Exelixis, Inc. (EXEL) September 2026 Conference Transcript

Good morning, everyone. I'm Sean Larmann, Head of US Mid-Cap Biotech Equity Research here at Morgan Stanley, and welcome to our Global Healthcare Conference. Before we begin, just to make you aware of some important disclosures, for those disclosures, please visit the Morgan Stanley Disclosure website at www.morganstanley.com forward slash research disclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have the pleasure of hosting Exolexis and their President and CEO, Mike Morrissey. Thank you for your time and pleasure to host.

Yeah, it's great to be back. Thanks for the invite, yeah. Before I begin, let me just remind, do my safe harbor. I'll be making four looking statements today, so please see our SEC filings for a description of the risks that we face in our business.

Okay, thank you, Mike. And you'd be actively involved in this first one, I believe. So how is the rise of China-originated innovation, you know, changing your competitive positioning, if at all, in your R&D and BD playbook?

That is a great way to start the dialogue, and we could probably spend 33 minutes on that topic all by itself. First, let me say again, it's great to be here. Really appreciate and really value the relationship we had with Morgan Stanley on the research side, on the banking side. It's just been great. So I really appreciate all you guys do for us. So let's talk about China. And it's really a question of, at least in my mind, innovation first and how you maximize the value of innovation, how you access innovation, how you pay, how you value innovation, right, all across the board. No surprise, I think, to me and to us that there's lots going on in that space. If you go back even 10, 15 years, there were the top two or three checkpoint inhibitors, and then there were another 40 being discovered and developed in China. So I would say that region, that country, certainly is investing a lot in biotech right now. There's lots of movement inside China in terms of BDX China, in terms of U.S. companies and European companies accessing that. You know, we look at that very closely. I guess our focus is more on novelty than fast followers, than kind of me-toos. And there's a lot of all those. So the question is really how do you parse the risk-reward equation? How do you look at data, you know, preferably asymmetrically in terms of what we have in our pipeline, where we're hoping to move our pipeline? You know, we have adopted this multi-product, multi-franchise approach. I mean, COB was a great example of that from the standpoint of, you know, a compound that has been looked at in, you know, tens if not more pivotal trials, has labeled with eight indications. So we're trying to complement that with SANS in the full pipeline. Sources of innovation, whether we look to buy, to partner, or to collaborate, is really important for us. So I think collaborative opportunities make the most sense. But we're open for business and looking very clearly at trying to expand our portfolio of franchises that could certainly include assets, ex-US, outside of the company.

Fantastic. Thank you, Mike. Next question on the macro side. So are you implementing AI across your business? And if so, you know, can you point to an area where it's changed the decision, a cost out, even a POS?

So it's another great question on the macro side. You know, a lot of companies are kind of opening the floodgates in terms of the, you know, kind of the on the expense side to embrace AI and kind of a uncontrolled, you know, kind of do everything at once framework. That's not how we're operating. So from my point of view and what we've done, I think, within our business units and within our IT infrastructure is really ask the question, where do we have highly curated, very valuable data? Because from our point of view, certainly what I believe in is that AI, if you've got the right data, is a very good way then to be able to understand the value of that data, maximize the utility of that data, analyze that data both faster but also maybe more deep in the process, right? So we've, again, got decades of data, and certainly if you think about what we've got within discovery, first of all, but also maybe more importantly within development, but critically and commercial, we have very, very deep data sets of longitudinal curated data that we've invested a lot of time and a lot of money in terms of, you know, kind of building on and maintaining the depth and quality. So we're using AI. You know, Chris and I, you know, we prioritize for the team kind of where we see the biggest potential impact of AI on our existing kind of data sets, data analysis, data utilization, and then the team we have can execute very quickly. So I don't think we're spending a lot of money, but I think we're doing the right level of investments and the right focusing in terms of priorities to maximize impact. And I can tell you that some of the things, especially in the commercial world where we're already strong, I think this has the ability and the opportunity to make us even stronger. But it's all around speed, quality, and security. The speed and quality by themselves are great, but if you can't do it in a secure fashion, as we've seen some of the more public examples, it can be a real problem. So I think those three kind of pillars are driving us forward, but in a very controlled, kind of prioritized manner.

Got you. Thank you, Mike. And last question before we dig into some specifics, but which policy variable is it? FDA, Medicare negotiation, MFN, tarasel, global pricing matters most to your economics, and what have you changed, if anything, because of any of those?

I guess I would answer yes to all those. Yeah, I mean, that's the bucket list of, you know, kind of topics and risks that the whole industry is facing, and certainly us as a very, you know, important commercial concern are dealing with on a daily basis. You know, the playing field is shifting. It's very dynamic. I think the way we look at it is there's today, there's tomorrow, and there's the future. And, you know, you want to be really careful how you navigate today so you don't complicate what you might do or could do tomorrow and what might happen in the future. And for us, I mean, the timelines are basically, you know, real time today versus even, you know, after the midterms in 26, the time between 26, you know, midterms in 26, it's just a few months from now, and then the next, you know, kind of election cycle, and then, you know, new administration in 28, and then 28 to say maybe even 30, you know, early 30s. and I think the dynamics here are super, super important and nobody has a crystal ball into what could happen even a couple of months from now or even early 27. So we've got a great team. We've got a super, super strong team in D.C. I'm in D.C. a lot, on the Hill a lot, talking to members about things that are important to the industry, I think they're important to us in terms of whether it be pricing, whether it be regulatory issues, whether it be external innovation and competitive threats, all those things. I would say from an industry point of view, certainly pricing, the whole MFN issue are top of mind for us. Lots of noise in that system right now. I'm not sure how much content is there. Maybe we find out in 27, maybe we don't, depending upon who's controlling what within Congress. But I think it's just so important for everybody to look at the landscape as, you know, it's just not today because there's so many other moving pieces that could impact our industry and our ability to deliver really novel medicines to patients in the out years, depending upon how this gets played in the short term. So stay tuned. It's going to be a wild couple of years for sure.

Thank you, Mike. Now to get on specifically to Exalexis and Carbo, so solid growth at Q2, but kind of macro, kind of not. Like how do you think about the growth of the core Carbo franchise before Zanza takes over? Are you managing the two as a deliberate handoff or letting them run independently in overlapping settings?

Yeah, so the base business with Carbo continues to be really strong. I'm pleased to, you know, take a step to look back where we were, you know, literally 10 years ago when we launched Cabo and the, you know, the amount of flack we got in terms of how we may or may not be able to compete in the solid tumor oncology setting with another TKI versus kind of where we are today. I mean, the run rate based on our Q2 26 numbers is, you know, north of $3 billion a year globally. So it's a major drug, and certainly we've had a big part of that in terms of how we've focused our clinical and regulatory and commercial efforts to grow the number of patients we serve and to use as a kind of a foundational platform for how we build Zanza. So, you know, adding net on was a super important next step for us relative to building the franchise. It's growing at a little bit shallower rate than we thought it would, and that's okay. It doesn't really impact our view on what, if you use the pharmacokinetic terminology, what CMAX could be, right? It's just going to take a little bit longer to get there, and that's fine. The team is doing great, and I think the effort is really, you know, understanding that this is a little bit different patient population than what you normally see with, you know, metastatic, you know, solid tumor opportunities. Zanza, you know, following up beyond that, look, we've got, you know, the opportunity to build a durable second franchise that we think could exceed the, you know, the Cabo opportunity, maybe by several fold if we're successful with first wave and now we can get about the second wave of pivotal trials you know it's one that continues to really get us excited and you know the opportunities are broad and deep and you know our job is to parse the risk and you know capitalize on the opportunity for success and make sure that we're serving as many patients we can across lines of therapies across combinations across different histologies as we can. So lots to do there. It really plays into how we view building value through franchises. And as we talked about at our R&D Day last year, you know, Cabo is first. We think Zanza is going to be a great second act, if you will, and there's more on the way with the pipeline, you know, opportunities externally to be able to build this multi-franchise view of success for the business as a whole.

Cool. Thanks, Mike. And just to touch on some recent patent news, so how do you think about the Carbo exclusivity runway out to the federal court decision with MSN and on hand to capsule, how do you think about the potential entry in any competitive pressures on Carbo from our understanding that the product is non-AB related and not substitutable at the pharmacy? Yeah, yeah.

So, look, any successful drug like Carbo is going to get challenged. It's part of, you know, part of your, our job is to be, you know, on the offense in terms of adding indications, adding, you know, making sure we're delivering on growth, you know, Q over Q, year over year, making sure that we're operating at a very high level of expectations for the team. On the other hand, we have to have a strong defense from the standpoint of making sure that we're doing the right work from a patent point of view, from a legal point of view, to be able to maximize the value within the time frame that we've got. So, as you know, we've settled with several generics for an entry date of January 1, 2031. Those that haven't, we're litigating with. Again, the appellate decision that recently came out was very strongly supportive of our approach. And there's other trials planned to continue to reinforce. I don't want to speak to those right now, obviously. but we're certainly going to continue to do the appropriate level of investment and prepping to make sure that we can maximize our chance of success there across all challengers. 505 B2s, won't mention any names, but, again, we're not too concerned about that. As you mentioned in your question, history would tell you that those have a tough time competing without additional data. You know, the best example of a success with a 505B2 is the Abraxane example where Abraxas ran pivotal trials. They went into large patient populations, did the right work to be able to frame the opportunity. Outside of making those big investments, it's really hard for all the obvious reasons to be able to see erosion or penetration. So, look, we have to be worried about everything. We think about everything. We track everything. we're not too concerned about that. We've got to keep our eye on the ball in terms of the Cabo-based business, growing that, maximizing the value of Zanza, and then pushing the pipeline forward. So that's more than enough to occupy my time, for sure.

For sure. So maybe moving on to some Zanza questions, you know, super important for the long-term future of Exlexis. And we're anticipating the metastatic colorectal cancer launch, and that's been pushed back by three months. So, you know, just for those that might not be on top of the news, you know, why the pushback? And does it change in any way, shape, or form how you're thinking about the launch and your allocation of resources to do that?

So, again, we had an 8K Friday morning. Basically, we set in the Bidufa to March 3rd. You know, can't add more than what was in the 8K, so I'd certainly refer you and listeners back to that. You know, it's just the way it is. and hasn't diminished our interest or confidence in the opportunity. We are essentially launch ready right now. As you know, we talked about this earlier in the year. We added out the full complement of reps to our GI sales team late last year, early this year, to kind of pick up the slack on the net side in anticipation of kind of getting that to a level where at the appropriate time, you know, we could then kind of move full force into CRC based on the 303 data. That's still the plan. We just have an extra quarter to do it, which is fine. It's a really important first launch for us. Obviously, you've got to get through the regulatory steps, and we're committed to doing that. I still find very reassuring feedback in our market research. The 303 data plays really well in market research, especially in the community. The juxtaposition between what we did in 303 and what we're planning to do with 316, this post-definitive therapy kind of maintenance approach almost from the standpoint of using the Natera technology to identify high-risk patients. 303 and 316 play together really well. We talk to, you know, investigators about one and they bring up the other and vice versa. So, you know, we're, again, we're all about building franchises across multiple dimensions and, you know, certainly, you know, going into CRC with Zanza across several different lines of therapy with the opportunity to bring in other molecules, other combinations, maybe earlier lines of therapy could be really attractive. So when we choose to go into an indication, we go all in. And, you know, we're certainly very excited about being able to hopefully move the needle here for patients.

Definitely. And, you know, ZANZ has been framed as, you know, its edge is a differentiated, you know, kinase inhibition profile versus other TKI-O combinations. In practical terms, what is an IO-containing regimen win in third-line plus MSS colorectal, which has been a setting that's historically called to immunotherapy, and what are you hearing from KOLs?

Yeah, so it's certainly the exception to the rule, right? There have been five recent trials using checkpoint kind of platform therapies for third-line plus non-MSI high CRC. for those that failed. The only one that worked was Stellar 303 with Zanza and Atezo. So the Zanza scaffold, certainly based on some of the CAVO data we've generated in the past, but also recent data with Zanza really reinforces the idea that Zanza has the ability to impact all the key cell types in the tumor microenvironment, tumor, vasculature, important immune cells, both on the positive side, inhibiting or inducing the positive CDA-positive T-cells and then impacting the negative regulators as well. So it's a full, really, approach, full holistic approach in the tumor microenvironment. So the fact that we saw a win in the ITT population and in the liver met population I think is pretty compelling. you know it's the first step when you think about winning in a late line heavily disease burdened population and then you think about 316 where you're looking to basically you know go after tumor that you can't actually see can't visualize radiographically you know it's a pretty compelling you know connection from one to the other so lots of enthusiasm there but data speaks for itself and we're certainly very excited and we're really motivated by the feedback we're getting. Most of the patients with late-line CRC are treated in the community and they feel somewhat shut out or foreclosed from checkpoints based upon the vast majority of these patients with their genotype. So to be able to at the appropriate time bring this option to physicians and the patients is just the most rewarding thing. That's why we do this work, right? And we're super excited to be able to get in that space. Maybe a little bit later than we had hoped, but that's fine. We'll get there soon enough and be ready to go.

I think you've framed that third-line CRC plus setting as about 23,000 patients, $1.5 billion opportunity. I understand there's significant overlap with the current CARBO prescribing base. Can you give us a bit more granularity on your launch prep and maybe some idea how you expect the launch curve to look.

Yeah, so, you know, look, we launch really well. The effort we have, and it's now really enabled by AI. I can't go into the details from a competitive point of view, but it is absolutely fascinating to me if you've got the right data. and the data, again, I won't elaborate on, but it's data that has been curated and is really prime for picking, if you will. Look, we have the ability to really maneuver here very quickly. So we see this as an opportunity to really reestablish in a brand-new therapeutic area for us our dominance when we choose to go and do an indication. So the combined sales, marketing, and analytics team is really working as one to be able to not go off independently, but to go in a very consolidated, aligned fashion in a way that will help us win and help us reach more patients. So I'm thrilled with the progress I've seen there and the launch prep that's in place, and we're really excited about being able to get out there.

Fantastic. You know, moving on to Zandra in RCC, I'm particularly fascinated by the Stelo 304 and the strategy around here in NCC and how CARBO's in CC and just the bleeding around that strategy over time. But I guess to talk about specifics, how are you thinking about the Sinitinib control and what are you hoping to see on efficacy and tolerability against other IOTKI benchmarks, you know, such as CARBO Nib?

Yeah, so unfortunately, non-ClearSol RCC is just understudied. 304 is the first global randomized pivotal trial that's being done in this space. So the data for controlled arms, the data for potential experimental arms is all limited just by a lack of investigation, lack of investment in this population. So we're, you know, there's lots of, you know, IST data, phase one data, it's old, it's new, it's historical, it's, you know, caveats all over the place. So it's actually, you know, challenging to actually look at and pick a number, if you will, for a control arm or a experimental arm. We want the best data possible. We think we've got the right combination and certainly excited about being able to do a study that arguably should have been done years ago. But, again, we do the hard stuff because that's how you win for patients, that's how you generate level one evidence that you can get into compendia. You can, I think, really effectively market once you get approved. So, yeah, it's a small piece of a big story. Obviously, we have a major player existing with Cabo and RCC, as you mentioned, with how we view building upon that. We want to have a new standard of care in the 2030s for all elements of RCC. Certainly with 304, the two studies we're doing with Zanza and Belsudafan with Merck, super excited about those. Great partner, great compound. Bells is doing great out of the block. So to be able to be part of building on that story makes a lot of sense. We are, and I am personally, very scientifically and I would say clinically interested in asking a different question front line. As you know, Lightspark 12 did not work. So the question is, you know, my interpretation, and again, I haven't seen the data that will come out at ESMO in a few weeks, but doubling down on the VEGF pathway may not be the most productive way to go here. So we're asking some very fundamental questions around can we craft clinical collaborations where we combine ZANSA with the appropriately designed and characterized by specifics that involve unique MOAs. One end's got to be a checkpoint because we know that's important. The other end, you know, has to have an impact potentially on the RCC and maybe CRC, tumor biology, but it can't overlap with, say, VEGF because we know kind of what that gives us in this setting, right? But that's an area where we're doing a lot of work from a BD kind of exploratory point of view about what's out there. There's lots of assets out there with biospecifics that have a second handle that's unique, that gives us a different MOA hook that we're excited about exploring. But again, we want to dominate all aspects of that histology with the appropriate combinations and the opportunity to really extend duration of treatment, duration of action, because that's how you bring the maximal value to patients.

Wonderful. We're still on 304, so looking forward to receiving the data. but if we look back, you know, Zanza and Nevo showed, you know, 63% are in one line, you know, clear cell in Stellar 002. You know, if Stellar 004, you know, does land well in the harder non-clear cell population, how are you thinking about, you know, read-through to the larger clear cell opportunity?

Yeah, well, that would be, you know, defined by the data that we're looking at, right? So, you know, how those connect, we can speculate on that. I'd rather just run the experiment and get the data and then operate from there. So I'm not a big model, or I'd rather just generate the data. Certainly the opportunity with the Merck trials that we're doing talked about first-line opportunities in terms of how we're going to, you know, kind of survey what's possible. I think that's how you make big breakthroughs is by asking the question differently. We're just orthogonal thinkers, and, you know, I think that asymmetry of thought then translated into action has made us successful so far. We'll continue to do that.

Sure, thank you. I have a competitive question here on Zanzer in RCC. So, you know, Moderna and Merck's, you know, neoantigen therapy, you know, hidden adjuvant melanoma with an RCC readout due to age 26 or 27. You know, position Zanzer as a TKI partner of choice in RCC into the 2030s. If a cancer vaccine starts showing, you know, activity in kidney cancer, is that a threat to the TKI plus IO backbone or a combination partner, Zanza?

Oh, I think it's, yeah, yeah, it's a great question. No, I think it's a combination partner for sure. You know, we have an active IST with Dana-Farber looking at the Dana-Farber peptide vaccine program that they had science, I think, a year or so ago that Tony Tueri and Catherine who kind of ran and discovered and published. So looking to add ZANSA on top of that, number one. But, again, thinking about this orthogonal modality approach in terms of frontline, maybe it's ZANSA plus a checkpoint plus a cancer vaccine, too. I mean, the key, the whole one for us would be to move that from adjuvant to metastatic, right? And that's a big ask, just from a tumor burden point of view. But the question is, could a molecule like Zanza, which has such a rapid onset of action, you know, causes, you know, rapid tumor, has rapid tumor-cidal activity, can release antigens very effectively, could that be the kind of the spark plug you need? So, again, important question that you can only really answer clinically. But, again, we have been taking a very broad look at how to be able to impact that frontline space. And I think, you know, PCVs and some shape manner of reform could be a very important part of that.

Thanks, Mike. Moving on to Zandra and NET and Stella 311, if that wins, like how much of that is expanding the NET opportunity versus transitioning existing CARBO patients to Zandra?

Oh, I think it's more the former than the latter. Again, the cabinet study was done against placebo. 3.11 is going head-to-head against Everolimus. So I think if you can beat existing standard of care, that has a big impact on the ability, not only for regulatory success, but then for making it truly the number one choice across the continuum. So again, it's a great study. We're enrolling globally. I'm super pleased with enrollment. We're way ahead of schedule right now. So, you know, that's a good sign in terms of level of interest. And I would say in general, you know, the clinical team is just cranking right now. You know, the menigenoma study 201 is enrolling rapidly. Lots of interest there. We have a phase two in bladder cancer post-pads of Pembro, where there's basically nothing for patients when they progress. That's enrolling really fast. So I'm real pleased as a metric of execution and success, seeing physicians and investigators put patients on trials that they're interested in is a really important sign, and we're seeing a lot of that right now.

Great. Thanks, Mike. I want to allow some time for the early stage pipeline. So you've got, you know, four phase one programs all moving towards, you know, go, no-go decisions. So do you have a view or can you provide a view which reaches a decision first and what's the bar for advancing and how disciplined will you be about stopping the ones that don't appear? Yeah.

Well, we're very data-driven. We have to be. We're scientists first and foremost, and getting to a fast no-go is always beneficial from, I would say, a pure financial point of view, but it's also just more satisfying. You don't want to pull the trigger too early and leave potential value on the sidelines. So we navigate that pretty well, but no, we're very effective at killing programs that don't need to go on. I would say that the timing of advancement is purely based on how we see the franchise potential of these molecules developing, Whether that's monotherapy, whether that's in combination, whether that's early line, late line across different tumor types, you know, you've got to find the right dose. You've got to expand to, you know, kind of look for signals and then ask the question around combination approaches. So a lot going on there right now. We're super, you know, diligent in terms of kind of running all these different parts to ground. You know, our ADC, our small molecule, our biospecific approaches are all really attractive. and now having the opportunity to, on a selected basis, combine with ZANSA, right, would be even more attractive so that we don't need to go out and partner with a clinical collaboration for ADC or for a bispecific when we've got our own molecules in-house, too. So keeping that all together is actually a really good way to go. But, look, it comes down to franchises, right? So, you know, do we have another franchise molecule, you know, in our early pipeline? Potentially, and our job is to find that as quickly as possible and then invest appropriately. But there's external sources, too, that we're looking at very, very clearly and constantly. But, again, that's the model is to build a pipeline of franchises that will allow us to build value, outsides value for patients and for shareholders.

Sure. Beyond those Phase I programs and the two planned INDs, how are you thinking about balancing capital resources between internal innovation versus BD activities?

Yeah, so that's, I mean, I would say capital allocation is always based on data. So I think we're agnostic and really don't think about it from the standpoint of, you know, where did the molecule originate from? It's what's the data that we either have or need to have to be able to get to a crisp go-no-go decision. And if it's go, then how do we go faster and broader to be able to build these franchises? And I think Zanz is a good example of that, where we had hints of activity. We went into the first couple of pivotal trials. That developed into the first wave of seven that are all going now. And the next handful, probably six to eight, are kind of lined up to go as well. So, you know, it's allowing the team to ask the right questions around, you know, what's novel, what's kind of in line, what's kind of on the fringes. But that's, you know, again, value is created when you ask the question properly and then you execute well. And I think we've been able to do that over the last few years really well. So we've got a lot of interest there. And certainly the early stage pipeline, you know, the INDs kind of pipeline. And many of those molecules fail, and that's fine, as long as we have good matter that we're moving forward and investing in. We just need a small number of winners. We don't need a big pipeline of unknowns. I think that's the way we look at it.

We're just out of time. It's probably a perfect place to pass the conversation. Great to see you. Great to see you.