Source: Exelixis

What: After reporting third quarter financials and receiving an FDA green light for a key drug prospect, shares in Exelixis (NASDAQ:EXEL) slipped by up to 10% earlier today.

So what: Exelixis has one drug on the market, and sales of that drug (Cometriq, which is used to treat medullary thyroid cancer, or MTC, a rare cancer affecting roughly 1,200 people in the U.S.) totaled $6.9 million in the third quarter.

Exelixis also received $3 million in contract revenue in the quarter in the form of a milestone payment from Merck & Co. relating to Exelixis' P13K-delta program.

In total, Exelixis $9.8 million in third quarter revenue was up from $6.3 million last year, but it still failed to offset the company's expenses, including $26 million that was spent on R&D and another $17.8 million that was spent on SG&A.

Overall, Exelixis net loss in the third quarter was $47.5 million. That loss appears to be offsetting enthusiasm surrounding the approval of Exelixis' Cotellic, which was co-developed with Roche Group (NASDAQOTH:RHHBY), and won FDA approval for use alongside Roche's Zelboraf as a treatment for BRAF positive metastatic melanoma yesterday.

Now what: The market for Cometriq in MTC is undeniably tiny and as a result, Exelixis investors have been eagerly awaiting the approval of Cotellic to help strengthen Exelixis' financials.

During trials, 70% of Cotellic plus Zelboraf patients responded to therapy, versus 50% in the Zelboraf monotherapy arm. Progression free survival in patients taking Cotellic alongside Zelboraf was 12.3 months versus 7.2 months for Zelboraf alone.

That's a big improvement, but investors need to remember that the two drug combination is only approved for use in BRAF positive patients, so the market opportunity is limited to the roughly 50% of melanoma patients with that specific genetic mutation.

According to the American Cancer Society, 74,000 Americans are diagnosed with melanoma every year and if melanoma is diagnosed early, it's generally curable. However, the prognosis isn't as good in patients with advanced cases of melanoma and therefore, there's still a significant need for new treatment options like this one.

In the first nine months of this year, Roche reports sales of Zelboraf total about $32 million in the U.S., down 43% from 2014 due to increased competition. Since Exelixis will initially share in the profit or loss equally in the U.S. on Cotellic, it will be important to watch results in the coming quarters to see if Cotellic revenue will be significant enough to move the needle at Exelixis.  

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends Exelixis. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.