What happened

Shares of Exelixis (NASDAQ:EXEL) are down 12% at 2:02 p.m. EDT after announcing the IMblaze370 phase 3 trial testing its Cotellic with Roche's Tecentriq failed to improve overall survival compared to Bayer's Stivarga in patients with locally advanced or metastatic colorectal cancer.

So what

Roche's Genentech unit was running the trial, so Exelixis wasn't at liberty to release any more information. Genentech plans to present the data at an upcoming medical meeting, although the exact one wasn't disclosed.

A paper that had diagnosis and colon cancer written on it, with a pen and four pills laying on the paper.

Image source: Getty Images.

While disappointing, Exelixis and Genentech had an uphill battle to show an effect. These are difficult-to-treat patients who had failed at least two systemic chemotherapy regimens. And the trial pitted the combination head-to-head against an active comparator. It's quite possible that the combination is helping patients, just not enough to show an improvement compared to Stivarga.

If the companies had gone after patients who had also failed Stivarga, they might have been able to successfully show the drug works better than a placebo in that setting. But if the trial was organized that way, the combination could only be approved for later-stage patients, limiting the potential market.

Cotellic, which Exelixis sells in partnership with Roche, is still approved for melanoma patients with a BRAF mutation in combination with Roche's Zelboraf -- although it's a competitive space and produces minimal financial benefit for Exelixis compared to its hot selling Cabometyx.

Now what

The duo still has a few more shots to improve Cotellic sales in two phase 3 trials in a different melanoma setting. The IMspire150 Trilogy trial is testing the triple combination of Cotellic, Tecentriq, and Zelboraf in the first-line setting, and the other trial, IMspire170, is testing Cotellic and Tecentriq in patients who don't have the BRAF mutation that Zelboraf works on.

Investors will have to wait to see the full data set for IMblaze370 before evaluating whether the results make it less likely that the melanoma trials will also fail.

Brian Orelli has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Exelixis. The Motley Fool has a disclosure policy.