The FDA Approves Exelixis, Inc's New Cancer Drug

Exelixis (EXEL -1.33%) recently announced FDA approval for a drug that can help delay the progression of advanced melanoma. In this video segment, Motley Fool analyst Kristine Harjes and Fool contributor Todd Campbell discuss the new players in the fight against melanoma.

A full transcript follows the video.

Kristine Harjes: Pretty good. It's Veteran's Day here in the U.S., so a shout out to all of our Veterans that are listening today. Really excellent news out of Exelixis. And we'll also be talking about Colorado for a reason other than marijuana, for once.

But first, what does Switzerland have to do with anything? Well, one piece of Exelixis' recent news was the approval of its' new drug Cottelic in the U.S. So this drug was approved as a combination therapy with the Swiss company Roche's Zelboraf, to treat a specific variation of advanced melanoma.

Now, Zelboraf has been on the market already for five years. Sales are kind of slowing down a little bit, so I'm sure Roche investors are quite pleased and cheering for this approval -- which didn't really come as much of a surprise, as the combination was already approved in Switzerland, and the European Union advisory panel also recommended it's approval in the E.U., so we can probably expect one there sometime in the future, as well.

So let's dig into the new drug combo a little bit. Todd can you walk us through some of the highlights of its clinical performance?

Todd Campbell: Sure! This is an important drug if only because it offers a new treatment option for patients with melanoma who've seen their disease advance. So essentially, with melanoma, if you catch it early, it's pretty treatable. Unfortunately, when it advances, it gets a little bit more tricky.

Now, the FDA has made a lot of efforts to bring a quicker pathway, if you will, of approval for different drugs targeting cancers, including melanoma. This is the most recent, I guess, example of that. Cotellic, when used alongside Roche's proven drug Zelboraf, did indeed boost both the overall response rates. Did you partially respond to the drug combination? Did you happen to overall response? Was it a complete response?

It did improve that to 70% from 50% if you were on Zelboraf alone. It also, though, importantly delayed disease progression. So if you go into the numbers, and you look and say, OK, well, "How long, how many months go by before the melanoma starts to get worse or recurs?" And when patients were treated with this two-drug combo, it took about 12.3 months before the disease progressed. Where, as if you just taking Zelboraf, it was about 7.3 months. So that's a huge improvement in progression-free survival for the two-drug combo versus the monotherapy.

Harjes: Yeah, I mean... this is definitely a game-changing drug for a lot of people. I think one question that is really on people's minds right now that Exelixis did weigh in on a little bit is pricing. So Roche actually gets to set the price here. And I would imagine that anyone looking at this drug from a patient perspective is like, "Oh gosh, what are they going to charge me to get this drug?"

So what we've heard thus far is that Cotellic is going to be about $6,590 a month. And meanwhile Zelboraf is about $11,000 a month. So if you add those together, you get a combo price of $17,500. That's, of course, $17,500 a month. Which is about an 8% discount to a similar treatment available from Novartis (NVS 0.09%), but still looking at a really expensive drug here.

Now, of course, if you look at that from an investor's standpoint, the companies are going to be making quite a bit of money. And I've seen sales estimates all over the place for this combination. Todd, what do you believe could be a peak sales estimate.

Campbell: Right. Well, we have two things that we have to consider here. We have, "Yes, this drug is a big advance for people with tough-to-treat cases of melanoma." So there's the human side of it.

Harjes: For sure.

Campbell: As investors in trying to figure out if there's an investment thesis we can get behind, we have to look at it and say, "Can they make money by marketing and selling this drug?" That's where we start to get into this area when we're talking about high-priced cancer drugs absent or -- realizing, too -- that paying for cancer treatments can be a major burden for patients.

So yes, cancer drugs have gotten much-more expensive over the course of the last three years. Far more drugs coming to market with $100,000 price tags. And that's why it doesn't shock me that the companies are discussing numbers around what you just outlined.

The bigger question that I have isn't necessarily, "Is the price high enough to move the needle for these companies?" It's more, "Is the competitive landscape conducive to them grabbing market share and being able to have -- out maneuver other drugs that have also been approved for use in patients in the past year?"

On that measure, I'm not so sure. I think that we'll need to digest this over the course of the next few quarters and see how this plays out. Because investors also have to know that Bristol-Myers (BMY -7.37%), back in September, won an approval for using Opdivo alongside is Yervoy alongside it's BRAF-positive patients. So there's a lot of moving parts to figuring out what the economic benefit could be to Exelixis. Especially given the fact that Exelixis exercised it's rights to co-promote this drug in the U.S. That means that...

Harjes: Right.

Campbell: ...it won't actually be receiving royalties on sales. It actually has to pay for half of the marketing expenses associated with getting it to doctors and patients. The upside obviously being that, they'll share in any profits or loss that's generated.

Harjes: Yea and it's really only a 50/50 share.

Campbell: There's two pie pieces of that puzzle: patient population and use, or volume and price.

Harjes: Exactly. Yeah, and as you mentioned, since they are sharing in the U.S. profits, they're only getting 50% right now. And that's going to decrease as sales increase with Roche taking the rest of it. And meanwhile, it's sharing the cost, as well, for marketing and commercialization.

So another thing to consider with all of this is, "Well, OK, could Cotellic be approved elsewhere?" And it actually is being studied in other areas. I mean, the advanced melanoma landscape is looking pretty crowded already.

And there are several other experimental treatments that are hopefully on the way, and going through clinical trials, and showing some promise. But when you look at some other options that you have for the drug, and where it could potentially be, another piece of the puzzle. So it's being studied as a combination with another Roche drug, and experimental Anti-PD-1 therapy. And this could potentially be a treatment for solid tumors.

So of course, this is still a very early-stage type of drug as far as post-approval or late-stage trials go. We don't really have any way of saying exactly how much revenue it could bring in. But it's certainly something to keep an eye on.

Todd, I'm just curious. If you could touch on, what else is going on with Exelixis. I mean, this is just one part of their story. What else should investors know if somebody is interested in looking at that stock.

Campbell: This is an intriguing company because it's got a lot of irons that are in the fire. But it's also a company that's spending a tremendous amount of money on its research and development programs. You have to really balance the two and say, OK, if these are really early-stage label expansion type studies, I don't know if you can put a value on how much those are worth yet. So you have to look at Cometriq, which is approved for medullary thyroid cancer. And it's generating out sales at about $7 million per quarter. And then you have to look at Cotellic, which has just been approved. And we don't really know what the impact on the top line may be in the next year.

I think that investors need to pay particular attention over the course of the next couple quarters, see how this plays out. They also need to be watching and see whether the FDA approves Cometriq for those with kidney cancer.

Earlier this year, actually last month, the company did submit an application for approval in kidney cancer. That clears the way for an FDA decision next year. If approved, obviously, that now would give the company three different revenue streams, if you will: medullary thyroid, the melanoma, and then the kidney cancer angle. But again, both the melanoma and the kidney cancer indication, are both crowded and competitive fields. So it's unclear to me how much market share they're going to end up with.

Harjes: Yeah, I think those are all good points. And this is a company that still is losing money. They're expected to be profitable in 2019, but again those are projections. And that's kind of a long way away. So this is almost, I don't want to say typical, because none of these stocks are necessarily typical. But it is kind of typical for a biotech, where it's fairly speculative. It's a pretty risky bet.