"I was wrong."
Next to "Yes, I'll do the dishes" there may not be a rarer phrase to come out of my mouth. But, today it's the truth with Exelixis' (NASDAQ: EXEL ) phase 3 COMET-1 trial involving cabozantinib (known commercially as Cometriq) going up in smoke.
As a current Exelixis shareholder, I expressed confidence in the company's lead drug to improve the overall survival of metastatic castration-resistant prostate cancer (mCRPC) patients in early April, shortly after it nosedived following the continuation of its COMET-1 trial. My suspicion at the time was that Cometriq's superior progression-free survival data, which got the drug approved to treat metastatic medullary thyroid cancer (MTC), would likely translate well into treating other cancer types. Even if the results weren't mind-blowing, I anticipated that we'd see an improvement in overall survival that would at least garner Exelixis around $300 million in annual mCRPC sales.
However, today is a great reminder that different cancers can react totally different to the same medication.
Exelixis' not so excellent results
As Exelixis press release stated on Monday evening, its COMET-1 trial and Cometriq had failed to reach a level of statistical significance as it relates to overall survival. A hazard ratio of 0.9 implied a 10% risk reduction of death by the treatment arm taking Cometriq, while its median overall survival came in at 11 months. By comparison, the prednisone treatment arm median overall survival came in at 9.8 months. With only a minor benefit to the Cometriq-treated group, and a high p-value of 0.212, which signifies a high probability that chance factored into the results, Cometriq does not look as if it'll gain this additional indication anytime soon, if ever.
Following its disappointing results Exelixis announced a massive cost-saving restructuring that'll see the company laying off about 70% of its staff, or 160 employees. When the smoke clears Exelixis will have about 70 employees remaining, and after taking an estimated $6 million to $8 million charge in the fourth-quarter, should have ample cash remaining to get to the top-line results for its phase 3 METEOR study, which is testing Cometriq as a treatment for metastatic renal cell carcinoma. The data from this study is due out next year, while phase 3 data for its CELESTIAL trial in advanced hepatocellular carcinoma should be out in 2017.
The big risk facing Exelixis
Putting things into perspective today's news clearly isn't good, but it's also not a death knell, either.
As a shareholder, the biggest prevailing concern I see right now isn't the company's remaining pipeline. Instead it's the cost of getting through its METEOR and CELESTIAL trials. Phase 3 trials aren't cheap to run and it's not out of the question that Exelixis could seek to offer its common stock on the open market in order to raise cash. If this were to happen the resulting share dilution could wind up further harming Exelixis' stock.
Plenty of catalysts still to come
However, its remaining pipeline hasn't given me any indication (as of yet) that it's time to run for cover.
The company's lone approved drug, Cometriq, is witnessing a slow but steady improvement in sales as a treatment for MTC. Even though Exelixis' year-over-year revenue dropped in the second quarter due to the absence of licensing revenue this year, its product revenue for Cometriq rose to $6.6 million from $4 million in the year-ago period. Cometriq as an approved therapy for MTC alone won't be enough to make Exelixis profitable, but I can easily see this drug delivering close to $100 million in peak annual sales by 2017 or 2018 which should help ebb its cash burn.
Also, in mid-July Exelixis reminded investors, including me, that there's more to its pipeline than just Cometriq. Exelixis and its collaborative partner Roche (NASDAQOTH: RHHBY ) announced positive results from its phase 3 coBRIM study that examined the combo of Exelixis' discovered compound cobimetinib and FDA-approved Zelboraf to treat patients with BRAF V600 mutation-positive advanced melanoma. Though no specific data was released, the press release notes that the study "met its primary endpoint [of] delivering a statistically significant increase in progression-free survival."
Even though Exelixis will be giving a significant portion of its potential cobimetinib revenue to Roche per its licensing agreement, and the advanced melanoma field is getting crowded, having Roche's superior marketing team at its disposal should be a long-term positive. With a peak annual sales estimate of $700 million for cobimetinib according to Maxim Group analyst Echo He, Exelixis should still yield up to $200 million from cobimetinib annually if the combo is approved.
Finally, let's not overlook the enormous potential of its METEOR and CELESTIAL studies. The primary endpoint for the METEOR study, for example, is a statistically significant improvement in progression-free survival over Afinitor, with overall survival being the secondary endpoint. In this study a favorable but non-statistically significant lean in favor of Cometriq in terms of overall survival would probably be just fine as long as Comtetriq also provides a clear improvement in progression-free survival. CELESTIAL could again prove a bit tougher since its primary endpoint is overall survival with secondary endpoints that include overall response rate and progression-free survival.
The numbers look great, but will the trial results?
According to independent analysis firm Datamonitor Healthcare the renal cell carcinoma market could peak at $2.7 billion in sales by 2019 before beginning to fall due to the expiration of patents, while hepatocellular carcinoma could boast $1.4 billion in sales by 2019. If Exelixis even garners 10% of these labels it'd be looking at potentially $400 million in Cometriq sales by 2019. Combined with its MTC indication, Cometriq could still provide in excess of $400 million per year for Exelixis at its peak even without any hope of an mCRPC label. Add in a possible cobimentinib approval and the company still looks like a steal at its current price.
Of course, current and prospective investors should remember, as they've been reminded today, that Exelixis' METEOR and CELESTIAL results are really what will wind up doing all the talking. Until such time as we have this data, knowing where Exelixis heads next is really anyone's guess.
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