Recently, Exelixis (EXEL) and its partner Roche (OTCQX:RHHBY) announced that the phase 3 study treating patients with colorectal cancer did not succeed. It was announced that the combination of Cotellic with Tecentriq failed to improve overall survival (OS) in this patient population. When this news was released, the stock fell by 14% falling to $18.57 per share. I believe that while the trial not succeeding is very disappointing, it should not have caused the stock to dip that much if at all. For that reason, I believe that Exelixis remains a good buy.
Both companies reported that the phase 3 trial known as IMblaze370 had failed. This study recruited a total of 363 patients with locally advanced or metastatic colorectal cancer. One key thing to note first is that the patients that were recruited into the study, were those who had already been heavily pretreated with 2 or more prior regimens of chemotherapy. The trial was putting the combination of Tecentriq and Cotellic versus the control arm which was regorafenib (STIVARGA) from Bayer (OTCPK:BAYRY). Unfortunately, the treatment combination arm failed to improve overall survival versus the control arm. There was no actual results released yet. It was stated that full detailed results from this study will be released at an upcoming medical conference. The problem is that it doesn’t matter what the results are, the bottom-line is that the primary endpoint was not met.
Other Shots On Goal
The phase 3 IMblaze370 trial not meeting the primary endpoint is troublesome. However, like any other cancer trial there is always a chance for failure. There are more chances for Cotellic anyways, and that’s why the phase 3 trial failing may not be so bad. For example, Exelixis is still running two late-stage studies using Cotellic in two combination regimens treating patients with melanoma. One study known as IMspire150 TRILOGY is studying patients with a combination of Cotellic, Tecentriq, and vemurafenib (chemotherapy treatment) in previously untreated patients with BRAF V600-positive metastatic melanoma. Another shot on goal is the IMspire170 study which is looking at a combination of Cotellic and Tecentriq in BRAF V600-wild type metastatic melanoma. Taking a look at the pipeline it is also using its other cancer drug cabozantinib, which is being explored alone or in combination with immune checkpoint inhibitors across multiple tumor types. I still think there is plenty of upside opportunity here.
Sales Are Growing Substantially
The truth is that Exelixis will make it through this trial failure. Not only because it has multiple clinical trials with Cotellic. It’s also because it has more studies coming along with cabozantinib. Why am I mentioning cabozantinib? That’s because during the Q1 2018 earnings from Exelixis, it was reported that cabozantinib sales came in at $134.3 million. First and foremost $134.3 million in sales is pretty good. Consider though, that sales of cabozantinib are up by 95% year over year. Total revenue for Q1 2018 was $212.35 million which was above analysts’ expectation for $146 million. Yet again the percentage of growth was outstanding. Total revenues of the company grew by 163% year over year. The truth is that one trial failure will not deter Exelixis at all from continuing to keep its earnings from rising.
While the Cotellic and Tecentriq combo failed to improve overall survival in compared to the placebo arm in colorectal cancer, it is still being explored in other target indications such as melanoma. Another good thing is that the value of Exelixis does not just hinge on Cotellic. It also has another cancer drug in the pipeline known as cabozantinib, which is already posting revenue that is increasing 95% year over year. Cabozantinib is also being explored alone or in combination with checkpoint inhibitors across multiple tumor types. It is my opinion, that this one failure should not dismiss this biotech entirely. The risk is that the Cotellic and Tecentriq combos in melanoma noted above may also end up failing. If that occurs then Cotellic would be in bad shape. The good news is that Exelixis has cabozantinib as a backup, and therefore I think it will carry on just fine. For all these reasons, I believe that Exelixis remains a strong buy.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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