Exelixis Inc. (EXEL 0.18%) was one of the best-performing biotech stocks of 2016, and it more than doubled in 2017 due to strong uptake of its kidney cancer therapy. Cabometyx sales are still on the rise, but recently released clinical trial results from Merck & Co. (MRK 1.22%) spell big trouble ahead.

What's in store for Exelixis and its lead drug? One thing's for sure: It won't be pretty.

Laboratory employee using a pipette.

Image source: Getty Images.

An important first

Merck recently told investors its star cancer therapy, Keytruda, just crossed another important milestone during a pivotal study with newly diagnosed renal cell carcinoma (RCC) patients. RCC is the most common form of kidney cancer, and researchers set out to see if a combination of Pfizer's Inlyta and Keytruda could outperform Sutent, a standard treatment for this group.

Merck and Pfizer's combo treatment is officially the first to produce statistically significant improvements to both overall survival and progression-free survival for newly diagnosed RCC patients. Although it's not uncommon for new cancer therapies to earn approvals based on tumor responses, treatments that have been proven to give patients better chances at long-term survival generally end up treating the lion's share of available patient groups. 

What it means for Exelixis

Merck is saving the details for an upcoming scientific conference, but an improvement to overall survival is going to be tough to beat. During the Cabosun study that encouraged the FDA to expand Cabometyx to the first-line setting, Exelixis' drug produced an overall survival benefit that wasn't strong enough to be considered statistically significant.

The FDA gave Cabometyx the green light for first-line RCC based on progression-free survival results that trounced standard care. Sales to this group soared in the first quarter this year, but this April, the FDA approved a competing combo treatment that quickly clipped Cabometyx's wings.  

Bristol-Myers Squibb (BMY 0.59%) combined its older checkpoint inhibitor, Yervoy, with another that works just like Keytruda called Opdivo. The Opdivo-plus-Yervoy combo significantly increased overall survival for first-line RCC patients compared to Sutent but missed the mark when it came to progression-free survival.

Remember, Merck's combination of Keytruda plus Pfizer's Inlyta just outperformed Sutent in terms of progression-free survival and overall survival in the first-line RCC setting. If Cabometyx was already having trouble competing against Opdivo plus Yervoy, its chances against an arguably safer combination that produced better results are slim. 

Nurse helping a patient.

Image source: Getty Images.

Next steps

Exelixis probably won't have to contend with Inlyta plus Keytruda for a while yet. Kidney cancer is about the only type Keytruda hasn't already been approved to treat. Merck intends to submit Inlyta-plus-Keytruda results to the FDA but hasn't said when.

Luckily for Exelixis, Keytruda isn't approved for the treatment of liver cancer either. An application that could make Cabometyx a second-line treatment for the most common form of liver cancer, hepatocellular carcinoma (HCC), is in front of the FDA right now, and the regulator is expected to issue a decision in January. 

During the pivotal Celestial study, treating second-line HCC patients with Cabometyx increased overall survival 57% compared to a placebo. While an approval seems likely, investors shouldn't expect a sales explosion, as only around 30,000 Americans are diagnosed with HCC each year.

Doctor speaking with a patient.

Image source: Getty Images.

A chance to beat Merck at its own game

Cabometyx and Inlyta are both kinase inhibitors, and Opdivo acts in the same way as Merck's Keytruda. Last summer, Bristol-Myers Squibb and Exelixis began a phase 3 trial to test Cabometyx in combination with Opdivo and Cabometyx in combination with Opdivo plus Yervoy as potential treatments for first-line RCC. The double and triple combinations are being compared to Sutent, and we should have top-line results around this time next year.

Rather than put all its eggs in one basket, Exelixis is also running an exploratory phase 1 trial with Cabometyx in combination with Roche's (RHHBY -0.18%) Tecentriq, a drug similar to Keytruda and Opdivo. Exelixis will include patients with 18 different types of solid tumors in the Cosmic-021 study, but investors probably won't be treated to any top-line data until 2020. 

Time to walk away?

This might not be the best time to buy Exelixis stock, but the company is hardly at the end of its rope. Product sales finished the second quarter on an annualized $583 million run rate, which is more than enough to cover the company's operating expenses. 

With continued uptake among RCC patients in the second-line setting and possible label expansions ahead, Exelixis isn't finished growing by a long shot.