Exelixis, Inc. Q2 FY2021 Earnings Call

Good day, ladies and gentlemen, and welcome to Exelixis Second Quarter 2021 Financial Results Conference Call. My name is Franzie 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, proceed.

Thank you, Franzie, and thank you all for joining us for the Exelixis second quarter 2021 financial results conference call. Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; and P.J. Haley, our Executive Vice President of Commercial, who will together review our progress for the second quarter 2021 ended June 30, 2021. Peter Lamb our Chief Scientific Officer is also here and will join us for the question-and-answer session following our prepared remarks. 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.

All right. Thank you, Susan, and thanks to everyone for joining us on the call today. Exelixis had a strong second quarter across all segments of our business, as we grew the CABOMETYX franchise and advanced our pipeline of promising early-stage programs. The company posted record cabozantinib franchise net product revenue and total revenue in Q2, based on strong demand for the CABOMETYX nivolumab combination across all segments of the first-line RCC market. Syndicated market research highlights that the cabo/nivo doublet plays a leading role in first-line RCC and reflects the strength of the efficacy, tolerability and quality of life data from the CheckMate 9ER trial. We maintained significant momentum with a 59% year-over-year growth in Cabo net product revenue in the second quarter of 2021 compared to the same period in 2020. Our goal remains to exit 2022 with a $1.5 billion annualized run rate for RCC in the US. Exelixis also advanced key 2021 discovery, development and regulatory activities in the second quarter. We reported top line results for the cabo/atezo doublet in first-line HCC from COSMIC-312 and in metastatic CRPC from COSMIC-021 cohort 6. And we'll update you on regulatory feedback and details for upcoming presentations for these two trials in due course. We plan to file new sNDAs for Cabo in these indications, pending positive regulatory feedback, along with the submission of COSMIC-311 in DTC, which was accepted for priority review with the PDUFA date of December 4, 2021. The full portfolio of late-stage COSMIC and CONTACT trials with cabozantinib ICI combinations continues to move forward according to plan. Our early clinical pipeline is advancing with significant progress in the XL092 program, the XL102 Phase 1 trial, and the initiation of clinical work with XB002 our first biologic to enter the clinic. The Exelixis discovery and preclinical teams continue to optimize and characterize new development candidates for both small molecule and ADC programs, which we believe will provide the foundation for new clinical candidates in the near future. Finally, we view success by the number of patients that derive benefit from the drugs that we discover, develop and ultimately get approval to market. We currently estimate that more than 20,000 patients are treated quarterly with cabozantinib on a global basis. While we're proud to have achieved this magnitude of impact on people with cancer, we strive to excel at an even greater level every single day with Cabo across existing and new indications their emerging pipeline of drug candidates in clinical and preclinical evaluation. With that, please see our press release issued an hour ago for our full second quarter financial results and an extensive list of key corporate highlights detailing our accomplishments in the quarter. I'll now turn the call over to Chris, who will review our second quarter 2021 financial results and provide an update to our full-year 2021 financial guidance.

Thanks, Mike. For the second quarter of 2021, the company reported total revenues of $385.2 million. Total revenues for the quarter included cabozantinib franchise net product revenues of $284.2 million. Net product revenues in the second quarter of 2021 were impacted by higher demand for CABOMETYX. CABOMETYX wholesaler inventory increased in line with the change in demand and resulted in stable inventory weeks on hand. Total revenues also included $100.9 million in collaboration revenues from Ipsen, Takeda and Genentech. Our total operating expenses for the second quarter of 2021 were $262.2 million compared to $274.8 million in the first quarter 2021. R&D expense was the primary driver of the decrease in total operating expenses, which was primarily related to lower clinical trial and licensing expenses. Provision for income taxes for the second quarter of 2021 were $28.8 million compared to a benefit of $3.6 million for the first quarter of 2021. The company reported GAAP net income of $96.1 million or $0.30 per share on a fully diluted basis for the second quarter of 2021. The company also reported non-GAAP net income of $117.9 million or $0.37 per share on a fully diluted basis. Non-GAAP net income excludes the impact of approximately $21.8 million of stock-based compensation expense net of the related income tax effect. Cash and investments for the quarter ended June 30, 2021, was approximately $1.7 billion. And finally, turning to our financial guidance for the full-year 2021, we are updating the financial guidance for total revenues, net product revenues, R&D expenses and year-end cash provided earlier this year. We're increasing our total revenue guidance, which we now expect to be in the range of $1.3 billion and $1.4 billion due to higher net product milestone and R&D reimbursement revenues. We are increasing our net product revenue guidance, which we now expect to be in the range of $1.05 billion and $1.15 billion. Research and development expenses are increasing due primarily to higher forecasted licensing expenses and are now expected to be in the range of $650 million and $700 million, which includes non-cash expenses related to stock-based compensation of approximately $45 million. And finally, we are projecting cash and investments to be in the range of $1.7 billion and $1.8 billion at year-end 2021. This guidance does not include the impact of any potential new business development activities, which remains a key priority for the company. And with that, I'll turn the call over to P.J.

Thank you, Chris. Today I will discuss the CABOMETYX business regarding Q2 2021, particularly in the context of the first full quarter after the approval of CABOMETYX in combination with an immune checkpoint inhibitor. As you know, on January 22, CABOMETYX received FDA approval for use in first-line RCC in combination with nivolumab. Following the approval CABOMETYX first-line market share has grown significantly, driven by broad uptake in the marketplace. In the second quarter, CABOMETYX was the number one prescribed TKI in RCC. We are pleased with the growth of the CABOMETYX first-line combination new patient market share, which according to IQVIA brand impact, has grown steadily since approval. As you can see, the average new patient market share of CABOMETYX in combination with nivolumab in Q2 was 28%. According to the data, the CABOMETYX combination has taken share from other ICI combinations and has increased the penetration of ICI combination therapy within the first-line RCC market. As you know, the median duration of therapy for patients in the CheckMate 9ER study was approximately 1.5 years. So we believe that these new patient starts will drive demand growth for many quarters to come. We are also pleased that adoption was broad across a number of key segments with strong uptake in favorable intermediate and poor clinical risk groups as the 9ER data is resonating with physicians broadly as they think about patients who are appropriate for the regimen. Furthermore, our market research shows that CABOMETYX in combination with nivo is taking share from all first-line competitors. Uptake in the academic segment has been rapid as the market share for Q2 in this segment was 35%, according to Brand Impact. Adoption in the community setting typically lags the academic setting in a launch. That said, we are pleased by the increase in market share in the community from 11% in Q1 to 25% in Q2 and we believe that CABOMETYX, in combination with nivolumab, has the opportunity to continue to grow new patient market share particularly in the community segment. In addition to the broad uptake of CABOMETYX plus nivolumab in the marketplace, perceptions of the 9ER data have been very positive. There has been a rapid increase in unaided awareness of the approval of this combination as well as favorable impressions of the efficacy of the combination based on the endpoints of overall survival, progression-free survival, and objective response rate across key subgroups including IMDC risk categories. Importantly, the safety profile of the combination driven by the optimized Cabo combination starting dose of 40 milligrams daily is viewed favorably by prescribers and is improving the overall perceptions of the safety and tolerability of CABOMETYX. Physicians also view the quality of life benefit demonstrated in 9ER is differentiating and important for their patients who may be on first-line therapy for extended lengths of time. Ultimately, the totality and balance of the efficacy and overall survival, safety, and tolerability and quality of life data is viewed positively by prescribers. Similar trends are seen in the prescription data from IQVIA which demonstrated an inflection point this year in CABOMETYX demand. The growth is driven by both new and refill prescriptions from the 9ER launch and resulted in an increase of 28% growth in the first half of 2021 relative to the first half of 2020. As I mentioned previously, the growth is being driven by first-line combination uptake, while the second-line market share for CABOMETYX remains stable. With regards to new prescriptions, NRx increased significantly in the first half of 2021 relative to the first half of 2020 at a rate of 29%. CABOMETYX NRx were stable in Q2 to 2021, relative to Q1 and despite the overall NRx market basket being down 5%. That said, our internal data for new patient starts shows larger increases for both these time period comparisons, but we won't be sharing the specifics of that data for competitive reasons. The success of the CABOMETYX launch in combination with nivolumab is changing the mix of patients on CABOMETYX and RCC. First-line combination usage has increased the proportion of the new Cabo prescriptions that are first-line. Given the clinical data from the CheckMate 9ER study, we anticipate these first-line combination patients to receive the therapy for approximately 1.5 years or more thus driving a longer treatment duration for CABOMETYX. We are encouraged by the fact that in our data, we see a near doubling of the amount of new patient starts at the 40-milligram dose relative to the same period last year. This is further indication that the combination uptake in the first-line setting is robust. One other point to note is that the proportion of CABOMETYX third-line patients declined and our third-line market share has decreased as many third-line patients have already received CABOMETYX. And looking at the market basket for RCC TKIs, CABOMETYX was the number one prescribed TKI in Q2 and TRx market share increased to 38%. The TRx/CISV market increased in volume by 5% in Q2 over Q1 and CABOMETYX TRx volume grew by 13% in the same time period. The increase in CABOMETYX share and volume was driven by uptake of CABOMETYX in combination with nivolumab in the first-line setting. In July, NCCN updated their kidney cancer guidelines and now, cabozantinib either as monotherapy or in combination is a preferred agent in every setting in RCC regardless of clinical risk groups, line of therapy, or disease histology. This will support the strong and focused execution that the Exelixis team is putting forth in the 9ER launch in RCC more broadly. The strong Q2 performance in CABOMETYX launch trajectory positions the cabozantinib franchise to continue significant revenue growth in 2021 and beyond. We're thrilled with the opportunity that 9ER provides Exelixis. Looking forward, as we continue to build upon the foundation in RCC where CABOMETYX is the number one prescribed TKI. 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 potential. And with that, I'll turn the call back over to Mike.

All right. Thanks, P.J. As you heard on the call today, we had a great second quarter with both record cabozantinib franchise net product revenue and total revenue which led us to update components of our full year 2021 guidance. We're excited about the potential of our work including the ongoing cabozantinib pivotal trials, the growing clinical development program for XL092 and our rapidly maturing early-stage pipeline, as we advance in our mission to help cancer patients recover stronger and live longer. As we previously announced, Dr. Gisela Schwab, our President of Product Development and Medical Affairs and Chief Medical Officer began a medical leave of absence in June. We're grateful that she continues to engage and advise us during her leave. For more than 15 years, Gisela has been deeply committed to our mission and the patients we serve. Frankly, Exelixis would not be the company, nor would cabozantinib be the drug that they are today without her passionate and tireless leadership. We simply can't thank Gisela enough for her countless contributions over the years including her commitment to the mentorship and professional development of her team. We're all extremely proud of how the entire development organization has pulled even further together to keep our many programs on track during her absence. We are now actively searching for our next CMO and hope to have that person on board in the near future. I'll close by thanking the entire Exelixis team for their individual and collective efforts during a busy and productive second quarter. Exelixis has widely embraced the data supporting the efficacy and safety of the COVID-19 vaccines and I'm proud to report that more than 90% of our team based both in Alameda and those working remotely have been vaccinated to date. With that foundation, we are looking forward to working together again with the energy and creativity that can only be truly experienced in working side by side 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. We're happy to now open the call for questions.

Thank you. Your first question comes from the line of Asthika Goonewardene from Truist. Your line is now open.

Hi, everyone. Thank you for taking my questions. First, I want to congratulate you on this outstanding result, great job to the team, and we hope to see more of this in the future. My first question is about the growth rate for Cabo, which looks really good. I would like to discuss the relative contributions. Clearly, nivo Cabo for first-line RCC was significant. P.J., could you provide some details on the proportion that came from nivo Cabo first-line RCC and what portion came from non-clear cell RCC? Additionally, was there any other stocking impact? I have a few more questions as well after that.

Thank you for the question, Ashtika. This is P.J. Looking at the comparisons, we have seen a 28% growth in demand for the first half of this year and a 29% increase in new prescriptions, which we are pleased with as they are quite strong. This growth is primarily driven by the uptake of the CABOMETYX and nivo combination for new patients, along with the refills we are beginning to see in that setting. The clinical data indicates an average duration of therapy of 1.5 years, suggesting that patients will remain on it for some time. Anecdotally, we are also starting to see a bit more activity in non-clear cell cases. The NCCN guidelines were just updated last month, which we are very happy about. We now have favorable positioning in the guidelines for intermediate poor first-line clear cell, second-line clear cell, and non-clear cell indications. Therefore, cabozantinib, whether as a combination or as a standalone treatment, is well-positioned across the guidelines, and we believe this will continue to drive our growth, particularly with the future launch strategies. However, the primary growth is mainly attributed to the combination treatment in the first-line setting.

Thanks P.J. Can you share your insights on how Nivo/Cabo will compete against future products, particularly regarding Tender? Do you see it as a significant threat, or do you believe you are well-protected because of RCCD's familiarity with Nivo and Cabo?

Yeah. Thanks for the question. Certainly the market has been competitive for many years even in our prior monotherapy settings, but certainly in this combination first-line setting. So, very pleased with our data and our team and experience and ability to compete there. And what we've seen in our market research and our time on the market with, which we're really pleased by right already establishing the 28% first-line market share, roughly five months after approval is really outstanding. And I think it speaks well to the execution of the team and certainly the strength of the data. And what we hear from clinicians is, it's really the totality of the data, the balance of the data, the efficacy particularly the overall survival, as well as the safety and tolerability we’re seeing in the regimen that physicians are seeing in the data, coming from the optimized 40-milligram daily starting dose, as well as our quality of life, which is important for patients right who are going to be on therapy for extended length of time. All that and all our work, we think positions us really well in the marketplace today and going forward. So we're really confident in our position, our team and our execution and look forward to continuing to grow and helping a lot more patients with RCC.

Thanks P.J. And then one quick one if I can sneak in here. Gisela’s presence is definitely missed on this call, and really hope that things are well with her. Mike if you can channel your inner Gisela, could you maybe talk to us a little bit about what we can expect in terms of data for XL092 in the near-term?

Yes, I'm happy to do that. I'll channel my inner Mike, because I don't think I can do Gisela very well. Nothing new to really report in that regard here, our messaging at 092 is consistent today as it has been with prior messaging. We are really excited about the profile of the next-gen Cabo kind of profile that we've got with 092. We think there is a very exciting clinical and commercial opportunity with this molecule, and it obviously has a very high priority within the organization. We are pleased to have now three clinical collaborations to be able to profile 092 ICI combinations with leading ICIs and certainly our collaborations with Roche, Genentech with Merck KG and now BMS, I think underscore the interest, the utility potential validation for the overall approach. So we're certainly very pleased with that. Our priority as today as it has been for months and months now is to really enhance and expedite the clinical program to move 092 into pivotal trials as soon as possible planning on this year, if we can make that work, that's the plan. So there's really no new guidance now or previous guidance on the next presentation of data. Obviously when we have those details, we'll share those with you. You're likely to see us start either new trials, new combinations, new collaborations, et cetera before you see that next data set.

Great. Thanks guys, and congrats again on the update.

Thank you, Asthika.

Your next question comes from the line of Mike King from H.C. Wainright. Your line is now open.

Hi, good afternoon everyone. Thanks for the question. Congratulations on a successful quarter, and I also want to express my best wishes for Gisela's well-being. P.J., could we discuss the expected average duration of therapy for Cabo Nivo? Just as a point of reference, do you have information on the average time for Cabo as a single agent in the second line currently?

In the commercial setting, we look at things retrospectively before we can really observe them in the marketplace. We are pleased with Cabo's performance as a single agent, as it closely aligns with what we observed in the METEOR trial regarding the duration of therapy, which averages between seven and 7.5 months for progression-free survival. Additionally, we've had patients on therapy for longer periods, with some individuals remaining on for several years and benefiting from it. Overall, what we have observed thus far indicates that this could be a reliable indicator to assess the trial's outcomes, and we will monitor it closely in the future.

Right. Okay, I appreciate that. Also can you comment about whether on the NRXs, are these individuals who are already on an immune checkpoint or on nivo already, or do you know if they're starting the combination sort of de novo?

Well, I guess, I'll point to maybe two different pieces of data in our sort of presentation today. So, the NRXs are just any CABOMETYX new prescription from IQVIA. So that could be in any setting combination line of therapy, et cetera. What I would point to really looking at to dig into the combination utilization of CABOMETYX with nivolumab, in the first line setting was the other IQVIA data we shared with regard to new patient market share, which we've seen get up to 28% now in Q2 with a steady increase and taking share from all competitors in the space. So, really establishing a strong market share pretty quickly. So that's really the sort of de novo combination usage according to the brand impact data.

Okay. Can you remind us what the status of the filing is in Europe based on CheckMate 9ER? Thank you.

That's a good question. I don't want to speak to that. It's something Gisela would typically address, but she's not here. So, Mike, we'll follow up with you.

Yes, I will jump in and say that we work closely with our partner Ipsen. It is approved in Europe, and they are diligently working on securing reimbursement across various countries, which is a significant effort and focus. It's still early in the launch over there, but we are certainly pleased with the progress they are making and what we have.

Okay. More to come. Thanks so much. Congrats again.

Okay. Thank you, Mike.

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

Good evening, everyone. Thank you for taking my question. I wanted to discuss the $1.5 billion run rate for RCC revenues by the end of 2022. With the guidance provided through the end of the year, it seems that in the fourth quarter you might experience around 3.25 for renal cells, while the $1.5 billion run rate equates to about $375 million per quarter. It appears that with patient growth, you're capturing more market share. I'm curious if there is some caution reflected in the guidance for the $1.5 billion run rate for 2022, especially considering the potential introduction of another I/O TKI from Merck. How are you approaching the impact of another competitor in this space?

Well, that's obviously something that we're focused on and think about a lot relative to the competitive dynamics here. I think P.J. framed it well. That's been the case with RCC since the day we started the media trial, and the day we got approved, and the day we launched. So that's nothing new here. I think the $1.5 billion run rate guidance by the end of 2022. Again, that was put out there several quarters ago well before we launched with, I think, the appropriate level of market research guiding that estimate, and guiding kind of a long-term view on the ramp for market share and duration of therapy. So I think we're sitting pretty good right now relative to being able to hit that mark. You can do the forward-looking math on based upon these numbers what it takes to get there over the next six quarters. I think those are numbers that are achievable even with competition coming up. So we feel good about that. And obviously, that's a baseline that we want to build off of with other trials in renal and certainly other indications going forward.

Got it. And if I could squeeze a follow-up and just on CRPC filing, I know the markets are skeptical you can get there just on cohort 6. But what will be your lead arguments going into the FDA that cohort 6 should be an approvable basis as opposed to a more traditional Phase 3 pathway?

I don't want to comment on our discussions with the agency. However, I can share that we've observed a nearly 20% response rate from a blinded independent review compared to the standard of care. This is encouraging, especially considering that similar pivotal trials have shown response rates in the low single digits. The consistency between the two assessment methods for progression-free survival, duration of response, and disease control rates also looks promising, and we believe these merits further investigation alongside the response rate in the 20% range. We're optimistic about this progress, and while discussions with the agency will guide our next steps, we're looking for alignment with them. If we achieve that alignment, we'll move forward with a filing. Any skepticism that exists is understandable, but we will continue to generate data and have a clear path based on the feedback. Overall, we are pleased with the data, and we feel similarly positive about the prospects of CONTACT-02.

Okay. Great. Thanks guys.

Yes.

Yes. Thank you, Jason.

Your next question comes from the line of Andy Hsieh from William Blair. Your line is now open.

Great. Thanks for taking my question and congratulations on another record-breaking quarter. Best regards to Gisela and her family. I have a question for P.J. Can you comment on the RCC market size in comparison to pre-COVID-19 levels? I know you've mentioned the market shrinking in the latter half of last year, so could you provide some insight into our current status relative to pre-pandemic levels? Also, I'm curious about two data points you provided; in the second quarter, you mentioned a decrease in new total scripts but an increase in total scripts. Is there any explanation for this in the second quarter?

Yes. Thanks for the questions, Andy. I'll start with kind of, I guess, the market with regards to kind of the COVID, as we talked about last year we certainly did see some impact in the market particularly in kind of the middle of the year Q2, Q3 as the pandemic was kind of first really started to have impact across the country. I'd say what we've seen generally is we've seen that sort of slowly recover at least in the RCC market. I don't think we're kind of quite all the way back to normal by any means. And obviously, there's still Delta, new variants, et cetera. But I think it has certainly stabilized in and recovered somewhat there. And with regard to your other question, just to make sure, I'm clarifying, what we saw with regards – I'll just point to NRx data. So what we saw was roughly stable NRx data from IQVIA in Q2 relative to Q1. For CABOMETYX, while the market there was down 5%, CABOMETYX is stable. And that's actually a pretty common thing. Seasonally, we see just Q1 new prescriptions are pretty big and that can be insurance and a variety of other things. I mentioned our third line share has declined a bit and that's because most patients at this point have seen CABOMETYX. So we're really pleased with that. We saw a leading second-line share. We get the majority of post-I/O patients in the second line. And obviously, we've had really a lot of growth first line. And as I mentioned too, just with regards to the NRx, what we see internally in our new patient starts, which we track very closely, and have a lot of data that, I'm not going to share publicly, but we've really seen some stronger and more robust numbers than what the IQVIA NRx data estimates. So I think we're seeing really strong growth, and we're seeing an improving patient mix in terms of our new patients on CABOMETYX driven by the first-line combination usage. And I think, the 28% market share that we're seeing there is really strong in driving that.

Yeah, that's helpful. Thanks, P.J. So for Peter, I think there is an increasing emphasis on ADCs in the pipeline. Six of the last ADCs were approved under accelerated approval program. Just curious if that is kind of the standard clinical trial or clinical development plan for XB002 going forward. Happy to kind of get a sense of your take on that?

Yeah. Thanks, Andy. Appreciate the question. And yeah, I think that's very much our view as well. I think as you commented six approvals, I think in the last 12 months to 18 months based on accelerated approval. I think one of the attractive features of ADCs, especially contemporary ADCs is they're going to be active you find out pretty early on. And it's really a matter of that of being able to balance kind of the therapeutic index in terms of obviously your activity versus side effect profile. So for XB002, which is our kind of next-generation tissue factor targeting ADC, and just to recap here this is, as I said, there's already a tissue factor targeting ADC that's been advanced into the clinic to tisotumab vedotin which has shown an encouraging clinical activity in cervical cancer. So we've got into tissue factor as a kind of de-risked target from that point of view. XP002 is a next-generation version. That differs in a number of significant ways. It's a different antibody. It targets a different epitope on tissue factor. They should get around some of the bleeding issues that have been seen with tisotumab, the different linker payload, we kind of optimize more stable linker, which should enable us hopefully to dose higher as well. So we certainly see cervical cancer as an area of interest. The ongoing Phase 1 clinical trial is actually looking at a fair number of different solid tumor types based on, what we know about the over expression of tissue factor. So in addition to cervical, we intend to have our patients with lung, ovarian, urothelial pancreatic and head and neck. So there's lots of places to go from a development point of view. And certainly, from – within this clinical trial, the intent obviously is to find an appropriate growth to take forward expand out into a number of different cohorts in a Phase 1b setting and then follow the data. So obviously, we start seeing encouraging signals trials are designed to enable you to enroll additional patients into those cohorts as appropriate. And I would say, that's a general kind of philosophy that we have right now. It's not explicit XP002. So you'll see us kind of take that path a lot.

Thank you. So last question, if you don't mind. I want to kind of revisit the $4 billion revenue guidance that you provided. Obviously, a lot of things have changed, I'm just curious, if there's kind of any sort of high-level changes that you see pertaining to maybe the different contributions from – across the different indications and things like that strength and weaknesses across different segments happy to kind of hear your thoughts there too.

Yes, Andy I'll be happy to address that one. So just as a reminder the whole goal behind putting out those numbers at JPMorgan in 2020 were really to define what success looks like, right? Assuming success across the board and generating differentiating clinical data how big could the Cabo franchise be, right? So as we've highlighted previously, we didn't risk adjust those numbers just a kind of frame shift going back a couple of years. We hadn't even seen 9ER then right in terms of that data. So those were again aspirational in nature. They weren't meant to be updated and we're not going to update them relative to what's happening. Slide 11 of that deck which I now got memorized and I'm sure you do as well has all the math. So if you want to adjust that based upon your assumptions, based upon your modeling please, please have at it. Our focus is making sure we can advance the pipeline of really the Cabo program across the board and then the pipeline across the board so we can again address more patients bring more benefit to cancer patients who need better and more effective therapies and then build the business based on that.

Got it. Okay. Well thanks for answering all my questions. And congratulations again.

Appreciate Andy. Thank you.

Your next question comes from the line of Michael Schmidt from Guggenheim. Your line is now open.

Hi, guys. Thanks for taking my questions and congrats on the great second quarter results. A lot for me. Pipeline question. I guess, how are you tracking towards top-line data disclosure for COSMIC-313? And perhaps could you share your thoughts on how the triplet might potentially be incorporated into clinical practice relative to the CheckMate 9ER regimen? Is there perhaps an additional patient segment that is not currently addressed with the doublet that you think might benefit from the triplet?

Yes, of course. As we mentioned earlier, COSMIC-313 reached full enrollment around the end of the first quarter in March of this year. It's an event-based trial, and we anticipate results by the end of this year or early next year, but we treat these estimates with caution. As more events occur, we'll gain a clearer understanding of the timeline. We are genuinely excited about this opportunity. At a high level, we are looking to combine the strengths of immunotherapy with immunotherapy and targeted kinase inhibitors to help patients in various ways, such as increasing the number of patients experiencing some level of disease control, similar to what we've seen with other immunotherapy combinations. This next-generation trial is very significant for us. It's worth noting that this is the first triplet study of its kind being conducted simultaneously for non-immune oncology, and we are thrilled to be involved. There’s a lot of potential and promise here. We are focused on analyzing hazard ratios and p-values, so we need to wait for the data before making any definitive claims. Nevertheless, this presents a chance for us to build on the successes of 9ER, Media, and CABOSUN, and to further develop our presence in renal treatments.

That makes sense. Great. And then just a follow-up. You've obviously continued to invest in your early-stage pipeline now with three additional programs in clinical studies presumably a few things going on preclinically as well. I guess in that context to what degree has your philosophy towards business development shifted perhaps in the last couple of years. And what level of urgency do you have at this point to perhaps in-license a later-stage product candidate that's in a closer to market.

I believe our overall approach has remained consistent, and we have been executing well with various early-stage deals we completed last year and this year, along with those we aim to finalize soon. We are also evaluating a range of late-stage assets. The opportunity lies in having strong confidence that any investments we make will not only likely succeed clinically and regulatory but, more importantly, will achieve commercial success. As you may have noticed, there have been numerous oncology launches in the past couple of years that have not performed well. Therefore, achieving the right hazard ratio or T value and receiving approval does not guarantee commercial success, which is the challenge we face. Hence, for any significant deals or investments, we must be certain that we are pursuing the right value and opportunity, with a very high likelihood of commercial success.

Understood. Great. Thank you and congrats on the quarter again.

Your next question comes from the line of Gabe Daoud from Cowen and Co. your line is now open.

Yes, thanks for taking my question. This is Gabe on Yaron. Just focusing on the pipeline the questions on Cabo have been pretty much asked already. Any updates on 092 with the expansion cohorts or kind of just any updates on that? And then future INDs timing mentioned previously potentially some more in fiscal year 2021 just curious if those remain on track?

Yes. So I think we've said all we plan to say about 092 already in the prepared remarks and I think the question from Asthika. So, I'll pass the pipeline question with new INDs over to Peter.

Yes. Sure. So you can probably saw on the pipeline slide we do have a compound called X1, a compound we have referred to a little bit previously. It's coming from our Origine collaboration. It's a novel small molecule has a novel mechanism of action which for now at least we're not going to be speaking about. It does remain on track for an IND this year. We see the primary indication for this compound being a key indication although we are also exploring preclinically the potential for different solid tumor indications.

Do you have any other questions, or do you want us to move on?

Yes, that's it. Thank you.

Your next question comes from the line of Jay Olson from Oppenheimer. Your line is now open.

Hello. This is Cheng on the line for Jay. Thanks for taking all the questions. And our best wishes to Gisela. We just want to ask about the cabo/nivo in the academic and community settings. It seems like in the Q2 you have stronger growth in the community settings over the academic. Just curious about your thoughts on the growth rate in these two settings moving forward? Also just wondering if the adoption in the community centers is more related to the in-person interaction between our sales team and the prescribers? Thank you.

Thank you for your question. In terms of the differences between the academic and community settings, as I mentioned, academics tend to adopt new solutions more quickly, which we've noticed. We're very happy with that progress and certainly see potential for further growth. However, we're particularly encouraged by the community performance, which saw an increase in market share from 11% in Q1 to 25% in Q2. This growth takes time as we work to reach and educate a broader audience in the community, and we believe we're still in the early stages of that process. The community sector represents about 75% to 80% of our business in RCC, and I think you're correct that navigating the pandemic has made education in these settings more complex. I'm proud of our team's efforts to engage through in-person meetings where possible, as well as virtually via Zoom and other digital methods. We've observed some improvements in this area over the past few quarters. With the evolving situation due to the delta variant and COVID trends, things can vary regionally and by account. Nevertheless, we have strong momentum, and our message is resonating well, so I see considerable potential for continued growth in the community. Overall, we're pleased with the performance, and achieving a 28% market share in the first full quarter following our launch is a significant accomplishment that reflects the team's hard work and the effectiveness of our data with physicians.

Got it. Thank you.

Your next question comes from the line of Peter Lawson from Barclays. Your line is now open.

Hi, Mike. Thanks for all the detail. Just around the aspirational guidance. Is that something that would be updated on a kind of an annual basis or every couple of years? Just how do you kind of think about that and kind of communicating that with The Street?

Yeah. Thanks Peter. I think you might have missed the, I think the question that Andy asked almost verbatim exactly the same. And I won't repeat myself again. But yes, we said we're not going to update that. That was aspirational view of what success looked like prior to having any data. So ...

But that's not something you'll be thinking about updating every year, or every couple of years.

Yeah. Maybe you missed it, when I answered the question previously with Andy. But yeah, we said, we're not going to update that. That was aspirational view of what success looked like prior to having any data. So ...

Right.

Yeah, yeah.

Perfect. Okay. Thanks so much.

You bet.

Your next question comes from the line of Kennen MacKay from RBC Capital Markets. Your line is now open.

Hi, Mike, I was hoping for that aspirational view. No, I'm just joking…

Oh, please ask it again. Come on. You can do it.

I actually had a question about Cabo. I could discuss Cabo all day. I know you're receiving a lot of feedback from your commercial teams, and I was hoping to get any anecdotal evidence regarding why doctors are opting for Cabo/nivo in frontline RCC compared to some of the competitive combinations available. We've consistently heard that doctors prefer Cabo/nivo for more advanced tumors due to Cabo's rapid onset of effects. I'm curious if you've noticed or are hearing about any increase in those more advanced tumors as a result of the COVID-19 pandemic and the decrease in cancer surveillance and biomarker screening, or if that's not the case, and if there are any other anecdotes you're hearing. Thank you, and congratulations on a strong quarter.

Thank you. I’d like to share a few thoughts before PJ adds some insights. The individual components, Cabo and Nivo, have played a crucial role in kidney cancer treatment since they were introduced in 2015 and 2016. There's a long history with these two drugs, and there has been a strong desire for their combination. I recall that when our data was released alongside BMS's data on July 21, 2015, the immediate feedback from key opinion leaders was a clear request to start combining these drugs, as there was potential for significant efficacy. Over the years, momentum has consistently built up. The 9ER data exceeded expectations regarding efficacy, tolerability, and quality of life. We believe that combining great data with a strong team can lead to rapid progress. Achieving a leading or co-leading market share within five months is a testament to the efforts of our clinical teams and our commercial strategy. The broad acceptance of this combination clearly demonstrates its potential, and we aim to build on this success moving forward. PJ, do you have anything to add?

I completely agree that physicians' enthusiasm for these drugs significantly contributes to their overall use. We often hear various anecdotes related to this, but I believe physicians understand and appreciate the comprehensive data, allowing them to identify many different patients who could benefit from the treatment, whether they have rapidly progressing disease or those with a favorable profile who may focus on the tolerability, which many view positively. The NCCN guidelines effectively reflect this broad usage potential. Moreover, it's important to note that physicians encounter fewer kidney cancer patients on a per capita basis. As they become more comfortable with using CABOMETYX and Nivo, there is a significant opportunity to apply these treatments to a wider range of kidney cancer patients. Additionally, the optimized 40-milligram daily dosing has positively influenced perceptions of CABOMETYX's tolerability profile, highlighting its synergy in combination therapies. This progress opens up numerous potential benefits for various patients, and physicians are increasingly recognizing this potential.

Makes sense. Thanks and congrats again guys. Thank you.

Thank you.

Thank you, Kennen.

Your next question comes from the line of Chris Shibutani of Goldman Sachs. Your line is now open.

Thanks very much for the opportunity for the questions. Very healthy cash balance obviously generating cash flow extremely strongly from the Cabo success commercially. Can you comment upon how you're thinking about capital allocation strategies? Remind me whether or not you have a share repurchase allocation? And maybe how frequently you sort of reset the prioritization of those types of decisions?

Thank you, Chris. It's Chris Senner. I believe we can break this down into a few parts. We will continue with the business development that Mike mentioned earlier, focusing on smaller deals of similar scope to what we have been doing. We are also looking for additional opportunities to enhance our pipeline, which we believe is the best use of our cash balance at the moment. Mike and I regularly discuss capital allocation and cash utilization, striving to determine the best approach from a shareholder perspective and how to return capital to shareholders. This sums up our current outlook.

And do you have any repurchase allocation currently?

We do not have a share purchase allocation currently. But as I said, we continue to look at the capital allocation and see it as the best return on capital.

Got it. And then in terms of the generic challenges, is there anything that you might be able to share with us updating on progress. I believe we are still on track for the trial in May for the trial in May of 2022 anything on that front incremental news?

Yes, Chris thanks. It's Mike. Yes, nothing that I can really share here. The process is the process and I think it's evolving as we expect, but I really can't go into details publicly. So…

Okay. Finally, could you provide some insights and support regarding KEYTRUDA? You clearly have a strong clinical development team based on Cabo's success. As you consider the direction of that group, are there specific areas where you are seeking to strengthen, particularly in relation to the ADCs in your pipeline and the leadership's role in guiding some of those clinical decisions? Any updates on this?

Yes, that's a good question. We are examining it closely. Clearly, Gisela cannot be replaced, which is a fair perspective to maintain. Our goal is to find someone with unique skills and viewpoints who can help elevate us in the coming years. Gisela has played a crucial role in our team and in shaping our culture. I want to leverage her achievements and influence to reach the next level. She will be involved in this process as we communicate regularly and brainstorm about potential candidates. I look forward to continuing that collaboration to recruit our next CMO and advance our goals.

Great, Thank you very much.

Thank you.

Your next question comes from the line of Stephen Willey from Stifel. Your line is now open.

Yes. And congrats on the quarter and best wishes to Gisela. Just a quick question I guess with respect to utilization that might be occurring within specific subgroups or risk subgroups? I know that you're talking about seeing adoption across all risk subgroups. But I guess, when I just kind of look at some of the TKI data and I know that look at some of the TKI data and I know that you're outpacing the market of the TKI market. But it looks like I guess both this quarter and last quarter a lot of the share gains seem to be coming at the expense of Votrient and Sutent, which we know are also the single-agent TKIs that are most commonly prescribed in favorable risk patients. So just wondering, if you guys have a sense as to how much of this initial adoption you're seeing in the frontline setting is a replacement of just single-agent TKI therapy within that favorable risk segment?

Yes. Steve, it's Mike. I'm not sure what data you're looking at to come to those conclusions. I think our view on that is markedly different in terms of how the share of all the different either combinations or single agents are going down at a pretty good clip with the introduction of Cabo/Nivo. So that's our view based upon both syndicated data as well as internal market research. Maybe PJ can provide some more color commentary there.

Yes, I would agree. We're certainly seeing significant uptake at the expense of other IO combinations. And as we did say we are expanding the amount of combination utilization within the marketplace with the launch of CABOMETYX nivolumab. So by definition there we're taking from other single agents so that's probably the correlation there in the prescription data where you see student and Votrient kind of declining. So I think it all makes sense. It's really being driven by CABOMETYX Nivo taking share from really across the board all competitors. But certainly, I think first and foremost really the other combinations.

All right. Thanks for taking my question.

You bet, Steve.

Your next question comes from the line of Mike King from H.C. Wainright. Your line is now open.