Exelixis Inc

NASDAQ:EXEL

Earnings Call Analysis

Exelixis Q2 2024 Financial Highlights and Future Outlook

Exelixis had a robust Q2 2024, reporting total revenues of $637.2 million, with $437.6 million from the cabozantinib franchise. The company achieved a net income of $226.1 million, or $0.77 per share. Cabozantinib's net product revenue grew 16% quarter-over-quarter and 7% year-over-year. Exelixis has increased its total revenue guidance for the year due to a $150 million sales milestone from Ipsen. They announced a new $500 million share repurchase program, following $1 billion in repurchases over the past 15 months. Excitingly, the FDA accepted their supplementary NDA for cabozantinib in neuroendocrine tumors with a PDUFA date of April 2025.

Financial Performance and Revenue Growth

Exelixis experienced a strong second quarter in 2024, with significant top and bottom-line growth driven by the global success of the cabozantinib franchise. Revenue from the cabozantinib franchise, including CABOMETYX, grew by 16% quarter-over-quarter and 7% year-over-year, totaling $618 million in net product revenue globally for the second quarter. Additionally, Exelixis achieved a $150 million commercial milestone from Ipsen. The strong financial performance allowed the company to continue its strategy of share repurchases, authorizing an additional $500 million buyback program following the $1 billion in shares repurchased over the last 15 months.

Pipeline and Development Updates

The company is actively advancing its pipeline with a focus on generating clinical data that can improve the standard of care for cancer patients. They have made the decision to discontinue XB002 given its lower potential compared to existing tissue-targeting ADCs, reallocating resources to higher priority projects like Zanza and new potential indications within the cabozantinib franchise. The company filed the IND for XB010 and is about to start clinical trials for other promising candidates like XL 495 and XB628.

Cabozantinib’s Continued Dominance in RCC and Expansion to NET

CABOMETYX remains the leading TKI for RCC in the United States and, in combination with nivolumab, has achieved its highest-ever market share in first-line RCC. The company is also focused on expanding cabozantinib’s use to neuroendocrine tumors (NET), with their supplemental NDA based on the cabinet study being accepted and a PDUFA date set for April 2025. The potential market for NET is significant, with approximately 9,000 second-line plus drug-treated patients in the United States by 2025.

Strategic Initiatives and Future Growth

Strategically, Exelixis remains focused on disciplined capital deployment, prioritizing opportunities that align with clinical and market value. The company is optimistic about the market potential for Zanza and other new candidates in their pipeline. Efforts are also being made to strengthen both clinical and commercial success through efficient resource allocation and advancing promising drug candidates.

Community and Advocacy

Exelixis recently hosted an event featuring kidney cancer patients and advocates, which highlighted the personal impact of their work on cancer patients' lives. The session reinforced the company's commitment to improving patient outcomes and their determination to continue driving innovation in cancer treatment. This engagement underscores Exelixis’s focus on making meaningful contributions to cancer care.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the Exelixis Second Quarter 2024 Financial Results Conference Call. My name is Tawanda, and I'll be your operator for today.

As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. You may begin.

[Susan Hubbard, executive]

Thank you, Towanda, and thank you all for joining us for the Exelixis Second Quarter 2024 Financial Results Conference Call. Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; J. Haley, our Executive Vice President of Commercial; Amy Pearson, our Chief Medical Officer; and Dana Aftab, our Chief Scientific Officer, who together will review our progress for the second quarter of 2024 ended June 30, 2024.

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 these 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 file 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 cost associated with discovery, product development, business development and commercialization activities. And with that, I will turn the call over to Mike.

[Michael Morrissey, executive]

All right. Thank you, Susan, and thanks to everyone for joining us on the call today. Exelixis had a very busy and productive second quarter across literally all components of our business, especially in commercial, regulatory and development, and we're thrilled with our momentum that's driving us into the second half of 2024. We continue to execute on key priorities for important future value drivers in discovery, development and commercial, and remain steadfast in our focus to improve the standard of care for patients with cancer.

We have a lot to cover today, so let's jump right into it with key highlights for the quarter, including: first, strong financial performance with top and bottom line growth driven by the strength of the cabozantinib franchise globally. Momentum in the cabozantinib business continued in the second quarter of 2024, with growth in demand and revenue, both quarter-over-quarter and year-over-year. CABOMETYX maintained its status as the leading TKI for RCC in the U.S. with second quarter 2024 cabo franchise net product revenue is growing 16%, quarter-over-quarter compared to first quarter 2024 and 7% year-over-year compared to second quarter 2024.

Global cabozantinib franchise net product revenue is generated by Exelixis and its partners grew to $618 million in the second quarter 2024. We -- the $150 million commercial milestone we earned from Ipsen in the second quarter is emblematic of the continued strength of the cabo franchise on a worldwide basis. The robust net product revenue and total revenue for the quarter, along with continued expense discipline, drove our net income growth as well. As Chris will highlight later in the call, we had a very good second quarter and look forward to continuing the momentum in the second half of the year.

Second, building off the strength of cabo's leadership position in RCC. We're excited about the opportunity for new indications like NET to drive future cabo growth and believe it could be another area where Exelixis has the potential to grow into a market leader. Our cabo sNDA submission based on the cabinet data was accepted with standard review and a PDUFA date in early April 2025. [ XL's ] top priority is to advance the net indication from a clinical and regulatory perspective and launch as soon as possible, pending approval. As you'll hear from Amy, the planned Phase II of [ Zanza ] in NET underscores our commitment to establish a leadership position in this underserved population and provides another therapeutic opportunity to improve standard of care for patients with NET. PG will also highlight recent market research, which helps frame our excitement for this indication.

Third, we continue to advance our industry-leading pipeline with a focus on generating differentiating clinical data that will improve standard of care for patients with cancer. Our success in building the cabo franchise provides a road map to maximize clinical and commercial success for molecules in our pipeline, advancing potential new cabo indications and expediting Zanza clinical developments with both existing and new pivotal trials remains our top focus. We continuously evaluate our pipeline to ensure we are disciplined in our investments and that they align with emerging data and the evolving treatment landscape.

In that context, we've decided to discontinue XB002, and it is unlikely to improve upon the tissue factor targeting ADCs already approved or in the clinic. We believe there are higher value and therefore, higher priority opportunities with Zanza and NET and potentially other GU indications that drive us to reallocate resources to support these activities. The cabo lens sets a high bar for clinical differentiation and ultimate commercial success, and we're mindful of that investments in programs that are unlikely to improve standard of care does little to create value for patients or shareholders. We're optimistic in our progress with XL 309, XP 010 and new candidates in our pipeline, which we expect to advance quickly.

Fourth, the strong financial performance this quarter and our continued financial and pipeline discipline allows us to be both strategic and opportunistic in capital deployment. While we expect business development and clinical collaboration discussions to continue throughout 2024, our strong financial performance this quarter with record levels of net product revenues and total revenues allows us to pursue another $500 million share repurchase program on top of the $1 billion of shares we bought over the last 15 months. Finally, there's nothing new to report on cabo and litigation. As in the past, we will not speak to any specifics today, and it's a statement of the obvious that the upcoming ANDA ruling remains a critical milestone for the company and the cabozantinib franchise.

Exelixis will continue to vigorously protect our intellectual property rights with respect to cabo and our other differentiated molecules we pursue on behalf of patients with cancer. So with that, please see our press release issued an hour ago for our second quarter 2024 financial results and an extensive list of key corporate milestones achieved in the quarter. And I'll now turn the call over to Chris.

[Christopher Senner, executive]

Thanks, Mike. For the second quarter 2024, the company reported total revenues of approximately $637.2 million, which included cabozantinib franchise net product revenues of $437.6 million. CABOMETYX net product revenues were $433.3 million and included approximately $6.6 million in clinical trial sales. Gross to net for the cabozantinib franchise in the second quarter of 2024 was 27.6% and which is lower than the gross to net we experienced in the first quarter of 2024 and is generally in line with our expectations.

The decrease in gross to net deductions in the second quarter of 2024 is primarily related to lower Medicare Part D co-pay assistance and 340B expenses. Our CABOMETYX trade inventory decreased by approximately 300 units when compared to the first quarter of 2024 to approximately 2-point weeks on hand. As a reminder, clinical trial sales have historically been choppy between quarters, and we expect this to continue in future quarters. Total revenues also included approximately $195 million of license revenues for the second quarter. The largest contributor to our license revenues is the $150 million commercial sales milestone we recognized in the second quarter as a result of Ipsen's achievement of $600 million in cumulative net sales of cabozantinib in its related license territory over 4 consecutive quarters.

Additionally, we recognized approximately $41 million of license revenues from the royalties we earned from Ipsen and Takeda on their sales of cabozantinib in their territories. Our total operating expenses, excluding restructuring charges for the second quarter of 2024 were approximately $361 million compared to $363 million in the first quarter of 2024. The sequential decrease in these operating expenses was primarily driven by lower licensing and clinical trial costs, offset by higher commercial and general and administrative expenses in the second quarter of 2020. Provision for income taxes for the second quarter of 2024 was approximately $67 million compared to a provision for income taxes of approximately $12 million for the first quarter of 2024.

The company reported GAAP net income of approximately $226.1 million or $0.77 per share on a fully diluted basis for the second quarter 2024. We -- the company also reported non-GAAP net income of approximately $246 million or $0.84 per share on a fully diluted basis. Non-GAAP net income excludes the impact of approximately $20 million of stock-based compensation expense net of the related income tax effect. Cash and investments as of June 30, 2024, were approximately $1.4 billion, -- during the second quarter of 2024, we repurchased approximately $259 million of Exelixis shares at an average price of $22.23. completing the $450 million share repurchase program authorized earlier this year. Through this $450 million program, we retired 20.3 million shares at an average price of $22.17 -- when combining the March 2023 $550 million share repurchase program, in January 2024 $450 million share repurchase program, we repurchased and retired approximately 46.5 million shares.

Additionally, Exelixis announced today that the company's Board of Directors has authorized the repurchase of up to $500 million of the company's common stock through the end of 2025. This is our third share repurchase program authorized since March 2023. And finally, turning to our financial guidance for the full year. We are increasing our total revenue guidance and SG&A expense guidance. We are increasing our total revenue guidance due to the recognition of the $150 million commercial sales milestone from Ipsen in the second quarter. Additionally, we are increasing our SG&A guidance due to the prelaunch costs associated with preparing the commercial organization to launch the potential net indication. Please see Slide 14 of our Q2 earnings presentation for further details. With that, I'll turn the call over to Amy.

[Amy Peterson, executive]

Thanks, Chris. I'm happy to share our progress across our pipeline with you all today. starting with cabozantinib and an exciting status update on our filing activities with the Phase III cabinet study in neuroendocrine tumors or NET. As Mike mentioned, we are pleased to report that Exelixis' filing for a supplementary NDA for cabozantinib in pancreatic for extrapancreatic neuroendocrine tumors has been accepted by the FDA with a target PDUFA date of April 3, 2025.

The FDA also granted orphan drug designation to cabozantinib in pancreatic NET. As a reminder, the Phase III Cabinet study evaluated cabozantinib 60 milligrams daily versus placebo in patients with previously treated advanced or metastatic pancreatic or extrapancreatic neuroendocrine tumors, which I will refer to as peanut or EP net, respectively. By way of background, NET sometimes referred to as carcinoid tumors are a diverse group of malignancies that arise from neuroendocrine cells of various organs. While previously thought to be fairly uncommon, there has been a marked increase in the incidence over the past 20 years. And in 2024, approximately 15,000 people in the U.S. will be diagnosed with this tumor type.

Well-differentiated neuroendocrine tumors develop most commonly about 55% at the time in the GI tract. -- followed by lung at approximately 25% and pancreas just under 10%. They may also arise from other tissues like prostate, breast, thymus and skin. To date, FDA-approved therapies have been directed at stimulating somatostatin receptors and inhibiting angiogenesis. Somatostatin analogs were first approved for the treatment of symptoms related to functional tumors and subsequently to delay disease progression. More recently, somatostatin analogs have been used to deliver radio ligand or radionuclide therapy to somatostatin receptor expressing tumor cells. Lutitium-LU-177 Dotatate or Lutathera is an SSTR targeting beta-emitting radioligand indicated for use in somatostatin expressing gastroenteropancreatic net. That is tumors of the for gut, which includes the Pandreas, the midgut and the Heine gut.

NET is considered a highly vascular tumor and angiogenesis inhibitors have produce in its treatment. Sunitinib is indicated for use in peanut. [ Everolimus ] is indicated for use in peanut and in nonfunctioning GI and lung mets. Putting these indications together, -- there are a number of neuroendocrine tumors that are not covered by these labels. For example, not all patients with the neuroendocrine tumor are candidates for Lutathera because their tumors may not express sufficient levels of SSTR to be eligible. Furthermore, Lutathera is not approved in patients with lung met. -- a population representing nearly 1/4 of all net and importantly, a population that was included in Cabinet.

As presented by Dr. Jennifer Chan of the Dana Farber Cancer Institute at ESMO last year, 1 out of 5 of the patients enrolled into Cabinet with EP Net had lung that. Net can be functional or nonfunctional, and everolimus is not indicated in functional carcinoid tumors. Patients with functional nut were included in the cabinet trial, representing 32% of EPNET, and 16% of peanut patients. Functional nets secrete bioactive molecules leading to symptoms like flushing, bronchospasm, diarrhea and blood pressure fluctuations that can cause significant morbidity and reduced quality of life. Advanced or metastatic nets carry a poor prognosis. This was reflected in the relatively short investigator-assessed progression-free survival of approximately 3 months on placebo. -- in either the peanut or EP NET cohorts from the cabinet study, again, as presented by Dr. Channa ESMO in 2023.

We're excited to announce that the final PFS results by blinded independent central radiology review, the primary endpoint of the cabinet study will be presented during an oral proffered paper session at ESMO 2024 Congress in Barcelona next month. One last thing to point out about Cabinet is that this Phase III was designed and executed by the NCI funded alliance for clinical trials in oncology -- that as cabinet was not an Exelixis-sponsored trial, but rather was conducted under a collaborative research and development agreement, or CRADA, with the NCI. -- studies like cabinet underscore the importance of building strong relationships with the academic community. Such studies at a maximum can support labels in new indications, and at a minimum, can provide meaningful information to inform further development.

The net KOL community recognize the need for additional effective therapies and understood the potential for cabozantinib to realize that need. The data from cabinet provides important information to ensure that as many patients with NET either based on site of origin or in functional or nonfunctional status and regardless of SSTR expression to potentially gain access to an effective therapy. The data should also support approvals outside the U.S., and we're pleased that our partner, Ipsen, has already indicated interest in filing cabinet in their territories.

So as you can infer, we are very excited about the data generated from Cabinet, and we'll work closely with the agency towards an approval. The next study I'd like to discuss is Contact 02, our randomized open-label Phase III study evaluating cabo plus atezolizumab versus a second novel hormonal therapy in patients with metastatic castration-resistant prostate cancer who have measurable extra pelvic soft tissue disease. In January 2024 at ASCO GU, Dr. Niraj Agarwal of the Huntsman Cancer Institute presented results from Contact 02, showing a significant improvement in progression-free survival meaning one of the dual primary efficacy endpoints of the trial.

The safety profile of the combination reflected the known safety profile of each single agent and was consistent with the tolerability profile of approved IO-TKI combinations. The final overall survival analysis for the study has been completed. While OS and the ITT continue to favor the combination of cabo plus atezo, it did not reach statistical significance. We look forward to presenting these final data, including key subgroups at a future medical meeting and intend to submit an sNDA to the FDA later this year.

Finally, for Cable, I'll briefly cover COSMIC-313, our Phase III trial evaluating the triplet of cabo, nivo and ipi versus nivo/ipi in frontline intermediate or poor risk renal cell carcinoma. We previously reported the primary endpoint of PFS by blinded independent radiology committee, which showed a hazard ratio of 0.73 and a p-value of 0.01, favoring the triplet. At the final analysis, the experimental arm did not demonstrate an OS benefit over the control arm, a key secondary end point. Based on this OS result and the evolution of first-line RCC treatment landscape since the study was initiated in May 2019, we have no plans to file this study for label extension.

Data from this study will be disclosed at a future time. I'll now discuss our development stage assets, starting with [ zamzolitinib. ] First, I'm pleased to announce that we have completed enrollment into STELLAR-3 a our pivotal Phase III study, evaluating the combination of [ Zaza ] plus atezolizumab versus regorafenib in patients with non-MSI-high non-DR, metastatic and refractory colorectal cancer. The primary endpoint in this study is overall survival in the non-liver met or NLM patient population. If positive, we will then evaluate survival in the ITT population that includes patients with and without liver mets. The sample size for both NLM and liver met patients was capped to ensure adequate numbers of events in each of these analyses. The survival analysis is event-driven, and we are currently estimating the study should read out in 2025, taking into account that survival in NL patients is longer than it is in those with liver mets.

SELLAR-304, our Phase III trial evaluating the combination of Zanza plus nivolumab versus sunitinib in frontline non-clear cell kidney cancer has dual primary end points of progression-free survival and objective response rate, both as assessed by a blinded indeed. For this study, we are on track to complete enrollment by mid-2025. STELLAR 303 is our -- sorry, STELLAR 305 is our registrational trial evaluating zenzolitinib in combination with pembrolizumab versus pembrolizumab alone in patients with untreated PD-L1 expressing advanced or metastatic squamous cell carcinoma of the head and neck. This study was initiated late last year, and the team has made substantial progress with site activation and patient enrollment. The progress we are seeing reflects the external excitement about the potential for this regimen to offer patients a chemo-free treatment option.

We know that this type of tumor is sensitive to both IO and VEGF inhibitors like zendelitinib. And even in light of the recent failure of lenvatinib plus pembrolizumab, we remain confident that combining the right TKI with IO could improve patient outcomes and we believe in zamzolitinib's differentiated profile to accomplish as much. As for future additional studies with Anda, our immediate priority is to launch a new pivotal study, STELLAR 311, evaluating zamzolitinib versus everolimus in patients with advanced neuroendocrine tumors whose disease had progressed on a somatostatin analog. The study design leverages the comprehensive body of data generated by cabozantinib in this disease setting as well as important feedback from our network of investigators looking to bring additional effective therapies to their patients and in earlier settings.

Axle a strong footing in RCC with cabozantinib and we intend to extend that leadership into the net space first with the filing of the study of zanzeletinib. The nut states is reminiscent of where we started in RCC years ago when the METEOR and CABOSUN studies read out. Our assessment of the market, which you'll hear more about from PJ leads us to believe there is similar potential for Zanza and net to that, which we realized for cabo in RCC. We intend to initiate the study early next year with the goal of establishing Zanza as the preferred first oral therapy in advanced neuroendocrine tumors. The enthusiasm we have received from investigators on this trial design strengthens our conviction of the potential for [ Zanza ] to offer a meaningful advance to this ever-increasing patient population.

Taken together, we've demonstrated a calculated yet diverse development program for zanzolitinib that has the potential to grow its value proposition across a variety of disease settings. '25 will be an important and exciting year for Zanza with data readouts across key programs, including maturing data in the expansion cohorts in STELLAR-001 and 002. We are constantly assessing other development opportunities for zamzolitinib, and we'll update you on those plans as we make progress. I'll now provide a quick update on our XB002 and XL 309 programs. XB002 is our tissue factor targeting ADC that carries the modified arostatin payload. XB002 is being evaluated in the Phase I JUUL 101 study across various tumor types as a single agent and in combination with nivolumab.

Based on available data, we have come to the conclusion that XB002 is unlikely to improve upon tisotumab vedotin or other competitor tissue factor targeting ADCs currently in development. Therefore, we are stopping for the development, and we'll proceed with study closeout of JUUL 101. And Data from the study will be disclosed at a future time. XL 309 is our small molecule USPI inhibitor, currently being evaluated in advanced solid tumors in a Phase I study as a single agent and in combination with olaparib, a PARP 1/2 inhibitor. The mechanism of action of XL 309 and potential to combine with PARP inhibitors provides optionality for a robust development program in a variety of solid tumors, not necessarily restricted to tumors that harbor BRCA 1/2 mutations and the team is making great progress with enrollment, including patients into the combination cohorts.

We're actively assessing how we might prioritize expanded development of this particular compound. As I approach my 1-year anniversary later this month, I have to say I'm proud of the progress the teams have made in advancing our diverse clinical programs, we are well poised to continue providing physicians and patients new and important therapeutic options. I look forward to sharing additional updates with you as we move through the second half of this year. I'll now turn the call over to Dana.

[Dana Aftab, executive]

Thanks, Amy, and good afternoon, everyone. Today, I'm giving a brief update on our progress in the second quarter of 2024, toward our goals for preparing for IND filings and for advancing new compounds to development candidate status. On the IND front, we've continued to make good progress on all of our pre-IND programs, and we remain on track to file up to 3 this year.

As you saw in the press release, we filed the IND for XB010 in the second quarter, and the Phase I trial is now underway. XB010 is a 5T4 targeted antibody-drug conjugate, that carries the cytotoxic anti-tubulin payload, monomethyl or statin and use smart tag linker payload technology, which results in a more stable and homogeneous ADC compared to earlier generation technologies. XB010 is the first custom ADC that our internal teams designed and built with participation by our collaboration partners and brought to the clinic and the principal investigators of the Phase I study are quite enthusiastic about the potential for this molecule to address significant unmet need for patients with tumors that express 5T4.

So we look forward to efficient execution of this study. The second IND to file this year is for XL 495, our small molecule inhibitor of PKMIT1. Inhibition of PKD1 is synthetically lethal in the context of increased cyclin E levels which occurs across a wide range of tumors. We're progressing towards IND filing and acceptance by the FDA for XL 495 in the very near future. So we look forward to getting that Phase I study underway soon. The third IND we expect to file this year will be for Xb 628, our bispecific antibody that targets PD-L1 along with NKG2A and displays NK cell engager activity in preclinical models. Our IND-enabling activities for XB628 are progressing on schedule to support filing the IND later this year.

I'm also pleased to give a brief update on XB371, our tissue factor targeting ADC that utilizes Smart Tag technology to conjugate topoisomerase inhibitor payload to the antibody. We continue to be enthusiastic about the potential for XB371 to differentiate from tisotumab vedotin in the clinic, primarily because of the topoisomerase inhibitor payload, which is a completely different mechanism of action and could give us reach into indications like colorectal cancer that express tissue factor that are typically insensitive to microtubular inhibitors. GLP tox and other IND-enabling activities for XP 371 are well underway, and we expect to file the IND in 2025. In terms of new development candidates, we expect to achieve our goal of at least 2 this year with some exciting new programs, including a small molecule inhibitor targeting PLK 4 and a novel antibody drug conjugate program. And with that, I'll turn the call over to P.J.

[P. Haley, executive]

Thank you, Dana. For the second quarter of 2024 was a strong quarter as the team continued to execute at a high level, which has resulted in CABOMETYX continuing to be the #1 prescribed TKI and RCC. Additionally, CABOMETYX in combination with nivolumab has achieved its highest market share to date and remains the #1 TKI I-O combination and first-line renal cell carcinoma.

With regards to prescriptions, CABOMETYX TRx volume grew 6% year-over-year in Q2 2024 relative to Q2 2023. Furthermore, the business remains strong, both in terms of demand and new patient starts both of which were at an all-time high for CABOMETYX in the second quarter. CABOMETYX continued to perform well from both a marketplace and competitive perspective. CABOMETYX again led the TKI market basket with TRx share increasing to 41%. As we have discussed previously, the first-line RCC market is extremely competitive. And Q2 was the seventh full quarter in which CABOMETYX plus nivolumab remained the #1 prescribed TKI plus IO combination in first-line RCC.

In Q2, CABOMETYX plus nivolumab reached its highest share ever in first-line RCC. This share increase drove higher new patient starts and demand for CABOMETYX. In particular, we are seeing strong growth in the community oncology setting. Furthermore, long-term data from the CheckMate 9ER study. Now at a minimum, 4 years follow-up was presented at ASCO GU this year and continues to reinforce the leadership position that CABOMETYX has in the RCC marketplace. Beyond first-line RCC, CABOMETYX is performing well in other segments, including second-line RCC, second line HCC and second-line DTC.

Looking forward, commercial team is excited about the positive results from the cabinet trial in neuroendocrine tumors, particularly now that we have a PDUFA date. Neuroendocrine tumors comprise a large and heterogeneous patient population. As patients become metastatic and progress, treatment options become limited. The only oral targeted therapy options are sunitinib and everolimus, and there has not been an approval in the U.S. for an oral agent and net since 2016. There is a strong unmet need for new options for patients who have progressed on systemic therapy. In 2025, there will be approximately 9,000 second-line plus drug-treated patients in the United States.

Approximately 80% of patients are SSTR positive, and in lung mets, that percentage is much lower, approximately 44% being SSTR positive. Most net patients will receive multiple lines of therapy, in part due to the more indolent nature of the disease relative to other solid tumors. We have conducted preliminary market research which reveals that oral therapies account for approximately 50% of the utilization in this market in the second and third line plus 6. The currently available options do not have broad evidence across all disease characteristics, including site of origin, grade, SSTR status and functional status. Also, in market research, physicians do not view the toxicity profile of these agents in a favorable manner.

Furthermore, as I mentioned previously, the majority of net patients will receive many lines of therapy sequenced throughout their treatment course. There is a lack of optimal sequencing data in the setting, particularly in patients previously treated with Lutathera. All of this taken together underscores the significant need for a contemporary data set that is broad in its applicability to address the unmet medical need for this heterogeneous patient population. Turning to the Cabinet trial. The study had a broad and diverse population that included patients regardless of site of disease origin, tumor grade, prior Lutathera, SSTR status or functional status of the tumors. As we conduct market research and hear from KOLs about the cabinet data, we are pleased with the feedback that we are receiving.

Physicians site the study design is positive that it covers a broad range of net patients that they see in their practice as well as the fact that it is a contemporary data set and is inclusive of patients who have received Lutathera. In market research, the efficacy data of Cabinet is viewed favorably by prescribers in terms of progression-free survival, overall response rate and disease control rate. Most physicians in the research have experience with cabo in RCC, HCC or DTC. These oncologists cite their experience with CABOMETYX in other tumors as a positive, particularly when it comes to comfort with dose modification and toxicity management.

The feedback and esearch clearly demonstrate the regulatory approval for CABOMETYX based on the cabinet study would have the potential to help a broad range of net patients and address an unmet medical need. The potential opportunity in neuroendocrine tumors fits very well, Exelixis' existing commercial infrastructure and capabilities. Oncologists are the primary treaters of advanced neuroendocrine tumors and our analysis indicates that the majority of net treaters have prior experience using CABOMETYX and are already being called on by our sales force for our labeled indications.

Synergies also exist across other commercial functions such as marketing, market access, and commercial operations. Hence, the potential launch of cabo and net would not require significant incremental investment. Launch planning and preparation for the opportunity in neuroendocrine tumors is well underway, and our team is excited by this endeavor. Cabo franchise is entering the second half of 2024 with significant momentum in our currently improved indications and a potential regulatory approval of CABOMETYX in NET would provide the opportunity to continue the growth and momentum in the coming years.

Furthermore, the commercial team is enthusiastic about the progress in the pipeline, particularly with vanzolitinib as 2025 is coming into focus as an important year for the compound, as you heard from Amy. We are motivated to expand the cabo franchise to a kinase inhibitor franchise with ZANZA having the potential to help patients in tumors where cabo has demonstrated activities such as Nets and RCC as well as new tumors such as colorectal cancer, so we can continue to help more patients with cancer. With that, I will turn the call back over to Mike.

[Michael Morrissey, executive]

All right. Thanks, PJ. I'd like to close our call today by reflecting on an event we recently held that serves as an important reminder about why we are dedicated to the work we're doing at Exelixis every single day. We had the honor of hosting kidney cancer patients and advocates Laura Esfeller and Katie Coleman for a special panel discussion where they shared insights about their kidney cancer journey and the significant ripple effect the connections, and information shared from peer-to-peer support and efficacy can have on people impacted by a devastating cancer diagnosis.

They are powerful stories of hardship, resiliency and an unwavering dedication to advocate for fellow patients reinforces our individual and collective commitment to the patients we serve and reminds all of us at together, we can make a meaningful difference in the lives of people affected by cancer. So with that, I want to thank the entire Exelixis team for their efforts to support our discovery, development and commercial activities. We had a very strong first half of 2024 and are on track for this year to be a critical one for our science and the patients we strive to serve now and in the future.

The XL team is heavily motivated to exceed expectations and our mission to help cancer patients recover stronger and live longer. 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 now happy to open the call for questions.

[Operator]

[Operator Instructions]

Our first question comes from the line of Michael Schmidt with Guggenheim Securities.

[Unknown Analyst]

This is Paul on for Michael. Just for cabo and thinking about expectations for possible labeling and net, looking at the cabinet study, patients that's been around 2 to 3 median lines, including somatostatin analogs and other treatments. How are you thinking about how the label might reflect prior lines of therapy in terms of second line versus third line plus? Any other thoughts about the label that you could share would be helpful.

[Unknown Executive]

Thanks, Paul, for the question. I can't really share much in terms of the label. We're in the response to the agency. We're very excited about the fact that they've accepted the filing and are marching towards an approval date of April 3rd in 2025. We think that the study allows a fairly broad label for net pancreatic, extrapancreatic, prior SSTR, yes or no, functional, yes or no, how that actually pans out and words will remain to be seen.

[Operator]

Our next question comes from the line of Gregory Renza with RBC Capital Markets.

[Unknown Analyst]

[indiscernible] on for Greg. On the business development opportunities and collaborations that Exelixis is exploring. Does that include potential acquisition of late-stage assets that fit with the GI portfolio that was indicated in the previous quarter? Any color on the collaboration would be helpful.

[Michael Morrissey, executive]

Yes. Thanks for the question. It's Mike. Yes, look, we're -- as we mentioned last quarter, we're very interested in looking at late-stage assets in the GU, GI space. Obviously, I can't go into details right now about that, but it's certainly a prime area of focus for us. Anything we can do to add late-stage compounds to our portfolio would be, I think it will benefit for potentially patients, shareholders and the company. So that's where our focus is right now. And stay tuned as things evolve throughout the second half of the year.

[Operator]

Next question comes from Ashtika Goonewardene with Truist.

[Asthika Goonewardene, analyst]

Just want to take congrats on the progress on the beat on cabo sales this quarter. So a another question for you. it's unfortunately a contractor did not hit on OS, where hopefully it still gets approved. And if it does, what is your level of confidence that not having a rest will not be detrimental to uptake? If I can squeeze a quick one, a quick side question in here. Can you just give us a little bit more color on the update on the recruitment to Stellar305?

I know you said site activation is going well. But there's just quite a lot of other clinical trials underway in this setting. I just want to get a little bit more color from you if you can provide on how patient enrollment is going.

[Michael Morrissey, executive]

Yes. Thanks, Ashtika. TJ take that first question on Cabo commercial for prostate potentially?

[P. Haley, executive]

Yes. Thanks for the question. We're really excited about the data. And I think there's a significant unmet need out there as we've talked about previously, certainly wouldn't want to get ahead of ourselves in talking about potential uptake in the market, et cetera. But like I said, we're excited about that data.

Right now, as I mentioned in my remarks, we're really excited about and focused on the near-term neuroendocrine tumor launch, which is really our top priority, in addition to maintaining our current in-line business. So our focus is there at the moment.

[Amy Peterson, executive]

Thanks for the question. I'll answer first a little bit more high color on Contact02 -- very excited. The study was positive. We hit on PFS. We hit in no matter different ways that you assess PFS and subgroups PFS has been the basis of approval even in this setting in prostate cancer, there's precedent. We believe that what this offers is something to patients who really have high unmet need, for example, patients with liver mets, and we presented the sub-room at ASCO GU.

These patients really don't have much in terms of available effective therapies to them. when we pulse the external community on their excitement about the data, they actually are very excited to potentially have something that they can reach for relatively easily. It's not chemo. The tolerability profile of cabo, Attivo, they're comparing it to chemo, not second NHT,and they're actually--very excited about the potential to have this in their armamentarium. We'll see how things go with regard to our filing. As far as an update on 305, we're aware of the lead -- but I can't really say much more than that.

[Operator]

Our next question comes from the line of Jay Olson with Oppenheimer.

[Jay Olson, analyst]

Congrats on all the progress. For the new 311 study of Zansa and first-line net, can you talk about how you're weighing the use of single-agent Anza versus combination approach? And would you consider running a head-to-head trial of Zanza versus cabo?

[Amy Peterson, executive]

Thanks, Jay. Great questions. So at this point in time, we're focusing on the Zansa head-to-head versus everolimus , which we think is a reasonable therapy to offer patients in this line. We have to maintain equipoise whenever we design a study so that the physician is okay talking about each option that they have. We are interested in combinations.

However, at this point in time, it's a little bit early days, we would have to assess the safety tolerability of any combination before we could initiate a Phase III study. We believe that this is the first of probably multiple trials that will run in this space. So stay tuned. We'll look at combinations as well.

[Operator]

Our next question comes from the line of Yaron Weber with JD Colin.

[Unknown Analyst]

This is Joy on for Ron. On CCI, I was just wondering if you will be performing subgroup analyses in patients by high-risk factors similar to what you did for PFS, for example, in liver mets patients. and whether you hope to learn from anything there on the OS separation and what drove the overall OS to not be statistically significant?

[Amy Peterson, executive]

Yes. Thanks for the question. So we're looking forward to sharing the data. We did provide subgroup analyses at GU ASCO, both according to PFS and according to OS, which we would intend update. We're very interested in what subgroups may benefit the most from this combination, as well as potential subgroups that may not have as much benefit, right? It's all about risk benefit when a physician is deciding who to treat. And so we look forward to providing an update. Stay tuned for when that happens. And looking forward to have more discussion on this in the future.

[Operator]

Our next question comes from the line of Andrew Hsieh of William Blair.

[Tsan-Yu Hsieh, analyst]

So maybe a quick one for me. Just curious about your reaction on the standard review. I was shocked about the FDA's decision to not give you breakthrough when I read the press release. Secondarily, I'm curious about kind of the overlap and potential for cannibalization. Just looking at the STELLAR 311 study, and also the cabinet study population. There is an example before with [indiscernible] That the FDA gave them a really broad label. I'm just curious about the broad label and its potential implication to the STELLAR none study.

[Michael Morrissey, executive]

Andy, it's Mike. I'll take those. So look, we're thrilled to have, as always, any sNDA or NDA accepted and a PDUFA date out there it allows us to focus the team in terms of both the review and then any kind of additional launch readiness that we have to do. So I think both Amy and Pete did a great job of framing that.

So we're thrilled to be where we're at right now with cabo and Nets and certainly very excited about moving Zanza for that direction too. In terms of future markets when 311 reads out, if that's positive, we're very confident we can navigate the opportunities we have there. Obviously, a lot depends on data and labels and those kinds of things that we just don't have right now. So patience, obviously, as things go forward, we'll be able to talk about that more. But we're kind of at the starting block right now with our ability to start navigating nets. And we think as everyone talked about today, this is a really, really important area for us to dive into. And we've been successful in renal. And I think with the right level of focus and discipline, hard work, we can hopefully make the same thing happen with NET 2.

[Operator]

Our next question comes from the line of Silvan Tuerkcan with Citizens JMP.

[Silvan Tuerkcan, analyst]

Congrats on the top line here. My first question is more strategic. Can you just speak on your -- the M&A strategy and maybe the urgency versus the new $500 million stock buyback that you just authorized. Just how do you think about the 2? Does that mean the M&A strategy is maybe more long term or you don't have something that crosshairs as of this very moment? And then my second question is just about the discontinuation about XB002. If you could just remind me has no real across whatsoever to your other ADCs, right? Because they are comply different toxins constructs and from a different collaboration?

[Michael Morrissey, executive]

Yes. Thanks for the question. One, I'll take them both just to keep things kind of straightforward here. So look, in terms of BD, we're focused on finding assets that we have a high degree of conviction in relative to, again, the way we view things through the cabo lens in terms of development, regulatory, commercial, what it means to be successful clinically and commercially. So the conviction that we have in late-stage assets is the most important thing.

We have obviously, a very successful molecule in cabo. We're generating lots of free cash. We think we can do both. In terms of having the dry powder to keep buying back shares as we've announced today and doing the appropriate level of BD if we have the conviction in the assets. So what's rate limiting is that conviction, it's not really how we're going to pay for it, okay? So it's a very important part of our story. We're not desperate. We're not going to go out and do a silly deal. We have to have that fundamental belief that whatever we do in terms of transactions will lead to value for patients and shareholders. That's the main driver.

In terms of XB002, yes, as you said, and Dana, I think referred to this really well. continues as well as [ XP01, ] which just entered into the clinic and other assets in there in that class of molecules. So we're excited about our ADC approaches. We've got a lot of different irons in the fire. Data drives the process. So that we've always been -- we've always said that. We've always behaved that way, and that will continue going forward.

[Operator]

Our next question comes from the line of David Lebowitz with Citi..

[David Lebowitz, analyst]

Sorry about that. Could you speak to your launch preparedness for treating neuroendocrine tumors given that it's not overlapping as much with renal how much of an extra lift does this represent for the team?

[Michael Morrissey, executive]

Yes, David, thanks for that question. We covered that pretty extensively on the call, P.J., you want to give the 1-minute summary real fast?

[P. Haley, executive]

Yes. Thanks, David. I think we've got a good handle on this. It's not much of a significant lift. It's more or less incremental as we've said, from a resourcing perspective, we see a strong overlap in net treating physicians with our current customer universe that we call on because we're calling on GI specialists already with HCC and then we have a very strong presence in community oncology. So I think there's a couple of things there. One is that it's not a significant incremental resourcing request and the others, we're well positioned to take advantage of it.

[Operator]

Our next question comes from the line of Jeffrey Hung with Morgan Stanley.

[Unknown Analyst]

This is Michael Reed on for Jeff Hung. Sorry, cabinet and consumers. You noted that 5-year survival rates trend down when going from GI to long to pancreatic given that, but also given the cabinet was stopped early due to the compelling efficacy -- how long into the treatment course do you want to go into with STELLAR 311 to see sort of the competitive landscape?

[Susan Hubbard, executive]

Michael, yes, thanks for the question. I think we're still refining the study. We hope that and if the study ultimately is positive, would be -- would effectively be the preferred first oral treatment in patients who have advanced or metastatic neuroendocrine tumor. So in that sense, it's looking pretty early on in the treatment setting, we know that median progression-free survival in this setting can be up to 22 months as observed with the [indiscernible] -- so we're hoping that we'll beat Everolimus and that we can establish Zanza as the preferred.

[Operator]

Our next question comes from the line of Jason Gerberry with Bank of America.

[Jason Gerberry, analyst]

I think you largely answered it, but as I was thinking about net and the opportunity with cabo and how it differs ultimately with [indiscernible] , it sounds like with cabo, you're kind of in that third, fourth line of treatment, absent some of the segments you highlighted, like net lung. But it's really with the second, third line study that you have with Zanza where you can really open up the market opportunity and see a dynamic like in RCC, where you can get some patient stacking. And I know you mentioned 22 months PFS with Luda. What would be your expectation for like whatever limus will do in this setting just to try to get some sense of how long these patients are staying on therapy in sort of the second, third line setting?

[Michael Morrissey, executive]

Yes, Jason, it's Mike. Thanks for the question. I guess I would challenge your assumptions about where you think cabo will land. Clearly, the patient population that we studied in cabinet is a broad population. I won't go into all the details again now just for the sake of time, but let's see the kind of label we get. -- and let's use that to benchmark kind of where cabo goes relative to the initial -- our initial foray into the net population. So stay tuned on that.

I guess in terms of Zanza, I think the challenge there and the opportunity there is to go head-to-head against an active control. And I think that's the -- in our view, that's the main focus of what we're hoping to do with STELLAR-311. And an analogy to what we do with [indiscernible] back with cabo and RCC against everolimus as well or even Cabos-San with sunitinib. So think about it from that point of view, obviously, if you fast forward, that brings out positive, we've just kind of go to first small molecule oral therapy. It puts us in a very different position than what cabo could have based upon the cadet label.

So lots of moving pieces. I don't want to speculate you could see how this might evolve. Let's get the cabinets cabo label first, and then we'll get STELLAR 311 going with, again, high priority, really pleased with the progress that the development team has made over the last year. and be able to kind of streamline processes, a sense of urgency and focus, kudos to Amy and her team for kind of getting us back to where we've been in the past. And we'll address all of these issues with more data and time as we go forward. Thank you.

[Operator]

Our next question comes from the line of Akash Tewari with Jefferies.

[Unknown Analyst]

This is Amy on for Akash. So in terms of the next opportunity, do you think this can get to $1 billion over time? And how are you thinking about the size of the net market relative to RCC long term?

[Michael Morrissey, executive]

Yes, Amy, thanks for the question. I mean that's the key question. Obviously, we're not going to answer that today. We need to see the label and how that looks I think it's safe to say, and we're all talking about that in different context is today that we think net is underserved. We think the opportunity in terms of the incident patient population, the prevalent patient population, the long time these patients kind of factor or kind of go from one therapy to another.

This could be a real opportunity to help those patients longitudinally with cabo, with Zanza potential other combinations as we go forward. So we're excited about this. We're not going to give numbers to date. Certainly, as things go forward, we see the label. We have a better sense of being able to frame the initial market opportunity. And maybe more importantly, the bigger opportunity as we go forward over the next few years, could be really interesting. So stay tuned, great question. Come back in a few months or quarters once we get approval, and we'll be happy to talk about that.

[Operator]

Our next question comes from the line of Alex Bulk with Barclays.

[Unknown Analyst]

This is Alex on for Peter Lawson at Barclays. I just had a quick one on the USPI program. I was wondering if you had any comments on development from competing programs. We've had some discontinuations in the space and also some data at ASCO. Curious if any of these developments impact in any way your clinical development strategy with this asset?

[Michael Morrissey, executive]

Yes. Thanks for the question. Dana, do you want to cover that one?

[Dana Aftab, executive]

Sure. Yes. Thanks for the question, Alex. We obviously were very attentive to the data presented on the KSQ Roche molecule ASCO as well as to the discontinuation of the Tango molecule. So first of all, we remain extremely enthusiastic about 30. And -- it has a unique scaffold. It is a different compound than either the KSQ or the Tango molecule. And as we noted previously at the R&D Day event last December, we presented a lot of data showing how our molecule differentiates from the KSQ compound.

What was shown at ASCO was primarily -- with that compound was primarily a PK limitation. And that is exactly what we predicted from our preclinical data given their poor solubility and some other issues with their compounds. So we believe that our compound is differentiated from that in the preclinical data, and we're very eager to share the first clinical data when they're available. to hopefully show that we aren't in fact, differentiating from that compound. But we remain very enthusiastic about our compound to differentiate from anything that's been out there so far.

[Operator]

Our next question. Our next question comes from the line of Sudan Loganathan with Stephens.

[Unknown Analyst]

Congrats on the strong cabo quarter and all the pipeline progress. In regards to COSMIC-313, would that program kind of consider the last opportunity to really further tap into the first-line RCC population? And then is there a path to exceeding 50% to 60% market penetration by taking share away from with another strategy? And then what would be a marketing strategy here to kind of show growth in the near term for CABOMETYX in first-line RCC.

[Michael Morrissey, executive]

Yes, P.J., you want to take that one?

[P. Haley, executive]

Yes. Thanks for the question. I would say 3013, we certainly did a significant market research on it. we just didn't see a risk-benefit profile going forward that was really going to raise the bar relative to the current combinations, in particular, cabo nivo as I mentioned, the leading first-line I-O TKI combination now for 7 quarters, and our market share has continued to grow.

And in fact, as I mentioned in my prepared remarks, reached the highest point thus far in this quarter. So we're pleased about that. Our data resonates very well with customers, and our team is executing at a high level. So we're optimistic that we could potentially drive further market share growth there with Cabo [indiscernible]

[Operator]

Our next question comes from the line of Chris Shibutani with Goldman Sachs.

[Chris Shibutani, analyst]

Great appreciate the opportunity. There have been a lot of detailed questions about the pipeline. If I could just throw in 2 bigger picture questions. Broadly speaking, the pharmaceutical industry is going to be faced with the Inflation Reduction Act, IRA-related adaptations to commercial models and Medicare. Everyone is trying to understand the impact on 2025 from Medicare Part D redesign. And obviously, I believe you guys have the small company exemption. Can you just give us a sense for how you see Exelixis' exposure and impact including in 2025?

And then secondly, Michael, the Board has included several new faces over the last 18 months, which is healthy and good to see. Just curious to know in what way those new voices may have been shaping some of the strategies going forward. It certainly seems as if execution has been very consistent. But if you can provide us with any hints about this broadened board and directionally ways that, that is influencing your thinking strategically?

[Michael Morrissey, executive]

Chris, thanks for the questions. As you mentioned, we have been successful in securing in terms of small biotech exception in terms of price negotiations. So we've got that covered. And we're also, as you mentioned, been able to secure the small manufacturer phase-in on the Medicare Part D. So 25% should be relatively minor relative to the way that phase-in works for companies that qualify for the small manufacturer phase in.

So it's going to be a relatively small almost innocuous impact on our gross to net. But we'll get into that next year. I don't want to give guidance now, but we're certainly in that ballpark where we've got that coverage and kudos to our government affairs team and our legal team to help us get over the -- over [indiscernible] , all those issues as we've gone forward. In terms of the board, look, we are ecstatic about the Board, just been a great collaboration as we've always had with the Board relative to both strategic issues, operational issues, alignment issues around how we navigate with a pretty hard business in terms of doing the right science, being able to navigate a lot of really important issues on the commercial side, on the clinical side, making it through COVID and kind of coming out the back end as strong as possible.

So very, very strong board. We've always had a strong board. That continues to be the case. You're right, different faces, different voices, different perspectives are valuable to have. And I think everybody on the management team is really excited to be able to work with this Board very, very closely.

[Operator]

Thank you. At this time, there are no further questions. And so I would now like to turn the call back over to today's host, Susan Hubert. Ms. Hubert?

[Susan Hubbard, executive]

Yes. Thank you, Towanda, and thank you all for joining us today. We certainly welcome your follow-up calls with any additional questions you may have that we were unable to address during today's call. Thank you.

[Operator]

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.