Exelixis Inc (EXEL) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Exelixis' Third Quarter 2018 Financial Results Conference Call. My name is Justin, and I'll be your operator for today. As a reminder, this call is being recorded for replay purposes.

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

Thank you, Justin, and thank you all for joining us for the Exelixis Third Quarter 2018 Financial Results Conference Call.

Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; P.J. Haley, our Senior Vice President of Commercial; and Gisela Schwab, our Chief Medical Officer, who together will review our corporate, financial, commercial and development progress for the third quarter ended September 30, 2018, as well as recent key developments and corporate events. Peter Lamb, our Chief Scientific Officer, is also here with us and will join us for the Q&A session following our 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 and without limitation, risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners and the level of costs associated with commercialization, research and development, business 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.

Exelixis had a strong third quarter and maintains a high level of clinical, commercial and financial execution as we move into Q4.

As you will hear from the team today, revenues, earnings and cash continued to grow in Q3. We advanced our plans to expand indications for CABOMETYX, launch the next wave of potential label-enabling studies with cabozantinib and rebuild our pipeline.

Importantly, we see tangible growth in Q3 for the CABOMETYX, RCC business, while increased competition has negatively impacted the market share and Q3 revenues of the other TKIs in this indication. Simply put, our company and our business have never been stronger. We're optimistic that cabozantinib's best-in-class TKI profile can continue to drive strong growth in the face of the emerging competition from immune checkpoint inhibitor-based therapies. We're determined to stay focused and deliver on our goals every single day for both patients and shareholders.

I'll begin today by providing a brief summary of our key Q3 milestones and then turn the call over to Chris, P.J. and Gisela for additional details on our Q3 financials, the commercial performance of CABOMETYX and our cabozantinib development activities.

Key highlights for Q3 2018 includes, first, the significant growth in revenue, earnings and cash, based on the strong commercial performance for CABOMETYX and advanced renal cell carcinoma. Third quarter, net cabozantinib franchise revenue were approximately $163 million. Achievement of key regulatory milestones for cabozantinib in the EU and Canada provided additional milestone revenue and led to total revenues for the quarter of $225 million. Q3 net income was approximately $127 million, with diluted earnings of $0.41 per share.

The continued strong performance of the RCC business for CABOMETYX is now -- secondly, the continued strong performance of the RCC business for CABOMETYX is now recognized as the best-in-class TKI. The recent NCCN update highlights the role of CABOMETYX as the preferred TKI in the treatment of the vast majority of both previously untreated and refractory RCC patients. The totality of the METEOR and CABOSUN data continues to differentiate CABOMETYX from the other key TKIs approved in this indication. As Gisela will describe shortly, recent updates at ESMO highlight cabo's potential utility in PD-L1-negative RCC patients as well as those patients refractory to previous ICI monotherapy or combination treatments.

Third, we are aggressively advancing the cabozantinib regulatory and development program. Our second-line HCC sNDA filing based on the positive survival data from CELESTIAL trial is under review with the FDA and EMA and has a PDUFA date in the U.S. of January 14, 2019. With encouraging data for both single-agent cabozantinib and ICI combinations, we're in the startup phase for the second wave of cabozantinib late-stage clinical trials in indications across a wide range of histologies and potential lines of therapy.

The continued progress of the CheckMate 9ER trial of the CaboNivo combination in first-line RCC and the initiation of the COSMIC-311 Phase III trial of single-agent cabozantinib and second-line differentiated thyroid cancer, or DTC, highlights our recent progress in this area and sets the stage for additional late-stage trials to start over the next several months.

Our progress throughout 2018 reflects the team's strong performance across all components of our business. For the sector of small mid-cap biotech companies, which includes Exelixis, CABOMETYX has been the leading commercial launch across both oncology and other therapeutic areas, with the highest quarterly and cumulative U.S. sales of any drug launched since 2014 and is firmly on its way to becoming a billion-dollar global brand. We plan to build on this momentum and remain focused on growing revenues from product sales, collaboration milestones and royalties while managing our expenses in a rigorous fashion to generate free cash to reinvest in our business in order to return long-term sustainable growth.

So with that, I'll turn the call over to Chris, who will provide more details on our third quarter financials.

Thanks, Mike. I'm very pleased to share with you our strong financial results for the third quarter 2018. Total revenues for the third quarter 2018 were $225.4 million, with $126.6 million of net income and diluted GAAP earnings per share of $0.41 compared to total revenues of $152.5 million, net income of $81.4 million and diluted GAAP earnings per share of $0.26 for the same period last year.

Total revenues include net product revenues of $162.9 million for the quarter ended September 30, 2018, compared to $96.4 million for the comparable period in 2017, which is a 69% increase. The increase in net product revenues reflects the continued growth of CABOMETYX in the treatment of advanced renal cell carcinoma. On a quarter-over-quarter sequential basis, our net product revenues increased by approximately $17.1 million, or 12%. This was the result of an approximate $8 million increase in CABOMETYX patient demand, a change in inventory of approximately $6 million, and finally, approximately $3 million, which reflects the positive impact of the price increase we took on CABOMETYX at the end of the second quarter.

Our deductions from gross sales in the third quarter 2018 increased slightly to 15.7% when compared to the second quarter 2018, which was 15.5%. This increase in gross to net was primarily due to an increase in discounts related to the government programs.

Total revenues also include collaboration revenues of $62.5 million for the quarter ended September 30, 2018, compared to $56.1 million for the comparable period in 2017. Collaboration revenues in the third quarter of 2018 was primarily related to the recognition of $36.9 million and $5 million of milestone revenue from our collaboration with Ipsen for the anticipated approval of the second-line treatment of HCC in the EU following positive CHMP recommendation and the approval by Health Canada of CABOMETYX for second-line RCC.

Collaboration revenues also included approximately $10.3 million in royalties earned from Ipsen, as the royalty rate had reached the 22% tier on net sales in their territories as well as $6.9 million in development cost reimbursements under our collaboration agreements with Ipsen and Takeda and $3.3 million of profit share and royalties from our collaboration with Genentech.

As is evidenced this quarter, collaboration revenues continue to be an increasing component of our total revenue growth as CABOMETYX gains traction on a global scale. It's important to note that the majority of these revenues flow directly through our bottom line and significantly enhance our cash position, allowing us increasing flexibility as we look to the next of wave of cabo trials, research and business development opportunities.

Our total cost and expenses for the third quarter of 2018 were $100.2 million compared to $100.3 million in the second quarter 2018.

Within total cost and expenses, our SG&A costs declined by approximately $4 million, which was offset by increases in R&D and cost of goods sold. The largest increase was in R&D expenses and is primarily the result of increases in our clinical trial spend, which is partially offset by lower licensing expenses.

As a reminder, in Q2 of 2018, we paid $4 million of licensing expenses in the form of upfront and initiation fees to our collaboration partner, Invenra. Cash and cash equivalents, short- and long-term investments and short- and long-term restricted cash and investments totaled $750.3 million at September 30, 2018, as compared to $457.2 million at December 31, 2017.

And finally, the company has updated its guidance for total cost and operating expenses for the full year. We're now lowering and tightening the range to $410 million and $420 million, given the timing of clinical trial expenses primarily related to our planned and ongoing combination trials. As previously stated, this guidance includes approximately $50 million of noncash costs and expenses related primarily to stock-based compensation expense.

I will now turn the call over to P.J.

Thank you, Chris. We are pleased with the strong performance of CABOMETYX in the third quarter. We made significant progress towards our goal of establishing CABOMETYX as the TKI of choice in RCC as demonstrated by the strength of the Q3 business fundamentals, updated NCCN guidelines positioning cabo more favorably and continued gains in market share in the TKI market.

CABOMETYX net product revenue grew by 12% over Q2 to approximately $158 million, and demand grew by more than 5%. The prescriber base of CABOMETYX continued to expand and grew by approximately 11% in the third quarter. Also, we saw broad utilization across academic and community setting, lines of therapy and clinical risk groups.

We are pleased that CABOMETYX continued to grow in Q3 despite the increased competition. In order to get a better sense for the evolving competitive dynamics, we analyzed the IMS prescription data for the RCC oral tyrosine kinase inhibitor, or TKI, market comprised of sunitinib, pazopanib, axitinib and CABOMETYX over the last 2 years.

Notably, both the NRx and TRx volume for this basket of compounds have been relatively stable since the first quarter of 2017. These trends confirm that the approval of the nivo/ipi combination has had a limited impact on the TKI prescription volumes since its U.S. approval in April of this year. On the other hand, based on the publicly available IMS prescription data, CABOMETYX has continued to grow in both market share and volume. CABOMETYX NRx volume increased by 3% in Q3 relative to Q2, and CABOMETYX market share increased to 32% in Q3 even in the face of increased competition.

Furthermore, these trends were strongest in the month of September, where we saw 4% NRx volume growth over August, and CABOMETYX NRx market share increased to 34%.

In terms of new prescriptions, CABOMETYX was the most prescribed TKI and RCC in September. We are pleased with the overall prescription dynamics as well as the kinetics of those trends exiting the quarter.

Also in September, the NCCN published updated guidelines for kidney cancer. Cabo is now the only TKI that is a preferred regimen for poor and intermediate-risk first-line patients, a population that makes up approximately 80% of the first-line market. Importantly, cabo is also the only preferred TKI regimen for subsequent therapy, thus making cabo the primary recommendation for patients who've already received an immunotherapy combination. This strong positioning and the guidelines lends added credence to the broad label and robust totality of data from METEOR and CABOSUN and, ultimately, further strengthens the differentiation for CABOMETYX relative to other RCC TKI's.

The RCC market will continue to be driven largely by the sequencing of therapeutic options. Most patients will have the opportunity to receive either CABOMETYX followed by ICI therapy or an ICI combination followed by cabo in sequence. We expect the number of second-line patients who've been treated with an ICI combination in the first-line to increase in the coming quarters. CABOMETYX is well positioned to be the treatment of choice for these patients.

Since the approval of nivo/ipi in April, the majority of the patients who've progressed on ICI combination therapy have received CABOMETYX as their second-line agent. This is consistent with recent market research in which over 90% of 50 key opinion leaders indicated that CABOMETYX would be their therapeutic choice after first-line combination immunotherapy. These findings are consistent with the recently updated NCCN guidelines.

In addition to the continued growth of CABOMETYX through the expanded RCC indication, we look forward to the opportunity to drive growth through a potential label expansion in HCC, which would represent a third tumor type and fourth indication for the cabozantinib franchise.

Liver cancer is a significant unmet medical need, accounting for over 600,000 deaths globally on an annual basis.

In the U.S., over 40,000 patients 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, and the number of deaths in the U.S. attributed to HCC has doubled since 1999. This market has long been underserved, as, until recently, there was only 1 approved systemic therapy. The HCC market will have the potential to grow significantly in coming years as new therapies are introduced, and Exelixis intends to play a key role in the advancement of therapeutic options for these patients, with potentially both single-agent cabo and cabo ICI combination approaches.

HCC key opinion leaders indicate that as more systemic therapies become available, more of their patients will receive systemic therapy and an increasing number of patients will receive multiple lines of treatment. The market research firm, Decision Resources, predicts an increase in the U.S. of first-line drug treated patients of approximately 37% by 2025, and the increase in second-line drug treated patients is even greater at 69%. The difference is attributed not only to the increasing incidence of the disease, but even more so to the increase in drug treatment rates that are expected to occur as more options are available to patients.

We are pleased with the progress and preparation that our experienced team has made over the last year. Exelixis is now launch-ready, and we very much look forward to the opportunity to bring CABOMETYX to HCC patients, pending FDA approval. Our launch prep analysis indicates that there is significant overlap between the prescribing physicians who treat RCC and HCC. This is largely driven by community oncology. In fact, our current sales footprint covers approximately 95% of the combined RCC and HCC market potential. We will begin calling on the remaining HCC-specific prescribers following approval. Furthermore, the new indication will be leveraged by our team generally to increase access to accounts, where they will have the opportunity to share new data from the approval.

We've made significant progress towards our goal of becoming the TKI of choice in RCC. CABOMETYX is now the #1 TKI in RCC for NRx, and we believe that favorable update to the NCCN guidelines will provide continued momentum for the brand. We're pleased with the results of Q3, but believe that many more RCC patients can benefit from CABOMETYX. Our team is focused and motivated 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 over to Gisela

Thank you, P.J. I'm pleased to provide an update on the progress of the cabozantinib development program in the quarter. I will start with a brief regulatory update on second-line HCC and RCC as the third quarter was marked by important milestones.

First, in September 2018, the CHMP granted a positive opinion for cabozantinib as monotherapy for the treatment of HCC in adults who have previously been treated with sorafenib. If confirmed by the European Commission, who is the ultimate authority for approval decisions, this will further expand the labeled indication of CABOMETYX in the European Union.

FDA's review of our submission for second-line HCC is ongoing, and the PDUFA date has been set for mid-January 2019. Also, in September, Health Canada approved CABOMETYX for the treatment of adult patients with RCC who have received prior VEGF-targeted therapy. The Health Canada approval brings the international approvals for CABOMETYX to 10, including recent approvals in Brazil and Taiwan for this indication besides the United States and Europe.

With these important milestones achieved, we are fully focused on the broader development in life cycle management for cabozantinib, including single-agent evaluations and combinations with immune checkpoint inhibitors through our collaborations with BMS and Genentech-Roche.

As we've mentioned on prior calls, we're planning to start multiple pivotal trials with cabozantinib in various tumor types in 2018 and in 2019 and are making progress in our work for such trials as planned. One such study has advanced to initiation recently, and I'm pleased to provide a little more color on this Phase III trial today.

A couple of weeks ago, we announced the initiation of a placebo-controlled Phase III trial of cabozantinib for the treatment of advanced radioiodine-refractory differentiated thyroid cancer patients who have received prior VEGFR-targeting therapy. This trial, COSMIC-311, will enroll a total of 300 patients globally. The core primary endpoints of the trial are objective response rate and progression-free survival. The objective response rate endpoint will be analyzed among the first 100 patients enrolled with appropriate follow-up, while PFS will be an event-driven analysis among all 300 patients enrolled. There is a planned interim analysis for PFS that will be conducted at the time of the objective response rate analysis.

This study has been designed based on cabozantinib's encouraging activity in previously treated differentiated thyroid cancer patients, with durable response rates of 40% to 54% reported in 2 separate Phase I and II evaluations.

Regarding combinations with checkpoint inhibitors, we are very pleased with the progress of our clinical collaboration with BMS combining cabozantinib with nivolumab alone or both nivolumab and ipilimumab. The Phase III CheckMate 9ER study in treatment-naïve RCC patients evaluating cabozantinib in combination with nivolumab versus sunitinib is making good progress in enrolling patients globally. This trial is co-funded by ourselves and our collaboration partners, Ipsen and Takeda, together with BMS, who is conducting the study. The triplet combination of cabozantinib, nivolumab and ipilimumab continues to be evaluated in an ongoing Phase Ib trial in patients with advanced genitourinary malignancies that has established the preliminary safety and tolerability and recommended dose for this combination. And startup activities for a separate Phase III trial, investigating the triplet combination versus nivolumab and ipilimumab in first-line RCC are advancing as planned, and this study is expected to begin enrolling patients early in the New Year.

We also continue to make progress in our collaboration with Genentech, evaluating the combination of cabozantinib and atezolizumab and an initial dose-ranging study with planned cohort expansions in various different tumor settings. We've identified an active dose of cabozantinib in combination with atezolizumab, with good tolerability for the combination and the dose-ranging part of the trial. Initial data for this combination were presented at the recent ESMO conference in Munich by Dr. Neeraj Agarwal.

The combination of cabozantinib and atezolizumab was generally well tolerated with few grade 3 adverse events and no grade 4 or 5 events observed. There were no dose-limiting toxicity seen, and the combination showed encouraging clinical activity, with 8 of 10, or 80%, previously untreated clear cell RCC patients achieving a durable confirmed response, including 7 partial responses and 1 complete response.

Antitumor activity was observed regardless of PD-L1 expression. The initially planned 8 expansion cohorts, including various bladder cancer first-line RCC and various non-small cell lung cancer settings and now actively enrolling patients and an additional 10 histologies are being added to the ongoing expansion cohorts, investigating a variety of tumor types, including GI malignancies and GYN malignancies in this important trial.

Further late-stage checkpoint inhibitor combination studies and indications, including HCC, bladder cancer and non-small cell lung cancer, are under discussions, with a first-line HCC study and advanced startup preparation and expected study initiation in the short-term.

And to close, I'll provide a quick summary of the cabozantinib-related presentations at the recent ESMO conference in October in Munich.

As already mentioned, the first data presentation of the COSMIC-021 combination trial of the cabozantinib and atezolizumab dose escalation experience. Expansion cohort data from this study will be presented when sufficient follow-up is available in the data on the cure. Also, an important biomarker analysis, a late-breaking abstract was presented by Dr. Choueiri and others from the Dana-Farber Cancer Institute, who evaluated the efficacy of cabozantinib in both the METEOR and CABOSUN trials by baseline PD-L1 expression status.

PD-L1 expression in greater than or equal to 1% of tumor cells was a negative predictor for both overall survival and progression-free survival was shorter survival and PFS times compared to patients with no PD-L1 expression. However, in both the METEOR and CABOSUN datasets, cabozantinib treatment resulted in improved outcomes compared to the respective active comparator arms everolimus or sunitinib irrespective of PD-L1 expression.

Also, a retrospective analysis of real-world data among 86 RCC patients presented by Dr. Bradley McGregor from Dana-Farber Cancer Institute of the activity of cabozantinib following prior checkpoint inhibitor therapy either alone or in combination with VEGF-targeting or other therapies showed encouraging activity with cabozantinib with an objective response rate of 36% across all risk categories and 41% among patients with intermediate or favorable risk factors. These 2 datasets indicate that cabozantinib activity is independent of PD-L1 expression and that cabozantinib is active after prior checkpoint inhibitor therapy as well as prior VEGF-targeted therapy.

So in summary, I'm very pleased with the progress made in our cabozantinib development program and with the important regulatory milestones reached during the quarter and look forward to updating you in the future.

And with that, I'll hand the call back to Mike.

All right. Thank you, Gisela. Exelixis had a strong third quarter and continues to see solid growth in all aspects of our business as we close out the year and move into 2019. Our notable commercial and financial performance in Q3 provides a strong platform for building our product portfolio with future cabozantinib trials and important new indications in adding new product opportunities through internal and external R&D efforts.

I'll close by saying that we fully recognize the recent market volatility and, specifically, the decline across the small and mid-cap commercial oncology sector that has been ongoing since the beginning of the year. I'll restate what I said in my introduction. Exelixis has never been stronger from a clinical, commercial and financial perspective. Our recent success differentiates us from others in the small mid-cap oncology space and provides substantial momentum as we move into 2019.

I'd like to reiterate several key issues that are important to keep in mind as we move forward. First, Exelixis will continue to build on the strength of the CABOMETYX launch and is positioned as the TKI of choice for RCC. Based on the totality of the clinical data from METEOR and CABOSUN, our commercial efforts target the entire RCC population independent of line of therapy, IMDC risk category and PD-L1 status.

While targeting the broad RCC opportunity, we are working towards a future where nearly every eligible RCC patient receives CABOMETYX at some point in their journey from first- to third-line treatment. We are not surprised by the success of ICI combination strategies in RCC and expect that the vast majority of these patients will need subsequent therapies as they stop responding to frontline ICI modalities.

Based on market research and KLO feedback, CABOMETYX appears to be the TKI of choice for these ICI-refractory patients, and the recent real-world data presented at ESMO highlights cabo's potential utility in patients post single-agent ICI or ICI combinations.

Second, we seek to expand cabozantinib's indications with the HCC submission under review and with new Phase III trials that we anticipate initiating in Q4 and early 2019. Cabo has demonstrated broad clinical activity in multiple tumor types as a single-agent and shows encouraging activity, tolerability and safety when combined with ICI. The second wave of potential label-enabling trials has now begun with the initiation of the DTC study, you'll see additional trials get underway shortly.

The broad basket study, COSMIC-201, was designed to help us prioritize the potential third wave of trials for the cabo/atezo combination, and we're excited about the initial data presented recently at ESMO that highlights potential of this combination.

Third, we will aggressively pursue cabo's broad development, new internal drug discovery and business development activities as we build on our strong financial position from generating significant free cash for the last 8 quarters. Our growing cash position and profitability are rare in the small mid-cap biotech sector and has obvious implications from both a tactical and strategic perspective. We will continue to invest in the business and to drive growth in a sustainable fashion and always be on the hunt for compelling assets that are valued appropriately.

I want to thank the entire Exelixis team for their dedication and commitment as we work to write our next chapter of the Exelixis story. The constant negative narrative that we all hear on a daily basis could be a major distraction, but it's not for us. The Exelixis team continues to be energized and inspired by the opportunities ahead, and we remain focused, vigilant and dedicated to make every day count as we develop the next generation of our medicines for cancer patients in need of better and more effective therapy.

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) Our first question comes from Andy Hsieh with William Blair.

I got a couple of questions, if I may. First is for Gisela. How do you think about the data flow as we head into 2019? It seems like you kind of talked about several opportunities for early look for the COSMIC-311 study in DTC. But specifically, for COSMIC-021, I think some of the cohorts you're targeting I/O relapse or I/O experience patients, do you think any of them could be eligible for the accelerated approval pathway?

Yes, thank you for the question. Certainly, COSMIC-021 is a large basket study with the opportunity to generate a lot of interesting data for the combination of cabozantinib and atezolizumab, and we certainly look forward to the results from the various different cohorts. Just to reiterate what I said a little bit earlier, we are going to wait for full enrollment of the individual cohorts and maturing of data so that we have reliable data to present, and it's right now a little bit early to say when that will be the case. But as we go forward, we will keep you updated. And regarding your last bit of the question, we have the opportunity to expand individual cohorts depending on activity and overall profile observed in the initial expansion cohort. So we certainly look forward to updating you on that as well when it occurs.

Okay. So at ESMO, I think -- or near ESMO, there has been 2 Phase III studies with I/O-TKI combinations, specifically, pembro/axitinib, nivolumab/axitinib. When you compare these 2 trials, the -- so the pembro/axitinib study stopped early, achieving both PFS and OS benefit across the whole population. On the other hand, the JAVELIN Renal 101, I think, the OS still mature despite the fact that they enrolled 60-plus percent of PD-L1 positive patients. I think the consensus view on the street is that I/O-TKI various combinations might perform similarly. So this question is perhaps for Mike or Gisela. Do you think this is perhaps data to suggest potential differentiation across various I/O-TKI combinations out there?

Andy, it's Mike. It's a little early to speculate on comparing trials, especially when one trial hasn't been presented, right? So yes, we've seen the press releases and certainly saw the JAVELIN data at ESMO. We're not surprised by that data. All the Phase Ib data that's been -- I think, being presented and talked about over the last 18 months has looked encouraging, high response rates, long PFS, high DCR. So our expectation is that those would lead out positive in some shape, manner or form. How they compare side-by-side at steady state when all the data is out, we'll see. Again, it depends upon a number of different factors and certainly where they enroll, when they enroll and everything else. So it's early there. We're excited about 9ER. Certainly, both cabo and nivo have been leading the charge here as kind of next generation agents for RCC over the last few years. Both have a strong survival advantage based upon their various trials. So we're excited about that combination and certainly that collaboration with BMS. And as Gisela pointed out, there's a lot more there that we're thinking about doing and looking at, whether it be cabo/nivo, cabo/nivo/ipi or cabo/atezo combinations. So we're going to push this hard and, again, use the data that we've got as momentum to really move the whole company forward potentially based upon data that will come out in the future.

Great. Just a follow-up on that, if I may. Obviously, these 2 combinations are using axitinib. So maybe for P.J., what is the kind of utility for axitinib in the second-line setting? Obviously, if those become the standard of care, maybe axitinib might not be used as frequently as right now.

Yes. Thanks for the question, Andy. I guess a couple of things there. I think since our initial launch of CABOMETYX and METEOR, we've really seen axitinib's utilization decline in the second and third lines. And really, as I kind of mentioned in my remarks, we've seen CABOMETYX really become the best-in-class TKI with regards to now leading in new prescriptions as well as certainly revenue growth, the demand we've seen in the last few quarters. That said, I think as we talked to KOLs and conduct our market research generally, we think there'll always be place for cabo across lines of therapy, certainly, in the first-line setting for certain patients with potentially rapidly progressive disease -- symptomatic disease. And certainly, as ICI combinations go into first line, that's going to create more and more patients in the second line who have been exposed to immunotherapy or, as you point out, potentially another TKI already. And I think that really just increases the opportunity for cabo in the second line. So we continue to be focused on differentiating cabo from the other TKIs, which with the NCCN guidelines, certainly, the data from our clinical trials gives us a really strong platform to do that and continue to really compete for every patient across lines of therapy.

Our next question comes from Michael Schmidt from Guggenheim.

I had a couple, maybe a follow-up on sort of commercial performance of CABOMETYX in the third quarter. Can you teach or help us understand a little bit more how much of the volume growth that was seen was driven by front line use versus recurrent RCC?

Yes. Well, I think with regards to that, Michael, what we're seeing is growth across lines of therapy. We're certainly seeing a lot of the growth driven by refills as well as new patient starts in Q3, and that's encouraging. I think we're just well positioned now that we've sort of taken leaps, so to speak, in overall NRx prescriptions and are the TKI of choice. And I think, really, the NCCN guidelines continues to provide us with the opportunity to have continued momentum there. And I think that's really in the first-line setting, because we do see still opportunity remaining with SUTENT and VOTRIENT there that we can go after in the TKI market. And certainly, as I just sort of mentioned in the second-line-plus setting, opportunity for growth there as the landscape changes in ICIs are used in the first-line in combination.

Okay, great. And then I realized, Mike, you didn't want to speculate around checkpoint TKI combinations and potential differentiation, but just looking at the CheckMate 9ER study design, it looks like it's a relatively small trial compared to the Merck study, for example. I think it's about 2/3 the number of patients. So I'm just wondering if you would be able to provide, at some point, updates on the enrollment pace and potentially narrow sort of a guidance on potential data from CheckMate 9ER trial?

I'm not sure that was a question, but at some point, we will certainly tell you when the trial is fully enrolled, as we normally do. And once we have a sense on data, I mean, again, it's -- primary endpoints are all event-driven. So that's kind of -- on a time frame, that's defined by the actual numbers and how those trials work. So -- but, again, we'll be as transparent as we can in the context of how we do this stuff and how we've done it in the past. And obviously, we have a partner with BMS that we have to coordinate with, too. So...

All right. Great. Understand. And then last question, a bigger picture strategy-type question. I know that you, in the past, have said that your business development strategy has been focused sort of on earlier-stage licensing of R&D-type assets in terms of its development. And I was just wondering, at this point, in context of the strong financial health of the company, to what degree do you feel that there's an opportunity or maybe sort of an urgency to take advantage of your, obviously, capital and should -- to do a bigger transaction, maybe a more transformative transaction to bring another product into the basket?

Yes. Thanks for the question. And as we talked about previously before, we have certainly had a very focused effort looking at literally all oncology assets going from preclinical to marketed products for the last couple of years now. We had a strong effort that's been collaborative between BD and R&D and commercial and finance, kind of a full team effort to understand, take our knowledge of the landscape, our knowledge of the biology, understanding of potential combination approaches and move that forward. So I don't see anything changing, and this has all, if you will, been somewhat prethought of from the standpoint of going back to as early as the middle of 2015 around the idea that we wanted to rightsize the company, fix the balance sheet, get on a much more strong financial foundation and then look to add assets in a way that could help us build growth. Again, the cabo-only focus wasn't a strategy, it was a tactic to do all the baseline work that we had to do to then move the company forward in a sustainable fashion. And we've done that now. And we're certainly cranking in terms of clinical, commercial, financial and feel good about where that's going. We have to do the right deal at the right time, at the right price. That mindset hasn't changed. We don't want to do a suboptimal deal just to do a deal. But it has to really fit our criteria, and we have a pretty high bar when it comes to the science and the numbers relative to commercial and the financial side. So we're going to continue to be aggressive in looking at opportunities, and we've got a pretty broad net out there across the continuum of assets. And when we find something that we like that makes sense to us, both scientifically, commercially and financially, then we will move forward.

Our next question comes from Kennen MacKay from RBC Capital Markets.

Congrats on the commercial progress there. Just looking at your 5% increase in demand, it seems like this has really been driven by the increase in the prescriber base, that 11% increase, and wanted to see, is that 11% quarter-over-quarter? And, really, I was hoping to understand a little bit more sort of where that incremental new prescriber is coming from. Is that commercial or community docs that haven't been treating some of the higher-risk later-line patients where cabo was previously approved? And beyond that, I was wondering on what's happening on the commercial sales FTE front, because it looks like SG&A has actually been coming down quite a bit. And I just had 1 quick follow-up on some seasonality questions.

Great. Kennen, we'll take those one at a time.

Thanks for the questions. So with regards to your observation on the demand increase in the prescriber base, I think that's right. So we did have, as you mentioned, over 5% demand growth in Q3 relative to Q2 and approximately 11% increase on the prescriber base, and that's really cumulative prescribers, so people who -- prescribers who have now prescribed CABOMETYX. So that's really important to us. Strategically, too, a we prepare for new indications in HCC. For example, our market research indicates an advisory board in HCC that physicians who have previously written cabo, and there's a lot of them in the community, as I mentioned in the prepared remarks, in RCC, you're more likely to prescribe it than HCC and do that more quickly. So it's great to expand the prescriber base. And I think your comment about, really, that happening in the community is what we see happening. So we see, really, the last few quarters, going back to the CABOSUN launch in December, treating sort of earlier, healthier patients in the first line has given us the opportunity to educate more broadly the prescribers in the community and then. And those prescribers who may not be as many RCC patients a year are now having the opportunity to gain experience with cabo, which is great. I'll just -- in particular, before the HCC launch, I'll touch on also your question about the sales force. We've really -- we always evaluate and take a look at the size of our organization. And, really, our team, we've gotten rightsized and prepared for the business in terms of our CABOSUN launch and HCC going back over a year now. So the team is ready and focused. And we have, as I said, a high degree of overlap between RCC and HCC prescribers. So we're prepared and ready to go with regards to the infrastructure commercially. I think having these new indications provide us the opportunity to have operating leverage and synergy, which is fantastic as we kind of leverage the experience and the capabilities we have in place.

Got you. And maybe one sort of final commercial question here. I was wondering, the new patient add, the new demand that you saw in Q3, last quarter, you talked a little bit about some patients coming on the cabo post-I/O. I was wondering if new patients were largely post-I/O TKI-naive patients and so we're starting to see some patients progressing beyond the I/O combo front line or if these were sort of true front line RCC patients that hadn't seen any prior therapies? And then the follow-up question I had was on just inventory. I was wondering if there's sort of a seasonality effect there or what the quarter-over-quarter change in inventory was relating to.

Okay, Ken, this is P.J. I'll maybe start off with kind of what new patients we saw in the quarter, and then I'll pass it to Chris to discuss inventory. So what we're seeing, really, in terms of new patient starts, we did say last quarter, we're starting to see patients progress on ICI combination therapy, and we're certainly continuing to see that. I'd say we're really in the sort of early days of that. We're not seeing a significant amount yet progress. What's certainly encouraging across all the market research that we conduct and see is that the majority of those patients who were progressing on immune checkpoint inhibitor combo therapy are going onto CABOMETYX. So it's consistent with what we've heard, which is good. And we are also seeing new patients coming in the first line. So I'd say the mix. The market is very dynamic right now. But as I mentioned, I think we have an opportunity for growth across lines of therapy and particularly as that second-line immune checkpoint inhibitor combination, sort of previously treated population, will increase in the coming quarters.

Ken, this is Chris. I'll talk about the inventory. So we did see an increase in inventory in the quarter. I won't call it seasonality, but we did see an increase in inventory related to the demand increase that we saw. And we also saw a slight increase in our weeks on hand. We're still at the lower end of our range, around 2.5 weeks, but we're very comfortable in that range. And so, again, there's no real seasonality to it.

Our next question comes from Peter Lawson from SunTrust Robinson Humphrey.

Just on the growth this quarter. Is that mostly driven by kind of front-line patients or the post-I/O? Is there any way you can kind of break that out for -- mostly is it biased one way in particular?

Yes, Peter, this is P.J. Thanks for the question. I think we're seeing it kind of from across lines of therapy. Like I said, it's sort of early days in terms of seeing the patients go onto cabo or any therapy for that matter from ICI combinations. We are seeing the majority of those patients who get treated with ICI combinations in the first line are going onto cabo, but we think that population is going to continue to grow in the coming quarters. And we are still seeing new patient starts, so to speak, in first line. We're pleased that we're competing effectively there across risk groups broadly. And I think particularly with the favorable updates to the NCCN guidelines in September, that really makes us -- now we're the preferred TKI in intermediate and poor-risk front-line patients, which is 80% of the population. So I think we have the opportunity to continue to grow in the first line at the expense of the other TKIs.

P.J., where do you think you're taking share mostly in the TKI space?

Peter, we're seeing it -- taking it from, really, both SUTENT and VOTRIENT. Certainly, years ago, we saw the decline come from axitinib, but since our CABOSUN launch in December, we've seen both SUTENT and VOTRIENT decline. Frankly, those TKIs, if you look at their revenue quarter-over-quarter, all had significant double-digit sequential declines in revenue, while we had increase of 12% quarter-over-quarter. So we think we're impacting all of them.

And then just finally on the liver opportunity. It sounds like you're not going to be adding to the sales force. Do you feel they've got enough bandwidth to kind of play in the liver and kidney indication? And should we kind of think SG&A kind of being flat into next year?

Well, I think on -- with regards to the commercial infrastructure, we really, at the end of the 2017, put in place the team and the structure that we'll need to compete effectively in both these indications, and that included adding sales representatives as well as marketing personnel that we need to do that. And the team's really in good shape and ready to launch in HCC. So we do expect to start to get some operating leverage with regards to the commercial organization. And there's a large overlap in community oncology with regards to the treatment of RCC and HCC. As I mentioned in the prepared remarks, we currently cover 95% of the potential of the RCC and HCC market opportunity, and it will be very simple, just a few accounts per representative, to start calling on those HCC-only treaters upon a potential approval.

Our next question comes from Stephen Willey with Stifel.

I guess as you guys consider the plethora of I/O TKI trials that are starting to unblind now, just what your thought is around what is the need for these combos to be able to move the needle in terms of depth of response in order to gain traction as a front-line regimen? And I guess as you think about cabo, relative to some of the other TKIs, is there anything about the mechanism or the kinase profile that you think would somehow move the needle on CR rates more so than perhaps axitinib and lenvatinib?

Yes, Steve, it's Mike. Let me start with that, and I'll pass it off to P.J. and/or Gisela to provide some additional commentary. Again, it's really early to -- for us to speculate on what's going to move the needle here. I'd much rather have data than just kind of top line press releases to be able to really answer that question in detail. Obviously, the duration and depth of responses is very important. The CR rates that go for a long time are also very important. Obviously, move the needle with both PFS and OS is going to be an important part of the equation. Certainly, cabo, cabo is different, right? It was designed to be different. It's certainly -- we tested that hypothesis clinically. And I think across the board, at least in studies that I've read out right now in renal and liver, looks to be different than your kind of run-of-the-mill VEGFR-targeting TKI. Is that because of the MET, AXL inhibition? Probably. Certainly, we impact other cell types as well that appear to play an important role outside of the kind of simple antitumor, antivascular activity, which we think is important. So -- but you look at the totality of the data, single-agent cabo versus single-agent other VEGFR-targeting molecules, with all the caveats that go with doing those comparisons, those cross-trial comparisons, cabo has very real differences in terms of its activity in METEOR, where we doubled PFS, we showed survival for the first time with the TKI second line. Certainly, winning with the survival benefit in liver was, again, a relatively rare event. To my knowledge, no other molecule has done that. Besides, those based upon the sorafenib backbone. So -- with lots of failed attempts. So we have some ideas. Those ideas obviously were put into play when we made the molecule a long time ago. And it took us a while to, if you will, prove it clinically, but we feel like we've got that now. And the momentum that we've got with these ICI combinations is, I think, pretty strong. So now our challenge is to do that on a broad scale, it's renal, it's liver and beyond some of the histologies that were mentioned in Gisela's remarks, it's just really the first kind of tip of the iceberg there. And certainly, looking at the 021 study, we've got lots of other options and opportunities that play there as well. So it's early days for us. We certainly like what we've got, and we are excited to push that forward as quickly and as deeply as we can.

Okay. And then I guess when you think about the work that you're doing both with Bristol and with Roche, there is some redundancy, obviously, between tumor types. You have bladder cancer data with Bristol, you've got renal data with Bristol and liver data with Bristol, and it looks like you're kind of replicating that with Roche as well. So just trying to -- just triangulate how you guys are thinking about the redundancy there that exists between tumor types. And do you eventually choose 1 partner to kind of concentrate development efforts on? Or should we think about these as occurring in parallel tracks?

Yes, I would think more the lateral, knowing that we'll make investment decisions on a case-by-case basis based upon data, based upon where we stand in terms of the competition and other factors. So stay tuned on that. I don't want to get ahead of where we're taking those. But I would say the idea that we have a second wave and a third wave of label -- potential label-enabling trials with cabo combinations is a vision that we hope to make a reality, and the question is just now kind of filling in all the details. The histology, the combination partner, the line of therapy, the comparator, all that is certainly important in how we factor the priorities here relative to what is obviously a very fast-moving field, with lots of other players and other combinations that certainly have some activity.

And then just lastly on the COSMIC-311 trial in DTC. Is lenvatinib the front-line TKI of choice there? And I guess, if so, how much data do you have in the post-lenvatinib setting?

I think both, obviously, sorafenib and lenvatinib have an indication in this setting, and both are being used. And there may be regional differences, that both are certainly being used in this setting. We have our older data largely in sorafenib. Failing patients with a little bit of data in lenvatinib, failing patients with the mechanism of action is obviously VEGFR-targeting. And you've seen in DTC and also in other indications that cabozantinib is active in the post-VEGFR-targeting setting.

Our next question comes from Paul Choi with Goldman Sachs.

I guess my first commercial is -- question is with regard to the commercial side as you prepare for the second-line launch in DTC. And as you think about the demand curve out the gate, what is your view that -- is there a buildup in terms of demand or will it be more of a steady build. And if you could characterize your expectations there, that would be helpful.

Thanks for the question. Paul, this is P.J. We certainly don't want to provide any guidance, so to speak, in terms of our revenues. We're not doing that. I think what we can say is that it's been a very dynamic marketplace, as I mentioned, heavy unmet medical need there for those patients. So I think with the newer therapies recently available, physicians are really trying to figure out how to put all that together right now. You see that at the medical meeting. So it's really an ideal time and opportunity for us to be able to launch into that dynamic marketplace and help educate physicians on the CABOMETYX data there. So I think we'll build on and leverage the experience we have in RCC and the positive momentum there. As I mentioned, we have market research that indicates prescribers are more likely to write for CABOMETYX in HCC if they've written in RCC, and over 50% of the community targets have at this point. So really good momentum there. And with that, the 11% increase in prescribers this quarter, certainly, it's helpful there and a good sign. So we look forward to bringing that to patients if and when approved by the FDA.

Okay. And then in the wake of the various I/O plus TKI datasets or headlines at least that we've seen so far and post-ESMO, can you give us your updated thoughts or any color you're hearing on how renal docs are thinking about sequencing and what you think in a post-I/O TKI patient population? What duration could possibly look like relative to where it is right now?

Yes. I think as I mentioned, renal RCC has really been a sequencing market for over a decade now. And I think, certainly, for everybody in the field, in the KOLs, exciting to have new options for their patients. I think the sequencing will continue to play out. And as I mentioned, we're really well positioned to continue to compete in the first line as well as post any sort of ICI combination in the second line in RCC. And I think beyond that, it's probably a little bit early to speculate until we see more data and kind of see how things play out in the coming quarters and years, frankly, in that marketplace. But I think being the TKI of choice currently and really having the great team and experience we have in the marketplace really gives us a lot of momentum to continue to be successful there.

Our next question comes from Jeff Hung from Morgan Stanley.

A follow-up on the earlier BD question. So you said that you want to do the right deal at the right price. So has the recent market pullback changed your views on external assets that might now be more attractively priced? Or do you feel things are still priced a little bit too high?

Yes, Jeff. I think the issue really is more around the science and the data and the fit. Price is certainly important. But again, we're focused on doing the right deals, early-stage -- preclinical early-stage, mid-stage, late-stage, whatever, that makes sense from the standpoint of existing data, either as those assets exist, the potential for those assets to be franchise molecules, right, in their own right and their ability to combine with compounds that we have in our portfolio as well as those that could be useful in other -- with other compounds, say, on the ICI front as well. So we have a very -- we're certainly very agnostic in looking at how we view the assets, the classes, the modalities, the targets. But the overall framework has to make sense to us and has to really fit our expectations around the science. The pullback recently is certainly something that we've noticed as well, kind of hard to miss that. But it certainly doesn't -- it's not the driver for us from the standpoint of pulling a trigger or not based upon where we see the real priority is at, finding the best assets possible that will have the longest-term potential to drive growth going forward.

Great. And then you've highlighted overlaps between RCC and HCC such as the prescribers. As you prepare for the potential launch, what differences do you see in HCC from RCC? And how are you preparing for those?

That was certainly -- it's a different indication. So there's differences clinically. There is just a lot of commonality though in community oncology generally. So clearly, there'll be some academics in KOLs and HCC that we will engage vigorously upon launch. The marketplace is so -- as I mentioned, very common customer base among community oncologists and similar in the fact that both are really TKI immuno-oncology spaces, too. So I think our experience over the last few years competing with those type of agents will really serve us well. So I think we're certainly very excited to get out there and hopefully have the opportunity to sell it as soon as possible.

Our next question comes from (inaudible).

Clearly, KEYNOTE-426 has gotten everyone excited. So I'm going to try and ask one more question about CheckMate 9ER. Is there an interim coming up? And if so, when?

Yes, we haven't really spoken about details of the trial design. Remember, the study is being run by BMS, and it's really for them to address any questions on interim analyses and the like. But this is what we can say at this point.

Okay. I had to ask. Interesting discussions with I/O KOLs. They have highlighted that AXL, MET and some of the other kinases that complemented HIF. It could be causing -- could lead to some synergy with PD-1 and PD-L1. Looking at that slide that you put with the expansion cohorts with atezo, for example, I'm wondering, does this AXL, MET synergy with PD-1, is that more particularly relevant in certain tumor types and others?

Yes, this is Peter. I'll take that one. The role of AXL and MET with respect to PD-1 is probably largely driven through AXL and MET or immune cell subset. So it's a kind of host side thing rather than a tumor side thing. So our view is, if you look at the totality of the cabozantinib target profile, we've got VEGFR, MET and AXL, those are all RTKs that play a role in modulating immune cell subsets. And in general, when they're activated, they help enhance an immunosuppressive environment. What we've been seeing in preclinical models and also increasingly in some kind of clinical PD in patients treated with cabozantinib is that you get an increase in activated T cells, you get decreases in immunosuppressive cells, just Tregs and MDSCs. And actually, there was a very interesting post of ESMO recently. Looking at -- you see patients on cabozantinib pre and post, that, one, confirm those findings and actually also showed an increase in activated natural killer cells. So we're impacting both the adaptive and innate immune systems with cabozantinib. And I think of that, that we still provide the kind of scientific underpinnings for the ongoing I/O combo trials with cabozantinib.

Okay. That's exciting. On HCC, I understand -- or we discussed in the call extensively today that you have the HCC, RCC overlap in the community setting, but I'm just wondering, do you -- is this going to be anything you could expect even in the larger prescribing centers? Just wondering what advantages unique to you you'll have when you square up against Merck in HCC.

Well, I think as I mentioned, what's, I think, exciting for us in the HCC centers, we have the synergy and the community where we've got great experience. And we're in all these centers already, though we're not hauling on those specific physicians who are HCC docs. But I think it's really the same type of story that led to our success in the early days of RCC. We've got a very experienced team. We've got great data. We've got -- we're going to have tremendous focus on educating them and moving the business. And frankly, I think one advantage we've had, and we'll continue to have at Exelixis, is we're hungry, we're small and we're nimble, with a great drug to sell. And there's not that many incremental HCC customers that we're going to have to call on. So I think that's very doable. And frankly, we have the opportunity to focus on just a couple of things and really make that count.

Okay. And then last one. When you think about pipeline, could you tell us if any -- if either small molecule or biologics are interesting to you, either-or? It just seems that there's quite a bit of data coming out from ADCs and biospecifics these days. I'm just wondering if you have a particular preference.

Yes. Mike. Yes, we're completely agnostic to the modalities that we're interested in. Obviously, it's all about the tumor biology and the data that's existing that helps guide us. The 2 deals that we've done this year, to date, one is with small molecules, one is with biologics. And we're certainly looking and talking to people on both fronts as well. So again, it's all about data and potential to be able to build a franchise either by itself or in combination with other drugs that we have in our existing portfolio.

At this time, there are no further questions. So I will turn the call over to today's host, Susan Hubbard. Ms. Hubbard, you may begin.

Great. Thank you, Justin, and thank you all for joining us today. We certainly welcome your follow-up calls with any additional questions that we were unable to get to you in today's call.

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