Exelixis (NASDAQ:EXEL) closed last week down more than 7% following the third-quarter report's 59% revenue drop, which was nevertheless in line with estimates. What happened to slash revenues -- and what's next for this biotech? 

Revenue thuds but don't worry
The large year-over-year drop wasn't because something went wrong. Last year's third quarter simply had financially beneficial agreements that no longer apply. Those included a $5.5 million milestone payment from Daiichi Sankyo that was triggered by phase 2 initiation for cardiovascular drug XL550.

Last year's quarter also included a decrease in Bristol-Myers Squibb payments due to a depletion of deferred revenues. Bristol-Myers and Exelixis ended an agreement in late 2011 for cancer drug XL281. Exelixis out-licensed the drug to Bristol-Myers and the opting out accelerated payments due under the original contract. So in the third quarter of 2012, that money was still coming in -- but didn't extend into the third quarter of 2013. 

In other words, there's no need to worry about the revenue drop. Exelixis is still chugging along and has other signs of strength -- including the approved drug that positively drove revenues.  

C'mon, Cometriq
Cometriq received Food and Drug Administration approval a year ago for the treatment of medullary thyroid cancer, or MTC -- a rare disease that only accounts for about 4% of thyroid cancers.

The drug had revenues of $4.8 million in the third quarter, which makes sense with the rarity of the disease and the fact that there's existing competition. AstraZeneca's (NYSE:AZN) Caprelsa -- the first approved MTC drug -- had total 2012 revenues of $27 million

But investors have watched Cometriq because of the potential second indication in prostate cancer. Cometriq's currently in two late-stage trials for the disease with data expected to report next year. It's a crowded but potentially lucrative market; analyst firm Decision Resources predicts that the global prostate cancer market will reach $9.1 billion by 2021.

More in the pipes
Exelixis' pipeline is a place of partnerships. The company developed melanoma drug XL518, also known as GDC-0973, before signing an agreement with Genentech, which took over the project after phase 1 completed. Phase 3 trials are currently under way testing the drug in combo therapy with Daiichi Sankyo's Zelboraf, compared to Zelboraf alone, for a mutated form of metastatic melanoma.

If the drug makes it to market, Exelixis will receive an initial share of domestic profits and losses that will diminish as the drug if the drug becomes successful. Exelixis also has the option to co-promote domestically and will receive royalty payments for sales abroad. 

The rest of Exelixis' pipeline consists of partnered compounds where the partners take responsibility for the development. One of the drugs that's furthest ahead is breast cancer treatment foretinib, which Exelixis out-licensed to GlaxoSmithKline. The drug's currently in phase 1b/2 trials for two different types of breast cancer. 

These out-licensed products could eventually bring in royalty payments that could help bolster Exelixis' revenues. But the company's overall health still sits in Cometriq's hands. 

Foolish final thoughts
Cometriq's selling about as well as it can considering the indication's rarity and the competition from AstraZeneca. Keep an eye out next year for data from Cometriq's prostate cancer trials. Positive results in that area will have a profound effect on Exelixis' future. Of course, so could negative results. But that's the bet you make when playing with biotech.