Exelixis, Inc. Looks Ahead -- but the 3rd Quarter Wasn't Too Shabby

Exelixis (EXEL 1.80%), the biotech once left for dead by quite a few investors, continues its resurgence with another solid quarter of sales of its kidney cancer drug Cabometyx. Of course, the third quarter almost doesn't matter that much since most of the biotech's current valuation is supported by potential future sales as Exelixis hopes to expand drug treatment of first-line kidney cancer as well as liver cancer.

Exelixis results: The raw numbers

Data source: Exelixis.

What happened with Exelixis this quarter?

• Exelixis' overall revenue benefited from a large increase in collaboration revenue, $45 million in milestone payments from partner Ipsen as it filed for approval to use Cabometyx in treating first-line kidney cancer in Europe.
• But even just looking at product revenue, sales more than doubled. Sales of Cabometyx were up 12% quarter over quarter, suggesting the drug is still capturing more of the second-line and later kidney cancer market that it's currently approved to treat.
• The number of doctors who wrote prescriptions for Cabometyx through the specialty pharmacy channel where Exelixis can track them increased by more than 20% in the third quarter. It appears those are lower-volume community oncologists who might not add much in the way of sales compared to higher-volume academic doctors, but could benefit the drug in the long run.
• The potential expansion into other treatment areas continues with Exelixis applying in August for additional approval to treat first-line kidney cancer and announcing positive phase 3 data for liver cancer in October.

Image source: Getty Images.

What management had to say

Patrick Haley, Exelixis' senior vice president of commercial, noted that the first-line setting for kidney cancer, which goes by the proper name renal cell carcinoma, or RCC, is about the same size as second- and third-line combined. When asked which kind of doctors -- academic or community -- are seeing those first-line patients, Haley explained how the aforementioned push into community oncologists could benefit Exelixis once the first-line approval comes through:

There is maybe a little bit more in the community, but that's why I think it's really important and we are happy that we have expanded the prescriber base significantly over the last few quarters. And the majority of all these RCC prescribers now, including the community prescribers, have experience with Cabometyx, and our sales force quite frankly is leading the market in share voice or tied for that, so to speak, on most surveys.

Exelixis has indicated that it would like to add to its pipeline to build growth once Cabometyx starts to slow down. Michael Morrissey, Exelixis' CEO and president, wasn't willing to share details, but noted the company is working on a few deals:

We're going to have a very high bar for what we bring in-house and whether we partner or buy. And we've got several opportunities now undergoing late-stage diligence that we're excited about. But again, we've got to finish the work and we have to go through all the details and get those done.

Looking forward

Looking toward expanded sales, Exelixis expects to hear from the FDA about the potential approval for Cabometyx as a first-line kidney treatment on or before Feb. 15, 2018. The application for liver cancer treatment should be submitted in the first quarter, putting a decision from the FDA before the end of next year.

Before then, investors should get to see data from the phase 3 trial that supports the liver cancer application, which could dictate how much and how quickly Exelixis can capture that market. As a reminder, the company said the trial passed, so we know patients lived longer taking Cabometyx than placebo, but Exelixis has saved the actual numbers for an upcoming medical meeting.

Beyond those two label expansions, Exelixis' next move is to combine Cabometyx with other cancer drugs. A phase 3 trial CheckMate 9ER combining Cabometyx with Bristol-Myers Squibb's (BMY -0.27%) Opdivo and Yervoy or just Opdivo is already underway, and Exelixis and Roche (RHHBY -2.24%) are also testing Cabometyx in combination with Roche's Tecentriq.

And of course there's also Cotellic, which Exelixis markets with Roche. As expected, the launch hasn't been as robust as Cabometyx, but the drug is in three phase 3 trials testing Cotellic with other Roche drugs that could accelerate sales. The first of those trials has already fully enrolled and will read out in the first half of next year.

It's hard to find fault with Exelixis' execution since getting Cabometyx approved a year and a half ago, but the biotech is going to have to continue to accomplish its expansion goals to keep investors happy.