Shares of Exelixis (NASDAQ:EXEL), a mid-cap biopharmaceutical company focused on the development of oncology drugs, dipped 17% in October, based on data from S&P Global Market Intelligence. The reason for the drop can likely be traced to two factors.
To begin with, Exelixis is still facing a bit of a September hangover after it and Bristol-Myers Squibb (NYSE:BMY) announced potentially disappointing phase 1 data at the European Society for Medical Oncology meeting. While there were some bright spots, the focus seemed to be that nine of 24 patients had to receive a dose reduction because of adverse events in urothelial and genital cancer studies. A lower dose isn't necessarily a bad thing as long as it works, but it raised eyebrows among investors that perhaps a combination between Bristol-Myers' Opdivo and Exelixis' Cabometyx may not be as successful, or as safe, as once thought. If Exelixis were able to successfully combine with Opdivo to provide objective responses, it could expand far beyond its expected labels and garner even more market share in second-line renal cell carcinoma.
The second issue for Exelixis is broader in focus. Both Hillary Clinton and Donald Trump have brought up drug pricing as an issue that needs fixing, with Clinton taking the more hard-lined stance of the two. If Clinton were elected and got her proposals through Congress, it's possible there could be out-of-pocket spending limits for consumers on a monthly basis for certain drugs and that patent exclusivity periods on branded drugs could be shortened. Just the potential for this to happen, even though they're merely proposals at this point, seems to be weighing heavily on the entire biotech industry.
I believe it's important for investors to put Exelixis' October move into context. Despite falling 17% during the month, shares of the Exelixis are up an impressive 117% year to date through Monday, Nov. 7. Exelixis is also readying to reap the benefits of commercializing Cabometyx and could start turning a profit as early as next year.
Furthermore, the company gave investors every reason to be excited with the full release of its phase 2 CABOSUN data. At a 20.8-month follow-up, Cabometyx demonstrated a statistically significant 31% reduction in the rate of disease progression or death compared to the placebo in first-line renal cell carcinoma. Median progression-free survival was 8.2 months for the Cabometyx arm compared to 5.6 months for Pfizer's (NYSE:PFE) Sutent, the current standard-of-care. Objective response rate also improved to 46% compared to 18% for Sutent. Lastly, at the 22.8-month follow-up, median overall survival for Cabometyx was 30.3 months, compared with 21.8 months for Sutent. Long story short, Sutent -- which brings in over a billion dollars annually for Pfizer -- may soon be on its way out if Cabometyx shines in phase 3 trials.
As a long-term shareholder in Exelixis, I clearly have some bias in my belief that its valuation should head higher. However, with CABOSUN shining, Cabomeytx sales readying to explode in second-line renal cell carcinoma, and the CELESTIAL trial for hepatocellular carcinoma continuing based on the recommendation of the independent data monitoring committee, the bullish thesis is well represented.
Sean Williams owns shares of Exelixis, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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