Small Dent in the Exelixis Armor

Motley Fool Rule Breakers pick Exelixis (Nasdaq: EXEL) isn't invincible after all. The drugmaker announced yesterday that one of its lead drugs failed in phase 2 testing. 

The drug, XL784, was in testing as a treatment for diabetic nephropathy, which is a form of kidney disease. No study details were released yesterday except that XL784 failed on the primary endpoint of reducing proteinuria (a by-product of abnormal kidney functioning).

XL784 is part of the basket of nine remaining drugs from which GlaxoSmithKline (NYSE: GSK) gets to choose up to three for further development. Because of the failed study, it's pretty unlikely that Glaxo will use one of its options on this drug. This was also the fate that Exelixis faced with oncology treatment XL647 earlier in the year, although another compound, XL880, may get picked up by Glaxo by December.

Only 20% of compounds entering phase 2 testing go on to regulatory approval, according to an oft-cited statistic from a Milken Institute policy brief. We'll find out the data on the failed XL784 study -- and what Exelixis plans to do with the compound once it has finished analyzing the data -- on Nov. 2, when Exelixis presents during the American Society of Nephrology Renal Week.

Sometimes drugs just don't work out like they're supposed to. Thankfully, Exelixis found this out in phase 2 testing rather than in a much more costly phase 3 trial.