Exelixis (NASDAQ:EXEL) is proving that sometimes being second-best can work out just fine, especially when you're in the business of treating a disease like kidney cancer -- a condition for which no cure has been found, so patients' cancers will eventually progress on the first drug they take. Bristol-Myers Squibb's (NYSE:BMY) Opdivo and Yervoy combination may grab many of those patients initially, but 90% of those who progress on that regimen are moving on to Exelixis' Cabometyx. And its strong position as a second-line treatment certainly helped boost the company's fourth-quarter revenue.

Exelixis results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$228.6 million

$120.1 million

90%

Income from operations

$111.6 million

$37.4 million

198%

Earnings per share

$1.15

$0.12

858%

Data source: Exelixis.

What happened this quarter?

  • Cabometyx sales grew 8% sequentially. Some of that was due to an increase in inventory, and a price hike helped as well, but demand was still up 6% quarter over quarter, an acceleration from the 5% increase seen between the second and third quarters.
  • While Cabometyx sales provide the majority of Exelixis' revenue, the company also booked $27.9 million in milestones from its partners Ipsen and Takeda; $12.3 million of royalties from Ipsen for overseas sales of Cabometyx; $3.4 million of profit-sharing royalties from Roche's Genentech unit for sales of Cotellic; and $8.8 million of additional collaboration revenue.
  • In January, Exelixis' partner, Daiichi Sankyo, got Minnebro approved in Japan to treat high blood pressure, setting up a $20 million milestone payment when the drug launches there, as well as low double-digit royalties on sales.
  • Also in January, the FDA approved Cabometyx for liver cancer.
  • In conjunction with the earnings report, Exelixis announced that its restarted drug-discovery program has produced its first drug candidate, XL092, which is ready to enter the clinic.
Doctor sitting at a table talking to a patient

Image source: Getty Images.

What management had to say

Senior Vice President of Commercial PJ Haley talked about Cabometyx's recent approval as a treatment for liver cancer (hepatocellular carcinoma, HCC), how it might compete with other new immuno-oncology (IO) and tyrosine kinase inhibitor (TKI) drugs, as well as how Exelixis can leverage the previous approval for kidney cancer (renal cell carcinoma, RCC):

It's sort of early days for us in the approval. So, I wouldn't really want to speculate on, certainly, a dynamic market, with new approvals both on the IO front as well as TKI moving forward. What I would say is that I think we're certainly well-positioned. We have a concentrated customer universe, in terms of the value of HCC, 95% of which we already covered with our RCC sales force. And we know that prescribers, through market research and early anecdotal feedback, if they've used CABOMETYX in RCC, which at this point is a significant number, they're more likely to use it in HCC. So, I think those are all encouraging signs but recognize that it's early in the launch and wouldn't really want to speculate beyond that.

President and CEO Michael Morrissey highlighted plans for additional acquisitions or licensing deals to pad the company's pipeline:

We have a very broad approach here, looking for appropriately valued assets that span the range of opportunities from late pre-clinical to early clinical to late clinical to even commercial. So, we have a pretty big appetite, and I think a pretty good vision on where we could go with any of those kinds of assets. We did a number of early stage deals last year, while looking, certainly, much more broadly and much more deeply at a wide range of assets.

Looking forward

Management didn't give revenue guidance, which seems completely reasonable given the dynamic nature of the liver cancer market and additional potential kidney cancer competition from Merck's Keytruda, which is in the same class as Bristol-Myers's Opdivo.

But as long as Cabometyx can continue to take market share from the smaller players, investors should be content with the drug sitting in second place for kidney cancer, especially since its ongoing battle with Bristol-Myers may turn into a commercial partnership. In addition, a late-stage clinical trial called CheckMate 9ER testing Cabometyx plus Bristol's Opdivo in first-line kidney cancer patients is scheduled to read out in the second half of this year.

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.