Earnings Call Transcript - EXEL Q2 2025

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Exelixis Second Quarter 2025 Financial Results Conference Call. My name is Towanda, 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 T. Hubbard, Executive Vice President of Public Affairs and Investor Relations

Thank you, Towanda, and thank you all for joining us for the Exelixis Second Quarter 2025 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 will review our progress for the second quarter 2025 ended June 30, 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 could cause actual results to differ materially from those expressed by the company verbally and in writing today, including, without limitation, risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners and the level of costs associated with discovery, product development, business development and commercialization activities. And with that, I will turn the call over to Mike.

Michael M. Morrissey, President and CEO

All right. Thank you, Susan, and thanks to everyone for joining us on the call today. Exelixis had a strong second quarter, accelerating our progress and building momentum across all components of our business. Driving growth of the cabozantinib franchise, now catalyzed by the early stage of a successful net launch, is our top priority, while we execute on our R&D strategy to build a multi-compound multi-franchise oncology business. All corporate activities are aligned on a single focus to improve the standard of care for patients with cancer. The magnitude of our future success will be determined by increasing the number of cancer patients we seek to serve and ultimately, the impact we have on their disease with current and future Exelixis medicines. By driving for success across all components of our business, we hope to solidify our leadership in oncology drug discovery, development and commercialization through intensity, innovation and collaboration. Key highlights for the second quarter include: first, the robust performance of the cabozantinib U.S. business, with strong growth in demand and revenue from our commercial activities. Cabozantinib continues to build on its leadership position as the leading TKI for RCC. Second quarter 2025, U.S. cabo franchise net product revenues grew 19% year-over-year to $520 million compared to $438 million in the second quarter of 2024. Cabo's second quarter growth is noteworthy as it relates solely to commercial demand with negligible benefit from clinical trial sales and significant gross to net headwinds. Importantly, we saw brisk full quarter sales for the recently approved net indications and already built a leading share in the oral second-line plus NET segment, which contributed to approximately 4% of our second quarter 2025 net product revenue. P.J. will provide more information and commentary about our second quarter franchise performance and encouraging dynamics of the net launch in his prepared remarks. And just last Thursday, our partner, Ipsen, received approval for NET from the European Commission and revenues from this important new indication as it rolls out across Europe will add to our royalty stream. We will continue to evaluate further updates to our 2021 financial guidance as we build momentum on the net launch and gain further clarity on additional revenue opportunities for the second half of 2025. Second, as outlined previously, zanzalintinib is rapidly advancing as our next oncology franchise opportunity and the subject of numerous ongoing and soon to start pivotal trials. We're pleased with the positive top line results from STELLAR-303 in CRC and look forward to engaging with regulators with the intent of filing for approval in this indication as quickly as possible. STELLAR-304 in non-clear cell RCC is fully enrolled and continues to progress with top line results expected in the first half of 2026, depending on event rates. Based on evaluation of the data from STELLAR-305 in head and neck cancer and the competition in this indication, we made the decision not to advance this trial into Phase III. This decision was further supported by our assessment of the commercial opportunity of new zanza indications on the horizon that we believe have a higher probability of success, little to no competition, and potentially an approximate threefold greater commercial value than the STELLAR-305 opportunity. As we've highlighted previously, we stand ready to make tough decisive capital allocation decisions based on clinical and competitive data and in-depth financial analysis. We're doing it now for STELLAR-305, and you can expect the same level of rigor from us in all future decisions across all components of the business. We continue to prioritize existing and new zanza indications as the most promising path to a second Exelixis oncology franchise that we believe can eclipse the size, scope and impact of our cabozantinib franchise. Third, the Exelixis early-stage pipeline is advancing quickly with a range of new and potentially differentiated biologics and small molecules heading into and through early clinical evaluation. As I highlighted last quarter, we're not looking to just build a big pipeline, but carefully and quickly identify the winners for advancement into full development as top investment priorities. Early evaluation of XL309 and XB010 continue to advance quickly, and we're pleased to have the bispecific XB628 and our second-generation tissue factor targeting ADC, XB371 moving into the clinic. Finally, we remain committed to carefully managing capital allocation while we advance our R&D and commercial priorities. Our balance sheet and expected free cash flow provide us with the opportunity to advance our pipeline priorities, access new high conviction assets and continue to repurchase shares when we believe they are undervalued. Business development activities continue in earnest, and we're focused on doing the right deals for the right assets at the right valuations. So with that, please see our press release issued an hour ago for our second 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 J. Senner, Chief Financial Officer

Thanks, Mike. For the second quarter of 2025, the company reported total revenues of approximately $568 million, which included cabozantinib franchise net product revenues of $520 million. CABOMETYX net product revenues were $518 million and included approximately $600,000 in clinical trial sales, which is significantly lower than the $12 million of clinical trial sales we had in the first quarter of 2025. As a continued reminder, clinical trial sales have historically been choppy between quarters, and we expect this to continue into the future. Gross to net for the cabozantinib franchise in the second quarter of 2025 was 30.2%, which is higher than the gross to net we experienced in the first quarter of 2025. This increase in gross to net deductions in the second quarter of 2025 is primarily related to higher 340B volume in the quarter. Over the past several quarters, we have experienced a continued increase in the percentage of our business that is related to 340B volume, which is now over 24% of our total volume, which when compared to the second quarter of 2024 is 4 percentage points higher. Trade inventory at the end of the second quarter of 2025 was approximately 2.2 weeks on hand, which was higher when compared to the first quarter of 2025. The increase in trade inventory weeks on hand was partially due to the timing of the July 4 holiday week, which had lower volume than the preceding 4 weeks. Total revenues also included approximately $48.2 million in collaboration revenues, which includes approximately $43.4 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 second quarter of 2025 were $355 million compared to $369 million in the first quarter of 2025. The sequential decline in these operating expenses was primarily driven by lower manufacturing costs for drug development candidates, lower clinical trial costs and lower general and administrative costs. Provision for income taxes for the second quarter of 2025 was approximately $45.6 million compared to a provision for income taxes of approximately $46.1 million for the first quarter of 2025. Additionally, the One Big Beautiful Bill Act was signed into law on July 4, 2025, which, among other provisions, permanently repealed the requirement to capitalize domestic R&D expenses for federal income tax purposes for taxable years beginning after December 31, 2024, and allows for the accelerated deduction of any remaining unamortized domestic R&D expenditures. Foreign R&D expenditures are still required to be capitalized and amortized ratably over 15 years. The federal cash tax benefit for previously unamortized domestic R&D expenditures is estimated at $147 million with no corresponding impact to the federal income tax provision. The company reported GAAP net income of approximately $184.8 million or $0.68 per share basic and $0.65 per share diluted for the second quarter of 2025. The company also reported non-GAAP net income of approximately $212.6 million or $0.78 per share basic and $0.75 per share diluted. Non-GAAP net income excludes the impact of approximately $28 million of stock-based compensation expense net of the related income tax effect. Cash and marketable securities for the quarter ended June 30, 2025, were approximately $1.4 billion. During the second quarter of 2025, we repurchased approximately $302 million of the company's shares, resulting in the retirement of approximately $7.5 million of the company's shares at an average price per share of $40.10. As of the end of the second quarter of 2025, we had approximately $204 million remaining under the $500 million stock repurchase plan authorized by the company's Board in February 2025. And finally, we will continue to evaluate further updates to our 2025 financial guidance as we build momentum on the net launch and gain further clarity on additional revenue opportunities for the second half of 2025. We are reiterating our full year 2025 financial guidance, which is detailed on Slide 14 of our earnings presentation. And with that, I'll turn the call over to P.J.

Patrick Joseph Haley, Executive Vice President of Commercial

Thank you, Chris. The CABOMETYX business was very strong in the second 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 commercial team is delivering on the launch in NETs with great urgency with the goal to rapidly establish CABOMETYX as a small molecule market leader in the NET space. We are pleased that prescribers are responding positively to the data and are excited to have a new therapy available to medical need in neuroendocrine tumors as we look to build on the strong momentum of the CABOMETYX business. The prescription data in the oral TKI market basket of cabozantinib, axitinib, sunitinib and pazopanib convey the strength of cabo relative to the competition. Looking at the TRx comparison of Q2 2024 to Q2 2025, CABOMETYX grew 4 share points from 41% to 45%. CABOMETYX TRx volume grew 18% in this time period, outpacing the growth rate of the market by 10 percentage points. Importantly, the 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. We're able to discuss both the CABINET data as well as the RCC CheckMate 9ER 5-year follow-up data with relevant physicians. These 9ER data presented at GU ASCO in February resonates with prescribers in the RCC space and help our team continue to drive differentiation from the competition in the first-line RCC market. Turning to neuroendocrine tumors. We are thrilled that the launch is off to such a strong start. The team has been working tirelessly to execute tactics across channels and customer segments since approval, including personal promotion, targeted non-personal digital and social media tactics, peer-to-peer education, a comprehensive patient support program as well as patient and allied health care professional education. The team is working to rapidly establish CABOMETYX as a new standard of care in second-line plus NET patients. Our market research and feedback from customers demonstrate the 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 favorably to the broad net label and the contemporary trial design and perceive the efficacy and tolerability of the cabo data as favorable relative to other small molecule therapies in the space. Prescribers envision 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 Lutathera. As we look at early utilization in our market research, we are pleased to see the positive perception data from prescribers. We're seeing rapid uptake of CABOMETYX in both second and third-line NETs across all the relevant patient and tumor characteristics. Encouragingly, this uptake is similar in both academic and community settings. The launch in NETs is both expanding our prescriber base and increasing prescriptions for legacy cabo prescribers. Turning to the new patient market share for second-line plus neuroendocrine tumors in Q2. We are pleased that CABOMETYX has rapidly become the market leader in the segment with approximately 35% new patient share for oral therapies. This share is very encouraging, so early in the launch, as CABOMETYX was approved on March 26. Hence, we believe that new patient share should continue to increase, and importantly, patients will have the opportunity to benefit from being prescribed this therapy. Over time, as more patients start therapy with cabo and receive refills, we believe demand will continue to increase. Neuroendocrine demand contributed just over 4% of total demand for cabo in Q2, and we expect that contribution to increase going forward. Finally, the second quarter market research indicated that CABOMETYX was viewed as the best-in-class oral therapy in neuroendocrine tumors. We are pleased that this perception was achieved so rapidly after approval. 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. As this can be a more indolent tumor type, new patient starts for cabo are governed by patients progressing on their current therapy. In closing, we are excited by this opportunity to serve NET patients, and our enthusiasm is matched by physicians' excitement to have a new and effective option for their patients. In general, 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 consists of generic therapies, which puts CABOMETYX at a significant advantage with a full commercial organization energized to support the launch. All of this taken together drives our conviction that the NET market will be a substantial opportunity for the CABOMETYX business. And with that, I will turn the call over to Amy.

Amy C. Peterson, Chief Medical Officer

Thanks, P.J. Starting first with STELLAR-303. On June 22, we announced positive top line results in which the combination of zanzalintinib plus atezolizumab demonstrated a statistically significant improvement in overall survival versus regorafenib in the intent-to-treat or ITT population. As a reminder, STELLAR-303 is our Phase III study comparing zanzalintinib plus atezolizumab to regorafenib in patients who have received multiple prior therapies for their advanced colorectal cancer. The trial has dual primary endpoints designed to assess survival outcomes more broadly in the ITT population and more specifically, in the population of patients without liver metastases referred to as NLM. Secondary endpoints of STELLAR-303 include progression-free survival in the ITT and NLM subgroup of patients as well as overall survival and progression-free survival in the subgroup of patients with liver metastases. These top line results represent the final OS analysis in the ITT and the trial will proceed to the planned final analysis of the other dual primary endpoint of OS in the NLM patient population, the timing of which is event-driven. It's worth highlighting that this is the first IO/TKI combination to show a statistically significant survival benefit in a broad population and against an active standard of care control arm. We plan to discuss these positive data with regulators with the intention to file a new drug application. We also look forward to sharing these results at an upcoming medical conference and we'll be more specific when abstract titles become available. STELLAR-304 is our pivotal study evaluating the combination of zanzalintinib plus nivolumab versus sunitinib in patients who have not yet received systemic therapy for their locally advanced or metastatic non-clear cell RCC. Based on the current event rate, we are now anticipating top line results in the first half of 2026. So let's go next to STELLAR-305. Our Phase II/III study comparing zanzalintinib plus pembrolizumab to placebo plus pembrolizumab in patients who have not yet received systemic treatment for their advanced PD-L1 expressing squamous cell carcinoma of the head and neck. As Mike said in his opening remarks, we have made the decision not to proceed into the Phase III portion of the trial and are in the process of study closeout. We will share data at a future time and are shifting our focus into new development opportunities for zanzalintinib, speaking of which, I'd like to now turn to our first pivotal trial evaluating zanzalintinib as monotherapy. I'm pleased to announce the initiation of STELLAR-311, which will compare zanzalintinib to everolimus as a first oral therapy in patients with neuroendocrine tumors. We're also excited about the recent initiation of the zanzalintinib plus belzutifan cohorts in the Phase II umbrella study being conducted by Merck. In this study, the combination of belzutifan plus zanzalintinib is being tested in patients with previously treated metastatic kidney cell carcinoma. Progress also continues with regard to the two pivotal studies that Merck is running in clear cell carcinoma, evaluating zanzalintinib in combination with belzutifan, and we anticipate these studies could start towards the end of 2025. As we think about the aforementioned studies representing Wave 1 in the zanzalintinib development program, I want to convey that we are moving full steam ahead into Wave 2 pivotal trial planning to continue building on the franchise. In light of the positive data from STELLAR-303 in metastatic colorectal cancer, we are considering how best to move zanzalintinib earlier into the CRC treatment landscape. We're specifically investigating the post-adjuvant setting where patients have received maximal care with surgery and in many cases, chemotherapy, yet still have a high risk of recurrence. These patients have nothing else available to them. The only option available being frequent scanning and basically entering a watch-and-wait period until a distant or local recurrence is found, at which point they are mostly rendered incurable. Given the profile of zanzalintinib and its ability to inhibit targets like MET and VEGF, well known for their role in metastatic spread and local establishment of tumor growth, we believe there is reasonable probability that treatment with zanzalintinib could lower these patients' risks of recurrence, improving disease-free survival and addressing an unmet need in this setting. There's also interesting data coming out of an IST investigating cabozantinib in patients with high-grade and/or recurrent meningiomas, where the only treatment options are surgery and radiation. Given their central location, neither of these modalities are considered optimal salvage modalities. Offering patients an oral agent like zanzalintinib that could impair further growth and potentially reduce tumor size could represent a breakthrough in the treatment paradigm. We will continue to assess the landscape to consider other areas where zanzalintinib could be developed, leveraging data from our cabozantinib experience as well as emerging data from our ongoing clinical trials. I look forward to sharing more details of these important opportunities that we believe could enhance the reach of zanzalintinib when we are closer to launching those studies. I'll now turn the call over to Dana.

Dana T. Aftab, Chief Scientific Officer

Thanks, Amy, and good afternoon, everyone. Today, I'm giving a brief update on our recent progress regarding the early clinical compounds in our pipeline, new IND filings and advancing new compounds to development candidate status. Regarding the early clinical pipeline, our most advanced molecules in this space are XL309, our selective inhibitor of USP1, and XB010, our 5T4 targeting antibody drug conjugate. Both of which have first-in-class potential. The Phase I studies for both compounds have been progressing well. Importantly, in patients, both compounds have achieved exposures that are associated with efficacy in preclinical human tumor xenograft models in mice. We've also made good progress in the Phase I study for XB628, our bispecific antibody targeting PD-L1 and NKG2A. Despite filing the IND for XB628 so recently, we have already seen brisk enrollment in this Phase I trial, reflecting a high degree of enthusiasm at the clinical sites for this novel molecule. On the IND front, in the second quarter, we filed our second IND this year, which is for XB371, our tissue factor targeting ADC that carries a topoisomerase inhibitor payload. XB371 has a nominal drug-to-antibody ratio, or DAR, of 8, and utilizes Catalent's SMARTag technology that employs site-specific conjugation of the linker payload to the antibody, which, among other benefits, increases control over the DAR species during manufacturing. The technology also uses a belt and suspenders approach to prevent inappropriate payload release outside of the tumor by utilizing a dual tandem cleavage mechanism that occurs inside the tumor cells, first by glucuronidase enzyme, which then exposes a protease site for the ultimate release of the free payload from the antibody. Our presentation at AACR this year showed deep and durable regressions of human colorectal, lung and pancreatic xenograft tumors in mice after a single dose of XB371, underscoring the significant potential for this molecule to address unmet need. So the team is excited to now be focused on enrolling the Phase I clinical trial for this molecule. In terms of new development candidates, we are continuing to advance exciting new programs, including some innovative small molecules and antibody drug conjugates, and I look forward to sharing more details about those programs at the R&D Day event planned for later this year. So with that, I'll turn the call back over to Mike.

Michael M. Morrissey, President and CEO

All right. Thanks, Dana. We'll wrap up here with a big thank you to the Exelixis team for helping make our second quarter so successful. As you've heard me say previously, we work in a tough business, and I'm pleased to see our resilience and drive as we progress important projects across our discovery, development, and commercial activities in the first half of 2025. As we said last quarter, we're never satisfied or content with the status quo and look to improve our efficiency and performance on a daily basis as we make every hour count to excel in our mission to help cancer patients recover stronger and live longer. We look forward to updating you on our progress in the future. Thank you for your continued support and interest in Exelixis, and we're happy to now open the call for questions.

Operator, Operator

Our first question comes from David Lebowitz with Citi.

David Neil Lebowitz, Analyst

I know it's early, and we haven't really seen the data yet, but any particular takeaways that we have from head and neck that can be extrapolated or not extrapolated to future studies?

Amy C. Peterson, Chief Medical Officer

Yes. Thanks for the question. So let me just back up a second and remind everybody, zanzalintinib is a franchise molecule, and there's much more to be done than what we have contemplated in the initial six pivotal trials that we've been discussing. Rigorous drug development requires continuous assessments of internally and externally emerging data, and we have multiple areas to continue developing in. We're not going to share any of the data at this point in time, but we will share it with you at a future point.

Operator, Operator

Our next question comes from Sean Laaman with Morgan Stanley.

Sean M. Laaman, Analyst

Just thinking a little bit longer term, the $3 billion peak revenue guidance for cabo, it looks like, I think looking at guidance for this year, probably do around about $2.1 billion ex-NET and other revenue opportunities. Just looking at the market share gains you had, I'm just wondering sort of how enduring do you think such share gains can be? And the second part would be, do you think you can achieve the same market share in NET as what you've seen in RCC?

Michael M. Morrissey, President and CEO

Why don't I start with that, and I'll pass it off to P.J. for some color commentary. So we have built a very strong franchise with cabo over the years, seeing consistent growth in market share and revenue. First, in the RCC realm where we've been focused primarily with 9ER and then having that data propel us forward over the last four or five years of market share growth. I think as P.J. mentioned, year-over-year, Q2 '24 to Q2 '25, we saw 4 points of market share growth well into the launch, which underscores our ability to commercialize and generate at least talk about new data from existing trials that help us frame the opportunity for patients. And we think we can do exactly the same thing in the NET space. So again, we have one quarter behind us now with NET, and 35% market share is a great place to start. Best-in-class in oral therapy is a great place to start both with them literally months of launching the drug post-approval. It's early days, and we're very excited. As you I'm sure you're aware, Sean, first quarter is usually the NPS quarter where new patients come on, and you start to stack with refills later as you're growing NPS. So we're very excited, and I think very confident that we can continue to drive the business forward by growing the base business driven by RCC and then this net opportunity, which we think is large and substantial going forward. P.J., any comments?

Patrick Joseph Haley, Executive Vice President of Commercial

Thank you, Mike. Just to add a bit of insight on the NET launch, we are truly pleased with the continued growth of RCC. However, it’s still very early for NET. We are excited about the impressive 35% share growth in the second line plus oral market during the initial launch months. Importantly, we are already recognized as the leading oral therapy for neuroendocrine tumors, and it's encouraging that we achieved this distinction so swiftly. Our research shows that we are quite far ahead of our competitors, which is significant because this is often an indicator of how physicians will behave. As I mentioned earlier, we expect to see an increase in our new patient market share. The first quarters of a launch are key for attracting new patients to therapy, and while it takes time to see the benefits of their refills, we believe that as more patients begin treatment, we'll see demand increase with more refills. Additionally, this disease tends to progress slowly, and feedback from our sales team and advisory boards indicates that physicians are appreciating the data. Many have patients on other therapies who are stable, and when those patients need a new treatment, they are planning to choose cabo. While it’s beneficial for patients to remain stable with metastatic cancer, we recognize that growth may take time as patients transition off other therapies. Overall, we expect these factors to contribute to strong growth in NET going forward.

Operator, Operator

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

Michael Werner Schmidt, Analyst

Yes, I have a question about STELLAR-303. There was a significant positive announcement regarding overall survival in the ITT analysis. I'm curious about how you see zanza fitting into the larger colorectal cancer landscape, especially compared to other new treatment options that are gaining traction in the market. My first question is about that. Secondly, since the trial met the ITT analysis, how crucial is the data on the NLM subset for regulatory approvals or marketability in the future?

Michael M. Morrissey, President and CEO

Thanks, Michael. Amy, please handle it.

Amy C. Peterson, Chief Medical Officer

Sure, I'll try to address both of those questions. First, I want to emphasize the significance of overall survival benefits in colorectal cancer, which is the fourth leading cause of cancer deaths in the U.S. Overall survival is definitely the gold standard in oncology drug development. It's also worth noting that this is the only positive Phase III study involving immune-oncology and tyrosine kinase inhibitors, of which four others have previously failed. We are thrilled about our findings, particularly the success in the intention-to-treat patient population. It's crucial to continue offering innovative therapies to patients. If approved, this would be the only potential doublet option available to them. Regarding the neoadjuvant setting, this is a different prognostic group with longer survival rates. We have a dual primary endpoint, and while we achieved positive results in the intention-to-treat analysis, we will keep monitoring the neoadjuvant patient population as outlined in our statistical design. It’s essential to demonstrate benefits consistently across all groups. We are eager to learn more about this data as we progress and look forward to sharing the top line results with regulators and the medical community at an upcoming conference.

Operator, Operator

Our next question comes from Asthika Goonewardene with Truist Securities.

Asthika Sarith Goonewardene, Analyst

I want to layer on to Michael's previous question. It sounds like we're having similar thoughts about this too in our investor discussions. Maybe if you can tell us, with STELLAR-303, the language in the press release was a little bit maybe on the conservative side. So could you maybe tell us if you have a view as to whether the data in the ITT population is clinically meaningful? I think that's been a debate point here in our discussions with investors. And secondly, do you have plans to advance zanza in combinations in earlier lines in CRC? And could you maybe tell us what looks most attractive to you?

Michael M. Morrissey, President and CEO

Amy, please?

Amy C. Peterson, Chief Medical Officer

Yes, thanks for the question. So the language, Asthika, in the press release is purposely conservative. We are in a new and highly dynamic regulatory environment such that a conservative tone is warranted. And qualitative interpretation is by definition, subjective, but let me please be very clear. OS is unequivocal as an endpoint and is the gold standard for approval. The combination of zanzalintinib plus atezo demonstrated an improvement in overall survival against an active comparator, and it was statistically significant. And we look forward to sharing the data with the broader community. With regard to additional studies with zanzalintinib and moving into earlier lines of therapy, I did talk a little bit about an area that we are keenly interested in, which would evaluate monotherapy zanzalintinib in the adjuvant setting in patients who have really exhausted all available care to them, which is typically surgery and sometimes includes chemotherapy. These patients have a high risk of disease recurrence, and sometimes recurrence can come as soon as a year, and these patients have nothing available to them but to sit and wait for their next CT scan to determine whether or not their disease has recurred. So if we could offer something there to delay disease-free recurrence, potentially prevent the recurrence of disease, we think that that would be a really meaningful impact on patients.

Operator, Operator

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

Silvan Can Tuerkcan, Analyst

Congrats on executing this quarter. I just wanted to see if you could comment, please, on the pricing dynamics with cabozantinib, especially with respect to the 340B volume and the reimbursement there in the near future and post the Big Beautiful Bill?

Michael M. Morrissey, President and CEO

Yes. Thanks, Silvan. Chris, do you want to take that?

Christopher J. Senner, Chief Financial Officer

Yes, Silvan, thanks for the question. Yes, I mentioned that we saw a 4 percentage point increase in our volume shifts towards the 340B segment of the population or segment of our customers. And that payer segment is highly discounted segments. So it's having an impact on our gross to net. From an overall industry perspective, there are a lot of companies that are seeing higher utilization in this payer segment. But from a cabo perspective, what we're seeing is our continued success at becoming the standard of care. We're also seeing the sites of care are expanding. And so we have more or a greater number of 340B facilities utilizing cabo. So based on what we know today, we're projecting gross to net will probably coming closer to the 30% range versus what I had previously provided in the 29% to 30% range.

Operator, Operator

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

Yaron Benjamin Werber, Analyst

I have a couple of related questions. First, regarding 304, is the primary endpoint both PFS and ORR? Do you need to achieve both, or can one take precedence over the other? I assume ORR may be measured earlier than PFS. Secondly, concerning 303, in the past, controls showed a performance of around 6 months a decade ago and about 9 months more recently. How do you anticipate that control will perform, given that Avastin and Lonsurf show approximately 10.8 months? Is the historical performance still relevant?

Michael M. Morrissey, President and CEO

Yes. Thanks, Yaron. Amy, do you want to take those?

Amy C. Peterson, Chief Medical Officer

Yes. Thanks for the question. To clarify for STELLAR-304, it is a dual primary endpoint, PFS and ORR. So hitting on either one of them would constitute a positive study. The endpoints are also assessed by blinded independent radiology committee. So these are not investigator-assessed endpoints. When it comes to the control arm and 303, I'm not going to really talk about the data. I'm looking forward to sharing it with you at a future time. And as I mentioned, we will be discussing it as well with regulators with the intention to file a new drug application.

Operator, Operator

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

Akash Tewari, Analyst

So Mike, I think when we had caught up at ASCO, you had described the head and neck or no-go decision to be a relatively low bar to proceed. And your team was confident you could have a competitive profile despite some of the emerging single-arm data from bispecifics. I think cabo/nivo has shown historically a response rate over 50% in that setting. Can we infer that the zanza data looks similar or worse to cabo, and that's what drove your decision to not move that forward? And what were you expecting from a clinical profile there relative to what was shown from an event rate perspective?

Michael M. Morrissey, President and CEO

Yes. Amy, you want to take that?

Amy C. Peterson, Chief Medical Officer

Yes, absolutely. While I wasn't part of the conversation, I can share that the landscape is constantly evolving. Our focus is on drug development, and I want to emphasize our commitment to addressing areas of significant unmet medical need and producing results that will truly benefit patients. Effective drug development relies on ongoing evaluations. We initially designed the study as a Phase II/III with a checkpoint. After reviewing the data, we chose not to advance to Phase III due to the competitive environment, regulatory considerations, and other priority areas we wish to pursue in the next stage of our franchise development.

Operator, Operator

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

Jason Matthew Gerberry, Analyst

So just want another follow-up on STELLAR-303. And to the extent that you could comment on the enrollment demographics and maybe if there are any variables that help lead to a different outcome than LEAP-017. I believe that you could have enrolled up to 40% of patients with non-liver met, so pretty much highly similar to LEAP-017, but potentially that could have gone a little bit higher. So I don't know if you're able to comment on directionally the enrollment skew with patients with non-liver met. And the opportunity with 303 in the adjuvant CRC setting, do you have a rough sense of what the U.S. patient number is for that market? I imagine there's some proprietary market segmentation data that maybe goes into sizing that. But any idea if you can give us a sense on sizing there?

Michael M. Morrissey, President and CEO

Yes, Jason, thanks for the questions. Amy, I take the first part, and then I'll opine on the second part.

Amy C. Peterson, Chief Medical Officer

Sure, sure. So this was a global registrational study. We enrolled 900 patients. Whenever we're designing these, we need to make sure that the study is relevant to the various areas of the world so that we can maintain equipoise in the enrollment and ensure that there's consistency of benefit across all subpopulations. I'm not going to go into any details, but I'm looking forward to sharing those with you in the future.

Michael M. Morrissey, President and CEO

Yes. And in terms of future studies in earlier lines of CRC, as Amy has spoken about a potential adjuvant-type study, we'll get into the details later as we're closer to launching that trial. We're really excited about it. We think it's a large opportunity, both from a patient point of view and a potential revenue point of view. Again, low to no competition, and one that we think zanzalintinib based upon its profile can do really well in. So stay tuned. We'll talk about it more as we go forward, but this is the beginning of Wave 2, and we're certainly excited to be able to prioritize our investments as we go forward. I think that's the key thing. Look at the 305 decision is really simply prioritizing how we're going to invest in terms of high PTS, high commercial potential opportunities as we go forward.

Operator, Operator

Our next question comes from Leonid Timashev with RBC Capital Markets.

Anish Nikhanj, Analyst

It's Anish on for Leonid. Just with zanzalintinib not moving forward in head and neck, how are you thinking about balancing zanzalintinib's potential as a life cycle play to cabo in indications like RCC or NET versus in broader indications as we think about leveraging an existing prescriber and patient base and work required to broaden that beyond what cabo touches? How are you framing your priorities there?

Michael M. Morrissey, President and CEO

The progress on Wave 1 and Wave 2 is ongoing. We aim to maximize the success of zanzalintinib by reaching as many patients as possible and having the greatest impact on their disease. Regarding the overlap with cabo, we are exploring new indications for zanzalintinib, including combinations with belzutifan based on studies that Merck is conducting. Amy mentioned the launch of study 311 today, which will compare zanzalintinib monotherapy against everolimus in a head-to-head trial for NET. A successful outcome would demonstrate zanzalintinib as a superior option in that comparison. Additionally, we are focused on sustaining the success we've achieved so far in our clinical studies for 303 and CRC by advancing therapy options. We are also exploring new indications to extend our reach beyond cabo. Our overall strategy is to reinforce our expertise and strength in the TKI franchise, expanding beyond cabo to create a more extensive and impactful presence for both patients and revenue. This plan is being bolstered by the initiatives we are currently implementing.

Operator, Operator

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

Tsan-Yu Hsieh, Analyst

So maybe one epidemiology question. So what percentage would you characterize as high-risk post-adjuvant in the CRC setting? And maybe one that's a potential read across from 303 is the duration. I guess, in RCC, most of the adjuvant therapy trials were one year in duration. I'm just thinking about if that's something that you're thinking about as well and whether the 303 tolerability profile and safety profile could also inform that treatment duration, too?

Michael M. Morrissey, President and CEO

So Amy, take the second question first, and then I'll follow up on the adjuvant.

Amy C. Peterson, Chief Medical Officer

I appreciate the question regarding duration, which relates to how long patients remain on therapy. It's important to consider this in the context of colorectal cancer, which remains the fourth leading cause of cancer-related deaths in the U.S. The combination of duration and the population of patients presents an opportunity to positively impact many lives. When we consider implementing treatment earlier in therapy lines and in the adjuvant setting, the duration would likely be longer for patients at higher risk of disease. Specifically, we're looking at Stage II and III patients whose risk of recurrence is typically measured in early months rather than years. Regarding the number...

Michael M. Morrissey, President and CEO

Yes. Let me take that. So again, Andy Hsieh, we'll give you more details about the zanzalintinib post-adjuvant study as we get closer to launching. What I'll say is the following is that we look at the commercial opportunity. We have a great team within commercial that does that analysis for us. We think the combined opportunities that are represented by the post-adjuvant study as well as the meningioma study is probably around three times higher than what the head and neck study was. So again, from the standpoint of how we're prioritizing investments and allocating resources, both in terms of capital as well as resources, human resources, we think it makes a lot of sense to move forward in these new indications as quickly as possible because we again, the need is there. The competition is very low to none, and the commercial opportunity is very, very high.

Operator, Operator

Our next question comes from Andrew Berens with Leerink Partners.

Andrew Scott Berens, Analyst

A couple more questions on the CRC program and STELLAR-303. The FDA has made demonstrating contribution of parts a priority. Just wondering if you think that STELLAR-303 has met that bar. And then some concerns I've heard from investors are that the intent-to-treat OS benefit may have been driven by an improvement in the non-liver met patients that are part of the cohort and the impact on checkpoint inhibitor efficacy. I know the NLM, OS analysis has not read out yet, which is probably contributing to this concern. But is there anything you can say to address this? How important is it that you demonstrate a definitive benefit in the patients that have liver mets?

Michael M. Morrissey, President and CEO

Amy, go ahead, please.

Amy C. Peterson, Chief Medical Officer

Thank you for your question. We have long recognized the contribution of components as an important factor in this study. I want to remind you of the ASCO GI earlier this year, where we presented the STELLAR-001 colorectal cancer cohorts comparing zanzalintinib to zanzalintinib plus atezolizumab. Across all efficacy metrics, including overall response rate, progression-free survival, overall survival, and duration of response, the addition of atezolizumab showed a consistent benefit. This contribution of components also comes from a separate study. Regarding the non-liver met analysis and subgroups, while I won't discuss any specific data now, we do have a positive overall survival result in the intent-to-treat patient population. As you've noted, we are continuing to follow up on overall survival and non-liver metastases, and we look forward to sharing all the data as soon as possible.

Operator, Operator

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

Derek Christian Archila, Analyst

Just one on NET in terms of how should we be thinking about the revenue trajectory post-second quarter. And the next couple of quarters have launched more bolus-like before steadying off as you need to roll over these indolent patients that become candidates for therapy? And then just a follow-up, just can you discuss the breadth of prescribing that you're seeing among the target positions so far?

Michael M. Morrissey, President and CEO

Yes. Thanks for the question. We're not going to give quarter-to-quarter guidance, obviously; we don't do that. So we're very excited about where we stand in the second quarter, which is again our first full quarter of launch. All the narratives that we've been talking about in terms of what that means, I think are pretty clear. I won't repeat those here. P.J., you want to add some color commentary on the second part of that question?

Patrick Joseph Haley, Executive Vice President of Commercial

Yes. As far as the prescriber base, I'd say we're pleased generally. We're seeing prescriptions broadly, as I mentioned, in terms of academic, in terms of community. We're seeing prescriptions from cabo-naive prescribers as well as legacy cabo prescribers. So basically, we're seeing activation and/or sort of more prescriptions from prior prescribers. So we're pleased with those kinetics across the board.

Operator, Operator

Our next question comes from the line of Sudan Loganathan with Stephens.

Sudan Naveen Loganathan, Analyst

My first one in regards to the positive pipeline release that you had for the OS benefit in STELLAR-303, does the dual endpoint give the opportunity to at least get approval for one of the patient populations if there are any nuances with either the NLM or the liver mets population that makes it not as favorable when filing with the FDA? And then secondly, I want to squeeze in, if you can opine if the current reiterated guidance ranges includes contributions from NET.

Michael M. Morrissey, President and CEO

Go ahead, Amy.

Amy C. Peterson, Chief Medical Officer

Yes. Thanks for the question. I'm not going to really speculate on what would suffice for approval. The dual primary endpoint is designed such that you can be positive on one. Chris, take the second one?

Christopher J. Senner, Chief Financial Officer

Yes. Thanks for the question. As Mike mentioned last quarter, we increased guidance by about $100 million to the midpoint. Some of that was related to NET, but a lot of that was related to the base business.

Operator, Operator

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

Peter Richard Lawson, Analyst

Chris, just following up around the details around the guidance. Is there any way how we should think about clinical trial revenues in the second half?

Christopher J. Senner, Chief Financial Officer

Yes, Peter, thank you for your question. As we've mentioned for the past couple of years, clinical trial sales are inconsistent. We occasionally have some visibility, but we don't have a clear understanding of when the clinical trial sales will occur. Therefore, it's difficult to provide a precise answer. That's basically it.

Operator, Operator

Our next question comes from the line of Stephen Willey with Stifel.

Stephen Douglas Willey, Analyst

Congrats on the STELLAR-303 readout. Just, I guess, a quick clarification question on the 305 decision. So I think I remember you guys were blinded to the data, and that a DMC would be, I guess, evaluating some threshold level of efficacy metrics and then allowing you to proceed on a blinded basis to potentially upsize the study. So can you just kind of talk through the cadence of the decision in terms of assessing the competitive landscape and then seeing the data? Were those two things done in lockstep? Or did the former proceed the latter?

Michael M. Morrissey, President and CEO

Go ahead, Amy, please.

Amy C. Peterson, Chief Medical Officer

Yes. Thanks. So I'm not going to go into a whole lot of detail here. The trial was designed with the gate. We reviewed the unblinded data. We may have a path forward in head and neck, and we'll determine if additional studies are warranted. But for now, we're prioritizing other indications and allocating resources accordingly. Head and neck is a unique population, and we'll share the data at a future time.

Operator, Operator

Our next question comes from Ash Verma with UBS.

Ashwani Verma, Analyst

So for STELLAR-303, I'm trying to understand if this ITT data can come at a medical conference this year? Or do we wait until next year? Just another way to ask the same thing. Can you still present the ITT portion of the study without reaching the final analysis on NLM?

Amy C. Peterson, Chief Medical Officer

Yes, thank you for your question. We're not discussing the venue for the data presentation, but we will provide the data once the abstract titles are made publicly available. We previously presented the dual primary endpoint where we have achieved one and are still waiting for the other.

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

Yes. 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.

Operator, Operator

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