What's Ahead for Exelixis?

Exelixis (NASDAQ: EXEL  ) had reason to celebrate last week as its first drug Cometriq launched in the United States. But Cometriq's approval for the niche market of medullary thyroid cancer, or MTC, won't deliver blockbuster revenues, so the company continues to seek more profitable indications. A variety of mid-stage trials are also under way. But is now the time to buy Exelixis?

Let's look at what's in store now that Cometriq's out.

Label expansion
Exelixis rode investor confidence all the way to Cometriq's approval last November. Even the cancellation of the drug's planned FDA panel didn't dent share prices. The run-up eventually led to the post-approval drop of 7.1%. The company's up nearly 4% year-to-date as everyone waits to see what will happen with the drug in its small market.

How little is the MTC market? Exelixis has five sales reps in place for the drug's launch.

But Exelixis isn't resting on its laurels and has its eyes on adding more approved indications. The largest potential exists in its trials for metastatic castration-resistant prostate cancer, or mCRPC). One phase 3 trial under way will test Cometriq in patients resistant to Medivation's Xtandi and Johnson & Johnson's Zytiga. Another late-stage trial will try Cometriq when used with that same drug duo. Results should start reporting in 2014.

Exelixis predicts that approval in the prostate indication would open up a potentially billion-dollar market. But the prostate cancer field is crowded, and the drug might have trouble finding its footing.

The company plans to initiate pivotal trials this year for a form of kidney cancer called renal cell carcinoma, or RCC, and the liver cancer hepatocellular carcinoma, or HCC. Future trials may focus on other cancers, including breast and ovarian.

Maturing pipeline
Exelixis has a number of big pharma partnerships that inhabit the pipeline. The deals feature products developed in-house and then licensed out. As I've mentioned before, Exelixis doesn't have much financially at stake in these programs. The company just has to sit back and wait for milestone payments and potential future royalties.

Four early-stage projects stand out in this outsourced group.

GlaxoSmithKline (NYSE: GSK  ) has the breast cancer drug Foretinib that's currently involved in phase 1b/2 studies for different forms of the disease. Bristol-Myers Squibb (NYSE: BMY  ) has BMS-833923 in phase 1b, testing it in conjunction with Bristol's best-selling Sprycel for the rare condition chronic myeloid leukemia.

Exelixis licensed two cancer drugs to Sanofi (NYSE: SNY  ) . SAR245408  is undergoing trials for a wide variety of cancers. Projects include a phase 2 for endometrial cancer and a phase 1/2b for breast cancer.

SAR245409 has a phase 2 trial for non-Hodgkins lymphoma and as a combination therapy in phase 1b/2 for breast cancer.

But there's one partnership where Exelixis has more on the line: Roche subsidiary Genentech's melanoma treatment GDC-0973, which is currently in phase 3 as a combination therapy with the company's Zelboraf. Exelixis will receive a percentage of initial domestic sales while contributing to the marketing costs. That sales percentage decreases as sales increase. Exelixis can choose to co-promote the drug in the U.S.

Finances
In the most recently reported quarter, Exelixis reported $321 million in cash and equivalents. The company had a cash burn of about $35 million that quarter.

The most pressing cost will be Cometriq's launch. But that won't break the bank because the sales staff and initial patient base are so small. Diplomat Specialty Pharmacy will serve as the drug's exclusive distributor.

Foolish final thoughts
Exelixis' finances will carry Cometriq to market for MTC. But a prostate cancer indication for Cometriq would cement the drug's reputation while providing greater financial stability. The mid-stage pipeline has a decent population, but it will be some time before most of those drugs show enough data to evaluate. Shares ran up to the November FDA approval and have since stabilized. The next important catalyst will come next year when the prostate trials begin to report.

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Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 03, 2013, at 9:42 AM, bkaplan16 wrote:

    Here's the problem. I do not know what kind of background you have to comment on this kind of medical issue. The early data on Cometriq in prostate cancer far exceeds anything currently available in terms of bone metastases and even prolongation of survival. Unfortunately FDA phase 3 trials take a long, expensive time but despite the many other drugs available for prostate ca, 40,000 men die of prostate ca every year and most will eventually get this drug. I have several patients in my practice who need this medication now despite all the other treatments available.

  • Report this Comment On February 03, 2013, at 3:04 PM, mruyog wrote:

    Thanks, doc. We need more physicians/oncologists/hematologists to respond to such articles. The author makes a good attempt; but apparently falls short of depth required for full justice. More than 80% ownership by institutions and insiders, plus recent purchases by insiders, give some clue as to the soundness of investing in this stock. Perhaps she is a trader and not an investor!!

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