Exelixis Gets the Patients Eventually

Exelixis' (EXEL 1.84%) Cabometyx continues to capture market share for patients with renal cell carcinoma, the most common form of kidney cancer, with more growth expected in the quarters ahead.

Exelixis results: The raw numbers

Data source: Exelixis.

What happened with Exelixis this quarter?

• Sales of Cabometyx increased 66% year over year to $145.8 million; Cometriq, which is the same active ingredient but for thyroid cancer, tacked on another $4.7 million.
• Revenue from collaborations added a solid $40.3 million; more than half of the category came from a $25 million milestone payment from Exelixis' international partner Ipsen Pharma for net sales reaching $100 million cumulatively over four consecutive quarters. Royalty revenue from Ipsen and a little from Roche for ex-U.S. sales of Cotellic added another $6.9 million. In the U.S., the joint venture with Roche's Genentech unit for Cotellic has become profitable, producing $2.7 million in collaboration revenue.
• During the quarter, Ipsen hit another milestone reaching $150 million in cumulative net sales, triggering an increase in the royalty rate from a range of 2% to 12% to a tiered royalty of 22% to 26%.
• Not only is the royalty rate going up, but overseas sales should rise as well as European regulators approved Cabometyx for use as first-line treatment, the same indication that has boosted U.S. sales.
• Even with research and development expenses increasing substantially, operating income line grew faster as it doesn't cost that much more to sell additional pills. Earnings also climbed even faster than operating income thanks to Exelixis paying off all its debts.

Image source: Getty Images.

What management had to say

Exelixis' CEO and president, Michael Morrissey, told investors to expect continued licensing deals to build out the company's pipeline, saying, "We hope to sign additional collaborations with early stage biotechs in 2018 and beyond in a low-risk financial manner through small upfronts and modest success-based milestones, allowing us to advance new assets aggressively, while discharging scientific and downstream clinical risk."

Patrick Haley, senior vice president of commercial, pointed out why it's not a major problem for patients to receive Bristol-Myers Squibb's (BMY -0.30%) recently approved immuno-oncology (I/O) drugs, Opdivo and Yervoy: "The large majority of patients, who receive an I/O combo upfront will progress. And importantly, market research and KOL feedback indicate that cabo will be chosen for many of these patients upon progression as they enter the second-line treatment setting." (KOL stands for "key opinion leader," for those playing acronym bingo at home.)

Looking forward

Clearly, Exelixis' main task is to continue expanding sales of Cabometyx in kidney cancer, but long-term investors should also be focused on hepatocellular carcinoma, the most common form of liver cancer. After positive data for that tumor type, the drug is under Food and Drug Administration review with a decision expected on or before Jan. 14, 2019.

Further back, there's potential for combination treatments with Cabometyx, including with Bristol-Myers Squibb's Opdivo in kidney cancer that's in a phase 3 trial and with Roche's Tecentriq in a phase 1b study testing the combination in a variety of tumor types.