Exelixis, Inc. Q2 FY2023 Earnings Call

Good day, ladies and gentlemen, and welcome to the Exelixis Second Quarter 2023 Financial Results Conference Call. My name is Tawanda and I'll be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. You may begin.

Thank you, Tawanda, and thank you all for joining us for the Exelixis second quarter 2023 financial results conference call. Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; P.J. Haley, our Executive Vice President of Commercial; Dana Aftab, our Chief Scientific Officer; and Vicki Goodman, our Chief Medical Officer, who will review our progress for the second quarter 2023 ended June 30th, 2023. Peter Lamb, our EVP of Scientific Strategy will join us for the Q&A portion of the call. During the call today, we will be making 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 those 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 filed 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 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 components of our business. We're pleased to see continued growth of the cabozantinib franchise, while at the same time, we expedite a range of discovery and development programs to build the Exelixis pipeline of the future, with the goal of helping many more cancer patients. Key highlights for the second quarter include, first, strong performance of the cabozantinib business with continued growth in demand and revenue in the US. CABOMETYX maintained its status as the leading TKI for RCC in both the first-line IO/TKI market and the second-line monotherapy segment. Second quarter 2023, cabo franchise net product revenues in the US were approximately $410 million and grew 18% year-over-year compared to the second quarter 2022. Global cabo franchise net product revenues generated by Exelixis and its partners were approximately $577 million in the second quarter of 2023 and also grew 18% year-over-year compared to the second quarter of 2022. Chris and PJ will update our progress in the quarter and provide additional commentary on our financial and commercial activities. Second, EXEL's top priorities in R&D are to deliver a pipeline of clinically and commercially differentiated medicines for large populations of cancer patients with high unmet medical need. Our singular goal is to improve standard-of-care for patients with cancer. The more patients we help, the more value we create for patients, their families, healthcare providers, and our shareholders. We have an integrated R&D strategy spanning drug discovery, development, and commercialization activities and are developing a pipeline of biologics and small molecules. They have the potential to significantly move the needle for cancer patients. Dana and Vicki will highlight our second quarter progress later in the call. I'm pleased to announce that we'll present our R&D efforts at an investor event on December 2nd in New York City. Third, business development activities remain a priority as we continue to seek opportunities to access clinical assets with the potential to generate differentiating clinical data in solid tumor indications. We have several late-stage discussions ongoing and while there is no guarantee of success in closing these transactions, we look to continue using this approach to fortify our product portfolio. Finally, fourth, Exelixis entered into a settlement and license agreement with Teva to resolve patent litigation where Exelixis will grant Teva a license to market its generic version of CABOMETYX in the US beginning on January 1st, 2031, if approved by the FDA and subject to conditions and exceptions common to agreements of this type. Our attention and resources remain squarely focused on the second MSN case which goes to trial in October. We will continue to vigorously protect our intellectual property rights. So with that, please see our press release issued an hour ago for our second quarter financial results and an extensive list of key corporate highlights achieved in the quarter. I'll now turn the call over to Chris.

Thanks, Mike. For the second quarter 2023, the company reported total revenues of approximately $470 million, which included cabozantinib franchise net product revenues of $409.6 million. CABOMETYX net product revenues were $403.3 million, and included approximately $21 million in clinical trial sales. As a reminder, clinical trial sales have historically been choppy between quarters and we expect this to continue in future quarters. Gross to net for the cabozantinib franchise in the second quarter of 2023 was 27.3%, which is lower than the gross to net we experienced in the first quarter of 2023. This decrease in gross to net deductions in the second quarter of 2023 is primarily related to lower Medicare Part-D and co-pay assistance expenses. Based on our gross to net in the first half of 2023, we are projecting gross to net will be between 29% and 30% for the full year 2023. Our CABOMETYX trade inventory decreased by approximately 340 units when compared to the first quarter of 2023. Total revenues also included approximately $60 million in collaboration revenues, including approximately $37 million of royalties earned from Ipsen and Takeda on their sales of cabozantinib in their respective territories. Additionally, in the second quarter of 2023, we earned an $11 billion milestone from Takeda for their achievement of cumulative net sales above $150 million. Our total operating expenses for the second quarter 2023 were approximately $392 million compared to $380 million in the first quarter of 2023. The increase in total operating expenses sequentially was driven by higher SG&A expenses in the second quarter of 2023, which was primarily related to costs associated with the 2023 proxy contest. Provision for income taxes for the second quarter 2023 was approximately $19.2 million compared to a provision for income taxes of approximately $8.3 million for the first quarter of 2023. The company reported GAAP net income of approximately $81.2 million or $0.25 per share on a fully diluted basis for the second quarter of 2023. The company also reported non-GAAP net income of approximately $100.3 million or $0.31 per share on a fully diluted basis. Non-GAAP net income excludes the impact of approximately $19 million of stock-based compensation expense, net of the related income tax effect. Cash and investments for the quarter ended June 30th, 2023 was approximately $2.1 billion. This level of cash and investments, supported by our ongoing cash flow from operations provides Exelixis with the flexibility to invest in internal discovery activities, to pursue external business development opportunities to expand our pipeline, and allows us to return capital to our shareholders through the $550 million share repurchase program we announced in March of this year. During the second quarter of 2023, we repurchased approximately $127 million of Exelixis' shares at an average price of $19.22. The second quarter share repurchase activity commenced a few days after our first quarter earnings release on May 9th. We remain committed to fully executing on the $550 million share repurchase program this year. And finally, we are reiterating our full year 2023 financial guidance, which is detailed on slide 14 of our earnings presentation. I'll now turn the call over to PJ.

Thank you, Chris. The second quarter of 2023 was a strong quarter for the cabozantinib franchise. The team continues to execute at a high level, which has resulted in CABOMETYX continuing to be the number one prescribed TKI in RCC and second line HCC. Additionally, CABOMETYX in combination with nivolumab remains the number one TKI plus IO combination in first line renal cell carcinoma. In terms of the business, CABOMETYX TRx volume grew by 9% year-over-year in Q2 2023, relative to Q2 2022. TRx volume for CABOMETYX grew 4% in Q2 compared to Q1 this year. Additionally, new patient starts and demand remains strong in the second quarter. CABOMETYX continued to perform well in Q2 from both a marketplace and competitive perspective. CABOMETYX again led TKI market basket in TRx share at 39%. As we have discussed previously, the first line RCC market is extremely competitive and we are pleased with the performance of CABOMETYX in combination with nivolumab in this setting. Q2 was a third full quarter in which CABOMETYX plus nivolumab was the number one prescribed TKI plus IO combination in first line RCC. Uptake in first line RCC is broad across clinical risk groups and practice settings. Importantly, physicians continue to report a positive prescriber experience which is consistent with the balance of efficacy, safety, and quality of life seen in the CheckMate - 9ER data. These perceptions were reinforced at ASCO which was a very productive meeting for Exelixis and provided a great opportunity for us to continue to highlight and promote the 44-month long-term follow-up CheckMate - 9ER data. You may recall, the median overall survival for CABOMETYX plus nivolumab is 49.5 months, representing an improvement of 14 months over the comparator arm sunitinib, with a hazard ratio of 0.70. The overall survival data are differentiating relative to the TKI plus IO competitors and also compelling the prescribers who view these data as clinically meaningful. Furthermore, physicians believe that the data support their experience of using the combination in terms of efficacy, safety, tolerability, and quality of life. Prescribers believe that this balance of data and the low discontinuation rate of CABOMETYX plus nivolumab enable patients to stay on therapy longer to achieve these results. Additionally, the CONTACT-03 data presented at ASCO reinforces the body of evidence with regards to cabo monotherapy, given the strong results of the cabozantinib controller. Collectively, these data reinforce the leadership position that CABOMETYX has in the RCC marketplace. We believe these data position CABOMETYX for continued momentum in growth as our entire team works every day to ensure that appropriate patients have the opportunity to benefit from cabo. And with that, I'll turn the call over to Dana.

All right. Thanks, P.J. So during the last earnings call in May, I discussed our overall strategy for drug discovery which is designed to prioritize targets based on the strength of the science and to leverage internal discovery capabilities for both small molecules and biotherapeutics to address the highest priority targets. Today, I'm going to go into a bit more detail regarding where we're at in terms of filing INDs for the current development compounds in the pipeline as well as progress towards the nomination of new development compounds. As a brief reminder, our biotherapeutics programs are focused primarily on antibody-drug conjugates as well as bispecific and monoclonal antibodies targeting innate immunity. Our internal biotherapeutics discovery team leverages several strategic partnerships that supply antibodies and various types of specific linker payload technologies, all of which have contributed to a significant level of productivity over the past several years. Our small molecule discovery programs are focused primarily on synthetic lethal targets which are attractive because they present clear patient selection strategies and drugging them typically results in a good therapeutic index. But we're not limiting ourselves to this approach and in some cases, we're pursuing drug, the target dominant oncogenic drivers like in KRAS where patient selection is straightforward and opportunities towards achieving best-in-class are apparent. So here is the pipeline beyond cabozantinib with the preclinical assets highlighted at the bottom. These four biotherapeutics were declared as development compounds last year and are progressing toward IND filing. Three of which are expected to be filed in 2024. The first IND we expect to file for these will be for XB010, which is the next-generation antibody-drug conjugate that targets 5T4, a broadly expressed tumor antigen and delivers the cytotoxic anti-tubulin payload. XB010 uses Catalent's site-specific conjugation and proprietary linker payload technology and as a result, shows improvement in TAK antibody-drug conjugate pharmacokinetic and reduction in free payload compared to the most advanced competitor. XB010 also represents the first five therapeutics that we have had full responsibility for and oversight of all stages of chemistry manufacturing and control or CMC. As I'm sure many of you are aware, the manufacturing process for antibody-drug conjugates is highly complex, and I'm happy to say that our internal CMC team which comprises highly experienced scientists and leaders from the likes of Genentech, Merck, Novartis, and AstraZeneca, has expertly managed that process for XB010. Our GLP-compliant toxicology study is underway and we are on track for delivering the GMP material next year which will enable us to file our IND for that program around mid-2024. The second IND expected from these programs is for XB628, a first-in-class bispecific antibody that combines the known pharmacology of PDL1 inhibition with inhibition of NKG2A, a complementary natural killer cell checkpoint. XB628 is designed to simultaneously address both adaptive and innate immune checkpoint and to act as a natural killer cell engager, promoting the activity of cytotoxic T-Cells and the robust tumor cell activity of NK cells. We expect it to be active in tumors such as renal and lung that are sensitive to first-generation immune checkpoint inhibitors, targeting the PD-1 pathway alone. This program is targeted for IND filing in the second half of 2024. The third program expected to reach IND filing is XB371, a next-generation tissue factor targeting antibody-drug conjugate that follows on from XB002. XB371 also uses Catalent's site-specific conjugation and linker payload technology and carries a Topoisomerase 1 inhibitor payload instead of the microtubule targeting payload on XB002. This program is on track for an IND filing in late 2024. Finally, XB014 is a bispecific antibody that carries the same PD-L1 targeting arm present in XB628 that combines with inhibition of CD47, a complementary macrophage checkpoint. This program is progressing more slowly than the others due to a potential safety signal we observed in non-GLP toxicology testing, which has required additional modeling and experimentation to determine if we have an acceptable, predicted safety margin to move forward with an IND filing. In addition to these programs, we have multiple programs in discovery at earlier stages of maturity, both small molecules and biotherapeutics, from which we expect to nominate development compounds this year. We are currently on track to reach our stated goal of up to five new development compounds this year, which will potentially include new antibody drug conjugates, a monoclonal antibody targeting a novel immune checkpoint pathway, and small molecule addressing synthetic lethal targets for well-defined patient populations with substantial unmet need. All of these programs represent first or best-in-class approaches and have the potential to meaningfully contribute toward our mission of helping cancer patients recover stronger and live longer. And with that I'll turn the call over to Vicki.

Thanks, Dana. Today I will provide updates on the progress of our clinical stage pipeline, focusing on our most advanced program Zanzalintinib and XB002, as well as the cabozantinib registrational trial. XL102 continues in dose escalation and we are focused on reaching a go-no-go decision later this year. As we continue to refine the strategic approach for each of our pipeline assets, we retain a strong focus on clinical trial execution to rapidly advance our pipeline molecules with the ultimate goal of improving outcomes for cancer patients. I'll begin with Zanzalintinib, our next-generation tyrosine kinase inhibitor, which entered full development last year. On our last earnings call, we shared top-line results for a fully enrolled cohort of 32 pre-treated clear cell renal cell carcinoma patients from STELLAR-001 demonstrating robust activity with responses in both cabo naive and cabo pre-treated patients. These data provide evidence for the activity of Zanzalintinib in a cabo sensitive tumor type and provide additional support for leveraging cabo data to inform the Zansa development program. An abstract with the complete RCC dataset has been submitted to an upcoming medical conference and we'll share further details as they become available. We have also completed enrollment on several other STELLAR-001 cohorts and looking forward to sharing the data as they mature. In STELLAR-002, enrollment of the Zanza plus novo doublet expansion cohorts is ongoing and we have now completed enrollment on the dose escalation cohorts for the triplet combination of zanza plus nivo and relatlimab and established a recommended dose. This combination is now advancing into multiple solid tumor expansion cohorts. Data from STELLAR-001 and STELLAR-002 will inform future registrational plans for zanza. Turning now to our Zanza Phase III studies. STELLAR-303 compares the combination of zanza with Atezolizumab versus Regorafenib in patients with non-MSI high, proficient MMR late-line colorectal cancer. We are currently amending the trial based on emerging data, including data presented for the LEAP-017 trial of Pembrolizumab plus Zanzalintinib versus standard-of-care at ESMO GI last month, which suggests that colorectal cancer patients without liver metastases at baseline appear to derive more benefit from IO combinations including IO/TKI combination compared to subjects with liver mets at baseline. Based on recent Phase III trial performed in similar settings, the prevalence of liver metastases appears to be around 63% to 74% of late-line metastatic CRC patients. In the amendment design, a total of approximately 874 patients will be enrolled regardless of RAS status and including patients with and without liver metastases. Stratification factors, which already includes the presence or absence of liver mets will not change. The primary endpoint will be overall survival in patients without liver mets with the secondary endpoint of OS in patients irrespective of the presence of liver mets, which will be statistically tested if the primary OS is positive. This will preserve the possibility to demonstrate benefit in all comers, while increasing the probability of success by focusing the primary analysis on the patients most likely to benefit. STELLAR-304, a Phase III trial comparing the combination of zanza and nivolumab to sunitinib in patients with certain non-clear cell RCC histologic subtypes who have not previously been treated for metastatic disease is also enrolling. With these two Phase IIIs now underway, we are also on track for the initiation of additional Phase III trials this year. We are pleased to announce our next planned registration-directed study, STELLAR-305, a Phase II/III, which will evaluate Zanzalintinib in combination with pembrolizumab versus pembrolizumab alone in patients with first-line PD-L1 positive recurrent or metastatic squamous cell carcinoma of the head and neck. The study will enroll approximately 500 patients and PFS and OS are dual primary endpoints. Pembrolizumab as a single agent received approval in this setting based on overall survival. However, fewer than one in five patients have an objective response. With a 54% response rate seen for cabo in this setting, in an investigator-sponsored trial as well as the favorable emerging safety profile for Zanzalintinib, we believe this may provide an opportunity to improve outcomes versus single-agent pembrolizumab with a regimen that is tolerable for this population with multiple comorbidities. Moving on to XB002, our first antibody drug conjugate, which targets tissue factor. We have now established a recommended dose, and we are carrying that dose along with a lower dose to fulfill FDA's Project Optimus requirements for dose optimization into expansion cohorts in multiple solid tumors, which are now open to enrollment. I'm pleased to share that the first patient has now been dosed on one of those expansion cohorts. These signal detection cohorts will inform the drug's safety and efficacy profile and allow us to pivot quickly into registration-directed trials. Additionally, we continue to enroll on the dose escalation cohorts with nivolumab and bevacizumab combinations to determine a recommended dose for each combination to carry forward into expansion, and we will continue to seek out other promising combination approaches in sensitive tumor types. For cabozantinib, we expect the readout of the progression-free survival primary endpoint for CONTACT-02, our Phase III study in combination with atezolizumab in metastatic castration-resistant prostate cancer this year. The second interim analysis for OS for COSMIC-313 is also on track for this year. In summary, we continue to make progress advancing our pipeline molecules and believe that the emerging data for both Zanzalintinib and XB002 are encouraging. We look forward to sharing the emerging data at upcoming medical conferences as they mature and continuing to expedite the development of these promising assets for the benefit of patients with cancer. With that I'll turn the call back over to Mike.

All right. Thanks, Vicki. As you heard on the call today, Exelixis is off to a great start in 2023. We're excited to have the momentum from our cabozantinib franchise drive increased growth across all components of the business as we at Exelixis work to help any more cancer patients as we discover and develop our pipeline of the future. We look forward to sharing our latest pipeline results and plans at our R&D day in December. I'll close by thanking the Exelixis team for their collective efforts to support our discovery, development, and commercial activities. The team is highly motivated to achieve our mission to help cancer patients recover stronger and live longer. We drive our results every single day with urgency and purpose to build on a foundation of innovation and collaboration. 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 comes from the line of Asthika Goonewardene with Truist. Your line is open.

Hi, guys. Good afternoon and thanks for taking my question. First off, I want to congratulate the team on just another quarter of consistent revenue growth. Good to see that. I guess I got a bunch of questions for Vicki. So Vicki, on your Phase I STELLAR-001 study, you've mentioned on the slides here that you've completed enrollment for several dose escalation and expansion cohorts. I was wondering if you might be able to tell us which expansion cohorts have you completed enrollment so far. And then I've got a couple of follow-ups.

Yes. So, yes. As I mentioned in my remarks that we've completed enrollment on a number of cohorts. We'll be prepared to share more details on that as the data mature. I think you've seen on our last earnings call that we shared the data for the Clear cell RCC cohort, which had not only completed enrollment but also had adequate follow-up to make an assessment. So more to come on that.

Got it. And then maybe at ESMO, sorry, at a medical meeting where you will be presenting data later this year, will they have multiple cohorts or just one cohort?

Yes. Those data to clarify that point are specifically the clear cell RCC cohort, the 32 patients. We'll have updated data, including both efficacy and safety in that presentation.

Got it. Okay. At the last earnings call, you mentioned a 34% response rate and a 50% objective response rate. Since then, I was curious whether the one patient who was unconfirmed the last time we spoke in May has become a confirmed partial response. Also, could you clarify if the STELLAR-002 study includes only the combination of zanza, nivo, and rela, or does it also involve zanza, nivo, and ipi?

Yes. So again, we'll share the updated efficacy data in the presentation. So you'll get more details on an updated response rate as well as, again, the safety data. As for STELLAR-002, we have ongoing expansion cohorts for zanza in combination with nivo, and we're now advancing the rela-triplet into different cohorts as they make sense in the different tumor types.

Got it. All right. Thanks a lot. I appreciate all the color.

You bet. Thank you, Asthika.

Thank you. Please standby for our next question. Our next question comes from the line of Jason Gerberry with Bank of America Securities. Your line is open.

Thank you for taking my questions. I have two. First, could you clarify if a significant portion of your approximately 30% gross to net deductions on Cabo is attributed to catastrophic coverage costs and the donut hole costs? I'm trying to understand the IRA implications related to Cabo pricing. Secondly, regarding the Teva settlement you announced, it appears to be a very favorable deal for your company. Is there anything in that settlement that would prevent you from offering MSM, the lead challenger, slightly better terms? Thank you.

Yes, Jason, thanks for the questions. Chris can help with the gross to net, and I'll speak to the Teva settlement.

All right. Jason, it's Chris. From a gross to net perspective, we do see higher gross to net as we've discussed before. The donut hole aspect isn't necessarily disastrous, but it significantly affects Q1, especially when patients transition from the previous year to the current year and many of them pass through the donut hole due to being on cabo as they make that transition. So, a lot of it is related to the donut hole and not primarily due to catastrophic issues.

Regarding Teva, I am somewhat hesitant to provide detailed comments on that settlement. However, I want to emphasize our satisfaction with the action date we received for the Teva settlement of January 1st, 2031. This aligns with the messaging we have been communicating over time, and we will continue to take strong measures to protect our intellectual property moving forward. Nevertheless, I can't elaborate on how the two might interact.

Had to try.

Thanks, Jason.

Thank you. Please standby for our next question. Our next question comes from the line of Michael Schmidt with Guggenheim. Your line is open.

Thank you for taking my questions. I wanted to ask about the upcoming CONTACT-02 study data. Can you remind us what the benchmark is for progression-free survival for a second hormone therapy in this population? Since you have dual endpoints of PFS and overall survival, is there a possibility to file based solely on PFS, or would both endpoints be necessary for filing this indication? I also have a broader follow-up question.

Yes, thanks for the question, Michael. So in terms of the bar, again these are patients with metastatic castration-resistant prostate cancer who have already received first non-hormonal therapy. So they tend not to have actually quite short PFS on their second line NHC which has given in advance of chemotherapy, so somewhere on the order of about 2.5 to 4 months PFS. In terms of would we file on PFS alone or OS? What I would say is, we're going to evaluate the totality of the data, as they come in, in terms of the overall benefit-risk profile that we see and if appropriate, we'll have those conversations with the regulatory authorities.

Great, thanks. And then thanks for the additional detail on your R&D efforts and pipeline activities. So obviously you're focusing more now on advancing internal programs into clinical development. To what degree does that affect your business development strategy? Is that still a priority at this point given your strong balance sheet? Or are you shifting more towards investing into the internal pipeline capabilities? Thanks so much.

Yeah, Michael, it's Mike. Yeah, no, that's a great question and thanks for that. We specifically added a bullet in my intro around BD and our interest and the priority we have in continuing our business development activities to access new clinical assets. So that's a priority for us. Again, we're agnostic to where high conviction assets come from. I wish to make a lot of progress on our internal R&D efforts, but there's still some molecules out there that we like a lot, that we're pursuing. So that's still an important part of our process. And again, no guarantee will be able to complete those transactions, but it's certainly a main focus for us right now.

Great. Thanks so much.

Thanks, Michael.

Thank you. Please standby for our next question. Our next question comes from the line of Andy Hsieh with William Blair. Your line is open.

Thanks for taking our questions. I got a couple here. So, Vicki, thanks for the update regarding the STELLAR-303 study. I'm just curious about this emerging observation about liver mets. Is that dependent on the RAS status, whether it's mutated or wild type? Just kind of curious about that two variable at a two-by-two metrics.

Thank you for the question. The current design of STELLAR-303 had overall survival in RAS wild type patients as a primary endpoint. To clarify, under the amended design, we will enroll patients regardless of RAS status and analyze the data without considering RAS status. This change aims to enhance the trial's probability of success based on new data. The LEAP-17 data, presented about a month ago, revealed some insights from previous single-arm datasets where the combination of immunotherapy and targeted therapy, such as regorafenib and nivolumab, was examined for response rates. We observed that patients without liver metastases had higher response rates compared to those with liver metastases. However, the LEAP-17 data showed a Phase III trial that did not improve overall survival, despite some gains in response rate and progression-free survival. The overall survival hazard ratio was 0.83, but in subgroup analysis, the significant factor for overall survival benefit was the presence or absence of liver metastases. Patients without liver metastases had a hazard ratio of 0.65 for overall survival, while those with liver metastases had a hazard ratio of 0.91. We believe that the overall evidence supports focusing on a non-liver metastases population as our primary endpoint. Therefore, we plan to concentrate on patients without liver metastases for the primary analysis, with a secondary analysis that will include all patients, including those with liver metastases, and regardless of RAS status. This approach leverages emerging external data, increasing the chances of success for the study and ensuring that the patients most likely to benefit from the therapy have the opportunity to do so.

Got it. That's very helpful. Regarding the tissue factor agnostic opportunity, I'm just curious about how you think about potentially a regulatory strategy there. And also, how big is that tissue factor positive solid tumor opportunity?

At this moment, it's too early to discuss our regulatory strategies in this area. This is primarily an exploratory cohort that allows us to investigate tumor types that are not being studied in specific directed cohorts. The expression of tissue factor may help us uncover additional signals for tumor types beyond those we are currently examining. It may also indicate whether tissue factor expression, which we are assessing across all patients in the study, is predictive of response.

Great. And maybe lastly on CBX-12, curious about your view on the data presented at ASCO and remind us what are some conditions for opt-in?

Yeah, so CBX-12 is continuing in dose escalation. We're certainly encouraged to see responses that have been emerging, the data and the opt-in decision really, we will have to wait and see in expansion cohorts once we've confirmed the activity and the safety profile of the assets.

Okay, great, thank you so much.

Yeah, thank you, Andy.

Thank you. Please standby for our next question. Our next question comes from the line of Jay Olson with Oppenheimer. Your line is open.

Oh, hey, congrats on the quarter. And thank you for taking the questions. Based on the strong cabo sales, can you just comment on the rationale for keeping the original guidance and what your expectation is for the growth rate for cabo in the second half and maybe just some thoughts on market share at 39%, they had a strong quarter-over-quarter growth, maybe any color on the competitive landscape for TKIs in the RCC market? And then I had a pipeline follow-on, if I could.

Right. Jay, thanks. Why don't we start with the second part of that question first. P.J. can talk about the market dynamics in the RCC space, and then Chris can briefly comment on guidance.

Thank you for the question. Regarding the market, I want to highlight that we are currently the market leaders in first-line TKI plus IO combinations for the third consecutive quarter. We have seen significant strength in this area, with a 39% share in the TRx market, which has continued to grow quarter-over-quarter. This gives us strong momentum. We're observing growth in both demand and new patient starts, and our data, particularly the long-term follow-up results from CheckMate -9ER, now at 44 months, is solid. The strong overall survival data, showing a 14-month advantage with the combination over sunitinib, is a key differentiator and continues to enhance positive perceptions of our data. We feel optimistic about our ongoing momentum and opportunities for growth in the market. Chris?

Thanks, P.J. So from a guidance perspective, as you just heard from P.J., we had a strong quarter. We continue to have strong growth and based on that strong growth that we've seen in the first half of the year, we think we're confident that cabo has the ability to grow into the second half of the year and that's why we reiterated the guidance range we did today.

Okay, great, thank you. And if I could squeeze in a pipeline question, congrats on the CBX-12 data at ASCO. Can you just comment on whether or not you'll be starting a Q3W dosing cohort and how far away do you think you are from recommending a Phase II dose?

Yeah, so, thanks for the question. We are moving into every three-week dosing actually, Cybrexa has that cohort ongoing now. Ultimately in terms of selection of a dose, I think there are multiple factors here in terms of doses, different schedule, and we have to consider the requirements of FDA's Project Optimus and dose optimization. So we're in discussions now with Cybrexa on exactly what that might look like, but making sure that we have a solid foundation for selecting a dose to go forward with.

Great. Thanks for taking the questions.

Of course, Jay. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Silvan Tuerkcan with JMP Securities. Your line is open.

Thank you for taking my questions and congrats on the great quarter. I have a question about, if you can please outline the scenarios for COSMIC-313 with the data upcoming in the second half of the year? What are kind of the scenarios and how do we get from this data to supplemental NDA? And then I have a follow-up question.

COSMIC-313 reported top-line results for progression-free survival endpoints about a year ago, showing an improvement for the combination of cabozantinib with nivolumab and ipilimumab compared to nivolumab and ipilimumab alone in patients with poor and intermediate-risk renal cell carcinoma. At that time, the overall survival data were not mature, and in discussions with the FDA, they indicated that they would want to see overall survival data before considering any filing. This upcoming interim analysis will focus on overall survival, and depending on the results, if they indicate a favorable benefit-risk, we can consider a filing. We are in discussions with the FDA regarding this.

Is there a way to file only for a specific group of patients? I remember there was a difference in benefit between the low-risk and medium-to-high-risk patients.

Yeah. I really can't speculate on that. And again based on the data, we'll have the conversation about filing potential with the FDA.

Thank you. Please standby for our next question. Our next question comes from the line of Etzer Darout with BMO Capital Markets. Your line is open.

Great. Thanks for taking my question. A couple from me, both from sort of the pipeline. First on STELLAR-303, wondered if you could talk at all about the performance of regorafenib in patients with or without liver mets and whether or not that impacts sort of the performance of the control group at all. And then for planned STELLAR-005 study, I am assuming this will be maybe like IKNOTE-048 with the PD-L1 scores of CPS greater than 1 and then I guess, is that what the primary analysis would be based on the CPS greater than 1 population. Thank you.

Sure, I'll address the question about STELLAR-303 first. Regorafenib shows very low response rates, approximately 2% across the board, indicating no significant difference between patients with liver metastases and those without in terms of response. It is increasingly evident that the benefits from immunotherapy seem to be more pronounced in patients without liver metastases, which is where we believe our chances of achieving a successful outcome are highest. There is a notable unmet need in both groups of patients, so we are enrolling individuals regardless of liver metastases to explore potential benefits for both populations. The situation is critical, as standard treatment options are limited. Now regarding STELLAR-305, pembrolizumab is approved for this setting. We will be studying the patient population for which pembrolizumab was approved, having demonstrated an overall survival benefit compared to standard treatment, particularly in patients with CPS scores of one or higher. However, the response rates in this population are also quite low. We see an opportunity to provide additional benefits here, supported by Zanza's safety profile, and we believe we are well-positioned to achieve that based on the promising activity observed with cabozantinib in combination with pembrolizumab, which had a response rate of 54% as presented last year at ASCO.

Great. Thank you.

You're welcome.

Thank you. Please standby for our next question. Our next question comes from the line of Derek Archila with Wells Fargo. Your line is open.

Thank you for joining us today. I have two questions. First, could you explain the market opportunity you see for the cabo-atezo combination in the pre-chemo setting for prostate cancer? Second, following the recent changes to the Board, are there plans to review the current cost structure to identify any efficiencies? If so, when can we expect that information to be communicated? Thank you.

I think there are a couple of important points regarding the market. We are excited about the possibility of positive data and approval. The prostate cancer market is significant, particularly in the second-line plus metastatic CRPC setting, which includes over 50,000 patients. More broadly, our market research and discussions with key opinion leaders indicate that there is a substantial unmet medical need in this area, as well as a strong interest in delaying chemotherapy. Based on the feedback we've received, we believe that a combination of a checkpoint inhibitor and a TKI would be very well-received in this setting. Therefore, we are quite optimistic about the potential opportunity.

In the context of Board deliberations around our strategy and tactics, the boards have been meeting for a couple of months. We've had individual meetings, small groups, committees, and full Board sessions, and I am really pleased with the tenure, tone, collaboration, and focus on what we are doing both strategically and tactically as a company, with the aim of building value for patients and shareholders. As you can tell from today's call, we are fully committed to advancing our R&D agenda to enable the entire pipeline towards pivotal trials and eventual commercialization, given we have traction in generating differentiating data. We are very excited about our future and the direction we are headed, so stay tuned. There is a lot happening with us, and we believe we have ample room to maneuver given the strength of our balance sheet, the commercial opportunities, and the depth you heard from Dana and Vicki today within R&D.

Got it. Sounds great. Thanks. Congrats on the quarter.

Yeah, thank you very much.

Thank you. Please standby for our next question. Our next question comes from the line of Joe Catanzaro with Piper Sandler. Your line is open.

Hey, everyone, I appreciate you taking my questions. I have two related to the pipeline. First, regarding the dosing of XB002. TIVDAK has been approved for a dosing schedule every three weeks, but we’ve gathered some intriguing data from a different schedule outside of cervical applications. How much will this schedule influence your plans for XB002? Secondly, I would like to know if you have any updated insights on your initiatives in the SIRPalpha-CD47 area, especially considering the recent results with magrolimab. Thank you.

Thanks for the question. Regarding XB002, we are proceeding with a dose of 2.25 mg/kg for the expansion cohorts, along with a lower dose of 1.7 mg/kg to comply with Project Optimus. We plan to conduct PK modeling to gain a better understanding of the exposure response. In terms of the TIVDAK dosing, we have carefully analyzed our PK profile and the findings are very encouraging. Two key points to highlight are: first, the level of free payload, which is associated with off-target toxicity but not efficacy, is substantially lower for our product compared to TIVDAK at its approved dose. This positive finding is reflected in the safety profile. At our selected higher dose of 2.25 mg/kg, we observe about five-fold lower levels of free auristatin compared to TIVDAK. Additionally, we are seeing higher overall exposure of intact ADC. Specifically, compared to TIVDAK at 2 mg/kg, we have higher exposures starting from doses of 1.5 mg/kg and above, with our selected dose of 2.25 mg/kg yielding threefold higher levels than TIVDAK at its approved dose. We are confident in our chosen doses and are now focused on exploring the efficacy and safety profile. The intact ADC should drive the response, while the low levels of free payload may contribute to a better safety profile.

And this is Dana. Thank you for the question regarding CD47. Recently, Gilead announced that a Phase III trial of magrolimab, which targets CD47, was stopped due to futility in patients with high-risk MDS. They did not provide updates on their other programs, which cover a wide array of indications. We maintain a strong belief in the CD47 pathway. Our most advanced agent, as I noted in the prepared remarks, is XB014, an important next-generation approach designed based on the clinical profiles of first-generation CD47 targeting agents like magrolimab. It also has a solid preclinical basis for combining the inhibition of PD-1/PD-L1, a key adaptive immune checkpoint, with the inhibition of the CD47 SIRP alpha pathway, a key innate immune checkpoint. We believe this remains a compelling mechanism of action in solid tumors, and we are committed to investing in agents that can target this pathway from multiple angles, including ADU-1805, which is also a next-generation approach targeting SIRP alpha very potently and selectively. We are firm in our strategy to target this pathway.

Okay. Great, thanks so much for taking my questions.

Of course. Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Jeff Hung with Morgan Stanley. Your line is open.

Thank you for taking my questions. Could you provide an update on the ADU-1805 Phase 1 study and when we might see initial data? And then I have a follow-up.

I'll go it. Yes, so that is ongoing in dose-escalation. We're working closely with the Sairopa team on that. It's too early to discuss when we will have a data presentation.

Okay. And then on XB371, the payload differs from XB002, but given that they share the same key targeting, is the goal to mitigate risk for adverse events, while maintaining selectivity? And then, do you expect 371 to behave similarly to 002 in terms of levels of Intact ADC or free payload? Thanks.

Yes. So at this point, I'll say the goal is really to target those specific molecules with the highest potential to provide strong clinical results and improved outcomes for patients while mitigating risks. We will not speculate extensively on how this might compare until we get into the clinic but the aim is to maximize the efficacy while minimizing any potential adverse effects. So we are optimistic.

Great, thank you.

Thank you, Jeff.

Thank you. Please standby for our next question. Our next question comes from the line of Peter Lawson with Barclays. Your line is open.

Hi, good afternoon. This is Alex on for Peter. Thanks for taking our questions. Just one, just given your cash position, your plans for BD and internal investments, do you see potential to increase your share buyback program potentially? Thank you.

Alex, this is Chris. Thank you for the question. We are currently committed to the $550 million share repurchase program that was authorized in March. As time progresses, we will continue to assess how we allocate capital across various areas of the business, including potential share repurchase, as well as research and development, and commercialization.

Thank you.

Take the next question, operator.

Please standby for our next question. Our next question comes from the line of Stephen Willey with Stifel. Your line is open.

Good afternoon. Thank you for including me. Regarding 303, can you discuss the percentage of enrollment that was finished before the protocol changes were made? Will there now be an effort to selectively enroll patients to achieve a better representation of either RAS status or liver metastases? Additionally, does the increase in sample size also suggest a change in your initial assumptions about the control arm? I know the control arm of over nine months that emerged, which I believe included regorafenib and TAS-102, was somewhat higher than many had anticipated. Thank you.

Yes, the enrollment for 303 has been progressing well. We still have several sites to activate, but we are confident that once they are operational, we can quickly enroll about 50% more patients. The patients already enrolled are relevant to our target population, so we have no concerns about any skewing. The increase in enrollment is primarily due to the high incidence of patients with liver metastases. To ensure a representative patient population that reflects the incidence of liver metastases, we need to enroll a significant number of patients with liver metastases in addition to those without. The main analysis will focus on the smaller population, but demonstrating a benefit there while also considering the overall population means we need to enroll more participants. Fortunately, we believe we can accelerate the process given our strong recruitment efforts for the study.

Great, thanks for taking the question.

You bet, Steve.

Thank you. Please standby for our next question. Our next question comes from the line of Chris Shibutani with Goldman Sachs. Your line is open.

Great, thank you. Can I just clarify on 303 with the answer to Stephen's question? Does the amendment have any implications or effect on potential timelines? And then just more broadly, I guess you have the R&D Day planned in December, but could you just give us a sense for your plans for disclosing additional data across the zenza program and across the Phase III studies? This is pretty much going to wait for December Analyst Day or help us out a little bit when we can get more data. It seems there are a lot of the responses are, we'll have to wait-and-see.

Yeah. I mean, so we've increased the sample size by 50%, so of course, we do expect that it will take longer to enroll. Again, the patients that we've already enrolled are remained relevant to the patient population. And we've had a robust recruitment, again, but still some sites that we're still bringing onboard, lots of investigator enthusiasm. So we think that we can ultimately make up some time there.

In terms of the R&D Day agenda and content, I don’t want to get too far ahead of ourselves since that’s in December and it’s barely August. We have some time to figure it out. We are committed, as we have been historically, to presenting mature data when it becomes available, not just for the cabo spectrum but for the entire pipeline. We are on track to do that this year with zanza, and if we have the opportunity to present mature data later in the year, we will find a way to share it when it is appropriate. I appreciate your patience, as you know that some of these things take longer than we would like. However, we are very comfortable with the depth of our R&D across discovery, development, collaborations, and other projects we are currently working on. We look forward to having a comprehensive session in New York to share the latest data when the time comes.

Yeah. Next question?

Thank you. Please standby for the next question. Our next question comes from the line of Yaron Werber with TD Cowen. Your line is open.

Great, thanks for taking the question. I got a couple of questions. Maybe, Chris, for you first, on the tax-rate. The tax-rate has been terrifically low in the first-half and you're maintaining your guidance. Can you just clarify, are you expecting the tax-rate to increase in the second-half? Any specific items, you can kind of call-out for us? And then secondly, on STELLAR-303, just can you give us a little bit of a sense of the powering now with the new sort of focus on patients without liver mets, with the expanded study? I imagine the power is very high. So what's the delta or treatment effect that you're looking for? Thank you.

Hey, Yaron, it's Chris. So yeah, you're right. Our tax-rate is for the first half of the year has been below our guidance range. But there's a lot of things that go into that when you look at the entirety of the year and there are some expenses that may or may not happen in the second-half of the year. So we're maintaining our guidance for that reason.

Okay, thanks.

And with respect to STELLAR-303, in terms of the power for overall survival, we're looking for a clinically meaningful effect in both the non-liver mets population as well as in the IGT.

And what do you consider to be clinically meaningful? I don't know if you can expand a little bit.

Without getting into the statistics, I would just say, again, when we think about interactions that we have with regulatory agencies, as well as with payers and what they're looking for in terms of overall survival benefits, you can also look to the LEAP-17 data and see the difference in the OS hazard ratios, as I mentioned earlier for what they saw in the non-liver mets population.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to your host Susan Hubbard for closing remarks.

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

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