Earnings Call Transcript - EXEL Q3 2025

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Exelixis' Third Quarter 2025 Financial Results Conference Call. My name is Sherry, and I'll be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please proceed.

Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations

Thank you, Sherry, and thank you all for joining us for the Exelixis' Third Quarter 2025 Financial Results Conference Call. Joining me on today's call are Mike Morrissey, our President and CEO; and Chris Senner, our Chief Financial Officer; Dana Aftab, our Executive Vice President of Research and Development; and P.J. Haley, our Executive Vice President of Commercial, who will review our progress for the Third Quarter 2025 ended October 3, 2025. 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, potential growth opportunities and government drug pricing policies and initiatives. Actual events or results could, of course, differ materially. We refer you to the documents we file from time to time with the SEC, which, under the heading Risk Factors, identify important factors that cause actual results to differ materially from those expressed by the company verbally and in writing today, including, without limitations, 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 collaborative partners and the level of cost associated with discovery, product development, business development and commercialization activities. And with that, I'll turn the call over to Mike.

Michael Morrissey, President and CEO

All right. Thank you, Susan, and thanks to everyone for joining us on the call today. Exelixis had a strong third quarter, building on our progress from the first half of 2025. Accelerating R&D momentum coupled with flawless commercial execution has the potential to transform our business as we bring new treatment options to patients and build value for shareholders. The entire Exelixis team is committed to building a best-in-class multi-franchise oncology business, and all corporate activities are aligned on a single focus to improve the standard of care for patients with cancer. Our future success will be accelerated by increasing the number of cancer patients served with current and future Exelixis medicines and the impact we have on their disease. The cabozantinib business has never been stronger and we're pleased to see zanzalintinib move to center stage with our first big clinical success in CRC. Key highlights for the third quarter include: first, continued robust performance of the cabozantinib U.S. business with strong growth in demand and revenue from our commercial activities, cabozantinib maintained its leadership position as the top TKI for RCC and importantly, shows consistent growth in the first-line segment. U.S. Cabo franchise net product revenues grew approximately 14% year-over-year to $543 million in the third quarter 2025 compared to $478 million in the third quarter of 2024. Global Cabo franchise and their product revenues generated by Exelixis and our partners were approximately $739 million in the third quarter of 2025 compared with $653 million in the third quarter of 2024. We're excited by the broad adoption of cabo for the recently approved net indications and have already built a leading position in the oral second-line plus NET segment with a greater than 40% new patient share based on market research. Cabo demand in neuroendocrine tumors grew about 50% and contributed approximately 6% of our third quarter business. With the strong foundation, we expect to exceed $100 million in revenue for the net indication in 2025. Based on our early success in the net launch, and with other GI opportunities on the horizon, we're expediting the full build-out of our GI sales team starting in fourth quarter 2025 to accelerate the growth of the CABINET indication before zanza comes to the forefront. We think this enhancement could be an important component of our growth narrative in 2026 and speaks to the confidence we have in both cabo and zanza as we close out 2025. P.J. will provide more information and commentary about our third quarter franchise performance and encouraging dynamics of the net launch in his prepared remarks. Second, zanzalintinib is rapidly advancing as our next oncology franchise opportunity and the focus of seven ongoing and soon to start pivotal trials. We've continued to prioritize zanza with existing and new indications and combinations as potentially the most promising and expeditious path to a second Exelixis oncology franchise and one that we believe can eclipse the size, scope and impact of our cabozantinib business. Importantly, we're engaged in numerous clinical trial discussions for zanza that could expand the scope and reach of our zanza pivotal trial efforts. We're thrilled with the positive results for STELLAR-303 and CRC and intend to file in this indication with regulators as quickly as possible. We understand the nuances of the CRC market in the U.S. and believe we can effectively navigate the intricacies of this complicated disease and the current competitive dynamics pending approval. I'll remind everyone of the important messages from the full data set presented at ESMO and published simultaneously in Lancet. Zanza in combination with atezo, but to the first clinical success in a non-MSI-high third-line plus CRC population when compared against a contemporary standard of care. I want to reiterate that four other checkpoint containing regimens failed to achieve this goal. Market research underscores that late-line CRC patients are interested in utilizing immune checkpoint inhibition to attack the disease head on. So the zanza-atezo combo could represent a meaningful advance. The absolute magnitude of the overall survival benefit in the ITT population with the zanza-atezo combination is notable, especially in the context of the offering the potential of a non-chemo containing regimen. We're especially pleased with the magnitude of benefit in patients with prior bevacizumab treatment since the vast majority of CRC patients in the U.S. received bevacizumab as part of their first and/or second line treatment regimens. Tolerability and safety of the zanza-atezo combination is consistent with other TKI checkpoint combinations. The 303 trial continues to include survival events in the non-liver met subgroup and we expect to trigger the final analysis for non-liver met patients in midyear 2026. And again, as you'll hear from Dana, seven ongoing and new zanza pivotal trials are in the queue to address important unmet medical needs for known and new indications across multiple lines of therapy. The Exelixis early-stage pipeline continues to progress quickly with a range of new and potentially differentiated biologics and small molecules heading into and through early clinical evaluation. Dana will highlight these activities today at a high level, and you can expect additional details on these efforts along with our zanza pivotal trial update at our upcoming R&D Day on December 10. Finally, we continue to carefully manage capital allocation while advancing our R&D and commercial priorities. Our balance sheet and expected free cash flows remain strong and provide us with the opportunity to advance our pipeline priorities while we return cash to shareholders. We plan to repurchase shares when we believe they are undervalued, and we're pleased that we have been authorized to repurchase an additional $750 million of our shares. So with that, please see our press release issued an hour ago for our third quarter 2025 financial results and an extensive list of key corporate milestones achieved in the quarter. And I'll now turn the call over to Chris.

Christopher Senner, Chief Financial Officer

Thanks, Mike. For the third quarter of 2025, the company reported total revenues of approximately $598 million, which included cabozantinib franchise NET product revenues of approximately $543 million. CABOMETYX net product revenues were approximately $540 million. Gross net for the cabozantinib franchise in the third quarter 2025 was 30.4%. During the quarter, we experienced higher deductions from revenue related to 340B discounts offset by lower Medicare and co-pay assistance expenses. We continue to project that our gross to net for the cabozantinib franchise will be approximately 30% for the year. Trade inventory at the end of the third quarter, 2025 was approximately 2 weeks on hand, which was lower when compared to the second quarter of 2025. Total revenues also included approximately $54.8 million in collaboration revenues, which includes approximately $46.3 million in royalties earned from our partners, Ipsen and Takeda on their sales of cabozantinib in their respective territories. Our total operating expenses for the third quarter of 2025 were approximately $361 million compared to $355 million in the second quarter of 2025. The sequential increase in these operating expenses was primarily driven by a $19.8 million restructuring charge we took during the third quarter. The increase in restructuring expense was partially offset by lower SG&A expenses. Provision for income taxes for the third quarter of 2025 was approximately $58.8 million compared to a provision for income taxes of approximately $45.6 million for the second quarter of 2025. The company reported GAAP net income of approximately $193.6 million or $0.72 per share basic and $0.69 per share diluted for the third quarter of 2025. The company also reported non-GAAP net income of approximately $217.9 million or $0.81 per share basic and $0.78 per share diluted. Non-GAAP net income excludes the impact of approximately $24 million of stock-based compensation expense net of related income tax effect. Cash and marketable securities for the quarter ended September 30, 2025, were approximately $1.6 billion. During the third quarter of 2025, we repurchased approximately $99 million of the company's shares, resulting in the retirement of approximately 2.4 million shares at an average price per share of $41.69. As of the end of the third quarter 2025, we had approximately $105 million remaining under the $500 million stock repurchase plan authorized by the company's Board in February 2025. On October 31, 2025, the company's Board authorized an additional share repurchase program totaling $750 million that expires at the end of 2026. We are updating our full year 2025 financial guidance, which is detailed on Slide 14 of our earnings presentation. We are narrowing our total revenue and net product revenue guidance to the upper end of our previously provided guidance ranges. We are projecting that total revenue will be between $2.3 billion and $2.35 billion, and our net product revenue will be between $2.1 billion and $2.15 billion. We are tightening our cost of goods guidance to be approximately 4% of net product revenues. We are lowering our R&D expense guidance range by $75 million to $850 million to $900 million. We are tightening our SG&A expense guidance range to be between $500 million and $525 million. And finally, we are lowering our full year effective tax rate guidance to be between 17% and 18%. With that, I'll turn the call over to Dana.

Dana Aftab, Executive Vice President of Research and Development

Thank you, Chris. I'm thrilled to be leading the R&D organization. The energy and engagement across R&D are very high right now, and the momentum we gained during ESMO continues to motivate our teams with a strong focus on execution and collaboration. In R&D, we are dedicated to maximizing our portfolio opportunities, including zanzalintinib and our promising earlier-stage pipeline of small molecules and biotherapeutics. As I mentioned, we have significant momentum following ESMO, primarily due to our presentation of the results from the STELLAR-303 trial, which compared the combination of zanzalintinib plus atezolizumab to regorafenib in patients with non-microsatellite instability high colorectal cancer who have had multiple prior treatments. To recap, the trial has dual primary endpoints to assess survival outcomes in the intention to treat population as well as in patients without liver metastases, referred to as the NLM population. The study met one of its primary endpoints, showing a 20% reduction in the risk of death with the combination in the ITT population at the final analysis, with a hazard ratio of 0.80 and a confidence interval of 0.69 to 0.93 along with a p-value of 0.0045. At a median follow-up of 18 months, the median overall survival for the ITT population was 10.9 months for the combination versus 9.4 months for regorafenib. The survival benefit was evident early and remained consistent throughout the study. The overall survival advantage of the zanzalintinib plus atezolizumab combination was observed across all pre-specified subgroups, with similar hazard ratios in key categories, including liver involvement, prior anti-VEGF treatment, geographic region, and RAS mutation status. Data regarding the second primary endpoint of overall survival in the NLM population were incomplete at the data cutoff, but a prespecified interim analysis indicated a trend favoring the combination, showing median survival of 15.9 months for zanza plus atezo compared to 12.7 months for regorafenib. With a median follow-up of 16.8 months, the hazard ratio for this analysis was 0.79, with a confidence interval of 0.61 to 1.03 and a p-value of 0.0875. The trial will proceed to the planned final analysis for this endpoint, which is projected to happen around mid-2026. The safety profile of the combination aligns with existing TKI/IO combinations, showing no new safety signals. We were also excited to see the trial results published in the Lancet at the same time as the ESMO presentation. We are very enthusiastic about these results for several reasons. Before the STELLAR-303 findings, four Phase III clinical trials in colorectal cancer assessing immunotherapy-containing regimens failed to demonstrate an overall survival benefit compared to standard care in non-MSI-high patients, who make up 95% of the colorectal cancer population. As the first and only Phase III trial to show an overall survival advantage against a standard of care in these patients, we believe STELLAR-303 highlights the distinct clinical profile of zanzalintinib compared to other TKIs and immunotherapy combinations evaluated. Additionally, zanzalintinib simultaneously targets TAM kinases and MET, which prior research indicates helps tumors evade antitumor immunity. This unique mechanism is a crucial aspect of zanzalintinib's clinical differentiation from other kinase inhibitors in development, emphasizing its franchise potential. Moreover, to date, no other regimen has shown higher median overall survival in this context. In STELLAR-303, the zanza plus atezo combination achieved median overall survival of 10.9 months in the ITT population and 10.5 months in those pretreated with bevacizumab. While we are aware of the limitations of cross-trial comparisons, it's notable that the SUNLIGHT trial previously reported median overall survivals of 10.8 months for TAS-102 plus bev and just 9 months for those who had prior bevacizumab treatment. This is significant because many patients in the U.S. receive bevacizumab early in their treatment journey. Lastly, the immunotherapy-containing, chemotherapy-free regimen represents an opportunity to transition to a TKI/IO combination after receiving chemotherapy plus bev, an option that has been emphasized by investigators and opinion leaders as valuable for patients. Therefore, we believe the zanzalintinib plus atezolizumab combination could greatly impact this underserved population. This belief drives our teams to work diligently in preparation for a potential NDA filing, which we aim to submit this December, depending on government operations. We also plan to finalize data collection and analysis for the overall survival dual primary endpoint in the NLM population, expected around mid-2026. Moving on to STELLAR-304, our pivotal study assessing the zanzalintinib and nivolumab combination versus sunitinib in patients who have not yet received systemic therapy for locally advanced or metastatic non-clear cell renal cell carcinoma. Given the current event rate, we anticipate top-line results around mid-2026, which, if favorable, could lead to our second NDA filing for zanzalintinib. Regarding other clinical developments for zanzalintinib, earlier this year we initiated STELLAR-311, a Phase III trial comparing zanza to everolimus as a first-line oral therapy for neuroendocrine tumors, and that study is proceeding as planned. Progress is also ongoing with Merck's Phase II umbrella study assessing zanza with belzutifan in previously treated metastatic renal cell carcinoma, as well as two pivotal studies led by Merck in clear cell renal cell carcinoma with zanza in combination with belzutifan, which we expect to launch near the end of this year. Looking ahead to new pivotal studies for zanzalintinib, we are preparing to begin two additional trials in 2026: one for patients with recurrent meningioma and the other in the adjuvant setting for colorectal cancer patients who have completed surgery and chemotherapy but are at high risk for recurrence. Given the clear clinical differentiation observed with zanzalintinib and its potential to be the preferred TKI for combinations with immunotherapy, we are continuously evaluating further opportunities for zanzalintinib development and look forward to sharing more details as we approach trial launches. Now, shifting to our early clinical pipeline, we are developing four molecules currently in clinical studies: XL309, XB010, XB628, and XB371, all of which are progressing well in their Phase I trials. Regarding new development candidates, we are advancing exciting new small molecules and ADC programs and look forward to sharing more about our early pipeline initiatives at the R&D Day event scheduled for December 10 this year. With that, I'll turn the call over to P.J.

P. Haley, Executive Vice President of Commercial

Thank you, Dana. The CABOMETYX business remained strong in the third quarter of 2025. And importantly, the launch in neuroendocrine tumors is off to a great start. Cabo continued to show growth in terms of revenue, demand and new patient starts and notably performed well relative to the competition. The team continued to execute at an extremely high level with CABOMETYX continuing to be the #1 prescribed TKI in renal cell carcinoma as well as the #1 TKI plus IO combination in first-line RCC. The prescription data in the oral TKI market basket of cabo, lenvatinib, axitinib, sunitinib and pazopanib convey the strength of cabo relative to the competition. Looking at the TRx comparison of Q3 2024 to Q3 2025, CABOMETYX grew 4 share points from 42% to 46%. Importantly, CABOMETYX was the only product in the market basket to grow market share year-over-year. CABOMETYX TRx volume grew 21% in Q3 2025 relative to Q3 2024, outpacing the growth rate of the market basket, which was 13%. Importantly, CABOMETYX RCC business remains strong and continues to grow. The new indications for previously treated NETs are providing our experienced sales team great access to customers, and we're able to discuss both the CABINET data as well as the RCC CheckMate -9ER 5-year follow-up data with relevant physicians. The 9ER data presented at ASCO GU in February resonate with RCC space and help our team continue to drive differentiation from the competition in first-line RCC. In fact, CABOMETYX plus nivolumab first-line new patient market share in the third quarter was the highest it has ever been. This momentum bodes well for future growth in terms of new patient starts and total demand as more first-line patients receive incremental refills and volume as we look forward into 2026. Turning to neuroendocrine tumors. Our market research and feedback from customers demonstrate that prescribers are excited for a new treatment option for their neuroendocrine tumor patients, the first broadly applicable new oral small molecule therapy in 9 years. Physicians are responding positively to the broad net label in the contemporary trial design and perceive the efficacy and tolerability of the cabo data as favorable relative to the other small molecule therapies in the space. Prescribers are using cabo broadly across patient and tumor characteristics, including patients with neuroendocrine tumors arising in the pancreas, GI tract and lung across all tumor grades, functional and SSTR status and those who have received prior treatment with Lutathéra. The recent ESMO presentation of the lung subset data from the CABINET study continues to elucidate the cabo data in a segment of patients accounting for approximately 20% of NET who have a high unmet need, many of which test SSTR negative. Turning to new patient market share for second-line plus neuroendocrine tumors in Q3. We are pleased that CABOMETYX has rapidly become the market leader in this segment with greater than 40% new patient share for oral therapies. This share is very encouraging so early in the launch, and we believe that new patient share should continue to increase. Over time, as more patients start therapy with cabo and receive refills, we believe demand will continue to grow. Neuroendocrine tumor demand contributed approximately 6% of total demand for cabo in Q3, and we expect that contribution to increase going forward. Demand in neuroendocrine tumors increased by over 50% in Q3 relative to Q2. Finally, market research continues to indicate that CABOMETYX is viewed as the best-in-class oral therapy in neuroendocrine tumors. This perception is typically a leading indicator of prescribing behavior and gives us confidence that CABOMETYX new patient market share will continue to increase in coming quarters. This research finding aligns well with the anecdotal feedback our experienced sales team is receiving from their customers, many of whom are saying they will prescribe cabo for their NET patients once they progress and need a different systemic therapy. Taken together, the data and customer feedback give us a high degree of confidence in the growth of CABOMETYX in neuroendocrine tumors. If we look at the cabo neuroendocrine tumor business, the revenue for 2025 is vectoring towards exceeding $100 million. This trajectory, taken together with the market uptake and enthusiasm provides great momentum for the business heading into 2026. As we think about building on and expanding our GI franchise, we are thrilled with the results of STELLAR-303. Pending regulatory approval, we believe that these data will provide Exelixis with a compelling commercial opportunity in colorectal cancer, one of the big four tumors. Many physicians cite the availability of an immune checkpoint inhibitor for a broader population is important for their patients. They also view zanza as differentiated given the data and the fact that the combination of zanza plus atezo was successful in a cold tumor where other TKI plus ICI combinations have failed. With all the appropriate caveats for cross-trial comparisons, the median OS for zanza of 10.9 months is on par with Lonsurf plus Avastin bevacizumab from the SUNLIGHT study. However, in the SUNLIGHT study, patients who had received prior bev had a median OS of only 9 months. The bev pretreated group will be relevant for the U.S. population as approximately 75% of patients have received bev before reaching the third-line setting, and most of these patients have received bev in both the first- and second-line settings. Exelixis has had numerous successful launches with cabo. We are excited to expand on the commercial capabilities we have built over the last decade and to build on our GI franchise, where we already have experience in hepatocellular carcinoma and neuroendocrine tumors. As you know, we already have a significant GU presence. And for zanzalintinib, we would envision growing our GI infrastructure to a size and scale similar to our GU team. As Mike mentioned, we are expediting the build-out of our GI sales team as we see a great opportunity to continue to drive growth in the NET indication. Additionally, having a full GI team in place will provide important experience selling cabo as well as forming relationships with accounts to be ready for zanza. The incremental sales representatives will enable us to have greater reach in the community setting, which is a segment where our team has typically excelled. This build-out speaks to our confidence and excitement of CABOMETYX opportunity as well as zanzalintinib. In closing, we are pleased with the cabo business, both in RCC and NETs. In neuroendocrine tumors, prescribers see CABOMETYX as a more favorable choice versus other previously approved small molecule therapies. Additionally, the competition in the oral segment of the NET market are generic therapies, which puts CABOMETYX at a significant advantage with a full commercial organization energized and supporting the launch. All of this taken together drives our conviction that the NET market will be a substantial opportunity for the CABOMETYX business. We are pleased that CABOMETYX plus nivolumab has achieved the regimen with the highest market share ever in first-line RCC setting as this sets up the brand for continued growth in kidney cancer. And with that, I will turn the call back over to Mike.

Michael Morrissey, President and CEO

All right. Thanks, P.J. We will wrap up here with a big shout out to the Exelixis' team to thank everyone for helping make our third quarter so successful. I'm pleased to see our collective commitment, focus and urgency continue at a high level as we advance our priorities across discovery, development and commercial activities. On a personal note, after more than 35 years in the biopharma industry, Susan Hubbard, our EVP, Public Affairs and Investor Relations, has decided to retire to pursue her passions outside of her profession. We are incredibly fortunate that Susan joined us in 2014 with her depth of experience and broad expertise in both clinical and commercial. She provided strong leadership and guidance to help us navigate all the twists and turns we've encountered over the years as we grew into the company we are today. And I personally, again, I'm very grateful for Susan as she's been my go-to thought partner for framing the Exelixis' narrative to all our various stakeholders, and we wish her all the best. Susan will be with us through the end of the year, and I'm confident our Investor Relations and public affairs teams are well equipped for the future. Moving forward into 2026, Andrew Peters, currently Senior Vice President, Strategy, will add Investor Relations to his responsibilities reporting to Chris Senner. This is a natural move for Andrew, who joined Exelixis in 2018 following 12 years as a biopharma equity research analyst. To both Susan and Andrew. So we'll close here, and 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 will come from Silvan Tuerkcan with Citizens.

Silvan Tuerkcan, Analyst

Congratulations on all the progress. Maybe if you could just summarize the post-ESMO feedback that you had on the zanzalintinib results and how they match up with those points that you unveiled today regarding how you plan to position this product in the market.

Michael Morrissey, President and CEO

Yes. Thanks, Silvan. Yes, P.J., do you want to start with that one and then maybe Dana and I can provide some color commentary as needed.

P. Haley, Executive Vice President of Commercial

Thank you for the question, Silvan. We have conducted extensive market research, including data presented at ESMO, which has been very positive. Physicians recognize the overall survival benefit as crucial. They are also supportive of introducing an immuno-oncology option in one of the largest tumor types, where such treatments have not been available before, and where TKI combined with immunotherapy has previously been used. The fact that this is a chemotherapy-free alternative is significant to physicians as well. Looking at the current market, it is quite fragmented. Approximately one-third consists of Lonsurf-bev, another third is comprised of TKI, and the remaining third includes various chemotherapies and targeted therapies. This fragmentation presents opportunities for us if we gain approval. Our market research shows that we will capture market share from competitors in this area, which is encouraging. We are excited to expand our gastrointestinal franchise capabilities and our sales team as our neuroendocrine tumor launch progresses positively. This will enable us to further penetrate the community and enhance uptake in the neuroendocrine tumor space, while also being well-prepared for a potential launch of zanzalintinib in the near future. Overall, this is an exciting time for us.

Operator, Operator

One moment for our next question. And that will come from the line of Sean Laaman with Morgan Stanley.

Unknown Analyst, Analyst

This is Catherine on for Sean. We had one looking at zanza and nccRCC ahead of the readout for STELLAR-304 in midyear '26, could you help provide more color on why sunitinib is the right control given the various histologic subtypes that make up this population?

Dana Aftab, Executive Vice President of Research and Development

Thanks for the question. This is Dana. Yes, so the comparator in 304 is sunitinib, which is a standard of care in this setting. We think it's a highly relevant comparator, especially given the overlap in target profile with zanza. And it's used quite extensively, especially ex U.S., but a number of patients in the U.S. are also treated with this. So it's a standard of care and thus is a good comparator to go with a Phase III pivotal trial.

Operator, Operator

One moment for our next question. And that will come from the line of Paul Choi with Goldman Sachs.

Unknown Analyst, Analyst

This is Karishma on for Paul. Congrats on the quarter. So given the performance in the STELLAR-303 initial cut of data from ESMO, help us level set expectations for the NLM cut coming out early next year? And particularly, we were interested in the idea of powering with relation to the study given that Lonsurf-bev had approximately 500 patients in their Phase III study. Can you speak to your decision to enroll roughly 900 patients in STELLAR-303 and the overall implications?

Michael Morrissey, President and CEO

Yes, it's kind of hard to hear your question with all the background noise. So Dana, can you navigate that one.

Dana Aftab, Executive Vice President of Research and Development

The study initially had dual primary endpoints but later shifted to a single primary endpoint for patients without liver metastases. There was scientific rationale for this change, particularly due to emerging data from the LEAP-017 trial and other studies indicating that patients without liver metastases tend to respond better to immunotherapy. As the trial progressed and we gathered more patients and events, we recognized a significant opportunity to potentially expedite results by including the ITT population, which includes patients with liver metastases who generally have a poorer prognosis. The disease tends to be more aggressive in these patients, leading to faster progression and quicker overall survival events. Consequently, we decided to adjust the trial to evaluate endpoints in both the non-liver metastases group and the full ITT population. The results we presented in Berlin a couple of weeks ago encompassed a combined analysis of both groups. It's important to note that our trial population skewed toward non-liver metastases, as we limited the number of patients with liver metastases allowed to enroll. Typically, a trial without such limitations would consist of about 80% liver metastases patients and 20% to 30% non-liver metastases patients, but our figures showed approximately 38% non-liver metastases. This certainly altered the trial dynamics, but the results we obtained were from the entire population. Given that non-liver metastases patients progress more slowly, we anticipate seeing results in that subgroup around the middle of next year.

Operator, Operator

One moment for our next question. And that will come from the line of Asthika Goonewardene with Truist.

Asthika Goonewardene, Analyst

I want to congratulate you on the impressive growth in both revenues and profits. I have a question regarding Merck's announcement that LITESPARK-011 was positive. It's reasonable to think they will focus on marketing the combination of belzutifan and lenvatinib for second-line RCC patients. While we recognize that zanzalintinib is a superior drug to lenvatinib, there may be significant overlap between the LITESPARK-011 cohort and those receiving belzutifan and zanzalintinib. Does this decrease the likelihood that Merck will pursue a pivotal second-line study with belzutifan and zanzalintinib? Additionally, can you provide the contribution of clinical trial sales to cabo in the third quarter?

Michael Morrissey, President and CEO

Chris, take that second question, first.

Christopher Senner, Chief Financial Officer

Sure. So Asthika, it's Chris. There were actually no clinical trial sales in the quarter.

Michael Morrissey, President and CEO

And yes, it's Mike. The first question was quite elaborate with many details. We are confident that the Merck trials we've been discussing for the past year will proceed and begin later this year. I don't want to comment further on other people's data, especially since there’s only a press release available. We’re excited about that collaboration and look forward to its progress.

Operator, Operator

One moment for our next question. That will come from the line of Akash Tewari with Jefferies.

Anastasia Parafestas, Analyst

This is Anastasia on for Akash. So do you see any risk to your STELLAR-303 trial approval given that Vinay was publicly apprehensive about the usefulness of CABINET?

Michael Morrissey, President and CEO

Yes. I wouldn't want to comment on that.

Operator, Operator

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

Tsan-Yu Hsieh, Analyst

Congratulations on your remarkable career in the biopharma industry. You have been a mentor to many of us, and I am really happy for you; I will greatly miss working with you. My question pertains to the NET population, which has seen a very successful launch. As we look ahead to the Zanza Phase III trial, I am interested in your strategy for addressing potential cannibalization as Cabo is being utilized and possibly establishing a presence in earlier treatment lines.

Michael Morrissey, President and CEO

P.J, go ahead.

P. Haley, Executive Vice President of Commercial

Yes. Thanks for the question, Andy. Regarding NET, we are really pleased with how the launch is going. There's been about a 50% demand growth quarter-over-quarter, and we're happy with the broad utilization across various demographics. We're still in the early stages as we work on building new patient share, especially since we were only approved at the end of March. There is a significant opportunity for these patients to get refills and for demand to grow in the future. Looking at zanza in the long term, it's a different study with an active comparator, designed to position it competitively in the market, but that's a ways off. In the short term, there's plenty of potential for both cabo and NETs to really establish themselves as key players.

Operator, Operator

One moment for our next question. And that will come from the line of Sudan Loganathan with Stephens.

Sudan Loganathan, Analyst

Apologies if this was already asked in a different capacity. But I believe I heard that the other subgroup part of the dual primary endpoint for STELLAR-303 might only come to maturity, maybe sometime early next year. Yes with the NDA submission that you guys are planning for by year-end 2025, could we still expect like a broad label for CRC, including both subgroups to be in play? Or will there be some sort of rolling submission that needs to happen to include that cohort of the primary endpoint? And then just secondly, a follow-up, was the need for both subgroups being split up as a result of guidance from regulators to achieve having both of those non-liver mets and liver mets included on the initial label for zanza?

Dana Aftab, Executive Vice President of Research and Development

Sure. Thanks for the question. This is Dana. We will file based on the single hit on one of the dual primary endpoints in the ITT population. I want to clarify that the ITT population is not a subpopulation; it is the entire trial population. This means we believe we can achieve the broadest label. The NLM subgroup is a subpopulation within the trial and represents a second primary endpoint. We are moving forward with our filing and expect to submit it soon, depending on government operations.

Operator, Operator

One moment for our next question. That will come from the line of Yaron Werber with TD Cowen.

Unknown Analyst, Analyst

Congrats on the quarter. This is Sarah filling in for Yaron. I have a quick question about your early-stage pipeline. You mentioned an upcoming R&D Day, but could you provide a brief overview of your 4 Phase I programs? Specifically, which one do you believe will move into pivotal development next? Additionally, could you discuss XB371, your tissue factor TOPO1-ADC, and how it stands out compared to other TOPO1s?

Dana Aftab, Executive Vice President of Research and Development

Sure. Thank you for the question. I don't want to reveal too much about what we'll discuss next month. However, I can tell you that 309, our USP1 inhibitor, and 010, our 5T4 targeting ADC, have been in the clinic for a longer period and have obviously included more patients. XB628, our bispecific immune oncology molecule targeting PD-L1 and NKG2A, started its Phase I trial a few months ago and has been enrolling well. As for 371, the tissue factor targeting ADC with the topoisomerase 1 inhibitor payload, it is our most recent IND filing and has just begun its Phase I trial, but it's already enrolling patients. What sets this molecule apart is its use of a differentiated antibody that does not affect the coagulation cascade, along with the tandem mechanism release linker that we licensed from Catalent to release the payload. This approach ensures stability of the payload in circulation, requiring both glucuronidase cleavage and tandem cleavage by a peptidase inside the cells for payload release. We believe this is what differentiates it from others, and we feel we are ahead in investigating a molecule like this in the clinic.

Operator, Operator

One moment for our next question. And that will come from the line of Michael Schmidt with Guggenheim.

Michael Schmidt, Analyst

I had one on zanza, specifically the opportunity based on the STELLAR-304 study. Just help us understand the size of this commercial opportunity in non-clear cell RCC. And how much CAP use is driven in non-clear cell right now? And then lastly, just the minor delay to mid-2026 from the first half. Is that based on event rate slowdown? Or is there something else going on there?

P. Haley, Executive Vice President of Commercial

Yes. Michael, this is P.J. Certainly excited about the opportunity to get a readout from STELLAR-304 and then the potential to get zanza approved in the kidney cancer space. Obviously, a space we know really well. Non-clear cell accounts for approximately 20% to 25% of the patients in the space. And cabo has utilization there as do many other agents. But certainly, we think that a Phase III study having a positive result would really move the needle in that space to demonstrate with greater level of evidence and support benefit for patients.

Operator, Operator

One moment for our next question. That will come from the line of Jason Gerberry with Bank of America.

Jason Gerberry, Analyst

Susan, you'll be missed. My question is about the NET cabo launch. I'm curious about the share of second-line oral therapies. Are orals gaining a larger share compared to Lutathéra, or is the relationship between orals and Luta in the second line relatively stable? Also, could you provide an update on the timeline for the MSN patent appeal?

P. Haley, Executive Vice President of Commercial

Yes, this is P.J. Thank you for the question, Jason. We're very pleased with the NET launch. In the second-line plus oral share, we have already surpassed 40% new patient share, which we are happy about. These patients are just starting therapy, so we believe there is still potential for us to benefit from the duration of therapy they will receive. We think we can continue to grow our share in this area. Regarding Lutathéra in the second-line plus setting, oral therapies make up a larger portion of that market, but when Lutathéra is used, cabo is often the preferred treatment following Lutathéra. Our study included patients who were pretreated with Lutathéra, giving us a strong position in the current marketplace.

Michael Morrissey, President and CEO

Yes, Jason, it's Mike. On the topic, don't have anything to offer up on that today, okay?

Operator, Operator

One moment for our next question. And that will come from the line of Leonid Timashev with RBC.

Leonid Timashev, Analyst

I wanted to ask a little bit on the mengioma opportunity. Just curious sort of how you're thinking about the emerging investigator-sponsored data with cabo and how that applies to zanza and your confidence there? And then ultimately, what you think the size of that opportunity may be?

Dana Aftab, Executive Vice President of Research and Development

Sure. This is Dana. Thanks for the question. Regarding what was seen with cabo, so you probably know the story, but there's a published case report where a patient with thyroid cancer treated with cabo had an angioma, and they noticed a very substantial reduction in the size of that tumor, and that's not a common occurrence with targeted therapies. A number of different studies noted response rates for targeted therapies, especially VEGF or VEGFR targeted therapies in the single-digit range, 3% or less. So these investigators got very excited and launched an investigator-sponsored trial where they looked at a number of patients treated with cabo, and they saw response rates depending on the criteria that are used anywhere in the 25% to 75% range. So that was quite exciting to us and showed the impact of the target profile of cabo. And as we've said, we feel that zanza is sort of a best-in-class molecule with a cabo-like target profile. So it's a natural progression for us to look at for a white space targeting trial with zanza. So we're very excited about that trial. And as I indicated, we expect that trial to get up and running in 2026.

Operator, Operator

One moment for your next question, and that will come from the line of Stephen Willey with Stifel.

Stephen Willey, Analyst

Maybe a similar question just on the planned Phase III trial in post-chemoadjuvant CRC. And so I guess when I look at the STELLAR-303, the zanza dose intensity, I guess it was pretty low. And just curious if you're intending to do any additional dose exploration work just to make sure that dose intensity doesn't become a rate limiting factor in a setting where tolerability tends to be prioritized.

Dana Aftab, Executive Vice President of Research and Development

Yes, this is Dana. I’ll take that. Regarding our plans for further exploration in colorectal cancer, this stems from the results of STELLAR-303, which showed a positive outcome in non-MSI-high patients using an IO-containing regimen. It makes sense for us to consider implementing this earlier in treatment lines for patients, as we have identified a significant unmet need in colorectal cancer. For patients at high risk of recurrence, the average disease-free survival is around six months. We believe we can obtain results from this study fairly quickly. As for the dosage, similar to other agents, such as cabo, we will explore different doses as we move to earlier lines of therapy. We intend to investigate other doses with zanza, and I'll ask you to stay tuned for more information once we officially launch the trial and provide additional details.

Operator, Operator

One moment for our next question, and that will come from the line of Jay Olson with Opp Co.

Cheng Li, Analyst

This is Cheng on the line for Jay. Congratulations on the quarter. I also want to thank Susan for all her help over the years and congratulations on her retirement. I'm curious about the several bispecific programs that are now being developed for first-line CRC. How do you see the potential impact of these novel agents? Additionally, how might this affect the uptake of atezo plus zanza in later lines? If I could also ask for clarification regarding STELLAR-303, why couldn't you file earlier since the top-line results were available a few months ago?

Michael Morrissey, President and CEO

Yes. We're having difficulty hearing you. Currently, no one is submitting new NDAs due to the government being closed. So please keep in mind that whether it's a new NDA or a new BLA, there are no filings while the government is shut down. We hope to submit as soon as the government reopens. Regarding the bispecifics and the emerging landscape, the science is certainly interesting, and early clinical data is available, but it's challenging to predict how this will impact the marketplace without pivotal trials even starting, let alone reading out. We should stay tuned and recognize that it’s a dynamic environment overall. Data is what drives the process, and we will continue to advance our data, integrating it with any emerging findings.

Operator, Operator

One moment for our next question, and that will come from the line of Ash Verma with UBS.

Ashwani Verma, Analyst

I wanted to revisit the CRC market dynamic you mentioned, noting that Teva combined with [indiscernible] constitutes about one-third of the third-line market currently. The feedback from physicians indicates that this segment is expanding. What is your expectation for the market share by the time you launch zanza-atezo? Also, while there is some disparity in the SUNLIGHT study related to previous beva exposure, has that hampered the adoption of that treatment approach?

P. Haley, Executive Vice President of Commercial

Thank you for the question. We have been conducting market research in CRC for quite a while, and we've found that the share of the SUNLIGHT regimen has remained relatively stable. If this trend continues, the market will still be fragmented, with approximately one-third for SUNLIGHT, one-third for TKI, and one-third for other treatments, presenting a significant opportunity for us. Our research involves discussions with over 100 physicians in both community and academic settings to gather a solid sample size. We've been hearing from them that we expect to see uptake in the third-line and beyond setting and take market share from all competitors, which makes us optimistic. This is one of the reasons we are expanding our sales force in addition to increasing NET with cabo, as CRC is frequently treated in the community, making it a common tumor type with many prescribers. We aim to position ourselves effectively and establish a strong presence in the community setting.

Operator, Operator

One moment for our next question. And that will come from the line of Christopher Liu with Lucid Capital Markets.

Christopher Liu, Analyst

Maybe one that is more around capital allocation and financial strategy. With the share buybacks that have already been done and that are planned, going forward, how are you thinking about incremental buybacks versus things like business development or clinical investment opportunities? And do you feel like there's going to be a point where share buybacks would be less favored for some of these other potential value generators?

Christopher Senner, Chief Financial Officer

Yes, this is Chris. So generally, we think of capital allocation in the three elements, right? It's R&D, it's business development and share repurchases. And we think with the revenue growth we're generating and with the continued prudent expense management, we're including R&D expense in the $1 billion range, we think that we'll be able to fund all three of those elements, and we'll continue to invest in R&D and invest in BD and invest in share repurchase.

Operator, Operator

Thank you, at this time, there are no further questions. And so I will turn the call over to today's host, Susan Hubbard. Ms. Hubbard?

Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations

Thank you, Sherry, and thank you all for joining us today. We certainly welcome your follow-up calls with any additional questions you may have.

Operator, Operator

This concludes today's program. Thank you all for participating. You may now disconnect.