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Exelixis Gets Ready to Partner Up

One thing is for certain with Rule Breakers pick Exelixis (Nasdaq: EXEL  ) : The development-stage drugmaker won’t look the same a year from now. Yesterday, Exelixis announced second-quarter earnings numbers -- yawn, another loss -- but, more importantly, also discussed its future in depth.

With multiple drug candidates in early and mid-stage clinical testing and no cash coming in besides some payments from its partners, Exelixis had to raise more cash in the second quarter. In one of the most complicated potential cash raises ever for a development-stage drugmaker, Exelixis inked a deal last quarter that will give it up to $150 million in funds for the future if it needs them. Currently, it only has $190 million in cash and investments on its balance sheet.

To a large extent, it looks like Exelixis’ cash considerations are going to dictate its future. For example, Exelixis announced that it was shelving any further development of its second most advanced drug candidate, XL647, unless it can find a partner for the compound.

This potential lung cancer treatment was already rejected for further development by Exelixis’ collaboration partner GlaxoSmithKline (NYSE: GSK  ) last year. The non-small-cell lung cancer treatment market is tough and competitive, featuring compounds from companies like AstraZeneca (NYSE: AZN  ) , Genentech (NYSE: DNA  ) , and OSI Pharmaceuticals (Nasdaq: OSIP  ) , and Exelixis likely doesn’t want to commit its scarce resources to such a relatively well-served market. Still, it is hard to jive Exelixis’ comments last year about wanting “to move forward aggressively” with XL647, because of its “compelling” data, with the company’s new comments about not working on the drug anymore unless a partner can be found for it.

XL647 isn’t Exelixis’ only compound in search of a partner. Glaxo announced that it will be ending its collaboration with Exelixis in the coming months. That means that, of the five remaining pipeline candidates that are a part of this collaboration, Glaxo will only be able to continue development of one of them. The most likely pick will be phase 3 drug candidate XL184. If XL184 is chosen by Glaxo, this will give Exelixis another four early  and mid-stage drug candidates to potentially partner out.

Exelixis has hired a seasoned executive from Novartis (NYSE: NVS  ) to presumably help with its “business development” activities. On its conference call yesterday, Exelixis’ management said they were “optimistic” that at least one new partnership deal would get done by the end of 2008, so we can probably expect to hear much more news on the partnership side of the equation for Exelixis in the coming months. If not, expect Exelixis’ credibility and stock price to suffer.

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Exelixis is an active pick of our Rule Breakers newsletter. GlaxoSmithKline is an active Income Investor pick. Try any of our Foolish newsletters today free for 30 days

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Motley Fool owns shares of Exelixis. The Fool has an A+ disclosure policy.

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