Exelixis Inc (EXEL) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2013 Exelixis Incorporated earnings conference call. My name is Crystal and I will be your coordinator for today. At this time all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation.

(Operator Instructions)

I would now like to turn the presentation over to your host for today, Mr. Charles Butler, Vice President of Investor Relations. Please proceed.

Thank you for joining us for the Exelixis second-quarter 2013 financial results call.

Joining me on today's call are Michael Morrissey, our President and CEO; Frank Karbe, our CFO; Scott Garland, our Chief Commercial Officer; and Gisela Schwab, our Chief Medical Officer, who will together review our corporate financial and development progress for the quarter ended June 30, 2013. They also will discuss priority activities for the remainder of the year and provide an update on the COMETRIQ launch and ongoing clinical development activities for cabozantinib. As a reminder, we're reporting our financial results on a GAAP basis only and as usual, the complete press release with our results can be accessed through our website at Exelixis.com.

During the course of this presentation we will be making forward-looking statements regarding future events or the future performance of the Company, including statements about future developments regarding clinical, regulatory, commercial, financial and strategic matters. Actual events or results of course could differ materially.

We refer you to the documents that Exelixis files from time to time with the Securities and Exchange Commission, and in particular the Company's quarterly report on form 10-Q filed today, August 6, 2013. These documents contain and identify under the heading Risk Factors, important factors that could cause actual results to differ materially from those contained in any forward-looking statements, including the risk that unanticipated developments could adversely impact the launch, commercialization, distribution and availability of COMETRIQ. The degree of market acceptance of, and reimbursements for COMETRIQ, risks and uncertainties related to compliance with applicable regulatory requirements, market competition, the availability of data at the referenced times and risks and uncertainties related to the initiation, conduct and results of clinical trials. With that, I'll turn the call over to Mike.

All right. Thank you, Charles. And thanks to everyone joining us on the call today. We had a productive second quarter. And I'll start by giving a brief overview of our priorities before Frank, Scott and Gisela discuss our progress from a financial, commercial and clinical perspective.

Our focus for Q2 was to advance our goal of building cabozantinib into a significant oncology franchise as we move into 2014 and beyond. Consistent with this goal we are continuing to execute on our top priorities in the second half of 2013. Including, first, advancing the clinical development program for cabozantinib to the implementation of multiple pivotal trials in commercially important indications, and we expect to have five ongoing pivotal trials for cabozantinib by year-end.

Second, implementing an appropriately-sized commercial effort for COMETRIQ and progressive metastatic MTC. And finally third, maintaining a position of significant financial strength by focusing the Company's activities and operating expenses solely on cabozantinib. Overall, the common trials for metastatic CRPC remain our top organizational priority. We made good progress here in Q2 and continue to expect top-line data in 2014.

With that, I'll turn the call over to Frank for a review of our second quarter financials. Frank?

Thanks, Mike.

As usual, I will focus my comments on the highlights of our financial performance in the quarter and refer you to our press release and today's 10-Q filing for additional details. Net revenue for the quarter was $11.9 million, of which $4 million related to the sale of COMETRIQ and $7.8 million related to license and contract revenues. In line with our expectations our gross to net discount slightly increased this quarter to approximately 5%, primarily as a result of increased sales through programs subject to government mandated discounts.

I'd like to note that our full-year guidance for license and contract revenue of $16.3 million remains unchanged, which implies that we have now almost fully depleted our remaining deferred revenues for this line item. For the time being, we will continue to not provide any revenue guidance associated with sales for COMETRIQ.

R&D expenses for the quarter were $49.1 million. The increase of $16.5 million as compared to Q2 last year was predominantly due to a $15.3 million increase in clinical trial expenses, which was primarily related to activities for the COMET-1 pivotal trial, as well as costs incurred in connection with the start-up for phase III trials for metastatic RCC, metastatic HCC. $6.3 million of this increase relates to the purchase of Afinitor as comparator drug for RCC phase III study.

SG&A expenses were $13.2 million for the quarter. The increase of $6.4 million as compared to Q2 last year was largely driven by higher costs for consulting and outside services as well as marketing expenses, which primarily related to costs associated with our commercial activities. These increases were partially offset by lower rent and utility expenses.

Total costs and expenses for the quarter were $63.2 million. We have indicated in previous calls that we expected our expenses to rise and the increase of $22.6 million as compared to the second quarter last year, $19.5 million as compared to the first quarter this year, reflects the ramp-up in our clinical trial activity, including the purchase of comparator drug as well as the expenses associated with our newly established commercial capabilities. Our 2013 full-year guidance for total costs and expenses remain unchanged, in the range of $200 million to $230 million, including non-cash expenses of approximately $16 million to $18 million, which is primarily attributable to stock-based compensation expense.

For other income expense we incurred a net expense of $10.9 million for the quarter. The increase of $7.1 million as compared to Q2 2012 predominantly relates to the interest expense associated with our 4.25% convertible senior subordinated notes due 2019, issued in August of last year. $6.5 million of the interest expense incurred in the second quarter reflects non-cash charges.

Let me wrap up by commenting on our cash position. We ended the quarter with approximately $524 million in cash. It is worth noting that despite the increases in expenses from Q1 to Q2 this year, our cash burn in the second quarter was substantially lower than in the first quarter, mainly due to lower debt payments and changes in working capital. Our guidance for year-end cash also remains unchanged. We continue to expect to end the year with approximately $400 million in cash.

With that, I will pass the call on to Scott.

Thank you, Frank.

The second quarter was another busy (technical difficulties) on the commercial front and we continue to make solid progress on launch of COMETRIQ and MTC. As Frank mentioned, Q2 net product sales for COMETRIQ were $4 million. Consistent with our Q1 earnings call, I will not be providing any further breakdown of product sales and will restrict all my comments to the MTC market.

In Q2, we continue to see gains in penetration in MTC and saw the level of refill scripts increase, as well. In terms of overall market size, our assumptions have not changed and we continue to believe that they are between 500 to 700 drug-eligible first- and second-line metastatic MTC patients diagnosed each year in the US. On our Q1 call, we announced that we would be expanding the size of our sales force from 5 to 15 sales representatives. The increase was due to a realization that the MTC market was less concentrated than we previously anticipated. That trend continued in Q2, during which time we observed that over 50% of scripts for COMETRIQ and MTC were written by community physicians. As a result, we have increased the number of targets our reps call on from 600 to around 1400.

I'm pleased to report that we've nearly completed the hiring and training of our new sales reps and 14 of the 15 reps are now out in the field calling on customers. I continue to be pleased with the level of talent we have been able to attract. The sales reps have, on average, over 15 years of sales experience with a significant amount of oncology experience. The sales team continues to be outsourced through our contract sales organization, Inventive.

On the payor side our payor mix remains skewed towards commercial payors. We did see an increase in Medicare coverage in the quarter. Payor reaction to COMETRIQ and MTC continues to be positive and coverage policies remain consistent with our labeled indication and in line with our expectations.

I'll now turn the call over to Gisela.

Thank you, Scott.

In the next few minutes I will provide an update on the progress of development programs for cabozantinib. Specifically, I will cover the status of the COMET trials, the status of the RCC and HCC phase III studies, and activities in non-small cell lung cancer in RET fusion-positive patients. But let me start with a brief update on our activities in MTC, both the clinical and regulatory actives and the medical affairs support for COMETRIQ.

The review process of our EU filing is proceeding and the filing was accepted for review in November, 2012. We are addressing the EMS questions and while we are awaiting a final opinion from CHMP we have set up the infrastructure to make COMETRIQ available under a named patient use or NPU program in countries of the EU and in other ex-US regions. This activity is part of our agreement with a Swedish orphan biovitrum, or Sobi. As a reminder an NPS program provides access to drugs unapproved in a given country, but approved elsewhere for a single patient or a group of patients in a particular country.

So we are now through Sobi, making COMETRIQ available under the NPU rules in the EU and other ex-US regions. With those efforts under way, the clinical and regulatory effort is intensely focused on expanding the cabozantinib opportunity. As we have discussed previously, we have a robust strategy for evaluating the compound in a variety of indications using internal resources to support phase III trials and working in partnership with a wide array of individual physicians as well as cooperative groups through our collaboration with the National Cancer Institutes Cancer Therapy Evaluation Program, or CTEP and an investigator-sponsored trial program.

I will turn to the update on the ongoing COMET trials, which are our two phase III pivotal trials in metastatic castration-resistant prostate cancer. As you know, COMET-1, a randomized study of cabozantinib versus prednisone is focused on assessment of overall survival. And COMET-2, a randomized study of cabozantinib versus mitoxantrone prednisone is focussed on pain response. We now have activated 250-plus clinical trial sites for COMET-1 and our patient recruitment and enrollment trajectory are in line with our expectations.

We continue to expect the top-line data from both COMET trials will be available in 2014. If both trials are successful, the combined data package would demonstrate a survival benefit and improvement of pain associated with bone metastases. We believe this would differentiate cabozantinib from other agents used in the treatment of CRPC and support the product activity profile in this indication.

As a reminder, a detailed analysis of overall survival in our non-randomized expansion phase II studies and 144 CRPC patients treated with cabozantinib was presented at ASCO in June and demonstrated a 10.8 months median overall survival in this heavily pre-treated patient population. All of these patients had received prior docetaxel and about half of patients had received prior abiraterone and/or enzalutimide, and 25% of patients had also received cabozitaxel.

We also observed in a retrospective responder analysis of the state of it, an association of bone scan response, CTC conversion, or pain response, with better overall survival compared to non-responders. This data is certainly supportive of our planned analysis of bone scan response in the phase III COMET studies as an important secondary end-point. And these studies will allow for perspective assessment of correlation of bone scan response and overall survival.

In addition to the COMET studies, which evaluate cabozantinib in the late line of treatment of CRPC patients post-docetaxel and abiraterone or enzalutimide, we are also actively working on advancing cabozantinib in the earlier line of treatment of CRPC patients prior to chemotherapy. We are on track with our plan to initiate two earlier line phase 1/2 studies. One evaluating the combination of cabozantinib with enzalutimide and one evaluating cabozantinib with abiraterone. These studies will initiate towards the end of 2013 or early 2014.

Now regarding the status of cabozantinib in other indications, we are working very actively on the initiation and execution of our two new phase III pivotal trials in metastatic renal cell cancer and hepatocellular cancer, or RCC and HCC respectively. Just as a reminder, the phase III study in RCC was initiated in May, 2013 and is now screening patients. It is a 650-patient randomized open-label study that is comparing cabozantinib with everolimus in patients who have received and progressed on, or following at least one prior VEGFR tyrosine kinase inhibitor.

The primary end-point is progression-free survival, or PFS, and the secondary end-point, overall survival. No cross-over between treatment arms is allowed. Patient-reported outcomes, biomarkers, safety and pharmacokinetics will be evaluated as exploratory end-points. We have selected study sites and are planning the global execution of this study with balanced accrual weighted towards Western Europe, North America and Australia.

The HCC trial will be initiated shortly. This is a 760-patient study in patients who have received prior sorafenib, and will compare overall survival between patients treated with cabozantinib and those receiving placebo. Overall survival is the accepted end-point in this indication and was the end-point used to support approval of sorafenib as first-line therapy for HCC. There is a tremendous amount of enthusiasm for these trials in the community based on the early-stage data and the design of these phase III trials. And we hope that these studies will support the next wave of indications for cabozantinib after metastatic prostate cancer.

Additionally we are planning to initiate a single-agent phase II study in about 100 non-small cell lung cancer patients carrying the RET fusion gene. This genetic alteration is seen in about 1% to 2% of non-squamous cell, non-small cell lung cancer patients, and is seen in patients whose tumors are negative for EGFR, KRAS or ALK mutations. Cabozantinib has been shown in pre-clinical studies to potently inhibit [ratchet] with nominal IC50 values. And initial clinical data showing activity of cabozantinib in a small group of non-small cell lung cancer patients with RET fusion gene has recently been published.

On the basis of this data we are currently planning the initiation of a study in RET fusion gene expressing patients with the primary end-point of overall response rate. A robust response rate in such a selected patient population could potentially support a decision to request regulatory approval in the United States.

So to summarize, we have made very good progress on multiple fronts. The COMET trials are actively unfolding. The new phase III study in RCC has been initiated and the HCC study will be initiated shortly. We are working on start-up of the study in non-small cell lung cancer patients with RET fusion genes and the IST and CTEP programs are advancing well.

With that, I will turn the call back over to Mike.

Okay. Thank you, Gisela.

I will keep my closing remarks brief, so we can get to your questions. As you heard from the team today, progress continues on all fronts, which is only possible for the dedication and hard work of our employees. Our focus moving forward is simple, to advance the near term cabozantinib opportunity in metastatic CRPC and expand the opportunities for cabozantinib in other important oncology indications. With this focus, we hope to bring new therapies to patients with cancer and build value for our shareholders.

So we'll stop here and be happy to take your questions. Operator?

(Operator Instructions)

Please stand by for your first question. Eric Schmidt, Cowen & Company.

First, a quickie on COMETRIQ in thyroid cancer. Do you have any data on the persistency of dosing or the rate of discontinuations?

Hi, Eric, this is Gisela. We have data collected, obviously, in the EXAM study and we know that patients on cabozantinib have been, on average, on drug for about 10 months. And so that data has been presented previously.

And in terms of discontinuations, we saw discontinuations in about 16% of patients and for comparison, in 8% of placebo patients. So in line with what you would see with other TKIs.

I was asking more about the commercial experience whether you've seen similar persistency of dosing or whether some of the initial scripts have been discontinued already.

Yes, Scott, you want to take that one?

Yes, Thanks. As you would expect, and I would say consistent with the EXAM data, we have seen discontinuations in the marketplace. They are generally in line with what you would expect in terms of treatment duration, which I think you asked as well.

It is still too early to get a read on treatment duration, because you have to wait for patients to complete therapy before you can get an adequate assessment of that. Obviously we'll provide updates on that in the future, if and when appropriate.

Maybe moving back to Gisela, on the RCC phase III study. You've provided us with a milestone, obviously, for when we're going to get the COMET-1 and -2 datasets. Can you also give us a projected time line for data from that, the RCC trial?

Yes, we are just starting the study up, as you know. We have initiated in May and are actively screening patients at this point. It's a little bit early at this point to project when data will be available, so we'll update as time goes by.

Okay. And last question, Mike mentioned five potential pivotal trials up and running by year-end. I assume that included the non-small cell lung cancer mutation subset or RET fusion subset.

So that trial will also start around year-end? Or Q4, or what's the thinking there?

Eric, it is Mike. The five are the ongoing MTC for overall survival, the two COMETs RCC, HCC, so the RET fusion non-small cell lung cancer is not included in that five. Again, as we work through the details for that trial and the timing for that trial, we will communicate that to investors.

Is that something that could start by year-end?

I wouldn't want to commit to that right now, so stay tuned.

Okay. Thank you.

Terrence Flynn, Goldman-Sachs.

I was just wondering with respect to the COMET survival trial, if you can tell us anything about the blinded event rate so far, and if that is tracking in line with your expectations? Thanks.

Regarding COMET-1, the overall survival trial, I think as I mentioned earlier on, the accrual, patient enrollment, is in line with our expectations and we're expecting data in 2014. Though the overall survival full analysis will require a total of 578 events. So the full analysis we anticipate to be available in 2014. We haven't updated on the details of events, because it changes, you know, all the time.

Okay. Thank you.

Ted Tenthoff, Piper Jaffray.

Two quick questions, if I may, on COMETRIQ, appreciating that we're still early in the launch. But I wanted to get a sense of how you're recognizing revenues? And whether this $4 million is representative of patient demand or if there is some stocking of any pharmacies or any inventory stocking in that quarter?

Yes, Ted, it is Frank. As we indicated on earlier calls we are for the time being recognizing revenue based on the sell-through method. Which means we recognize revenue when the scripts are filled by the specialty pharmacy.

Now, there is one exception to that and that relates to sales to ex-US territories. As you know, for the time being, all sales outside the United States only happen through the NPU program that Gisela mentioned, and those sales are very small for the time being. By that I mean, for the second quarter they constituted well less than 10% of the quarterly revenue.

For Europe we, in fact, recognized revenue based on the sell-in method, meaning at the time when we delivered drug to Sobi and Sobi accepts those deliveries.

Okay, Great. Looking at expensed -- prior-expensed drug supply, how much of that have you expensed? Can you give us a sense of when we might see gross margins go to a more normalized level?

Yes, so it's a fair question. As I said also in the last call, for the time being our cost of goods sold are not really representative for what we expect it to be in the long run. I wouldn't want to speculate when we expect to be at a normal run rate, because that obviously depends on how revenues evolve from here onwards.

It's early in the launch so stay tuned. We'll update you when we get there.

Okay. Last question, if I may too, on the balance sheet, and I didn't see the Q out, yet, but can you break down what current debt is owed to Deerfield?

Yes, there is one note we that have in place with Deerfield which matures July, 2015. And as of the end of the second quarter, the maturity on that note was $95 million.

Perfect. That's helpful. Thanks so much.

Joel Sendek, Stifel.

I guess one of us has to ask this, although I'm sure you're not going to answer, but I've got to try anyway, which is, is there any off-label sales of COMETRIQ at all? And then I have a follow-up on one of the clinical trials.

We won't be commenting on any sales other than what I've already commented on. So we won't be breaking it down further than that.

Will you break it down at any point? Or is this just going to be disclosure policy for the time being?

Joel, it's Mike. I would say that this is our approach going forward. As we continue to report revenue, we'll give a number which we are required to do, but we won't break it down. We're talking about the MTC opportunity here on the call.

Got it. Okay. All right. Well, I'll respect that.

With regard to the RET fusion expression, I'm very curious about that. I guess I have two questions. The first is what, Gisela, would you consider a robust response rate?

And the second is, we've heard from some physicians as we've investigated this opportunity, that the prevalence is actually higher than that which you cited and that which is in the literature. And I'm wondering whether you have any evidence to support a possibly bigger percentage of the patients that have that gene expression? Thank you.

Yes, first to your latter question in terms of the prevalence, we're going off of, as you stated, the published literature, which quotes 1% to 2% percent of the non-small cell lung cancer population of the non-squamous type, so largely adenocarcinoma. And so further data is not really available. I think in terms of the response rate that you have been asking about, I think a robust response rate, certainly one could call the crizotinib response rate a robust response rate, and that is probably on the high end.

Okay. Thank you.

Echo He, Maxim Group.

The first one, on COMETRIQ, could you give some data or some suggestions then on what the penetration is like on this drug? And the second, would you comment on whether you received any feedback from the doctors, prescribing doctors, on the toxicity of the COMETRIQ?

So regarding penetration, we do track that, although for competitive reasons we will not be sharing that on this call. What I will say is that it's generally in line with what we expected.

In terms of feedback from physicians on tolerability, we have conducted market research. The feedback we've received from physicians is that the tolerability profile is as they would have expected and consistent with other VEGF TKIs in the oncology space.

All right. Thank you so much.

Corey Kasimov, JPMorgan.

This is Whitney on for Corey today. Quick question on the right-sizing of your sales force. Do you guys feel that the 15 will be appropriate, given that you've increased the number of targets? And then secondly, if you have any updated thoughts or new indications that you're looking at for the ISPs.

This is Scott. I'll take the first question. Yes, we do believe the size that we've got now, 15 is the right size. Like any good commercialization, organization will continue to monitor that. But for now, we think that is the right size for the measured target cancer market. I'll let Gisela answer the second question.

Sure. So far, the objective really of our IST program is multiple-fold, and that maybe the first priority is signals to reach across multiple tumor types. So there are various studies ongoing in different tumor types, where we are evaluating cabozantinib or the investigators are evaluating cabozantinib for it's activity in indications where it has not been previously been studied.

So indications that are already ongoing include further breast cancer studies. They include colo-rectal cancer studies that are being planned. There are bladder cancer studies being talked about. There are studies being talked about.

So a variety of different indications where there exists maybe a little bit of data already in the clinic from phase I, or a very robust end or very robust scientific rationale to go forward. So more studies are planned and a variety are already ongoing.

Great. Thanks for taking the questions.

David Miller, Biotech Stock Research.

Do you know if anybody is looking, whether it's cooperative groups or ISTs, looking at comparing COMETRIQ and vandetanib head to head?

That is to our knowledge not ongoing, no. I'm not aware of that.

Can you talk about what size the RET trial might be?

Yes, what we're planning is a single agent -- single-arm study, in about up to 100 patients, with the primary end-point of overall response rate. And that is a study that we hope to -- we're working towards initiating, towards the end of the year or early 2014.

And then for the other, for the RCC and the HCC trials, can you talk a little bit about what kind of patient stratifications you are using in those trials, if any?

Right. So we've described previously in prior calls. For RCC the stratification factors are whether patients have received one or more prior VEGFR tyrosine kinase inhibitors and we're also stratifying by the usual risk criteria described by Motzer and others previously.

And for HCC, stratification factors include region of the world. So Asia versus North America versus Europe and also the etiology of HCCs and that is hepatitis C or hepatitis B infection prior or other, which usually is alcohol-related.

Great. Thank you very much.

(Operator Instructions)

Ryan Martins, Lazard Capital markets.

The first one is for Scott. Scott, the new sales reps that were added, when exactly did they start promoting? And on the breakdown between community versus academic, I know last quarter it was evenly split and you said slightly more than 50%. I was wondering if you could provide a little more color on that.

Sure, in terms of when the reps were out promoting, they officially started promoting out in the field in late July. I don't have the exact date in front of me. But it was late July is when they hit the street. And then, I'm sorry, the second question, could you repeat that again?

Break down between community versus academic. I think it was 50/50 last quarter. I think you said it was slightly more than 50 this quarter? Could you provide any color on that?

Yes, without getting into specifics, and I would rather not for competitive reasons, I can tell you that it is increased over 50% now. It's not a lot over, but we've been we're seeing more migration in the community setting.

Thanks. And then for Frank, I think I saw some deferred revenue of $1.5 million on the balance sheet, is that all COMETRIQ? The deferred revenue?

Yes, this is mainly related to COMETRIQ deferred revenue. Not entirely. There's a little bit of deferred revenue still left on the licensing contract revenue.

If you do the math you will see that we recognize $7.8 million of license and contract revenue in each of Q1 and Q2. And I reiterated the full-year guidance of that number today to be $16.3 million so that is a small delta left.

Okay, thanks. Finally, Gisela on the overall survival data presented at ASCO, when you look at that by dose, 40 versus 100, had that been pretty consistent across the doses and the different sub groups you looked at?

We haven't really broken this out by dose because you get two very small cords of patients. In general the overall survival signal was 10.8 months in this heavily pre-treated population, we view as a very encouraging result. But the breakout by dose we have not presented that.

Okay. Thank you.

With no further questions, I would now like to turn the call back over to Mr. Mike Morrissey.

Okay. I want to thank everybody for their time and interest.

Again, the COMET trials for metastatic CRPC remain our top priority for the organization and we made good progress here in Q2 and expect to have, again, top line data in 2014. With that, I'll thank everybody for their time and interest and we'll look forward to seeing you on the road. And if not there, then certainly on our Q3 call in November. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.