After reporting in 2016 that its second-line kidney cancer drug, Cabometyx, outperformed Pfizer Inc.'s (PFE 0.11%) top-selling Sutent in first-line advanced kidney cancer patients, Exelixis Inc. (EXEL 1.55%) asked the FDA to expand Cabometyx's label. The FDA wasn't expected to weigh in with an official approval or denial until Feb. 15 but it accelerated its review and gave Cabometyx a green light on Thursday.

The first-line approval opens Cabometyx up to a larger addressable patient population and that should translate into significantly more sales as it wins away business from Sutent. Is Exelixis' profitability about to soar?

A business man holding a rubber stamp that reads approved.

Image source: Getty Images.

Improving outcomes

Cabometyx won FDA approval in second-line advanced kidney cancer in early 2016 after it improved median progression-free survival to 7.4 months from 3.8 months for Novartis' (NVS 1.08%) Afinitor, a go-to second-line advanced RCC drug.

Ahead of Cabometyx's approval in that setting, Afinitor was generating $1.6 billion in sales. Since then, Afinitor's sales have fallen sharply as Cabometyx has won significant market share away from it. Cabometyx's market share in the second-line setting is greater than 20% and its market share in the third-line setting is about 35%. As a result, Cabometyx's sales are clocking in at an annualized pace north of $360 million.

In 2018, Exelixis will try for a similar win following Cabometyx's latest approval in first-line patients. The company shouldn't have much difficulty displacing Sutent given that it handily outperformed the market-share leading Sutent in that indication.

Cabometyx patients experienced a 52% reduction in rate of death or cancer progression versus Sutent. Progression-free survival was 8.6 months for Cabometyx versus 5.3 months for Sutent. Cabometyx also improved overall survival to 26.6 months versus 21.2 months for Sutent, and the objective response rate was 20% for Cabometyx and 9% for Sutent.

A changing marketplace

Sutent isn't likely to lose all its market share in the first-line indication, but it could lose the majority of it following a Cabometyx approval. In anticipation of the competitive threat, however, Pfizer conducted studies that proved Sutent can benefit patients prior to them developing advanced RCC.

In those trials, Sutent significantly delayed disease progression in RCC patients who took it as an adjunct therapy after undergoing surgery. Specifically, the median disease-free survival for Sutent patients was 6.8 years versus 5.6 years for patients taking a placebo. The FDA approved Sutent's use as an adjuvant treatment in kidney cancer in November, paving the way for Sutent to maintain its billion-dollar blockbuster status despite the competition in first-line RCC.

Pfizer isn't giving up entirely on the first-line advanced RCC indication, either. Pfizer's studying the use of another one of its kidney cancer drugs -- Inlyta -- alongside checkpoint inhibitors in first-line RCC patients and results from trials are expected in 2019.

Cabometyx may also have to compete against Bristol-Myers Squibb (BMY 0.28%) for Sutent's market share even sooner than that. A trial evaluating Opdivo and Yervoy combination in this setting was stopped early because of efficacy and Bristol-Myers Squibb filed for approval of that combination in this indication in December. The FDA is expected to make its decision on April 16, 2018, but given that Opdivo and Yervoy are both already FDA-approved drugs, a decision could come sooner.

What's next for Exelixis?

Cabometyx sales growth is undeniably the big story for Exelixis in 2018, but it also has an opportunity to see sales climb if Cabometyx secures FDA approval in advanced liver cancer and another one of its drugs, Cotellic, gains greater traction. Exelixis reported data from its liver cancer trial in November and an FDA application is expected to be filed early in 2018. 

Meanwhile, Cotellic revenue could head higher if trials being conducted by co-developer Roche pan out in previously untreated BRAF V600 mutation-positive advanced melanoma, colorectal cancer, and breast cancer.

Overall, Cabometyx approval in advanced kidney cancer is a boon to Exelixis. It should significantly expand Exelixis sales and further improve the company's profitability. Exelixis has already used Cabometyx's success in the second- and third-line settings to pay down debt and because sales have grown faster than expenses, the company's already posting profit. In Q3 2017, net income was $81 million. A Cabometyx approval should drive profit up next year and potentially cause Exelixis shares to trade higher, regardless of what happens with Bristol-Myers Squibb's Opdivo and Yervoy combination. For that reason, I think Exelixis is a stock to buy.