Earnings Call Transcript - EXEL Q1 2024

Operator, Operator

Good day, ladies and gentlemen, and welcome to Exelixis' First Quarter 2024 Financial Results Conference Call. My name is Towanda, and I will be your operator 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.

Varant Shirvanian, Director of Investor Relations

Thank you, Towanda. Thank you all for joining us for the Exelixis' First 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; P. J. Haley, our Executive Vice President of Commercial; Amy Peterson, our Chief Medical Officer; and Dana Aftab, our Chief Scientific Officer, who together will review our progress for the first quarter 2024 ended March 31, 2024. During the call today, we will refer to financial measures not calculated according to generally accepted accounting principles. Please refer to today's press release, which is posted on our website for an explanation of our reasons for using such non-GAAP measures as well as tables deriving these measures from our GAAP results. During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company. This includes statements about possible developments regarding discovery, product development, regulatory, commercial, financial and strategic matters. Actual events or results could, of course, differ materially. We refer you to the documents we file from time to time with the Securities and Exchange Commission, which under the heading Risk Factors, identify important factors that could cause actual results to differ materially from those expressed by the company verbally and in writing today, including, without limitation, risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners and the level of cost associated with discovery, product development, business development and commercialization activities. With that, I'll turn the call over to Mike.

Michael Morrissey, President and CEO

All right. Thanks, Varant, and thanks to everyone for joining us on the call today. Exelixis is off to a strong start in 2024 and had a productive first quarter across all components of our business. We're pleased to see both revenue and demand growth for the cabozantinib franchise in the U.S. and globally. Our top priority is to move the needle for patients and shareholders by advancing cabo, zanza and the rest of our exciting pipeline to improve the standard of care for patients with cancer. We will have to cover today, so let's jump right into it with the key highlights for the quarter, including: first, we saw a strong performance of the cabozantinib business in the first quarter of 2024 with continued growth in demand and revenue year-over-year compared to the first quarter of 2023. Even with typical seasonal headwinds that were further magnified by the implementation of the IRA, CABOMETYX maintained its status as the leading TKI for RCC in both the first-line IO TKI market and the second-line monotherapy segment. In the first quarter of 2024, cabozantinib franchise net product revenues grew 4% year-over-year compared to the first quarter of 2023, highlighting its role as a worldwide leading TKI. Global cabozantinib franchise net product revenues generated by Exelixis and its partners grew approximately 9% year-over-year in the first quarter of 2024 compared to the first quarter of 2023. As discussed previously, we're excited about the potential for additional cabo growth with the new indications on the horizon that P.J. and Amy will discuss shortly. Chris will review our full first quarter 2024 financial results in his prepared remarks. Second, we continue to advance our industry-leading pipeline across all stages of preclinical and clinical development. Our top priorities for 2024 are to advance potential new cabo indications for NET and metastatic CRPC and expedite zanza clinical development with both existing and new pivotal trials as well as potential new combination strategies. XB002 cohort expansion remains a clear focus for us, and XL309 continues to generate exciting momentum in the synthetic lethality space. Finally, we're thrilled with our progress in advancing new candidates in discovery and preclinical development, targeting a range of solid tumor indications that comprise an IND pipeline of both small molecules and biotherapeutics, which we expect to evolve quickly over the next several years. Third, final reply briefs for the second MSN ANDA trial were submitted in February, and we continue to expect a ruling in the first half of 2024. While we will not speak to any specifics today, this remains a critical milestone for the company and the cabozantinib franchise. Exelixis will continue to vigorously protect our intellectual property rights with respect to cabo and our other differentiated molecules we pursue on behalf of patients with cancer. Lastly, we expect business development activities to ramp up significantly as we gain clarity on the outcome of the patent litigation. Importantly, we're exploring options to collaborate with other organizations in cost and compound-sharing arrangements in a manner similar to our prior cabozantinib checkpoint combination endeavors. In addition, we are carefully reviewing the competitive landscape on an enterprise-wide level to identify additional later-stage assets that we believe, through our unique cabozantinib lens, fit into our GU and GI oncology-focused drug development and commercialization platform. So with that, please see our press release issued an hour ago for our first 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.

Christopher Senner, CFO

Thanks, Mike. For the first quarter of 2024, the company reported total revenues of approximately $425 million, which included cabozantinib franchise net product revenues of $378.5 million. CABOMETYX net product revenues were $376.4 million and included approximately $6 million in clinical trial sales. Gross to net for the cabozantinib franchise in the first quarter of 2024 was 32.9%, which is higher than the gross to net we experienced in the fourth quarter of 2023, but overall, in line with our expectations. This increase in gross to net deductions in the first quarter of 2024 is primarily related to higher Medicare Part D and PHS expenses. Historically, we have experienced higher Medicare Part D expenses in the first quarter of the year due to many Part D patients moving through the donut hole at the start of the calendar year. Our CABOMETYX trade inventory decreased by approximately 350 units when compared to the fourth quarter of 2023 of approximately 2.4 weeks on hand. As I mentioned on our fourth quarter earnings conference call, we experienced a trade inventory build in the fourth quarter of 2023 of approximately 1,000 units and that we had observed an inventory drawdown in January. As discussed previously, Exelixis took a 2.2% price increase on January 1, 2024. This price increase is more than offset by the higher gross to net deductions during the first quarter of 2024. Also, while we don't provide quarterly revenue guidance, we do see some seasonality in net product revenue trends, where first quarter net product revenues have historically been lower than the following quarters in a year. If you analyze the last 7 years of first quarter net product revenue and compare them to the reported annual net product revenues of the same year, in many of those years, the first quarter net product revenues are in the range of 21% to 23% of our annual net product revenues. We took this seasonality impact into account when preparing our annual net product revenue guidance of $1.65 billion to $1.75 billion, which we are reiterating on today's call. As a reminder, clinical trial sales have historically been choppy between quarters, and we expect this to continue in future quarters. Total revenues also included approximately $47 million in collaboration revenues, including approximately $40 million of royalty earned from Ipsen and Takeda on their sales of cabozantinib in their territories. Our total operating expenses, excluding restructuring charges for the first quarter of 2024, were approximately $363 million compared to $398 million in the fourth quarter of 2023. The sequential decrease in these operating expenses was primarily driven by lower drug discovery and general and administrative expenses in the first quarter of 2024. In January 2024, we announced the restructuring of our business, which included a headcount reduction of 174 FTEs. The total cost of this restructuring in the first quarter of 2024 was approximately $33 million, which includes severance and employee-related costs, asset impairment, and contract termination costs. Provision for income taxes for the first quarter of 2024 was approximately $12 million, compared to a provision for income taxes of approximately $18 million for the fourth quarter of 2023. The company reported GAAP net income of approximately $37 million or $0.12 per share on a fully diluted basis for the first quarter 2024. The company also reported non-GAAP net income of approximately $52 million or $0.17 per share on a fully diluted basis. Non-GAAP net income excludes the impact of approximately $15 million of stock-based compensation expense net of the related income tax effect. Cash and investments for the quarter ended March 31, 2024 was approximately $1.6 billion. During the first quarter of 2024, we repurchased approximately $191 million of Exelixis shares at an average price of $22.8. We remain committed to fully executing on the $450 million share repurchase program we announced in January 2024. Combining the 2023 and 2024 share repurchase program, we will return $1 billion to our shareholders by the end of 2024. This level of cash and investments, supported by our ongoing cash flow from operations, provides Exelixis with the flexibility to invest in internal R&D activities, pursue external business development opportunities to expand our pipeline, and allows us to return capital to our shareholders through our $450 million share repurchase program. And finally, we are reiterating our full year 2024 financial guidance, which is detailed on Slide 14 of our earnings presentation.

P. Haley, Executive Vice President of Commercial

Thank you, Chris. In the first quarter of 2024, the team continued to execute at a high level, which has resulted in CABOMETYX continuing to be the #1 prescribed TKI in RCC and second-line HCC. Additionally, CABOMETYX in combination with nivolumab remains the #1 TKI plus IO combination in first-line renal cell carcinoma. With regards to prescriptions, CABOMETYX TRx volume grew 4% year-over-year in Q1 2024 relative to Q1 2023. In the same period, the TKI market basket was flat. Furthermore, the business remains strong, both in terms of demand and new patient starts. CABOMETYX continued to perform well in the first quarter from both a marketplace and competitive perspective. CABOMETYX again led the TKI market basket in TRx share at 40%. As we have discussed previously, the first-line RCC market is extremely competitive. And Q1 was the sixth full quarter in which CABOMETYX plus nivolumab remains the #1 prescribed TKI plus IO combination in first-line RCC. Furthermore, long-term data from the CheckMate 9ER study, now with a minimum of 4 years follow-up, was presented at ASCO GU this year and continues to reinforce the leadership position that CABOMETYX has in the RCC marketplace. Looking forward, the commercial team is excited about the positive results from the CABINET trial in neuroendocrine tumors as well as the CONTACT 2 trial in metastatic castration-resistant prostate cancer, which Amy will discuss in some detail. Neuroendocrine tumors comprise a large and heterogeneous patient population. The patients become metastatic and as treatment options become limited, the only oral therapy options are sunitinib and everolimus and there has not been an approval in the U.S. for an oral agent in NET since 2016. There is a strong unmet need for new options for patients who have progressed on systemic therapy. There are approximately 8,000 incident second-line plus drug-treatable patients annually in the U.S. Approximately 20% of these patients are SSTR negative, and in lung NETs, that percentage is higher with 40% to 60% being SSTR negative. Most NET patients will receive many lines of therapy, in part due to the more indolent nature of the disease relative to other solid tumors. We have conducted preliminary market research, which reveals that oral therapies account for approximately 50% of the utilization in this market in the second-line plus setting. The CABINET study had a diverse population, including pancreatic, extra pancreatic and lung NET patients. SSTR positive or negative patients as well as those previously treated with Lutathera. Regulatory approval for CABINET would potentially position cabo to help a broad range of NET patients. Metastatic castration-resistant prostate cancer is a large market with significant unmet medical need, where the primary therapeutic options remain novel hormonal therapy, chemotherapy, and radioligand therapy. There is a significant unmet need in this patient population, particularly for patients progressing on an NHT who wish to delay chemotherapy. Many patients receive an NHT before they become metastatic and castrate resistant. Cabo plus atezo represents a potential option for many of these patients with novel mechanisms of action and convenient administration in the metastatic CRPC setting. Furthermore, the commercial organization would be well positioned to leverage the RCC team infrastructure to achieve synergy in a new GU oncology indication. In summary, regulatory approval in these additional indications with significant unmet need would provide the opportunity for continued growth for CABOMETYX in the coming years. I would also add that the commercial team is extremely excited about the progress in the pipeline, particularly zanzalintinib, as we look forward to having another product to help patients with cancer.

Amy Peterson, Chief Medical Officer

Thanks, P.J. Today, I'll provide a high-level update on our clinical stage pipeline. The team is continuing the momentum across all of the programs we highlighted during our R&D Day last December, with laser focus on execution for the cabozantinib franchise as well as for our clinical pipeline. Our pipeline is broad, both in terms of modalities and targets, representing a variety of development opportunities, which combined with our robust translational and clinical development capabilities provide an exciting and high potential platform for growth. Today, I'll share the progress we are making towards executing on our clinical trials across the development pipeline and on our potential regulatory submissions for cabozantinib. So let's start with cabozantinib and CABINET, which is a Phase III study that evaluated cabo versus matched placebo in patients with previously treated advanced or metastatic pancreatic or extra pancreatic neuroendocrine tumors, which I'll refer to as PNET or EPNET, respectively. The study was conducted by the Alliance for Clinical Trials in Oncology and data was presented by Dr. Jennifer Chan at ESMO 2023. The study had two independently powered cohorts, one for PNET and the other for EPNET. Notably, the PFS hazard ratio for each cohort strongly favored cabo with hazard rates of 0.27 and 0.45 in the PNET and EPNET populations, respectively. The safety profile of monotherapy cabo was consistent with its known profile and no new safety signals were identified. This initial analysis was based on local assessments with limited data available from the Blinded Independent Radiology Committee (BIRC). The compelling results triggered an IDMC recommendation and Alliance decision to stop enrollment, unblind the study, and allow patients to cross over from placebo to cabozantinib. The final analysis by BIRC will be shared at a conference later this year and support our intention to file in the coming months. As P.J. mentioned in his section, we are very excited about the potential to bring cabozantinib to patients with neuroendocrine tumors. The CABINET data are quite impressive and robust and have approved support cabo as a potential new standard of care in a population that is in dire need of effective treatment options. Turning now to CONTACT-02, our randomized open-label Phase III study of cabo plus atezolizumab versus second novel hormonal therapy or NHT in patients with castration-resistant prostate cancer and measurable extra pelvic soft tissue disease. We believe the data from this study support a favorable risk benefit to patients and our intent to file. Remember, this is a unique study population, given the requirement for measurable disease, which we deliberately chose to ensure a robust assessment of PFS by BIRC. CONTACT had dual primary endpoints of PFS by BIRC and OS. We anticipate having the final OS analysis in the coming months. So what does a dual primary endpoint mean? It means that for a study to be considered positive from a statistical standpoint, we only have to hit on one of the endpoints. Dr. Neeraj Agarwal presented the significant and robust PFS results at ASCO GU. The PFS hazard rate in the prespecified PFS population was 0.65 with a p value equal to 0.0007. So statistically significant, hence a positive study. The PFS hazard rates, median, and Kaplan-Meier curves in the ITT population by BIRC were nearly identical to that in the PFS population. This was also true for PFS according to the PCWG3 criteria, which includes bone imaging also assessed by BIRC. A PFS benefit was observed in all subgroups, notably in those with the poorest outcomes that is in patients with liver metastases and in patients who have already received both an NHT and docetaxel. At this analysis, OS demonstrated a trend favoring cabo/atezo. CONTACT-02 enrolled a uniquely aggressive clinical subset of mCRPC. One that is typically highlighted for having the worst prognosis, which is reflected by the limited activity with second NHT. The toxicities reported with cabo plus atezo were higher than those with second NHT and this is not surprising, given NHTs are very well tolerated, especially in those who have already demonstrated good tolerance to prior NHT and remember, the median duration of prior NHT was 1 year in CONTACT-02. The tolerability profile cabo/atezo was consistent with the known tolerability profile of each monotherapy agent and with the doublet from other studies as well as with other approved IO-TKI combinations. Putting this together, and based on the input we’ve received from many in the GU oncology community, from patient advocacy groups and patients, we firmly believe these findings represent an acceptable risk benefit profile, and we are committed to filing this year. So there's quite a lot of excitement with cabo in 2024 but I'm going to turn now to zanzalintinib where our excitement continues to grow. Our Phase I studies have multiple expansion cohorts in a variety of tumors and combinations. Data generated from these cohorts has and will continue to support our expanded development for zanza. At the IKCS Conference and R&D Day last year, Dr. Monty Pal presented promising data with zanza monotherapy, where compelling and durable responses were observed in 32 patients with treatment-refractory clear cell kidney cancer, all of whom had received prior IO and the majority of whom (81%) had received prior VEGFR TKIs including 51% who previously received cabo. The ORRs of 38% in the ITT and of 24% in patients who had received prior cabo are very encouraging, especially given that zanza shares the target kinase profile of cabo but has a shorter half-life, which you will hear about in more detail from Dana and which seems to result in differential partitioning into tissues, including tumor tissue, potentially explaining the emerging differentiated activity and tolerability profile. We're not the only ones excited about zanza's potential. The GU community was very receptive to the data presented at IKCS and discussions around collaboration opportunities are ongoing. Turning now to our pivotal studies. We currently have three Phase III studies with zanza, and we're evaluating additional pivotal studies, including opportunities for collaboration with other companies. Our most mature study is STELLAR-303. This study will evaluate the combination of zanza plus atezolizumab versus regorafenib in patients with non-MSI-high non-DMMR metastatic and refractory colorectal cancer. The primary endpoint is OS in the population of patients without liver mets or NLM, followed by an evaluation of OS in the ITT population should OS in the NLM population be statistically significant. So this is not a dual primary endpoint. The sample size for both NLM and LM patients has been tapped to ensure adequate number of events in each of these analyses. PI excitement about the potential of this combination, especially in patients without liver mets, has resulted in rapid uptick in enrollment and enrollment to the liver met cohort is basically complete. Enrollment to the NLM cohort should be complete in the coming months. STELLAR-304 is our Phase III trial, which compares the combination of zanza plus nivolumab to sunitinib in patients with previously untreated metastatic non-clear cell kidney cancer. This has dual primary endpoints of progression-free survival and overall response rate. OS is a secondary endpoint. The probability of success of a study is a key strategic lever when we consider how to prioritize our portfolio. Given that VEGFR-TKIs work in non-clear cell kidney cancer, that TKI-IO combos work in non-clear cell kidney cancer, that cabo monotherapy beats SUTENT in kidney cancer and that zanza has best-in-class potential for a VEGFR-TKI, we believe this study has a reasonably high probability of success. Investigators are also excited about this combination, and enrollment is ongoing in multiple countries. STELLAR-305 is our Phase II/III trial, which will evaluate zanzalintinib in combination with pembrolizumab versus pembrolizumab alone in patients with untreated PD-L1 expressing advanced or metastatic squamous cell carcinoma of the head and neck. This study was activated late last year, and we are full steam ahead into site activation mode. Given the emerging favorable activity and tolerability profile of zanza and its mechanism of action that results in an immune permissive environment, we believe this combination of zanza plus pembro could result in improved outcomes versus single-agent pembro and has the potential to offer patients a chemo-free option. Of course, we are intrigued by the LEAP-010 data and just as we did with STELLAR-310, we will make necessary or appropriate modifications to STELLAR-305 to increase the probability of success. We are always evaluating data from zanza and cabo studies, emerging data from our competitors, and the evolving treatment landscape to inform the design and initiation of the next pivotal studies for zanza, an asset that we believe has potential for best-in-class as a VEGFR-TKI with commensurate improved activity in patients that ultimately transfer into value for our shareholders. I'll now briefly touch on our early clinical pipeline assets, XB002 and XL309, before passing the call over to Dana. XB002 is our tissue factor directed antibody drug conjugate incorporating a modified orastatin as a payload. Enrollment into the cohort expansions in the JEWEL-101 study is robust and as the data matures, will allow us to understand the initial benefit-risk profile. We will provide updates when we have the data maturity. Finally, last but certainly not least, is XL309, which we are very excited about. Dana will talk more on why we remain optimistic about this particular USP1 inhibitor. So in the interest of time, I'll just state that dose escalation cohorts are enrolling and we hope to open combination cohorts with PARP inhibition a little later this year. In summary, we're advancing a robust pipeline of clinical stage molecules while maximizing the potential benefit to patients from our flagship asset, cabozantinib, in high unmet medical need indications. We remain very optimistic about what we can do for patients who, despite significant advances, still need better treatment options.

Dana Aftab, Chief Scientific Officer

Thanks, Amy, and good afternoon, everyone. Today, I'm giving a brief update on our progress in the first quarter of 2024 toward our goals for preparing for IND filings and for advancing new compounds to development candidate status. And then I'll wrap up with some preclinical updates on our USP1 inhibitor, XL309, and our next-generation VEGF receptor tyrosine kinase inhibitors, zanzalintinib. On the IND front, we are making good progress on all of our pre-IND programs and are on track to file up to three this year. The first one we expect to file this year is for XB010, our 5T4 targeted antibody-drug conjugate that carries the cytotoxic antitubulant payload MMAE. IND preparation is wrapping up soon, so we expect that one to file around mid-year. The second IND we expect to file this year is for XL495, which is a small molecule inhibitor of PKMYT1 that shows synthetic lethality in the context of increased cyclin E levels, which occurs across a wide range of tumors. IND preparation is progressing, and we are on track to also file this one around mid-2024. The third IND we expect to file this year will be for XB628, our bispecific antibody that targets PD-L1 along with NKG2A and displays NK cell engager activity in preclinical models. The GLP tox study for XP628 is now complete, and manufacturing and other activities have us on track for IND filing in the fourth quarter of 2024. Each one of these programs has a solid rationale for generating differentiating data in the clinic, so we're excited to get these INDs filed and to get the trials up and enrolling quickly. In terms of new development candidates this year, we are currently on track to achieve our goals of at least two this year with some exciting new programs, including a small molecule inhibitor targeting PLK 4, which is synthetically lethal in cells of amplified TRIM37 and a novel antibody-drug conjugate program. Both of these programs represent first or best-in-class approaches with potential to generate differentiating results in the clinic. So we're certainly pleased that we remain on track for putting these additional assets into the preclinical pipeline this year. So now I'd like to shift gears a bit and describe some exciting preclinical data we generated for two of our small molecules in the clinical pipeline. I'll start first with a brief update on XL309 and then describe some preclinical data we've generated comparing zanzalintinib and cabozantinib. We recently tested the combination of XL309 in the select PARP with the selective PARPi inhibitor, sorafenib in the preclinical breast cancer xenograft model, MDA-MB-436 in which the BRCA1 gene is mutated. The data we generated with the combination showed that at doses of both compounds that alone showed minimal tumor growth delay when given in combination resulted in very strong tumor regression that persisted for at least a month after dosing has ceased. The other data I'm sharing with you today will help to shed more light on the underlying basis for an emerging benefit-risk profile for zanzalintinib that appears to be improved compared to cabozantinib. You may recall that zanzalintinib retains the target kinase profile of cabozantinib but with a PK profile that's more optimal for dose adjusting to manage tolerability. As you just heard from Amy, we're seeing what appears to be an overall improved benefit-risk profile with zanza with responses in some patients who progressed on cabo and lower rates of certain adverse events with zanza such as hand-foot syndrome, diarrhea, and fatigue. We now have some preclinical data, which we think help to explain these differences between the two molecules. First, we've continued to explore potential differences in the biological target profiles of the compounds, and both were recently run side by side in the same experiment in a PriSM screen at the Broad Institute. This is a large-scale diverse cancer cell line screen that determines the effects of compounds on cell viability across approximately 900 distinct cell lines, representing over 45 tumor subtypes. The results we got back from the screen showed the compounds were remarkably similar in terms of their ability to impact cell viability, which largely confirms the hypothesis that the key biological target profiles of cabo and zanza are essentially the same. Given the similar target profile, we hypothesized that a potential rationale for the improved profile we're seeing in the clinic with zanza might be related to differences in tissue drug concentrations between tumors and normal healthy tissue when compared to cabo. Therefore, we conducted tissue distribution studies in both rats and mice, and observed that compared to cabozantinib, zanzalintinib showed higher free drug concentrations in tumors and lower free drug concentrations in normal tissues. This translated to more potent on-target activity for the inhibition of MET in tumors by zanza. These results were a bit surprising as we had not expected such differentials in tissue partitioning between these two molecules, but the results certainly are consistent with, and I think help explain the apparently improved benefit-risk profile as emerging with zanza in the clinic.

Michael Morrissey, President and CEO

All right. Thanks, Dana. I will close by highlighting the two longstanding Exelixis executives who are retiring after serving our company for nearly two decades. First, Peter Lamb, EVP of Scientific Strategy, was with Exelixis for nearly 25 years, and as you all know, made an outsized impact on our drug discovery efforts during his tenure at the organization. Additionally, Laura Dillard, our EVP of Human Resources, spent nearly 20 years leading our HR efforts to ensure we are keeping pace with the evolution and growth of the company. On behalf of the entire Exelixis team, I'd like to thank both Peter and Laura for their friendship, dedication to Exelixis, and most importantly, commitment to cancer patients on a global level. We wish them all the best as they start their retirement. So with that, I want to thank the entire Exelixis team for their efforts to support our discovery, development, and commercial activities. We're off to a great start in 2024 and expect this year to be critical for our science and the patients we hope to serve in the future. We built and are constantly fortifying Exelixis as a big, small company with all that we do every hour of every day. The Exelixis team is highly motivated to exceed expectations and our mission to help cancer patients recover stronger and live longer. We look forward to updating you on our progress in the future, and thank you for your continued support and interest in Exelixis, and we're happy to now open the call for questions.

Operator, Operator

Our first question comes from Joe Catanzaro with Piper Sandler.

Joseph Catanzaro, Analyst

I appreciate you taking the time here. So I'm wondering if you could elaborate a bit on your earlier comments in the events of a positive outcome with regards to MSN patent litigation and sort of interested in looking for later-stage assets in GU, GI, oncology. I guess, how would you define later stage? Is this sort of modality agnostic? And what size deal do you think you could execute with the balance sheet and clarity around the cabo revenue tail?

Michael Morrissey, President and CEO

Yes, Joe, it's Mike. Thanks for the question. Yes, this isn't really a new approach. We talked about this earlier in the year as we were implementing the restructuring focusing our BD efforts on later-stage assets in terms of new modalities that are either in or entering pivotal trials as well as their focus on helping us find collaborations with zanza and other molecules in our pipeline to collaborate on in terms of cost and/or compound sharing arrangements. So look, we're very interested in building a pipeline. We've got a great discovery, development, and commercial organization, and late-stage assets fit well into that overall approach, whether they be already in pivotal trials or about to enter, we think we can add a lot of value as we go forward. So wouldn't want to comment on size, wouldn't want to comment and certainly on individual targets. We're modality agnostic in terms of small molecules and biologics. We have, I think, a very good eye for good data and good compounds. Again, the cabo lens, if you will, really informs that. We talked about that at R&D Day back in December. So we're all in, in terms of finding potential assets to be able to bring into our pipeline, and that will continue as we go forward.

Operator, Operator

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

Jason Gerberry, Analyst

I just wanted to follow up on the key commercial opportunity slide. I'm curious how you think an indication like that could ramp up. The second line incidence is a significant figure. I wonder about the availability of an established oral TKI that wasn't studied head-to-head, and if that might pose a barrier or slow the launch compared to the launches we’re used to seeing, like CheckMate 9ER, especially considering the potential need to retrain physicians or educate them about your data.

P. Haley, Executive Vice President of Commercial

Yes. Jason, this is P.J. Thanks for the question. I'd say we're really excited about the data that Amy went into a little more detail on. As I mentioned, we've kind of conducted some preliminary market research. We've certainly had some advisory boards. I guess what I'd say at a high level is there's a lot of enthusiasm for the data. I don't think there will be anything significantly different than prior launches. You mentioned 9ER in terms of kind of trajectory or uptake or sort of retraining physicians per se. I think they’re very comfortable, obviously, with TKIs and even in this setting. So we think this is a really nice opportunity potentially should we receive approval. For cabo, as I spoke to, I think the broad population that was studied with regards to pancreatic, extra-pancreatic, site of origin, tumors, including lung, which is a little bit different from some of the other agents, which weren't studied as broadly as well as the fact that were studied in SSTR positive and negative as well as kind of having a modern data set, which included a lot of patients treated with Lutathera before the study really gives us the potential to be broad and, I think, in a sense, very user-friendly for oncologists who are really looking for something new in this setting.

Operator, Operator

Our next question comes from the line of Michael Schmidt of Guggenheim.

Michael Schmidt, Analyst

I have a question for Amy regarding STELLAR-305. I am curious about how the enrollment criteria in this study compare to those in KEYNOTE-048 or LEAP-010. Additionally, to what extent do you believe you might need to adjust the trial based on the recent data from LEAP-010? Lastly, how confident are you in demonstrating a positive overall survival trend, which was not observed in LEAP-010?

Amy Peterson, Chief Medical Officer

Thank you for the question, Michael. It was quite interesting to see the final results from the presentation earlier this year regarding LEAP-010. Notably, the objective response rate and progression-free survival favored len/pem, while the overall survival did not. Additionally, there was a noteworthy duration of response with monotherapy pem being favored over the combination. This population is different, as they are frontline head and neck patients who tend to be a bit more frail than other groups. We are keen on understanding the dosage of len, dose reductions, and how these factors might affect a patient's ability to receive the full dose of pembro. We are making efforts to grasp this comprehensively and will consider modifying the 305 study's dosage for this frailer patient group if necessary. There is a distinction between zanza and len, as zanza inhibits the TAM kinase family, which is believed to help create an immune-permissive environment. Thus, the mechanisms by which zanza and len operate are different, which could lead to varying outcomes, and we anticipate this to be the case. We will monitor what adjustments need to be made and will inform you of any changes. Currently, the eligibility criteria are mostly available on clinicaltrials.gov, and we will update them as required.

Operator, Operator

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

Gregory Renza, Analyst

Mike, maybe just to ask a little bit building on the neuroendocrine tumor opportunity, certainly nicely in context with respect to Cabo but as you do think about zanza and the combo optionality there and the white space that you have, I'm wondering if you could just comment a bit about zanza in this indication. I mean is there opportunity? And what are the potential development to have pass as you think about combos would potentially zanza and Lutathera be something to explore?

Michael Morrissey, President and CEO

Yes, Greg, thanks for the question. It's a great one. I can punt over to Amy and P.J. to opine upon, Amy?

Amy Peterson, Chief Medical Officer

Yes, sure. As I mentioned during the call, we're always assessing what is the next best thing to think about for zanzalintinib. We look at all things that are strategic in our assessment. So I talked about the probability of technical success. That's a big one for us to consider as well as the time it takes to conduct the study and the competitive and evolving landscape and the value proposition. And I would say that neuroendocrine tumor is high on the list for zanza, and we are very interested in it. I'll let P.J. comment a little bit on the commercial.

P. Haley, Executive Vice President of Commercial

Yes. I mean I think just at a high level, if I go back to kind of the opportunity here, certainly, a large unmet medical need, as I mentioned, with not many new therapies, really any oral therapy being approved since 2016. So I think there's a lot of room to maneuver in this tumor type, in particular. The orals, as I mentioned, in my remarks and on the slide account for approximately 50% of the second line plus population. So if you think about Lutathera, for example, which is doing over $400 million in revenue annually. Basically, a second line-plus population, they have the NETR-2 data at ASCO GI this year, but those revenue kind of predate that. So that's a pretty significant opportunity in less than 50% of that market. So I think this is a big space that's really there's a high appetite for new therapies, for new trials and really an opportunity for this market to grow over time. So I see it as very exciting.

Michael Morrissey, President and CEO

Yes, that's great, P.J. I would just add. I think the way we talked about NET here, and we're really excited about certainly the CABINET data and the opportunities to go forward with zanza, we think NET is similar to what we saw with RCC back in the 2014, 2015, 2016 time. And there's lots of similarities between the two, even though they're obviously very different indications. So we're excited about this. We hope to invest more as we go forward. Lots of opportunities with zanza and other potential combinations. So stay tuned. As that evolves, we'll keep you in the loop.

Operator, Operator

Our next question comes from the line of Yaron Werber with TD Cowen.

Joyce Zhou, Analyst

This is Joyce on for Yaron. Maybe just another follow-up on the NET market opportunity. I think you guys have previously said that the prevalent population is about 5x the size of the second-line plus incident population or about 40,000 patients. Just wondering how much of that market you think you can capture or pull into this opportunity with cabo and/or zanza?

P. Haley, Executive Vice President of Commercial

Yes. Joyce, this is P.J. Thanks for the question. I think as I mentioned, the 8,000 patients, those are kind of new incident patients in a given year. And as you mentioned, the prevalent population is much larger. I think I wouldn't want to speculate before we get to a label on the potential upside or where it might play out in the marketplace but I think when we think about the 8K patients, et cetera, that's kind of the baseline, and there certainly could be many more patients given that this is an indolent disease where patients receive many lines of therapy that might be kind of out there. But again, I think we need to wait until we get in the market to really get a good sense of that. But we're very confident and comfortable in the 8,000 patients as it is being a really significant potential opportunity for cabo.

Operator, Operator

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

Tsan-Yu Hsieh, Analyst

Two quick ones, if you don't mind. One financial one, I got a scientific. In terms of Medicare D exposure, Chris, do you mind reminding us your exposure there for the Cabo franchise? Several companies like Gilead kind of called out the potential impact next year stemming from the Medicare Part D redesign, so that's part one. Part two, very provocative differential partitioning data, Cabo versus Zanza. I am curious, one, how was that determined? Would it be based on kind of radio labeling experiments? And then perhaps from a hypothesis perspective, do you have any sort of initial working in terms of why that is? Is that kind of a difference in passive diffusion or maybe transporters are involved?

Michael Morrissey, President and CEO

Yes. Thanks, Andy. It's Mike. Dana, why don't you take that second question first, and then we'll punt it over to P.J. for the Medicare Part D question.

Dana Aftab, Chief Scientific Officer

Sure. Okay. Thanks for the question, Andy. Yes, so in terms of the partitioning, we generated data in rats, and this is really data for preparing for the mass balance studies in humans. That was the first sort of view into differential partitioning into normal tissues that we got. So that was using radio-label drug. So of course, that measures everything metabolites and anything else that's attached to the radioactive tracer. In terms of the tumors and actually the data that I showed on the slide came from sort of a side-by-side experiment in mice where we were determining the compound concentrations by mass spectrometry. And at doses that generated similar free drug concentrations in the plasma, which again were determined by doing protein binding experiments, et cetera, we saw those free drug concentrations in normal tissues and tumors, and that was just one of several representative normal tissues. So we're still generating a lot of data. There's obviously a lot of different components that go into how drugs distribute within a living animal or person, including things like protein binding, tissue binding, which involves other components other than protein, membranes, lipids, and whatnot, transporter effects, and pH-dependent effects. There are so many different pieces of the puzzle that go into understanding how this happens. So we're still gathering data to try to understand the full model that is driving these differences. And what I would just say is stay tuned as we generate more data and publish those data that will hopefully lay out the full mechanism of how this happens. But I must say that it was a surprise to us to see this happen. We had not anticipated or predicted that this would happen with these drugs priori.

Michael Morrissey, President and CEO

Great. Thanks, Dana. P.J.?

P. Haley, Executive Vice President of Commercial

Yes. So Andy, our Part D - Medicare Part D accounts are approximately 40% of the business. And as you know, with regards to the IRA, that will continue to evolve in 2025. So the out-of-pocket cap for patients will be even lower next year, around $2,000 and also it will be spread out over a monthly basis. So the thinking is that could potentially reduce the burden on patients even further.

Operator, Operator

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

Jay Olson, Analyst

Thank you for providing this comprehensive update. For zanza, can you talk about when we should expect to see some combination data? And Bristol recently mentioned initial clinical proof-of-concept for Opdualag in non-small cell lung cancer. What's your thinking and interest level in the combination of zanza with Opdualag and STELLAR-002?

Amy Peterson, Chief Medical Officer

Sure. Thanks for the question. This is Amy. As you saw in the slides, we are expanding various cohorts in STELLAR-001 and STELLAR-002, including combinations with PD-1 and other immune-oncology agents, such as CTLA-4 and LAG-3. We will present the data once it matures. Some of these cohorts are for early lines of treatment, and it takes time to gather data on overall response rates, duration of response, and progression-free survival. Some cohorts also include overall survival data, which is event-driven, so we have to wait for those events to occur before reporting. Regarding our interest in combination partners, I presented several combinations we are exploring, not just in immune-oncology. We have a collaboration with HIF-2 alpha and are considering other combinations. We are driven by the data and will follow where the combinations lead us, but we remain open to different possibilities. What we are discovering is that zanza combines well with these agents and is generally well tolerated at full doses. We don’t foresee issues with zanza's ability to combine with these agents. The decision to proceed with additional studies will depend on the data we gather from the 001 and 002 cohorts as it matures.

Operator, Operator

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

Unknown Analyst, Analyst

This is Kathy on for Akash. I just wanted to follow up on the Medicare Part D question that was asked earlier. And specifically on how the restructure of the catastrophic coverage component impact cabo in the coming years? And also how does Exelixis specifically plan to mitigate these pricing impacts?

Michael Morrissey, President and CEO

Thanks for the question. This is Mike. Yes, I certainly wouldn't want to comment on what's going to happen in the years ahead. We have a pretty good idea about what to expect relative to '25 and beyond. So again, I wouldn't want to opine beyond what's happening in 2024. And we have a high degree of confidence that we've got that really good sense of where that's going and how to navigate those different changes. So moving full steam ahead and when we get to '25 and beyond, we'll talk about those changes then, okay? Thank you.

Operator, Operator

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

Chris Shibutani, Analyst

Great. Perhaps if you could help us understand your prioritization of capital allocation between the share repurchases and the business development activity. I think Joe had tried to ask earlier and recognizing that you aren't necessarily thinking of sharing specifics. But it sounded as if it was contingent upon the outcome of the MSN IP decision for you to perhaps lean in more intentionally on the BD front. I just wanted to make sure I understood because you also included in your release that you plan on completing the share repurchase allocation that the Board approved for the full year 2024.

Michael Morrissey, President and CEO

Thanks for the question, Chris. I wouldn’t say that those two activities are mutually exclusive. We have plenty of cash and generate free cash every quarter. We’ve been profitable for years, so we can pursue both strategies. As mentioned previously, the share buyback between last year and this year will be $1 billion. Adding late-stage assets to our portfolio makes sense as it supports our business growth, both in revenue and profits, by providing a diverse product lineup for our development and commercialization efforts, which will benefit patients and shareholders. We are very excited about the opportunities ahead. Our immediate priority is to gain certainty with the ANDA, after which the next steps should be relatively straightforward for moving the business forward. Thanks for the question, and I’m happy to follow up later if needed.

Operator, Operator

Our next question comes from the line of Derek Archila with Wells Fargo.

Derek Archila, Analyst

So just, I guess one from us, how do you envision the cabo approvals in both prostate and neuroendocrine tumors, how does that change the volume growth profile of cabo relative today? How much acceleration could we potentially see in the future?

P. Haley, Executive Vice President of Commercial

Yes. Derek, this is P.J. So certainly, we don't want to give guidance beyond this year, specifically on revenue or volume. I guess, I'd kind of reiterate some of my earlier comments with regards to NET obviously and CRPC, for that matter, both significant areas of unmet medical need. As I mentioned, NET is 8,000 patients in the second line plus setting and more broadly, we have the potential to be really have a broad opportunity in that marketplace. CRPC is obviously a really large market, again, ultimately with limited treatment options with regards to primary treatment options being chemo, NHT, radioligand therapy, but you're talking about tens of thousands of patients. So we're very excited about the opportunities. And should we have the opportunity to bring them to market and help patients, we think there'll be a really significant opportunity for growth.

Operator, Operator

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

Silvan Tuerkcan, Analyst

Congrats on the quarter. I just want to ask about the overlap in sales force and call points between RCC and a potential sales force for prostate cancer. And basically, what I'm trying to get to, is, can you tell us what's kind of the incremental cost for potentially launching NET in prostate cancer?

Michael Morrissey, President and CEO

Yes. Silvan, thanks for the question, P.J., why don't you address both in terms of prostate RCC and then on the GI side, NET and HCC.

P. Haley, Executive Vice President of Commercial

Yes, happy to. Thanks for the question, Silvan. I'll start with RCC. We see significant overlap in terms of GU oncologists, whether in the community setting or in academia. GU-onc specialists are treating the majority of these GU indications. This overlap offers advantages for us. First, as I mentioned in my prepared remarks, we can leverage our existing RCC infrastructure without needing to make substantial investments to build it for a potential prostate cancer launch. Second, these physicians are already familiar with cabozantinib in RCC, including managing side effects, which is beneficial. Regarding NET, over 50% to 60% of these cases are GI-related. We have a segment of our team focused on GI, and there's considerable overlap in our call points within both community settings and academia, where physicians are treating NET and GI tumors. This presents a great opportunity for us to utilize our existing infrastructure and enter a market where many prescribers already have comfort and positive experiences based on our market research.

Operator, Operator

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

David Lebowitz, Analyst

When you discussed the strategy zanza versus Cabo going forward, it seems it's clearly an effort to focus on different overall indications. Does that strategy evolve in the event of an unfavorable MSN 2?

Michael Morrissey, President and CEO

Yes, David, thank you for your question. I don't want to speculate on that right now. We have committed to evolving our approach in the development of TKIs, specifically VEGFR targeting TKIs, towards zanza, and that remains our plan. We believe we are seeing an emerging improvement in overall activity and safety based on the totality of data, though it's still early. We are fully invested in zanza, and there is significant excitement in the community. We are also having many productive discussions about potential combinations with zanza. There are numerous opportunities and much to accomplish, so please stay tuned.

Operator, Operator

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

Lee Hung, Analyst

Following up on the neuroendocrine tumor prevalent population. Given the heterogeneity of tumors, are you planning to stratify the prevalent population to focus on specific subgroups initially? I appreciate any details you can provide.

P. Haley, Executive Vice President of Commercial

Yes, Jeff, this is P.J. Thanks for the question. Generally, what I would say is as we focus coming out of the gate, given that, as I mentioned, we really have broad inclusion criteria in our study of whether that's site of origin, SSTR receptor status, what patients have been previously treated with, we really believe we have the opportunity to go right out of the gate. Should we be approved and launched this very broadly. And I think that will be in what we're hearing in ad boards, et cetera, very much appreciated and adopted well from a physician community perspective because they need new options, for really all of these patients. And in some cases, like right now for patients who have been on a variety of therapies. So I think it would be a broad opportunity and we would certainly position it to as such.

Operator, Operator

Our next question comes from the line of Etzer Darout with BMO Capital Markets.

Lukas Shumway, Analyst

This is Lukas Shumway on for Etzer. For the prostate and NET filings, what are the key factors that are going to influence the timing of those filings, what are you waiting on for those? And are those only going to be U.S. filings? Are we also looking for ex-U.S.? And are there any other gating factors for filing those?

Amy Peterson, Chief Medical Officer

Thanks, Lukas. This is Amy. I will address that question. I cannot comment on our partners' plans regarding filings outside the U.S. Cabo is collaborating with Ipsen for regions other than the U.S. and Japan, and with Takeda specifically for Japan. Our focus, as I mentioned earlier, is obtaining the data from BIRC to complete the filing dossier. We are currently in discussions and hope to submit for the CABINET study in the coming months. Regarding the CONTACT study, I also mentioned we are expecting final overall survival results soon. The study yielded positive outcomes. Although statistically significant overall survival is not necessary for a study to be deemed positive, we observed a favorable trend for cabo/atezo. It's worth noting that the situation with prostate cancer treatments, particularly with radioligand and PSME4 assets, has seen initial hazard ratios for overall survival above one. Novartis has recently announced a reduction to under one, likely close to one, so the positive trend we noted supports a favorable risk-benefit profile for patients. Please stay tuned for updates on the progress of our discussions and filings with the agency.

Operator, Operator

Our next question comes from the line of Peter Lawson with Barclays.

Peter Lawson, Analyst

Chris, just a question on the share buyback and thoughts on expanding that, especially if there's a negative outcome around IP, would that be something you'd expand or accelerate?

Christopher Senner, CFO

Thank you for the question, Peter. It's Chris. I'm not going to speculate on our actions based on the different outcomes of the MSN trial. As I mentioned in our prepared remarks, we are focused on executing the $450 million plan; we achieved $191 million in the first quarter, and we are determined to complete the remainder this year.

Operator, Operator

Thank you. At this time, there are no further questions. And I would now like to turn the call back over to your host, Varant for closing remarks.

Varant Shirvanian, Director of Investor Relations

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. Thank you.

Operator, Operator

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