Exelixis Inc (EXEL) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Exelixis Third Quarter 2017 Financial Results Conference Call. My name is Bryan, and I'll be your operator for today. As a reminder, this call is being recorded for replay purposes.

I would now like turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please proceed.

Thank you, Bryan, and thank you all for joining us for the Exelixis' third quarter 2017 financial results conference call. Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; Gisela Schwab, our Chief Medical Officer; and P.J. Haley, our Senior Vice President of Commercial. We together will review our corporate, financial, development and commercial progress for the quarter ended September 30, 2017, as well as recent key developments and corporate activities. As you will soon hear, Giesla has quite a head cold, so should her voice give out on her, I'll step in to finish her prepared remarks.

As a reminder, we are 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 and the future performance of the company. This includes statements about possible developments regarding clinical, regulatory, commercial, financial and strategic matters. Actual events or results could, of course, differ materially. We refer you to the documents we file from time to time with the SEC, which, under the heading Risk Factors identify important factors that could cause actual results to differ materially from those expressed by the company verbally and in writing today, including, without limitation, risks and uncertainties related regulator review and approval processes, product commercial success, market competition, conducting clinical trials; compliance with applicable regulatory requirements, availability of data at the reference times; our dependence on collaboration partners; and the level of costs associated with the commercialization, research and development and other activities.

Now with that, I will turn the call over to Mike.

All right. Thank you, Susan, and thanks to everyone for joining us on the call today.

We had a productive third quarter with strong operational performance across all components of our business.

We achieved numerous critical development and regulatory milestones, which puts us in a position to end 2017 with significant momentum, as we head towards potential launches of 2 additional cabozantinib indications in 2018 for first-line RCC and second-line HCC. I'll begin today by providing a brief summary of the key events for Q3, and then turn the call over to Chris, Giesla and P.J. for updates on our Q3 financials, developmental activities for cabozantinib and cobimetinib, and finally, recent CABOMETYX commercial activities.

Key highlights for Q3 2017 include: First, our continued financial performance with approximately $153 million of total revenue, including net product revenue of approximately $96 million for the cabozantinib franchise and $45 million in new development and regulatory milestones from Ipsen for first-line RCC. Second, we made significant regulatory progress for cabozantinib with the filing and acceptance of the sNDA based on the CABOSUN trial for first-line RCC, with priority review and a PDUFA action date of February 15, 2018.

This important milestone follows the ESMO presentation of the CABOSUN IRC PFS data, which confirmed the primary endpoint of investigator-determined PFS with a hazard ratio of 0.48, favoring cabozantinib over sunitinib. Third, we recently announced at the Global Phase 3 CELESTIAL trial met its primary endpoint of improving overall survival with cabozantinib demonstrating a statistically significant and clinically meaningful improvement in OS compared to placebo in patients with advanced HCC. Achieving these important corporate milestones provides a strong foundation for continued growth, as we build momentum in our business with strong financial, commercial and development performance.

We posted another profitable quarter on an operating basis with diluted earnings of $0.26 per share, while at the same time, continuing to manage our expenses carefully.

As discussed previously, we remain focused on running the business to generate positive cash flow through expanding product and milestone revenues, with the goal of reinvesting the resulting free cash into advancing additional late-stage trials for cabozantinib and rebuilding our product pipeline. So with that, I'll turn the call over to Chris, who will provide more details on our Q3 2017 financials. Chris?

Thanks, Mike. Total revenue for the third quarter 2017 was $152.5 million with diluted GAAP earnings per share of $0.26 compared to total revenue of $62.2 million and basic and diluted GAAP loss per share of $0.04 for the same period last year. Product revenue for the quarter was $96.4 million, an increase of 126% year-over-year and 10% sequentially. The year-over-year and sequential increase in net product revenue was primarily driven by the continued U.S. commercial uptake of CABOMETYX in the second-line and later advanced RCC study. Total revenue for the quarter also includes $56.1 million of collaboration revenue. This collaboration revenue includes 2 milestones from Ipsen totaling $45 million related to the EMEA's acceptance of a variation to their marketing authorization for CABOMETYX for the first-line treatment of advanced RCC in adults. Total revenue also includes $11.1 million in revenue from our collaboration agreements with Ipsen, Takeda and Genentech. We are excited to see the continued sales growth of CABOMETYX in the Ipsen territory. Last week, Ipsen reported CABOMETYX sales of EUR 14.3 million for their third quarter. The cumulative Ipsen sales since launch are approaching the top of the first cumulative royalty tier. And therefore, we're projecting to be in the 12% royalty tier in the fourth quarter of 2017.

Research and development expenses for the quarter were $28.5 million, an increase of 41% compared to the same period in 2016. The increase in research and development expenses are primarily the result of increases in personnel expenses, clinical trial costing, consulting and outside services. Selling, general and administrative expenses for the quarter were $38.1 million compared to $32.5 million for the comparable period in 2016. The increase in selling, general and administrative expenses was primarily result of increase in our market activities and in personnel expenses, resulting primarily from an increase in general and administrative headcount in support for the broader Exelixis organization. Those increases are partially offset by a decrease in losses under the collaboration agreement with Genentech, driven by Genentech's change in cost allocation approach in 2017.

Other income and expense net for the quarter reflected $3.4 million of other income compared to a net expense of $18.5 million for the comparable period in 2016. Net income for the quarter was $81.4 million or $0.28 per share basic and $0.26 per share diluted compared to a net loss of $11.3 million or $0.04 per share basic and diluted for the comparable period in 2016. The decrease in net loss is primarily due to the increase in net product and collaboration revenues, partially offset by the increase in operating expenses. The net income and earnings per share for the quarter were favorably impacted by the recognition of $45 million of milestones from Ipsen. Excluding the impact of these 2 milestones, earnings per share would be approximately $0.12 per share. Cash and cash equivalents, short and long-term investments, and long-term restricted cash and investments totaled $422.3 million at September 30, 2017, as compared to $479.6 million at December 31, 2016. The lower cash balance is primarily result of the retirement of approximately $200 million of debt in the first half of 2017, partially offset by operating cash flows and the receipt of upfront and milestone payments from our collaboration partners.

Now turning to our guidance for 2017. Given that we are approaching year-end, we are tightening our guidance that operating expenses for 2017 are estimated to be between $285 million and $295 million. And with that, I will now turn the call over to Giesla.

Thank you, Chris. I'm pleased to provide an update on the progress of the cabozantinib development program and the quarter. I will cover the regulatory filing for first-line RCC on the basis of CABOSUN, the status of CELESTIAL, our randomized Phase 3 study in second-line HCC and our development program combining cabozantinib with immune checkpoint inhibitors. I will close with a brief update on the cobimetinib development.

First, I'll start with CABOSUN, the randomized Phase 2 trial conducted by The Alliance for Clinical Trials in Oncology in collaboration with NCI-CTEP that compares cabozantinib and sunitinib in the first-line treatment of intermediate or poor-risk RCC patients. Results of this trial were first presented at ESMO in 2016. The trial met its primary endpoint of significantly improving progression-free survival as assessed by investigator in the cabozantinib arm compared to sunitinib. And this year's ESMO Conference in Madrid, the principal investigator Dr. Toni Choueiri from the Dana-Farber Cancer Institute presented the PFS analysis based on the independent radiology committee review of the radiographic images from the trial, which confirmed the highly significant improvement of progression-free survival with cabozantinib as compared to sunitinib. The median PFS was 8.6 months on cabozantinib and 5.3 months on sunitinib, with an HR of 0.48 and a p-value equal to 0.0008. On the basis of these results, we completed the supplemental NDA filing for first-line RCC in mid-August, and the filing was accepted by FDA in mid-October with priority review and a PDUFA date of February 15, 2018. We're delighted with this progress, and we'll update you as appropriate in the future. Second, I'll provide an update on CELESTIAL, our Phase 3 study in second-line HCC. The randomized placebo-controlled study was designed to enroll patients who have previously received sorafenib with a total of 2 prior systemic therapies allowed per the protocol. The primary endpoint of the trial is overall survival. The trial has completed enrollment of patients globally. As we announced 2 weeks ago, in the second planned interim analysis, which performed by the independent data monitoring committee, and the trial demonstrated a statistically significant and clinically meaningful overall survival benefit for cabozantinib as compared to placebo. With this result in hand, we now expect to submit a supplemental NDA in the first quarter of 2018. We have not disclosed the detailed data from this study in order to preserve the ability to present and publish the result.

However, we are delighted with the outcome and look forward to presenting the results at an upcoming medical conference.

Now I'd like to turn to the third topic in today's development update. The broader development program and life cycle management plan for cabozantinib. We're very excited about the multiple initiatives evaluating cabozantinib in combination with immune checkpoint inhibitors in collaboration with BMS and Genentech Roche. Cabozantinib and the immune checkpoint inhibitors, nivolumab, ipilimumab and atezolizumab, have all shown efficacy and are approved in various cancer indications. The combination of such active compounds with different mechanisms of action provides a very compelling opportunity for the next wave of late-stage trials for cabozantinib moving forward. We're pleased with the progress of our clinical collaboration with BMS, combining cabozantinib with nivolumab alone, or both nivolumab and ipilimumab, in a Phase 3 study in first-line RCC, called CheckMate 9ER. The study has been initiated as planned and is a 1,000-patient study, evaluating the combination of cabozantinib and nivolumab or cabozantinib, nivolumab and ipilimumab compared to sunitinib in patients with previously untreated advanced RCC. Primary endpoint is PFS, and secondary endpoints include overall survival, objective response rate and safety. Additionally, a Phase 2 trial evaluating safety and preliminary activity of the cabozantinib, nivolumab and cabozantinib, nivolumab and ipilimumab combinations in advanced HCC has also been initiated. This trial is run as part of the CheckMate 040 trial and is enrolling patients actively. The primary objective is the evaluation of safety of the combination and secondary objectives include objective response rate and PFS. This is an important study as we think about further development of cabozantinib in combination with immune checkpoint inhibitors in HCC, including the frontline therapy. Furthermore, we have made progress with our collaboration with Genentech Roche to evaluate the combination of cabozantinib and atezolizumab in an initial dose-ranging study with planned cohort expansions in 4 different settings, including patients with previously untreated advanced RCC, patients with previously treated bladder cancer and patients with previously untreated bladder cancer, both cisplatinum eligible and ineligible patients. Additionally, further tumor cohorts are planned to be added in this trial. This study was initiated earlier this year, and patients are enrolling in the dose-ranging part of the study. Further studies in additional indications are under discussions. And both our partners, Ipsen and Takeda, will each have the opportunity to participate in future combination trials in accordance with the terms of their respective collaboration agreements.

In addition to our internal and clinical partner efforts, there are also multiple study concepts advancing through review and preparation at NCI-CTEP and our investigator-sponsored trial program of Phase 2 trials combining cabozantinib with various immune checkpoint inhibitors and several indications, including non-small cell lung cancer, triple-negative breast cancer, endometrial cancer and other tumor types.

So in summary, I am very pleased with the progress made in our cabozantinib development program and with the important milestones reached during this quarter, and look forward to updating you in the future. To close, I'd like to provide a brief update on the cobimetinib development program that includes 3 ongoing Phase 3 clinical trials. First is the IMblaze370 trial in combination with atezolizumab in third-line colorectal carcinoma, which was fully enrolled in the first quarter of this year and for which results are expected by the first half of 2018, as communicated recently on Roche's third quarter call. Second, the IMspire 150 or TRILOGY trial combining cobimetinib with vemurafenib and atezolizumab in previously untreated BRAF mutant-positive locally advanced or metastatic melanoma. And third, a Phase 3 trial, IMspire 170, that is now open for enrollment and will study the combination of cobimetinib and atezolizumab in previously untreated BRAF wild-type metastatic melanoma. Multiple additional earlier-stage trials are also in progress, including the Phase 2 COLET trial of cobimetinib in combination with paclitaxel in triple-negative breast cancer patients. This trial is also studying the combination of cobimetinib with nav/paclitaxel with and without atezolizumab. So lots of activity on the cobimetinib development front, and we look forward to keeping you updated as things evolve.

And with that, I will turn the call over to P.J.

Thank you, Giesla. We continue to see strong performance from the cabozantinib franchise with total net product revenue of $96.4 million. Q3 CABOMETYX net revenue of $90.4 million compares favorably with the Q2 net revenue of $80.9 million, representing growth of approximately 12% quarter-over-quarter. CABOMETYX end customer demand increased by 9% in Q3 relative to Q2.

Wholesaler inventory increased by approximately 1 week and is in the range of 3 to 4 weeks on hand. Demand growth was driven by increases in new patient starts, refills for patients already therapy and continued expansion of the CABOMETYX prescriber base.

New patient market share in the second line plus setting increased to 38% as we continue to compete effectively with both oral and IV agents. The total number of prescribers who've written CABOMETYX through the specialty pharmacy channel increased in Q3 by more than 20%. And the number of ordering accounts through the specialty distributor channel increased by more than 10%. RCC is a mature market with a relatively small number of high-volume prescribers and beyond that, there are a large number of low-volume prescribers. Our data indicate that we've been competing effectively in the high-volume segment of the market since CABOMETYX launched. So we believe the continued growth we saw in Q3 adoption was driven primarily by community oncologists, suggesting that our promotional efforts for broadening the prescriber base, which continues to be a key strategic focus for the team.

Approximately 95% of our growth in Q3 came from the community segment. Our experienced team has generated a very competitive, if not, market-leading share of voice and is executing at a very high level as we work to ensure appropriate patients with advanced RCC have the opportunity to benefit from CABOMETYX. Given the milestones that Giesla described, we look forward to driving the continued growth of CABOMETYX through new indications. Beginning with the potential label expansion in the first-line RCC based on CABOSUN and followed by a potential label in HCC, which would represent a third tumor and fourth indication for the cabozantinib franchise, pending FDA approval. Our launch planning for potential first-line RCC indication based on the CABOSUN data is well underway, and we will be launch ready should approval come on or before the PDUFA date. Exelixis has developed a deep knowledge base and expertise in the RCC market, which will serve us well should the label expansion be approved. Additionally, there are many synergies that will accelerate a potential launch in first-line RCC. For example, prescriber base for first-line RCC is the same as second or later lines. And our experienced team has established relationships with these physicians. At the time of approval, the majority of RCC prescribers will have prior experience prescribing CABOMETYX, which may help facilitate adoption in the new setting. The first-line setting is a significant opportunity for CABOMETYX growth in the near term. There are approximately 14,000 first-line renal cell carcinoma patients in the United States. This is nearly as many patients as the second and third-lines combined. I will now turn to liver cancer, which is a significant unmet medical need accounting for nearly 800,000 deaths globally on an annual basis.

In the U.S., over 40,000 patients a year are diagnosed with liver cancer, and there are approximately 29,000 deaths each year. Hepatocellular carcinoma is the most common form of primary liver cancer, accounting for the majority of cases in the United States. This market has long been underserved as until recently there was only one approved systemic therapy. Our team continues to plan for potential second-line HCC indication pending FDA approval. In addition to conducting market research, we're leveraging the prior experience with some members of the Exelixis' commercial team have in the HCC market to inform our preparation. Cabozantinib has already become one of the leading anti-angiogenic TKIs with Q3 net revenue of $96.4 million.

CABOMETYX is well differentiated based on the clinical data and its unique mechanism of action. In the near mid-term, first-line RCC and second-line HCC represent potential growth opportunities for the brand. CABOMETYX is the TKI of choice in second or later-line RCC. And our mission is to establish CABOMETYX as the TKI of choice in potential future settings as well. Our team is focused and motivated to continue to compete every day to bring the benefit of CABOMETYX to every eligible patient, as we continue to build on the positive momentum of the franchise.

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

All right. Thanks, P. J. I'll close by saying that we made significant progress across the organization in Q3 and continue to see solid performance in all aspects of our business. Highlights from the quarter include the continued strength of the CABOMETYX launch in advanced RCC, the achievement of additional cabozantinib development and regulatory milestones, and the initiation of a third new Phase 3 pivotal trial for cobimetinib. Going into Q4, we have 3 key near-term milestones with the potential to reshape our trajectory in 2018 and beyond. They include, first, regulatory progress for cabozantinib in the first-line RCC submission. Second, progress towards the Q1 2018 filing and subsequent regulatory review of cabozantinib for second-line HCC based on the success of the CELESTIAL pivotal trial. And third, the outcome of the IMblaze370 study for the combination of cobimetinib and atezolizumab in microsatellite stable colorectal carcinoma for which Roche has guided to have top line data in the first half of 2018.

Recent clinical and regulatory progress provides a strong foundation for the next wave of trials with cabozantinib in important new indications and strengthens our position as we explore opportunities to rebuild our pipeline through internal R&D efforts and in-licensing of external assets. As we outlined in our recent relaunch of the Exelixis' brand, we are on a mission to help patients with cancer, recover stronger and live longer. I'm proud to be part of our team at Exelixis as we work with focus and urgency to deliver on this mission. While we had a good quarter in Q3, we remain vigilant in making our mission as impactful as possible for patients with cancer.

As we said previously, we have the team, the culture and the mandate to advance both our science and business as we embrace the opportunities that we will face in the future.

We look forward to updating you on our progress. Thank you for your continued support and interest in Exelixis, and we're now happy to open the call for questions.

(Operator Instructions) And our first question will come from the line of Eric Schmidt with Cowen and Company.

Maybe for Mike. When you talk about the CELESTIAL HCC overall survival data, it sounds like you always reference that the data are both statistically significant as well as clinically meaningful. Is that an important distinction that you're making?

I think it's a very accurate and important statement to make relative to not presenting any sort of data in the press release, which we think is important to maintain the viability of having that data presented at a later date. So we've done that. We've used that same terminology for other pivotal trials that read out positive in the past, if I'm remembering correctly. So you can read into that what you want, but I think that is how we view the data. And I think how it will be viewed once it comes out and people can take a look at themselves.

I mean, is there an overall survival advantage in this unmet need population, which you referenced that wouldn't be clinically significant?

Eric, again, I wouldn't want to speculate on hypotheticals here. I think the opportunity for new compounds, new agents for HCC is large. As P.J. went through some of his prepared remarks, some of the numbers there, both in the U.S. and globally, it's a very important and underserved indication. When you look at, as we do, and I'm sure you do, the current numbers for drugs that are currently approved in that setting, it really underscores the, I would say, the disconnect between the ipi that is widely known and widely available and the obvious uptake of some of those early agents. So we're excited about the opportunity. We're very pleased with the progress that BMS is making on the additional cohorts with the 040 study. We are -- obviously, there are some analogies, if you will, between RCC and HCC. And the idea of combining cabo with nivo or cabo with nivo and ipi in an earlier line for HCC is one that we find very interesting, and hopefully, one that we will pursue once we have more data from the Phase 2 study.

Okay. I appreciate all your thoughts there. Could you just also remind us with Ipsen and Takeda, whether they need to opt into the CELESTIAL data and what if any economics are associated with those opt-ins?

Yes. So both parties opted into HCC with those deals. There are, I would say, significant economic milestones for clinical regulatory and commercial with that indication. I don't think we've said what those were yet, and I'd rather wait to have those achieved before we do that.

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

But before I do that, I just wanted to congratulate the Exelixis team on the CELESTIAL early stop. It's a tough, tough space where even noninferiority is considered a major advance. So I have 2 questions. The first one is about the CheckMate 040 study in HCC. Is that a frontline study? And is it potentially pivotal, especially given the recent accelerated approval of Opdivo there? And second question is about your SG&A spend going forward. Have you thought about the sales force needed to detail the second-lined HCC space? And also in the 10-Q, I believe, you mentioned that Exelixis and Genentech are scaling back promotional efforts of COTELLIC in melanoma. So is it possible to reposition these sales for HCC?

Okay. Yes, thanks for all those questions. There is, I think, 3. So why don't we start with Giesla on the 040 study and then we will pivot over to P.J. for the other 2? Go ahead.

Sure. Thank you for the questions. CheckMate 040 study is really a safety study of the combinations of cabozantinib and nivolumab or cabozantinib, nivolumab and ipilimumab. And that study is not designed as a potential pivotal study. But we're very much look forward to the data, even though the positive CELESTIAL outcome and the activity of nivolumab in this phase. So we're certainly thinking forward in that direction.

Can it enroll first-line patients per his question.

Thank you for the reminder, it can enroll both first and second-line patients.

Okay. Great. well, thanks, Andy. I will take the 2 questions regarding the sales force here. With regards to sales force for the HCC space, we've always talked about we will invest commensurate with the opportunity. But as you mentioned, in the Q, we disclosed that we are scaling back the personal promotion of the cobimetinib or the COTELLIC sales force where we partner with Genentech, and we're actually really excited there because it gives us the opportunity to redeploy those 12 sales representatives to CABOMETYX currently. And right now, as you know, we're promoting second-line RCC, and we're preparing for the first-line launch, which is a significant opportunity with about 14,000 patients. So we're looking forward to deploying those experienced reps in the RCC market. In the near term, in no way does that take away from our excitement with regards to the future of cobimetinib. As Giesla described, there are 3 ongoing Phase 3 studies, one in BRAF mutant-positive melanoma, one in wild-type and certainly, in the near term, the third line combination study in colorectal cancer. So we're excited about those and look forward to more developments there.

Our next question will come from the line of Ted Tenthoff with Piper Jaffray.

Excited to start to see some additional data rollouts and approvals for regulatory filings next year. I actually have a little bit of a housekeeping question, if I may. Just sort of looking at tax rate, now that you've crossed over, congratulations as a profitable company. Where should we expect this to be trending? Obviously, we have a couple of years here or maybe 2 decades of NOLs to work through, but how should we be thinking about that, let's say, as people are going to start look more and more towards bottom line?

Yes, Ted, this is Chris. So the way I look at is. So, first of all, as we reported in the last 10-K, we have approximately $1.4 billion of NOLs that go out from basically, expires starting in 2018, but go all the way out to 2036. And you can model that out from a federal point of view based on your income, your assumptions on income, and we're going to -- when we extinguish those. Now the taxes that we did pay or we are liable for now are state taxes in certain states where we haven't had operations, where we didn't develop or where we didn't incur NOL, and so we are paying 3% to 4% tax in those -- on average effective rate in those -- for those states where we didn't have operations previously.

Our next question will come from the line of Peter Lawson with SunTrust Robinson.

Mike, just kind of thinking forward to the next couple of years. Where do you see the sales force focusing in, say, RCC, if it's first line or second line after Opdivo and, I guess, the same question for liver as well?

Yes. Thanks for the question, Peter. I'm somewhat hesitant to opine upon something that's going to be couple of years. I had to worry about next week to a certain degree operationally speaking. Look, we have -- I think what we've done effectively is prove to ourselves and people that track us closely on the investment side that we've got a very strong commercial effort with a great team of experienced professionals both at the home office and as well as in the field that can help us really educate HCPs and help them understand the value that we bring with cabozantinib across the approved indications, whether it'd be MTC or second-line RCC. We've talked about cabo from really almost day 1 as being a potential franchise molecule, meaning that it had the opportunity or the ability to have broad activity in multiple indications, either as a single agent or in combination. And that's still the vision. And I think what you're seeing play out now is really years of deep work around the science, the preclinical work, the clinical work and now pivotal trials paying off, where we're seeing broad activity in, as P.J. said, 4 different indications over 3 different tumor types with the opportunity to do a lot more. And that's our focus. If I fast forward a couple of years, if we continue to be successful in delivering good data in terms of well-controlled, well-executed pivotal trials, we hope to have a sales force that is broadly covering the gamut of opportunities that cabo can bring relative to the benefit we like to be able to show on those trials. So how that will play out in renal or liver, time will tell. There's lots of moving pieces there. Again, it's hard to predict the future relative to what may or may not happen. But again, as we talked about, we want to make sure that we're getting the drug to every eligible patient every single day. That's our focus, that's our passion and that will certainly continue with time.

Do you think the near-term benefits are really around the kind of second-line possibility after I-O as opposed to going head-to-head or frontline?

I think, again, every eligible patient that might be able to benefit from cabo, we will address. And again, how that plays relative to I-O first line in RCC versus I-O second-line will be -- we will be ready to roll across all those different gamuts based upon our label and based upon our ability to again detail in a very compliant fashion. So without looking ahead too much further how the 214 data, how that plays out from a regulatory point of view, how the CABOSUN data plays out both in terms of its approval eventually hopefully as well as then how that plays in the field, and then, how that combination works as well, we will see. Again, I'd like to have data in front of me to be able to feel better about making any kinds of projections.

Got you. And then just finally around acquisitions. How are you thinking about that? Or is it front and center as cabo and building that?

Well, yes, we've talked about this, I mean, pretty extensively previously. So what I'll say is it shouldn't be anything new. I mean, cabo is our number one priority and that's, I think, pretty simple based upon the activity and the knowledge that we have now in probably over 5,000-or-so patients being treated at least clinically to date and certainly many more commercially. Again, we believe and I think we have a strong foundation around its ability to be a franchise molecule. So cabozantinib will get fed first when it comes to resources and when it comes to making sure that the next wave of trials and the next wave of pivotal trials get started based upon strong data and strong, I would say, analysis of the competitive commercial and regulatory landscape, which we do well and I'm very confident we can navigate either as a single agent or in various I-O combination formats. But again, I don't want to put all the -- put everything on that and certainly, there is value in diversifying the portfolio and spreading the risk around. And again, we've been very clear about our interest in going out and doing internal discovery to bring up new assets and that's ongoing currently, as well as looking outside for external assets that will allow us to jump start that portfolio rebuilding process, right. Now, we are going to be and we -- I think, we have a good scientific foundation, and we're going to be very sophisticated buyers. And we're going to have a very high bar for what we bring in-house and whether we partner or buy. And we've got several opportunities now undergoing late-stage diligence that we're excited about. But again, we've got to finish the work and we have to go through all the details and get those done. But again, that's -- I think, that's an important part of our strategy in the context of how we're going to operate going forward with the idea that we want to be able to grow the expense line supporting cabo and new assets, while we grow the revenue line. And I think we've talked about that now consistently for the last couple of years, and that's still the overriding focus on how we'll proceed as we go forward.

Our next question will come from line of Kennen MacKay with RBC.

Congratulations to the whole team on reaching profitability. It's been a long road. And Mike, I think it's indicative of really disciplined expense management here, so congrats there. Really quickly, I was hoping for sort of a housekeeping question here. I wanted to see if you could comment on, whether there was some inventory build in the quarter? I just wanted to get a perspective on whether there is some stockpiling ahead of the price take on cabo that you had in early October?

Kennen, thanks, it's Chris Senner. As P.J. said in his prepared remarks, we did -- inventory did increase by approximately 1 week during the quarter. We're still within our 3 to 4 week target range that we hope to be within -- our wholesale inventory.

Got you. Okay, thanks. And then one more on sort of the dynamics of the front-line RCC market. If cabo is approved here, once it's approved here, is this setting more in the academic clinics or much more in in the sort of community clinics versus second-line and third line plus RCC? Just wanted to get a perspective on sort of how that shakes out versus how you are currently marketing cabo?

Kennen, this is P.J. Happy to answer that. With regards to the first-line setting, as I mentioned, it's a larger opportunity than the second and third -- approximately same as the second and third-line setting taken together. So really excited about moving forward into that. With regards to the academic and community split, it's roughly similar, I'd say. There is maybe a little bit more in the community, but that's why I think it's really important and we are happy that we have expanded the prescriber base significantly over the last few quarters. And the majority of all these RCC prescribers now, including the community prescribers, have experience with CABOMETYX, and our sales force quite frankly is leading the market in share voice or tied for that, so to speak on most surveys. So that's really important. We have established those relationships in the community and look forward to really building on that in the event that we're approved in the first line in the near term here and feel that we're really well suited to do that with the expertise we have in-house.

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

I think, P.J., you talked about second-line new patient market share being, I think, now at 38%. Do you happen to know what the number is for nivolumab at this point? I guess, I'm just trying to think about what proportion of that new patient second line plus market opens up in the context of that you are moving to front-line?

Yes, Stephen, thanks for the question. It's P.J. As I mentioned, our second line plus market share is 38% and that's second-line and beyond as you sort of referred to. I'm not going to comment on the competition there other than to say that we feel that we're competing very well with the oral and the IV agents. And prescribers are having a good experience with CABOMETYX which we're very pleased with as we expand the prescriber base. But I would leave it there until we kind of see how the market evolves moving forward.

Okay. And I guess, in the frontline setting, you'll most likely be competing with ipi and nivo for these intermediate and poor-risk RCC patients, and you're talking about growth within the community-prescriber setting. Do you think that you have kind of an inherent advantage amongst that prescribing base just given that there is still some trepidation around the utilization of ipi among some of these community prescribers?

Yes, thanks for the follow-up. Well, I think what I'd say is I'll just kind of, in the community, the vast majority of the market share now is really with Sutent and Votrient. So that's where the market is. I think we'll certainly do have the opportunity, excuse me, to compete effectively in the first line as we are in oral agent. There's certainly convenience, which plays well in the community setting. But that said, again, I really kind of hold off on making any comments until we see how things play out. But we really are confident that we have the relationships, our share of voice is strong throughout the community, and we feel we're ready to compete effectively.

And then maybe, just lastly, I guess, you've had compendia listing in place now for, I guess, about 2, 2.5 months. Just kind of curious if there is anything that you can say just with respect to uptake thus far in the frontline setting as a result of the reimbursement?

Yes, we don't comment with regards to -- first, let's say, obviously, we only promote to the approved indications and we don't comment on utilization and settings or indications that are off-label currently. So I'll just leave it there for now.

Our next questions will come from Michael Schmidt with Leerink Partners.

I may have missed that regarding the commercial team, and I was wondering if you do feel the need to expand the commercial team next year to support the HCC and first-line RCC launches?

Yes, thanks for the question, Michael. What I'll see there is we feel we're very well-suited and ready to compete certainly in the near term with regards to the first-line potential indication for CABOSUN in RCC. As we've always talked about, we will scale the organization, commensurate with the opportunity. And as I mentioned earlier, we just had the opportunity to redeploy -- we're in the process of redeploying 12 very experienced oncology representatives that have been with us for a couple of years now from cobimetinib, COTELLIC to sort of beef up the efforts on RCC in CABOMETYX. So we're excited about that. So we feel really good about our opportunity to compete should we get a label here in the near term.

Okay, great. And then just regarding the collaboration with Bristol in liver cancer. Can you just remind me regarding the CheckMate 040 study? Is that looking at several doses of CABOMETYX? Or is it just looking at the 40 milligrams per day dose? And then, when do you think you might be in a position to move this into a pivotal study potentially in HCC?

This is Giesla. Thanks for the question. Regarding the CheckMate 040 study, this is an evaluation of the 40 milligram in combination with nivolumab alone or nivolumab and ipilimumab, so really the doses that have been evaluated in the ongoing Phase 1B study at the NCI that has been presented previously by Andrea Apolo. So these dose levels have been carried forward here. And regarding future plans, obviously, we are very delighted about the outcome of CELESTIAL and looking forward to seeing data from the 040 study, and are certainly thinking forward, but it's a little premature to say when the first-line growth would start with the combination.

(Operator Instructions) And our next question will come from the line Andrew Peters with Deutsche Bank.

This is Maryana Breitman for Andrew. I have a few. One of them is basically following up on previous questions about commercial opportunity in RCC. We're just wondering like how you're thinking about the first-line, the size of first-line opportunity for cabo and how do you think it's going to change once new ipi data available as well? And then, we -- I mean, I had a couple of questions on how do you think profitability is going to shape longer term, whether the current run rate is sustainable or we should expect an uptick in OpEx as the combination studies begin to ramp up. And I also was wondering about the quarter-to-quarter dynamics. You have commented on the inventory -- slight inventory kind of build up, but I was just wondering like how do you see demand changing quarter-to-quarter.

Okay. There is lots there. So why don't we start with the RCC question with P.J. first and then we we'll go to Chris on the OpEx.

Yes, thanks for the question, Maryana. With regards to the first-line RCC, should -- I won't say a lot about exactly expectations for performance there. But I guess, what I will say is the vast majority and that's in the ballpark of 75% to 80% of patients in the first-line, which is a large market, about 14,000 patients are getting TKIs now. So that's kind of the current habit and practice of oncologists in the U.S. So certainly a good opportunity there. And these are, as I mentioned, prescribers that likely will be experience utilizing CABOMETYX and where we have a significant share of voice and expertise. So we feel we are very well-suited to compete there and look forward to the potential to continue to grow the brand in that large market.

Thanks, P.J. This is Chris. So on the profitability, sustainability question. We're not going to guide to future profitability. But what I will say and what we have been saying is that, we're going to continue to invest in the business along the lines of our revenue growth and that investment in the business will be primarily around continued cabozantinib development. Organic investments such as the restart of our discovery, which we did at the end of last year, and also in the business development and our business development opportunities that we have in front of us. So those will be the things that we will be investing in and that will be along the lines of our revenue growth. So that's all, that's kind of the guidance we have from a profitability point of view.

And final piece is just Q-over-Q impact.

Yes, I can take that. So I think, it's -- we're very pleased with the quarter we had with Q3. I'm not going to comment on Q4 as we're only a few weeks into the quarter here. It's probably not reasonable to expect that we'll continue to grow at 30% quarter-over-quarter sequentially. But I think the 9% share growth we had in Q3 over Q2 is certainly strong. We're pleased with the near 40% market share we've achieved in the second line plus setting, happy with how we're competing there. As I mentioned a couple of times, we're pleased that we've really broadened the prescriber base in the adoption of CABOMETYX, which I think in combination with the sort of deep experience and knowledge we have in the marketplace sets us up really well for future indications and growth, particularly, potentially in the near term with the CABOSUN approval with PDUFA date just a couple of months away here at February 15. So looking forward to that opportunity.

At this time, there are no further questions. And so I'll turn the call back over to today's host Susan Hubbard. Ms. Hubbard?

Great. thank you, Bryan. And thank you all for joining us today. We certainly welcome your follow-up calls with any additional questions you may have that we didn't get a chance to address on the call today. Thanks so much.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program. You may all disconnect. Everybody, have a wonderful day.