Exelixis, Inc. (EXEL) Q4 2023 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Exelixis Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. My name is Tawanda, and I will be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please proceed.

Thank you, Tawanda. And thank you all for joining us for the Exelixis fourth quarter and fiscal year 2023 financial results conference call. Joining me on today's call are Mike Morrissey, our President and CEO; and Chris Senner, our Chief Financial Officer, who will review our progress for the fourth quarter and full year 2023 ended December 29th, 2023. PJ Haley, our Executive Vice President of Commercial; Amy Peterson, our Chief Medical Officer, and Dana Aftab, our Chief Scientific Officer are also on the call today and will participate in the question-and-answer portion of the call. 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 the 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 in 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 costs 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 had a strong year in 2023 and we're already sprinting into 2024 after a busy January where we provided important updates across literally all components of our business. We're pleased to see continued growth of the cabozantinib franchise in the U.S. and globally in 2023, which provides the foundation for our efforts to advance our drug discovery and development priorities that we outlined at our R&D Day in December. We reviewed important news to jumpstart 2024 at our corporate update in January at the JPM Healthcare Conference. I won't reiterate everything here today but just focus on the top highlights including first, we saw a strong performance of the cabozantinib business in the fourth quarter and full year 2023 with continued growth in demand and revenue. Cabometyx maintained its status as the leading TKI for RCC in both the first-line IO TKI market and second-line monotherapy segment. Fourth quarter cabo franchise net product revenues grew 14% year-over-year, compared to fourth quarter 2022. Cabo franchise net product revenues grew 16% for full year 2023 compared to full year 2022. Highlighting its role as a worldwide leading TKI global cabozantinib franchise Net product revenues generated by Exelixis and its partners were approximately $600 million and $2.3 billion in the fourth quarter and full year 2023 respectively. Chris will review our 2024 financial guidance in his prepared remarks. Second, final reply brief should be submitted in the next few weeks for the second MSN and the trial that took place in October and we expect a ruling in the first-half of 2024. Obviously, this is a critical milestone for the company and the cabozantinib franchise. While we will not speak to any specifics today, I'm proud of the work that our team did preparing and presenting this case. Exelixis has and will continue to vigorously protect our intellectual property rights with respect to cabo and our other differentiated molecules that we pursue on behalf of patients with cancer. Third, we made significant progress in advancing the pipeline in 2023 that was highlighted at our R&D Day presentation in December. Our top priority for 2024 is to advance potential new cabo indications for net and metastatic CRPC. The recent Contact 02 presentation at ASCO GU generated a lot of buzz at the meeting that Amy assured to address in the Q&A session shortly. Zanza development continues to be a key priority for us in terms of both existing and new pivotal trials, and enrolling XB002 expansion cohorts is at a critical stage with a global network of sites now contributing to this effort. And as you heard from Dana in December, our IND pipeline is full for the next few years with exciting new compounds that could address a range of solid tumor indications with potentially differentiating profiles based on extensive preclinical testing. With that, please see our press release issued an hour ago for our fourth quarter and full year 2023 financial results and an extensive list of key corporate milestones achieved in the quarter. I'll now turn the call over to Chris.

Thanks, Mike. For the fourth quarter 2023, the company reported total revenues of approximately $480 million, which included cabozantinib franchise net product revenues of approximately $429 million. Cabometyx net product revenues were $427.7 million and included approximately $6 million in clinical trials sales. Gross-to-net for the cabozantinib franchise in the fourth quarter 2023 was 28.2%, which was in-line with our expectations. Our Cabometyx trade inventory increased by approximately 1,000 units when compared to the third quarter of 2023 to approximately 2.7 weeks on hand. This increase in inventory was partially related to the timing of holidays at the end of 2023 and the beginning of 2024. Based on what we can see in the trade, some of this inventory has been utilized in the first weeks of 2024. Additionally, we are estimating that our gross-to-net for the full year 2024 will be approximately 30%, as we've seen in the past gross-to-net tends to be higher in the first quarter of the year primarily due to higher Medicare Part-D and co-pay assistance expenses. Finally, clinical trial sales have historically been choppy between quarters and we expect this to continue in future quarters. Total revenues also included approximately $50.3 million in collaboration revenues which includes approximately $40.7 million of royalties earned from our partners, Ipsen and Takeda on their sales of cabozantinib. Our total operating expenses for the fourth quarter 2023 were approximately $398 million compared to $490 million in the third quarter of 2023. R&D expense was the primary driver of the decline in total operating expenses, which was primarily related to lower licensing expenses. Provision for income taxes for the fourth quarter 2023 were approximately $17.5 million compared to a provision for income taxes of approximately $4.8 million for the third quarter of 2023. The company reported GAAP net income of approximately $85.5 million or $0.28 per share basic and $0.27 per share diluted for the fourth quarter 2023. The company also reported a non-GAAP net income of approximately $104.2 million or $0.34 per share basic and $0.33 per share diluted. Non-GAAP net income excludes the impact of approximately $19 million of stock-based compensation expense, net of the related income tax effect. Cash and investments for the year ended December 31st, 2023 was approximately $1.7 billion. During the fourth quarter, we completed the $550 million share repurchase program we announced in March 2023. Since the commencement of this share repurchase program, we have repurchased approximately $26.2 million shares at an average price of $20.97. This level of cash and investments, supported by our ongoing cash-flow from operations provides Exelixis with the flexibility to invest in internal R&D activities, to pursue external business development opportunities to expand our pipeline, and allows us to return capital to our shareholders through the $450 million share repurchase program we announced in January 2024. When combining the 2023 and 2024 share repurchase programs, we will return $1 billion to our shareholders by the end of 2024. And finally, turning to our financial guidance for the full year 2024. We announced our 2024 financial guidance at the JPMorgan Conference in January, and the detail is on Slide 14 of our earnings presentation. And with that, I'll turn the call-back over to Mike.

All right. Thanks, Chris. I'll wrap-up here by thanking the entire Exelixis team for their individual and collective efforts to support our range of discovery, development and commercial activities. We had a great year in 2023 and 2024 is shaping up to be an inflection point for the business, our science and the patients we hope to serve at an ever-expanding basis. I want everyone to know that our team is highly motivated every single day to excel on our mission to help cancer patients recover stronger and live longer. 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 comes from the line of Michael Schmidt with Guggenheim. Your line is open.

Hi guys, good afternoon and thanks for taking my questions. I had a pipeline question. So thinking about the potential opportunity for zanzalintinib perhaps still in contact with some of the recent cabo Phase 3 trial readout. But specifically, question on the STELLAR-305 study in head and neck cancer which I thought interesting where you initiated a Phase 3. And maybe just remind us what drives your confidence in zanza's clinical profile in head and neck, and how should we think about the success probability.

Yes. Thank you, Mike. This is Amy. Thanks for that question. So getting to the STELLAR 303 study design and what gives us confidence. I think you might be referring to the recently reported failure of pem len in this setting. Here we actually believe that STELLAR 305 is an example of a smart risk, not only because of the Phase 2, Phase 3 design that we've employed here, but also given what was observed with cabo pem. So dovetailing on your earlier question about leveraging cabo data, here is an exact example of how we're doing that. So in the multi-center Phase 2 study that was recently published by Dr. [indiscernible] earlier this year and conducted in patients with inoperable recurrent metastatic head-and-neck cancer, that study of cabo demonstrated a 52% response rate of 14.6 month median progression free survival, and a 22.3 months median overall survival. It's a Phase 2, but it does benchmark well to monotherapy pembro from the KEYNOTE 048 study that had an ORR of 19% and this 305 study is Zanza pembro versus monotherapy pembro. So we're looking at beating a response rate around 19% with the doublet of Zanza pembro. It also benchmarks well to the Phase 2 len pem study that demonstrated an ORR of 36% and a median free progression -- sorry, a median progression-free survival of eight months. We know that the LEAP study was negative, and obviously, we're going to review the data very carefully once it's public to assess what if any modifications need to be made in 305, but I think what we've also observed with the combination of pem len is the difficulty that physicians are having with regard to maintaining dose density of len. So there's a lot of toxicities that require multiple dose reductions. And when you have enough dose reductions that act -- that actually can interfere with the activity profile and could be a big reason why this doublet may not have succeeded but where Zanza pem could succeed. I'll also point out that Zanza has the same target profile as cabo in that it inhibits the TAM and MET families and results in a very similar immune permissive environment that cabo results in, however, the tolerability profile of Zanza is differentiated from cabo, namely, we can start with full doses of Zanza in combination with IO whereas in combination with cabo we started a reduced dose, and of course with len, it starts at a reduced dose and reduces even further thereafter. So we'll keep our eyes on the data from the LEAP study in head and neck. But we are pretty confident that the combination that we're testing in head-and-neck with Zanza pem represent a pretty high probability of success.

Awesome. Thanks for the helpful context.

Thanks, Michael. Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Jason Gerberry with Bank of America. Your line is open.

Hi, this is Chi for Jason. Thanks for taking our question. Just one on prostate, a two-part question. After the ASCO GU presentation there was a discussion around whether a second NHT or chemotherapy is the appropriate control arm. So I'm curious, on the regulatory side, do we have alignment with the FDA on the choice of the control arm in CONTACT-02. And on the reg -- on the commercial side, how do you see CONTACT-02 fit into the treatment algorithm relative to chemo and radio in the refractory setting. Thank you.

Thanks, Chi. Let's have Amy start with the comparative question. Glad you asked that. And then PJ can wind-up with the commercial stuff.

Yes, thanks Chi. I was also in the room for the discussion by Dr. Chi. And let me just start out with, not every phase three control arm is for every patient with that disease. We do work in collaboration with health authorities, with KOLs, ultimately our steering committee members to design a trial that maintains equipoise. And what do I mean by equipoise? When a patient is presented the option to enroll in a study, it means that the treating physician has already determined that either treatment arm are reasonable for this patient. If the treating physician felt a different available treatment option were better suited for that patient, then we would not expect that patient to be presented with the option to enroll. We develop our inclusion and exclusion criteria, again, in discussions with health authorities and with KOLs to identify the most appropriate patient for our study. If an investigator felt the patient wasn't a candidate or her patient wasn't a candidate for second NHT, for example, as mentioned by Dr Chi in his discussion at the GU ASCO Symposium high pain score, high-volume of disease, we expect that patient would be treated outside this clinical trial. This is why we actually see heterogeneity in the patient demographics amongst contemporaneous studies conducted in similar settings. For example, look at the patient enrollment demographics between CONTACT and PSMA4. Both conducted in metastatic castrate-resistant prostate cancer both after having failed a first NHT. In CONTACT-02, a 100% of our patients had measurable disease versus 31% in PSMA4. Approximately a 1/4 of our patients on CONTACT received docetaxel in the metastatic setting versus zero on PSMA4. 25% of our patients in CONTACT had liver disease versus less than 5% on PSMA4. And I'm going to even pull-up some data on a meta-analysis conducted by Susanne Pallavi and in collaboration with Dr. Small who is the ASCO GU's President that did a meta-analysis of nine randomized Phase 3 studies looking at docetaxel as the comparator arm. So, thousands of patients. And when you look at the percent of patients in those randomized Phase 3 studies on chemotherapy that actually had liver metastases, 9%. CONTACT-02 had 25% patients with liver metastases. All of these differences are due to the inclusion-exclusion criteria and situations where the treating physician and patient will look at either arm and say it is appropriate or neither is appropriate. And this is how we design ethical clinical trials in collaboration and agreement with health authorities, steering committees, the PIs and the patients that enroll. I'll pass it over to PJ now to address the commercial landscape.

Great, thanks, Amy. First of all, we're really excited about the data and presenting it. Metastatic castrate-resistant prostate cancer is a really large opportunity with over 75,000 patients across lines of therapy. This remains a significant unmet medical need for patients and for the physicians who treat them. The five-year overall survival rate for this population is still only 15%. So, you know, when we think about the options that exist for them, there's obviously NHT. I would point out that approximately 50% of patients have already received NHT before they get to the first-line castrate-resistant setting. And then beyond that, really all you've got is radioligand therapy and chemo. Both of these therapies, obviously have limitations, whether it's RLT with regards to logistics, issues in terms of what that means for the patient with regards to being around family, et-cetera. And we've seen repeatedly in market research and in discussions with physicians that many patients and physicians want to either delay or not receive chemo. So that's -- we believe there is a significant place for this combination of cabo atezo should it be approved. Another thing I would point out here is that with only those two sort of classes of therapy available post NHT, there's really a significant need and a great deal of excitement for new mechanisms of action in CRPC setting. And obviously this regimen has two. So a TKI as well as immunotherapy and certainly there's a lot of potential excitement for immunotherapy in prostate cancer. So we're excited about the opportunity. When we think about the broader treating population of community oncology, these are physicians who are very comfortable obviously with checkpoint inhibitors as well as cabozantinib across-the-board. So we look forward to the potential in this space.

Great. Thank you.

You're welcome, Chi.

Thank you. Please standby for our next question. Our next question comes from the line of Gregory Renza with RBC Capital Markets, your line is open.

Hi guys, it's [Anish] on for Greg. Congrats on the progress this quarter and thanks for taking my questions. Just on the current patent litigation with MSN. I know you can't speak to the details of the case itself, but just thinking ahead on potential outcomes in the presence for cabo's exclusivity. Could you share how you're framing the best-case and worst-case outcomes of the MSN2 case in relation to cabo's exclusivity. And then just quickly on Zanza, can we expect any updates on STELLAR-002 this year? Congrats again and thanks so much.

Yes, thanks for the question. I'll take the ANDA question and then pass it over to Amy. Yes, so again, we're not talking about specifics relative to the trial for obvious reasons and I really don't want to speculate on potential outcome scenarios and those kinds of things. We are excited about the opportunity to move the company forward. We always do the right thing by patients and shareholders. And that will continue going forward. Amy?

Sure, thanks for the question on STELLAR-002. So that is a multi-arm study that has -- it is evaluating Zanza in combination with IO, but not just monotherapy IO like a PD-1 PD-L1, but in additionally bringing other agents to the table. So for example, CTLA-4 or leg three, many of the cohorts that we're enrolling are in earlier lines of therapy. And so it's going to take some time for the data to mature, but we are really looking forward to sharing that as it does mature, so stay tuned for what we might be able to show in 2024.

Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Jay Olson with OpCo. Your line is open.

Hi, this is [indiscernible] on the line for Jay, thanks for taking the question and congrats on the progress. And also thanks for the color on CONTACT-02. I have two questions actually regarding to some other data presented at ASCO GU and love to hear your thoughts. So first question, I'm curious about your thinking on the potential launch of the subcu formulation of Opdivo and if that actually may create some additional momentum to the uptick of cabo nivo compared to other regimens given the pretty favorable data we saw with CheckMate and also potentially more attractive pricing with the subcu formulation of course, the easier administration. And second question, just with KEYNOTE-564 now showing OS benefit in the adjuvant setting, how would you expect the impact on the market size and potential treatment paradigm in the advent setting moving forward. Thank you so much.

Yes, thanks for the question. I think PJ can handle those both so take it away.

Yes. Thanks for the question. With regards to the subcu formulation, I think if there's more options for physicians and ultimately their patients, that's a positive thing. And if there's more convenience for the overall regimen of cabo in combination with nivolumab for first-line RCC, that's certainly a good thing. It could provide momentum. But at the end of the day, we'll have to wait and see how that plays out. With regards to the pembro adjuvant data, certainly impressive data in overall survival. And I think the way - I talked about this a bit before, the way we thought about it is really impressive data, great for patients. Obviously, good to see an OS benefit for them there. With regards to impact in the metastatic first-line setting, it's - the population that's eligible for adjuvant therapy among those nephrectomy is relatively small. So that said, there will be some impact over time in the first-line setting, but it will take some time, we believe, to play out. Certainly, for patients who are quickly recurring, either wow on or shortly after the adjuvant treatment what we've heard from physicians, from KOLs is we'll think about them in a different fashion, which could provide incremental potential or another therapeutic option. Obviously, the main other one being TKI there. But good news for patients, and I think it will take time to play out in the first line. But certainly, I think nothing but potential for cabo.

Got it. Thank you so much.

Thank you, Shawn.

Thank you. Please standby for our next question. Our next question comes from the line of Asthika Goonewardene with Truist. Your line is open.

Hi, guys. Thanks for taking my question and I appreciate you guys being superefficient today and being one of the quickest prepared remarks that we've had in a long while. I'd like to talk a little bit about CONTACT-02, please. When you look at the subsequent therapy, there was a bit of an imbalance where patients on the control arm got more chemo than patients on the cabo arm. Maybe Amy and Michael, I just wondered if you could comment on this. We already saw the current separate, but how confident do you feel that this OS benefit will still carry forward despite this imbalance? And then can I - related to that, can you maybe give us a little bit of color on when we could expect that next OS work on CONTACT-02?

Yes. So I'll take those questions. There are a couple that are embedded in there. So first, with regard to subsequent therapy, remember what we showed at ASCO GU, we had 19% of patients getting chemotherapy in the cabo atezo arm compared to 28% getting chemotherapy in the second NHT arm. And this is important because one of the outcomes that we actually measured in terms of patient benefit was time to subsequent chemotherapy. And the time to subsequent chemotherapy was delayed with cabo atezo versus second NHT, which we actually believe to be a good thing, given especially what you heard from PJ, knowing what we know about the patients who get chemotherapy, who want chemotherapy, who are eligible to receive chemotherapy, it's about 30% of the patient population overall. And so delaying time to chemotherapy is not a bad thing. When we look at the OS and the confidence of OS benefit and what do we think we are going to see, I mean I can't speculate on what we're going to see, however, what I can say is that at the time of the analysis that we did for the interim OS analysis, we did only 49% of the target number of events. And we conducted that analysis while we were still enrolling the study. So we conducted that analysis in 507 patients of 575 that had yet to be enrolled. With that said, at this early analysis, we did see a trend that favors cabo atezo, i.e., there is no decrement to survival with a hazard ratio of 0.79 and medians of 14.6 for second NHT and 16.7 for cabo atezo, which, it is different from what we've seen with other studies conducted in this space that have reported their data in - contemporaneously with ours. Now whether or not we will hit final OS is unknown. We're looking forward to hopefully seeing that data in 2024. What I'll say is that we did achieve the primary endpoint of radiographic progression-free survival. We believe what we demonstrated and showed at ASCO GU is clinical benefit, and it's clinically meaningful. It was statistically significant in the ITT population, it was significant across subgroups of patients, it was consistent no matter how we sliced or diced the analysis in the ITT population or whether or not we apply PCWG working group three criteria to the analysis. And so we believe that regardless of what the final OS shows, there's reasons to support this novel TKI IO combination for an approval in all patients who met the eligibility criteria for CONTACT-02. So that's patients with visceral disease, extrapelvic adenopathy, and we believe the risk-benefit profile is sufficient enough and the totality of the risk-benefit profile is sufficient enough to have a conversation with the regulators and look to see whether or not we can actually proceed with an approval. It's important to know that our job is to bring options to patients. We focus on getting the drugs approved, the physicians focus on treating the patients with the right therapy that is approved. And I sort of mentioned that in my earlier comments, when you look at the different patient populations that exist even in studies conducted in the same space. The combination of cabo atezo is a novel potential treatment option that meet - for all those patients that met the criteria for CONTACT-02. It's not a study that moves an already approved agent into an earlier line. It's not a study that is testing a different radio labeled PSMA 4 agent. It is not a different chemotherapy agent in a different line. It is not a different androgen access-targeted agent. Cabo atezo is the first TKI IO combination to demonstrate positive results representing a unique treatment option for patients, and we believe that it is our imperative to bring it to these patients. Not only do we believe this, but many of the KOLs that we interacted with at GU ASCO believe this, and the patient advocacy groups that we interacted with believe this. Patients want alternative treatment options, and approval doesn't mean that everyone is now going to be treated with the therapy. However, if the therapy is not approved, no one, not even those who seem to benefit most from this combination, will be able to receive it.

Thanks Amy that is really helpful. And I'll follow up on my congratulations on this data and your restraint from not getting up and saying something to Dr. Chi at his podium comment. Maybe if I can squeeze one more in. Can we - there was a previous question on 002. Can you - I know it's stay tuned for updates. Could you maybe give us a little color and tell us which of the cohorts have completed recruitment?

So I'm not able to give that to you at this point in time. Again, we have multiple cohorts. And just because they've completed treatment doesn't necessarily mean that they are the first to read out. Remember, we have to follow for duration of therapy. We have to follow for progression-free survival, and we have to follow for OS. And even if the cohort is completed, it doesn't mean that we will have data in the coming months.

Got it. Okay. Well, I’ll stay tuned. Thank you so much for taking my question, guys.

Thank you. Please standby for our next question. Our next question comes from the line of Andy Hsieh with William Blair. Your line is open.

Great. Thanks for taking our questions. And congratulations on achievements both in the clinical and financial fronts. Also, it's really nice to see cabo's profound activity in the virtual metastases subgroup and cabo again in the prostate cancer space. I want to ask specifically about the PFS delta. It was discussed during the discussion at ASCO to you, coinciding with the standing interval. I'm just curious, have you done or planning to conduct an analysis to roll that scenario out? And separately, regarding the Arcus collaboration, combining zanza with the HIP2, looking at previous cabo plus belzutifan combination, it appears that cabo is doing most of the heavy lifting on the efficacy front. So do you expect differentiation from this novel combination? Thank you.

Okay. So can I just get a clarification on the question with regard - I heard a couple in there. So cabo in the subgroups - sorry, cabo from - comment in the subgroups and the data that we showed at ASCO and subgroup. The PFS rule out scenarios, were you talking about the sensoring? What - can you repeat that question?

Yes, yes, certainly. Yes, if you want to comment on the sensoring, yes, we have questions on that, too. But I guess my question was specifically talking about the PFS delta, right? So between the experimental arm and the control arm, really close to the scanning interval of nine weeks. And that was kind of brought up at the discussion. And I'm just curious about - if you can rule that out, basically. The delta of the PFS could potentially be an artifact of the scanning interval.

Okay. Now I understand your question much better. Thank you. So with regard to the PFS delta, one thing, take a step back, and we do look at many parameters of clinical benefit, not just an improvement in a single point in time. In general, the optimal way to view the treatment effect is really based on the hazard ratio, which looks at the difference between experimental and control arm across the entire PFS analysis, not at one point estimate, i.e., the median here that you're referring to. There are multiple examples of no benefit at the median, but a positive hazard ratio resulting in approval going all the way back to ipilimumab in melanoma and really most recently, belzutifan in RCC, where the curves separate after the median, yet, clinical benefit was identified and the drugs have been approved. Going into what we have observed in our study, we have very robust PFS findings seen across all subgroups, similar in the ITT population and according to the PCWG Working Group criteria. We believe that these are clinically meaningful PFS benefits, especially in this patient population in CONTACT, which represents overall a worse prognosis than other studies conducted in this space. We have a lot of - this - 100% of patients had measurable disease. 40% had visceral disease. In the ITT, our hazard ratio of 0.65 translates to a 50% improvement over the control arm, which is exactly what we saw at the median 4.2 versus 6.3 months. In the liver MET subgroup, the hazard ratio of 0.43 translates to a more than doubling the improvement over control arm. And in fact, at the median, we observed a trebling of the effect from 2.1 to 6.2 months. In the patients with prior docetaxel, the hazard ratio was 0.57, which translates to a 75% improvement over the control arm. And in that median, we saw a doubling of median PFS from 4.1 to 8.8 months. So this is part of the totality of data, but it is not all of the totality of data. And in CONTACT-02, we have to also consider the patients that were enrolled and how they are unique and distinct from other studies that have evaluated drugs against second NHT. We have to consider the unmet need that is existent in this space and other important outcomes that we looked at. For example, I mentioned time to chemotherapy. We delayed time to chemotherapy with Cabo-Atezo. We actually -- Cabo-Atezo resulted in an increase in time to symptomatic skeletal events. These are attainable events for patients, so there are other outcomes that we look at. And what we also look at is the adverse event profile. And the adverse event profile that we showed with Cabo-Atezo versus second NHT. These are patients who enrolled in the study having tolerated their first NHT quite well. Median time on prior NHT was 12 months, right? So these are patients who know the toxicities of NHT and they tolerate them. And so when you juxtapose the toxicities of Cabo-Atezo against that, it looks different. I'll grant you that. But when you look at that compared to the toxicity profile of chemotherapy, it's very differentiated. We do not have cytopenias. We do not have febrile neutropenia. We do not have alopecia, and we do not have peripheral neuropathy. So it's a differentiated toxicity profile from otherwise other available therapies to this patient. And furthermore, when you look at this toxicity profile and compare it to cabo IO in other diseases where this doublet is used like kidney cancer by the same oncologists that treat prostate cancers, the toxicity profile is nearly identical. So going back to what I said at the beginning, when we talk about clinical benefit, we really need to consider a variety of parameters that we believe here we've met and support a robust and clinically meaningful benefit in a very unique patient population. Now I'll go on to the zanza Arcus question, okay? I know I went long there, but - okay. So you asked about zanza have given the data with cabo bel and not being real clear that belzutifan might be bringing in anything to the table. Let me just take a step back and remind everybody what we're talking about with zanza is what we believe to be a best-in-class VEGFR TKI drug. It has a similar target profile to cabo, but the tolerability profile is differentiated. Monty Pal was true at R&D Day, we presented at IKCS, patients that actually responded to zanza to progress on cabo. So it's different. We think we have an opportunity for a best-in-class. Arcus is evaluating monotherapy AB-521. We'll see whether or not that emerges as a best-in-class agent. But there's a reason to bring two potentially active agents together in this disease, and we're really excited about STELLAR-009. We are - it's co-funded by Arcus and us, and in that study, we will test the combination in patients with RCC to figure out whether and how we might move this combination forward.

Andy, I know you had a multi type question but we reached a long queue. So we got to need to move on to the next question. Operator?

Please standby for our next question. Our next question comes from the line of Yaron Werber with TD Cowen. Your line is open.

Hi. This is Joyce on for Yaron. Thanks for taking our question. And thanks for all of the color on CONTACT-02. Maybe just one more on that. Could you clarify, since the study seems to have enrolled both second-line patients as well as, as you noted, about - or up to 25% of patients who had previously received docetaxel, how broad of a label you guys are aiming for here, whether it's second line post first NHT but pre-chemo, or whether you're also looking to get approval in post-first NHT and post-chemo. Thanks.

Thanks for the question. I'm not at liberty to really predict what might be the ultimate label, but again, I'll go back to first principles of clinical trial design. When we design the study, we do pay special attention to the inclusion exclusion criteria. All of that is discussed with the regulators. And I would state that what we believe we have is a positive study in the ITT patient population and that this is the first positive global Phase 3 study of a TKI IO combination in metastatic castration-resistant prostate cancer patients who have progressed on at least one NHT in both pre-and post-chemo setting.

Got it. Thank you. if I could just squeeze an follow-up. Looking at…

Joyce, I got to be honest, we have a super long list of people to get to. So we're happy to follow-up after that call.

No worries. Thank you.

Please standby for our next question. Our next question comes from the line of Akash Tewari with Jefferies. Your line is open.

Thanks so much. So of the kind of $950 million in R&D expenses for next year, how much is specifically zanza related? And kind of the reason I ask is if you look at cabo's development program, you were able to share some of the development costs with Ipsen, Takeda, Bristol. And is there an opportunity to potentially do that with zanza's development here? So how aggressively will the company be looking in terms of collaborating on zanza? And then number two, roughly how much of that spend for 2024 is zanza related? And then maybe just stepping back, for the Merck studies, which are looking at HIF-2 alpha and pembro versus TKI pembro in a first-line setting, obviously, if that hits, it would have a pretty significant impact on the market. I'd love to get your take on whether HIF-2 alpha would be able to show a benefit on top of - HIF-2 alpha pembro would actually be able to show a benefit versus a TKI-based regimen. And to bounce off that last question, where do you see this combo of zanza and HIF2-alpha really playing a role in the market? Thank you.

There is a lot there. Yes. So let me work backwards real fast. You asked, I think, three or four questions there. Certainly, I don't want to comment on a competitor study and the probability of success there. I would refer you back to all the published data of TKIs combined with HIF-2 inhibitors compared to contemporaneous, say, single-agent TKI data like cabo from CONTACT-03, and you can, I think, draw some of the conclusions there. And obviously, we want to see data. Data drives the process, and we'll see how that data looks. But I would really refer you back to some of the published data relative to what we're seeing with contemporaneous TKI data. In terms of clinical collaborations, yes, we spoke to this at length at the JPMorgan update as well as the R&D Day presentation. We're super proud of all the work that we've done in collaboration with our commercial partners and our clinical partners on cabo. We think that was a really appropriate way to go relative to basically expanding the opportunities clinically by working with various partners to be able to run a variety of trials, 9ER, the contacts, et cetera, where we had the opportunity to co-fund. As we talked about at JPMorgan in January, that's a priority for us is zanza, the first few that we started by ourselves to get the ball rolling, and we're certainly having lots of discussions now around the possibility for combining zanza with other checkpoints in a collaborative and potentially co-funding manner. But don't want to get ahead of that. When we have something to say that's competitive we'll be sure to share that with you. But thanks again for your questions, and we should move on now because time is tight.

Thank you. [Operator Instructions] Our next question comes from the line of Silvan Tuerkcan with JMP Securities. Your line is open.

Yes. Thank you for taking my questions, and congrats on the quarter. I have a question about cabo as an oral plus checkpoint inhibitor in prostate cancer and as a label and filing, even. Just how do you view the community setting versus the academic setting for prostate cancer play out, and also with respect to potential lack of radioisotopes in the community setting? And how do you see a path forward, therefore, based on the data that we've already seen, especially with revive in the community setting, where this may be the earlier choice for patients? Thank you.

Yes. Great. PJ?

Yes, thanks for the question, Silvan. I think you kind of hit on some of the salient themes there. Obviously, the community oncology setting, it's a bit different. Access to radioligand therapy, is not as ubiquitous there, and when you talk to physicians, clinicians, offices, it can potentially mean losing the patient, and some opportunity there. So I think that's a consideration. As I mentioned previously, I think what we know, our performance for cabo in really all aspects, combination and monotherapy, is very strong in the community. So we know strong - or I should say - really large amount of physicians that have substantial experience with cabo at this point, which is great. And clearly, community oncologists, who treat a variety of malignancies have significant experience, with various checkpoint inhibitors. So, I think that certainly could be, a nice opportunity for us should we be approved.

Right. Thanks PJ. Operator, next question please?

Please stand by for our next question. Our next question comes from the line of Jeff Hung with Morgan Stanley. Your line is open.

Hi. This is Michael Reid on for Jeff Hung. Thank you for taking our question. Is there any impact on the development path for XB010 or 371 following the recent deal for Catalent? More specifically, are there any ADC capabilities loss, like on linker payload design or site conjugation? And if so, how could the company address these? Thanks so much.

Yes. Thanks, Michael. This is Dana. I'll take that question. Yes. So when we learn the news with Catalent, we immediately reached out to their leadership and had some very productive discussions. And at this point, I can say we're confident in their continuing support of our programs, and we don't anticipate any change.

Thank you so much.

Thanks, Michael.

Thank you. Please stand by for our next question. Our next question comes from the line of Etzer Darout with BMO Capital Markets. Your line is open.

Great. Thanks for taking my question. Just on the cabo label expansion, if you're able to provide any more color on the comment around sort of planned data-driven regulatory filings for NET in prostate cancer. And also whether, or not the regulatory strategy, for these two indications outside of the U.S. would be the same as it is here in the U.S.? Thank you.

Yes. Wouldn't want to comment on ex U.S. regulatory strategies. That's in the arms of our partners, but Amy can - and/or PJ can say a few words on the others.

Sure. So with regard to CABINET, we had some really exciting data. I think most people are familiar with it. We have a patient population that has a very poor prognosis that, was observed in the median time to progression on placebo of three months change to 8.3 and 11.4 months, depending on whether or not you had pNET or epNET. We are in very close collaboration with The Alliance and they're working hard to get the complete locked database transferred to us. It's hard to opine on the time lines, but we have some advantages with CABINET that we didn't have, for example, with Cabozan, most notably blinded independent central radiology review, was already incorporated into the study, and we do have a strong partnership with The Alliance. And so, we're looking forward to having discussions with the agency in 2024. That's about all I can say with regard to CABINET. And when it comes to CONTACT-02, I think I've already mentioned we are anticipating final OS results sometime in 2024. However, we believe that the data that we presented at ASCO GU represents a data package that sufficiently supports the totality of clinical benefit in the ITT patient population. We'll have ongoing discussions with the agency on how best to bring that in front of them.

Great. Thank you.

You're welcome. Operator next question, please?

Our next question comes from the line of Peter Lawson with Barclays. Your line is open.

Great. Thank you. Just a question around guidance. Thoughts on pricing and volume in 2024, especially in light of IRA and any kind of seasonality that, we should be thinking about for revenues through '24?

Yes, Peter, it's PJ. Thanks for the question. The IRA is clearly now in play this year. What that means specifically is our price increase is 2.2%, as we certainly didn't want to incur any inflation-related penalties there with regards to our revenue. The real good news for patients there in terms of Medicare, is that the patient out-of-pocket will be limited this year to approximately $3,300. Next year, that will be $2,500. And it's really early days from what we're observing there, but obviously, good news for patients with the potential to have those lower out-of-pocket costs. So, we're keeping a close eye on it. And yes, we'll track it and update as available.

Great. And anything we should think about as regards to seasonality for the year?

Yes, nothing we would comment on here, Peter.

Thanks, Peter. Operator we have the next question, please we are getting close to the top of the hour?

Thank you. Please stand by for our next question. Our next question comes from the line of Kaveri Pohlman with BTIG. Your line is open.

Yes. Good evening. Congrats on the progress. And thanks for taking my question. Regarding the Phase 2/3 head and neck cancer trial for zanza and KEYTRUDA, is it mostly to replace KEYTRUDA monotherapy that is used in patients, with lower tumor burden? Or you also expect it to work better than KEYTRUDA and chemo combination for bulky disease?

Yes. Sorry, Kaveri very quickly. This is a study that is just zanza pembro versus pembro. There is no chemotherapy-containing arms. So the former not the latter, right, replacing monotherapy KEYTRUDA.

Yes. I just kind of like wanted to know that KEYTRUDA monotherapy is mostly used in lower tumor for the patients. Is that what you will be focusing on in your trial as well.

So harkening back to some of the comments I made earlier, the study has inclusion and exclusion criteria. Some of the inclusion criteria require that, for example, the tumor has to express the CPS score greater than 1%. There's not necessarily a limit on tumor burden. So again, we go to equipoise. What study - is the treatment arm, either treatment arm reasonable for the patient sitting in front of the physician in order to randomize? I can't speak to what burden of disease they would enroll in the study.

Great Amy. And operator let's take our final question, please.

Thank you. Our final question comes from the line of Christopher Liu with the Leerink Partners. Your line is open.

Thanks for the question. On CONTACT-O2, you guys had a median duration of tumor exposure four months and median progression-free survival of six months. Just wondering what the key driver of that difference was? And then just a quick second one. Do you guys have a few ADCs in the pipeline? Just wondering what the technology is driving that. Is it still [indiscernible]?

So, I'll take the treatment exposure question. I think we actually presented at ASCO GU that we had dose intensity of 94% with cabo and 83% with atezo. The median duration of therapy being disconnected with the PFS can be for a variety of reasons. Patients take chemotherapy breaks, they restart, they get dose reductions, they restart. So yes, it's not anything that I can elaborate on at this point in time.

Good. Dana, final answer?

Sure. Yes. So for the newer ADCs in the pipeline, we're not using Zymeworks. That is primarily through the SMARTag technology with Catalent.

Yes, I'd recommend if you're interested in the details, we had a pretty fulsome discussion around all that information at the R&D Day in December. So take a look at the webcast, and I think you'll have a very deep understanding of how broad we have the platform built around both linkers and warheads with various EDCs.

Great. Thank you, Mike. And with that, we'll thank everybody for joining us for the call today, for your attention, for your questions, and we're certainly available to take any follow-up you may have. Have a great rest of your day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.