Exelixis Inc (EXEL) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Exelixis Fourth Quarter and Full Year 2017 Financial Results Conference Call. My name is Sabrina, and I will be your operator for today. As a reminder, this call is being recorded for replay purposes.

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

Thank you, Sabrina, and thank you all for joining us for the Exelixis' Fourth Quarter and Full Year 2017 Financial Results Conference Call.

Joining me on today's call are Mike Morrissey, our President and CEO; Gisela Schwab, our Chief Medical Officer; Peter Lamb, our Chief Scientific Officer; Chris Senner, our Chief Financial Officer; and P.J. Haley, our Senior Vice President of Commercial, who will together review our corporate, development, financial and commercial progress for the fourth quarter ended December 31, 2017, as well as recent key development and corporate events.

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 to product's commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, the availability of data at the reference times, our dependence on collaboration partners, and the level of costs associated with commercialization, research and development, business development and other activities.

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

Thank you, Susan, and thanks to everyone for joining us on the call today. We had a productive fourth quarter and full year 2017 with strong operational performance across all components of our business. We continue to achieve important development, regulatory, commercial and financial milestones, which puts us in the position to start 2018 with significant momentum as we launch CABOMETYX in first-line RCC and move cabozantinib into potential new indications as either a single agent or in combination with checkpoint inhibitors.

I'll begin today by providing a brief summary of our key 2018 priorities, and then turn the call over to Gisela, Peter, Chris and P.J. for updates on our development efforts for cabozantinib and our partnered programs, our Q4 financials, and finally, recent commercial activities for CABOMETYX.

2017 was a critical inflection point in our business as growth in product and milestone revenues from cabozantinib and other EXEL compounds allowed us to optimize our balance sheet and generate free cash to further invest in our business. Specifically, 2017 cabozantinib net product revenue of $349 million, total revenue of approximately $453 million, net income of $154 million and year-end cash of $457 million provide a strong foundation for building on the CABOMETYX launch in advanced RCC and addressing new potential indications through an expanded development plan with additional pivotal trials.

Key goals for 2018 include: First, our commercial performance for CABOMETYX in advanced RCC, where we can now target the entire patient population with this disease based on the updated USPI that came with the first-line approval we received in late December.

Our talented, experienced and energized commercial team was ready to launch in this indication within hours of receiving the approval letter and has made significant progress over the last 2 months in building momentum for CABOMETYX in previously untreated RCC patients, as well as further reinforcing our leading TKI position for those RCC patients who have received prior therapies. We're pleased with the encouraging directional trends seen recently in the weekly IMS and Symphony updates, which P.J. will elaborate on shortly.

The second key goal is our continued financial performance, where we seek to grow our revenues from U.S. product sales as well as milestones and royalties from our partners that will provide a platform for us to reinvest the resulting free cash and to extensive development plans for cabozantinib and U.S. that's for internal and partnering activities.

Third, we look to initiate additional late-stage trials for new cabozantinib indications. With the success of the CELESTIAL trial for second-line HCC, we now completed the first wave of pivotal trials that began in 2008 and resulted in positive data for MTC, RCC and HCC. With additional data from both single agent cabozantinib and checkpoint inhibitor combinations as well as improved cash flows, we are now ready to embark on the second wave of cabozantinib late stage trials in indications across a wide range of histologies and potential lines of therapy.

A fourth key 2018 goal is focused on the completion and data readout of the pivotal trial IMblaze370, investigating the combinations of cobimetinib and atezolizumab in third-line CRC, which our partner Genentech has guided to take place in the first half of 2018. This is obviously a crucial readout for the cobimetinib franchise as well as the entire immuno-oncology field that's looking for novel mechanisms to increase the sensitivity of cold tumors to immunotherapies.

Finally, our fifth goal is focused on rebuilding our pipeline through internal discovery and externally focused business development activities. We have several projects moving through Discovery that we'll keep under wraps for the time being and a full plate of external oncology opportunities that cover the range from small molecules, like the StemSynergy deal to Biologics. We expect to complete additional transactions in 2018, and we'll provide more details as we announce those deals.

The significant momentum we see in early 2018 is a reflection of achieving important corporate milestones throughout 2017, with strong performance in the financial, commercial, development and regulatory components of our business. Our efforts since 2015 to right-size our balance sheets, manage our expenses in a rigorous fashion and generate free cash from multiple revenue streams were all part of our tactical plan to sustainably reinvest in our business, which we will embark on with significant depth and breadth in 2018.

With that, I'll turn the call over to Gisela, who will provide an overview of our cabozantinib development efforts.

Thank you, Mike. I'm pleased to provide an update on the progress of cabozantinib development program in the quarter. We've made significant progress with our regulatory and clinical work for first-line RCC and second-line HCC, respectively, and remain on track to file the supplemental NDA for advanced HCC later in the first quarter. I'll spend my time today on the broader development in lifecycle management plan for cabozantinib, including combinations with immune checkpoint inhibitors and collaborations with BMS and Genentech Roche.

We are pleased with the progress of our clinical collaboration with BMS combining cabozantinib with nivolumab alone or both nivolumab and ipilimumab. I'll start the discussion with a Phase 2 HCC trial evaluating safety and preliminary activity of the cabozantinib, nivolumab and the cabozantinib, nivolumab, and ipilimumab combinations in advanced HCC. This trial is run as part of the CheckMate 040 trial and is enrolling patients rapidly. The primary objective is the evaluation of safety of the combinations 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 front-line therapy.

Turning now to genitourinary cancer indications. At the recent ASCO Conference for genitourinary cancers that took place a few weeks ago in San Francisco, Doctors Nadal and Apolo from the National Cancer Institute presented an update on the Phase 1b trial evaluating cabozantinib and nivolumab or cabozantinib, nivolumab and ipilimumab in previously treated patients with genitourinary cancers. This trial included the evaluation of a range of doses for both the doublet and triplet combinations and expansion cohorts, including previously treated metastatic urothelial cancer patients and RCC patients.

The trial has established the dose of 40 mg of cabozantinib combined with a 3 milligrams per kilogram nivolumab for the doublet, and those doses with the addition of 1 milligram per kilogram ipilimumab for 4 administration for the triplet as the recommended doses for evaluation -- further evaluation. 19 patients with metastatic urothelial cancer were available for response with immediate follow-up of 15.7 months and 13 patients with previously treated RCC were evaluable full response.

For the metastatic urothelial cancer cohort, the objective response rate was 42%, including 2 complete responses and 6 partial responses. And the disease control rate, including CRPR and stable disease was 84%. 7 of 8 of the metastatic urothelial cancer patients saw 88% response and had not progressed at the time of the data cutoff.

Median progression-free survival in this patient population was 12.8 months, and the overall survival at 12 months for 77%. Among the 13 patients with metastatic RCC who were evaluable for response, the objective response rate was 54% and the disease control rate was 100%. These encouraging results importantly inform ongoing and future studies in genitourinary cancers, including RCC and urothelial cancers.

In first-line RCC, a Phase 3 study called Checkmate 9ER is now evaluating the combination of checkpoint inhibition therapy combined with cabozantinib compared to sunitinib. The original trial protocol required patients to be randomized one-to-one-to-one to 1 of 3 arms, cabozantinib and nivolumab; cabozantinib, nivolumab or ipilimumab or sunitinib.

However, following the positive results of Checkmate 214, BMS' Phase 3 trial evaluating nivolumab combined with ipilimumab versus sunitinib monotherapy in patients with previously untreated metastatic RCC and in an effort to accelerate the development of the cabozantinib and nivolumab combination, the trial protocol was amended to remove the triplet combination. The modified protocol for the Checkmate 9ER trial aims to involve approximately 580 patients with previously untreated, advanced or metastatic RCC of all risk groups.

Patients are being randomized one-to-one to receive 40 milligrams of cabozantinib daily and 240 milligrams of nivolumab every 2 weeks or 50 milligrams of sunitinib daily on a 4-week on, 2-week off schedule. The primary endpoint for the trial is progression-free survival and the secondary endpoint is overall survival.

The triplet combination continues to be evaluated in the ongoing Phase 1b trial, mentioned earlier, in patients with advanced genitourinary malignancies that has established the safety and tolerability and to recommended dose for this combination and a separate Phase 3 trial investigating the triplet combination versus nivolumab and ipilimumab is under evaluation.

Furthermore, we have made progress with our collaboration with Genentech Roche evaluating the combination of cabozantinib and atezolizumab in an initial dose-ranging study with planned cohort expansions in various 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.

Further tumor cohorts, including checkpoint inhibitor experienced bladder cancer and non-small cell lung cancer as well as checkpoint inhibitor naive non-small cell lung cancer and castration-resistant prostate cancer patients have been added to this study. It is now identified the recommended dose in the dose-ranging part of the trial as cabozantinib 40 milligrams per day combined with atezolizumab 1200 milligrams every 3 weeks and expansion cohorts will begin enrollment shortly.

Further studies in additional indications are under discussion 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 agreement. We're planning to start additional pivotal trials with cabozantinib in tumor tests in 2018 and 2019, and they are working on specific study designs for such trials at this time. We look forward to sharing details on the next studies at the appropriate time.

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 and other tumor types. And Phase 2 trials in triple negative breast cancer and endometrial cancer, combining cabozantinib with nivolumab are now actively involving patients.

And lastly, the single agent cabozantinib has shown encouraging activity in a variety of tumor types, including neuroendocrine tumors of both PNET and carcinoid and differentiated thyroid cancer, indications for which Phase 3 studies are under evaluation.

So in summary, I'm 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.

With that, I will turn the call over to Peter.

Thanks, Gisela. The cobimetinib development program now includes 3 ongoing Phase 3 clinical trials. Most advanced is the IMblaze370 trial of cobimetinib in combination with atezolizumab in third-line colorectal carcinoma, which is fully enrolled in the first quarter of last year and is expected to read out in the first half of this year. The IMspire150 or trilogy trial combining cobimetinib with vemurafenib and atezolizumab in previously untreated BRAF-mutant positive locally advanced for metastatic melanoma is now joined by a third Phase 3 trial, IMspire170, initiated in the fourth quarter of 2017, that is studying the combination of cobimetinib and atezolizumab in previously untreated BRAF wild-type metastatic melanoma. Roche is also sponsoring multiple additional earlier stage clinical trials currently in progress, which includes studies in 13 different tumor types.

With respect to CS-3150 or esaxerenone, the potent and selective mineralocorticoid receptor blocker identified during a research collaboration with Daiichi Sankyo from 2006, Daiichi Sankyo has confirmed that they are on track to file an NDA in Japan this quarter. As we have previously discussed, Daiichi Sankyo advanced CS-3150 into a registrational Phase 3 trial in Japanese patients with essential hypertension in the third quarter of 2016. There is significant need for effective new agents in the treatment of essential hypertension in Japan given that there are approximately 43 million adults, who have high blood pressure.

In the third quarter of last year, Daiichi Sankyo announced positive top line data from this trial. In addition, in the fourth quarter of last year, they initiated a second Phase 3 trial in Japanese patients with diabetic nephropathy, which builds off the Phase 2b trial previously conducted in this patient population.

I'll finish with a quick update on our internal pipeline rebuilding efforts, which encompass both the reestablishment of our internal small molecule discovery capabilities and an active business development process aimed at identifying oncology assets that can feed into our development pipeline. We now have active chemistry and biology groups advancing some initial discovery programs at Exelixis, and these efforts will expand further once we move to our new labs in Alameda later this year.

On the BD front, we announced our first deal in January, a collaboration with StemSynergy to advance a novel class of CK1 alpha activated compounds that inhibit Wnt pathway signaling. The Wnt pathway is activated in many tumor types, most prominently in colorectal carcinoma, where genetic mutations, including loss of APC results in Wnt pathway activation in over 90% of tumors. We believe that this approach to inhibiting the wind pathway could have advantages over previous approaches by focusing Wnt pathway inhibition on tumors, while sparing normal tissues.

Finally, we had a busy week at the JPMorgan Conference in January reviewing multiple opportunities and are currently in the process of further evaluating the ones that best fit our strategy going forward.

I'll now turn the call over to Chris.

Thanks, Peter. Total revenue for the fourth quarter 2017 was $121.1 million with diluted GAAP earnings per share of $0.12 compared to total revenue of $77.6 million and basic and diluted GAAP earnings per share of $0.12 for the same period last year. The fourth quarter 2016 net income and diluted GAAP earnings per share were positively impacted by $23.1 million or $0.08 per share, respectively, due to Genentech's change in cost allocation to the COTELLIC collaboration P&L.

Product revenue for the quarter was $95.7 million, an increase of 84% year-over-year and a decline of 1% sequentially. The year-over-year 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 setting. The quarter-over-quarter sequential decline was the result of an increase of 5% in overall demand, offset by the reduction of approximately one week of wholesale inventory built from the third quarter of 2017.

Additionally, we experienced an increase in deductions from gross sales related to year-ending wholesale inventory that will be dispensed to medicare patients, many of whom will enter the donut hole in the first quarter of 2018, as well as commercial patients that utilize our copay assistance program more frequently during the start of a calendar year.

Total revenue for the quarter also includes $24.4 million of collaboration revenue. This collaboration revenue includes a $10 million milestone earned from BMS related to the IND filing for their ROR gamma program. Total revenue also includes $14.4 million in revenue from our collaboration agreements with Ipsen, Takeda and Genentech.

Now turning to our operating expenses. Our operating expenses for the quarter ended December 31, 2017, were $82.6 million compared to $38.7 million for the same period in 2016. The growth in operating expenses was primarily related to an increase in personnel expenses, medical trial costs, consulting and outside services and marketing activities.

Research and development expenses for the quarter were $32.2 million, an increase of 35% compared to the same period in 2016. The increase in research and development expenses was primarily the result of increases in personnel expenses, clinical trial costs and consulting and outside services. Selling, general and administrative expenses for the quarter were $46.2 million compared to $13 million for the comparable period in 2016. The increase in selling, general and administrative expenses for the quarter was primarily the result of increases in personnel expenses, resulting primarily from an increase in general and administrative headcount in support of the broader Exelixis organization, marketing activities and an increase in losses under the collaboration agreement with Genentech. The increase in losses under the collaboration agreement with Genentech was driven by Genentech's change in cost allocation approach at the end of 2016.

Other income and expense net for the quarter reflected $1.5 million of other income compared to a net expense of $3.8 million for the comparable period in 2016. Net income for the quarter was $38.5 million or $0.13 per share basic and $0.12 per share diluted compared to net income of $35.1 million or $0.12 per share basic and diluted for the comparable period of 2016. The increase in net income was primarily due to the increase in total revenues, partially offset by the increase in operating expenses.

Highlights for the full year 2017 include total revenue of $452.5 million compared to $191.5 million for the comparable period in 2016. The total revenue increase was primarily driven by net product revenues, which grew to $349 million for the year ended December 31, 2017, an increase of approximately 158% over the comparable period in 2016. Total operating expenses for the full year 2017 increased to $286.6 million compared to $219.6 million in the comparable period of 2016.

Net income for the year ending December 31, 2017, was $154.2 million compared to a loss of $70.2 million in the comparable period in 2016. Fully diluted earnings per share for the year ended December 31, 2017, were $0.49 as compared to a loss of $0.28 for the comparable period in 2016. With this strong revenue growth and the continued expense management in 2017, we achieved our full -- first full year of operating profitability.

Cash and cash equivalents, short and long-term investments and short and long-term restricted cash and investments totaled $457.2 million at December 31, 2017, as compared to $479.6 million at December 31, 2016. This year-on-year decline in cash was positively impacted by the full year net income and the receipt of the upfront payment from Takeda and milestones from existing partnerships, which was offset by the elimination of approximately $200 million in debt.

Now turning to our guidance for 2018. In keeping with our past practice, we will not be providing 2018 revenue guidance at this time. The company is providing guidance that total operating expenses for the full year 2018 will be between $430 million and $460 million. The projected increase in total operating expenses is due to several factors, including increased investments in cabozantinib clinical trials, our continued investments in discovery and incremental investments needed to launch CABOMETYX in first-line RCC, prepare for the second-line HCC launch.

With that, I will now turn the call over to P.J. to provide more color on our commercial performance.

Thank you, Chris. We are pleased with the commercial performance of CABOMETYX in Q4. The key metrics were encouraging in the quarter and the first-line label expansion on December 19 based on CABOSUN yielded a broad label across advanced renal cell carcinoma. Our team was fully prepared on the day of approval and immediately began promoting in the first-line RCC study, which increases the eligible patient population for CABOMETYX in the U.S. by approximately 14,000 patients. I will provide more color on the launch momentarily.

In the fourth quarter, end customer product demand for CABOMETYX grew by approximately 5% relative to Q3. Demand growth was driven by increases in market share, refills for patients already on therapy and continued expansion of the CABOMETYX prescriber base. Demand growth was evident in both the community and academic segments of the market. New patient market share in the second-line plus setting grew to approximately 42%. As we are now approved in the first-line setting, we will focus on the entire RCC market basket as the best comparison moving forward.

Prescriber base for CABOMETYX grew by over 15% in Q4 relative to Q3, driven predominantly by community adoption. This trend, along with demand and growth, provided strong momentum headed into the first-line launch at the end of December.

The first-line approval enables us to continue our growth both in terms of increasing the eligible patient pool and decreasing prescriber adoption as more community oncologists treat patients with first-line disease. We are very pleased with the expanded indication we receive as CABOMETYX is now approved in the U.S. for all advanced RCC patients, regardless of line of therapy or clinical risk category.

This broad label strongly positions us to continue in our efforts to make CABOMETYX the TKI of choice in kidney cancer. As I mentioned, our team was fully prepared and ready to begin both personal and nonpersonal promotion immediately upon receipt of FDA approval on December 19, almost 2 months in advance of the PDUFA date. I would like to thank the entire team for their tireless efforts to prepare for launch -- excuse me, prepare for and launch CABOMETYX in the first-line setting. Many of our sales representatives hit the ground running over the holidays to educate physicians on the expanded indication to ensure every eligible patient has access to CABOMETYX.

Exelixis was well prepared to launch officially in first-line RCC as we leverage our knowledge of the marketplace and of our customers. There are many synergies that will help to accelerate the launch in first-line RCC. For example, the prescriber base for first-line RCC is the same as second or later lines, the base with which our team already has established relationships. The majority of these RCC prescribers have experience prescribing CABOMETYX, which should help facilitate adoption in the new first-line setting. While it is still early in our launch, the initial data, market research and anecdotal feedback from our customers are encouraging.

Prescribers are motivated by the CABOSUN data that shows statistical superiority to Sutent, a long-time standard of care in first-line RCC, in terms of progression-free survival, while demonstrating a similar safety profile. The timing of the recent ASCO-GU symposium was beneficial coming within 2 months of our approval.

Exelixis has had a strong presence at the meeting across various functions and engaged many of the top KOLs at the conference. We are pleased to hear positive feedback from KOLs on CABOMETYX in the context of the first-line setting, both in our one-on-one meetings and more importantly, from the podium throughout the meeting.

In addition to positive feedback on the clinical data, we are seeing early encouraging signs in the marketplace. The trend of increasing new price -- new prescriber adoption has accelerated since the addition of CABOSUN data to the label. This is a potential early indicator that community oncologists are prescribing first-line CABOMETYX.

Also, we are looking at the CABOMETYX prescribing trends of the top Sutent and Votrient prescribers. Historically, Sutent and Votrient have accounted for approximately 75% of the first-line market. The number of CABOMETYX prescriptions written by these top writers has approximately doubled in the first 6 weeks of Q1 relative to the first 6 weeks of Q4.

Furthermore, the syndicated prescription data trends for CABOMETYX have shown growth since the first-line approval December 19 in terms of both new prescriptions and refills, with the caveat that it is still early days in the launch. IMS TRx data for the 6-week period Q1 to-date relative to the same period in Q4 to-date yields some interesting insights.

In the market basket of CABOMETYX, Sutent, Votrient and INLYTA, CABOMETYX grew approximately 4 share points going from 20% to 24%, representing an increase of approximately 20% in market share. In this period, CABOMETYX TRX volume grew by 21%. These data suggest a meaningful early impact of the first-line launch. CABOMETYX has already become one of the leading anti-angiogenic TKIs and is well differentiated based on the clinical data and its unique mechanism of action. That said, we recognize the RCC as a fiercely competitive market and further competition is likely coming in the near term. We anticipate that ipi/nivo and atezo/bev will gain approval this year, but believe that the totality of strong RCC clinical data and the broad label position CABOMETYX well for the future.

We look forward to driving the continued growth of CABOMETYX through new indications beginning with first-line RCC and followed potentially by a label in HCC, which would represent a third tumor type and fourth indication for the cabozantinib franchise pending FDA approval.

I will now turn briefly 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 most common form of primary liver cancer, accounting for the majority of cases in the U.S. This market has long been underserved as until recently there was only -- there was only 1 approved systemic therapy. The HCC market will have the potential to grow in coming years as new therapies are introduced. This year, in addition to RCC and HCC, cabozantinib data have been presented in differentiated thyroid cancer and bladder cancer.

As you heard from Gisela, these potential new indications are at the forefront of our near-term development plans, and we look to them as potential commercial growth opportunities for the brand assuming clinical and regulatory requirements are satisfied. We're excited about the future where indications like differentiated thyroid cancer, bladder cancer and combinations of cabo with checkpoint inhibitors could offer potential long-term opportunities for the cabozantinib franchise.

CABOMETYX has set the standard as the TKI of choice in second-line plus RCC, and our mission is to establish CABOMETYX as the go-to TKI in potential future settings as well. Our team is focused and motivated to compete everyday 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'll 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 Q4 and throughout 2017 and continue to see solid performance in all aspects of our business as we move into 2018. Recent commercial, financial, clinical and regulatory progress provides a strong foundation for the next wave of cabozantinib trials 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.

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 new therapies to patients with cancer. 2017 was a good year for us. We don't take our success for granted and remain steadfast in making every day count as we look to fulfill our mission to help patients with cancer. As we said previously, we have the team, the energy and the culture 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. We're happy to now open the call for questions.

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

Maybe for Chris, just to get a little bit deeper into the cabo sales trends. Can you quantify the inventory impact in Q4 and on the gross-to-net decline that you saw, I guess, some -- I'm curious as to why that happened in the face of an October price increase? So maybe you could talk about that as well.

Yes. Eric, it's Chris. Yes. So as I said on my prepared remarks, our demand did grow by about 5% quarter-over-quarter. And we did see the 1-week of inventory that came out of the channel during the quarter versus the third quarter. Now looking at gross to net, we did have higher gross to net, particularly at the end of the quarter as we looked at our inventory in the trade and we evaluated that against the patient flow that comes through. We looked at and recognize the fact that there would be many patients coming through from the Medicare side that would be going through the donut hole potentially on CABOMETYX. On top of that, as we talked about or as I mentioned, we do typically see higher copay assistance from the commercial side of the business in the beginning of the year as peoples' deductibles reset with their new insurance at the beginning of a calendar year. Those are -- I think those are the elements that are really driving the change in revenue quarter-over-quarter.

So I'm sorry, I understand the Q1 Medicare effects, but how does that impact Q4?

Well, if you have inventory in the trade, well, obviously that product will be sold to patients that will have a donut hole effect in -- because of those -- because that inventory is already in the trade. So we have to effect our revenue for that in the portfolio.

Okay.

So that's the donut hole in the copay assistance.

Got it. And then, I mean, are you -- on the price increases you took in general, do you think that, that will flow through over time?

Yes. I mean, that typically does flow through. I mean, the vast majority of it flows through still with our -- the way our pricing is right now for launch. So you can expect most of that to flow through.

One last quick one maybe on the expense side. You're looking at a pretty good ramp. Should we think of R&D and SG&A both increasing by the same magnitude such that the ratio in 2018 is similar to 2017? Or is one seeing more of the impact than the other?

No. As you heard from both Gisela and Peter, I mean, we are investing heavily in the -- on the cabozantinib continued indication side and then Peter is continuing to ramp up his Discovery effort. So I'd say that the R&D is going to increase faster than the SG&A side. So the majority of the increase that we'll see year-over-year will be on the R&D side and then lesser -- to a lesser extent on the SG&A side.

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

So with the upcoming Phase 3 IMblaze trial, I've seen it both being represented as a second-line/ third line or third-line. So could you clarify the disease setting there?

Peter, go ahead.

Yes. So patients come onto the trial, who received 2 prior lines of chemotherapy, but patients are eligible for the trial if they received adjuvant chemotherapy. So then strictly speaking, they would have added adjuvant one further line of chemotherapy and then technically would be second line. So that's why you've seen the difference between the 2.

Got it. And one more follow-up, if I may. I believe Seattle recently initiated a pivotal study single-arm ORR as a primary endpoint in I/O refractory urothelial carcinoma. So since the amendment with Roche, how much of a readthrough do you think you can use in talking with the FDA in terms of just running a similar trial design in the I/O refractory population?

So our efforts as described earlier include evaluation of cabozantinib plus atezolizumab, for instance, in the checkpoint inhibitor experienced population, both bladder cancer and non-small cell lung cancer. So we've included the patient population that you are describing in the ongoing Phase 1b study, and it represents one of the expansion cohort. So I think it's an interesting question certainly, to address that examines whether cabozantinib by virtue of creating a more immune-permissive environment can resensitize patients to checkpoint inhibition.

And the next question comes from the line of Peter Lawson with SunTrust.

Chris, just going back to the effects on the quarter. Just the effects of the higher gross to net and the wholesale inventory. Is it possible for you to break down that dollar value? And does that higher gross to net kind of remain in place for -- going forward to set a new normal?

Yes. So thanks. It's Chris, Peter. So it's -- I would answer it this way. We're not going to provide specific guidance on the -- on what the impact of both the inventory reduction was and also the higher gross to net. Now you can see that gross to net went from 13.3% to 15.5% Q3 to Q4. So you can do your math on that. But you can also look at, your question about kind of what the future holds, is this a new normal. I do think that gross to net will be in that 15% to 16% range as we look to the near future of 2018.

Got you. And then just thoughts around providing guidance. At what point do you feel you've got the confidence that -- or outlook to be able to provide revenue guidance?

Yes. So I guess, from a revenue guidance point of view, there are lot of variables that are out there, including new therapies in front-line RCC, potential -- or potential HCC filing in this quarter and then the review period for that. And as we look at those variables, we didn't feel comfortable providing a range at this time. But we do -- but the way we do look at it is, you can always look at the IMS or the Symphony data that comes through on a weekly, a monthly or quarterly basis and monitor our trends that way. When we do feel comfortable, we'll let you know, and we'll let everybody know.

And then just the impact of, I guess, question for Mike. Just the impact of I/O that you are seeing in second line and any impact on market share? And if you think you regain that as you move -- as I/O moves frontline?

Well, I think as P.J. talked about in his prepared remarks, we see stable if not limited growth in terms of market share in the second-line plus settings. So obviously, we are focused on looking to be able to help literally every eligible patient in the RCC space everyday now with the label that we've got. And so I guess, we look at it on a much broader holistic level right now based upon where we are at. Now that could change as we talked about previously over time, as some of the newer I/O combos come out with data and then get approved. And we'll certainly be able to pivot as needed in that regard to then focus on where we think we can, again, compete effectively. So -- but right now, it's literally every eligible patient and the team is extremely motivated. We've got what we think is a totality of great data, and we are going to continue to hit it really hard.

And the next question comes from the line of Kennen Mackay with RBC.

Maybe for P.J. and well, the whole team, wanted to offer my congrats on the NCCN Guideline addition in front-line RCC. And some of the IMS data you'd presented was pretty impactful with the 20% quarter-over-quarter same-week sales increases. Wanted to see if the market share that you were carving out of front line you thought was coming from patients that or physicians that would ordinarily be prescribing Sutent and Votrient and given that those are still the preferred agents from NCCN guidelines, even with the addition of cabo in the front line, wanted to see from your perspective, what the preferred patient population was for cabo there? And then additionally, wanted to see how you were thinking about cabo competing with ipi/nivo and again, with atezo/bev in front-line RCC when those 2 combos do hopefully wind up getting approved later this year?

Great. Well, thanks for the Question, Kennen. I'll start with -- I'll kind of address them in the order that you laid it out. First of all, with regards to what we're seeing in the prescription data, as you mentioned and as we spoke to in our prepared remarks on the call, certainly pleased with the growth we're seeing in terms of TRx, a 21% quarter-over-quarter in terms of volume and already seeing a 20% increase in market share in the same period quarter-over-quarter relative to the other TKIs in the market. A couple other points I'll just reaffirm that we talked about is, we are looking at the top Sutent and Votrient prescribers, and we are seeing approximately a doubling of the amount of cabo they are writing in that time period as well. And we're also seeing an acceleration of our prescriber -- adoption prescriber growth metrics. So basically, when I look at all 3 of those together as well as the anecdotal feedback we are hearing, we feel very confident in the launch and that we're taking share from the first line. We are happy to be in the NCCN Guidelines. We're really thrilled to have a broad label that's being well received by our physicians, and I think, it was very impactful. So we're very pleased with that. With regard to coming competition, as Mike kind of just mentioned, and I mentioned in the prepared remarks, we know it's coming. Ipi/nivo has certainly good data, which will be -- was a great thing for patients. That said, all their data is in -- there are subgroups that aren't as compelling as other subgroups and the feedback that we're getting both from physicians as well as market research is telling us that our data are impactful. In the first-line setting, there will always be a place for monotherapy TKI usage in the first line. So we feel great about that. And then subsequently and further down the road, if a patient were to receive checkpoint inhibitor combination therapy in the first line, what we're hearing from market research is that physicians are very much going to plan on using CABOMETYX in the second line after that patient. So we feel very good that we have this sort of broad label, great suite of data across RCC and are competing as such for every eligible patient.

Got it. And in the guidelines, you mentioned cabo for poor and intermediate risk. Is that sort of where you see cabo really competing versus Sutent and Votrient right now?

Yes. I guess, basically, say similarly with our broad label that covers all the different patients with the totality of the data that we have. Certainly, in the METEOR study, including favorable-risk patients and showing statistically significant clinical benefit there. I think we're really competing for all those patients, and we are hearing feedback from customers that those messages, that data are compelling and being well received. So we are, like I said, going after all those patients, and we think we are competing extremely formidably in doing that.

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

I guess, can you just make any comment around whether or not the first-line uptake you are seeing, just to kind of follow on the prior question, if that's occurring across all patient risk statuses? Or are you seeing preferential uptake in just the poor and intermediate risk patients?

Yes. Sure, Stephen. This is P.J. I'll take that. So what I'll say there, I won't go into specific numbers on any of that, but we are seeing uptake sort of across the various patient populations. As I mentioned, we're competing for all those patients, and there is data sort of in terms of the totality of evidence for CABOMETYX across different clinical risk groups of patients. So our data is being really well received, if you look at the biological rationale for this type of drug TKI that's an anti-angiogenic inhibitor plus with MET/AXL, I think customers are really -- resonates with them as they think about their sort of current choices of Sutent or Votrient and they look at the improved efficacy, the superior efficacy with regards to CABOMETYX relative to Sutent and are willing to make that extrapolation in many cases.

Okay. And then, I guess, just with respect to the ongoing collaboration with Bristol in bladder cancer. Just kind of curious if we should expect to hear something with respect to that program moving forward into more advanced studies, perhaps, before the end of this year?

Yes. This is Gisela. Bladder cancer certainly is an interesting indication. And I'm seeing that based upon the observations made in the Phase 1b study that Andrea Apolo and Rosa Nadal presented most recently at ASCO GU where impressive response rates have been seen in previously treated urothelial cancer patients with 42% response rate with long, durable responses and a long progression-free survival. So it is certainly an interesting indication that we are thinking about, and we'll announce progress on various indications as we make it and at the appropriate time.

Okay. And then, just lastly on differentiated thyroid. I think, Mike, just maybe hearing some of your comments and the initial disclosure kind of sounds like you are contemplating pursuing a second-line strategy. Just curious, I guess, what evidence you might have that would suggest that the tumor cell perhaps post Vandetanib would still be responsive to cabo. And also, I guess, is there any contemplation still of perhaps pursuing a front-line strategy whereby you maybe choose something like sorafenib as a comparator, which would seemingly represent a fairly low hurdle for you guys?

Yes. Sure. So yes, top line data that we've had now in both the first line and the second line looks encouraging. I think we have lots of options here and are considering all those options. There's pros and cons of going first line versus second line, obviously in terms of the different metrics we're looking at, what success could look like. So stay tuned on that. I think it's certainly one of our higher priorities to engage in this indication this year along with others and kind of reinforce the idea -- really reinforce the idea that we want to expand the opportunity base for cabozantinib across tumor types, either as a single agent or in combination with checkpoint inhibitor. So again, as we roll these trials out, we'll provide more data. Certainly, all the background in biology and pharmacology in terms of inhibiting MET and VEGF and AXl simultaneously could apply to DTC as well as other different kind of tumors. So we're excited about the profile. Certainly, the early data looks encouraging. And now it's incumbent upon us to put together a plan moving forward.

And the next question will come from the line of Michael Schmidt with Leerink Partners.

I may have missed it, I joined late. But how should we think about additional new data disclosure from ongoing CABOMETYX studies, be it either as a single-agent therapy or in combination with PD-1 inhibitors this year?

Yes. This is Gisela. Certainly, thank you for the questions. And so it's obviously, pretty early in the year and there are lot of ongoing studies, including our internally sponsored combination study of cabo and atezo or other trials in collaboration with BMS. But also importantly, there are a number of investigator-sponsored trials and [CGF] trials that are advancing and maturing. And as data become available, we will certainly announce that and communicate and update you as we've done just recently for the DTC experience that came out of an ISD study, and that was presented at the recent head and neck cancer conference. So certainly more to come.

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

I guess, first one is a follow-up to the last one. As you think about some of the combination therapies with cabo that are ongoing, is there a specific profile that you and your partners are looking for before you decide to move into later-stage studies? And as the data begin to read out, how much data will you need to make those decisions, especially thinking about enrollment in the expansion cohorts from the atezo studies?

Yes. That's an important question. Thank you. I think it's obviously dependent upon the strength of the data and the overall risk benefit that will be observed in the data that support decisions. And so if that benefit is quite strong, then one needs less data to pull the trigger, if you will, to go forward into late stage development. So we've certainly lots of iron in the fire at this point, and look forward to updating you in the future.

Great. And then just a quick follow-up. As you think about the opportunity more broadly in RCC, to what extent right now are you able to track patients on cabo after they've received the checkpoint inhibitor? And is there any anecdotal data that you have to understand if the duration of therapy or duration of response or anything like that is different from that smaller subset of patients from the METEOR study?

Yes. There's additional so to speak real world data that has been presented at first time around at ESMO but also at the recent ASCO GU conference that came out of Europe, out of France and Italy, but also from MD Anderson where very similar if not higher response rates in the METEOR study have been observed and PFS durations that are in line with what has been in METEOR. So the aggregate data seems to support the observations that was made in the METEOR trial and patient population that was small, but showed quite striking benefit for the CPI-pretreated patient.

Thank you. At this time, there are no further questions. And I will now turn the call over to today's host, Ms. Forward.

Thank you, Sabrina. Thanks, all, for joining us today. We certainly welcome your follow-up calls with any additional concerns you may have that we weren't able to address on today's call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. You may all disconnect. Everyone, have a great day.