Exelixis Inc (EXEL) 2020 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Exelixis Third Quarter 2020 Financial Results Conference Call. My name is Holly, 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, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please go ahead.

Thank you, Holly, and thank you all for joining us for the Exelixis Third Quarter 2020 Financial Results Conference Call. Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; Gisela Schwab, our Chief Medical Officer; Peter Lamb, our Chief Scientific Officer; and P.J. Haley, our Executive Vice President of Commercial; who will together review our corporate, financial, commercial and development progress for the third quarter 2020 ended September 30, 2020.

During the call today, we will refer to financial measures not calculated according to generally accepted accounting principles. Please refer to today's press release, which is posted on our website for an explanation of our reasons for using such non-GAAP measures as well as tables deriving these measures from our GAAP results.

During the course of this presentation, we will be making forward-looking statements regarding future events and future performance of the company. This includes statements about possible developments regarding discovery, product development, 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 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 cost associated with discovery, product development, business development and commercialization activities.

And 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 continued to advance all components of our business in the third quarter as we built the foundation to accelerate revenue growth for cabozantinib in 2021, with potential new commercial opportunities in a variety of mission-critical developments and regulatory milestones. Please see our press release that was issued an hour ago for our third quarter 2020 financial results and an extensive list of key corporate accomplishments.

The highlight of the quarter was the ESMO presentation of the positive results from CheckMate 9ER Phase III pivotal trial evaluating the cabo/nivo combination in first-line RCC. We're excited to highlight the compelling activity of the cabo and nivo doublet, notably the significant improvement in overall survival, with a doubling of both progression-free survival and objective response rates and extended duration of response, the improved tolerability with low discontinuation rates and improvements in health-related quality of life compared to sunitinib. The FDA has accepted our application and granted a priority review with a PDUFA date of February 20, 2021. The Exelixis commercial organization is launch-ready in the United States should approval come sooner.

Our urgency and focus are driven by the consistent feedback from ESMO that 9ER represents best-in-class IO TKI data and reinforced by recent market research, which indicates that a large number of previously untreated RCC patients could benefit from the combination of these 2 market-leading single agents.

When the size of the first-line RCC patient population and long duration of PFS observed with the cabo and nivo doublet are viewed together, we project a potential doubling of combo RCC revenues and expect to exit 2022 with a $1.5 billion annualized run rate in the U.S., if our assumptions and modeling are accurate.

While first-line RCC remains our top priority as the next commercial growth opportunity for cabozantinib, we continue to make important progress with key discovery and development activities while advancing cabo's potential utility in additional oncology indications. Notable progress has been made in Q3 and throughout 2020, in enrolling the 4 COSMIC trials, including 021, 311, 312 and 313 as well as initiating 3 new global Phase III pivotal trials of cabozantinib in combination with atezolizumab as part of the CONTACT clinical trial program.

The success of CheckMate 9ER, coupled with data presented this year at various ASCO meetings for cabo-IO combinations in liver, prostate, lung and bladder cancers, highlights the important role cabozantinib can play as a unique and differentiated TKI backbone. These early signals of compelling efficacy and tolerability may provide potential encouraging read-through for current pivotal trials in new indications.

Finally, Exelixis continues to make significant progress in our growing early-stage pipeline. We are excited to advance XL092 into ICI combination cohorts and share the initial detail of its discovery and early clinical pharmacokinetic characterization, which validates our overall efforts to build an improved next-gen, multi-targeted TKI that phenocopies cabo's target-inhibition profile with a more user-friendly clinical half-life.

We aim to apply our 15-plus years of clinical experience with cabo to a broad and accelerated development plan that has the potential to demonstrate a substantially improved risk profile compared to more typical early-stage programs. We anticipate XL092 will move into full development in 2021.

Beyond XL092, our early-stage pipeline continues to advance nicely with internal discovery efforts in a number of important new collaborations to reinforce our growing presence in ADCs. We expect to file up to 4 new INDs over the next 6 months as a result of our internal efforts and the work of our discovery partners. I'm incredibly proud of the commitment and focus displayed by the entire Exelixis team as we continue to drive our business forward during these challenging times.

So with that, I'll turn the call over to Chris, who will provide an update on our Q3 financial results.

Thanks, Mike. For the third quarter 2020, the company reported total revenues of $231.1 million. Total revenues for the quarter included cabozantinib franchise net product revenues of $168.6 million. Net product revenues in the third quarter 2020 were negatively impacted by lower demand and by a decline in wholesale inventory. Total revenues also included $62.5 million in collaboration revenues from Ipsen, Takeda and Genentech.

Our total operating expenses for the third quarter of 2020 were $273.7 million compared to $183.9 million in the second quarter of 2020. R&D expense was the primary driver of the increase in total operating expenses, which increased by approximately $61.8 million and was primarily related to increases in licensing and milestones fees associated with existing and new business development activities, stock-based compensation expense and clinical trial expenses from our continuing investments in cabozantinib in our emerging pipeline.

Provision for or benefit from income taxes for the third quarter 2020 was a benefit of $6 million compared to a provision for income taxes of $13.9 million for the second quarter of 2020. The company reported a GAAP net loss of $32 million or $0.10 per share basic for the third quarter 2020.

The company also reported non-GAAP net income of $11.2 million or $0.04 per share on a fully diluted basis. Non-GAAP net income excludes the impact of approximately $43 million of stock-based compensation expense net of the related income tax effect. Cash and investments for the quarter ended September 30, 2020, was over $1.5 billion.

Now turning to our fiscal year 2020 financial guidance. We are updating the financial guidance we provided earlier this year to reflect the changes to our business in the second half of 2020. We are maintaining our total revenue guidance, which we expect to be in the range of $900 million and $950 million due to higher milestone and R&D reimbursement revenues. Net product revenues are expected to be in the range of $700 million and $725 million. Cost of goods sold is expected to be approximately 5% of net product revenues.

Research and development expenses are increasing due primarily to higher forecasted licensing expenses and are expected to be in the range of $550 million to $575 million, which includes noncash expenses related to stock-based compensation approximately $40 million.

Selling, general and administrative expenses are increasing due primarily to incremental personnel-related costs and are expected to be in the range of $290 million and $300 million, which includes noncash expenses related to stock-based compensation of approximately $70 million.

Guidance for the effective tax rate in 2020 is decreasing and is now expected to be in the range of 14% and 16%. And finally, we are projecting cash and investments to be in the range of $1.5 billion and $1.6 billion. This guidance does not include the impact of potential new business development activities.

And with that, I'll turn the call over to Peter.

Thanks, Chris. I'm happy to provide an update on our preclinical development and pipeline expansion efforts. Work at our discovery laboratories in Alameda is continuing following stringent protocols to protect the health of our employees. It is exciting to see the ongoing flow of data, and we're continuing to make progress on our early-stage discovery program. And I'd like to take this opportunity to thank all of our discovery team members for making this happen.

Work at our discovery partners, particularly Invenra, Aurigine and Iconic, has continued to advance as has preclinical development work at our network of CROs. As a result, we now have the opportunity to file up to 4 INDs in the next 6 months. This quarter, we could file INDs for the CDK7 inhibitor, AUR102, from our Aurigine collaboration, which, going forward, we will refer to with XL102; and the tissue factor-targeting ADC ICON-2 from our Iconic collaboration, which we will refer to as XB002 going forward. Early next year, we could also file INDs for XL265, a TAM kinase-focused TKI from our internal laboratories, and a second compound from our Aurigine collaboration with a novel mechanism of action.

We recently presented data on XL092, our next-generation MET, VEGFR, AXL, MER inhibitor that is currently in Phase I trials at the recent EORTC NCI AACR meeting. In addition, Aurigine presented data on XL102, the CDK7 inhibitor, at the same meeting; and Iconic presented data on XB002, the tissue factor targeting ADC, at the recent World ADC Conference. We plan to present data on XL265 and the second Aurigine compound at major scientific meetings next year.

I will recap some of the key data from the XL092 presentation. XL092 is intended to build on the in-depth understanding that we've gained with respect to the clinical activity of cabozantinib, both as a single agent and in combination. Cabozantinib is a potent inhibitor of the RTK's MET, VEGFR2, AXL and MER, which are widely expressed on tumor cells and on cells in the tumor microenvironment. Both MET and AXL are overexpressed in a variety of solid tumors and their activation drives tumor growth, survival, invasion and metastasis. In particular, upregulation of MET, and increasingly, AXL, has been linked to resistance to multiple therapeutic interventions, including chemotherapy, targeted therapy, anti-angiogenic therapy, radiation and immune checkpoint blockade. Both MET and VEGFR2 are also expressed in the tumor endothelium and their activation promotes tumor angiogenesis.

All 4 RTKs are expressed in various immune cell types in the tumor microenvironment and their activation from most immune suppression. For example, activation of AXL and MER on tumor-associated macrophages promotes the immunosuppressive M2 macrophage phenotype. Activation of VEGFR2 promotes Treg and MDSC proliferation, while MET activation inhibits antigen presentation by dendritic cells. Upregulation and activation of MET in a suppressive subset of neutrophils also occurs in response to immune checkpoint blockade in a preclinical model and is thought to drive resistance.

Cabozantinib has shown promising activity in combination with PD-1 or PD-L1 antibodies in Phase Ib and Phase III clinical trials. In the clinic, cabozantinib has a terminal half-life of about 99 hours, which results in initial drug accumulation and an extended washout period when drug is withdrawn. Our aim in optimizing XL092 was to identify a compound with a similar target inhibition profile to cabozantinib but with a shorter clinical half-life.

The in vitro profile of XL092 shows that it's a potent inhibitor of MET, VEGFR2, AXL and MER in biochemical and cellular assays with the relative activities against these RTKs being comparable to cabozantinib. Oral dosing of XL092 to tumor-bearing mice results in profound inhibition of MET and AXL activity in tumors and of VEGFR2 activity in lung tissue, consistent with the in vitro profile. XL092 is highly active at well-tolerated doses in multiple xenograft models with activity that's comparable to cabozantinib.

XL092 has also been tested in the CT26 murine syngeneic colon carcinoma model, both as a single agent and in combination with a PD-1 antibody. This model is relatively refractory to PD-1 antibodies, and a PD-1 antibody alone did not improve the survival of mice compared to vehicle. In contrast, single-agent XL092 significantly improved survival. Notably, the combination of XL092 and PD-1 antibody resulted in a further improvement in survival, suggesting synergistic activity for the combination. All treatments were well tolerated.

XL092 is currently in a Phase I trial in patients with advanced solid tumors. Over 4 cohorts and 2 formulations, dose-dependent increases in Cmax and AUC are evident. The terminal half-life for XL092 is between 20 and 28 hours, significantly shorter than the 99-hour terminal half-life for cabozantinib. Overall, the data showed that XL092 meets the goal of maintaining the cabozantinib target inhibition profile while having a significantly shorter clinical pharmacokinetic pathway.

We've had a very busy quarter from a business development perspective and are advancing a number of discussions. We continue to assess opportunities in both the small molecule and biologics space, which we find scientifically compelling and where we see a clear path forward for us to effectively develop and commercialize, with an emphasis on clinical or [new] clinical-stage programs. We recently announced new collaborations with Redwood Catalent and NBE-Therapeutics to develop novel ADCs using their respective site-specific conjugation and payload technologies.

Through these collaborations, we intend to develop a pipeline of ADCs to address a broad spectrum of tumor types by targeting selected tumor antigens specifically matched with the most appropriate payloads for a given indication. These would follow on from what would be our first ADC to reach the clinic, XB002, that's the subject of our collaboration with Iconic and for which IND filing could occur in the near future. We look forward to providing additional updates on these BD discussions as they come to fruition.

I'll now turn the call over to Gisela.

Thank you, Peter. I'm pleased to provide an update on our cabozantinib regulatory and development program, our progress on XL092 and new compounds moving towards IND.

I'll start with CheckMate 9ER. We have made a lot of progress since the positive top line results were announced for cabozantinib and nivolumab combination in first-line RCC in late April by BMS and Exelixis. As you recall, the study demonstrated a significant benefit over the comparator, sunitinib, for all 3 efficacy end points, including a significant improvement in overall survival with a 40% reduction in the risk of death and a doubling of PFS and objective response rate compared to sunitinib.

Additionally, the combination of cabozantinib at 40 milligrams daily and nivolumab was generally well tolerated and associated with a low discontinuation rate while maintaining improved quality of life compared to sunitinib. Detailed results of the study were presented by Dr. Toni Choueiri at the recent virtual ESMO conference in the presidential symposium and favorably discussed by Dr. Camillo Porta.

On the basis of the results from the trial, we have made great regulatory progress together with BMS and our partners, Ipsen and Takeda. We have completed the supplemental NDA filing concurrently with BMS' supplemental BLA filing in the United States in August, and FDA has recently accepted the submissions for priority review and assigned a PDUFA date of the 20th of February 2021. Concurrently with the United States submission, BMS and Ipsen have also completed the submission in Europe to the EMA, and the filing was validated on September 12, 2020. Further international filings have also been accomplished, including Switzerland, Australia, Canada and Brazil, with many more to follow in short order. And also just a few days ago, our partner, Takeda, together with Ono Pharmaceuticals, have announced the submission of concurrent sNDAs for the combination of cabozantinib and nivolumab for advanced RCC in Japan.

Besides the progress on CheckMate 9ER, the ongoing Phase III program for cabozantinib continues to make rapid progress. We have continued our efficient execution of the COSMIC-021, 311, 312 and 313 studies, where these have either completed or are nearing full enrollment on a global level. And we are on track for top line results for these trials as previously shared. Importantly, we have also been able to start up the 3 Phase III trials under the CONTACT Phase III program in collaboration with Roche, and all 3 studies are now screening and enrolling patients globally.

Looking back on this quarter, I am thrilled with the progress of the cabozantinib program and the level of execution by both our own teams and our clinical (inaudible) teams, who, together, have been able to make significant progress despite the challenging times and conditions around the world due to the global pandemic -- progress despite the challenging times and conditions around the world due to the global pandemic.

I'll now turn to the progress on our XL092 program and our new IND projects. As Peter described in detail, XL092 is our next-generation MET, AXL, MER and VEGFR tyrosine kinase inhibitor that has been designed with a similar target profile as cabozantinib but with a shorter pharmacokinetic half-life. This is expected to allow for rapid and flexible management of tolerability while maintaining the efficacy profile associated with potent inhibition of key targets in the cabozantinib profile.

Our ongoing Phase I study has already confirmed that the goal of designing a molecule with a shorter pharmacokinetic half-life has been accomplished, and we've recently begun the evaluation of the combination with atezolizumab in a parallel Phase Ib part of the study while completing single-agent dosing.

We are also in the late stages of planning a broad and comprehensive development program for XL092 across various tumor indications, lines of therapy and settings of interest and intend to pursue the comprehensive evaluation of XL092 in combination with various established checkpoint inhibitors and potential new combinations, including promising new checkpoint inhibitor duplets as well as other combination partners of interest.

We have a deep and solid foundation in TKIs and extensive experience with cabozantinib and see many opportunities to build on and expand the therapeutic settings as we plan for potential tumor indications and lines of therapy for XL092 combinations, including first-to-market strategies for high unmet need indications with potential for accelerated development; second, moving beyond cabo strategies and building on clinical experience in tumors, where cabozantinib is approved or being developed with the goal to develop new standards of care with novel and expanded combinations; third, expanding the TKI footprint by investigating new indications in the IO white space where XL092 can potentially improve outcomes through cooperative activity with immuno-oncology compounds; and finally, exploring new opportunities and approaches in treatment settings that might be accessible to XL092 with potentially improved tolerability due to shorter half-life.

With the goal to potentially start late-stage trials as soon as 2021, we are focusing on advancing Phase Ib dose-ranging in combination with checkpoint inhibitors rapidly to move into expansion cohorts that may support data-driven, late-stage development options across a variety of tumor types.

Based on our 15 years of experience and clinical success with cabozantinib, we are highly confident that the RTK inhibition profile of XL092 should also have broad utility, and the shorter half-life for the chemically distinct molecule is likely to offer potential advantages and differentiation as well. This experience and understanding drives our excitement and enthusiasm around XL092, and we ultimately view the development risk profile as potentially being greatly improved versus more typical early-stage programs.

And I'll close with a brief word regarding our IND candidates. We are working towards IND filing before end of year for XL102, the CDK7 inhibitor that has been discovered by our partner, Aurigine, as well as for XB002 or ICON 2, our first biologic product candidate, an ADC that has been discovered by Iconic. Additional IND candidates also are making good progress and will reach IND filing in the next few months.

And with that, I'll hand the call over to P.J.

Thank you, Gisela. I'm pleased to discuss the CABOMETYX business as we head into 2021, which will be a transformative year for the brand as we anticipate our first potential combination approval in first-line kidney cancer and, subsequently, further combination data presentations for cabo.

The strong 9ER data positions CABOMETYX to return the franchise to significant revenue growth. The momentum built with the launch could further be driven by additional data readouts and other important indications as the robust cabo development program continues to generate data. I will discuss the opportunity that 9ER provides Exelixis looking forward as we continue to build upon the foundation in RCC, where we remain the #1 prescribed single-agent TKI.

We are pleased that CABOMETYX market share remained stable in Q3 in our key segments in both RCC and HCC. According to brand impact to IQVIA, CABOMETYX TRx share was stable at 31% in Q3 relative to 30% in Q2, while at the same time, TRx volume of the RCC oral TKI market basket of CABOMETYX, INLYTA, SUTENT and VOTRIENT declined by -- in Q3 by 6% relative to Q2. CABOMETYX TRx volume declined by 3% in Q3 relative to Q2.

As I mentioned, our focus is squarely on future growth of the cabozantinib franchise, and we are excited by the recent outcome and presentation of the CheckMate 9ER study. We believe that these results, pending regulatory approval, may provide us with the opportunity to grow CABOMETYX market share and increase duration of therapy in the first line.

The 9ER data in a presidential session was among the most high-profile presentations at the 2020 ESMO conference, and the data were extremely well received by the KOLs and in market research we have conducted. The ICI combination opportunity is large, with 15,000 RCC patients in the U.S. eligible in the first-line setting, with ICI combination therapy consisting of approximately 80% of that market.

According to this brand impact data, ICI-TKI combinations constitute 50% of the first-line market and are widely used across clinical risk groups, demonstrating the broad potential for CABOMETYX with nivo in the first-line setting. Additionally, ICI combinations constitute approximately 20% of the second-line RCC market.

CABOMETYX was approved in RCC over 4 years ago. During this time, it has developed very strong brand equity and is viewed as the best-in-class TKI in RCC. The Exelixis team has significant experience in RCC with 2 prior successful launches, and we look forward to the opportunity to educate physicians on the 9ER data post-approval so that more patients have the opportunity to benefit from CABOMETYX therapy in the first-line setting.

The strength of the 9ER data speaks for itself a doubling of median progression-free survival and ORR and superior overall survival versus sunitinib, which provides us with strong differentiation versus the other IO combination therapies currently available. Importantly, clinical benefits were observed in the vast majority of patients in the trial, resulting in a low rate of primary progression regardless of IMDC risk status or patient subtype, supporting broad use in the marketplace.

In addition, the optimized cabo combination starting dose of 40 milligrams daily yielded a compelling safety and tolerability profile along with a low treatment discontinuation rate and favorable quality of life, all of which has been notable with physicians in our research.

Taken together, the combination of a best-in-class TKI, like cabo, with a well-established immune checkpoint inhibitor, like nivolumab in RCC, along with the strong efficacy and safety data from CheckMate 9ER, present the opportunity to share compelling and highly motivating story to our customers and enable broad positioning across clinical risk groups in first-line RCC.

Feedback on the CheckMate 9ER data with both academic and community oncologists has been extremely positive, and we believe we can leverage the success and prescriber familiarity of both cabo and nivo to gain traction quickly in the combination setting when approved. Our team is laser-focused on launch preparation as we stand ready to engage our customers in both live and virtual settings as appropriate as soon as FDA approval is granted.

At the same time as we launch CABOMETYX in combination in the first line, there will continue to be patients progressing from ICI-based therapy into the second line that will be eligible for CABOMETYX monotherapy. We continue to capture a very high percentage of that patient population and believe cabo may grow in the second-line setting as well. There's a great deal to be excited about as we think about the totality of the CABOMETYX RCC business looking forward.

The 9ER data positions cabo/nivo to take significant market share in the first-line setting and provides insights into the potential duration of therapy for CABOMETYX in combination. The median progression-free survival per investigator was over 19 months and the median duration of response was over 20 months in the study, pointing to the potential for the duration of therapy to be significantly longer than cabo monotherapy.

Taken together, the increase in first-line market share and duration, along with the potential growth in second line, positions the CABOMETYX RCC business to vector towards a run rate of $1.5 billion in U.S. revenue by the end of 2022. This projection is, of course, contingent upon our modeling and assumptions, which include a total of 5 ICI combinations in the marketplace. Furthermore, this does not include any potential incremental revenue from COSMIC 313, the triplet of cabo, nivo and ipi or any other new cabo data readouts.

Beyond 9ER, we are very excited by the cabozantinib development program as it moves forward broadly across multiple indications with different combination partners. We look forward to building on this momentum in RCC, HCC, DTC and other potential future indications, such as prostate and lung, as our development program evaluating cabozantinib in combination with immune checkpoint inhibitors advances. Our team remains highly focused and motivated to compete every day to bring the benefit of CABOMETYX to all eligible patients as we continue to build the franchise and maximize its clinical and commercial potential.

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

All right. Thanks, P.J. As we outlined at JPMorgan in January 2020 is a transitional year for Exelixis as we navigate important readouts from ongoing pivotal trials, like 9ER, and advance our pipeline with cabo life cycle management activities and new indications and combinations while at the same time building a diversified portfolio of assets. To date, 2020 has been a year of significant achievement and progress across all components of our business in the face of the COVID-19 pandemic. Unfortunately, we continue to acknowledge the potential risk to our business should the pandemic continue to grow in severity, as we've all sadly seen over the last several months.

I'll close by reiterating the 3 key themes from today's call. First, we expect 2021 to be a transformational year for Exelixis and the cabo franchise as we project a 9ER approval to accelerate revenue growth for cabozantinib. Based on the size of the first-line RCC market and the long duration of PFS in 9ER, we expect to exit 2022 with a $1.5 billion annualized run rate for RCC in the U.S. if our modeling is accurate.

Second, we're encouraged by XL092 as a next-gen, multi-targeted VEGFR, MET, AXL, MER inhibitor with a more user-friendly clinical half-life and the significant opportunity it represents to broadly expand into new and existing solid tumor indications with a variety of IO backbones and combination strategies.

Third, we are aggressively advancing and investigating a diverse portfolio of next-generation Exelixis cancer medicines, including both small molecule and biological modalities, to increase our potential success in helping even more cancer patients with difficult-to-treat tumors.

I'll close by thanking everyone at Exelixis for their efforts in the third quarter under conditions that appear to get more and more challenging each quarter. The majority of our team has been working from home for more than 7 months now and continues to meet the demands of our business with great teamwork, expertise and energy.

I'm incredibly proud to say that the entire Exelixis team continues to work as one in making every day count as we discover, develop and commercialize the next generation of our medicines for cancer patients in need of better and more effective therapies. We look forward to updating you on our progress in the future. Thank you for your continued support and interest in Exelixis, and we're happy to now open the call for questions.

(Operator Instructions) Our first question is going to come from the line of Asthika Goonewardene with Truist.

A few, if I may. Peter, can you maybe tell us a little bit about what mechanisms of action besides PD-1 and CTLA-4 makes sense to you? I'm just wondering if you're thinking about [immune-active] vaccines and those kind of mechanisms as well.

Gisela, I totally understand that you have a lot of opportunity to accelerate development of 092, and we're quite excited to see what you guys do there. But maybe I was wondering for us on the outside, when would we get maybe a first glimpse of that single-agent and PD-1 combo data from the dose expansion.

And then, Mike, I have to ask. You mentioned $1.5 billion in cash. That's a nice chunk that you have there. How are you thinking about business development activity for 2021? And maybe the color of whether there's still going to be more licensing deal focused or where the acquisitions could be under play would be helpful.

All right. Thanks, Asthika. There's a lot there. Why don't we start with Gisela and Peter on 092. Gisela, you want to start there?

Sure. Absolutely. Thank you for the question. And your question was around when do we get a first look on the Phase I data. Peter referred to a little bit of the pharmacokinetic data that was included in the recent presentation. And we showed already that the molecule is behaving as hoped for when it was designed and that it has shown a shorter half-life of about 24 hours or so.

And regarding further data, we'll present data certainly when we have mature data. And just know that we are hoping to start late-stage studies in 2021. And of course, we see the data before we even get to presenting or publishing it. And so we can make decisions certainly a little bit earlier. And as we do, you'll see us move forward in that direction.

Yes. I mean just to take your question on the kinds of IO modalities might be good to combine XL092 with -- I mean I think our view is that there's a broad opportunity there beyond the obvious, PD-1, PD-L1, CTLA-4, as you have commented, which we already have clinical POC essentially from cabozantinib. Obviously, we'll continue to look at the development of additional IO agents, be they novel checkpoint inhibitors, be they cytokines, any and all of which could end up being appropriate combination partners, either in a doublet or potentially even triplets with XL092, depending upon the indication and the setting.

Okay. Great. Thank you, Peter. Thanks, Gisela. Asthika, on the BD side, as we said previously, we're very focused on using business development activities to expand our pipeline of either clinical and/or preclinical compounds that we're pursuing. We certainly did a number of deals, 2 announced this quarter with NBE and Catalent.

On the ADC side, we have a whole roster lined up of potential deals kind of coming down the pipe. When those get done -- if those get done, we'll talk about those in more detail. Obviously, we have, I think, a pretty good feeling for the kind of activity we're looking for, the obvious importance of, if possible, combining with 092 as we go forward as well. So there's lots of opportunities, and it's a full team effort here in terms of how we're focused to make sure that we make the right investments for the right assets at the right time for the right value, right? So -- but we're very excited about the recent additions to our -- to the network of collaborators that we have and looking forward to getting those collaborations going and really cranking at full speed.

Our next question is going to come from the line of Jason Gerberry with Bank of America.

This is [Chi] on for Jason. I guess maybe first one for me is that you talked about ICI combo in renal. You talk about that there's about 20% of the patients who use the ICI combo. But curious, do you have a split between IO-IO versus IO-TKI in that 20%? And were -- these patients, did they receive TKI monotherapy? Or were they IO retreatment where, say, they may have received an IO-TKI in front line and that's just an IO-IO in second line?

Yes. Thanks for the question. This is P.J. I'll take that. So as I mentioned, we think of the 9ER opportunity as very large and broad. And per your question, looking at the current sort of market share of IO combinations, in RCC, the 20% is in second line. So what we see -- and this is all according to brand impact, IQVIA data in first line, IO combinations account for about 80% of the market, right? And that's a large place, and that's the large population, and that's the setting in which the 9ER study is done. So we would anticipate really uptake in that first-line setting.

Of the 80%, about 50% total of the market is IO-TKI. The 20% I was referring to is the second-line uptake of IO combinations, and that's kind of a mix of IO-TKI, IO-IO, and this is, again, according to brand impact. And you really see those coming after just a variety of first-line agents. There's no real strong pattern there. But I think what excites us about, certainly, the 9ER data and the market research we've done with quite a large number of physicians at this point is that the feedback on the data is very positive, as I mentioned, with regards to the safety and tolerability, the efficacy data, the quality of life data. And we think we'll have a significant opportunity, particularly in that first-line setting, and I think we can really drive a lot of market share.

And as I mentioned also, the duration of therapy aspect will be really significant for the business when we look at 19 months of PFS by investigator, 20 months' duration of response in the 9ER study. So we believe that, that duration of therapy will be long and certainly much longer than what we see in CABOMETYX monotherapy.

Awesome. I guess going back to the front line, it seems to be like IO-TKI keep pushing up a bit by bit every other quarter or so. Do you see there's opportunity for IO-TKI to expand further with the potential approval of 9ER? And where -- right now, it is at 40%, 50%, where do you see that potentially can reach? Where do you see the potential ceiling for IO-TKI segment in the front-line setting?

Yes. Yes, great question, [Chi]. And as I mentioned, we kind of see that potential broad. So the 50% IO-TKI, we certainly view as our profile being best in class, and that's the feedback we're getting and being very competitive there. So we think we can take share in that segment. We certainly believe we can take share in the other segments, broadly the IO-IO segment, as well as the 20% that are TKI monotherapy because certainly, this is compelling data. And as we have the opportunity to educate physicians on it, we think we can expand the market and really steal share from all of those segments to benefit patients.

Awesome. I guess maybe a last one from me is that if you guys can provide any color on your progress on your second lung and your prostate cohorts in COSMIC-021 and when can we potentially expect next data update for these 2 particular indications.

Gisela, do you want to take that one?

Absolutely. Thank you. Thanks for the question, and happy to address that. So for CRPC and for non-small cell lung and the checkpoint inhibitor pretreated population, we have presented data earlier in the year at ASCO GU and also at ASCO for the non-small cell lung cancer indication and both have shown encouraging activity for the cabozantinib and atezolizumab combination, showing response rates for CRPC of 32% with a long duration and disease control rate of 80%. And likewise, for the lung cohort, we saw a 27% response rate and a nice disease control rate there as well.

These cohorts, cohorts 6 and 7, have now fully involved in COSMIC-021, and we're following up patients to fully understand mature data in both of these populations. And then additionally, of course, we are planning towards a potential accelerated approval path, in particular for the CRPC indication, where we had initial interactions with the FDA. And that will be dependent on cohort 6 data and when it's mature but also additional cohorts in CRPC and the 021 study.

So certainly, following up these cohorts, and we look forward to providing updates as they become available for both indications. And just to complete on the non-small cell lung cancer cohort and the checkpoint inhibitor pretreated patient population, we are also completing enrollment with 80 patients and we have a single-agent cohort in this study as well. So this has advanced very nicely, and we look forward to more mature data.

And maybe just one quick follow-up from me. When you said you had the initial interaction with the FDA on the prostate cohort 6 data, when did that interaction happen?

We have discussed that on various conference calls. So that happened a while back when we discussed the initial encouraging observations in the cohort 6, based upon the first 30 patients or so, where we've seen very encouraging results in terms of objective response rate. So that's a while back and when we received that initial encouraging feedback.

And our next question is going to come from the line of Peter Lawson with Barclays.

Just on revenues, just if you could break out anything around that low demand, whether it came from academia or the community setting and what inventory was this quarter.

Yes, this is P.J. With regards to the quarter and demand, what we saw there, as I kind of referred to in the script, is the entire market basket of TKI in RCC were down approximately 6%. And really, I think that's sort of a broad dynamic there in the market. And we didn't really see any differences with regards to academic or community there.

Certainly some impacts still from COVID with regards to what we're seeing in the health care system, patient visits being down, various follow-ups, et cetera. So I think that's something we saw broadly with regards to the market and certainly also saw in the -- in those products, reporting earnings as well.

Yes. Peter, this is Chris. So from a reported perspective, we reported revenue down quarter-over-quarter about -- sequential quarter, about $10 million. About half of that was related to demand, which kind of correlates with what P.J. was talking about. This is for cabozantinib franchise. And then of the remaining $5 million, probably about $3 million or so is related to inventory, and the rest is related to slightly higher gross to net.

Great. And then just as we think about Q4, what helps drive acceleration on those revenues? And any color around kind of what could be happening in October?

Yes. Peter, it's Mike. Yes, it's probably not appropriate to talk about the quarter this early. Obviously, the biggest driver for revenue growth is 9ER approval and launch, as we talked about in the script. So we're ready to roll once we get the letter, and we're certainly excited about the data and the potential. And the team is certainly very skilled and prepared to get out there and educate physicians and prescribers on the data. So -- but that's the big driver, and that's the big message for the call today.

Great. And then just finally, anything around HCC, any sense around growth or if that was declining as well?

Yes. Peter, it's P.J. again. Yes, one thing I would say is that basically, the HCC business is stable in Q3. More broadly, as we look forward in HCC, we're obviously looking forward to the 312 study reading out in combination in the first-line setting with atezo in HCC. And what we've seen is bev/atezo approval in Q2 has really driven significant quick uptake for that regimen in first-line HCC, and that bodes well potentially for another combination, such as cabo-atezo should the data be positive.

And also, it's moving IO therapy into the first-line in HCC. So as we kind of look longer term, we would anticipate a similar dynamic to what we've seen in RCC, whereas IO moves forward and then that sort of that 50% or so of the market that they occupied in second-line kind of opens up for more TKI utilization. And we think the CABOMETYX data in our current label from the CELESTIAL study in HCC in the second line is well positioned to then take more of that share in the second line as patients progress beyond IO therapy in HCC.

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

So I have a question regarding basically data presented at the triple meeting. So I think the take-home message there is that there are more similarities than differences with the exception about a -- like a tenfold higher potency against AXL. So the first question, I guess, for Peter or Gisela is kind of the clinical relevance, why specifically you chose to optimize that specific target.

And also kind of thinking about bigger picture in -- thanks, Gisela, for kind of laying out the development path for 092. But just given the similarities, how much can you kind of peak into what you have in-house for COSMIC-021 and accelerate the development of 092? And that question really derived from the fact that you're thinking about advancing that asset into late-stage development next year.

Yes. Maybe I'll start, Andy. Thanks for the question as ever. Yes. So I think if you got the message from the presentation at the triple meeting with [BA] with 092 was to retain the target profile of cabo, so potent against MER, AXL and potent against VEGFR2. There's one slight wrinkle there where with cabo's VEGFR2 potencies is -- it's more potent against that than MET. And that feature will be very much retained in XL092. I think that plays out quite nicely in the in vivo setting as well.

I think -- yes, we didn't specifically optimize on AXL potency. We wanted to be sure it was potent enough. And as you correctly say, it turned out being a bit more potent. I mean it's definitely an emerging target of interest in many solid tumors and a lot of indications we may go to, but that was not a primary driver of the optimization. It was really retaining that target profile whilst giving us something that has a significantly shorter pharmacokinetic half-life.

Okay. Gisela, do you want to take the second part of this question?

Thank you. Thanks for the question. So the question was around the development path and what can we learn -- have we learned from COSMIC-021 and what we can we apply for 092 and how can we drive things forward. I think this is a key question. Of course, XL092, as Peter described, is a differentiated product, and the profile suggests that it has a shorter half-life -- and while retaining the target inhibition profile that we've learned to love with cabozantinib, and we've seen very encouraging activity with. And so with that, certainly, we have lots of experience with cabozantinib as a single agent, in combination. And so everything that we've learned and anything really in 021-- COSMIC-021 but also in other clinical experience with cabozantinib is coming to bear in some way that we can build on when we think about the development cost for XL092.

While we're not looking to replace cabozantinib, we're rather viewing this as a development cost with the opportunity to build upon that experience and broadly expand the opportunity into indications outside the current and near-term specific indications that comprise the existing cabozantinib footprint also including combination partners' line of therapy and tumor indication.

And so I think we certainly see a lot of opportunity for XL092's broad development plan with various combination partners and in different lines of therapy but also across an array of different indications. And that may include some of the cabozantinib indications, but again, we're not looking to replace cabozantinib. We're not looking to do head-to-head studies.

Great. And maybe one more for P.J. Going back to the kind of the dynamic COVID-19 impact with the TKI market, I'm just wondering if you're seeing any inflection point and maybe your thoughts on when that is going to stabilize. Would it be -- would like a vaccine be necessary? [Would we] kind of see that? Or you anticipate some sort of stabilization going in the near term?

Yes. Thanks for the question, Andy. I wouldn't want to speculate too much specifically on the RCC TKI market vis--vis COVID. I think anecdotally, customer feedback, you do hear that things are starting to get back to normal, depending on the geography, the location, telehealth, et cetera. But I think when you do look at data that's been put out there published from folks like the community -- COA, the Community Oncology Association (sic) [Community Oncology Alliance], you see that these things have impacts of screening of just follow-up things that may influence the patients' journey.

So those, I think, just take a little bit of time, and this is broadly for oncology kind of work through the system. Obviously, you can't really -- there's no crystal ball for anyone with regards to the pandemic. And I think the system is just working through that. But I wouldn't want to speculate too much looking forward. But I think what's important for us, as kind of Mike mentioned and we mentioned in the call, is that we're very excited about 9ER with regards to getting that approval and then being ready to go with the launch and really driving growth and the business forward for CABOMETYX with that approval.

And our next question will come from the line of Yaron Werber with Cowen.

This is Leo on for Yaron Werber. I have a couple of questions, first is regarding the cabo. You guys mentioned about the market trend for TKI. I'm just wondering if you see any specific trend or difference in terms of different market segments, such as maybe the second-line RCC versus the first-line RCC.

And within first-line RCC, are you seeing any like different trends in the different risk categories in terms of favorable risk versus [poor] risk? I'm just wondering how the potential approval of 9ER in first quarter next year or the potential data from COSMIC-313 would kind of reverse that trend. And I have a follow-up question for 092.

Yes. Leo, this is P.J. I'll take that first question. So as I mentioned broadly, we've kind of presented the TKI trends and what they were. But what I would say is when you look at the market for RCC, you see significant utilization of combinations in the frontline setting. Approximately 80% of the frontline setting is combination therapy in terms of IO and something else, and 50% of that is IO-TKI.

So I think significant opportunity there for 9ER looking forward, pending an approval. And as I kind of mentioned, we see 9ER competing across clinical risk groups, which is what we see the current IO-TKI therapy doing now as it's getting share and favorable intermediate and poor risk. And we see 9ER potentially competing across all of those well as well as across all competitors.

With regards to the second line, we see CABOMETYX retaining our market share kind of across segments, certainly in the second line, currently our key segment there, and have the potential for growth. And we really get the vast majority of patients who are progressing from an IO-based therapy in the second line. So again, I could see potential growth there as we look forward. So I think we're looking at just the potential to grow broadly, pending the approval of 9ER, which we're extremely excited about.

Okay. So in terms of the first-line RCC dynamics, are you seeing more of like decreasing trend of the use of IO-IO versus IO-TKI? Or it still maintained the same?

Yes. I mean we've got -- if you look at one of the slides, we've got that broken out in a bar chart for you. So we see about 50% of the first line as IO-TKI currently. And I would say that's either maintaining or slightly been increasing is what we've seen over the last couple of quarters. So I think that shows that IO-TKI is really -- is kind of resonating broadly in the marketplace. So I think there's the opportunity to really build on that momentum with CABOMETYX in a potential 9ER approval.

I see. So regarding the 092, I'm just wondering if you identify any potential indication that will allow you to go through the accelerated regulatory path.

Yes. This is Gisela. Thanks for the question. I think this will be entirely data dependent. And at this point, it's a little bit early to speculate at this point. So in the Phase I study, we have incorporated expansion cohorts in specific indications. And as we learn more about the compound, we certainly examine the data and make data-driven decisions.

And our next question will come from the line of Michael Schmidt with Guggenheim.

Maybe just a couple of follow-up to prior questions. It's been a little while now since ESMO, where the CheckMate 9ER data was presented. Just wondering what feedback has been now from KOLs since it's been a while and wondering what your level of engagement with physicians has provided the feedback in that regard. And also wondering how we should think about potential inclusion in NCCN guidelines prior to approval of the combination in February?

Yes. Michael, this is P.J. So I'll just -- with regard to the second part, I mean in NCCN, I won't speculate on what they -- or when they might do it. We just have to kind of wait and see how that goes. With regards to feedback, we've talked to a lot of KOLs, conducted many ad boards, and we've also done market research with a significant amount of community and academic physicians. So we're talking well over 100 physicians at this point. So I think we've gotten a really nice sampling and flavor of feedback. And it's all been extremely positive, and we believe this will be a best-in-class combination in terms of IO-TKI. Really looking at the totality of the data, it's impressive.

When you look at the efficacy in terms of it's the only combination that doubles progression-free survival and objective response rate while increasing improving overall survival and doing that while it maintains quality of life relative to sunitinib, which is really novel in this setting.

And I think you kind of wrap all that up in the fact that this is a new optimized dose of 40 milligrams daily in terms of with combination in nivo here, and physicians are viewing this very favorable and looking at in a sense that they're getting efficacy that they really want to use for their patients with a tolerability sort of safety profile and quality of life that they really like and can kind of build on their experience really both these agents separately.

So it's been very favorable. I think -- we're excited. We're ready to go and launch it sort of across the board, both virtually and in person. And I think that the entire team is just looking forward to having the opportunity to get out there and educate on the data.

Okay. And then on COSMIC-312, the frontline liver cancer study, I guess how do you think about potential differentiation from the approved TECENTRIQ-Avastin combination? And is it purely an efficacy question? Are there other factors at play that might sway physicians to prescribe one versus the other combination potentially or pending success, obviously?

Yes, Mike, P.J, I'll address that as well. I think, obviously, we'll have to get a positive study. And the answer to that will be data dependent. I think a couple of things as I think about that setting, though, is we're seeing in multiple data sources the atezo-bev combination do well in terms of rapid uptake in the first line, seeing first-line share of already 30% to 50%.

So that said, I think it will be a great opportunity to differentiate depending on the data with instead of an IO-bev option, an IO-TKI option, so a novel mechanism of action. And this is a tumor type very much like renal, where TKIs have been a backbone of therapy for over a decade. So I think that will be well -- will do well from an experience standpoint there.

And then I think there are certain nuances with regards to bevacizumab in terms of the inclusion criteria and potential places where physicians will want to think about what are appropriate patients given that safety profile, where perhaps we'll have a slight advantage there. But obviously, we'll have to really wait and see the data. But certainly represents a large potential growth opportunity in the first-line setting, and in the interim, potentially some opportunity for those patients progressing on an IO-based therapy into the second-line HCC.

Okay. And then one maybe for Peter or Gisela. Just on XL092, so given the similar finding characteristics of that molecule, CABOMETYX. And I guess the shorter half-lives, how would one expect that to translate into a differentiated clinical profile? Is it mainly a safety advantage? Or might that enable potentially higher dosing or pushing efficacy maybe further in? As a result of that, are there certain potential indications where XL092 might be more advantageously positioned relative to CABOMETYX, for example?

Yes, this is Gisela. Thank you for the question. I think the key -- the question is how does the shorter half-life translate into a differentiated profile. The key here is that adverse event management and management of tolerability could be improved and adverse events could subside more quickly. As Peter explained earlier, cabozantinib has a long half-life and the washout time is longer. So that would be expected to be shorter and adverse events could subside more quickly. And so it would be potentially resulting in -- if you build more user-friendly TKI in that fashion. And that could translate into an improved safety profile.

In terms of other advantages that could be notable, the shorter half-life, of course, is also important when thinking about perisurgery indications or administration where wound healing as well as bleeds and things like that will always have to be kept in mind when dosing a longer half-life TKI that targets VEGFR. And so that could be a setting where a shorter half-life is also of benefit. But this would be a very specific indication here. In general, we see XL092 is one with a compound that can potentially have a broad and diversified development plan, including such indications, as just mentioned.

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

I was hoping the team could comment a little bit about specifically how cabo/nivo and the CheckMate 9ER profile would be differentiated in the eyes of physicians versus some of the other checkpoint TKI combos that are already approved. Essentially, what's going to be the edge that drives physicians to choose cabo/nivo over any of the other combinations?

Yes. Kennen, this is P.J. So I'll take that. As I was kind of referring to earlier, I think the data are really compelling, and we've heard this from broadly in market research and from KOLs. First of all, the only -- not only the only IO-TKI but the only combination that's doubling PFS and objective response rate while improving survival. So I think when you look at the totality of the efficacy data, that's very compelling.

Furthermore, the safety and tolerability profile, I think, look really good to physicians, low discontinuation rate, the AE rate, really good with the 40-milligram dose. And then if you look at the quality of life data, right, it's maintaining quality of life, despite adding a second drug and providing all that clinical benefit that we've talked to, which is unique relative to other IO-TKIs. So I think that's really compelling for physicians. And we've heard really good feedback on it. So I think that gives us a lot of opportunity to position it broadly successfully across risk groups, favorable, intermediate and poor, and with regards to any potential competitors.

Yes. Kennen, it's Mike. That's a really good question, and we've done a lot of market research in terms of ad boards and blinded market research, and it's been a very consistent set of feedback. I'd also refer you back to the analyst discussion that we had post the ESMO presentation back in September with 4 very top-tier KOLS. That presentation is still on our website, still online, and I would definitely recommend people take a listen to that. There was a lot of great discussion there, a lot of great perspective there on why they think this is not only a very competitive combination but really vectoring towards best in class as well. So...

And our next question is going to come from the line of Chad Messer with Needham & Company.

This is Gil on for Chad. Just one question from us. Are there indications that are going to be revisited with XL092 where cabo faced certain challenges in development?

This is Gisela. Just to go back to the development plan for XL092, there are certainly areas where cabozantinib has been developed is commercialized and where we can be looking now at different lines of therapy, different combinations within a tumor type. And that is certainly in the broader development plan. But we also see opportunity and various different combinations that haven't been explored with cabozantinib. We see opportunity in different lines of therapy -- earlier lines of therapy across indications, including adjuvant and neoadjuvant indications, given the target -- the profile of the compound. And so we really are viewing this as an opportunity to build on the cabozantinib development plan and from the cabozantinib development plan more broadly with a wide array of opportunities.

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

So just a quick question. I know on the kind of year-end '22 run rate guidance that you're providing, I think, Mike, you had mentioned or P.J. had mentioned that you expect there to be, I think, 5 ICI-TKI combos to be approved at that point. I know you spoke a little bit to the inputs regarding just treatment duration that you guys were maybe assuming in that number. But can you maybe just say, I guess, yes or no whether or not you guys are assuming that you guys have a majority market share relative to those other -- those combo competitors and maybe to what extent?

Yes. Steve, it's Mike. Yes, we don't want to give that level of data from a competitive point of view. I would say it's a very conservative market share estimate that's arguably comparable. But certainly, we're not going off on a market share ledge, if you will, in terms of assuming we get a very large majority of market share either.

So we're taking, I think, a very conservative view here, obviously a doubling of duration of treatment approximately based upon the PFS data is a strong driver of those -- of that run rate. But we're being conservative in terms of the expectation for market share. We think some upside for growth as well even beyond P13 and other cabo activities in that indication.

Okay. And then just real quickly on COSMIC-311, I know that there's, I guess, an interim read coming this quarter. Is -- should we expect to see any kind of data, I guess, within a press release? Or is that something where you guys are just going to be -- are just going to say, yes, we hit the threshold for filing? No, we didn't -- we're going forward.

Yes. It's our study. So we have more flexibility with what we say and when we say it. So I mean, we normally put some level of kind of uber-top line data in our press release to give people some sense of the results. And I'm assuming we'll do that here, but that remains to be seen. So stay tuned.

And our next question will come from the line of Paul Choi with Goldman Sachs.

This is Charlie Ferranti on for Paul. I just had a quick question on the XL092 Phase I study. I noticed that previously, there was a cohort designated for non-small cell lung cancer and that cohort appears to have been edited to drop that indication at this point. So I'm just wondering, has your thinking evolved somehow on this indication in terms of how you want to maybe approach it using 092? Because I see that on slide, I think, 30 of the presentation, NSCLC is still listed as a potential target. So just wondering how you're thinking about lung at this point.

Absolutely. Lung cancer is certainly still of interest and has a potential indication in various different settings. And as we go forward and as we develop a variety of combination approaches containing XL092 as the backbone, we are certainly including lung cancer in our thought process and in our plans.

Charlie, any follow-up on that?

That's all for today.

Thank you. I'll now turn the conference over to Susan Hubbard for closing comments.

Great. Thank you, Holly, and thank you all for joining us today. We certainly welcome your follow-up calls and any additional questions you may have that we were not able to address on today's call.

Thank you, and thank you all for joining us today. We welcome your follow-up calls, and we appreciate your participation. You may now disconnect.