Exelixis as a Platform Company

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The pharmaceutical industry is in the midst of a severe innovation crisis, where more R&D money results in less approved drugs. In parallel, sales of most traditional blockbusters are being cannibalized by generic competition, forcing the big pharmas to exploit new concepts and rush new drug candidates to their pipelines. Nearly half of all drugs that are expected to enter the clinic in the coming years will be aimed at the oncology market. Consequently, early stage drug development for cancer is going to be the most active area in the industry, with an abundance of investment opportunities, particularly in small and medium companies. Many investors prefer to stay away from oncology drug development, where success rates are at a worrying low, hovering around 5% compared to 10% for the whole industry. Nevertheless, among the hundreds of publicly traded companies which are engaged in oncology, there may be a group of companies which have better chances of succeeding in such a monumental task. These companies are what I like to call platform companies.

In this article, I will try to explain what makes a good platform company and why Exelixis (EXEL) can be regarded as a good (yet not a perfect) example.  For the sake of clarification, I certainly do not claim that platform companies are the only investment worthy biotech companies, however, when it comes to early stage drug development, platform companies are an excellent place to start.


In general, platform companies can be evaluated based on five criteria:



1) A validated platform


Having a validated drug discovery platform is the first and most important criterion for defining a good platform company. The platform is typically comprised of a combination of technology, experienced personnel and intellectual property that can generate a stream of drug candidates. Most importantly, investing should be done only after a product of the platform demonstrates activity in clinical trials. Having a clinically validated product is not a guarantee for future success of the platform nor does it mean that the specific agent will reach the market, but it does imply that one or more of the platform’s products stand a reasonable chance of becoming a commercial drug. A validated platform may increase overall success rates, yet the odds of a particular drug candidate to make it all the way to approval are still low.

It is hard to define exactly what “clinical validation” means, but there should be a clear response in the form of disease control, tumor shrinkage or side effects, preferably with more than one candidate, in patients with limited treatment options. A good example for a platform validation may be Immunogen’s (IMGN) antibody-drug conjugation platform, which empowers antibodies by conjugating them to toxic drug payloads. T-DM1 is comprised of the blockbuster antibody, Herceptin, empowered by Immunogen’s technology. It had remarkable activity in two clinical trials in patients who had progressed while receiving Herceptin, and therefore can be regarded as a good clinical validation of Immunogen’s technology.



2) Specialization and Differentiation


The field of drug development is becoming more rich and versatile on the one hand, but also more complex and competitive on the other. Instead of relying on traditional trial and error and serendipity for discovering drugs, the industry is now moving to rational design and computerized tools which require a great deal of expertise. This is why small companies must not spread their resources too thinly but instead focus on one field. By specializing in a certain area, and developing a deep understanding of the underlying science that stands at the basis of development, even a small company can achieve a competitive edge over the rest of the market. The ability to block new entrants to the field by means of intellectual property is always an advantage, as clearly demonstrated in the case of Alnylam (ALNY) and Isis Pharmaceuticals (ISIS), which became the gate-keepers of their fields with the help of a draconian patent portfolio. Timing is also a crucial issue in finding a niche to specialize in, and since the process of developing a drug is a linear and lengthy one, a several years head start is needed in most cases.


3) Multiple shots on goal


A good platform company always has multiple agents in active development simultaneously, preferably from the same validated platform.  No matter how promising a particular compound looks, it is imperative to remember that most drugs fail, including such that demonstrate spectacular results in early clinical trials, thus, banking on one or two early stage compounds is statistically futile. Just to make it clear, active development does not include just having the compounds listed on the pipeline chart, waiting to fill the gap created by discontinuation of programs, but a constant pursue of the compound’s development with the ultimate goal of advancing it into multiple clinical trials. Due to the enormous costs associated with drug development, small and medium companies cannot finance more than a handful of programs, which leads us to the next point.


4) Deep Pocketed Partners


Partnership deals with large pharmaceutical companies are the only viable option for a small company to obtain a broad pipeline. Collaborating with large partners serves two prime purposes. First, it allows small players to survive the time needed to develop drugs without infinite dilution. In addition, any partnership deal is perceived as a vote of confidence for the technology from a savvy player in the industry, which bodes well for investors’ confidence and valuation. The dark side of partnership deals is that if the drug hits the market, the large partner enjoys most of the gains, but in most cases the risks and dilution accompanied with developing the drug independently are far graver. Trying to keep all the promising candidates in-house can turn them these assets into a huge liability.

Small biotechs must realize what they are good at, feeding the industry with a large number of candidates, while letting the big pharmas do what they are best at, commercializing products. The most elegant illustration of this approach is Isis, which declares itself as a “fully disintegrated” company that does not intend to be involved in late stage trials and marketing. Although Isis still hasn’t enjoyed meaningful sales of its products, the number of programs it has and its pipeline diversification are overwhelming. Isis, a $1.5B company with thirteen drugs in the clinic and an expected operating loss of only $25 million in 2008, is also one of the few development stage companies that may reach profitability without actual royalties on sales.



5)  Field Of Activity


Evaluating the field in which a company operates is somewhat trickier than the other criteria, as it is hard to define the different parameters and the balance between them. These parameters include validation and prior success rates of the mechanism of action and the target, the competitive landscape, entry barriers and intellectual property. Because a validated field usually comes with plenty of competition (from drugs in the market and in the clinic), it is very hard to find a platform company that is optimally positioned. 

Companies with a good blend can typically be divided into pioneers like Isis and Alnylam, whose technologies are still not commercialized and “next-generation” companies such as Immunogen and Seattle Genetics (SGEN) that improve a validated class of drugs. Isis and Alnylam are high risk companies because of the lack of complete validation of their fields, but they have a considerable gap over the rest of the market. Immunogen’s and Seattle Genetics’ markets are more mature and proven, but the companies are facing more competition.


It is plain to see that the five criteria are intertwined in a way that forces companies to combine them. It is impossible to have multiple candidates in the clinic without multiple collaboration deals, which are hard to strike without a good platform that can produce multiple promising candidates. Partnership deals often lead to an increase in the attention a specific area receives, but such deals may very well be a result of a clinical validation by a single drug candidate, which in turn, may lead to the validation of an entire field.



Exelixis as a Platform Company



Exelixis is active in the ever growing market of kinase inhibitors (KIs) for the treatment of cancer, that is, drugs that block the activity of kinases in cancer cells. Cancer cells are often described as cells that are out of control: They proliferate quickly, ignore death signals, invade nearby tissues and eventually metastasize to distant organs. These disease onset and advancement are associated with processes such as cell growth, motility and blood-vessel formation, which are governed by a complex network made of kinases. Thus, blocking these processes by inhibiting the relevant kinases has emerged as one of the most attractive approaches to fighting cancer.


Together with monoclonal antibodies, kinase inhibitors represent a paradigm shift in cancer treatment from cytotoxic agents to targeted therapies, a trend that is constantly growing. Like antibodies for cancer, kinase inhibitors target tumors while sparing healthy cells and consequently lead to better activity with fewer side effects. Kinase inhibitors, however, possess several advantages over antibodies. The most evident advantage is that KIs can hit targets inside the cell while antibodies can only bind targets presented on the cell surface, so internal targets are approachable only by KIs. Another advantage is the fact that KIs can be given orally, which is a major factor in terms of patient convenience, especially given the typical long treatment duration associated with targeted therapies. Another advantage, which will be later discussed in the article, is the ability to produce KIs that hit several targets at once.


The commercial potential of kinase inhibitors for cancer was validated by the approval of Novartis’ (NVS) Gleevec in 2001. Gleevec, which still remains the best selling kinase inhibitor drug, is considered one of the biggest success stories of modern medicine, owing to its long lasting benefit and excellent safety profile. Naturally, Gleevec’s success spurred considerable efforts to develop additional kinase inhibitors for cancer. Seven years later, the field of kinase inhibitors is as active as ever, with eight additional approved drugs (three of which were launched only last year) and over a hundred kinase inhibitors in the clinic, most of which are evaluated for oncology indications. The implication of kinases in cancer is constantly being elucidated and today it is clear that they play a cardinal role in virtually every type of cancer. Commercial-wise, the market of kinase inhibitors is poised to grow at a fast pace thanks to new approvals as well as label extensions for marketed drugs. 


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It should be noted that although the benefit of kinase inhibitors is undeniable, Gleevec’s success in terms of duration of response and safety profile has not been replicated by other agents. In fact, many patients eventually develop resistance even against Gleevec.

The arms race between cancer and kinase inhibitors is just beginning, and the industry is placing its hopes on new approaches to developing better drugs. Some of these approaches include identifying new targets as well as new binding sites within known targets, simultaneously inhibiting a target with more than one drug, tailoring drugs for well defined populations and inhibiting several targets at once.


Examining Exelixis based on four of the five criteria- field of activity, a validated platform, multiple candidates and large partners makes it look very promising. The KI field is a highly validated field with plenty of growth ahead, so investing in this field seems like a smart thing to do. With respect to clinical validation of the platform, several of Exelixis’ compounds have shown activity in humans. Although this activity has been shown in preliminary trials, it seems that Exelixis has one of the most promising pipelines in the industry. There are obviously no problems on the partnerships front, as Exelixis is involved with some high profile names from the likes of GlaxoSmithKline, Genentech, Bristol-Myers Squibb and Wyeth. In terms of number of compounds in clinical trials, Exelixis has 11 drug candidates in over 20 clinical trials, which is quite impressive for a company its size. 


The biggest issue with any KI company is the challenging competitive landscape. Because the field is so promising, it also became extremely crowded and competitive. There is no “top dog” in kinase inhibitors, but dozens of participants, from small biotechs to the world’s largest pharmaceutical companies, which naturally raises the question whether a single company can have a competitive edge over the rest of the market. A company that develops kinase inhibitors typically does not have the luxury of blocking competitors by means of intellectual property, as all players are relatively free to operate in terms of the targets they explore, the way the compound binds the target, the approach for screening compounds and so on. Nevertheless, it would also be too simplistic to view this industry as a herd of “me too” companies, as there is still room for each company to differentiate itself.


Exelixis managed to differentiate itself based on three factors.


1) The Biggest Small Company


Exelixis is a small pure-play company focused entirely on kinase inhibitors. The risks of investing in small cap biotechs are evident, but so are the benefits. Exelixis provides 100% exposure to the field kinase inhibitors, with a strong emphasis on cancer. This is something investors will not find in any of the larger players, no matter how active they are, not to mention the innovation and agility that are often absent in large pharmas. For some reason, there is an inverse relationship between the innovation and the productivity of a company and its size. Smaller companies tend to be more productive in early stage drug development due to creative thinking and better maximization of resources. When it comes to the costly clinical stage, though, the large companies have the luxury of pursuing several paths in parallel as well as the capability of coping with the logistics and regulatory challenges.


One advantage Exelixis has over the myriad of small biotechs is the diversity and scope of its pipeline. As can be seen in the table below, in terms of the number of compounds in clinical development, Exelixis is in the big league. Notably, a comparison based on number of drugs in the pipeline is flawed because it does not say anything about the quality of these drugs, nor does it specify the different trials with every compound. For example, Exelixis has one candidate (XL184) in phase III for a very small indication as well as in three earlier trials, while Pfizer’s phase III compounds (Sutent and axitinib) are being evaluated in tens of trials, including several phase III trials for very large indications. In addition, being a small company, several of Exelixis’ compounds are partnered, as opposed to the large players who own the majority of their portfolio. Nevertheless, as one-dimensional as this comparison may be, it illustrates the fact that Exelixis’ pipeline is focused in terms of the therapeutic area, yet very diverse in terms of the number of compounds and the targets they hit. Besides, the impact of 15% of product sales (in the form of royalties) on a company like Exelixis is substantially stronger than that of 85% of sales on a large pharmaceutical company.


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2) Discrete Patient Populations


It has been well recognized that classifying patients based on the origin of the tumor (i.e. pancreatic, breast cancer) ignores countless other important differences in the biology of the disease. Today, most cancer drugs are primarily given based on the site of tumor origin and consequently lead to a wide variability in response, both in terms of benefits and side effects. In order to optimally treat cancer, patients should be classified based on additional factors, with a strong emphasis on the mechanisms involved in their disease. Distinguishing between the different subtypes is instrumental in the case of targeted therapies such as kinase inhibitors and monoclonal antibodies, because these agents usually affect one or few targets that may not be relevant for all patients. Genentech’s Herceptin, for instance, has no effect on 70-80% of breast cancer patients, but leads to a strong benefit in the rest of the patients, whose tumors utilize Herceptin’s target (Her2) in order to grow and advance. Had Herceptin (over $5 billion in sales estimated this year) been evaluated in unselected breast cancer patients, it would probably have never reached the market due to lack of efficacy.


The commercial potential of niche markets is, by definition, more limited, but the strategy of addressing discrete patient populations holds several key advantages over starting with larger populations. First and foremost, focusing on small, well defined populations can lead to overwhelming results in terms of activity, and consequently increase the likelihood of approval. Moreover, it may provide early validation of the target or the compound’s activity in humans, which decreases the risk and renders the compound more attractive to potential partners. Second, the development process involves smaller trials, so it is faster and cheaper than that of large indications. Third, niche markets are less crowded with competitors, and often ignored by the large pharmas. Fourth, although the addressable market is more modest, the drug can generate recurring revenues that are desperately needed by small companies. Fifth, assuming that the target population is well defined and highly responsive to the drug, revenues per patient are higher compared to the average in the industry, both due to longer treatment periods and patients’ and insurers’ willingness to pay more if they know there is a high likelihood of  long-lasting benefit.


This has led many companies to realize that it might be better to focus on a subset of patients instead of targeting the whole market. Exelixis is spearheading the pursuit of personalized medicine by examining the pathways tumors “hijack” in order to grow, and identifying the right patient populations that are likely to benefit from a particular compound’s spectrum of activity. The company’s compounds hit targets that may be relevant across a wide range of malignancies, representing very large target markets. Nevertheless, the company made a strategic decision to initially pursue niche markets with limited treatment options and use approvals in these small markets as a stepping stone for additional indications. Such niche markets might be either rare cancers or well defined subsets of patients within a large population of patients. This strategy is already starting to bear fruit, judging by results from two candidates: XL184 and XL880.


XL184 entered the clinic in 2005 and is currently being evaluated in three indications. Its shortest route to market is an ongoing phase III trial in 315 medullary thyroid cancer (MTC) patients, as it could hit the market as early as 2011. XL184 was active in all advanced MTC patients in a recently published trial, so chances for approval are high. Advanced MTC is considered a highly unmet medical need but the market size for this indication is very small (less than 1000 patients in the US and Europe every year). Thus, the overall potential for this indication amounts to several tens of millions annually, but it can serve as a proof of concept for the drug’s activity and safety profile, decreasing the overall risk in additional programs.


XL880 is currently being developed in collaboration with GSK. In a recently published phase II trial, XL880 showed impressive activity in patients with papillary renal cancer. These patients, which account for 8-10% of kidney cancer cases, represent an attractive niche because they seem to be less responsive to the approved targeted agents for kidney cancer. In the phase II trial, XL880 demonstrated impressive activity in papillary renal cancer patients with an exceptional duration of responses, which may lead to a registration trial already next year, only four years after entering the clinic. The immediate target population for this indication is estimated at 10,000 patients in the United States and Europe. Importantly, because XL880’s benefit in the phase II trial lasted, on average, more than a year, the commercial opportunity can be as high as $400M annually.


3) Multi-Targeted Approach



The concept of hitting a combination of kinases simultaneously has been gaining momentum in the industry, given the complexity and multi-factorial nature of the cancer. In order to develop and advance, cancer cells must acquire multiple distinct capabilities such as the capability to proliferate, resist death signals, create new blood vessels and invade nearby tissues. Each capability can be governed by multiple pathways which work independently, in parallel, and through interconnections to promote cancer development. Therefore, by hitting multiple targets at once, a compound may employ more than one mechanism of action and increase spectrum of activity. Multi-targeted kinase inhibitors can also target several points in the same pathway for achieving a more pronounced effect and delay the emergence of drug resistance. There may also be a commercial value in multi-targeted KIs because one drug can theoretically replace two or three single targeted agents, therefore lowering the cost of treatment.


In recent years, three drugs thought to inhibit multiple kinases entered the market (Sutent, Nexavar and Tykerb), and are seen as a validation of this approach. Interestingly, even kinase inhibitors which were developed as single kinase inhibitors, often have some degree of activity against additional kinases, whether clinically relevant or not. A good example for that might be Gleevec, which had started as a single kinase inhibitor, but then was reborn as an inhibitor of at least two other kinases. At the moment, Exelixis seems to favor the multi-kinase inhibitors approach, with 7 multi-targeted and 4 single-targeted kinase inhibitors in the clinic.


Although there is a wide consensus that simultaneous inhibition of multiple targets may optimize the use of targeted therapies, some question the benefit of multi-targeted inhibitors pointing at several issues. Manipulating several targets at once adds more complexity, on top of the intrinsic complexity of developing a drug against one target. More targets means more variables and uncertainty in terms of the choosing the right combination, the degree of inhibition of each target and the safety profile. The promiscuous activity of multi-targeted kinase inhibitors often leads to increased toxicity, so these agents are not likely to have an ideal safety profile and consequently may not be given in sufficiently high doses. In addition, it is not always clear whether the clinical activity is due to inhibition of one or multiple targets, and the role each target plays. Most of Nexavar’s activity, for instance, is probably not the result of inhibition of the initial primary target for which the compound was developed, but due to a secondary target. As a result, there are some who believe that simultaneous inhibition of multiple targets should be done with several single-targeted agents rather than with one multi-targeted agent.

Like everything else in drug development, there is no clear solution for this debate, as there is probably more than one way of fighting cancer with kinase inhibitors. The right approach should be chosen on a case by case basis, depending on the specific drug, patient characteristics and the target itself.


Notwithstanding this debate, choosing the right targets is the first, and perhaps the most important step in the process. There is a tradeoff between the extent of clinical validation and the competitive landscape for each target.

Developing drugs that hit validated targets decreases the risk of failure on the one hand, but also involves fierce competition from approved and investigational agents. Examples for two highly validated targets may be EGFR (targeted by Tarceva and Iressa) and Bcr-Abl (targeted by Gleevec, Sprycel and Tasigna). Dethroning an approved drug is a challenging task, not to mention potential competition from compounds in development, so even if a company has a drug that works, it will not necessarily succeed in getting market share. It is important to understand, though, that presence of approved agents does not necessarily hamper the potential of new compounds. Acknowledging that advanced cancer is almost impossible to cure, the industry is now talking about making it a chronic disease by using many lines of therapy.  Kinase inhibitors’ inability to cure the disease and the emergence of resistance creates the need for developing second and third lines of therapy as well as combination treatments. There is, for instance, room for EGFR inhibitors that are active in Tarceva resistant patients or can be given in combination with Tarceva to improve activity and delay the onset of resistance.

Targets for which there are no marketed drugs involve more risk, but also represent the potential of opening up new markets with little or no competition. Exelixis decided to focus on kinases that are still not clinically validated, but such that have a clear role in cancer biology, backed up by a large body of scientific evidence. These targets include MET, PI3K, Hedgehog and MEK. Obviously, there are plenty of other compounds in development that target these kinases, and it is still premature to assess how Exelixis’ will fare with the competition, but thanks to its size and focus, it managed to be at the forefront of these exciting field. Exelixis’ approach of targeting the right patient populations and the fact that some of its compounds inhibit multiple kinases, may help it differentiate its compounds. In some cases, Exelixis further decreases the risk by developing two distinct compounds against the same target. For example, XL147 and XL765 both inhibit PI3K but the latter inhibits an additional kinase in the same signaling pathway – mTOR. On top of being an independent attempt of striking PI3K, each compound represents a different approach for inhibiting the same pathway in terms of the ideal number of targets to hit in this pathway. It is still unclear which approach is superior, and in which cases, so pursuing both routes in parallel sounds like a good idea.





Exelixis operates in one of the most promising yet competitive markets in the pharmaceutical industry, where there are always multiple candidates against any given target. The company is not nor will it ever be the undisputed leader of the KI market, however, it managed to distinguish itself as a hybrid between a small biotech and a large pharmaceutical company. On the one hand, it is an extremely focused company with one of the leading R&D teams in the industry. On the other, it has a broad and diverse pipeline of promising compounds that may be applicable to a wide array of cancers. Most of these compounds will fail either due to poor performance or competing agents, but overall, Exelixis should have enough shots on goal in order to make it.


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Author is long EXEL, ISIS, IMGN & SGEN


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