EXEL (2025 - Q1)

Good day, ladies and gentlemen, and welcome to the Exelixis First Quarter 2025 Financial Results Conference Call. My name is Towanda, 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. Susan Hu

Thank you, Towanda, and thank you all for joining us for the Exelixis first quarter 2025 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 Executive Vice President of Commercial; Amy Peterson, our Chief Medical Officer; and Dana Aftab, our Chief Scientific Officer who will review our progress for the first quarter 2025 ended March 31st, 2025. 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 and government drug price policies and initiatives. 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 our 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 our approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners and the level of cost associated with discovery, product development, business development and commercialization activities. And with that, I'd like to 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 first quarter, highlighted by significant progress and momentum across all components of our business. We continue to execute on our strategy to build a multi-compound, multi-franchise oncology enterprise. We expect 2025 to be a very busy and highly productive time for the company. I think it's safe to say that we have reached another critical inflection point in recent Exelixis' history and we're energized to take things to the next level as we move forward into the second quarter and beyond. As we've discussed previously, we have a singular focus on improving the standard-of-care for patients with cancer. Our future success in achieving this goal will enable Exelixis to help many more cancer patients and ultimately solidify our leadership position through innovation and execution. We're pleased to see accelerating growth of the US cabo franchise in the first quarter, both in terms of absolute revenue and relative growth compared to the competition, which reflects cabo status as the leading TKI for RCC. We anticipate seeing additional upside with new indications in neuroendocrine tumors where we secured regulatory approval at the end of March. Key highlights for the first quarter include first, we saw a strong performance of the cabozantinib US Business with continued growth in demand, new starts and revenue. First quarter 2025 US cabo franchise net product revenues grew 36% year-over-year to $513 million compared to $378 million in the first quarter 2024. Global cabo franchise net product revenues generated by Exelixis and its partners were approximately $680 million in the first quarter 2025 compared to $559 million in the first quarter 2024. Given the strong momentum of CABOMETYX in the first quarter, we're increasing our 2025 full year financial guidance for net product revenues and total revenues by $100 million. Second, on top of our strong financial and commercial performance, the highlight of the quarter was the US regulatory approval of CABOMETYX in both pNET and epNET ahead of our assigned PDUFA date of April 3rd, 2025. Our commercial team was ready to execute our detailed launch plan and we were out in the field within hours of approval. P.J. will provide more information and commentary about our first quarter commercial dynamics and the NET launch in his prepared remarks. We plan to evaluate further updates to our 2025 financial guidance as we build momentum on the NET launch and gain further clarity on additional revenue opportunities for 2025. Third, it's mission critical for us to advance new molecules from our pipeline into full development and ultimately onto the market to excel in our mission to help cancer patients recover stronger and live longer. We're excited to advance zanza to the center stage in 2025 as our next oncology franchise opportunity. Important anticipated zanza data milestones from pivotal trials in the second half of 2025 include top line results from STELLAR-303 in colorectal cancer and STELLAR-304 in non-clear cell RCC and a decision to advance the Phase 3 portion of STELLAR-305 in head and neck cancer, all pending event rates for each trial. In addition, we expect to initiate the STELLAR-311 trial of zanza in NET in the first half of 2025 and anticipate Merck will initiate two RCC studies evaluating zanza plus belzutifan this year. Fourth, as we highlighted recently, our Exelixis' IND pipeline is coming into focus with a range of new and potentially differentiated molecules heading into and through early clinical evaluation. The goal of these efforts isn't to build a big pipeline, it's to carefully and quickly evaluate new clinical assets and identify the winners for advancement into full development as top investment priorities. Early development of XL309 continues to be a main focus as both the monotherapy and in combination with PARP inhibitors to deepen and prolong responses. Dose escalation with XB010 continues to advance quickly. We're making good progress on our goal to file up to three new INDs in 2025. XB628 recently entered the clinic and we remain on track for IND submissions for XB064 and XB371 this year. Finally, in regard to capital allocation, we're excited about the trajectory of our business and have the balance sheet and expect a cash flow to advance our pipeline priorities, access new high conviction assets and continue to repurchase shares when we believe they are undervalued. Business development activities continue in earnest and are focused on late stage assets in the GU/GI space. Backend loaded pay-for-success transactions that tuck nicely into our existing and potential future oncology franchise remain a top priority. As always, we're focused on doing the right deals for the right assets at the right valuations. So with that, please see our press release issued an hour ago for our first quarter 2025 financial results and an extensive list of key corporate milestones achieved in the quarter. And I'll now turn the call over to Chris.

Thanks, Mike. For the first quarter 2025, the company reported total revenues of approximately $555 million which included cabozantinib franchise net product revenues of $513.3 million. CABOMETYX net product revenues were $510.9 million and included approximately $12 million in clinical trial sales. As a continued reminder, clinical trial sales have historically been choppy between quarters and we expect this to continue into the future. Gross net for the cabozantinib franchise in the first quarter 2025 was 28.9%, which is higher than the gross to net we experienced in the fourth quarter 2024. This increase in gross to net deductions in the first quarter 2025 is primarily related to higher PHS and 340B volumes in the quarter. As previously disclosed, Exelixis has qualified as a specified small manufacturer for the phase-in period, which requires Exelixis to pay 1% discount in 2025 on all Medicare Part D sales and is included in our gross to net estimates for the year. Our inventory at the end of the first quarter 2025 was approximately two weeks on hand, which was down slightly when compared to the fourth quarter 2024. Because of this relatively flat inventory dynamic between fourth quarter 2024 and first quarter 2025, we experienced little inventory destocking in the first quarter 2025. Total revenues also included approximately $42 million in collaboration revenues, which includes approximately $36.7 million in royalties earned from our partners Ipsen and Takeda on their sales of cabozantinib in their respective territories. Our total operating expenses for the first quarter 2025 were approximately $369 million compared to $404 million in the fourth quarter of 2024. The sequential decline in these operating expenses was primarily driven by lower clinical trial costs, manufacturing costs for drug development candidates and licensing costs. These lower R&D costs were offset by higher general and administrative costs in the first quarter 2025. Provision for income taxes for the first quarter of 2025 was approximately $46.1 million compared to a provision for income taxes of approximately $44.9 million for the fourth quarter of 2024. The company reported GAAP net income of approximately $159.6 million or $0.57 per share basic and $0.55 per share diluted for the first quarter of 2025. The company also reported a non-GAAP net income of approximately $179.6 million or $0.64 per share basic and $0.62 per share diluted. Non-GAAP net income excludes the impact of approximately $20 million of stock based compensation expense net of the related income tax effect. Cash and marketable securities for the quarter ended March 31, 2025 was approximately $1.65 billion. During the first quarter 2025, we repurchased approximately $289 million of the company's shares resulting in the retirement of approximately $8 million of the company's shares at an average price per share of $35.83. As of the end of the first quarter of 2025, we had approximately $5.5 million remaining under the $500 million stock repurchase plan authorized by the company's board in August 2024. In February 2025, the board authorized an additional $500 million stock repurchase plan that expires at the end of 2025. We have been purchasing shares under the February 2025 plan during the second quarter. Now turning to our net product revenue and total revenue and financial guidance for the full year 2025. We're increasing our net product and total revenue guidance given CABOMETYX strong performance in the first quarter and our expectations of continued strong performance throughout 2025. We're increasing our net product revenue guidance to $2.05 billion to $2.15 billion which increases the midpoint of our net product revenue guidance range by $100 million when compared to our previously provided net product revenue guidance. We are also making a corresponding increase to our total revenue guidance which is now $2.25 billion to $2.35 billion. And finally, regarding the impact of tariffs on our business, as we've said previously, our IP for both cabozantinib and zanzalintinib is domiciled in the unit. And as of now, we are projecting minimal exposure on our US cabozantinib business. Our cost of goods sold is approximately 4% from net product revenue and three of those four percentage points is royalty owed to a third-party. The vast majority of cabozantinib finished product for US distribution is manufactured in Canada and any potential tariff impact on the remaining 1% would be de-minimis to the overall business. With that, I'll turn the call over to P.J.

Thank you, Chris. As Mike highlighted, the CABOMETYX business was very strong in the first quarter of 2025. Importantly, CABOMETYX received approvals in neuroendocrine tumors on March 26th. Cabo grew in terms of revenue, demand and new patient starts and notably performed well relative to the competition. Team continued to execute at an extremely high level and this has resulted in CABOMETYX continuing to be the number one prescribed TKI in renal cell carcinoma as well as the number one TKI plus IO combination in first-line RCC. The commercial team is executing the launch in NETs with great urgency and with the goal to rapidly establish CABOMETYX as a small molecule market leader in the NET space. We are pleased that prescribers are responding positively to the data and are excited to have a new therapy to address the unmet need in neuroendocrine tumors as we look to build on the strong momentum of the CABOMETYX business. The prescription data in the TKI market basket of cabo, lenvatinib, axitinib, sunitinib and pazopanib raise the strength of cabo relative to the competition. Looking at the TRx comparison, Q1 2024 to Q1 2025, CABOMETYX grew four share points from 40% to 44%. Importantly, cabo is the only product in the market basket to grow market share. CABOMETYX TRx volume grew 18% in this time period outpacing the growth rate of the market by 10 percentage points. This was the only product that grew at a rate greater than the market. The CheckMate -9ER five-year follow-up data presented at GU ASCO in February has been resonating very well with prescribers in the RCC space. These data help our team continue to drive differentiation from the competition in the first-line RCC market. Turning to new prescriptions or NRx, CABOMETYX had even stronger data trends. CABOMETYX NRx share in the TKI market basket went from 38% in Q1 2024 to 43% in Q1 2025. This share gain is even more impressive as every other product in the market basket lost share in the same time period. NRx volume for CABOMETYX grew 27% year-over-year. We believe this strength in new prescriptions which outpaces the total prescription growth of 18% is an indicator that the business is well positioned to continue the strong momentum going forward. Furthermore, the new indications in NETs will add to the current momentum of the business. We're thrilled that CABOMETYX is approved for appropriate patients in neuroendocrine tumors. As we have discussed previously, we see this as a compelling commercial opportunity for Exelixis and the CABOMETYX brand. Based upon market research, we believe that there will be approximately 9,000 drug treated patients in the second and third lines in the US in 2025 and this is expected to grow to approximately 11,000 by 2030. Our research also indicates that the majority of the second and third line patients receive oral small molecules as their standard-of-care. Furthermore, as we have previously discussed the oral market opportunity in 2025 is forecasted to be approximately $1 billion in the US. Recall that the target NET physician universe has significant overlap with legacy CABOMETYX prescribers. We believe that this overlap coupled with our sales team's deep relationships would accelerate access and promotional opportunities and we are pleased to see this come to fruition as our team called on more than 70% of the 3,500 NET prescriber, NET physician targets in the first three weeks post-approval. As we have previously discussed, the CABINET study uniquely positions CABOMETYX across patient and tumor characteristics, including patients with neuroendocrine tumors arising in the pancreas, GI tract and lung across all tumor grades from one to three, functional status, SSTR status and those who have received prior treatment with Lutathera. The unique study population led to strong and broad NCCN guideline recommendations for CABOMETYX as a preferred or recommended option regardless of site of origin or tumor grade for patients who had received prior therapy. We're pleased with the CABOMETYX label, which will allow physicians to prescribe CABOMETYX to a wide range of NET patients who have received prior therapy. And importantly, this approval makes CABOMETYX the first and only systemic treatment that is FDA approved for previously treated NET regardless of site of origin or patient's functional status. Team had been launch ready for some time prior to approval and literally hit the ground sprinting when cabo received the NET indications. The CABOMETYX data and messages are resonating well and prescriber reception has been extremely positive and confirmatory of the unmet medical need in the neuroendocrine tumor space. Our core promotional assets were deployed within days if not hours of approval including personal promotional pieces, the website, targeted non-personal digital and social media tactics, peer-to-peer education as well as patient and allied healthcare professional educational materials. Team is mobilized and already working to quickly establish CABOMETYX as a new standard-of-care for second and third-line NET patients. We are also pleased that the indication is providing us great access to customers, so we're able to discuss both the CABINET data as well as the RCC CheckMate -9ER five-year follow-up data for relevant physicians. We are excited by this opportunity to serve NET patients and our enthusiasm is matched by physicians excitement to have a new and effective option for their patients. In general, prescribers see CABOMETYX as a more favorable choice versus current small molecule therapies. Additionally, the competition in the oral segment of the NET market are all generic therapies, which puts CABOMETYX at a significant advantage with a full commercial organization in support of the launch. All of this taken together drives our conviction that the NET market will be a substantial opportunity for the CABOMETYX business. With that, I will turn the call over to Amy.

Thank you, P.J. Everyone at Exelixis shares your excitement around the recent approval of cabozantinib in patients with either pancreatic or extra pancreatic neuroendocrine tumors. This approval came approximately one week prior to the PDUFA date, thanks to the team interacting seamlessly with the FDA and the Alliance Cooperative Group. With this major accomplishment now behind us, the CABINET team is able to shift focus towards helping our partner Ipsen obtain ex US approvals. As a reminder, this application was chosen for Project Orbis, an FDA initiative that can facilitate approvals in participating countries around the globe. Looking ahead, 2025 is shaping up to be a very big year, not just for cabozantinib but also for zanzalintinib given the breadth of data readouts and pivotal trial initiations anticipated. First, I want to remind you of why we are optimistic about zanzalintinib's potential to become a best-in-class VEGFR-TKI. While zanza's target profile is similar to cabo's, its half life is much shorter, enabling faster recovery from treatment related adverse events with dose modifications and possibly favoring tumor accumulation over plasma concentration as was observed in nonclinical models and presented at AACR last year. Either of these qualities could result in an improved therapeutic index for zanzalintinib. In terms of pivotal data readouts, the first trial we anticipate data from is STELLAR-303. This Phase 3 study compares the combination of zanzalintinib plus atezolizumab to regorafenib in patients who have received multiple prior therapies for their advanced colorectal cancer. The trial is designed to assess outcomes in the population of patients without liver metastases referred to as NLM and in the intent to treat or ITT population. At ASCO GI in January of this year, we presented encouraging clinical data from the STELLAR-001 expansion colorectal cohorts evaluating zanza with or without atezo. As seen in STELLAR-001 and frankly in all other colorectal trials, patients without liver metastases tend to live longer than those with liver metastases regardless of treatment intervention. We announced completion of enrollment in STELLAR-303 in the second quarter of last year. Given the maturity of follow-up time and the intent to treat population, we anticipate being able to perform the overall survival analysis in the ITT simultaneous with the overall survival analysis in the non-liver met population. We have amended the statistical analysis plan to dual primary endpoints in NLM and ITT and top line data remains on track for the second half of 2025 events pending. STELLAR-304 is our pivotal study evaluating the combination of zanzalintinib plus nivolumab versus sunitinib in patients who have not yet received systemic therapy for their locally advanced or metastatic non-clear cell renal cell carcinoma. The primary endpoints in this study are progression free survival as assessed by blinded independent central radiology and objective response rates by RECIST. We expect to wrap up enrollment this quarter and anticipate data in the second half of 2025, again events pending. Also in the second half of 2025, we expect the Phase 3 go/no-go decision for STELLAR-305, our Phase 2/3 study comparing zanzalintinib plus pembrolizumab to placebo plus pembrolizumab in patients who have not yet received systemic therapy for their advanced PD-L1 expressing squamous cell carcinoma of the head and neck. Merck is supplying pembrolizumab for this trial as part of our collaboration agreement. As for new trial starts, STELLAR-311, our pivotal study comparing zanzalintinib to everolimus as a first oral therapy in patients with neuroendocrine tumors is on track to initiate this quarter. And Merck is making steady progress with their Phase 2 and Phase 3 studies in clear cell renal cell carcinoma with anticipated starts in the second half of 2025. Finally, we are proud to have numerous presentations at ASCO 2025, including three involving zanza. As you can imagine, we're excited about zanza's potential and expect 2025 to be a very data rich year. I'll leave you with that and turn the call over to Dana.

Thanks, Amy, and good afternoon, everyone. Today, I'm giving a brief update on our recent progress toward IND filings and advancing new compounds to development candidate status, and I'll close with an update on the XL495 program. On the IND front, we've continued to make good progress on all of our pre-IND programs and we are on track to file up to three this year. As you saw in the press release, we filed the IND for XB628 in the first quarter of this year and the Phase 1 trial is now open and recruiting. XB628 is a bispecific antibody that targets NKG2A and PD-L1, two separate immune checkpoint proteins that tumors use to overcome innate and adaptive antitumor immune responses. And because PD-L1 is expressed on tumor cells, while NKG2A is expressed on natural killer or NK cells, XB628 potentially can also act as an NK cell engager for tumors. As we demonstrated in our presentation last month at AACR, in preclinical models, XB628 causes tumor cells and NK cells to colocalize, resulting in tumor cell kill that is substantially higher than that seen with a combination of two monoclonals that separately target NKG2A and PD-L1. As a first-in-class molecule with an innovative mechanism of action, XB628 has created a lot of excitement with the principal investigators of the Phase 1 trial. So we're looking forward to efficient execution of this study. The second IND we expect to file this year is for XB371, our tissue factor targeting ADC that carries a topoisomerase inhibitor payload. Our presentation last month at AACR showed some very compelling preclinical data demonstrating deep and durable regression of human colorectal, lung and pancreatic xenograft tumors in mice after a single dose of XB371, underscoring the significant potential for this molecule to address unmet need. Our IND enabling activities for XB371 will wrap up soon and we expect to file the IND and initiate the Phase 1 study later this year. The third IND we expect to file this year will be for XB064, our monoclonal antibody that targets ILT2. Our IND enabling activities for XB064 are progressing on schedule to support filing an IND later this year. In terms of new development candidates, we have some exciting new programs progressing toward DC nomination, including some innovative small molecules and antibody drug conjugates and I look forward to sharing more details about those programs at the R&D Day event we're planning for later this year. And finally, we've decided to discontinue the development program for XL495. Following enrollment in several cohorts in the dose escalation phase of the Phase 1 study, we encountered drug related toxicities, which we believe are due to on-target off-tumor effects of the drug inhibiting PKMYT1 in normal tissues. A clear signal to us that the therapeutic index is too low to support further development of the compound. We're in a high attrition business and this decision enables us to refocus our resources on advancing our next wave of promising development candidates into and through clinical studies. And with that, I'll turn the call back over to Mike.

All right. Thanks, Dana. I'll wrap up here by thanking the entire Exelixis team for our strong start in the first quarter of 2025. I want to commend everyone for their individual and collective urgency and resilience as we advance our discovery, development and commercial priorities. 2025 is already shaping up to be another important year for the business and the patients we hope to serve, now and in the future. We're never satisfied or content with the status quo and we look to make every hour count as we 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.

Thank you. [Operator Instructions] Our first question comes from the line of Mike Schmidt with Guggenheim. Your line is open.

Hey, guys. Good afternoon. Thanks for taking our questions and congrats on a great first quarter result here. So 1Q sales were obviously very strong in terms of growth over last year. Could you just help us understand a little bit better what's been driving cabo growth at this point? And obviously, neuroendocrine was approved at the end of 1Q. Did you see some contribution from that prior to approval already? And secondly, could you just provide some more color about the launch in neuroendocrine tumors and expectations for the early trajectory there throughout the rest of the year? Thanks so much.

All right. Thanks, Michael. P.J, why don't you start and then Chris and I can provide some color commentary afterwards as needed. Go ahead.

Okay. Thanks for the question, Michael. Yes, as you mentioned, we had a strong quarter of results. We're very pleased with the progress we've made. As you look at the business in terms of demand in TRx, we grew significantly in terms of market share from 40% to 44%. And on absolute level, the volume grew 18% year-over-year. Similarly, NRx, we grew share from 38% to 43% in terms of new prescription share in our TKI market basket and even had a more substantial growth, an absolute terms of 27% and both of those were the only product to grow share, so performing really well relative to the competition. In terms of our business, the majority of this is being driven by RCC and in particular frontline RCC in terms of the combination of cabo with nivo. As I mentioned in my prepared remarks, we had updated data presented at GU ASCO in terms of CheckMate -9ER and the five-year follow-up data that's been resonating really well with physicians and really continues to position us in a way that differentiates us from the competition, which we're pleased with. So now a little bit in terms of NET, what I'll say is we only promote on label. There was a little bit of NET utilization we saw prior to approval. But as I mentioned, the approval came -- our approvals came on March 26th. So very early days in terms of the launch, but what I can tell you is that the feedback we're getting is really positive from prescribers. The team was literally sprinting out of the gate across all tactics and really all channels. So we're really pleased with the momentum there in NET. And we think, as I mentioned, it's a really substantial opportunity, but obviously really early days here and we'll be excited to continue to report updates on that as the launch progresses and we get throughout the year.

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

Hey, guys. Thanks for taking my questions. And I'll echo the congratulations on some pretty rockstar performance in Q1 here and the guidance rates. I want to add on to Michael's question, just to get a little bit more dynamics on the NET launch. Did you guys see a bolus effect or do you guys anticipating a bolus effect here in the early days of launch at NET? And then when do you -- and if so when do you kind of expect it to kind of stabilize to give you a more accurate run rate in terms of acceleration and uptake? And then second, if I may, when you modify the statistical analysis for STELLAR-303 to do it from instead of doing sequentially from non-liver met to ITT and do it more as a dual primary endpoint for both those groups. Does that help in any way with the alpha spend or maybe the hazard ratio you need to meet statistical significance? Thanks.

All right. Thanks, Asthika. P.J., real quick on NETs and then we'll go over to Amy for 303.

Yes. Thanks for the question, Asthika. What I'll say is obviously very early days in the NET launch, as I mentioned, we're very excited about it. We'll continue to see the trends as we move forward. I mean these patients are advanced in their disease with neuroendocrine tumor disorder necessarily expecting to see a bolus there. As I mentioned, great prescriber excitement about the drug. We're seeing new prescriptions out of the gate and just looking forward to tracking that going forward.

Great. Amy?

Sure. Thanks, Asthika. So just quickly, with regard to changing the endpoint, just to reset for a second. STELLAR-303 is a very large global clinical Phase 3 pivotal study. And the trial was designed to allow us to assess outcomes in the population of patients without liver met referred to as NLM and in the ITT population. As you know, we completed enrollment about a year ago. And Mike has said many times, we're in the business of generating P values and positive outcomes for patients. And we continuously evaluate our studies and make modifications necessary to ensure we achieve the maximum success for those patients. So given that we completed enrollment about a year ago and the relative maturity of events in the liver met population really suggested to us that it's best to move the ITT analysis from sequential to dual because of the really significant potential value as a positive outcome would help a much larger patient population. So it really wasn't about P values or hazard ratios or alpha.

Thank you. Please stand by for our next question. Our next question comes from the line of Sean Laaman with Morgan Stanley. Your line is open.

Good afternoon, Mike and team. Great set of results. Maybe just sort of contextualize what seasonality we can expect for cabo for the year. I think the beat on Street was around $50 million on revenue and the raise is about $100 million on revenue. And maybe just to give us some context around that, please.

Sure. Chris, do you want to start with that and then I'll cover the further commentary?

Sure. Okay. Thanks, Sean. So, I mean, the seasonality, I think that we've seen in the past where we saw higher gross to net in the first quarter and lower gross to net progressing throughout the year is gone because of our specified small manufacturer designation. So the 1% is across all Medicare patients throughout the year. So that creates some stability in the gross to net. We're still projecting gross to net to be in the 29% to 30% range like I talked about last quarter. And so and this year, we also didn't have inventory dynamic like we've had in past years where we had higher inventory coming out of Q4 and lower and a destocking in Q1. So we didn't see that either. So from a gross to net perspective, we see some stability there in that 29% to 30% range and we didn't have the inventory dynamics that we've seen in the past.

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

Hi. Thanks so much for taking our question. This is Scott on for Greg. Just a quick question on the full year '25 guidance. Could you confirm if the $100 million increase in terms of where does that come from and how much of the contribution of that amount come from NET? And related questions, when do you anticipate having a clarity on the potential of NET to include into the full year '25 guidance? Thanks so much.

Yes, thanks for the question. Yes, just talking about the guidance raise, I think it's safe to say the biggest part of that is in the RCC based business. It's a little bit of NET in there, but the majority of it is based on the strength of the base business in the first quarter. We're tracking NET very closely obviously as well as for the whole business because that's what we do. And as we feel like we've got momentum there, certainly coming out of the launch and great performance so far. So don't want to give you guidance on giving you a different guidance later, but we're tracking that closely and when we think it's the right time with the right level of confidence, we will talk about that in the future.

Thank you. Please stand by for our next question. Our next question comes from the line of Silvan Tuerkcan with Citizens. Your line is open.

Thank you so much for taking my question and congrats on this stellar quarter. I just wanted to ask a more general question on your BD appetite. Can you just maybe talk about specifically the scenario for Exelixis and maybe by extrapolation to some of your peers, how does the current environment influence your BD plans? Are you currently on hold? Are you looking are there certain roadblocks that need to get away for you to pull the trigger here? Thank you.

Yes. Thanks for the question. As I said in my prepared remarks, we are definitely open for business on the BD side. We're focused on high conviction assets that fit into our franchise framework within GU and GI oncology, where we believe we have the opportunity to convert differentiating clinical data into commercial success. That's the cabo story, that's the lens with which we look at all opportunities internally and externally. So that quite frankly isn't -- is the same hasn't changed and will continue to be the same going forward. We're not looking to buy on the cheap, right. We're not looking to buy assets that, we have or we see as being very risky, but they're cheap, so it might make sense. That's not how we look at it. We're high science. We want to make sure we can move the needle for patients. And the dynamic that we've observed and learned and been able to be successful with the cabo is that if you can move the needle for patients, if you can improve standard-of-care, you can commercialize that asset very, very productively. So that's the goal. So, as I've said on previous calls, we've burned many a haystack. We've got a few needles that we're looking at right now. We're hoping to transact, maybe we do, maybe we don't. It's all about the right assets at the right time and the right valuation. But we've got a great team across the BD and financial sectors within legal, within commercial, within discovery and development. So we've got a full court press here to be able to figure out what makes the most sense for us and then really how to do that in a practical way that can build value for patients and for shareholders.

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

Great. Congratulations again. It's really a terrific showing. So I have maybe two interrelated questions. One is just a little housekeeping. If you can just remind us Part D redesign, how much of an impact did it have this quarter, if any? And what percentage of your business is Medicare facing versus commercial? And then sort of the more meaty question is, it's clearly, Mike, it sounds like you're waiting for the uptake in NET and you're saying that it's $1 billion opportunity. How much of that $1 billion is sort of first line versus second or third line for small molecules? I mean, it sounds like you're aiming and you're intending and you should probably raise guidance again. Thank you.

Yes. So Chris why don't you take care of the housekeeping and then P.J. Can address some of the kind of overall market dynamics for NET as we see it currently. Go ahead, Chris.

All right. Yaron, it's Chris. So from a Medicare Part D redesign perspective, if you look at Q4 versus Q1, we didn't see a big dynamic there, big change in the amount of Medicare reimbursements we had to make. If you look at it versus Q1 last year, there was a larger there's a bigger difference there. We had some benefit towards us in the Q1 this year. Now from a split between commercial business and Medicare Part D business, it's about equal when you look at the two compared to one of the other from a patient and payer mix perspective.

Yes. And as far as NET goes, like I mentioned, we view this as a substantial opportunity. The $1 billion is across all lines of therapy. That said, in terms of second and third line, that is where small molecules make up the majority of utilization and we think there's substantial opportunity there. Even looking at other another therapy in the market, for example, if you look at Lutathera's recent revenue, if you look at their last quarter's revenue, given it a run rate, that's $560 million annualized. So, again, we're very excited by this opportunity. When it comes to the small molecule market, we're the only branded molecule out there with a substantial and experienced team behind this and we're really excited about the ability to help patients and move the business forward.

Thank you. Our next question comes from the line of Chi Fong with Bank of America Securities. Your line is open.

Hey, guys. This is Chi on for Jason. Thanks for taking our question. We have a question on capital allocation. Mike, I've asked you this question early in a year before, and I'm going to ask you again. I'm curious about your philosophy in terms of the buyback program. Obviously, you guys have consistently been buying back since 2023. I think roughly high single-digit percentage of outstanding shares, if I count correctly. I think annual maybe like $500 million at least give or take. So I'm just curious, if share price remain current existing level or even if cabo sales increase, what's your philosophy on share buyback versus reinvesting capital into R&D or business development? Thanks so much.

Yes. Thank you for the question. Look, again, as we talked about previously, reiterated in prepared remarks today, with our balance sheet and expected free cash flows, we think we can allocate capital effectively around investing in the internal pipeline, doing the appropriate thoughtful and pragmatic BD and still buying back shares when we think the shares are undervalued relative to where we think it can go. So I think that's the right approach. How we do that, how we emphasize one over the other will be situationally dependent. I think by my math, we bought back about 19%, 20% of our outstanding float over the last couple of years. We've done that at significantly lower prices than where the stock is trading at today. So that's make a good move from an investment point of view. We like investing in ourselves, right. Again, in the context of how we view quality, how we view assets that can move the needle for patients and shareholders, we think Exelixis is a great place to put that money. So that's how we're going to continue to operate. We're data dependent, we're data-driven, so we'll see how that goes in the future. But again, having the cash flows that we've got and the balance sheet that we have gives us the ultimate optionality and we like that going forward.

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

Hey. Thanks so much. So it sounds like you're going to have a go or no-go decision on your head and neck study with Merck at the end of the year. What do you want to see on event rates to justify moving forward with that trial? And then also when we think about the PD-1 VEGF bispecific class, there's a lot of similarities to kind of the pitch on zanza. You hit VEGF, but you have a wider therapeutic window. Have you thought about acquiring one of those assets for RCC in head and neck given your partner Merck already has the LaNova asset? Thank you.

Okay. So why don't you, Amy, take the head and neck question, and I'll come back on the BD said real fast.

Okay. Yes. Thanks, Akash, for the question. So I did mention in the prepared remarks that we are anticipating to have sufficient number of events in order for the IDMC to review and enable a go/no-go to Phase 2. We don't typically talk about what those events are. And so I'm just waiting for the data to mature so that we can have the call and get the decision, but that's not really all I can say.

Okay. Thank you. Yes, on the BD side, look, we look at everything with a pretty careful eye. We really like being in the bispecific space and certainly 628 is a good example of that, that we think the potential combination with zanza gives us really good coverage on the PD-L1 side, on the VEGF side and then bringing in NK cells as well. So how you slice and dice those opportunities, you have to be really thoughtful and really careful. Obviously, there's a lot of PD-L1 VEGF targeting bispecifics right now. We don't see a line of differentiation in that area. And certainly there's key data waiting to be disclosed around certainly, say, the survival data in the non-small cell lung cancer trials. So we're looking at everything. We consider everything. Again, we have a, I think, unique perspective on how to build value and we'll continue to execute on that as we go forward.

Thank you. Please standby for our next question. Our next question comes from the line of Derek Archila with Wells Fargo. Your line is open.

Hi. This is Eva on for Derek. Thanks for taking our question and congrats on the quarter. A quick one from us. Can you help set expectations a bit on the non-clear cell renal cell carcinoma study? And what have we seen here from sunitinib in this patient population? Thanks.

Amy, do you want to take that?

Yes, sure. So with regard to setting expectations, this is, I think, a very exciting study for us. One, it is a study in kidney cancer. It's the first Phase 3 that's ever been run in the smaller population in kidney cancer. And so having a positive outcome, we think would really benefit patients who have been otherwise lumped into the category of clear cell kidney cancer. The best benchmark that we have is probably with sutent. That's what we're going up again. So this is a study that is looking at nivolumab plus zanzalintinib versus sunitinib. We know that cabo has beaten sunitinib in a head-to-head cabo/nivo beat sunitinib and we think that zanza is better than cabo. And so cabo/nivo against sunitinib, we think, has a very high probability of success here. The PFS that is most commonly quoted for sunitinib and non-clear cell space is about five to six months.

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.

Thanks for taking our questions. Congratulations on the beat and raise. Two quick ones for us. Just going back to the 303 statistical analysis change. I'm curious about the definition. So dual versus co-primary endpoints. Can you declare victory with this win in either endpoints. So that's part one. Part two so the alpha spend. So do you need 0.025 then for success on just one of the two endpoints, if that's the scenario. And I was captivated by Dana's commentary about the induced proximity mechanism for 628 saw several of the presentations looking at kind of dual kind of bispecific ADCs and dual payloads. Curious about your thoughts on expanding on your tool kits to explore that opportunity. Thank you.

Thanks, Andy. We've addressed the 303 question several times. So let's start with Dana on the 628 and the kind of strategy there and then we'll go to Amy real fast for a wrap up on 303. Go ahead.

Sure. So just to reiterate, XB628 presentation at AACR was our first sort of data dump on that compound at a scientific conference and we showed quite a few data points, but I think that the key one that you're referencing, Andy, is the one showing the ability of the molecule to colocalize NK cells or tumor cells. And then critically that translated to a much higher sort of level of NK-mediated cytotoxicity against those tumor cells in an in vitro assay compared to monospecific antibodies hitting each checkpoint individually. So, yes, I mean, obviously, we're very excited about this molecule based on its ability to potentially impact or address unmet need across all of our key therapeutic areas, including GU and GI oncology and in colorectal cancer in combination with drugs like zanzalintinib and other drugs. When it comes to other types of technologies that you kind of hinted at in terms of multi payloads and things like that. We're, of course, very interested in those types of technologies. And what I would just say at this point is stay tuned for more information that we plan to kind of bring out from behind the curtain at the R&D Day event later this year where we're planning to really go into a lot more of our strategy for the future of our discovery pipeline.

Awesome. Thank you. Amy?

Yes, just real quickly. So you are right, Andy, in that co-primary requires both be positive in order for the study to be positive. Dual primary means either one can be positive for the study to be positive. However, it does not necessitate equal split of alpha.

Thank you. Please standby for our next question. Our next question comes from the line of Andrew Berens with Leerink Partners. Your line is open.

Hi. Good afternoon. This is Eason on for Andy. Congrats on the quarter and thanks for taking our question. Just two quick ones. On 303, can you remind us what zanzalintinib has demonstrated in the ITT? And how do you expect the control arm to perform? And then maybe on 304, will we get an interim OS as part of the second half update? And just curious do you anticipate needing OS data in order to file. Thank you.

Amy?

Yes, sure. So thanks for the question. I'll remind everybody of the data that we presented in STELLAR-001 which was zanza plus atezolizumab in patients with colorectal cancer. The eligibility criteria were pretty similar to that for 303 with the exception that everybody had to be RAS wild-type on STELLAR-001. But there what we saw was median OS with zanza, atezo of 11.7 months in the ITT population. And it was 18.5 months in the non-liver met patient population. And of course that study is still ongoing with additional follow-up and we'll update those as possible. That bodes well when you consider in non these are cross-trial comparisons, the benchmark of regorafenib that we know from the RCAD database from the Phase 3 studies and other comparators is really in the ITT patient population somewhere between six to eight months.

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 Cheng Li on for Jay. Thanks for taking the question and congrats on the quarter. Maybe two questions from us. First, going back to the early launch of cabo in NET. I'm wondering if you can maybe describe the characteristics of those early adopters, for example, like the number of prior line therapy and also their tumor location? And secondly, on 309, I'm wondering if you can provide some color on the data to be presented this year whether that will include both single agent and also combination data. Thank you.

Yes. P.J., why don't you start with the NET. I'm not sure we can answer that question effectively, but go ahead.

Yes. I mean, I guess what I can say is qualitatively similar to the data set of CABINET and in the label being very broad. What we're hearing generally is excitement to utilize the drug and utilization in a very broad manner, regardless of sort of tumor location. Patient grade line of therapy et cetera. So I think just a lot of excitement to have a drug that physicians can use kind of broadly across the neuroendocrine tumor space.

But it's safe to say that in the commercial setting, we don't get a lot of details on the patients that are getting the drug unlike in the trial itself.

Correct, yes, just qualitatively.

Okay. You and I real fast, Amy?

Yes. Sure, Jay. Really excited about XL309. This is our small molecule USP1 inhibitor. We are in dose escalation both as monotherapy and in combination with PARP inhibition. We will be happy to share the data publicly once we have a complete data set.

Thank you. Please standby for our next question. Our next question comes from the line of Ash Verma with UBS. Your line is open.

Hi. Thanks for taking my question. So I wanted to understand like the NET launch dynamic a little bit. If you can elaborate on where you expect the uptake to come from? Is it from the epNET or the pNET setting? And is there any difference between like this being used before or after everolimus or sutent or how should we think about the competition with Lutathera? Thanks.

Yes. Again, I would just say early days in terms of the launch setting and our expectation and what we're kind of hearing from customers is that given the data abroad and this data set is unique in that sense and utilized across sites of origin, lines of therapy, et cetera. That's what we're hearing as well as that's the fact that our expectation is that it will be broadly utilized across that and we're aiming to be the small molecule leader in the space within our indication.

Thank you. Please standby for our next question. Our next question comes from the line of Peter Lawson with Barclays. Your line is open.

Great. Thank you so much. Thanks for taking the question. Congratulations on the quarter. Just on the quarter, I don't think you mentioned about clinical trial sales. If you could talk about that? And then how are you going to think about pricing power considering your position in RCC? Thank you.

Chris, go ahead.

Yes, Peter. We did talk about clinical trial sales in the prepared remarks section. We had about $12 million in the quarter.

Thank you. Please standby for our next question. Our next question comes from the line of Sudan Loganathan with Stephens. Your line is open.

Hi. This is Felix Ampomah for Sudan Loganathan. Congrats on the quarter. I have a quick question regarding STELLAR-311 in the next indication that will be initiated by first half 2025. Given the approval of cabo for the same indication. How does that change the buffer success for the STELLAR-3 next trail?

Thanks, Felix. I'll try and answer this quickly. This is a study that is going up against everolimus. This will be zanzalintinib versus everolimus as a first oral therapy in patients who have progressed on their SSA. So it's a slightly different space. All of the KOLs. We have a global steering committee and we've been talking globally with thought leaders around really the world. They're all very excited about this option and the trial. So at this point in time, we're not that concerned about competing with cabo.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to your host, Ms. Susan Hubbard.

Thank you, Towanda, and thank you all for joining us today. We certainly welcome your follow-up calls with any additional questions you may have.

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