What happened

Shares of Exelixis (NASDAQ:EXEL) are down 10% at 1:15 p.m. EDT following the release of third-quarter earnings yesterday after the bell.

So what

Product revenue, which mostly comes from sales of Exelixis' liver and kidney cancer drug Cabometyx, came in at $191.8 million, a 17.7% year-over-year increase. While that's certainly solid growth on a yearly basis, it's down slightly from the $193.7 million in product sales Exelixis registered in the second quarter. And when you factor in a price increase, Cabometyx demand was down 4% quarter over quarter.

Doctor showing a report to a patient in a hospital bed.

Image source: Getty Images.

Total revenue beat analyst expectations, but that was due to a one-time $50 million milestone payment from Exelixis' international partner Ipsen Pharma for achieving $250 million in sales over four consecutive fiscal quarters.

On the bottom line, Exelixis earned $0.31 per share, which has come down from $0.41 per share in the year-ago quarter as the biotech has dramatically ramped up spending on research and development to replenish its pipeline.

Now what

The slowdown in growth of Cabometyx is disappointing but not particularly surprising after the FDA approved combination treatments -- Merck's (NYSE:MRK) Keytruda plus Pfizer's (NYSE:PFE) Inlyta and Pfizer and Merck KgaA's Bavencio plus Inlyta -- for patients with kidney cancer.

Fortunately, Exelixis has its own Cabometyx combination, with Bristol-Myers Squibb's (NYSE:BMY) Opdivo, in development. Data from the phase 3 CheckMate 9ER are expected in early 2020 and, with a quick approval, could help restart substantial sales growth later next year.