Earnings Call Transcript - EXEL Q3 2022

Operator, Operator

Good day, ladies and gentlemen, and welcome to Exelixis’ Third Quarter 2022 Financial Results Conference Call. My name is Chuck, 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 go ahead, ma'am.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Thank you, Chuck. And thank you all for joining us for Exelixis’ third quarter 2022 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; Vicki Goodman, our Chief Medical Officer; and Peter Lamb, our Chief Scientific Officer, who together will review our progress for the third quarter 2022 ended June 30, 2022 and subsequent events including the two business development announcements made today. During the call today, we will refer to financial measures not calculated according to generally accepted accounting principles. Please refer to today’s press release, which is posted on our website for an explanation of our reasons for using such non-GAAP measures as well as tables deriving these measures from our GAAP results. During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company. This includes statements about possible developments regarding discovery, product development, regulatory, commercial, financial, and strategic matters. Actual events or results could, of course, differ materially. We refer you to the documents we filed from time to time with the SEC, which under the heading Risk Factors, identify important factors that could cause actual results to differ materially from those expressed by the company verbally and in writing today, including without limitation, risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners and the level of cost associated with discovery, product development, business development and commercialization activity. And with that, I’ll turn the call over to Mike.

Mike Morrissey, President & Chief Executive Officer

All right, thank you, Susan. And thanks to everyone for joining us on the call today. Exelixis had a strong third quarter 2022 across all components of our business. We saw continued growth of the cabozantinib franchise in the U.S. while expanding our diverse portfolio of clinical and discovery programs with new collaborations to build the Exelixis product portfolio of the future. Key highlights from Q3 include, first, we saw strong performance of the cabozantinib business with significant growth in demand and revenue in the U.S. CABOMETYX maintained its status as the leading TKI for RCC. Cabo franchise revenue grew 39% year-over-year compared to third quarter 2021, marking its eighth consecutive quarter of growth. Importantly, global cabozantinib franchise net product revenue generated by Exelixis and its partners were $497 million in the third quarter 2022. Second, we continue to advance the Exelixis development pipeline with new potential Cabo indications and our growing pipeline of clinical compounds and additional candidates in nonclinical development. Important clinical updates for XL092 at EORTC and XB002 at ENA highlight recent progress to lay the foundation for moving these compounds into late-stage development. Third, business development activities continue to be a critical focus for Exelixis. We’re pleased to announce two new option deals with Cybrexa and Sairopa today, which highlight our strategic efforts to access clinical and/or near clinical stage assets that have the potential to provide differentiated benefits to patients with cancer. You will hear more about these two deals from Peter shortly. The option deal framework is ideal for us to employ as we can generate clinical proof-of-concept data with a wide range of experimental agents in a financially disciplined manner and only pay for success if and when that data is available. With that, please see our press release issued an hour ago for our third quarter financial results and an extensive list of key corporate milestones achieved in the quarter. I will now turn the call over to Chris.

Chris Senner, Chief Financial Officer

Thanks, Mike. For the third quarter 2022, the company reported total revenues of approximately $412 million, which included cabozantinib franchise net product revenues of $366.5 million. CABOMETYX net product revenues were $361.4 million and included approximately $13 million in clinical trial sales. Gross-to-net for the cabozantinib franchise in third quarter 2022 was 26.1%, which is lower than the gross-to-net we experienced in the second quarter 2022. This decrease in gross-to-net deductions in the third quarter 2022 is primarily related to lower PHS, Medicare Part D and co-pay assistance. Our CABOMETYX trade inventory increased slightly when compared to the second quarter 2022 to approximately 2.3 weeks on hand. Total revenues also included approximately $45 million in collaboration revenues, which includes approximately $30 million of royalties earned from Ipsen and Takeda on their sales of cabozantinib. And finally, clinical trial sales have historically been choppy between quarters and we expect this to continue in future quarters. Our total operating expenses for the third quarter 2022 were approximately $329 million compared to $336 million in the second quarter 2022. SG&A expense was the primary driver of the decrease in total operating expenses, which was primarily related to lower legal and employee-related expenses. Provision for income taxes for the third quarter 2022 was approximately $19 million compared to approximately $18 million for the second quarter of 2022. The company reported GAAP net income of approximately $73 million or $0.23 per share on a fully diluted basis for the third quarter 2022. The company also reported non-GAAP net income of approximately $102 million or $0.31 per share on a fully diluted basis. Non-GAAP net income excludes the impact of approximately $29 million of stock-based compensation expense net of the related income tax effect. Cash and investments for the quarter end of September 30, 2022 was approximately $2.1 billion. This level of cash and investments, supported by our ongoing cash flow from operations, provides Exelixis with flexibility to invest in internal discovery activities and also allows us to pursue external business development opportunities to expand our pipeline. And finally, turning to our financial guidance for the full year of 2022. Given where we are in the year, we are tightening our revenue guidance and we are increasing our R&D and SG&A expense guidance. The increase in R&D expense guidance is primarily to reflect the two deals we announced today and the increase in SG&A expense guidance is primarily related to increase in stock-based compensation. Please see Slide 12 of our Q3 earnings presentation for further detail. With that, I’ll turn the call over to P.J.

P.J. Haley, Executive Vice President, Commercial

Thank you, Chris. The third quarter of 2022 was a strong quarter for cabozantinib as we continued to build on the significant momentum of the franchise. The team continues to execute at a high level, which has resulted in CABOMETYX continuing to be the number one prescribed TKI in RCC and second line HCC. Furthermore, CABOMETYX total prescriptions or TRX, have now grown for eight consecutive quarters. Demand growth is being driven primarily by the longer duration of therapy for patients on CABOMETYX in combination with nivolumab in first line RCC. Prescription trends remain strong in Q3 2022. Year-over-year TRX growth in Q3 2022 was 23% relative to Q3 2021. Given the clinical data from the CheckMate -9ER study, we anticipate these first line patients to receive therapy for approximately a year and a half on average driving significantly longer treatment duration for CABOMETYX. Turning to the TKI market basket of CABOMETYX, INLYTA, SUTENT, VOTRIENT, and Lenvima, CABOMETYX TRX market share has increased every quarter since Q1 2021 and its share in Q3 2022 was 38%. As we have discussed previously, the first line RCC market is very competitive and we’re pleased with the performance of CABOMETYX in combination with nivolumab in this setting. Furthermore, we are still not seeing any significant competitive impact on our share. Uptake in the first line RCC setting is broad across clinical risk groups and practice settings and prescriber experience to date continues to be very positive. Additionally, in contrast to data from public sources, our internal data showed that CABOMETYX had the highest level of new patient starts ever in Q3. Furthermore, within the quarter, we saw particular strength in both demand and new patient starts in September. We view this as encouraging and it aligns with the feedback we received from customers about a significant level of vacation and travel this summer coming out of COVID. We believe all of this taken together positions CABOMETYX for continued growth moving forward. Looking beyond the six current U.S. indications for cabozantinib, we continue to plan for lifecycle expansion opportunities as additional Phase 3 studies read out in the near future. We look forward to having the opportunity pending data and approval to bring CABOMETYX to many more patients in need of additional treatment options. Our team remains highly focused and motivated to compete every day to bring the benefit of CABOMETYX to all eligible patients as we continue to build the franchise and serve patients. And with that, I will turn the call over to Vicki.

Vicki Goodman, Chief Medical Officer

Thanks, P.J. Good afternoon. Today I will provide a brief update on the progress of our clinical stage pipeline as well as our East Coast expansion in the Greater Philadelphia region. I’ll begin with an update on our cabozantinib registrational trial. In early July, we reported positive top-line results from COSMIC-313 evaluating cabozantinib in combination with nivolumab and ipilimumab in intermediate and poor risk renal cell carcinoma. These data were presented by Dr. Toni Choueiri in a presidential symposium at ESMO. In the primary analysis of progression-free survival, cabozantinib in combination with nivolumab and ipilimumab significantly reduced the risk of disease progression or death compared with the combination of nivolumab and ipilimumab, with a hazard ratio of 0.73 and a p-value of 0.01. Overall response rate was 43% in the triplet arm and 36% in the doublet arm. A pre-specified interim analysis for the secondary endpoint of overall survival did not demonstrate a significant benefit for the cabozantinib arm compared to the control arm and therefore the trial will continue to the next analysis of OS. The safety profile observed in the trial was reflective of the known safety profiles for each single agent, as well as the combination regimen used in the study, and no new safety signals were identified. Following discussion with the FDA, we do not intend to submit a supplemental new drug application based on the currently available data and plan to discuss a potential regulatory submission with FDA when the results of the next OS analysis are available. For CONTACT-01, the Phase 3 pivotal study sponsored by Roche, which is evaluating cabozantinib in combination with atezolizumab versus docetaxel in patients with metastatic non-small cell lung cancer who have been previously treated with an immune checkpoint inhibitor and platinum-containing chemotherapy, the final analysis of the primary endpoint of overall survival is on track to occur before the end of this year. For CONTACT-02, our Phase 3 study in combination with atezolizumab in metastatic castrate-resistant prostate cancer, we are projecting that enrollment will be completed in the first half of next year. I would also like to share a brief update on CONTACT-03, the global Phase 3 pivotal trial evaluating cabozantinib in combination with atezolizumab versus cabozantinib alone in patients with previously treated advanced renal cell carcinoma. From guidance from Roche, the study sponsor, top-line data is now anticipated in the first half of 2023. Now turning to progress on our pipeline molecules. The first clinical data of XL092 from the STELLAR-001 dose escalation cohorts were presented at a poster at ESMO. These data showed early evidence of clinical activity, particularly in heavily pretreated patients with RCC, including many who had previously received cabozantinib and demonstrated a manageable safety profile with no unexpected toxicities, providing support for the recommended dose of 100 milligrams. In June, we initiated the first Phase 3 study of XL092 in non-MSI-high colorectal cancer and we expect to initiate an additional Phase 3 trial this year. XL092 is also being explored in combination with several checkpoint inhibitors and IO combinations. In October, we announced that we had expanded our partnership with BMS to study the combination of XL092 with the fixed-dose combination of the IO doublet nivolumab and relatlimab. We look forward to evaluating this novel combination across multiple solid tumors. We also continue to evaluate additional potential combination opportunities with novel agents. XB002, our first antibody drug conjugate, which targets tissue factor without interfering with the coagulation pathway in preclinical models, continues in dose escalation. In October 2022, we announced promising initial dose escalation results from JEWEL-101, the ongoing Phase 1 trial evaluating XB002 in patients with advanced solid tumors, presented during the antibody drug conjugates poster session at the 34th ENA Symposium. The data demonstrated that XB002 was well tolerated at multiple dose levels. Pharmacokinetic analyses showed that XB002 total antibody and intact ADC PK were similar, suggesting XB002 was stable after infusion. Additionally, at the two milligram per kilogram dose, XB002 demonstrated approximately twofold higher exposure with one-tenth of free payload relative to levels seen with the same dose of tisotumab vedotin. As of the data cut-off, no bleeding events or corneal toxicities were observed at doses of up to two milligrams per kilogram. We expect to complete dose escalation and move into the multi-cohort dose expansion phase later this year. Dose escalation is ongoing for the combination of XB002 with nivolumab and we expect to initiate dose escalation in combination with bevacizumab before the end of the year. A Phase 1 study of XL102, our oral CDK7 inhibitor, is expected to move into both single agent and combination expansion cohorts after completion of ongoing dose escalation and determination of a Phase 2 dose. Preliminary data from dose escalation have been accepted for publication as a poster at the upcoming San Antonio Breast Cancer Symposium in December. Finally, we are making progress with hiring to our site in King of Prussia, outside of Philadelphia, for roles both within and outside of development, as well as growing our existing presence at headquarters in Alameda. Within the development organization, key hires include three executive level leaders who are based at King of Prussia and we’ve seen an uptick in East Coast based candidate awareness and enthusiasm for the new site. We continue to seek to attract and retain the best talent across both coasts to meet the needs of our growing pipeline. We also continue to progress plans for a long-term build-to-suit space of over 200,000 square feet mixed office and lab space close to our intermediate term offices in King of Prussia. I’m pleased by the progress we are making to create a bicoastal presence across two biotechnology hubs operating as one team focused on the singular mission of developing medicine to improve the lives of patients with cancer. With that, I’ll turn it over to Peter.

Peter Lamb, Chief Scientific Officer

Thanks, Vicki. As we’ve discussed on previous calls, we’ve been actively engaged in a process of assessing late preclinical and early clinical assets with the aim of identifying multiple opportunities to invest in. Since failure rates for oncology drugs remain high, our preferred strategy is to make multiple smaller option investments before clinical proof of concept rather than making more substantial investments based on inadequate or inconclusive clinical data. The deals that we announced earlier today with Cybrexa and Sairopa represent the initial outcome of this strategy. Starting with Cybrexa, developing mechanisms for preferentially delivering cytotoxic compounds to tumors has been a long-standing goal with antibody drug conjugates representing the most validated and successful mechanism for doing this. The ADC approach relies upon having an antibody to a cell surface protein that is exclusively or preferentially expressed on tumor cells and then covalently conjugating a cytotoxic payload to that antibody. When the antibody drug conjugate binds to the tumor cell expressing the target protein, it is then internalized and the payload is released, resulting in tumor cell killing. Since normal tissues have low or no expression of the selected target, they do not take up the payload, minimizing side effects. The success of this approach depends upon appropriate target selection. And with any target, there is variable levels of expression both within and between tumor types, leading to some heterogeneity of clinical response. In addition, the stability of the attached payload varies between ADCs with liberation of free payload contributing to adverse events. Nonetheless, development of ADCs has undergone a renaissance with multiple approvals over the last few years, and Exelixis has invested significantly in the area, both internally and via multiple collaborations to develop our own pipeline of differentiated ADCs. The Cybrexa agreement announced today around CBX-12 represents a further extension of this general approach and relies upon a novel tumor targeting mechanism. Cybrexa is developing a novel peptide-exatecan conjugate, CBX-12, that selectively inserts into tumor cell membranes as opposed to normal cell membranes due to lower pH conditions present in the tumor microenvironment. It is well established that many tumors have an altered metabolism that results in them excreting lactic acid into the tumor microenvironment, thereby reducing the local pH. The peptide component of CBX-12 is designed to be sensitive to pH, adopting a disordered structure under normal physiological pH, but assuming an ordered alpha-helical structure at lower pH, which allows it to insert into the tumor cell membrane and bring any attached payload with it. In CBX-12, the payload is the potent topoisomerase inhibitor exatecan which gets released inside the tumor cell by cleavage of a disulfide bond that connects the payload to the peptide. In preclinical models, Cybrexa has shown that following administration of CBX-12 both intact CBX-12 and free exatecan accumulates in tumors, whereas exatecan levels in bone marrow cells remain very low. Notably, this is a tumor-selective payload delivery mechanism that does not depend on expression of tumor antigens unlike the standard ADC approach, so it could be broadly applicable if successful. CBX-12 is currently in Phase 1 dose escalation trials that are exploring a number of dosing schedules. Data from this trial was recently presented in the plenary session at the ENA Triple meeting in Barcelona. Cybrexa explored three IV dosing schedules: five consecutive days every three weeks, three consecutive days every three weeks, and once weekly. Data from 33 patients were presented. The most frequent treatment-related adverse events were GI-related, cytopenias and LFT elevations. This is consistent with the known profile of exatecan. Best responses in 18 evaluable patients included a complete response in ovarian, a partial response in breast and 13 patients with stable disease, including a second near-partial response in breast. Initial tumor biopsy assessments show delivery of CBX-12 and exatecan into the tumor. Dose escalation continues in the once weekly cohort, and cohort expansion is ongoing at 45 mg per meter squared in the three consecutive days every three weeks cohort. We have an option to license CBX-12 after reviewing the totality of the data from the completion of the ongoing once weekly dose escalation trial, four Phase 1b monotherapy expansion cohorts of about 40 patients in each major solid tumor type at the recommended Phase 2 dose, and completion of a dose escalation combination cohort with pembrolizumab. All development will occur under a joint steering committee.

Mike Morrissey, President & Chief Executive Officer

Okay. Moving on to the Sairopa agreement.

Peter Lamb, Chief Scientific Officer

Okay. Moving on to the Sairopa agreement: this represents an expansion of our approach to addressing the myeloid macrophage component of the tumor microenvironment. Tumor-associated macrophages, along with other myeloid cells, represent a significant and often major component of the solid tumor microenvironment and are prominent in tumors such as colorectal cancer, ovarian cancer, hepatocellular cancer, renal and breast carcinomas, for example. It is well established that these cells contribute to an immunosuppressive environment in these tumors. We have a number of ongoing programs that are aimed at addressing this aspect of tumor biology, including XB014, our PD-L1 CD47 bispecific currently in early preclinical development, and our collaboration with BioInvent aimed at identifying antibodies against novel myeloid targets expressed preferentially in the tumor microenvironment. Our agreement with Sairopa provides us with another potential way of addressing this potentially impactful mechanism of action. Sairopa is developing a monoclonal antibody, ADU-1805, targeting SIRPalpha, one of the ligands for CD47. This has been a pathway of interest to us and others for a number of years and there is now a degree of clinical validation for blocking the pathway along with an understanding of some of the issues associated with various therapeutic approaches. The CD47/SIRPα axis modulates macrophage phagocytosis and antibody-dependent cellular phagocytosis. Expression of CD47 on tumor cells inhibits phagocytosis of tumor cells and thereby limits tumor antigen presentation by macrophages, contributing to immunosuppression. Blockade of CD47 itself, which has been the favored approach historically, leads to anemia and thrombocytopenia due to CD47 expression on red blood cells and platelets; this also results in a significant PK sink effect. In contrast, SIRPα expression is restricted primarily to myeloid cells and antibodies targeting SIRPα do not suffer the same PK sink effect or cause cytopenias. This has been validated clinically in Phase 1 with an anti-SIRPα monoclonal antibody being developed by Boehringer Ingelheim. This antibody has limited PK sink, does not cause thrombocytopenia or anemia, and has shown preliminary evidence of clinical activity including a partial response in HCC as a single agent and three partial responses in combinations with a checkpoint inhibitor. ADU-1805 has similarly shown limited PK sink and no anemia or thrombocytopenia in preclinical safety studies. It is important to note that there are 10 SIRPα alleles in humans with their frequencies varying by population and antibodies vary in their ability to bind the different alleles. ADU-1805 binds to all alleles, meaning that patients can be treated without being genotyped, in contrast to the BI antibody which binds tightly to only the v1 allele, meaning that patients must be genotyped to assess which alleles they carry prior to treatment. In the case of the BI antibody, patients must be homozygous for the v1 allele to enroll in the currently recruiting clinical trials. ADU-1805 has also been optimized to preferentially bind to SIRPα versus other SIRP family members, which may enhance its ability to stimulate immune cells. This is another point of differentiation from CD47-targeted therapies, which block all interactions with all SIRP family members. Finally, ADU-1805 is an IgG2 antibody, which has been shown to allow maximal phagocytosis in vitro assays. In summary, the antibody has been constructed in a way that maximizes the potential benefit for blocking the SIRPα-CD47 checkpoint while minimizing potential toxicities and allowing for treatment of the broadest population of appropriate patients. We believe this represents a differentiated and potentially best-in-class approach to this pathway. SIRPα is on track to file an IND for this asset in Q1 2023. We have an option to license ADU-1805 after completion of a single agent dose escalation cohort, a single agent expansion cohort, completion of a dose escalation combination cohort with pembrolizumab, and a 60-patient Simon two-stage pembrolizumab combination expansion cohort in major solid tumor types. All development will occur under a joint steering committee. We’re happy to have concluded these two agreements and are continuing to assess a broad variety of late preclinical and early clinical assets with the aim of making additional investments in the future to provide further options for expanding our clinical pipeline. So as you heard on the call today, the EXEL team continued to execute across all components of our business in the third quarter with significant progress across our business development, clinical development and commercial activities. As we enter Q4 of 2022, we’re excited about the potential for the multiple growth drivers ahead of us, including our cabo development activities and expanding pipeline of diverse clinical opportunities that we hope will enable Exelixis to help even more cancer patients. I’ll close by thanking the Exelixis team for their individual and collective efforts to support our range of discovery, development and commercial activities. I want to give our broad team focused on business development activity a huge shout out for their great work and collaborative efforts over the past few years and certainly the last few months to get the Cybrexa and Sairopa deals over the goal line. Business development is a team sport here at Exelixis, and I’m proud of the closely aligned team from BD, R&D, legal, finance, commercial, CMC and public affairs coming together to move these important initiatives forward. Individually and collectively, our team embodies the vision, urgency and expertise to move EXEL towards becoming a multi-product enterprise and expand our reach to serve cancer patients across the globe. 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 now happy to open the call for questions.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Chuck, please go ahead.

Operator, Operator

Thank you. We’ll now begin the question-and-answer session. And the first question will come from Asthika Goonewardene with Truist Securities. Please go ahead.

Asthika Goonewardene, Analyst, Truist Securities

Hi guys, thanks for taking my questions and congratulations on the nice quarter. Just a couple of simple ones here. First, to P.J., I was just wondering if you could quantify the gross to net impact for the quarter? And maybe how much the slight increase in inventory contributed to sales. For Vicki, I was wondering given the run rate of events, when we could expect the next look at overall survival to take place for COSMIC-313? And then I just want to offer my congratulations to the business development team for the deals that we announced today and in particular, the CBX-12 deal looks quite interesting given the recent data. Just wondering when we can expect the next update on the dose escalation? And when do you expect the dose escalation to complete? Thanks.

Mike Morrissey, President & Chief Executive Officer

Okay. Thanks, Asthika, lots of questions there. So let’s start with Chris on the inventory and gross to net, and then we’ll go to Vicki and then Peter.

Chris Senner, Chief Financial Officer

Thanks, Mike. So Asthika, from a gross to net perspective, as I mentioned on the call, we came in around 26.1% for Q3. If you go back to Q2, we were around 28.2% overall for the cabozantinib franchise. It’s come down as we’ve come through the year; it was higher in Q1 and came down in Q2 and came down in Q3. As I mentioned in the prepared remarks, that decline was really driven by lower PHS, Medicare Part D and then also co-pay assistance. As we talked about earlier in the year, I said we think we’ll come in around 29%. I think we’re probably now thinking we’re going to come in the range of 28% to 29% for the year. From an inventory perspective, this quarter we came in around 2.3 weeks on hand. Last quarter, we were around 2.1 weeks on hand. So it’s about a day, and I’m not going to quantify it from a sales perspective. But that’s not a significant increase by any means.

Mike Morrissey, President & Chief Executive Officer

Okay. Good. Thanks. Vicki?

Vicki Goodman, Chief Medical Officer

Yes. So with respect to the overall survival from COSMIC-313 and just a quick reminder on the study design here: this is the triplet combination of nivolumab and ipilimumab with cabozantinib versus a control arm of nivolumab and ipilimumab, which has become a standard of care on the basis of demonstrating an overall survival benefit relative to sunitinib in intermediate and poor-risk patients. And as you may recall from the pivotal trial of nivo and ipi CheckMate 214, the updated survival data demonstrated a median survival on the order of about four years. So it’s not unexpected that at this time with the primary PFS analysis the overall survival would still be immature. The next analysis will be event-driven, and so we’ll be providing updated guidance as we get a better sense of when those events might come in for OS. There was a question in there, I believe, on dose escalation. Was it XB002, I’m not sure for the asset directly.

Asthika Goonewardene, Analyst, Truist Securities

Yes.

Mike Morrissey, President & Chief Executive Officer

Yes, Vicki, that was a question about Cybrexa. Pete, do you want to take one?

Vicki Goodman, Chief Medical Officer

Oh, I’m sorry. Okay. Thank you.

Peter Lamb, Chief Scientific Officer

Thanks for your comments on CBX-12. We certainly view it as a pretty interesting and different mechanism. I mean, obviously, they just presented the initial data at the plenary session in the Triple meeting, so it’s probably a bit soon to say when the next data release will be. And obviously, dose escalation is ongoing. So it’s hard to predict when that will top out and when we’ll be in a place to have a recommended Phase 2 dose. So stay tuned. We’re certainly eager to see the next set of data as well.

Asthika Goonewardene, Analyst, Truist Securities

Great. Thanks, guys.

Mike Morrissey, President & Chief Executive Officer

You bet, Asthika.

Operator, Operator

The next question will come from Michael Schmidt with Guggenheim. Please go ahead.

Michael Schmidt, Analyst, Guggenheim

Hey guys, thanks for taking my questions. I had a couple of pipeline questions, one also on the XB002 data from the Triple meeting. The ADC looked pretty safe. Do you have any plans to go higher than the 2 mg/kg dose cohort just in context of the safety profile? And how do you think about the potential of this antibody in other cancers outside cervical, for example, perhaps where TF may be expressed? And then I had a follow-up question.

Mike Morrissey, President & Chief Executive Officer

Hey Vicki, do you want to take that one?

Vicki Goodman, Chief Medical Officer

Yes, sure. So dose escalation with XB002 continues at this point. Obviously, we’ll continue to monitor closely for dose-limiting toxicities before we establish a recommended Phase 2 dose. So I would say stay tuned there as far as where we’ll land on the dose. We do have broad plans to look at this across a number of different solid tumors, including outside of cervical cancer, both as a monotherapy and potentially in combination with both nivolumab and with bevacizumab. And among the dose expansion cohorts in the current study include tumors such as non-small cell lung cancer, head and neck and breast cancer, among others. So again, we’re going to establish a dose to move quickly into expansion cohorts, see where we demonstrate activity and then plan to move quickly into registrational trials. We do believe that this asset, again, has some potential advantages over the competition, given that the intact ADC is stable. We’re seeing low levels of free payload thus far; that seems to be playing out in terms of a potentially differentiated safety profile and may impact what we see with efficacy as well as what seems to be reduced bleeding risk with no bleeding events having been seen at the time of the data cut-off. So we’re excited about this asset and eager to move it into expansion and ultimately, registrational trials.

Michael Schmidt, Analyst, Guggenheim

Okay, great. Thanks. And then a question on XL102, our CDK7 inhibitor. Just wondering if you could help set expectations for the scope of this update at San Antonio. Did the dose escalation perhaps bias towards recruiting breast cancer patients? How should we think about potentially achieving single-agent activity with this target? Is there an area where you might consider implementing biomarker selection or is this something that could have broader potential without selection in breast cancer? Thanks so much.

Vicki Goodman, Chief Medical Officer

Yes. So on XL102, again, it will be presented at the San Antonio Breast Cancer Symposium in about a month. As far as the details on the content, I’d say stay tuned both for the abstract and the presentation, but it will be data from dose escalation cohorts.

Michael Schmidt, Analyst, Guggenheim

Thank you.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Thank you, Michael.

Operator, Operator

The next question will come from Mike King with EF Hutton. Please go ahead.

Mike King, Analyst, EF Hutton

Hey guys. Thanks for taking the question and let me add my congratulations on a nice quarter. I’m wondering if you could talk a little bit more about your optimism about CONTACT-01, because you mention it in every call. I wonder what your thoughts are on the probability of success here, because even a small piece of the second line non-small cell lung market is a pretty big commercial opportunity, and that could create an interesting inflection for cabo. So I just wonder if you could expand on it without giving too many of the secrets away.

Vicki Goodman, Chief Medical Officer

Sure. Happy to. So CONTACT-01, again, this is in a post-checkpoint inhibitor, post-platinum chemotherapy setting in non-small cell lung cancer patients without an actionable mutation. It’s an area of huge unmet need; there’s no well-defined standard of care. Docetaxel is a common treatment and as we know from even the pre-checkpoint inhibitor days response rates were on the order of 10% and median overall survival expectation is less than a year. So it is an important area of unmet need. Here we’re evaluating whether cabozantinib, which can induce a more immune-permissive environment, might help overcome some of the resistance to checkpoint inhibition in this case with atezolizumab and whether that combination can improve overall survival, again in a setting where the survival expectation is quite low. So we do look forward to these results, which as I said will be in hand before the end of the year.

Mike King, Analyst, EF Hutton

Are you in charge of the data release or is that a Roche decision?

Vicki Goodman, Chief Medical Officer

It is a Roche-sponsored study, so we’re working very closely with Roche on how and when those data will be released.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Thanks, Mike.

Operator, Operator

The next question will come from Do Kim with Piper Sandler. Please go ahead.

Do Kim, Analyst, Piper Sandler

Great. Thanks for taking my questions and congrats on the quarter. Just trying to understand the updated guidance: you raised the lower end of the range, but it still suggests a decline in net product revenues quarter-over-quarter. Just wondering if it’s because of the choppiness of clinical trial sales that you see? Do clinical trial sales affect that guidance? Or is there something else you’re seeing in demand or gross-to-net that keeps guidance at the lower level?

Chris Senner, Chief Financial Officer

Yes, Do. From a guidance perspective, the tightened guidance range is $1.375 billion to $1.4 billion. If you look at that range versus where we are year-to-date, the top end of that or the middle to the top end of that range gives you growth for the next quarter. We continue to see strong growth coming out of Q3, as P.J. mentioned, in September we ended September in a very strong fashion from a demand and new patients perspective. There’s also a lot of variables around gross-to-net that we have to take into account. But overall, the top end and the middle to the top end of that range expects growth.

Do Kim, Analyst, Piper Sandler

Okay. Great. And regarding your newly announced deals: it looks like the platform technology drove the Cybrexa deal and the target SIRPα drove the Sairopa deal. Is that how you think about it? And do you prioritize potential deals by a certain novel drug technology or by clinically validated targets?

Peter Lamb, Chief Scientific Officer

Yes. I somewhat agree with your characterization. We would view the Cybrexa CBX-12 as really a first-in-class type of asset. It’s an extension or expansion of the overall ADC approach, but importantly in a tumor target-agnostic way you don’t need to express a particular tumor target in this case, which means it could be broadly applicable as a platform. Sairopa is more of a best-in-class opportunity. There’s been a fair amount of activity around the CD47/SIRPα macrophage checkpoint area, much more on the CD47 side. This particular asset looks attractive to us because it was well thought out in terms of maximizing the potential for blocking this checkpoint from a toxicity point of view, from a potential efficacy point of view, and from an addressable patient population point of view. In general, we look broadly at a lot of things, small molecules and biologics. I wouldn’t say we bias more toward target versus platform; you’ll likely see us do a mixture of things going forward.

Do Kim, Analyst, Piper Sandler

Great. Thank you.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

You bet, Do. Thank you.

Operator, Operator

The next question will come from Silvan Tuerkcan with JMP. Please go ahead.

Silvan Tuerkcan, Analyst, JMP Securities

Thank you very much for my questions, and apologies for my voice and congrats on the quarter. I have one question. You mentioned that you have seen the highest levels of new patient starts versus what is available in public sources. Could you please comment on that? And would those new patient starts be mainly in frontline RCC? And what do we know about the time on treatment now in frontline renal cell versus what we’ve seen in the trial?

P.J. Haley, Executive Vice President, Commercial

Thanks for the question Silvan. Yes, we are really pleased with the quarter. As you pointed out, I’d highlight three things in the quarter in terms of its strength: we have the highest ever net product revenue, the highest ever demand, and as you mentioned, the highest ever new patient starts. What we’re seeing there primarily is those new patient starts are driven by renal and specifically primarily first-line combination use with nivolumab, and we’ve seen that in multiple market share data sources that we have. With regards to duration of treatment, as our mix has shifted over the last 1.5 years, seven quarters with the launch of 9ER in first-line combination utilization, we’re seeing that mix shift and our duration increase over time. What we saw in the 9ER trial is patients had PFS in the ballpark of 1.5 years. It’s too early to get a good read on duration for those particular patients commercially because we just haven’t been on the market long enough and duration is something you have to have a lot of data and look at retrospectively. But we are very pleased with what we’re seeing. The team is executing at a very high level. We’re happy that things are opened up with regards to offices and medical meetings. So we’re very engaged and excited to continue to help patients with CABOMETYX.

Silvan Tuerkcan, Analyst, JMP Securities

Okay. Thank you very much.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

You bet, Silvan. Feel better.

Operator, Operator

Next question will come from Jason Gerberry with Bank of America. Please go ahead.

Jason Gerberry, Analyst, Bank of America

Hey, guys. Thanks for taking my questions. One quick follow-up on the Cybrexa deal: is there a Phase 1 contingency regarding the upfront and moving forward with the transaction? Could you elaborate on that commentary? I assume the next steps would be similar to what Cybrexa communicated, which was a Phase 2 in ovarian, breast and non-small cell lung as next steps. But just curious if you can elaborate there. And then are you still expecting a ruling in the cabo patent trial for that first case in the near term? I think fall 2022 was the last communication, but just curious if there’s anything we should know there? Thanks.

Peter Lamb, Chief Scientific Officer

Yes, with respect to Cybrexa, the way it’s structured, that’s an upfront payment. Then there’s a certain amount of clinical work that needs to be completed up to the point at which we can exercise our option to in-license. We have the ability to take the asset on. As commented, we’re still in dose escalation on one of the schedules, which is the once weekly schedule. So that dose escalation will continue, because the doses are being expanded on another schedule, which is the three consecutive days every three-week schedule. Then there are four expansion cohorts in major solid tumor types at a recommended Phase 2 dose. So that’s basically the package of clinical information that would be collected prior to exercising the option, plus a dose escalation in combination with pembrolizumab.

Mike Morrissey, President & Chief Executive Officer

Jason, it’s Mike. On the ANDA front, yes, we still expect a ruling sometime this fall; timing to be determined by the judge. So stay tuned.

Jason Gerberry, Analyst, Bank of America

All right. Thanks.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Yes. Thanks, Jason.

Operator, Operator

The next question will come from Andy Hsieh with William Blair. Please go ahead.

Andy Hsieh, Analyst, William Blair

Great. Thanks for taking my questions. Congratulations on all fronts. Strong commercial cabo sales, clinical updates and BD. Peter, I hope you’re feeling okay. I hope you feel better soon. I have a question about CBX-12. I remember from the Triple meeting the data was mostly generated from either the three consecutive day and five consecutive day schedule. As you think about moving to the weekly schedule, curious about the PK profile for that dosing schedule. For the pH tumor microenvironment approach, is there a way to either through a biomarker or potentially FDG PET to select patients who might best benefit from this therapy?

Peter Lamb, Chief Scientific Officer

Thanks Andy. Yes, there was data presented on the five consecutive days every three weeks and the three consecutive days every three weeks. The once weekly dose had encouraging signals; the partial response in breast was actually on the once weekly schedule. The overall PK for this molecule is interesting. From preclinical data, after administration you start seeing accumulation of CBX-12 in the tumor and then release of exatecan that builds up over time. How that plays out clinically is still being analyzed. They did present some encouraging data showing free exatecan levels in tumor biopsies. Regarding biomarkers: generally speaking this approach relies on tumors being metabolically active and typically glucose-utilizing, so FDG PET could be used. However, this is such a broad phenomenon that it may not be necessary to pre-select patients.

Andy Hsieh, Analyst, William Blair

Got it. I also have a question about XL092 and the ability to salvage cabo-pretreated patients in RCC. We’ve seen similar phenomena with other TKIs where redosing gives responses. Any comments on that phenomenon?

Peter Lamb, Chief Scientific Officer

Yes. It’s interesting. We certainly see activity with XL092 post-cabozantinib in that setting. The exact reasons for that aren’t entirely clear. Sometimes if you have a period off therapy, you can get re-responses if you re-dose. It’s not completely understood but is encouraging clinically.

Andy Hsieh, Analyst, William Blair

Great. And perhaps last question for P.J. XB002 looks very encouraging with no neuropathy or bleeding events. From physician feedback, do they prefer to push doses with a hands-on ocular toxicity management protocol or prefer an intrinsically safer profile? How do you think about that from a product development standpoint?

P.J. Haley, Executive Vice President, Commercial

Andy, with our product early in development it’s hard to generalize. It will come down to the specific details of the toxicity profiles of the competitive environment or the standard of care in that particular setting. Generally in oncology where there are many options and unmet need is high, physicians are willing to tolerate greater toxicity profiles. But it’s too early to generalize; we need data and to understand the settings in detail.

Andy Hsieh, Analyst, William Blair

Great. Thank you so much.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Okay. You bet, Andy. Thank you.

Operator, Operator

The next question will come from Jay Olson with Oppenheimer. Please go ahead.

Jay Olson, Analyst, Oppenheimer

Hey, congrats on the quarter and thank you for taking the questions. Can you talk about what we should be looking for in the STELLAR-002 data at SITC as you build on expectations set with the initial STELLAR-001 data presented at ESMO? Any comments on the next pivotal study indications for XL092?

Vicki Goodman, Chief Medical Officer

STELLAR-002 is still in early days. We are in dose escalation for the combination with nivolumab and nivolumab and ipilimumab, and we’ll soon be adding the nivo-relatlimab combo as well, so no data to be presented yet. We look forward to giving an update on data timing when available. Regarding next pivotal indications, we started the first Phase 3 STELLAR-303 in CRC earlier this year and expect to initiate a second Phase 3 trial; stay tuned for the indication, but we hope to initiate it by the end of the year.

Jay Olson, Analyst, Oppenheimer

Okay, great. Thank you. And congrats on the business development progress. Curious if you could comment on appetite for late-stage BD deals and congrats on the U.S. geographic expansion. Any comments on ex-U.S. geographic expansion?

P.J. Haley, Executive Vice President, Commercial

On late-stage deals: we have been looking at a lot of late preclinical and early clinical deals and will continue to do that. We would look at later stage clinical assets as well, but there has to be a confluence of a solid scientific rationale, compelling clinical data generated to date, and a good clinical and commercial future for the asset for us to pull the trigger on a later-stage deal.

Chris Senner, Chief Financial Officer

On U.S. and ex-U.S. expansion: from a U.S. perspective, as Vicki mentioned we’re expanding in King of Prussia and will have a larger building there with both office for the development organization and other G&A functions, but also labs for discovery. From an ex-U.S. perspective, our plan is to launch assets globally, so when we get closer to launch we’ll expand internationally.

Jay Olson, Analyst, Oppenheimer

Great. It’s super helpful. Thanks for taking the questions.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

You bet. Always good to hear you, Jay.

Operator, Operator

The next question will come from Etzer Darout with BMO. Please go ahead.

Etzer Darout, Analyst, BMO

Great. Thanks for taking the questions and congrats on the quarter. First, could you speak to the balance of the R&D spend step-up in the full year guidance beyond the funds you indicated for the two deals announced today? Second, the early data for CBX-12 was interesting. I wondered if that delta between healthy and tumor cells for pH makes more sense in certain tumor types and if that correlates with the tumor types Cybrexa is pursuing?

Chris Senner, Chief Financial Officer

From an R&D expense guidance perspective, it is primarily to reflect the two deals we announced today and our continued investment in the pipeline throughout the fourth quarter.

Mike Morrissey, President & Chief Executive Officer

On the Cybrexa side, I don’t think the tumor-to-tumor pH differences are well documented at that granularity. The general phenomenon of lower pH in many tumors is established, but our view is that the CBX-12 approach gets us into a game that allows us to target many tumors without requiring a particular antigen expression as you would with a standard ADC.

Peter Lamb, Chief Scientific Officer

Yes, exactly. That’s the intriguing part of the platform: it’s a target-agnostic way of enhancing delivery of a cytotoxic to a broad variety of tumor cells.

Etzer Darout, Analyst, BMO

Great. Thanks for that and congrats again on the quarter.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Thank you, Etzer.

Operator, Operator

The next question will come from Peter Lawson with Barclays. Please go ahead.

Peter Lawson, Analyst, Barclays

Hey, thanks for taking my questions. On STELLAR-303 in CRC, when can we see data around that? Is there an interim analysis and could a second Phase 3 generate data sooner than the 303 trial?

Vicki Goodman, Chief Medical Officer

We’re in the very early days of enrollment for STELLAR-303. I would say stay tuned for more information about when we expect to read out as we’re able to better project events; it is an event-driven analysis. We are evaluating other indications including potential for early registration paths and looking across a range of solid tumors where we have data with cabozantinib and given the shorter half-life of XL092, even settings where we were unable to take cabo as well as novel combinations. We’re looking to maximize the opportunity and find rapid paths to registration across multiple tumor types.

Peter Lawson, Analyst, Barclays

Thank you. And just a follow-up for Chris around revenues in the quarter: what was the benefit from clinical trial sales in the quarter and is that trend expected in Q4?

Chris Senner, Chief Financial Officer

Peter, as I mentioned in the prepared remarks, we had clinical trial sales of about $13 million in Q3. There’s been choppiness over the last year, going from $8 million to $17 million in any given quarter. We think that choppiness will continue in future quarters. Those sales are driven by orders from companies conducting trials with CABOMETYX, so timing is driven by their ordering patterns.

Peter Lawson, Analyst, Barclays

Got it, thank you.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Thanks, Peter.

Operator, Operator

The next question will come from Yaron Werber with Cowen. Please go ahead.

Yaron Werber, Analyst, Cowen

Thanks for taking my question. P.J., in terms of growth for cabo is it share gains from the older TKIs or is it continuing to take share from the nivolumab/ipilimumab opportunity? And Chris, thinking about gross-to-net as we move into next year, is the 28% to 29% range where you’re anticipating based on what you know now? And Vicki, for CONTACT-03 where PFS and OS are co-primary, does the trial need to hit both or can it be either/or?

P.J. Haley, Executive Vice President, Commercial

What we’ve seen is growth driven by two things: new patient starts primarily in first-line combination patients with nivolumab, which is driving share gains, and increasing duration of therapy as our mix has shifted to those first-line patients who have longer expected time on therapy. So both share gains versus other TKIs and the longer duration in first-line combinations are driving growth.

Chris Senner, Chief Financial Officer

Yaron, on gross-to-net, as I mentioned earlier we think this year will be closer to the 28% to 29% range. We’ve seen gross-to-net come down quarter-to-quarter from Q1 to Q3. We’ll provide more detail on 2023 on our Q4 call in February.

Vicki Goodman, Chief Medical Officer

For CONTACT-03, PFS and OS are dual primary endpoints. We will be looking at mature PFS data and an interim for OS; the trial needs to hit one of the endpoints to be declared successful.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Thanks Yaron.

Operator, Operator

The next question will come from Chris Shibutani with Goldman Sachs. Please go ahead.

Chris Shibutani, Analyst, Goldman Sachs

Great, thank you very much. On the business development, congratulations on the activity. Can you elaborate on what the decision would be for you to go ahead and acquire CBX-12? What kind of clinical data might you consider encouraging enough to advance that acquisition?

Mike Morrissey, President & Chief Executive Officer

Chris, just based on strong data. We won’t pre-specify exact thresholds publicly, but we will evaluate the totality of clinical data and make decisions based on evidence of compelling activity and a favorable safety profile that justify moving forward.

Chris Shibutani, Analyst, Goldman Sachs

Okay, that makes sense. Then on capital allocation: it seems BD activity has increased and you’re focusing on clinical or near clinical assets. As these assets could be later in the decade to commercialize, how are you thinking about longer-term revenue profile and the decisions you’re making now on BD? Any color on confidence that these will materially contribute to revenue longer term?

Mike Morrissey, President & Chief Executive Officer

I’d say we don’t share your view on timelines. We believe we can move quickly to generate proof-of-concept data and, if successful, move to take assets forward. Our preferred strategy is to make multiple smaller option investments and then invest more if the data is positive. We have a strong track record with cabozantinib and the team has experience executing development, regulatory and commercial strategies. Our view is we will continue to build a diversified portfolio to drive growth in the out years.

Chris Shibutani, Analyst, Goldman Sachs

Great. Then on operating expense levels, given confidence in advancing clinicals over the next five years, do you believe consensus is forecasting OpEx, particularly R&D levels, correctly to reflect your plans?

Mike Morrissey, President & Chief Executive Officer

We won’t comment on multi-year model assumptions provided by analysts. We run a disciplined P&L, have significant cash and generate free cash, and will continue to balance investing in the pipeline with financial discipline. We’ll provide specific guidance each quarter as appropriate.

Chris Shibutani, Analyst, Goldman Sachs

Okay, appreciate your perspective. Thank you.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Okay. Thanks Chris.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Susan Hubbard for any closing remarks. Please go ahead.

Susan Hubbard, Executive Vice President, Public Affairs & Investor Relations

Yes. Thank you, Chuck, and thank you all for joining us today. We certainly welcome any follow up calls with questions that you may have.

Operator, Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.