that question, so-
Gotcha.
Yeah.
How does planning happen, like, with the decision around IP? How are you kind of thinking through, you know, whether it affects guidance or internal capital allocation? So, when we get an outcome of IP, will there be a press release with other details in there on how it's affecting the path of the company?
Yeah, I mean, so I guess a couple things here, right? I mean, we have a clear path from the composition of matter perspective, you know, through most of 2026. So we have some time here, right? We're gonna continue the development of Zanza and XB002, as we've laid out already. You know, I don't want to speculate on what we put out in a press release or not, but, you know, we've been through significant events in the company, and we feel we've reacted appropriately, including, you know, getting bad data back in 2014. So we'll do the most appropriate thing-
Okay
... yeah, to manage the company as we see fit, to properly affect our strategy.
Okay. And it would be the case, or is it kind of not a wise way of thinking through this, but is it a case of there's an outcome, you know, A/B, you know, depending on the decision, and that would drive you down a particular path for capital allocation, for instance, or?
Yeah, I mean, we're constantly scenario planning. That's part of my role, as part of my team's role, as part of the management team's role, to look at different strategies and understand what those outcomes could be. I'm not gonna speculate on what those... I'm not gonna speculate today on what those might be, but, you know, we're constantly looking at different strategies based on, you know, positive outcomes, you know, potential negative outcomes. But, you know, we look at all those types of scenarios and scenario planning for those.
Got you. Okay, thank you.
Yep.
Appreciate the answer. And just the impact of IRA on 2024 guidance and, you know, going forward, how you kind of navigate that, if there's... I know we've heard from a number of companies that you even think about it in terms of what indications they develop first. Just what's the overall impact that you kind of think through that?
Yeah. For 2024 guidance, I mean, it's, you know, as, as we've talked about previously, as a company, we, we took a 2.2% price increase. You know, we, we looked at it as basically as part of IRA, there's a, there's a penalty if you go over the cumulative inflation from 2021 to, you know, whatever timeframe it is in the period, in the future period of time. That cumulative inflation was around 17.3%, when we, when we sat there at the end of last year and determining if we're gonna take a price increase or not. So we took a 2.2% price increase because we had taken a 7.5 in 2022 and a 7.5 in 2023.
And so, you know, as we look forward, it's the price increases are gonna be determined more around the inflation rate than it is gonna be around the in the market rate. And so, you know, but when we look at the IRA and its impact on our pipeline, you know, we do look at how the sequence of potential indications, the size of indications, and where we'd want to go first. And so we do take that into account, so.
Yeah, I mean, if you kind of go back to our R&D Day that we hosted in December, you know, one of the things that I think jumps out to a lot of folks is kind of the balance of small molecules and biologics. And, you know, we had made that strategic decision to get into biologics and ADCs much prior to the IRA. But from a kind of balanced portfolio perspective, as you look at, you know, the potential impacts on, say, small molecules and kind of versus biologics, I think we're in a really good position as we look forward to, you know, our earlier stage portfolio beyond just Zanza.
Because, you know, zanzalintinib, we have 3 pivotal studies up and running already, and, you know, we're excited about those opportunities and certainly wouldn't frame those as driven by IRA. It's more driven kind of by opportunities, underlying biology, what makes sense, and how we can kind of shift standards of care and help patients live longer.
Gotcha. Thank you. And clinical trial sales kind of helped revenues through 2023. Is there any kind of visibility into how they could help in 2024, and you know, should we anticipate that ending, continuing?
Right. So, I mean, we did have clinical trials last year and in 2023 and also in 2022. For our guidance this year, we didn't include clinical trial sales because we didn't have a clear view on what those could be. For 2024, you know, that's all determined based on the trials that are ongoing. You know, we get orders for those, and we don't get a lot of, I'd say, visibility to what that when those orders are going to happen, so we didn't include them. I can't tell you if they're going to end in 2024 or not. Obviously, it's trial dependent and based on trials we're not running. It's, you know, that's basically the view on the narratives for 2024.
Gotcha. There's still ongoing trials there, so it's-
There are still ongoing trials. I don't... You know, I don't know the status of those trials or, you know, or how they're progressing and do they need more drug or not. But, yeah, that's, that's the visibility we get, which is, you know, fairly real time.
Gotcha. Thank you.
Yeah.
And then, cabozantinib expansion opportunities. So I guess the first one is in prostate and kind of the confidence level of what kind of helps you, us around that for the OS benefit?
Yeah. So, I mean, as we think about CONTACT-02, you know, all of the buzz around the presentation, in particular, the discussion aside, I think taking a step back, I'd point you back towards the great job that Amy Peterson did, our CMO, on the last call of really framing that trial and that data set. As a reminder, CONTACT-02 was really the first pivotal study to look at what truly is a real unmet need in the prostate space in those patients with baseline visceral disease, you know, high disease burden, you know, that is really contrasted with a lot of kind of the contemporaneous trials that were ongoing.
And so that benefit, the PFS benefit that we saw, the HR 0.65, you know, the improvements in the medians, we think is particularly meaningful there, in that, you know, patient population. And as you dig deeper into that data set and look at the subgroups, say, in liver mets or a patient with bone mets, prior docetaxel, all of those things we saw, you know, robust and substantial benefit. And so that's the sort of, you know, data that we keep coming back to kind of contextualize it. But, you know, we do get a lot of questions on overall survival, and as we've mentioned, our plan is to meet with FDA again, as that data continue to mature.
You know, one of the important dynamics, just in general for any oncology study, is while PFS with no detriment to survival is an approvable endpoint, a lot of that is really to make sure that that data maturation is long enough that you're actually not going to see kind of a slipping in the other direction of that HR going to over 1. So, you know, as a reminder at ASCO GU, when the primary PFS endpoint hit, the information fraction on number of events for overall survival was around 49%. So still relatively immature data. You know, obviously, the HR 0.79 that we saw is really encouraging.
We're going to continue to follow that, as it matures and, you know, kind of have those regulatory discussions with kind of a more mature, stable data set, just to ensure that that, you know, detriment to survival, isn't, isn't there.
Gotcha. Thank you. And then, as we think about the market opportunity for both prostate and NETs, kind of how should we think about that incremental benefit?
Yeah, I think-
Sorry.
You know, both are, are reasonably substantial, and I think, you know, the, the way that we've framed both 2024 guidance and, and beyond is, you know, unsurprisingly, as we kind of enter and are going through, now 12 quarters past, approval for the 9ER combination, in January 2021, you know, it's not a surprise that that indication is starting to mature. If you look back at other oncology, you know, drug launches, you tend to see kind of maturation around 5-6 quarters, after indication approval. And so we're certainly, doing quite well relative to how that, how Cabo's launched so far. But as we look at 2024 with a little bit of a plateauing in kind of that, 9ER-driven opportunity, we can look ahead to both NETs and then to prostate as potential for re-acceleration of that Cabo franchise.
You know, to give a little bit around numbers, we're not kind of framing guidance or anything around what that market could look like, but looking at other therapies in, say, the NET space, as an example, you know, Lutathera as a radiotherapy and a lot of the complications associated with it, still does about, you know, more than $400 million in revenue in the U.S. It just shows that it's a, you know, reasonably sized incidence pool and a much larger prevalent pool because neuroendocrine tumors are generally kind of slower growing, and you see kind of an accumulation of patients over time. Similarly, CRPC and kind of that post-NHT space is another kind of significant unmet need.
I think there's on the order of 70,000 patients or so in the U.S., and they're really trying to kind of find, you know, an effective agent that gives them a non-chemo option. One of the things that, you know, consistently comes up for us in market research is this idea of providing kind of the first IO-based combination in CRPC and kind of all of the interest and enthusiasm from patients and investigators there. You know, I think PJ has done a really good job at, you know, prior earnings calls, and Amy as well, at framing out the both of those opportunities.
So I think when you look at kind of the Cabo story over the next several years, you know, obviously there's the RCC component and the, you know, kind of base business as if you may, and then, you know, the re-acceleration from these, you know, two new indications. And, you know, I think that's kind of just speaks to the strength and the breadth of Cabo, and then kind of, you know, further enhances our enthusiasm for something like Zanza, which takes that Cabo profile and the potential breadth across a wide range of tumor types and improves upon it as well, so.
It's an interesting way of putting it as well for the, you know, first IO combination in prostate, and that's a-
Mm-hmm
... a nice leg to that. Do you think you would get priority review for NET or prostate?
Yeah. I mean, in general, don't wanna speculate on kind of any FDA interactions, but before we have them, I think you know, one of our favorite phrases internally is not wanting to break in the jail. So, usually not a good thing to kinda get ahead of any sort of FDA interactions or announcements. So kind of stay tuned on all of that.
Got you. Okay. Just maybe a couple more questions for Chris, just around... I know at one point there was kind of a long-term, kind of five-year guidance. Would you ever go back to that as we kind of get an IP decision, or is there anything that kind of triggers that new approvals? Just curious.
Yeah, I guess I'd reframe it a little bit differently than guidance. I mean, it was kind of what could success look like?
Mm-hmm.
And that's, that's what we were trying to frame at that point in time, because we were in a point where we were in a constant loop of getting a 9ER question, kind of like the constant loop of: What's the end answer?
Yeah.
So we wanted to really frame, okay, if we're successful in this, in these five or six different indications that we laid out at the time, what it would look like. You know, I guess it'll depend on, you know, on what the future may hold here, if we're gonna provide longer term guidance. It's not our plans right now, but, you know, things could change.
Got you.
Yeah.
Do we have to keep on asking about prostate and-
You know, prostate, yeah, but hopefully it's not as long as a period of time.
Yeah.
So, yeah.
Well, would there be opportunity to repeat it?
Yeah.
I guess the other one always comes up and just company of your scale, cash flows, et cetera, kind of how you think about capital allocation, whether it's buybacks, R&D spend-
Yep
... and/or acquisitions, and whether, you know, external or internal breadth factors are driving that as well.
Right. So I guess from a capital allocation perspective, you know, March of last year, we announced a $550 million buyback, and we executed that in 2023. At the beginning of this year, we announced a $450 million buyback, which we'll execute in 2024. So over the, let's just call it approximately 20-month period of time, we'll have returned about a $1 billion worth of cash to shareholders through buybacks. You know, we continually look at the other area of capital allocation. We continue to look at BD opportunities, right? We've done a really good job on the earlier stage, and that's affected, you know, some of what we're doing from an R&D and cash and expense guidance.
And we can get into that, but from a BD perspective, we're looking, really looking at later stage opportunities, and that's what Andrew and the BD team are doing, very frequently, you know, consistently looking at different opportunities out there to bring in an asset that's later stage. We've done a great job developing our earlier stage pipeline. And, you know, so we reduced our expenses this year. If you look, you know, kind of at the midpoint, about $180-$200 million, if you compare it to 2023, you know, a significant portion of that came from the R&D side, where we reduced our discovery spend, but we're taking that and investing that in the development side of the house.
So it's really moving it to the, you know, moving the expenses to the development side to push products forward. So, you know, we're thinking you know, over the next three years, 2024, 2025, 2026, you know, probably like 9 or potentially 9 or 10 INDs that could come down the pipeline, and move into the development side. And so we'll continue to manage our expenses like we have, and make the appropriate level of investments. I don't know if you wanna talk about BD?
Yeah. So I think what I'd do is kinda take a little bit of a step back and point to the R&D day in December, and then a lot of the priorities that we outlined earlier this year at J.P. Morgan. It's a little bit of a bookend to kind of frame how we think about science and how we think about the business. From the science perspective, as Chris mentioned, kind of the, you know, nine or ten INDs over the next several years, really kind of accelerating that through our clinical development. Then obviously, the focus on XL309 , the USP 1, XB002 , our tissue factor, ADC, and then obviously on Zanza.
That's kind of the internal development focus, but it also framed, you know, the sort of technologies, modalities, tumor types, indications that not only we have an interest in, but we have scale and expertise in as well. And so when you think about kind of that component, and then the, you know, earlier this year, J.P. Morgan commentary around, this is how we think about the company from a business perspective, it's kind of the blending of the two. So from an external innovation perspective, I think, you know, our messaging is, you know, our discovery organization has been incredibly efficient, incredibly effective, and is generating what we think are, either first-in-class or differentiated and best-in-class, molecules, kind of across biologics and small molecules.
And then we have a desire to supplement that externally, kind of on the later stage side, because we think we're, you know, we're pretty good on the early stage, kind of, IND side, but how do we, kind of build out that later stage, clinical assets? And so we outlined our priorities, our expertise, and, you know, one of the, the messages that's really stuck with me, and I think, has really started to resonate kind of internally at Exelixis, but externally as well when we're meeting with potential partners or investors or anything, is this idea that we've now grown to a scale that we're a big small company. That we can execute at scale, at capability on par, kind of in our verticals with big pharma. We've now run 17 pivotal studies with CABO.
We've been successful in 14 of them, and really have that development heft to be able to take drugs, really execute them well and, you know, at breadth. And then similarly, on the commercial side, obviously with CABO, on the regulatory side, kind of each of those things that are involved in drug development, we're kind of big company-like, but at the same time, we have the speed-focused decision-making that's kind of more of a hallmark of biotech. So it's a little bit of a mix of both worlds.
So as we look externally and, you know, identify assets that we have high conviction on, and that's really kind of the key here, is we're not gonna bring in some, you know, later stage asset that we think either, you know, may not work clinically, may not shift standard of care, and if that doesn't happen, it's probably not gonna do well commercially. And so our filter there, our bar there, is pretty unique and kind of, we wanna make sure we get it right. But I think we have the opportunity to begin to leverage the scale that we've built internally to kind of bring in those external opportunities and really kind of go off and run and build value there. Yeah.
'Cause it feels like the sense of wanting to make an external acquisition for later stage has definitely increased over the last 6-9 months from the- Yeah. I mean, I think, you know, the one caveat to all this is, you know, I don't think we have a mandate to go out and do a deal for the sake of doing a deal. I don't think it's gonna help us internally, and certainly it's not gonna help patients or investors kind of build value if, you know, we go out and do some transaction because we can add another bar to the pipeline chart and kind of get everyone excited about something.
If it really doesn't have that, you know, Cabo-like effect of shifting standard of care, helping patients live longer, then it's not gonna do well commercially. Or, you know, if we think the clinical risk is probably too high or, you know, any of those things, that's not something that we wanna do. I think when we choose to pursue a transaction, it's actually come from a place of high conviction that we think, you know, this is a novel mechanism. This is a best-in-class modality. This is a commercial opportunity that we think we could really kind of leverage. That's the sort of transaction we're gonna do. So it's really not, you know, let's do a late-stage deal because we've, we have to. Yeah. It doesn't make sense for us. Do we have high conviction across each of those functional groups and, you know, move from there. Good.
Has there been kind of increased external pressure, you know, activism, et cetera? Has that kind of driven that? Is it lower interest rate environment, which kind of helps add to that or? Well, in going to a later stage?
Yeah. No, I don't think... It's really just the evolution of our pipeline. I mean, and our strategy to bring in products that are later stage. You know, just trying to build that piece of the strategy in, so that we can continue to build the company. It's not-- interest rates are obviously up, but, you know, our ability to do that, to do a deal right now is pretty significant. We have $1.7 billion in cash.
We have the ability to borrow because we are a positive EBITDA company, so we have a broad range of possibilities just based on our financial wherewithal through our balance sheet.
Yeah, so if you look historically at a lot of the deals we've done that have been on the earlier side, it's kind of been done in parallel as our discovery organization has kind of ramped up and become, you know, productive. And so as our internal kind of discovery effort has ramped up and been, you know, exceptionally productive around generation of new, novel, best-in-class, first-in-class molecules, then we've kind of shifted that external focus away from those earlier stage deals to kind of later stage opportunities, which we've always evaluated and looked at. But again, it's kind of that conviction level.
It's that relatively high bar, you know, filtered through the CABO lens. CABO's successful, not because it's the first VEGF, but it's because we think it's kind of the best and most differentiated, that's been able to generate clinical data that has shifted standard of care for patients. And that's kind of the formula for success that we wanna replicate over and over and over again, both internally and externally.
Perfect. And it seems like it's the last few seconds. You're not averse to debt. Is there a leverage ratio you kind of have internally, externally, you can?
No, we actually. No, we don't. I mean, we don't have necessarily a debt, debt-to-EBITDA ratio we're going for. I mean, reality is, when I joined back in 2015, we had close to $500 million of debt and, you know, a $900 million market cap. Little out of balance there. We'll definitely keep it within balance of what the norms are from a debt-to-EBITDA ratio, so.
Perfect. Thank you so much.
Thank you.
Absolutely, pleasure. Thank you.