The last week has been depressing for Exelixis’ (EXEL) shareholders, as the stock dropped by around 13% and reached its 11-week low of $18.56 on May 10, 2018. The market was disappointed to see Exelixis’ Cotellic and Roche Holdings’ (OTCQX:RHHBY) Tecentriq failing to meet primary endpoint of improvement in overall survival as compared to Bayer’s (OTCPK:BAYRY) Stivarga in 2/3 line locally advanced or metastatic colorectal cancer indication. This trial, if successful, would have been a major advancement for the cobimetinib franchise and would have also been a major advancement in improving the sensitivity of cold tumors to immunotherapy.
While this news has definitely proved to be dampener for Exelixis, all is far from lost for this renal and liver cancer player. Exelixis can prove to be a high return buy opportunity and the recent dip in share prices is providing a good entry point for investors to load on this stock.
In a previous article, I had explained at length why Cabozantinib franchise is a major winner for Exelixis. This article will be mostly focusing on what has changed and how that is working in favor of Exelixis in 2018.
Cabometyx is now targeting the entire RCC patient population.
First approved in USA in April 2016 in advanced RCC indication, tablet formulation of cabozantinib, Cabometyx has managed to attain 42% new patient share of the second line RCC market by end of 2017. And in December 2017, the drug managed to make inroads in the first line RCC segment, based on sturdy results from Phase 2 trial, CABOSUN. This trial, which demonstrated superiority of Cabometyx over Sutent in terms of PFS in first line RCC setting, has played a pivotal role in expanding the drug’s addressable market size as well as in boosting prescriber confidence.
The impact of this approval can be better understood with the help of statistics presented above. So the FDA approval in first line RCC indication added almost 14,000 patients to Cabometyx’s target pool, thereby increasing size of the drug’s addressable market size in USA from 17,000 patients to 31,000 patients. It is important that we focus more on the opportunity for the drug in USA to understand growth prospects for Exelixis, since the company has out-licensed the commercialization rights of the cabozantinib franchise in markets outside USA and Japan to Ipsen.
The underlying demand for Cabometyx rose by around 5% in 4Q 2017 over that in 3Q 2017. However, in Q1 2018, the demand grew by a sturdy 30% on sequential basis, driven by both new patient starts as well as by refills from existing patients.
Cabometyx has been witnessing solid adoption in both community and academic settings. This is a drug that is increasingly prescribed by community oncologists in first line RCC indication. At the same time, it has also impressed up the KOLs in the RCC space. All this has worked up in increasing the prescriber base for the drug. While the last quarter of 2017 saw 15% rise in prescriber base over the previous quarter (linked above), the number of prescribers for Cabometyx further rose by 20% sequentially in Q1 2018 (linked above).
Cabometyx currently accounts for 25% of the RCC TKI market in USA. Compared to other key drugs in this segment such as Inlyta, Sutent, and Votrient, Cabometyx is the only drug that witnessed a rise in market share and that too by almost 20%, in Q1 2018 as compared to that in Q4 2017.
Then there is much more to Cabometyx than kidney cancer.
The March of 2018 saw Exelixis submitting an application to the FDA for expanding Cabometyx’s label in second line plus hepatocellular carcinoma or HCC indication. This was followed by Ipsen filing an application for Cabometyx in Europe in similar indication. This implies that Cabometyx may not only add to Exelixis’ net product revenues but may also boost collaboration revenues from Ipsen in 2018.
The approval of cabometyx will be based on results from CELESTIAL trial, wherein the drug managed to demonstrate statistically significant improvement in OS as compared to placebo in second line and third line HCC indication. Even though IDMC stopped the trial during second interim analysis, Cabozantinib had demonstrated improvement in overall survival over placebo in HCC patients by the time of its first interim analysis itself.
So we have 800,000 new cases of HCC diagnosed every year across the world and 700,000 patients (linked above) dying due to the disease annually. In U.S., there are 40,000 new cases (linked above) every year and 29,000 (linked above) succumb to the disease annually. Liver cancer has emerged as the third leading cause of mortality in cancer patients, and without treatment, a patient hardly survives for around six months. So this is definitely one huge underserved segment and subsequently growth opportunity for Cabometyx.
Beyond evaluating Cabozantinib as monotherapy, Exelixis is also exploring potential the drug’s potential in combination with checkpoint inhibitors from Bristol-Myers Squibb (BMY) and Roche Holdings. Cabozantinib in combination with nivolumab or in combination with both nivolumab and ipilimumab is being studied in ongoing Phase 2 trial in advanced HCC indication. Cabozantinib in combination with nivolumab and ipilimumab is also being studied in Phase III Checkmate 9ER trial in first line RCC indication by Exelixis, Bristol-Myers Squibb, Ipsen, and Takeda.
Exelixis is also working with Roche Holdings to study Cabozantinib and atezolizumab combination regimen in multiple cancer indications.
Cobimetinib continues to be an important franchise for Exelixis in 2018.
Despite failure of the Cobimetinib – atezolizumab trial in colorectal cancer, there is definitely much to watch out for in the Cobimetinib franchise. This agent is a reversible inhibitor of MEK and a component of ERK, MEK, RAS, and RAF pathways. Licensed to Roche Holdings way back in 2006, this Exelixis’ molecule has been approved for advanced melanoma in U.S. as well as in multiple ex-U.S. markets. Though earning lesser revenues than Cabozantinib, Exelixis expects Cobimetinib to become a long term cash flow and revenue source for the company.
Exelixis is also studying Cobimetinib in combination with vemurafenib and atezolizumab in TRILOGY trial in BRAF-positive melanoma. Then again, Cobimetinib – atezolizumab combination is also being studied in BRAF-wild type melanoma.
Collaborations continue to be a major revenue earning source for Exelixis in 2018.
Exelixis has managed to de-risk many of its research programs by entering into collaborations with multiple big pharma players such as Roche Holdings, Bristol-Myers Squibb, Daiichi Sankyo, and Merck (MRK). Additionally, these collaborations also enable the company to earn revenues in form of royalties and milestone payments.
In Q1 2018, Exelixis reported $20 million (linked above) worth collaboration revenues which were attributable to milestone payment from Daiichi Sankyo, related to filing of application in Japan for Esaxerenone in essential hypertension indication. Esaxerenone was outlicensed by Exelixis to Daiichi Sankyo in 2006, and in turn received $20 million as upfront payment. With addressable market size of more than 40 million patients in Japan, this drug may fetch even more collaboration revenues in terms of commercialization milestones and double digit royalty on sales for Exelixis in 2018. Additionally, Daiichi Sankyo is also evaluating potential of Esaxerenone in diabetic nephropathy indication, a research program that can boost Exelixis’ collaboration revenues in future years.
Then again, Exelixis has outlicensed development and commercialization rights for its Cabozantinib franchise outside USA and Japan, to Ipsen. In Q1 2018, Exelixis reported $45.8 million (linked above) worth collaboration revenues, of the $50 million milestone payment payable (linked above) by Ipsen after Cabozantinib secures approval in first line RCC indication in Europe.
By end of 2017, Exelixis had earned 335 million from Ipsen, of which $200 million was upfront payment. The company expects to earn around $525 million as payment for achieving commercial milestones from Ipsen (linked above). Additionally, Ipsen may share up to 35% of the worldwide clinical development costs (linked above) with Exelixis in case they opt-in the various label expansion programs of the Cabozantinib franchise. Exelixis will also be earning royalties up to 26% on net sales (linked above) of Cabometyx in international markets.
Exelixis has collaborated with Takeda Pharmaceuticals (OTCPK:TKPYY) for commercialization as well as future commercial development of its cabozantinib franchise in Japan. While Exelixis has already received $50 million as upfront payments, it can earn up to $83 million as commercial milestone payments in future years (linked above). Besides, the development and first-sale milestone payments payable to Exelixis for cabozantinib in first 3 indications in Japan can reach up to $95 million (linked above). Takeda Pharmaceuticals may plan to share up to 20% of the worldwide clinical development costs for cabozantinib research programs (linked above), while it is bearing 100% of the development costs in Japan (linked above). Exelixis will also be earning up to 30% royalty (linked above) on sale of cabozantinib in Japan.
Licensed to Merck in 2011, Exelixis’ PI3k-delta inhibitor has already fetched $12 million as upfront payment (linked above) for the company. By end of 2017, Exelixis had also earned $8 million as milestone payments (linked above), while the company expects to earn almost $235 million as development and regulatory milestone payments and $375 million as commercialization milestone payments from this collaboration (linked above). Additionally, Exelixis will also earn royalties on net sales of this therapy.
Exelixis has collaborated with Bristol-Myers Squibb in the ROR纬t inverse agonist research program. The former earned $10 million as milestone payment (linked above) for initiation of the first-in-human study in this program in Europe. While Exelixis has already received $12.5 million (linked above) as milestone payments for this program in 2017, the company expects to earn up to $240 million (linked above) as development and regulatory milestone payments and additional $150 million as commercialization milestone payments (linked above). The company will also be earning royalties on net sales of this therapy in future years.
There are certain company specific risks that cannot be ignored by retail investors.
The unsustainably high reliance on the single cabozantinib franchise is definitely a big risk for Exelixis. This exposes the company to significant volatility, as the investor sentiment varies drastically with any less than positive news for this franchise.
To add to this, the rapidly rising competition in RCC space is a big challenge for Exelixis. Going beyond monotherapies, Bristol-Myers Squibb managed to secure FDA approval for Opdiyo-Yervoy combination regimen as first line therapy for intermediate and poor risk advance RCC patients. The approval was based on results from CheckMate -214 clinical trial, which showed superiority of the regimen over standard of care, Pfizer’s (PFE) Sutent.
While Cabometyx also demonstrated superiority over Sutent in the first line RCC indication in CABOSUN trial, it should be remembered that this was a Phase 2 trial involving a smaller sample size of 157 poor and intermediate-risk advanced RCC patients. CheckMate-214 trial was a much larger study with 1,096 treatment-na茂ve advanced RCC patients. Then again, Cabometyx has managed to demonstrate improvement over Sutent in terms of progression-free survival while the improvement in overall survival was not statistically significant. But in CheckMate-214, the primary endpoint was overall survival, considered to be the gold standard in oncology trials. Hence, physicians and patients may land up having more confidence on the Opdiyo-Yervoy regimen. And a cash rich big pharma company like Bristol-Myers Squibb will definitely leave no stone unturned to create awareness amongst the prescriber community for its new regimen.
The failure of Cobimetinib- atezolizumab combination in metastatic colorectal cancer is also considered to be a big blow for immunotherapy field in the cold tumor segment.
Then again, for long term growth, Exelixis is depending on in-licensing promising molecules from companies like StemSynergy and Invenra. The company had shut down its discovery platform in 2010-2012 time frame and have restarted efforts in 2016-2017. However, after a big time gap in new molecule discovery pipeline, it may prove challenging for Exelixis to come up with promising molecules for Cabozantinib in future years.
Despite these risks, I believe Exelixis is a strong buy opportunity for 2018.
Trading at $20.41 on May 16, 2018, and having 12-month consensus price target of $36.0, Exelixis is definitely one solid investment opportunity for retail investors. With an almost debt free balance sheet and cash of around $427 million at end of Q1 2018, the company is well positioned to invest in organic growth as well as in small inorganic growth opportunities.
Hence, I strongly believe that Exelixis will prove to be a lucrative buy opportunity in 2018.
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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