Susan Hubbard - Exelixis, Inc. Michael M. Morrissey - Exelixis, Inc. Christopher J. Senner - Exelixis, Inc. P.J. Haley - Exelixis, Inc. Gisela M. Schwab - Exelixis, Inc. Peter Lamb - Exelixis, Inc..

Jeff Chen - Cowen & Co. LLC Michael Schmidt - Leerink Partners LLC Andy Tsan-Yu Hsieh - William Blair & Co. LLC Ted A. Tenthoff - Piper Jaffray & Co. Andrew Peters - Deutsche Bank Securities, Inc. Peter Lawson - SunTrust Robinson Humphrey, Inc. Stephen D. Willey - Stifel, Nicolaus & Co., Inc..

Good day, ladies and gentlemen, and welcome to the Exelixis Second Quarter 2017 Financial Results Conference Call. My name is Takia 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 proceed..

Thank you, Takia, and thank you all for joining us for the Exelixis Second Quarter 2017 Financial Results Conference Call. Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; P.J.

Haley, our Senior Vice President of Commercial; Gisela Schwab, our Chief Medical Officer; and Peter Lamb, our Chief Scientific Officer, who will together review our corporate, financial, commercial and development progress for the quarter ended June 30, 2017 as well as recent key development and corporate events.

As a reminder, we are supporting our financial results on a GAAP basis only. And as usual, the complete press release with our results can be accessed through our website at exelixis.com. During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company.

This includes statements about possible developments regarding clinical, regulatory, commercial, financial and strategic matters. Actual events or results could of course differ materially.

We refer you to the documents we file from time to time with the SEC which under the heading Risk Factors identify important factors that could cause actual results to differ materially from those expressed by the company verbally and in writing.

Today, including, without limitation, risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, the availability of data at reference times are dependent on collaboration partners and the level of costs associated with commercialization, research and development as well as other activities.

With that, I'll turn the call over to Mike..

Thank you, Susan, and thanks to everyone for joining us on the call today. We had a very busy and productive Q2 of 2017 with strong operational performance across all components of our business, which included achieving several important strategic and tactical milestones.

I'll begin today by providing a brief summary of the key events for Q2 and then turn the call over to Chris, P.J., Gisela and Peter for updates on our Q2 financials, the ongoing CABOMETYX RCC launch and development activities for cabozantinib, cobimetinib CS-3150.

Key highlights for Q2 2017 include first, our continued financial performance with $99 million of total revenue, including net product revenue of $88 million for the cabozantinib franchise based on the strong continued uptake of CABOMETYX in the advanced RCC. market.

Second, the use of our improved cash position to further optimize our balance sheet by paying off the remaining Deerfield debt of $124 million, which leaves us debt-free. Third, we favorably settled our arbitration with Genentech and entered into an amendment to the collaboration agreement for the development and commercialization of COTELLIC.

The amendment provides for a revised revenue and cost sharing arrangement effective as of July 1, 2017, that is applicable to current and potential future commercial uses of COTELLIC. Fourth, we continue to make meaningful progress in R&D by advancing developments and regulatory activities for both cabozantinib and cobimetinib.

We're initiating our internal drug discovery efforts and exploring potential business development opportunities.

Importantly, an analysis of CABOSUN based on the blinded IRC review confirmed that cabozantinib demonstrated a clinically meaningful and statistically significant improvement in PFS compared to sunitinib in previously untreated RCC patients.

In addition, we initiated the first cabo-I/O combination trials in our clinical collaborations with BMX and Genentech. Fifth and finally, we entered into a lease agreement for office and research facilities in Alameda, California, which will become our corporate headquarters in 2018.

We are pleased to have achieved these important corporate milestones in Q2 and continue to build momentum in our business with strong financial, commercial and development performance.

We've posted another profitable quarter on an operating basis with diluted earnings of $0.06 per share, while at the same time continuing to manage our expenses carefully and becoming debt-free by repaying the Deerfield loan.

We remain focused on running the business to generate positive cash flow through expanding product revenues with the goals of reinvesting the resulting free cash into advancing additional late-stage trials for cabozantinib and rebuilding our product pipeline.

With that, I'll turn the call over to Chris, who will provide more details on our Q2 2017 financials..

Thanks Mike. Total revenue for the quarter ended June 30, 2017, was $99 million compared to $36.3 million for the comparable period in 2016. Total revenue includes $88 million and $11 million of net product revenue and collaboration revenue respectively, compared to $31.6 million and $4.6 million for the comparable period in 2016.

The increase in net product revenue primarily reflects the impact of the U.S. commercial launch of CABOMETYX in late April of 2016. Net product revenue increased approximately 28% when compared to the first quarter of 2017. This increase was primarily driven by the continued growth in CABOMETYX prescriptions.

Collaboration revenue for the quarter ended June 30, 2017 includes $5.5 million, $4.1 million and $1.4 million earned under our collaboration agreements with Ipsen, Takeda and Genentech respectively.

In comparison, during the quarter ended June 30, 2016, collaboration revenue includes $3.6 million and $1 million earned under collaboration agreements with Ipsen and Genentech, respectively. Research and development expenses for the quarter ended June 30, 2017 were $28.2 million compared to $23 million for the comparable period in 2016.

The increase in research and development expenses was primarily a result of increases in clinical trial costs and personnel expenses. The clinical trial cost increase was predominantly due to increases in costs related to CABOSUN and startup costs associated with the previously announced cabozantinib and immuno-oncology trials.

This increase in clinical trial expense was partially offset by a decrease in costs related to the wind-down of METEOR. Selling, general and administrative expenses for the quarter ended June 30, 2017 were $40.7 million compared to $35.8 million for the comparable period in 2016.

The increase in selling, general and administrative expenses were primarily a result of increases in personnel expenses resulting primarily from an increase in head count connected with the build-out of the Exelixis U.S.

commercial organization, an increase in legal costs and an increase in consulting and outside services to support our marketing activities. Those increases are partially offset by a decrease in losses under our collaboration with Genentech, driven by Genentech's change in cost allocation growth, which we previously announced in January 2017.

Other expense net for the quarter ended June 30, 2017, was a net expense of $8.9 million compared to $9.7 million for the comparable period in 2016.

This decrease in other expense net was primarily due to a decrease in interest expenses as a result of the 2016 conversions and redemption of the 4.25% convertible subordinated notes due 2019 and the repayment of the Silicon Valley Bank term loan in March 2017.

The decrease in interest expense was partially offset by a $6.2 million loss on extinguishment related to the prepayment penalty associated with the early repayment of the Deerfield Notes on June 28, 2017.

The estimated impact of the prepayment penalty associated with the early retirement of the Deerfield Notes in the second quarter of 2017 was approximately $0.92 per diluted share.

Net income for the quarter ended June 30, 2017 was $17.7 million or $0.06 per share basic and diluted compared to a net loss of $34.8 million or $0.15 per share basic and diluted for the comparable period in 2016.

This decrease in net loss was primarily due to the increase in net product and collaboration revenues, partially offset by the increase in operating expenses.

Cash, cash equivalents, short and long-term investments and long-term restricted cash and investments totaled $380.3 million at June 30, 2017, as compared to $479.6 million at December 31, 2016.

This decrease in cash is primarily related to the retirement of approximately $204 million of debt in the first half of 2017, primarily offset by the receipt of upfront and milestone payments from Takeda and Ipsen respectively. Exelixis is now entirely free of any debt obligations with considerable cash available to fund our growing business.

Now turning to our guidance for 2017. We are reiterating our guidance that operating expenses for 2017 are estimated to be between $290 million and $310 million.

We expect our R&D expense to continue to increase in the second half of the year as our previously announced combination studies with cabozantinib and I/O agents are initiated and begin to ramp. Overall, we will continue with prudent expense management and be diligent with our future investments. With that, I will now turn the call over to P.J.

to provide more color on our commercial performance..

Thank you, Chris. We are pleased with the continued progress of CABOMETYX and the Q2 2017 cabozantinib franchise net product revenue of $88 million. Q2 CABOMETYX net revenue of $80.9 million compares favorably with the Q1 net revenue of $62.4 million, representing growth of 30% quarter-over-quarter.

End customer demand increased by approximately 25% in Q2 relative to Q1. This encouraging trend was driven by increases in new patient starts, refills for patients already on therapy and continued expansion of the CABOMETYX prescriber base.

The number of prescribers who have written CABOMETYX through the specialty pharmacy channel increased in Q2 by approximately 30% (11:08). We are also pleased with the growth we have seen in the specialty distributor channel of our business.

In addition to strong volume growth in this segment, the number of outlets that have ordered CABOMETYX increased by 20% in Q2. This growth is coming from the dispensing community oncology practices, hospitals and academic institutions as well as government facilities.

We're particularly pleased with the growth in the community oncology clinics as we have focused on these key practices. Taken together, these data depict solid fundamentals and momentum of the CABOMETYX business. We are gratified to see that our strategy and approach to the RCC marketplace is producing impactful results.

RCC is a mature market with a relatively small number of high volume prescribers, and beyond that, there are a large number of low volume prescribers. Our data indicate that we have already been competing effectively in the high volume segment of the market.

So we believe the continued growth we saw in Q2 adoption was driven primarily by community oncologists, suggesting that our promotional efforts are broadening the prescriber base, which continues to be a key strategic focus for the team. Approximately 60% of our growth in Q2 came from the community segment.

The increase in new patient demand from Q1 to Q2 is also reflected in our second-line plus new patient market share of approximately 35%. Our data point to an increase in CABOMETYX new patient share in both the second and third line settings and competing effectively with both oral and IV agents.

We believe that opportunity remains to grow our market share in both the second and third lines by increasing the breadth of new prescribers and driving incremental utilization from our current prescribers. We plan to accomplish this by highlighting the points that differentiate CABOMETYX from the competition.

Our experienced team has generated a very competitive, if not market leading share of voice and is executing at a very high level, as we work to ensure appropriate patients with advanced RCC to have the opportunity to benefit from CABOMETYX.

Looking beyond our current indication, Exelixis has been preparing for potential CABOMETYX label extensions such as in the scenario where, given positive datasets and filings, the FDA approves either first line RCC or second line HCC.

We have always taken the approach that we will scale the organization commensurate to the commercial opportunity that we are pursuing.

For additional indications to be approved by the FDA, investment and infrastructure required to optimize these opportunities would only be incremental relative to the resources we have in place as we leverage the capabilities of our current existing team.

Our launch planning for a potential first line RCC indication based on the CABOSUN data is well underway. Exelixis has developed a deep knowledge base and expertise in the RCC market, which will serve us well should the label expansion be approved. Additionally, there are many synergies that will accelerate a potential launch in first line RCC.

For example, the prescriber base for first line RCC is the same as second or later lines. At launch, many of these prescribers would have prior experience and comfort prescribing CABOMETYX, which may help facilitate adoption in the new setting.

The first line setting is a large opportunity for CABOMETYX, with approximately as many potential patients as the second and third lines taken together. I will now turn to liver cancer, which is a significant unmet medical need, accounting for nearly 800,000 deaths globally on an annual basis.

In the U.S., over 40,000 patients a year are diagnosed with liver cancer, and there are about 29,000 deaths per year. Hepatocellular carcinoma is the most common form of primary liver cancer, accounting for more than 90% of cases in the U.S.

Our team has conducted a great deal of market research to inform our launch planning for a potential second line HCC indication pending positive data and FDA approval. Additionally, we are leveraging the prior experience that the Exelixis commercial team has in the HCC market to inform our preparation.

Although we are planning for future launches, the team is focused and motivated to continue to compete every day in our current markets to bring the benefit of CABOMETYX to every eligible patient as we continue to build on the positive momentum of the business. And with that, I will turn the call over to Gisela..

Thank you, P.J.

I will provide an overview of the development progress in the quarter and cover our activities in support of a regulatory filing for first-line RCC on the basis of CABOSUN, the status of CELESTIAL, our randomized Phase 3 study in second-line HCC and our progress on important new development plans for combining cabozantinib with immune checkpoint inhibitors.

I will close with a brief preview of ESMO 2017 taking place in Madrid from September 8 through the trial. First, I'll start with CABOSUN. The randomized Phase 2 trial that compares cabozantinib and sunitinib in the first-line treatment of intermediate or poor-risk RCC patients.

Results of this trial were presented at the ESMO Conference last September and published in the Journal of Clinical Oncology later in 2016. This study is being conducted by The Alliance for Clinical Trials in Oncology in collaboration with NCI-CTEP.

The trial met its primary endpoint of significantly improving progression-free survival as assessed by investigator in the cabozantinib arm compared to sunitinib. The results showed a clinically meaningful and statistically significant improvement in progression-free survival for cabozantinib as compared to sunitinib.

We have recently announced that the analysis based on the independent radiology committee review of the radiographic images from the trial has confirmed the significant improvement of progression-free survival with cabozantinib as compared to sunitinib. We are delighted with this outcome and are on track for an sNDA filing in the near future.

We will provide additional updates on progress towards this important goal as appropriate. We also look forward to the presentation of the results at ESMO where it has been accepted as a poster discussion on Sunday, September 10. Second, I'll provide a brief update on CELESTIAL, our Phase 3 study in second line HCC.

The randomized, placebo-controlled study is designed to enroll patients who have previously received a sorafenib with a total of two prior systemic therapies allowed per protocol. The primary endpoint of the trial is overall survival. The trial is wrapping up enrollment of patients globally.

We are tracking events closely and have reached the number of events required for the second interim analysis. Data verification and cleaning is ongoing and we continue to anticipate the review will occur in the second half of 2017.

If the second interim analysis reads out positive, we would expect to submit a supplemental NDA in the first quarter of 2018, given that for this in-house run study, all the preparatory work has been ongoing while the study is enrolling and maturing. A final analysis, if needed, will be in 2018.

I'd like to turn now to the third important topic in today's development update, the broader development and lifecycle management plan for cabozantinib. We are very excited about the progress on multiple initiatives evaluating cabozantinib in combination with immune checkpoint inhibitors in collaboration with BMS and Genentech-Roche.

Cabozantinib and the immune checkpoint inhibitors, nivolumab, ipilimumab and atezolizumab have all shown efficacy and are approved in various cancer indications. The combination of such active compounds with different mechanisms of action provides a very compelling opportunity for the next wave of late-stage trials for cabozantinib moving forward.

We are very pleased about the progress of our collaboration with BMS, combining cabozantinib with nivolumab alone, or both nivolumab and ipilimumab in a Phase 3 study in the first line setting of RCC called CheckMate 9ER. The study has been initiated as planned at the beginning of July.

This is a 1,000 patient study evaluating the combination of cabozantinib and nivolumab or cabozantinib, nivolumab and ipilimumab compared to sunitinib in patients with previously untreated advanced RCC. The primary endpoint is progression-free survival and secondary endpoints include overall survival, objective response rate and safety.

Additionally, a Phase 2 trial evaluating safety and preliminary activity of the cabozantinib, nivolumab and the cabozantinib, nivolumab and ipilimumab combinations in advanced HCC has also been initiated. The trial is run as part of the CheckMate 040 trial and is now enrolling patients.

The primary objective is the evaluation of safety of the combinations and secondary objectives include objective response rate and PFS. BMS is executing these trials and BMS, Exelixis and Ipsen will be sharing costs for these trials.

Furthermore, we have made significant progress with our collaboration plans with Genentech-Roche to evaluate the combination of cabozantinib and atezolizumab in an initial dose-ranging study with planned cohort expansions in four different settings, including patients with previously untreated advanced RCC, patients with previously treated bladder cancer and patients with previously untreated, both cisplatinum-eligible and ineligible bladder cancer.

This trial has been initiated in June and patients are now being enrolled in the dose-ranging part of this study.

Further studies in additional indications are under discussion and both our partners Ipsen and Takeda will each have the opportunity to participate in future combination trials in accordance with the terms of their respective collaboration agreements.

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

And lastly, we look forward to sharing the CABOSUN independent radiology review results along with an update on the overall survival results at the ESMO Conference in September in Madrid.

We will also see biomarker results from our METEOR Phase 3 trial and second-line RCC and the final results from Andrea Apolo's Phase 1b combination trial of cabozantinib with nivolumab alone or both nivolumab and ipilimumab at the upcoming ESMO conference.

Exelixis' and our partner Ipsen will hold a joint investor and media update at the conference, which will be webcast for those not making the journey to Madrid. And with that, I will hand the call over to Peter..

Thanks Gisela. As Mike highlighted in his introduction, we're pleased to have reached the settlement with Genentech regarding the arbitration proceedings relating to the development and commercialization of COTELLIC. We believe that the settlement equitably addresses all concerns and provides a firm foundation for moving the collaboration forward.

The new amendment to the collaboration agreement defines revised revenue and cost sharing arrangements that will apply as of July 1 to the currently approved indication for COTELLIC in combination with Zelboraf and will also apply to any future indications for COTELLIC, either as a single-agent or in combination with a Genentech-branded product.

Exelixis continues to be entitled to an initial equal share of U.S. profits or losses, which will decrease as sales increase as specified in the original 2006 agreement.

However, the revenue applied to the profit/loss statement of the collaboration will now be calculated using the average of the quarterly net selling prices of COTELLIC and any Genentech-branded product or products prescribed with COTELLIC. We will continue to share U.S.

commercialization costs with Genentech's portion of the costs now being allocated to the collaboration profit and loss statement based on the number of products in the combination. We will also continue to co-promote COTELLIC in the U.S. and provide up to 25% of the sales force for current and future indications.

Outside of the U.S., the terms of the original 2006 agreement remain in effect, with Exelixis being eligible for low double-digit royalties on COTELLIC sales.

As a reminder, the cobimetinib development program includes two ongoing Phase 3 clinical trials, the IMblaze370 trial in combination with atezolizumab in third-line colorectal carcinoma, which is fully enrolled in the first quarter of this year and the IMspire150 or TRILOGY trial combining cobimetinib with vemurafenib and atezolizumab in previously untreated BRAF mutant-positive locally advanced for metastatic melanoma.

A third Phase 3 trial, IMspire170, is planned to initiate this quarter and will study the combination of cobimetinib and atezolizumab in previously untreated BRAF wild-type metastatic melanoma.

Multiple additional earlier-stage trials are also in progress, including the Phase 2 COLEC (26:32) trial of cobimetinib in combination with paclitaxel in triple-negative breast cancer patients. This trial is also studying the combination of cobimetinib with nab-paclitaxel with or without atezolizumab.

So lots of activity on the development front and we look forward to keeping you updated as things evolve. Finally, an update on the development progress of CS-3150, which has the international non-proprietary name of esaxerenone.

CS-3150 is a potent and selective mineralocorticoid receptor blocker, identified during the research collaboration with Daiichi Sankyo, which initiated in 2006. As we've previously discussed, Daiichi Sankyo advance CS-3150 into a registrational Phase 3 trial in Japanese patients with essential hypertension in the third quarter of last year.

The trial is designed to enroll 930 Japanese patients with essential hypertension for one of three arms. CS-3150 2.5 milligrams, or 5 milligrams daily, or esaxerenone 50 milligrams daily.

The trial has a non-inferiority design with a primary endpoint of tangent fitting systolic and diastolic blood pressure from baseline, and a secondary endpoint of mean 24-hour systolic blood pressure and diastolic blood pressure change from baseline after 12 weeks of treatment.

At their recent financial year first quarter update, Daiichi Sankyo indicated that they expect to have top-line data for the trial in the fourth quarter of this year, and if the data are supportive, to file an NDA in Japan in the first quarter of 2018.

In addition, they announced plans to initiate a second Phase 3 trial in patients with diabetic nephropathy, which builds off the previous Phase 2b trial conducted in this patient population. Details of this trial are not yet available, but we look forward to providing further updates as appropriate. I'll now turn the call back to Mike..

to advance medicines to treat patients with cancer, giving them and their families hope for the future. I'm incredibly proud of our team at Exelixis as we continue to work tirelessly to deliver on this mission. Even with all of our recent progress, we are not satisfied knowing that we have much more work to do.

I'm excited to reiterate that we have the team and all the elements in place to advance both our science and business with maximal focus and urgency as we tackle the challenges that we will face in the future. We look forward to updating you on our progress. Thank you for your continued support and interest in Exelixis.

We're happy to now open the call for questions..

Thank you. [Operating Instructions] Your first question comes from the line of Jeff Chen of Cowen & Company. Please proceed..

Hi. Thanks for taking my question and congrats on all the progress as well as another fine quarter for cabo. Maybe the first one for P.J., if we could.

Could you, with cabo being on the market now for a little bit over a year, could you share if there is any kind of difference between the real-world experience versus the trial results from METEOR?.

Sure. Thanks for the question, Jeff. What I would say is that we're, as you kind of mentioned, incredibly pleased with the progress in the quarter that we've had and the continued growth of CABOMETYX, 30% revenue quarter-over-quarter.

And really with regards to the experience, I think it's gratifying that physicians and ultimately patients, I think, are experiencing results similar to what we've seen in the METEOR trial, which is really a differentiated profile in RCC with the trifecta of efficacy of overall survival, progression-free survival and objective response rate, and we're really gratified that physicians continue to adopt it.

We continue to increase the prescriber base of CABOMETYX. We added another 25% prescribers in Q2 relative to Q1. So very, very pleased with the progress and the way sort of the commercial launch is unfolding as we anticipated relative to the trial results..

Thanks, that's helpful. And maybe just another one for Mike or Gisela. Notice in your prepared remarks that you mentioned for CELESTIAL, if the second interim is positive, you plan to submit sNDA. But meanwhile you're saying that data cleaning and other preparatory work has been ongoing.

Could you kind of provide a little bit of insight on what other preparatory work are you working on, and also why do this at risk basically as the trial is ongoing?.

Thank you for the question. This is Gisela. Well, it is a standard practice and industry run studies to clean data as the study is ongoing because it avoids a long lag between ultimate trial readout and filing potential regulatory filings. So it is much favored to clean early on.

And obviously, once an event account is reached, then there is a certain amount of data that needs to be brought into the database and documented by the size, and that again will have to be cleaned. So that's really a standard practice and approach that we're pursuing..

Got it. Thanks very much..

Thank you. Your next question comes from the line of Michael Schmidt of Leerink Partners. Please proceed..

Hey, guys. Congrats on a good quarter from me as well.

Are you seeing use of CABOMETYX outside the second-line RCC setting at this point, for example, in first-line or other indications?.

Yes. Hi, Michael, this is P.J. Thank you for the question; it's certainly been appreciated. As you know, first of all, we only promote our products at Exelixis within the label indication for those products. And with one prior exception, we don't discuss off-label utilization of our products.

What I can say, though, is that we continue to have strong performance with CABOMETYX in RCC given the 30% revenue growth and as I mentioned in my prepared remarks, we continue to see an increase in new patient market share in both the second and third line settings, and we see an expansion of the prescriber base.

So we feel very good about the business, and we believe we still have opportunity going forward to continue to grow the business by differentiating the product in both the second and third line settings..

Okay. Fair enough. And a question on the plans, some of the life cycle management activities in combination with Opdivo, specifically in liver cancer. Wondering if the planned, possible, Phase III trial – Phase III combination study in liver cancer.

If the decision to run that trial, is that tied by any means to the outcome of the CELESTIAL study or is this an independent decision should you decide to move forward there with Bristol? Thanks..

Sure. Thanks for the question. So the currently ongoing study that has been started a few weeks ago is really a Phase II trial, evaluating the safety of the combination of cabozantinib plus nivolumab or cabozantinib, nivolumab and ipilimumab.

That study is based upon the earlier observations in Phase 2, both for cabozantinib and also for nivolumab, a single-agent with (35:37) activity in this setting. And so we are, obviously, wanting to evaluate the safety and preliminary activity in the Phase 2 trial to set the stage for the next stage development.

And in terms of timing, that will likely occur or certainly occur after CELESTIAL will have read out..

Understood. And one last question.

Could you provide any color on timing potentially for data from the Roche trial of COTELLIC with TECENTRIQ in colorectal cancer?.

The COTEZO trial or IMblaze370 – get the number 370..

370..

Yes, IMblaze370....

Yes, thank you. So Roche has communicated that results for this trial may be anticipated sometime next year with in the positive case, the filing in 2019 and just cannot comment beyond that. So that is for Roche Genentech (36:44)..

Great. Thank you, guys..

You bet, Mike. Thanks..

Thank you. Your next question comes from the line of Andy Hsieh of William Blair. Please proceed..

Thanks for taking my question and congrats on another stellar quarter. I am curious to hear your thoughts about the increased interest in combination trials with MAC inhibitors. I believe in the past three or four months, there is three collaboration agreements, maybe highlight some differentiating factors.

And if my math is right, I believe your program is about three years ahead of competitors..

Yes, this is Peter. Thanks for the question. So I'll speak a little bit to the interest in combination trials with MAC inhibitors and, of course, you're exactly correct, there has been a real uptick in interest in combining MAC inhibitors with various Immuno-Oncology agents.

And this really goes back to some observations – some frequent (37:52) observations originally made by Genentech and I think were extremely compelling unleashed the initialization (37:57) of the trial of cobimetinib with atezolizumab.

And what the Genentech scientists were able to show and ultimately publish is that MAC inhibitors obviously use cobimetinib and related molecules in their experiment, but some very interesting effects both on the tumor cells and on tumor-associated T-cells.

Essentially they were able to show the inhibition of MAC in tumor cells, increases expression of class 1 MHC. This is, of course, the system that enables presentation of mutant antigens, for example, to the immune system. So it makes the tumor cells more visible to the immune system. That has an effect on tumor cells.

And then they are also able to show an increase in tumor – the number of CD8-positive tumor infiltrating lymphocytes in preclinical tumor models following treatment with cobimetinib. And that effect, they tracked down to a natural inhibition of T-cell death. T-cells often die if they're faced with a kind of chronic stimulation situation.

And MEC inhibitors include cobimetinib into inhibit that T-cell exhaustion-induced death, if you like. So there were two very favorable things going on and that led to a kind of interesting synergy between PDL-1 inhibitors and cobi in preclinical models.

So that led to the sort of the Phase Ib trial with cobimetinib and atezolizumab, that included a variety of different tumor types, included patients with colorectal carcinoma, non-small cell lung cancer, melanoma and then a variety of other patients, including sarcoma that were evaluated using biopsies.

The data from the colorectal carcinoma patients was presented at ASCO and created quite a buzz. As you're probably aware, single-agent Immuno-Oncology agents such as PD-1 inhibitors and the like are not effective at all in microsatellite stable colorectal carcinoma; that's 95% of colorectal carcinoma patients.

Response rates of low single digits have been reported. But in combination with cobimetinib, we're seeing response rates in the kind of 17% to 20% range, including in patients who had microsatellite-stable disease. So that created an enormous amount of interest.

Obviously, that led to the initiation of the IMblaze370 Phase 3 trial, which fully enrolled in the first quarter this year. And then there has been, as you commented, a lot of follow-on interests from other folks wanting to combine their PD-1 inhibitors, for example, with other MEK inhibitors.

So certainly BMS is going down this road, as have, I believe, Novartis..

Yes, really appreciate the color. And if I may, also have a question about HCC. I think the field is undergoing a pretty drastic transformation with Lavima and Opdivo potentially joining Nexavar for the front-line treatment and (40:59) versus approving the second-line.

So based on the enrollment criteria for CELESTIAL, I think CABOMETYX can capture patients from all three front-line – potential front-line agents, if approved.

Am I thinking about this correctly?.

Yes, I think you have it right in that the eligibility criteria for the CELESTIAL trial required for patients have been previously treated with sorafenib, but they could have received other – one other systemic therapy in addition and that wasn't specified so that could have been one of these other agents.

And so there will be, in all likelihood, some detail emerging from the trial as well. And I think – so there is no limitation, I would say, with respect to what has been developed around us..

Cool, thanks. And congrats again..

Our next question comes from the line of Edward Tenthoff of Piper Jaffray. Please proceed..

Great. Thank you very much for taking the question and congrats on another impressive quarter from cabo and just all the other accomplishments from the balance sheet and everything else on the clinical side. Most of my questions answered. Quick one on sort of what you're looking at from a strategic basis.

Should we sort of let the clinical trials that you guys are currently enrolling and running in terms of combinations with cabo, kind of show us where your interest may be or what kind of assets would you be considering to sort of add to the product portfolio?.

Hey, Ted, it's Mike. Let me say a few words and then I'll, maybe, pass it over to Peter to opine further. As we talked about previously, our main focus right now is using free cash to be able to generate potentially more value with the compounds we have in hand, cabozantinib and potentially cobimetinib. Obviously, we pay for development with cabo.

Roche handles that with cobi. Amongst our peers in this commercial oncology biotech base, we're, I think, the only company that actually has two approved oncology agents really on the market right now.

So that separates us to a certain degree in terms of kind of what we have in terms of product based assets that we're investing for cabo a lot in right now.

And if you look at milestones that are kind of – we'll turn that card over the next 6, 12, 18 months, we've got a lot of balls in the air, which we think, again, if the data is there, can generate a lot of value for patients and for the company and our shareholders.

Beyond that, we really want to make sure that as we invest in discovery and internal discovery and then new assets that we can bring in either through partnering or through some kind of acquisition, that they fit a profile that makes sense for where we want to go with the business in terms of using free cash then to drive that value.

So we're looking at relatively small opportunities, late preclinical, early clinical data. Once that are not in the kind of on the hot seat from the standpoint of the I-O space that are certainly very competitive from the standpoint of partnering and would bring in a lot of big pharma as well.

We're looking to basically rebuild our portfolio with compounds and mechanisms and science that we think makes sense.

And certainly, with peers expertise and Gisela's expertise, we got a lot of institutional knowledge there that will allow us to filter through a lot of available assets and really look for the nuggets that people may be ignoring or may be not focused on from the standpoint of their – either their MOA or their – let's say their pharmacology.

So lots going on there right now. As you know, we hired Stefan Krauss, who is at Exelixis for a couple of years, helping David Meek build their oncology portfolio when he was there.

So he has a lot of experience in doing these kinds of searching activities and we built a strong team that includes Peter and Gisela and people from finance and commercial FP&A that really help us then triage, analyze due diligence around these aspects to really figure out what is best.

But as with other BDs that we've done in the past, when we've been on the sell side, we're taking our time certainly doing very careful analysis and we'll do the right deals at the right time that will hopefully help us build value in the mid to long-term..

I really like that. And before Peter jumps in, if he has anything to add, what about reinvesting in discovery because Exelixis has been very prolific with respect to its early-stage discovery. Obviously, the focus for years there had to sharpen on cabo, but what about going back to discovery or is that really just too long of an investment for....

No, that's a great segue and Peter is right here next to me, he can opine upon that easily. So....

Yes, thanks a lot for that question. That's definitely appreciated. And in addition to the in-licensing acquisition strategy that Mike discussed, we're very much looking to restart discovery. In fact, we are restarting discovery. So that processes has started.

We kept a number of the kind of key assets and certainly some key expertise from our kind of decades-long experience of having had a very substantial and intensive internal discovery effort over the years. We still have 4.6 million compound library, which we intend to gain access to, again, going forward.

And we have learned a lot from that initial experience. Our thinking going forward is that we're probably not going to rebuild exactly the same kind of discovery organization that we had in the past, things have moved on.

Yeah, one of the leaner internal footprints will make more extensive use of a lot of the very excellent external services that are now available. We're going to have a pretty high bar on kind of what we see preclinically in order to move into the clinic. We'll be staying in oncology, obviously.

And our thinking is that we're really focused on some targets that have higher levels of validation. I think our historic experience was in line with the rest of the industry. If you jump on targets that look interesting, but are not well validated, they really don't work out.

So we use our – I think our speed and our nimbleness to remain competitive in terms of targets that are well validated and probably competitive, but nonetheless attractive. And that's what worked for us essentially historically. I mean, if you look at cabozantinib or cobimetinib, were both well validated (48:40)..

Yeah absolutely, good, very cool to hear..

Thank you. Your next question comes from the line of Andrew Peters of Deutsche Bank. Please proceed..

Hi, thanks for taking my questions and let me add my congrats on all the progress. So you mentioned a new series of studies as well as ISTs evaluating cabo in other indications.

I just wanted to get a sense from a timing perspective, when you could expect to have a better idea on the success or on the outcomes of these studies? I think you specifically mentioned lung cancer as one of the areas of potential discussion. So just wanted to understand from a timing perspective, when we could hear a little bit more on those.

And then a related question, do you think these data will inform the decision to start new studies from either Roche or Bristol, or would those studies in indications beyond either bladder, liver or renal? Are those plans ongoing regardless of the outcomes of the ISTs? Thanks..

Sure, that's a great question. Thank you. So there are, as I mentioned earlier, a number of protocol proposals – actual protocols going through the review and initiation process through the IST and ticket program. This is, obviously, in the hands of the investigators in T Chip.

So the timing is not dependent on our touring (50:14) so much as the investigators really coming through is quite a bit of interest, and we see these protocols marching forward. So over the next couple of years, I would think we see a data from these trials emerging.

And to your second question, the plans with respect to other trials with immune checkpoint inhibitors that we will pursue internally over the clinical partners are not entirely dependent on the outcomes of these IST and T Chip trials, but maybe in the future, informed by those. But these are in large part parallel activity..

Great, thank you. And then just a quick follow-up. Do you have an update on the potential for getting CABOSUN added to treatment guidelines, if you could just remind us of kind of historically how the process has worked in terms of timelines and any sort of insight you have there. Thank you..

Sure. This is, obviously, a process that is independent of us, and CCN is one of the key treatment guideline bodies, has their own process, and they're reviewing data as they're being publicly available.

And so, the CABOSUN data has been available as you know in September or so of last year through the ESMO presentation and then subsequent through the (51:56) Committee, and CCN reviews these publicly available data and deliberates and makes their decisions entirely independently from us and when ready publishes the decisions and gradings and so on.

So we look forward to their deliberations and updates..

Thank you and congrats again on the progress..

Thank you..

Thank you. Your next question comes from the line of Peter Lawson of SunTrust. Please proceed..

Mike, and, I guess, Pete, as you're kind of thinking about rebuilding, at what stage asset are you kind of looking at? Is it preclinical, Phase 1, or how does it fit in with liver and renal?.

Yes, it's Mike. Again, as I mentioned before, with Ted's question, we're really looking in that sweet spot of late preclinical, early clinical Phase 1, early Phase 2, depending upon the asset, the indication, potential combination with either cabo or I-O, et cetera.

So we cast a pretty wide net, which I think we believe is appropriate, and we're going through a lot of different assets with fairly deep diligence and financial, commercial analysis as we feel we need to do to be able to prioritize and then execute based upon that priority.

So – but again it's all around, as Peter mentioned before, having a pretty thick filter, wanting to maximize our chance of success, either as a single agent or in combination with different modalities, which we think are going to be important as time marches on in this area..

Thank you.

And then, P.J, just around, I guess, the off-label scripts, is there any way you can talk through any change you've seen in the percentage of off-label, say with CABOSUN or over time?.

Yes, again, we – this is Mike. We've historically really avoided talking about any kind of off-label utilization or uptake with cabozantinib.

We just really don't want to go there from the standpoint of having that dialogue, don't have much to gain by doing that, and certainly whether we're under review or about to be under review, certainly nothing to gain there with the regulator. So fair question, we just don't talk about it.

So I think it's probably appropriate that we stay in that pretty narrow range there..

Got you. Fully understand. And then COMETRIQ, kind of a nice bounce back, it seemed.

Is that seasonality or I may have missed some comments around that, but it just kind of seemed interesting tick up?.

Yeah. Hi, Peter, this is P.J. With regard to COMETRIQ, I think it was up slightly quarter-over-quarter. As we kind of talked about previously, there were historically RCC patients on COMETRIQ prior to the approval of CABOMETYX.

And we knew they would kind of come off and it's kind of coming down to that range that we see as sort of the relative sort of stability in the sort of $6.5 million to $7 million range over the last few quarters. So don't think there is anything really specific with regard to seasonality.

I think it's just kind of settled down in that kind of range with regards to that base..

Got you.

So we should think about that for the rest of the year, that $6.5 million to $7 million?.

Yeah. I think that's very fair..

Okay. Thanks for taking the questions..

Thank you. [Operating Instructions] Your next question comes from the line of Stephen Willey of Stifel. Please proceed..

Yeah, thanks for taking the questions and congratulations on the execution. I guess, just a question on CELESTIAL first. I guess, that study is still recruiting.

Just wondering if there is any kind of, I guess, maybe soft guidance you might be able to provide with respect to when you expect that study to wrap up from an enrollment perspective? And, I guess, along those same lines, have you seen any change, I guess, in the pace of enrollment, may be specifically through U.S.

sites post the availability of regorafenib?.

Sure. This is Gisela. So, the study is still recruiting, but it is wrapping up, as I mentioned earlier on in the prepared remarks. So we're getting very close at this point. And certainly, we'll communicate when the recruitment is completely fulfilled. So again, stay tuned on that one..

Okay. And then, I guess, a question on COTEZO. Roche has been speaking pretty enthusiastically about the CEA bispecific and the combination they have now with atezo and I think they were guiding to moving into a pivotal program on their most recent call.

So just kind of curious as to whether or not there has been any discussion perhaps between yourself and Genentech maybe as part of this amended agreement with respect to how those two products, if at all, may coexist, how those two combinations?.

Yes, Steve, it's Mike. It's probably best that we don't really discuss publicly what we talk about privately. So we kind of play our COTELLIC communication efforts pretty close to what they say publicly. And we feel like we've got to do that.

So it's really hard to answer that question relative to what they've – beyond what they've said about those two different assets separately. So can't help you there, sorry..

Fair enough. And then maybe just lastly, I guess, on the frontline renal study that is now enrolling. I guess, it's CheckMate-90R.

Just any color as to Takeda's decision not to participate in the funding on that study?.

Sure, Takeda is still reviewing this and obviously it's up to them ultimately to communicate whether they participate, but that is still an ongoing discussion..

Okay. So that decision is not yet final there..

Right, yes..

Okay, thanks for taking my questions..

Thanks Steve..

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

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

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