Why Exelixis Inc. Stock Plunged

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What: Shares of Exelixis (NASDAQ: EXEL  ) , a biopharmaceutical company focused on developing therapies to treat cancer, plunged as much as 55% this morning following the announcement that the COMET-1 late-stage trial involving Cometriq as a treatment for metastatic castration-resistant prostate cancer, or mCRPC, failed to meet its primary endpoint of improving patients' median overall survival.

So what: According to the Exelixis press release, which was issued Monday evening, patients treated in the Cometriq arm of the study survived a median of 11 months, compared to a median 9.8 months for the prednisone control arm. The hazard ratio of 0.9 implies a 10% reduction in the risk of death for the Cometriq arm, but when coupled with a high p-value of 0.212 (p-values measure the degree to which chance could have factored into the results) and only minimal survival improvement, the trial was deemed unsuccessful.

In lieu of Cometriq's failure in the mCRPC indication, Exelixis announced that it would lay off about 70% of its workforce, or 160 people. The company will then have approximately 70 employees left, which it believes will ensure it has enough cash on hand to maintain operations until it releases top-line phase 3 data from its METEOR trial, which is studying Cometriq as a treatment for metastatic renal cell carcinoma. Exelixis added that its restructuring will result in a $6 million to $8 million charge in the fourth quarter.

Now what: Investors clearly aren't happy with these results, as prostate cancer is the most commonly diagnosed cancer type, and thus held a sizable market opportunity for Exelixis and Cometriq.

Looking ahead, investors should monitor four factors.

First is the company's remaining cash on hand and its cash burn rate. Exelixis' lone FDA-approved product, Cometriq for metastatic medullary thyroid cancer, or MTC, isn't bringing in enough to make the company profitable at the moment, so it will be important to watch how Exelixis will aim to save money and raise additional funds, if necessary.

The second factor is Cometriq's sales in MTC. Although MTC has arguably a much smaller market potential than Exelixis' other pipeline ventures, it nonetheless provides revenue that can be used to counter the company's clinical trial costs and administrative expense cash burn.

Third, investors shouldn't forget about two additional label expansion possibilities for Cometriq: the phase 3 METEOR trial for metastatic renal cell carcinoma and the phase 3 CELESTIAL trial for advanced hepatocellular carcinoma. Exelixis anticipates top-line data for the studies to be released in 2015 and 2017, respectively.

The final factor is the company's internally discovered cobimetinib, which is licensed to Roche (NASDAQOTH: RHHBY  ) and is being studied in combination with Zelboraf as a treatment for BRAF V600 mutation-positive advanced melanoma. In the coBRIM study released in July, the companies noted that the combination had met the primary endpoint of a statistical increase in progression-free survival. Whether this combo is approved in the U.S. could have a big impact on Exelixis over the long term.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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