Exelixis, Inc. Q3 FY2020 Earnings Call

Good day, ladies and gentlemen, and welcome to the Exelixis’ Third Quarter 2020 Financial Results Conference Call. My name is Holly, and I will be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please go ahead.

Thank you, Holly, and thank you all for joining us for the Exelixis’ third quarter 2020 financial results conference call. Joining me on today’s call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; Gisela Schwab, our Chief Medical Officer; Peter Lamb, our Chief Scientific Officer; and P.J. Haley, our Executive Vice President of Commercial, who will together review our corporate, financial, commercial, and development progress for the third quarter 2020 ended September 30, 2020. 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 costs associated with the discovery, product development, business development, and commercialization activity. And with that, I will turn the call over to Mike.

All right. Thank you, Susan, and thanks to everyone for joining us on the call today. Exelixis has continued to advance all components of our business in the third quarter as we built the foundation to accelerate revenue growth for cabozantinib in 2021 with potential new commercial opportunities and a variety of mission critical developments and regulatory milestones. Please see our press release that was issued an hour ago for our third quarter 2020 financial results and an extensive list of key corporate accomplishments. The highlight of the quarter was the ESMO presentation of the positive results from the CheckMate -9ER, the Phase 3 pivotal trial evaluating the cabo/nivo combination in first-line RCC. We’re excited to highlight the compelling activity of the cabo/nivo doublet, notably the significant improvement in overall survival with a doubling of both progression-free survival and objective response rate to extended duration of response, improved tolerability with low discontinuation rates, and improvements in health-related quality of life compared to sunitinib. The FDA has accepted our application and granted a prior review with the PDUFA date of February 20, 2021. The Exelixis commercial organization is launch-ready in the United States, should approval come sooner. Our urgency and focus are driven by consistent feedback that ESMO -9ER represents best-in-class IO, TKI data and is reinforced by recent market research, which indicates that a large number of previously untreated RCC patients could benefit from the combination of these two market-leading single agents. When the size of the first-line RCC patient population and long duration of PFS observed with the cabo/nivo doublet are viewed together, we project a potential doubling of cabo RCC revenues and expect to exit 2022 with a $1.5 billion annualized run rate in the U.S. if our assumptions and modeling are accurate. Our first-line RCC remains our top priority as the next commercial growth opportunity for cabozantinib. We continue to make important progress with key discovery and development activities while advancing cabo’s potential utility in additional oncology indications. Notable progress has been made in Q3 and throughout 2020, including enrolling the four cosmic trials, including 021, 311, 312, and 313, as well as initiating three new global Phase 3 pivotal trials of cabozantinib in combination with atezolizumab as part of the CONTACT clinical trial program. The success of CheckMate -9ER, coupled with data presented this year at various ASCO meetings for cabo/IO combinations in liver, prostate, lung, and bladder cancers highlights the important role cabozantinib can play as a unique and differentiated TKI backbone. These early signals of compelling efficacy and tolerability may provide potential encouraging read through for current pivotal trials in new indications. Finally, Exelixis continues to make significant progress in our growing early-stage pipeline. We are excited to advance XL092 into ICI combination cohorts and share the initial details of its discovery and early clinical pharmacokinetic characterization, which validates our overall efforts to build an improved next-gen multi-targeted TKI that phenocopies cabo’s target inhibition profile with a more user-friendly clinical half-life. We aim to apply our 15-plus years of clinical experience with cabo to a broad and accelerated development plan that has the potential to demonstrate a substantially improved risk profile compared to more typical early-stage programs. We anticipate XL092 will move into full development in 2021. Beyond XL092, our early-stage pipeline continues to advance nicely with internal discovery efforts in a number of important new collaborations to reinforce our growing presence in ADCs. We expect to file up to four new INDs over the next six months as a result of our internal efforts and the work of our discovery partners. I’m incredibly proud of the commitment and focus displayed by the entire Exelixis team as we continue to drive our business forward during these challenging times. So, with that, I’ll turn the call over to Chris, who will provide an update on our Q3 financial results.

Thanks, Mike. For the third quarter of 2020, the company reported total revenues of $231.1 million. Total revenues for the quarter included cabozantinib franchise net product revenues of $168.6 million. Net product revenues in the third quarter of 2020 were negatively impacted by lower demand and by a decline in wholesale inventory. Total revenues also included $62.5 million in collaboration revenues from Ipsen, Takeda, and Genentech. Our total operating expenses for the third quarter of 2020 were $273.7 million compared to $183.9 million in the second quarter of 2020. R&D expense was the primary driver of the increase in total operating expenses, which increased by approximately $61.8 million and was primarily related to increases in licensing and milestone fees associated with existing and new business development activities, stock-based compensation expense, and clinical trial expenses from our continuing investments in cabozantinib and our emerging pipeline. Provision for our benefit from income taxes for the third quarter of 2020 was the benefit of $6 million compared to a provision for income taxes of $13.9 million for the second quarter of 2020. The company reported a GAAP net loss of $32 million or $0.10 per share basic for the third quarter of 2020. The company also reported non-GAAP net income of $11.2 million or $0.04 per share on a fully diluted basis. Non-GAAP net income excludes the impact of approximately $43 million to stock-based compensation expense net of the related income tax effect. Cash and investments for the quarter ended September 30, 2020, was over $1.5 billion. Now, turning to our fiscal year 2020 financial guidance. We have updated the financial guidance we provided earlier this year to reflect the changes to our business in the second half of 2020. We are maintaining our total revenues guidance, which we expect to be in the range of $900 million and $950 million due to higher milestone and R&D reimbursement revenues. Net product revenues are expected to be in the range of $700 million and $725 million. Cost of goods sold is expected to be approximately 5% of net product revenues. Research and development expenses are increasing due primarily to higher forecasted licensing expenses and are expected to be in the range of $550 million and $575 million, which includes non-cash expenses related to stock-based compensation of approximately $40 million. Selling, general, and administrative expenses are increasing due primarily to incremental personnel related costs and are expected to be in the range of $290 million and $300 million, which includes non-cash expenses related to stock-based compensation approximately $70 million. Guidance for the effective tax rate in 2020 is decreasing; it is now expected to be in the range of 14% and 16%. And finally, we’re projecting cash and investments to be in the range of $1.5 billion and $1.6 billion. This guidance does not include the impact of potential new business development activities. And with that, I’ll turn the call over to Peter.

Thanks, Chris. I’m happy to provide an update on our preclinical development and pipeline expansion efforts. Work at our discovery laboratories in Alameda is continuing following stringent protocols to protect the health of our employees. It is exciting to see the ongoing flow of data, and we’re continuing to make progress on an early stage discovery program, and I’d like to take this opportunity to thank all of our discovery team members for making this happen. Work at our discovery partners, particularly Invenra, Aurigene, and Iconic, has continued to advance as has preclinical development work at our network of CROs. As a result, we now have the opportunity to file up to four INDs in the next six months. This quarter, we could file INDs for the CDK7 inhibitor, AUR102 from our Aurigene collaboration, which going forward, we will refer to as XL102; and the tissue factor-targeting ADC ICON-2 from our Iconic collaboration, which we will refer to as XB002 going forward. Early next year, we could also file INDs for XL265, a TAM kinase-focused TKI from our internal laboratories and a second compound from our Aurigene collaboration with a novel mechanism of action. We recently presented data on XL092, our next-generation MET, VEGFR, AXL, MER inhibitor that is currently in Phase 1 trials at the recent EORTC-NCI-AACR meetings. In addition, Aurigene presented data on XL102, the CDK7 inhibitor at the same meeting, and Iconic presented data on XB002, the tissue factor-targeting ADC at the recent World ADC Conference. We plan to present data on XL265 and the second Aurigene compound at major scientific meetings next year. I will recap some of the key data from the XL092 presentation. XL092 is intended to build on the in-depth understanding that we’ve gained with respect to the clinical activity of cabozantinib, both as a single agent and in combination. Cabozantinib is a potent inhibitor of the RTKs, MET, VEGFR2, AXL, and MER, which are widely expressed on tumor cells and on cells in the tumor microenvironment. Both MER and AXL are overexpressed in a variety of solid tumors and their activation drives tumor growth, survival invasion, and metastasis. In particular, upregulation of MET and increasingly AXL has been linked to resistance to multiple therapeutic interventions, including chemotherapy, targeted therapy, and the angiogenic therapy, radiation and immune checkpoint blockade. Both MET and VEGFR2 are also expressed in the tumor endothelium and their activation promotes tumor angiogenesis. All four RTKs are expressed in various immune cell types in the tumor microenvironment and activation from multi-immune suppression. For example, activation of AXL and MER on tumor-associated macrophages promotes immune suppressive M2 macrophage phenotype. Activation of VEGFR2 promotes Treg and MDSC proliferation while MET activation inhibits antigen presentation by dendritic cells. Upregulation and activation of MET in a suppressive subset of neutrophils also occurs in response to immune checkpoint blockade in a preclinical model and install to drive resistance. Cabozantinib assumes promising activity in combination with PD-1 or PD-L1 antibodies in Phase 1b and Phase 3 clinical trials. In the clinics, cabozantinib has a terminal half-life of about 99 hours, which results in initial drug accumulation and an extended washout period when drug is withdrawn. The arrangement optimizing XL092 was to identify a compound with a similar target inhibition profile to cabozantinib, but with a shorter clinical half-life. The in vitro profile of XL092 shows that it’s a potent inhibitor of MET, VEGFR2, AXL, and MER in biochemical and cellular assays with the relative activities comparable to cabozantinib. Oral dosing of XL092 to tumor-bearing mice results in profound inhibition of MET and AXL activity in tumors and VEGFR2 activity in lung tissue consistent with its in vitro profile. XL092 is highly active but well-tolerated in multiple xenograft models with activity that's comparable to cabozantinib. XL092 has been tested in the CT26 mirroring syngeneic colon carcinoma model as a single agent and in combination with a PD-1 antibody. This model is relatively refractory to PD-1 antibodies, and a PD-1 antibody alone did not improve the survival of mice compared to vehicle. In contrast, the single agent XL092 significantly improved survival, notably the combination of XL092 and PD-1 antibody resulted in a further improvement in survival, suggesting synergistic activity for the combination. All treatments were well tolerated. XL092 can be in a Phase 1 trial in patients with advanced solid tumors over four cohorts and two formulations that depend on increases in Cmax and AUC revenues. The terminal half-life for XL092 is between 20 hours and 28 hours, significantly shorter than the 99-hour terminal half-life for cabozantinib. Overall, the data show that XL092 meets the goal of maintaining the cabozantinib target inhibition profile while having a significantly shorter clinical pharmacokinetic half-life. We’ve had a very busy quarter from the business development perspective and are advancing a number of discussions. We continue to assess opportunities in both the small molecule and biologic space, which we find scientifically compelling and when we see a clear path forward for us to effectively develop and commercialize with an emphasis on clinical – on clinical-stage programs. We recently announced new collaborations with Redwood, Catalent, and NBE-Therapeutics to develop novel ADCs using their respective site-specific conjugation and payload technologies. Through these collaborations, we intend to develop a pipeline of ADCs to address a broad spectrum of tumor types by targeting selected tumor antigens, specifically matched with the most appropriate payloads for a given indication. These would follow on from what would be our first ADC to reach the clinic, XB002. That’s the subject of our collaboration with Iconic, until which IND filing could occur in the near future. We look forward to providing additional updates on these BD discussions as they come to fruition. I’ll now turn the call over to Gisela.

Thank you, Peter. I’m pleased to provide an update on our cabozantinib regulatory and development program progress on XL092 and new compounds moving towards IND. I’ll start with CheckMate -9ER. We’ve made a lot of progress since the positive top-line results were announced for cabozantinib and nivolumab combination in first-line RCC in late April by BMS and Exelixis. As you recall, the study demonstrated a significant benefit over the comparator, sunitinib for all three efficacy endpoints, including a significant improvement in overall survival with a 40% reduction in the risk of death and a doubling of PFS and objective response rate compared to sunitinib. Additionally, the combination of cabozantinib at 40 milligrams daily and nivolumab was generally well-tolerated and associated with a low discontinuation rate while maintaining improved quality of life compared to sunitinib. Detailed results of the study were presented by Dr. Toni Choueiri at the recent virtual ESMO Conference in the Presidential symposium and favorably discussed by Dr. Camilla Parker. On the basis of the results from the trial, we’ve made great regulatory progress together with BMS and our partners Ipsen and Takeda. We have completed the supplemental NDA filing concurrently with BMS’s supplemental BLA filing in the United States in August and the FDA has recently accepted the submissions for priority review and signed a PDUFA date of the 20th of February 2021. Concurrently with the United States submission, BMS and Ipsen have also completed the submission in Europe to the EMA and the filing was validated on September 12, 2020. Further international filings have also been accomplished, including Switzerland, Australia, Canada, and Brazil, with many more to follow in short order. And also just a few days ago, our partner Takeda together with Ono Pharmaceuticals, has announced the submission of concurrent sNDAs for the combination of cabozantinib and nivolumab for advanced RCC in Japan. Besides the progress on CheckMate -9ER, the ongoing Phase 3 program for cabozantinib continues to make rapid progress. We have continued our efficient execution of the COSMIC-021, COSMIC-311, COSMIC-312, and COSMIC-313 studies, where these have either completed or are nearing full enrollment on a global level. And we are on track for top-line results for these trials as previously shared. Importantly, we have also been able to start up the three Phase 3 trials under the CONTACT Phase 3 program in collaboration with Roche, and all three studies are now screening and enrolling patients globally. Looking back on this quarter, I’m thrilled with the progress of the cabozantinib program and the level of execution by both our teams and clinical regulatory teams, who together have been able to make significant progress despite the challenging times and conditions around the world, due to the global pandemic. I’ll now turn to the progress on our XL092 program and our new IND projects. As Peter described in detail, XL092 is our next-generation MET, AXL, MER, and VEGFR tyrosine kinase inhibitor that has been designed with a similar target profile to cabozantinib but with a shorter pharmacokinetic half-life. This is expected to allow for rapid and flexible management of tolerability while maintaining the efficacy profile associated with potent inhibition of key targets in the cabozantinib profile. Our ongoing Phase 1 study has already confirmed that the goal of designing a molecule with a shorter pharmacokinetic half-life has been accomplished, and we’ve recently begun the evaluation of the combination with atezolizumab in a parallel Phase 1b part of the study while completing single-agent dosing. We are also in the late stages of planning a broad and comprehensive development program for XL092 across various tumor indications, lines of therapy, and settings of interest and intend to pursue the comprehensive evaluation of XL092 in combination with various established checkpoint inhibitors and potential new combinations, including promising new checkpoint inhibitor duplets as well as other combination partners of interest. We have a deep and solid foundation in TKIs and extensive experience with cabozantinib, and see many opportunities to build on and expand the therapeutic settings as we planned for potential tumor indications and lines of therapy for XL092 combinations, including first-to-market strategies for high unmet need indications with the potential for accelerated development. Second, moving beyond cabo’s strategies and building our clinical experience in tumors, that cabozantinib is approved or being developed with the goal of developing new standards of care with novel and expanded combinations. Third, expanding the TKI footprint, they’re investigating new indications in the IO white space, where XL092 can potentially improve outcomes through cooperative activity with immuno-oncology compounds. Finally, exploring new opportunities and approaches in treatment settings that might be accessible to XL092 with potentially improved tolerability due to its shorter half-life. With the goal to potentially start late-stage trials as soon as 2021, we are focusing on advancing Phase 1b dose-ranging in combination with checkpoint inhibitors rapidly to move into expansion cohorts that may support data-driven late-stage development options across a variety of tumor types. Based on our 15 years of experience and clinical success with cabozantinib, we are highly confident that the RTK inhibition profile of XL092 should also have broad utility and the shorter half-life for the chemically distinct molecule; it’s likely to offer potential advantages and differentiation as well. This experience in understanding drives our excitement and enthusiasm around XL092, and we ultimately view the development risk profile as potentially being greatly improved versus more typical early-stage programs. I’ll close with a brief word regarding our IND candidates. We are working towards IND filing before the end of the year for XL102 and the CDK7 inhibitor that has been discovered by our partner Aurigene, as well as for XB002 or ICON-2, a first biologic product candidate, an ADC that has been discovered by Iconic. Additional IND candidates are also making good progress and will reach IND filing in the next few months. And with that, I’ll hand the call over to P.J.

Thank you, Gisela. I’m pleased to discuss the CABOMETYX business as we head into 2021, which will be a transformative year for the brand as we anticipate our first potential combination approval in first-line kidney cancer and subsequently, further combination data presentations for CABOMETYX. The strong -9ER data positioned CABOMETYX to return the franchise to significant revenue growth. The momentum built with the launch could further be driven by additional data readouts and other important indications as the robust cabozantinib development program continues to generate data. I will discuss the opportunity that -9ER provides Exelixis. Looking forward, as we continue to build upon the foundation in RCC, where we remain the number one prescribed single-agent TKI. We are pleased that CABOMETYX market share remained stable in Q3 in our key segments, in both RCC and HCC. According to brand impact from IQVIA, CABOMETYX TRx share was stable at 31% in Q3 relative to 30% in Q2. While at the same time, TRx volume of the RCC oral TKI market basket of CABOMETYX, INLYTA, SUTENT, and VOTRIENT declined by approximately 6% in Q3 relative to Q2, CABOMETYX TRx volume declined by 3% in Q3 relative to Q2. As I mentioned, our focus is squarely on the future growth of the cabozantinib franchise, and we are excited by the recent outcome and presentation of the CheckMate -9ER study. We believe that these results, pending regulatory approval, may provide us with the opportunity to grow CABOMETYX market share and increase duration of therapy in the first line. The -9ER data in a presidential session was among the most high-profile presentations at the 2020 ESMO conference, and the data were extremely well-received by the KOLs and in the market research we’ve conducted. The ICI combination opportunity is large with 15,000 RCC patients in the U.S. eligible in the first-line setting, with ICI combination therapy consisting of approximately 80% of that market. According to this brand impact data, ICI-TKI combinations constitute 50% of the first-line market and are widely used across clinical risk groups demonstrating the broad potential for CABOMETYX with nivo in the first-line setting. Additionally, ICI combinations constitute approximately 20% of the second-line RCC market. CABOMETYX was approved in RCC over four years ago. During this time, it has developed very strong brand equity and is viewed as the best-in-class TKI in RCC. The Exelixis team has significant experience in RCC with two prior successful launches, and we look forward to the opportunity to educate physicians on the -9ER data post-approval, so that more patients have the opportunity to benefit from CABOMETYX therapy in the first-line setting. The strength of the -9ER data speaks for itself: a doubling of median progression-free survival and ORR and superior overall survival versus sunitinib, which provides us with strong differentiation versus the other IO combination therapies currently available. Importantly, clinical benefits were observed in the vast majority of patients in the trial, resulting in a low rate of primary progression, regardless of IMDC risk status or patient subtype supporting broad use in the marketplace. In addition, the optimized combo starting dose of 40 milligrams daily yielded a compelling safety and tolerability profile along with a low treatment discontinuation rate and favorable quality of life, all of which has been notable with physicians in our research. Taken together, the combination of a best-in-class TKI like CABOMETYX with a well-established immune checkpoint inhibitor, like nivolumab in RCC, along with the strong efficacy and safety data from CheckMate -9ER present the opportunity to share a compelling and highly motivating story with our customers and enable broad positioning across clinical risk groups in first-line RCC. Feedback on the CheckMate -9ER data with both academic and community oncologists has been extremely positive, and we believe we can leverage the success and prescriber familiarity of both CABOMETYX and nivolumab to gain traction quickly in the combination setting when approved. Our team is laser-focused on launch preparation as we stand ready to engage our customers in both live and virtual settings as appropriate as soon as FDA approval is granted. At the same time as we launch CABOMETYX in combination in the first line, there will continue to be patients progressing from ICI-based therapy into the second line that will be eligible for CABOMETYX monotherapy. We continue to capture a very high percentage of that patient population and believe CABOMETYX may grow in the second-line setting as well. There’s a great deal to be excited about as we think about the totality of the CABOMETYX RCC business looking forward. The -9ER data positions cabo/nivo to take significant market share in the first-line setting and provides insights into the potential duration of therapy for CABOMETYX in combination. The median progression-free survival per investigator was over 19 months, and the median duration of response was over 20 months in the study, pointing to the potential for the duration of therapy to be significantly longer than CABOMETYX monotherapy. Taken together, the increase in first-line market share and duration, along with the potential growth in second-line, positions the CABOMETYX RCC business to vector towards a run rate of $1.5 billion in U.S. revenue by the end of 2022. This projection is of course, contingent upon our modeling and assumptions, which include a total of five ICI combinations in the marketplace. Furthermore, this does not include any potential incremental revenue from COSMIC-313, the triplet of cabo/nivo/ipi or any other new CABOMETYX data readouts. Beyond -9ER, we are very excited by the cabozantinib development program as it moves forward broadly across multiple indications with different combination partners. We look forward to building on this momentum in RCC, HCC, DTC, and other potential future indications, such as prostate and lung as our development program evaluating cabozantinib in combination with immune checkpoint inhibitors advances. Our team remains highly focused and motivated to compete every day to bring the benefit of CABOMETYX to all eligible patients, as we continue to build the franchise and maximize its clinical and commercial potential. And with that, I’ll turn the call back over to Mike.

All right. Thanks, P.J. As we outlined at JPMorgan in January, 2020 is a transitional year for Exelixis as we navigate important readouts from ongoing pivotal trials, like -9ER, and advance our pipeline with CABOMETYX lifecycle management activities and new indications and combinations, while at the same time, building a diversified portfolio of assets. To date, 2020 has been a year of significant achievement and progress across all components of our business in the face of the COVID-19 pandemic. Unfortunately, we continue to acknowledge the potential risk to our business, should the pandemic continue to grow in severity as we’ve all sadly seen over the last several months. I’ll close by reiterating the three key themes from today’s call. First, we expect 2021 to be a transformational year for Exelixis and the CABOMETYX franchise as we project a -9ER approval to accelerate revenue growth for cabozantinib. Based on the size of the first-line RCC market and long duration of PFS in -9ER, we expect to exit 2022 with a $1.5 billion annualized run rate for RCC in the U.S. if our modeling is accurate. Second, we’re encouraged by XL092 as a next-gen multitalented VEGFR, MET, AXL, MER inhibitor with a more user-friendly clinical half-life and the significant opportunity it represents to broadly expand into new and existing solid tumor indications with a variety of IO backbones and combination strategies. Third, we are aggressively advancing and investigating the diverse portfolio of next-generation Exelixis cancer medicines, including both small molecule and biological modalities to increase our potential success in helping even more cancer patients with difficult-to-treat tumors. I’ll close by thanking everyone at Exelixis for their efforts in the third quarter under conditions that appear to get more and more challenging each quarter. The majority of our team has been working from home for more than seven months now, and continues to meet the demands of our business with great teamwork, expertise, and energy. I’m incredibly proud to say that the entire Exelixis team continues to work as one and making every day count as we discover, develop, and commercialize the next generation of our medicines for cancer patients in need of better and more effective therapies. We look forward to updating you on our progress in the future. Thank you for your continued support and interest in Exelixis, and we’re happy to now open the call for questions.

Thank you. Our first question will come from Asthika Goonewardene with Truist.

Hi, guys. Thanks for taking my questions, and then showed a nice quarter again. A few if I may, Peter, can you maybe tell us a little bit about what mechanisms of actions besides PD-1 and CTLA-4 make sense to you? I’m just wondering if you think about new negatives, vaccines, and those kinds of mechanisms as well. Gisela, totally understand that you have a lot of opportunity to accelerate development of XL092, and we’re quite excited to see what you guys do there. But maybe, I was wondering, for those of us on the outside, when would we get maybe, a first glimpse of that single-agent PD-1 combo data from the dose expansion? And then Mike, I have to ask, you mentioned $1.5 billion in cash. That’s a nice chunk that you have to how you think about business development activity for 2021? And maybe, to color that further, is it still going to be more licensing deal focused or would acquisitions could be an underplay would be helpful. Thanks a lot, guys.

All right, Asthika, there’s a lot there. Why don’t we start with Gisela and Peter on XL092? Gisela, you want to start there?

Sure, absolutely. Thank you for the question. And the question was around when do we get a first look on the phase 1 data. Peter referred to a little bit of the pharmacokinetic data that was included in the recent presentation and showed already that the molecule is behaving as hoped for when it was designed. And that it has shown a shorter half-life of about 24 hours or so. And regarding further data, we’ll present data, certainly, when we have mature data, and just know that we are hoping to start late-stage studies in 2021. And of course, we see the data before we even get to presenting or publishing it. And so we can make decisions certainly a little bit earlier and as you – as we do, you’ll see us move forward in that direction.

Yes. I mean, just to take your question on the kinds of IO modalities that might be good to combine XL092 with. I mean, I think I’ll be with – there’s a broad opportunity there beyond the oldest, PD-1, PDL-1, CTLA-4 as you have commented, in which we already have clinical proof of concept essentially from cabozantinib. Obviously, we’ll continue to look at the development of additional IO agents, be they novel checkpoint inhibitors or cytokines, and all of which could, could end up being appropriate combination partners, even a double, or potentially even triplets with XL092 depending upon the indication on the savings.

Okay, great. Thank you, Peter. Thanks, Gisela. Asthika, on the BD side, as we said previously, we’re very focused on using business development activities to expand our pipeline of either clinical and/or preclinical compounds that we’re pursuing. We certainly did a number of deals to announce this quarter with NBE and Catalent’s on the ADC side. We have a whole roster, a line-up of potential deals kind of coming down the pipe when those get done. If those get done, we’ll talk about those in more detail. Obviously, we have, I think, a pretty good feeling for the kind of activity we’re looking for. The obvious importance of if possible, combining with the – with 092 as we go forward as well. So, there’s lots of opportunity, and it’s a full team effort here in terms of how we’re focused to make sure that we make the right investments for the right assets at the right time for the right value, right. So – but we are very excited about the recent additions to our network of collaborators that we have and looking forward to getting those collaborations going and really tracking at full speed.

Great. Thanks a lot, guys.

Thank you. Our next question is going to come from the line of Jason Gerberry with Bank of America.

Hi. Good afternoon. Good evening, everyone. This is Chi on for Jason. Thanks for taking our questions. I guess maybe, first one for me is that, you talk about ICI combo’ed in renal, talk about that there’s about 20% of the patients, who use the ICI combo? The curious, do you have a split between IO/IO versus IO/TKI 20% and were these patients, did they receive TKI monotherapy or were the IO retreatment, where say they may have received an IO/TKI in frontline and next is to an IO/IO in second line?

Yes. Hi, Chi. Thanks for the question. This is P.J. I’ll take that. So, as I mentioned, we think of the -9ER opportunities as very large and broad. And per your question, looking at the current sort of market share of IO combinations, in RCC, the 20% is in second line. So, what we see, and this is all according to brand impact, there’s IQVIA data in first-line IO combinations account for about 80% of the market, right. That’s a larger place, and that’s the – a large population, and that’s the setting, in which the -9ER study is done. So, we would anticipate really taking that first-line setting. Of the 80%, about 50% of the market is IO/TKI. The 20% I was referring to is second-line uptake of IO combinations, and that’s kind of a mix of IO/TKI and IO/IO. This is again, according to brand impact. And you really see those coming after just a variety of first-line agents. There’s no real strong pattern there. But I think what excites us about certainly, the -9ER data and the market research we’ve done with quite a large number of physicians up to this point is that the feedback on the data is very positive. As I mentioned with regards to the safety and tolerability, the efficacy data, quality of life data, and we think we’ll have a significant opportunity particularly in that first-line setting there and think we can really drive a lot of market share. And as I mentioned also the duration of therapy aspect will be really significant for the business. When we look at 19 months of PFS by investigator, 20 months’ duration of response in the -9ER study. So, we believe that that duration of therapy will be long, certainly much longer than what we see in CABOMETYX monotherapy.

Awesome. I guess, going back to the front line, it seems to be like IO/TKI keep pushing up a bit by bit every other quarter or so. Do you see there’s an opportunity for IO/TKI to expand further with the potential approval of -9ER? And we’re right now added at 40%, 50%. Where do you see that potentially can reach, waiting to see the potential filling for IO/TKI assignment in the frontline setting?

Yes. Yes, great question, Chi. And as I mentioned, we kind of see that potential broadly. So, the 50% IO/TKI, we certainly view as our profile being best-in-class and that’s the feedback we’re getting and being very competitive there. So, we think we can take share in that segment. We certainly believe we can take share in the other segments, a lot broadly in the IO/IO segment as well as the 20% that are TKI monotherapy, because certainly, this is compelling data. And as we have the opportunity to educate physicians on it, we think we could expand the market and really steal share from all of those segments to benefit patients.

Awesome. I guess maybe, a last one from me is that if you guys can provide any color on your progress on your second-line and your prostate cohorts in COSMIC-021, and when can we potentially expect next data update for these two particular indications. Thank you.

Gisela, do you want to take that one?

Absolutely. Thank you. Thanks for the question, and happy to address that for CRPC and for non-small cell lung cancer indication. We have presented data early in the year, I’d ask, would you, and also at ASCO for the non-small cell lung cancer indication in both encouraging activity for the cabozantinib and atezolizumab combination, showing response rates for CRPC are 32% with a long duration and a disease control rate of 80%. Likewise, for the lung cohort, we saw a 27% response rate and disease control rate there as well. These cohorts, cohort 6 and cohort 7 have now fully evolved in COSMIC-021 and are following up patients to fully understand mature data in both of these populations. Additionally, of course, we are planning towards a potential accelerated approval path in particular toward the CRPC indication, where we had initial interactions with the FDA, and that will be dependent upon cohort 6 data when it’s mature, but also additional cohorts in CRPC in the 021 study. So, certainly, following up these cohorts, and we look forward to providing updates as they become available for both indications and just to complete on the non-small cell lung cancer cohort and the checkpoint inhibitor, pretreated patient population. We are also completing enrollment with 80 patients and the other single-agent cohort in this study as well. So, this has advanced very nicely, and we look forward to more mature data.

And maybe, just one quick follow-up from me. When you said, you had initial interaction with the FDA on the prostate cohort 6 data. When did that interaction happen?

We have discussed that on various conference calls, so that happened a while back when we discussed the initial encouraging observations in cohort 6 based upon the first 30 patients or so, where we’ve seen very encouraging results in terms of objective response rates.

Got it. Thank you.

Thanks, Chi.

And our next question is going to come from the line of Peter Lawson with Barclays.

Hey, thanks for taking my questions. Just on revenues, just if you could break out anything around that low demand, whether it came from academia or the community setting, and what inventory was this quarter?

Yes, this is P.J. We’ll just do with regards to the quarter in demand, what we saw there, I kind of referred to in the script is the entire market basket of TKIs and RCC were down approximately 6%. And really, I think that’s a broad dynamic there in the market, and we didn’t really see any differences with regards to academic or community there. Certainly, some impacts still from COVID with regards to what we’re seeing in the healthcare system, patient visits being down, various follow-ups, et cetera. So, I think that’s something we saw broadly with regards to the market, and certainly also saw it in the products reporting earnings as well.

Yes, Peter, this is Chris. So, from a reporting perspective, we reported revenue down quarter-over-quarter about – sequential quarter about $10 million. About half of that was related to demand, which kind of correlates with what P.J. was talking about. And this is for cabozantinib franchise, and then of the remaining $5 million probably about three or so is related to inventory and the rest is related to a slightly higher gross to net.

Great. Thank you. And then just as we think about Q4, what helps drive acceleration run those revenues, and then any color around kind of what could be happening in October?

Yes, Peter, it’s Mike. And probably not appropriate to talk about the quarter this early. Obviously, the biggest driver for revenue growth is that -9ER approval and launch, as we talked about in the script. So, we’re ready to roll once we get the letter and/or certainly excited about the data and the potential, and the team is certainly very skilled and prepared to get out there and educate physicians and prescribers on the data. But that’s the big driver, and that’s the big message for the call today.

Great. And then I just find anything around HCC, any sense around growth, if that was declining as well.

Yes.

Hi, Peter. It’s P.J. again. One thing we’ll say is that basically the HCC businesses were stable in Q3. More broadly as we look forward, in HCC, we’re obviously looking forward to the 312 study reading out in combination in the first-line setting with atezo in HCC. And what we’ve seen is bev/atezo approval in Q2 has really driven significant, quick uptake for that regimen and personally, in HCC. And that bodes well potentially for another combination such as cabo/atezo should the data be positive, and also it’s moving IO therapy into the first line in HCC. So, as we kind of look longer-term, we would anticipate a similar dynamic to what we’ve seen in RCC, whereas IO moves forward and then that sort of 50% or so of the market that they occupied in second line kind of opens up for more TKI utilization. We think the CABOMETYX data in our current label from the celestial study in HCC in second line is well positioned to then take more of that share in the second line as patients progress beyond IO therapy in HCC.

Great. Thanks so much for the detail.

You bet, Peter. Thank you.

And our next question will come from the line of Andy Hsieh with William Blair.

Thank you for taking my question, and I hope everyone at Exelixis is doing well. I have a question about the data presented at the recent meeting. It seems that there are more similarities than differences, except for the significantly higher potency against certain targets. My first question is for Peter or Gisela: what is the clinical significance of your decision to optimize that specific target? Additionally, Gisela, could you provide insight into the development strategy for asset 092? Given the similarities in the data, how much can you anticipate regarding the progress of COSMIC-021 and how it might accelerate the development of 092, especially since you are considering moving that asset into late-stage development next year?

Yes.

We feel so, Andy. Thanks for the questions and endeavor. So, I think if you’ve got the message from the presentation of the triple meeting was the aim with 092 was to retain the target profile of cabo, so potent against MET, AXL, and MER and potent against VEGFR2. There was one slight wrinkle there where with cabo and the VEGFR2 potencies is more potent against that the max and that feature we pretty much retained in XL092. I think that plays out quite nicely in the in vivo setting as well. I think we didn’t specifically optimize on AXL potency. We wanted to be sure it was potent enough. And, as you correctly say, it turned out being a bit more potent. I mean, it’s definitely an emerging target of interest in many solid tumors and a lot of indications we may go into, but that was not a primary driver of the optimization. It was really retaining that target profile whilst giving them something that have a significantly shorter pharmacokinetic offline.

Okay. And Gisela, do you want to take the second part of the question?

Thank you. Thanks for the question. So, the question was around the development path and what can we learn or have we learned from COSMIC-021 and what can be applied for 092, and how can we drive things forward? I think this is a key question; of course, XL092, as Peter as described, is a differentiated product and the profile suggests that it has a shorter half-life, and while retaining the target inhibition profile that we’ve learned to love with cabozantinib and we’ve seen very encouraging activity within. So, with that, certainly, we have lots of experience with cabozantinib as a single agent and combination. And so everything that we’ve learned in the 021, but also in other clinical experience with cabozantinib is coming to bear in some way that we can build on when we think about the development costs for XL092 while we’re not looking to replace cabozantinib, we are rather viewing this as the development cost with the opportunity to build upon that experience in broadly expand opportunities into indications outside the current and near-term specific indications that comprised the existing cabozantinib footprint, also including combination partners line of therapy in tumor indication. I think we certainly see a lot of opportunities for XL092’s project development plan with various combination partners and in different lines of therapy, but also across an array of different indications. That may include some of the cabozantinib indications, but again, we’re not looking to replace cabozantinib and are looking to do head-to-head study.

Great. Thank you. And maybe, one more for P.J., going back to the kind of dynamic COVID-19 impact with the TKI market, I’m just wondering if you’re seeing any inflection points and maybe your thoughts on when that is going to stabilize, would it be with like a vaccine be necessary to kind of see that or are you anticipating some sort of stabilization going in the near term?

Yes. Thanks for the question, Andy. I wouldn’t want to speculate too much specifically on the RCC, TKI market vis-à-vis COVID. I think anecdotally customer feedback, you do hear that things are starting to get back to normal depending on the geography, the location, telehealth, etc., but I think when you do look at data, that’s been put out there, published from folks like the community, for the Community Oncology Association, you see that these things have impacts of screening, just follow-up things that may influence the patients’ journey. So those, I think just take a little bit of time, and this is broadly for oncology to kind of work through the system. Obviously, you can’t really, there’s no crystal ball for anyone with regards to the pandemic. I think the system just working through that, but I wouldn’t want to speculate too much looking forward, but I think what’s important for us, as kind of Mike mentioned, we mentioned in the call is that we’re very excited about -9ER with regards to getting that approval and then being ready to go with the launch and really driving growth in the business forward for CABOMETYX with that approval.

Right. Yes, absolutely, yes. Looking forward to that approval. Thanks for all the insights and answering all my questions.

You bet, Andy.

And our next question will come from the line of Yaron Werber with Cowen.

Hi, everyone. This is Leo on for Yaron Werber. Thanks for taking my questions. I have a couple of questions; first is regarding the CABOMETYX. You guys mentioned about the market trend for TKI. I’m just wondering if you see any specific trends or differences in terms of different market segments such as maybe, the second-line RCC versus the first-line RCC. And within first-line RCC, are you just seeing any different trends in the different risk categories in terms of favorable risk versus poor risk? I’m just wondering how the potential approval of -9ER in the first quarter next year or the potential data from COSMIC-313 would kind of reverse that trend, and I have a follow-up question for 092. Thanks.

Yes. Hi, Leo, it’s P.J. I’ll take that first question. So, as I mentioned broadly, we’ve kind of presented the TKI trends, and what they were. But what I would say is, when you look at the market for RCC, you see significant utilization of combinations in the frontline setting. Approximately, 80% of the frontline setting is combination therapy, in terms of IO and something else; and 50% of that is IO/TKI. So, I think significant opportunities for -9ER looking forward, pending an approval. And as I kind of mentioned, we see -9ER competing across clinical risk groups, which is what we see the current IO/TKI therapy doing now, it’s getting share in favorable, intermediate, and poor risk, and we see -9ER potentially competing across all of those well – as well as across all competitors. With regards to the second line, we see CABOMETYX retaining our market share kind of across segments, certainly in the second line currently our key segment there, and have the potential for growth. We really get the vast majority of patients, who are progressing from an IO-based therapy in the second line. So again, could see potential growth there as we look forward. So, I think we’re looking at just the potential to grow broadly pending the approval of -9ER, which we’re extremely excited about.

Okay, thanks. So, in terms of the first-line RCC dynamics, are you seeing more of like a decreasing trend of the use of IO/IO versus IO/TKI? Or it’s still maintained as the same?

Yes. I mean we’ve got, if you look at one of the slides, we’ve got that broken out in a bar chart for you. So, we see about 50% of the first line as IO/TKI currently. And I would say that’s either maintaining or slightly been increasing is what we’ve seen over the last couple of quarters. So, I think that shows that IO/TKI is really resonating broadly in the marketplace. So, I think there’s the opportunity to really build on that momentum with CABOMETYX in a potential -9ER approval.

I see. Thanks. So, regarding the 092, I’m just wondering if you identify any potential indications that will allow you to go through the accelerated directory path?

Yes. This is Gisela. Thanks for the question. I think this will be entirely data-dependent, and at this point, it’s a little bit early to speculate at this point. So, in the Phase 1 study, we have incorporated expansion cohorts in specific indications, and as we learn more about the compounds, we’ll certainly examine the data and then make data-driven decisions.

Hi everyone. This is Charlie Ferranti on for Paul. Thanks so much for taking our questions. I just had a quick question on the XL092 Phase 1 study. I noticed that previously there was a cohort designated for non-small cell lung cancer, and that cohort appears to have been edited to drop that indication at this point. And so, I’m just wondering, has your thinking evolved somehow on this indication in terms of how you want to maybe approach it using XL092, because I see that on Slide, I think 30 of the presentation NSCLC is still listed as a potential target. So, just wondering how you’re thinking about lung at this point? Thank you very much.

Absolutely. Lung cancer is certainly still an interest and as a potential indication and various different fittings, and as we go forward and as we develop a variety of combination approaches containing XL092 as a backbone, we are certainly including lung cancer in our thought process and in our plans.

Thank you. I’ll now turn the conference over to Susan Hubbard for closing comments.

Great. Thank you, Holly. 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 not able to address on today’s call.