Exelixis, Inc. Q3 FY2024 Earnings Call

Good day, ladies and gentlemen, and welcome to Exelixis Third Quarter 2024 Financial Results Conference Call. My name is Towanda, 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, Mr. Varant Shirvanian, Director of Investor Relations. Please proceed.

Thank you, Towanda, and thank you all for joining us for the Exelixis third quarter 2024 financial results conference call. Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; and P.J. Haley, our Executive Vice President of Commercial, who together will review our progress for the third quarter 2024 ended September 30, 2024. Amy Peterson, our Chief Medical Officer; and Dana Aftab, our Chief Scientific Officer are also on the call today and will participate in our question-and-answer session. 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 was 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 and estimates and projections from our annual U.S. net product revenues and potential marketing growth opportunities. These estimates and projections involve a number of assumptions and limitations, and we caution investors not to place undue reliance on this information. Actual events or results could, of course, differ materially. We refer you to the documents we file from time to time with the Securities and Exchange Commission, which are under the heading Risk Factors, identifying 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. With that, I'll turn it over to Mike.

All right. Thanks, Varant, and thanks to everyone for joining us on the call today. We'll use our prepared remarks today to provide a strategic perspective on the business with a forward-looking view of the opportunities for cabozantinib, zanzalintinib, and the early-stage pipeline to maximize success in building a multi-franchise oncology business. The last few weeks have been extremely busy with the positive Cabo ANDA ruling and the Zanza collaboration announcement with Merck. As you saw in our press release issued an hour ago, Exelixis had a very successful third quarter across all components of our business. I'll start today with a strategic overview to frame our near-term and aspirational vision for the company, followed by financial and commercial updates from Chris and P.J. Amy and Dana are here as well and will address any technical R&D related questions that come up in Q&A. Exelixis is obviously at an inflection point with the clarity on the Cabo ANDA and significant momentum for Zanza. Cabo is having a strong 2024 and across literally all commercial metrics that we track routinely as performance indicators for the business, and we remain very bullish on Cabo's revenue outlook into 2030. The Zanza opportunity represents an important component of mid and long-term revenue growth starting in the back half of this decade and potentially building into a dominant position in the 2030s. We're pleased to be working with Merck in kidney and head and neck cancers, and the cost sharing, compound sharing agreements, provide significant validation and momentum for Zanza, while we maintain full global commercial rights. As the collaboration with the competition model has been a pillar of our Cabo development success, we are pleased to get the first one moving with Zanza. We're obviously not done in this regard and aim to expand into other collaborative opportunities in the future. With the Zanza development plan, including six ongoing and planned pivotal trials, and more potentially on the horizon, we believe Zanza has the opportunity to surpass Cabo in scope and scale with one planned launch per year starting as early as 2026. Exelixis' aspirational goal is to be a market leader in both GU and GI oncology as our main therapeutic focus. Note that we are arguably already in the pole position as a GU oncology leader. So building momentum in the GI space is an immediate priority for both Cabo and Zanza. Additional Zanza indications outside of GU and GI will be pursued opportunistically. Building, developing, accelerating, and pruning our early-stage pipeline is critically important as we advance toward a multi-franchise business. With three novel compounds in our early-stage clinical pipeline, including XL309, XB010, and XL495 and several near-term INDs close behind, we plan to efficiently profile and prioritize potential winners for advancement into full development. As I said before, we're in the pivotal trial and p-value business where clear clinical differentiation is the mandatory prerequisite and the only viable path toward future commercial success. That's the essence of the Cabo story and we're applying that filter to everything we do in R&D. We have a lot of exciting mature data from our early clinical efforts with Zanza, and we expect to present a significant amount of clinical data from STELLAR-001 and 002 throughout 2025 at major medical meetings. We'll provide more granularity on those data sets as abstracts are accepted and titles published. In addition, we plan to host another R&D Day in 2025 as well. With the ANDA litigation now largely behind us, we expect future business development activities to ramp up. As highlighted previously, we are targeting late-stage clinical assets in the GU/GI oncology space, where we have clear conviction that clinical differentiation could drive ultimate commercial success. As we've highlighted previously, most biotech oncology launches since 2016 have been underwhelming, with Cabo being one of the few standouts in terms of indication expansion and revenue growth. So we're very selective as we evaluate the clinical and commercial opportunity of late-stage assets. Exelixis could potentially pursue any type of transaction as we advance with a pragmatic, thoughtful, and unambiguous focus on doing the right deal at the right valuation for the right asset. Finally, we're executing with an ambitious plan for building success as a multi-franchise company. To that end, I want to be very clear that we're committed to running the business and specifically R&D at recent expense levels for the foreseeable future. Our intention is to continue to rigorously and often aggressively prioritize spending and investments towards late-stage molecules to maximize our clinical and commercial success, while we advance the pipeline, generate free cash, and return a healthy portion of that free cash to shareholders. As you all know, clinical success never gets cheaper as compounds advance into late-space development. So we'll continue to prioritize our spending as we did at previous Exelixis inflection points over the course of the last decade. Our share buybacks over the last two years totaling $1 billion in commitment of another $500 million to the end of 2025 underscores our balanced and pragmatic approach to investing in the pipeline while returning cash flow to shareholders. So with that background in place, let's review the key highlights for the quarter and drill down into additional details for our near and midterm vision for Cabo and Zanza. First, let's start with the quarter. Exelixis delivered outstanding financial performance in the third quarter 2024 with top and bottom line growth year-over-year, driven by the strength of the cabozantinib franchise, including increased demand, new patient starts, and revenue. CABOMETYX maintained its status as the leading TKI for RCC in the U.S. with third quarter 2024 Cabo franchise net product revenues of $478 million, up 9% quarter-over-quarter compared to Q2 2024 and 12% year-over-year compared to the third quarter 2023. Global cabozantinib franchise net product revenues generated by Exelixis and its partners grew to $653 million in the third quarter of 2024. We have increased 2024 full-year net product revenue and total revenue guidance based on these robust results, and we're building on our strong commercial momentum as we wind up the year and head into 2025. Chris and P.J. will provide details for the quarter in their prepared remarks. Let's move next to our future. First focusing on Cabo to drive near-term upside with strong projected revenue growth through the end of the decade and the potential for Zanza to drive significant revenue opportunities starting as early as 2026 and accelerating into the 2030s and throughout that decade. We're obviously pleased with the favorable ANDA ruling, which extends our Cabo revenue running into early 2030 subject to Exelixis' potential additional regulatory exclusivity. The District Court's judgment is also subject to appeal by either party. I want to remind everyone that to the best of our knowledge, the FDA has not granted tentative approval of MSN's proposed ANDA products more than five years after their original submission. Building off the strength of Cabo's leadership position in RCC and potential new indications in net in CRPC, our midterm projections highlight the potential for Cabo to reach peak sales in the U.S. of nearly $3 billion annually by 2030, with conservative estimates for growth of the base business, capturing a significant market share of the oral net therapy indication and a limited opportunity in prostate cancer, which is heavily discounted until we get clarity on regulatory traction with our projected fourth-quarter filing. Let's turn next to Zanza. Zanza has been largely under the radar from the Street's perspective with only a little over half of our covering analysts including it in their revenue models. We anticipate it will gain more attention and prominence moving forward now with the positive Cabo and a ruling and the recently announced collaboration with Merck. Specifically, Zanza is built to expand on Cabo's foundation and its early development plan provides a framework to surpass Cabo's clinical and commercial success. Our first six Zanza pivotal trials and four lead indications, including colon cancer, kidney cancer, head and neck cancer, and neuroendocrine tumors represent a large population of over 100,000 cancer patients annually, with overwhelming unmet medical need based on current standards of care with the cadre of generic and established drugs. Critically, recent progress across these trials reinforces our plan to secure our first potential approval for Zanza as early as 2026 and then in subsequent years, one additional approval per year and in clinical and regulatory success. The Zanza revenue opportunity with this first wave of label enabling trials is substantial, with projected greater than $5 billion of top line sales in the U.S. to 2033, nearly equally split between GU and GI indications. Obviously, a second wave of new trials in GU, GI, and other appropriate indications could advance this opportunity to the next level in the mid-30s and beyond. Zanza commercialization ex-U.S., either by Exelixis or a potential new partner could drive significant commercial and financial upside as well. I'll wrap up here with a few additional comments on the pipeline, advancing behind Cabo and Zanza. We're thrilled but never satisfied with the depth and scope of the early pipeline assets we've built and are moving into and through early clinical evaluation. Our small-molecule and biologic approaches represent the opportunity to match the best modality with the most compelling tumor pathobiology as either monotherapies or combination partners, with checkpoint inhibitors or proprietary Exelixis molecules. We're advancing lead molecules in the synthetic lethality space with XL309 and XL495 and a variety of biologics in EDC, bispecific, and monoclonal antibody formats. The ultimate goal for all these programs is to rapidly generate clinical data to prioritize advancement into full development, all with the goal of exceeding expectations as a multiproduct multi-franchise oncology biopharma. So with that, please see our press release issued an hour ago for our third quarter 2024 financial results and an extensive list of key corporate milestones achieved in the quarter. I'll now turn the call over to Chris.

Thank you, Mike. For the third quarter of 2024, the company reported total revenues of about $539.5 million, which included net product revenues from the cabozantinib franchise of $478.1 million. CABOMETYX net product revenues were $475.7 million and included around $6.6 million in clinical trial sales, which is similar to the second quarter of 2024. The gross to net for the cabozantinib franchise in the third quarter of 2024 was 26%, lower than the gross to net we saw in the second quarter of 2024. This decline in gross to net deductions is mainly due to reduced Medicare Part D and DoD and TRICARE expenses. We are now estimating that our gross to net deductions for fiscal year 2024 will fall between 28% and 29%. Our CABOMETYX trade inventory remained unchanged at 2.1 weeks on hand compared to the second quarter of 2024. As a reminder, clinical trial sales have historically fluctuated between quarters, and we expect this trend to persist. Total revenues included $60.2 million in license revenues for the third quarter of 2024. The largest component of our license revenues was $42 million from royalties received from Ipsen and Takeda for their sales of cabozantinib in their respective territories. Additionally, we recognized about $11 million in license revenues tied to a regulatory milestone from Ipsen's submission of their application for a potential new indication with the European Medicines Agency. Our total operating expenses, including restructuring and impairment charges, for the third quarter of 2024 were roughly $352 million compared to $361 million in the second quarter of 2024. The sequential reduction in these operating expenses was largely due to lower general and administrative costs, which were offset by increased clinical trial and licensing expenses in the third quarter of 2024. After assessing our immediate requirements for laboratory and office space on our Alameda campus, we placed some of our vacant leased properties on the market for sublease, resulting in a non-cash impairment charge of about $52 million related to these leases. The provision for income taxes for the third quarter of 2024 was around $37 million compared to approximately $67 million for the second quarter of 2020. The company reported GAAP net income of about $118 million or $0.40 per share on a fully diluted basis for the third quarter of 2024, alongside a non-GAAP net income of around $136 million or $0.47 per share on a fully diluted basis. Non-GAAP net income excludes the impact of about $18 million of stock-based compensation expenses net of related income tax effects. Cash and marketable securities as of September 30, 2024, amounted to roughly $1.7 billion. In the third quarter of 2024, we repurchased around $12 million of Exelixis shares at an average price of $25.61, as part of the $500 million share repurchase program approved by the Board in August 2024. Finally, regarding our financial guidance for the full year of 2024, we are raising and refining our total revenue and net product revenue guidance due to CABOMETYX's strong performance in Q2 and Q3 this year. We are increasing our total revenue guidance to between $2.15 billion and $2.2 billion. Additionally, we are raising our net product revenue guidance to between $1.775 billion and $1.825 billion, which raises the midpoint of our net product revenue guidance range by $100 million compared to our earlier projections. Given the time of year, we are also tightening our R&D and SG&A expense guidance ranges. Please refer to Slide 20 of our Q3 earnings presentation for more details. Now, I'll turn the call over to P.J.

Thank you, Chris. The third quarter of 2024 was a very strong quarter as the team continued to execute at a high level, which has resulted in CABOMETYX continuing to be the number one prescribed TKI and RCC. Additionally, CABOMETYX remains the number one TKI plus IO combination in first-line renal cell carcinoma. CABOMETYX TRx volume grew 9% year-over-year in Q3 2024 compared to Q3 2023. In the same period, the TKI market basket volume declined by 1%. Importantly, the business continues to grow in terms of demand in new patient starts, both of which were at an all-time high for CABOMETYX in the third quarter. CABOMETYX continued to perform well from a marketplace and competitive perspective. CABOMETYX again led the TKI market basket with TRx share increasing to 42%. As we have discussed previously, the first-line RCC market is extremely competitive and Q3 was the eighth full quarter in which CABOMETYX plus nivolumab remains the number one prescribed TKI plus IO combination in first-line RCC. In particular, we're continuing to see strong growth in the community oncology setting. Looking forward, the commercial team is excited about the positive results from the CABINET study in neuroendocrine tumors as Exelixis aims to become a leader in the NET space. We believe the RCC market provides a blueprint for how the NET market could develop and grow in the coming years. The global RCC market grew from approximately $3.7 billion in 2016 to approximately $10 billion in 2023, driven by new therapeutic launches, improved outcomes for patients, leading to longer treatment durations and longer survival with patients receiving more lines of therapy. Similarly, early projections for the global NET market show it could almost double going from approximately $2.5 billion in 2023 to approximately $4.6 billion in 2030. Based on the CABINET study, CABOMETYX is well positioned to capture a significant portion of this market pending regulatory approval. Beyond Cabo, the STELLAR-311 study positions Zanza well in the neuroendocrine tumor space. However, it is not included in these early projections. The CABINET data were enthusiastically received at this September's ESMO meeting and simultaneously published in the New England Journal of Medicine. As we talk to KOLs and physicians and market research, the efficacy data from CABINET is viewed favorably by prescribers in terms of progression-free survival, overall response rate, and disease control rate. They view the CABINET data as clinically meaningful, and there is excitement for the potential for Cabo to become available to NET patients. The vast majority of physicians in our neuroendocrine tumor market research have experience with Cabo in RCC, HCC, or DTC, which is consistent with CABOMETYX utilization data. These oncologists cite their experience with CABOMETYX in these tumors as a positive factor, particularly when it comes to comfort with dose modification and toxicity management. The feedback and research clearly demonstrate that a regulatory approval for CABOMETYX based on the CABINET study would have the potential to help a broad range of NET patients and address a significant unmet medical need. The CABINET study had a diverse population that included patients regardless of site of disease origin, tumor grade, prior Lutathera, SSTR status, or functional status of the tumors. In our market research and KOL feedback, physicians cite the study design as a positive and that it covers a wide range of NET patients that they see in their practice, as well as the fact that it is a contemporary data set and is inclusive of patients who have received prior Lutathera. The potential broad utility of Cabo and NETs is a differentiator in this setting relative to other approved agents. Cabo may have the opportunity to be the easy choice to use in neuroendocrine tumors given that it was studied in all relevant clinical segments. In our analysis of the neuroendocrine prescriber universe, we see the vast majority of NET business potential in approximately 3,500 prescribers. We are thrilled that about 80% of these prescribers already have experience writing CABOMETYX. Of these 3,500 NET treaters, 2,800 are already current on-label targets for the sales force, indicating that access to them would be efficient. Also of the 700 NET prescribers who are not currently called on, the vast majority, 550 are co-located with current CABOMETYX targets. Ending FDA approval, we are confident that we will be able to rapidly reach and educate this NET prescriber universe efficiently given the overlap with current sales targets and the fact that we expanded our GI sales team. Turning to the NET market. We have conducted market research, which shows that oral therapies account for approximately 25% of the first-line market and 50% of the utilization in the second and third line plus settings. Currently available oral options do not have the same breadth of data across all disease characteristics, including site of origin, grade, and functional status. Also, in market research, physicians do not view the toxicity profile of these agents in a favorable manner. The majority of NET patients will receive multiple lines of therapy, and there is lack of optimal sequencing data in this setting, particularly in patients previously treated with Lutathera. All of this taken together underscores the need for a contemporary data set that is broadly applicable to address the unmet medical need for this heterogeneous patient population. Looking at the small molecule market for NETs in 2025 using contemporary pricing, the small molecule opportunity would be approximately $1 billion in the U.S. Additionally, upon approval, CABOMETYX would be the only branded small molecule therapy competing in the neuroendocrine tumor market. This is a critical point as Cabo would have a clear advantage in promotional share of voice and be the only oral therapy with comprehensive patient support services. With the CABINET data and a focused launch strategy that leverages the positive prescriber experience with Cabo, Exelixis is well positioned to rapidly penetrate this market. Furthermore, as Exelixis aims to become a leader in the neuroendocrine tumor market, we are excited about the planned STELLAR-311 trial of Zanza and NETs. The commercial team is excited and motivated by the launch planning and preparation for the opportunity in NETs. The Cabo franchise is closing out 2024 with significant momentum in our currently approved indications and a potential regulatory approval of CABOMETYX in NET would provide the opportunity to continue the growth and momentum in the coming years. Looking through the Cabo lens, it is clear that great data with a great team behind it, can significantly help patients and expand markets. We've seen this in RCC as the oral therapy market has expanded by nearly 40% since the beginning of 2021. We are extremely excited about the portfolio announced Phase III Zanza trials. We are motivated to expand the Cabo franchise to a kinase inhibitor franchise with Zanza having the potential to help patients in tumors where Cabo has demonstrated activity such as NETs and RCC as well as new tumors such as colorectal and head and neck cancers. So we can continue to help more patients with cancer as we strengthen our GU and GI franchises. And with that, I will turn the call back over to Mike.

All right. Thanks, P.J. I'd like to close our call today by thanking all of our very talented and dedicated employees who are unwavering in fulfilling our mission to help cancer patients recover stronger and live longer; successfully litigating the ANDA with the results of extremely hard work and perseverance over literally years led by our excellent legal team in partnership with outside counsel. I'm grateful to the numerous internal employees who were interviewed, deposed, and otherwise engaged in supporting this litigation, including scientists and discovery and manufacturing leaders and members of the commercial and medical affairs teams as well as finance and public affairs. It was a true team effort across the entire company, and I appreciate the commitment of everyone who is involved in seeing it through to fruition. I'd also like to recognize the team involved in successfully negotiating the Merck clinical development collaboration, which was another cross-functional effort led by our business development colleagues. With this collaboration, we're on our way to helping many more cancer patients with Zanza. I'd also like to thank our commercial organization, which has driven Cabo's outperformance and contributed to our strong financial results over the first nine months of this year. And finally, I'd like to recognize our entire R&D organization, who have propelled our pipeline efforts forward at a rapid pace. The collective Exelixis team has accomplished a great deal thus far in 2024 and with much more to come on the horizon as we strive to deliver results for cancer patients and our shareholders. We look forward to updating you on our progress. 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 Asthika Goonewardene with Truist. Your line is open.

Hi, guys. Thanks for taking my questions and congrats on beating the race here. It's very encouraging to see that. Since I'm restricted to just one question, I'll just focus on the Merck collaboration that was recently announced. Can you maybe give us some color on the diligence process that went into that deal? How extensive was it? I know it's hard to comment on that, but that will be useful. And the reason I'm asking is because Merck already has lenvatinib, a drug where tolerability and half-life has been debilitating to its development. I’m just trying to get a sense of how what they did – when they did analysis with Zanza? Thanks.

Yeah, Asthika. It's Mike. Thanks for the question. Yeah. It's a hard question to answer. We don't want to speak for Merck. We certainly want to respect the process that took place over many, many, many months. We're thrilled to be working with arguably our main competitor in the RCC space with Cabo moving forward together with them with Zana. So we're excited about moving forward. Obviously, there's nobody better in the industry at executing trials than Merck. So the fact that they're running two large pivotal trials is just awesome from our point of view, and we're certainly excited to work with them going forward with these percent of trials with Zanza.

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

Hi. This is Chi on for Jason. Thanks for taking our questions. Congrats on securing a favorable ruling on Cabo IP. One on business development. I understand you look to do the right deal at the right valuation for the right asset within the GU/GI space. I'm curious if you have a preference for modality, whether it's small molecule, monoclonal, bispecific, or ADC, and whether you have a feeling on the size of the deal you will consider for BD? Thanks so much.

Yeah. Thanks for the question on BD. Look, we're agnostic to, I think, almost all those factors. We are focused on active molecules, as I mentioned in our prepared remarks, that we have conviction on in terms of having the ability or the opportunity to generate differentiating clinical data that we can then convert into commercial success. I mean, again, that's the learning from Cabo. That's the Cabo lens that we base everything on. So we obviously want to work in the GU/GI space because we’re really set up to execute very well there, both clinically and commercially. But in terms of modalities, we’re open. We’re looking for active molecules that we think we can build into a franchise number one, and then get over the goal line numerous times from a regulatory point of view with the obvious upside in helping more patients and then having that translate into commercial success.

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

Thank you, team, for taking my question and congratulations on the success. I'm curious about the gap between your near-term growth with Cabo and Zanza and what you plan to do with BD and your earlier pipeline. Specifically, when can we expect some data from your earlier pipeline assets? Additionally, what is your perspective on the competitive landscape given the recent data that has been released? Thank you.

Dana, I want to take that one first from a competitive point of view. And then I think both Amy and I can provide some color commentary as well.

Thank you for the question. To clarify, we currently have two compounds in the clinic in the synthetic lethality space: XL309, which is well-targeted, and XL495, which has been filed for a Phase I trial and is underway. As I mentioned during our R&D Day presentation in December, both of these molecules are significantly different from other compounds currently in the clinic. With XL309, we believe we hold a competitive edge as Roche has decided to pause their molecule to address some pharmacokinetic issues they encountered. They reached a limit regarding exposure. We are pleased with our position in the clinic for that compound. For XL495, the PK-1 inhibitor, the main competitor is lunresertib from Repair. As presented at R&D Day last December, our compound appears to have advantages in pharmacokinetics and selectivity. Our PK modeling suggests we can achieve effective exposure with once-daily dosing, and we target about 33% to 35% fewer kinases in our selectivity panel compared to the competitor, which may indicate a safety advantage.

Amy?

Yeah. So I know we spent a lot of time talking about Cabo and Zanza because those are sort of the nearer-term things. But trust me, Dana is keeping the development team very busy with some of these assets in the pipeline as they advance. And they are – here we really are focusing on best-in-class. And with the modality that we have around USP1 and single-stranded break repair, there's really an opportunity to not only extend the reach of PARP inhibition and BRCA mutations, but potentially also take it beyond BRCA-mutated patients into HRD and potentially other indications. And we have XB010 ADC with MMA payload that targets 5T4 advancing. And now as Dana just pointed out, FPI to 495. So we are busy with the pipeline. There's a lot coming. There's more to come. And we are really focusing on that just as much as intensely as we are focusing on Zanza and maturing it.

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

Thank you for taking my question. It's great to see Cabo sales growth accelerating to double digits in the second half of this year. Could you comment on the main driver behind this? Also, congratulations on the Merck collaboration regarding Zanza. I'm curious if you could discuss the two planned Phase III studies of Zanza in RCC and how you view its positioning compared to Cabo and the ARCUS HIF-2⍺ inhibitor in the long term. Thank you.

Okay. P.J., take the first one, and I'll comment on the second one, okay?

Yeah. Thanks for the question, Michael. We're certainly very pleased. As I mentioned, with the quarter and the significant momentum we have with Cabo now and the franchise, as I've mentioned previously, we were sort of continuing to see new highs in both demand and new patient starts and really primarily driven by first-line RCC. We've maintained our market leadership position there. And as we see increasing new patient starts there, we continue to see patient stacking and sort of demand moving forward. So very pleased with that. And really, it comes down to we've got great data across the board there and then a great team really focused on executing at a high level and just continue to see that moving forward.

In terms of Zanza with Merck, again, we've agreed with Merck to keep the details to ourselves for now. As I'm sure time goes on and trials are moving forward. Merck again, who's running those trials will communicate the design and those kinds of issues. So stay tuned on that. I don't have much to say in terms of other competitive programs. We're very, very happy to be partnered with Merck, which has the only FDA-approved HIF inhibitor on the market right now. And with the momentum we've got with Zanza and certainly with their firepower, we're very excited to be moving forward here with them going forward.

Thank you. Please stand by for our next question. Our next question comes from the line of Greg Renza with RBC Capital Markets. Your line is open.

Good evening, Mike and team. Congratulations on the quarter and the recent updates. Mike, I'd like to discuss Zanzalintinib further. I appreciate the insights on the long-term peak opportunities you've outlined. Could you elaborate more on some of the assumptions, particularly regarding patient stacks and the differentiating data expected to support those numbers? Additionally, when considering the breakdowns related to GU, GI, and head and neck, that would be helpful. Also, Mike, what would the ideal portfolio structure look like for you, considering your experience with the Cabo days and how to establish and maintain the competitive positioning of Zanza? Is approaching it as a single asset the best strategy for Exelixis moving forward? Thank you again, and congratulations to all.

Thank you, Greg. I appreciate your comments and question. As we've discussed earlier, Cabo serves as the foundation for building future opportunities with Zanza. We've learned a great deal from our 15-plus years of developing that molecule, achieving several successes, and conducting impressive scientific work. This experience has allowed us to navigate effectively as an organization, and we're applying all those insights to how we approach the Zanza opportunity. Our commercial team is highly skilled in modeling, and we plan to share our assumptions and data in due course. It's essential for analysts to take a deeper look, work on their own models, and we can discuss these together once they have matured. We're excited about Zanza's progress, especially with six pivotal trials currently ongoing or planned. We see more opportunities coming, such as collaboration with Merck and the expected top-line data in 2025, with a potential first launch in 2026. The momentum is strong, and we are pleased to move forward after the ANDA, allowing us to concentrate on business growth without previous concerns. I look forward to engaging with you and making this a success.

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

Great. Thanks for taking my question. Congrats on the quarter and on the litigation. So Mike, just the one thing that really caught my mind is your comment about potentially looking at late-stage deals. I think you've kind of commented that, but I think this is kind of something you're highlighting a bit more now, at least in our view. Am I thinking about this correctly and are you open for acquisitions or is this like really in-licensing only? Thank you.

Thank you for the question and your comments. We have been discussing late-stage opportunities for some time now. As mentioned by Dana and Amy, we have a strong early-stage pipeline. We believe these molecules are top-tier and have significant work ahead of us to evaluate and prioritize what progresses to full development. To be straightforward, we are not seeking additional development candidates, INDs, or Phase I molecules, as we have a full workload internally. Our goal is to transform Exelixis into a multi-product, multi-franchise oncology company. We are making good progress with Cabo and Zanza. However, if we find the right asset that instills confidence in generating distinct clinical data that could lead to strong commercial outcomes, we are keen to explore ways to incorporate those molecules into our organization. As I mentioned earlier, we have several potential business development opportunities on the horizon. We can pursue nearly any viable option, but it must be the right deal with appropriate valuation and asset.

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

Wow, congrats on all the progress across so many fronts, really appreciate the optimism around Zanza, an impressive $5 billion peak U.S. sales potential. Can you comment on what gives you the conviction at this point in time to share your thoughts on the commercial potential? Is it related to the Merck collaboration or something else? And since you have global rights to Zanza, why did you focus your outlook on U.S. revenues and how are you thinking about the ex U.S. opportunity? Thank you.

Thank you for the question, Jay. It's truly an opportune time, as I mentioned earlier today, we're at a pivotal moment organizationally. We're past the ANDA and have that overhang finally removed. We want all our stakeholders to view us positively as we move forward with the success of Cabo and the potential of Zanza, which has several promising opportunities for new indications that we believe could enhance Cabo's success and broaden its reach beyond what we're currently experiencing. It's crucial to shift the focus to the future. As I noted with Greg, it's been a challenge to draw attention to our current position and future trajectory. It's essential to engage everyone and showcase our progress and momentum, which is very important. Our goal is to build a multi-product, multi-franchise business because that brings value to both patients and shareholders. With the current momentum from Cabo and Zanza, along with a robust pipeline and various business development opportunities, we are very excited about our future direction.

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

Thank you for taking our questions. I'm really encouraged by Cabo's strong leadership. I have two questions. First, for P.J., there is a pet imaging agent for CA-9 for RCC that could potentially receive approval next year. I'm curious about your thoughts on how this might attract patients who would otherwise remain undiagnosed, and if this could represent an additional benefit to the $10 billion total addressable market you mentioned for RCC. My second question pertains to the $1 billion total addressable market for the small molecule NET. Based on rough calculations, I believe you're likely projecting a treatment duration of about five to six months. However, when examining the landscape—particularly with the Afinitor label—some treatment durations in earlier lines are around nine to ten months. Is it unreasonable to think that if Zanza is adopted earlier in the NET treatment landscape, the duration could be considerably longer, considering it's a more slow-growing cancer? Thank you.

Thank you for the questions, Andy. Regarding RCC, we have a significant number of patients in the pipeline, and we are pleased with our performance there, highlighted by our leading TRx market share, which has grown to 42%. Most patients in that market are receiving treatment, and the standards for success, especially in the first-line and even with Cabo in the second-line, are quite high. I see this market as relatively stable in the short term compared to other treatment methods. As for NET, around a quarter of first-line patients are using oral therapies, with about 50% in the second and third-line settings. We have conducted extensive market research and have a good understanding of the dynamics there. The earlier a treatment begins, the longer the therapy duration tends to be, particularly in neuroendocrine tumors, which grow more slowly than other solid tumors. There is potential for Zanza to be utilized earlier in treatment, which could lead to longer therapy durations, contingent on trial outcomes and regulatory approval. In the short term, however, we are very optimistic about Cabo and anticipate its approval, with a PDUFA date set for April 3. Looking ahead to the $1 billion market in 2025, we believe we are well-positioned to gain a significant share and do so quickly. As the only branded oral therapy in this area, we have a considerable advantage in promotional reach and comprehensive patient support services, which we believe will be crucial. We are very excited about this near-term opportunity.

Thank you. Please stand by for our next question. Our next question comes from the line of David Lebowitz with Citi. Your line is open.

Hi, everyone. Jon for David. Thank you for taking our question. Regarding Cabo and neuroendocrine tumors, I know you've mentioned some commercial considerations for this market, but what work still needs to be done before a potential launch? Assuming we receive approval, how should we view the initial launch cadence? Are there any existing indications that could serve as a reference for early uptake? Thank you.

Thank you for the question, Jonathan. Our team is incredibly excited and motivated as we prepare for this launch. We will be ready on day one, as we always are when launching a new indication. I believe the more we do this, the better we become at it. I expect that, unlike in RCC, where competition is fierce, we will see a strong uptake right from the start. We have confidence in our robust data, and I've provided some details on the prescriber universe. Our sales force has been expanded, and we are genuinely ready to enter the market quickly and efficiently. We are very enthusiastic about the opportunity to assist many patients with neuroendocrine tumors.

Thank you. Please stand by for our next question. The next question comes from the line of Akash Tewari with Jefferies. Your line is open.

Hi, this is Akash Tewari from Jefferies. Congratulations on the quarter and the recent IP decision. I have a couple of questions. First, is there potential to expand the Merck partnership beyond RCC and head and neck? Do you think that's possible as we gather more data from the PD-L1 bispecifics? My second question is whether you believe your head and neck data would compare favorably against mirrors in the PD-L1 refractory population, or do you see it performing better or worse?

Thanks for the questions, Amy. Why don't I start with the head and neck question, and then I'll address the Merck question.

Yeah. So when it comes to Zanza we're obviously interested in developing it broadly as its best-in-class, and we have multiple collaborations to that and with other IOs, including Arezo, including nivolumab and now recently with pembrolizumab in head and neck. So whether or not there's expansion beyond head and neck, I would say, we're always looking. And of course, we're interested in getting Zanza into as many indications as possible. What we combine with remains to be seen. And I guess, when it comes to the data with the bispecifics in the PD-1 refractory space, I'm not quite sure we're competing with them. We have about a year lead time with Bicara against Bicara in the frontline space and Merus. And we are leveraging that lead time very aggressively to ensure sites that we can enroll and read that study out. How it plays out in the P1 refractory, so maybe I didn’t understand the question, but I’m not sure I’m able to answer that for Bicara.

Okay. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Stephen Willey with Stifel. Your line is open.

Yeah. Good afternoon. Thanks for taking the questions and congrats on the quarter. So I know you previously characterized STELLAR-305 as a Phase II/III. I think you're now kind of explicitly referring to it as a Phase III. So just wondering if you've completed that formal assessment of Phase II data to officially transition into Phase III. And I guess if so, can you speak to those metrics that you're evaluating to make that decision and just whether you might be disclosing that data at some point? Thanks.

Amy, please go ahead.

Yeah, quickly. Thanks for the question. It is a Phase II, III. We are still in ruling, and we’ll disclose data when it is mature.

Thank you. Please stand by for our next question. Our next question comes from the line of Ash Verma with UBS. Your line is open.

Hi. Thanks for taking our questions. So I just wanted to understand the capital allocation priorities from here. You have a pretty sizable buyback program outstanding. Do you think this was the right focus when you were dealing with the IP uncertainty, but now that the IP decision is behind you, why not focus most of your capital deployment on the pipeline build-out? Thanks.

Yeah. Thanks for the question. It's Mike. Yeah. I think with our cash flows, we can do all of the above. So as I mentioned in my prepared remarks, we’re committed to being very disciplined as we go forward in terms of expense levels, keeping expense levels kind of where they are currently for the foreseeable future with the cash flows that we have and project, we think we can continue investing in the pipeline, doing BD, and then returning cash to shareholders.

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

Great. Thanks for taking the question. Just I have a question around Slide 9 that the guidance around Zanza. So should we read that as kind of Zanza $5 billion in 2033 and then what Cabo kind of essentially declined to zero?

Peter, it's Mike. I think the Cabo LOE is in the 2030 timeframe. So as outlined on Slide 9, that is a 2024 number, and we see Zanza growing dramatically over the next several years as these pivotal trials read out, and if successful, could drive a lot of upside growth for Zanza.

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

Hey. It's Luke Shumway on for Eser. Thanks for taking my question. For the Zanza colorectal cancer update next year, the primary endpoint is OS in patients without liver events. How readily identify or patients without liver events in the real world, and would that require a companion diagnostic?

Hi. This is Amy. Thanks for the question. So this is an imaging assessment. All patients, when they're diagnosed with advanced disease tend to get scanned from head to toe. And that absolutely includes a liver scan, especially for patients with colorectal because of its predilection to metastasize to the liver. So all patients with colorectal will have a scan of their liver. And it’s pretty straightforward to identify whether or not there is disease present in the liver or not. So it’s an imaging. It’s a clinical assessment. It’s actually not a companion diagnostic, and it’s readily utilized by physicians every day.

Thank you. Please stand by for our next question. Our next question comes from the line of Sudan Loganathan with Stephens. Your line is open.

Hi. Thank you for taking the time to share your quarterly results. Good evening. Congratulations on all the great quarter and the recent progress on many fronts. With the breadth of clinical program opportunities for Cabo and Zanza, the GU and GI space, what indications or therapeutic technologies are left out there of interest when you're looking for assets during the BD endeavors? Are you specifically looking for assets primarily for novel combinations with Cabo and Zanza or monotherapy options out there to cover the GU/GI indications?

Thank you for the question. I would say the simplest answer is all of the above. Our belief is centered around clinical differentiation that can lead to commercial success, whether those assets come combined with our other XL molecules in the pipeline, or if they are standalone agents or paired with checkpoints. We are open to various modalities and types of transactions, but our main focus is on having a strong conviction in clinical differentiation that drives commercial success.

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

Thank you, Mike. As you think about how you're staffing your teams and obviously monitoring how you're spending, noting that SG&A, the R&D has come down. What are the areas that you feel are going to be important to expand further?

Thanks, Chris. Yeah. I think we’re in a pretty good spot right now. Obviously, if we have in the out years continued clinical success and we need to augment what we’ve got commercially. That’s a relatively easy and incremental growth as we’ve seen so far in our planning for the NET space. But in terms of the company, we have 100-plus employees. We are – I think we’re leading mean in terms of what we are aspiring to do organizationally in terms of building this multi-franchise oncology business. But we’ve got a lot of momentum in the organization from an R&D point of view, from a commercial point of view with the right size G&A to make it all work. So we’re excited about where we are, and we think we’ve got the right team and certainly the right horsepower both talent-wise as well as energy-wise to make that happen as we go forward.

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

Hey, great. Thanks for taking my question. Congrats on the quarter. I had one on the PK MIT program since it's now in Phase I. So you mentioned on restorative and that program seems to have honed in a biomarker-selected population in endometrial and ovarian cancer. So maybe can you speak to your strategy around tumor type selection and biomarkers that you may be using? And then you also mentioned potential cytotoxic combinations for that program. Wondering if maybe you could elaborate a bit more on that. Thanks.

Yeah. Thanks for the question, Joe. This is Dana. So yes, XL495, as you're quite aware, is a PK-1 inhibitor, which has shown synthetic lethality in tumors that have increased cyclin E levels that can be driven by a number of different actual genetic biomarkers, including CCNE amplification and a few others. So we've certainly identified those biomarkers in our preclinical models, but we've also identified some other interesting biomarkers that we have not yet disclosed, which we're also quite excited about. So we are looking at all of these biomarkers in the Phase I study. We have also conducted quite a few combination studies preclinically looking at, as you mentioned, cytotoxics, but also a very expanded range of drugs that have direct or indirect impacts on generating sort of a replication stress type phenotype in the cells, and we have a lot of opportunities there. So we haven’t been – we haven’t really disclosed details of our Phase I program yet. We will do that at some point in the future. But until then, we’re looking at quite a few different hypotheses in the clinic for both biomarkers and combinations.

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, Varant, for closing remarks.

Thank you, Towanda, 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.

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