Exelixis – Down but not out, plenty of catalysts in 2014

Last week, Exelixis (EXEL) lost 47% after announcing the COMET-1 trial was not stopped for efficacy at the interim analysis. The reaction implies investors were expecting a positive outcome based on experience with other prostate cancer phase III trials that had been stopped early due to efficacy. These include Medivation’s (MDVN) Xtandi and Bayer’s Xofigo.

Even after the disappointing announcement, I still think Exelixis has significant upside potential for 2 reasons:

1)   There is still a possibility for a positive surprise in COMET-1 based on at least 1 precedent for a prostate cancer drug that did not “pass” the interim but eventually demonstrated a survival benefit.

2)  Excluding the prostate cancer opportunity, Exelixis has multiple near-term, low risk value creation events.

Xofigo and Jevtana as precedents

Going into COMET-1’s interim analysis, investors relied on experience with other prostate cancer drugs, which demonstrated a survival benefit already at the interim. A comparison to Xofigo’s phase III appeared the most relevant as both drugs target bone metastases with similar statistical assumptions and trial sizes. Xofigo’s interim analysis demonstrated a highly statistically significant survival benefit of 2.8 months based on 320 events. Exelixis’ cabozantinib, on the other hand, did not pass the statistical hurdle despite a higher number of events (387 events). Importantly, it is unclear whether there was even a trend favoring cabozantinib.

Failing to hit the primary endpoint at the interim analysis is clearly disappointing and implies that cabo’s benefit is not spectacular. However, there is one recent example of a prostate cancer drug that demonstrated a survival benefit despite not meeting the primary endpoint at the interim analysis.

Sanofi’s (SNY) Jevtana was approved in 2010 after demonstrating a 2.4 month survival benefit with a HR of 0.7. Jevtana’s phase III trial (TROPIC) included an interim analysis after 365 events, which did not demonstrate sufficient benefit for stopping the trial early. Sanofi had to wait until the final analysis (513 events) in order to meet the primary endpoint. From a hazard ratio perspective, Jevtana’s benefit was identical to that of Xofigo. Therefore, despite the low likelihood of success, cabozantinib might still demonstrate a statistically significant and clinically meaningful survival benefit at the final analysis.

Xofigo, Jevtana, cabozantinib

Exelixis has value beyond prostate cancer

Exelixis’ current market cap ($660M) represents a very low likelihood of success in prostate cancer. Even if one assumes COMET-1 fails, Exelixis has multiple assets beyond prostate cancer.

Cabozantinib for MTC ($60M peak sales)

Cabozantinib was launched in 2012 for medullary thyroid cancer (MTC), a niche indication. The drug had US sales of $14M in 2013, its first full year on the market. Approval in MTC was based on a remarkable improvement in PFS (11.2 vs. 4 months, HR=0.28) without a survival benefit. Subsequent analysis showed that the effect is driven almost exclusively from patients with RET+ tumors, who represent ~50% of cases. This is not reflected in the FDA label but the recent approval decision in Europe noted this differential activity profile.

Updated survival data this year may fail to show a statistically significant difference in the overall population but the drug could demonstrate a positive signal in RET+ tumors. Although such signal may not reach the label, it should increase market adoption in RET+ MTC.

Assuming moderate growth and a similar opportunity ex-US, peak sales for cabozantinib in MTC should reach $60M a year.

Cobimetinib ($150M peak revenues in BRAF+ melanoma)

Cobimetinib (MEK inhibitor partnered with Roche) remains the only meaningful program in Exelixis’ partnered pipeline. The drug is in a phase III evaluating cobimetinib when added to Roche’s BRAF inhibitor, Zelboraf, in BRAF+ melanoma. Based on good phase I results and positive p3 data for a similar combination from GSK (GSK), probability of success is high. Top line results are expected in the coming months.

Exelixis has co-promotion rights in the US (30-50% of profit depending on sales) and is eligible for royalties in ex-US territories. Cobimetinib’s commercial potential can be approximated based on Zelboraf’s performance, which brought ~$500M in 2013, half of which in the US. This translates to a conservative assessment of $150M in total revenues for Exelixis (assuming intensified competition and minimal growth).

Roche is evaluating cobimetinib in several other trials, including a combination trial for cobimetinib with its PD-L1 antibody. Any positive indication that ties cobimetinib to a PD-L1 regimen could have a dramatic effect on the drug’s market potential.    

Cabozantinib for RET+ NSCLC ($80M peak sales)  

Exelixis is expected to launch a phase II pivotal trial for cabozantinib in non-small cell lung cancer (NSCLC) patients with RET-mutations. RET mutations in NSCLC have been recently discovered and they occur in 0.5-0.7% of NSCLC (~1000 cases in the US). Several RET inhibitors are being tested in this rare tumor type, with Cabozantinib being the most advanced. At last year’s ASCO, investigators presented promising preliminary efficacy (discussed here). Updated results may be available in 2014, which (if positive) should increase confidence in the upcoming pivotal trial.

RET+ NSCLC represents a commercial opportunity of $300M-$400M globally. Cabozantinib can generate $80M given its first mover advantage.

Additional tumor subsets with RET fusions may emerge, further expanding RET inhibtors’ market opportunity. For example, a recent paper describes a previously undescribed RET fusion in secondary AML which appears to be an oncogenic driver.  

Cabozantinib in additional indications (pipeline value of $200M)

Cabozantinib is in phase III for renal and liver cancer, with top line results expected in 2015 and 2016, respectively. Although there is no robust randomized data for the drug in these indications, it is clearly active, especially in heavily pretreated RCC patients (discussed here). In addition, cabozantinib is in tens of active trials (most are NCI or investigator sponsored) across many tumor types. Some studies are 1-2 years into enrollment and could have data in 2014. A program in 2 phase III trials and 20+ phase II studies of can be (very) conservatively valued at $200M.


Combining the near term opportunities in Exelixis’ pipeline leads to annual revenues of $290M: Cabozantinib in MTC ($60M), Cabozantinib in RET+ lung cancer ($80M) and cobimetinib for melanoma ($150M). Importantly, these assumptions include only low hanging fruit, high-probability opportunities and factor in significant competition. Applying a sales multiple of 5 and discounting 4 years with a discount rate of 15% results in a valuation of $830M. Adding $200M for cabozantinib’s additional indications brings valuation to just over $1B in net present value, assuming the prostate cancer program fails.

Portfolio updates

We are adding another position (4th) in Exelixis in anticipation of positive results for cobimetinib and cabozantinib in melanoma and RET+ lung cancer, respectively.

Portfolio holdings – March 30th, 2014

biotech portfolio - Mar 30th 2014biotech etfs - Mar 30th 2014


89 thoughts on “Exelixis – Down but not out, plenty of catalysts in 2014

  1. re: AMBI

    Ohad, a biotech analyst that I read said that AMBI’s response rates in AML were good, but the durability of response sucked. How would you respond to that?


  2. Ohad, could you please refer to the company that you are talking about in your responses.? It’s sometimes hard to know exactly what company you are talking about without having to go back and check the earlier postings.

    Thank you.


  3. Richard – AMBI’s durability of response was indeed short, which might also be due to patients going on transplant. I still think the drug has potential even as monotherapy given the very poor prognosis for refractory/relapsed AML and more importantly in some patients a short response could be enough to allow an allogeneic transplant (potentially curative).
    Even if quizartinib is not potent enough as monotherapy, it can eventally be utilized in combination with chemo or as maintenance after chemo/transplant.

    andre – Stocks on my watch list are AGIO, FMI, IMGN, BLUE, XNPT



  4. JQ – Re: FMI, I believe the focus on their commercial performance rather than their huge potential could create a better entry point this year.

    Christian – Yes I am following XNCR (an antibody platform after all… :]). Their early stage programs and collaborations are impressive but I am not too excited about their CD19 programs (AMGN & MOR, respectively). I still don’t know how much value to ascribe to the bio-better anti-IgE which should have PD data this year. Bottom line, it’s a stock worth watching but too expensive for this stage imo.

    Alex – I am bullish on both CLVS and Genmab at these levels. Don’t have plans to add a 3rd position in Genmab but considering adding more CLVS.



  5. Hey Ohad,
    what are your thoughts about the GsK – Novartis Deal?
    You see a negative impact on ARRYs MEK162?
    Thanks for sharing your thoughts…Ike


  6. ohad
    NVS acquired GSK oncology drugs. Any thoughts on ARRY and Genmab?
    Strange reaction ARRY is down, Genmab – up?!?
    thanks –andre–


  7. Andre, not strange at all. ARRY is down because GSK has an approved MEKi that directly competes against ARRY’s MEK162 – would be interesting to see what NVS does with duplicate MEKs and BRAFs. Genmab is up because Arzerra goes to a better oncology company in NVS.


  8. Ohad, on FMI, aren’t diagnostic companies wildly difficult to invest in? Just seems like much lower barriers to entry than typical drug development companies, which is all I invest in, and an extremely competitive segment. Not sure what separates FMI from everyone else.

    On XNPT, I realize XP23829 is the clear potential value driver. In looking at recent PRs, they seemed to change language from developing going forward in psoriasis AND MS to psoriasis AND/OR MS. Pretty significant change IMO. If there is an issue with, say, MS, can psoriasis alone support substantial upside potential here?


  9. Hey Ohad,

    I lately found swedish based BioInvent. The stock looks very cheap on the first view. Do you know something about them?

    Thanks for your opinion!


  10. hi Ohad,

    big question: what is MEK-162 worth in ARRY’s hands?

    I think it is not unrealistic that NOV will return the rights to ARRY. but what can ARRY do with it. The ongoing clinical combo trials would probably be finished (see also their press release). but afterwards??

    ARRY marketing by themselves – don’t think ARRY is prepared for that, plus costs would be high for combo if half of it comes from NOV

    ARRY licensing to somebody else – I assume interest for MEK-inhibitors is there, but again what about combos? will other party have access to NOV inhibitors used in the combo trials – at what costs…?


  11. Ike – Teh NVS/GSK deal is one of the most creative ones I recall. Re ARRY, the press release they issued about NVS;’ commitment is reassuring but going forward there might be conflicts between MEK162 and GSK’s Mekinist. From a practical standpoint, NVS don’t want to lose time and replace MEK162 with Mekinist in the ongoing trials. My personal impression is that MEK162 has a better clinical profile due to better therapeutic window and dosing flexibility.

    Cloud – XNPT is not an oncology company but their drug looks too similar to Tecfidera to ignore imo. I need to re assess XNPT as some claimed that their p1 generated a troubling safety signal (lymphocyte reduction)

    Andre – Agree with JQ Genmab responded positively because NVS is expected to do a better marketing job for Arzerra given their experience and strong sales force in hematology.

    mcbio – FMI will surely deal with competition but their technology and head start should keep them in the lead. Eventually someone like Abbott or Labcorp will have to buy them imo.

    Re: XNPT, if psoriasis data are positive I can’t imagine them not pursuing MS but will look into their recent prs.



  12. Martin – Overall Bioinvent seems to have good basic antibody technologies but their pipeline is a little bit early and the lead program (ICAM1 mAb) doesn’t look promising compared to other myeloma abs (e.g daratumumab).

    They do have some interesting targets but not yet in the clinic. The CD32B program is an interesting approach (the only one that tries to block this Fcg receptor). CD40 has been out there for years but recently generated intriguing results with respect to macrophage activation.

    Christian – That’s a very good question. On the one hand if NVS returns MEK162 to ARRY, the latter will have a wholly owned p3 oncology asset with multiple ongoing trials. On the other, the field is very competitive and any delay could be meaningful.

    Ike – imo the fact AZD9291 got BTD is a positive to CLVS. Their drug is at least as effective as AZD9291.

    Richard – Re BIND, I am getting asked a lot about it. Agree it is getting cheap but I am still skeptical as to their chances of their lead program being superior to Taxotere based on available data. Therefore, until I see more proof in the form of randomized data or a method for patient selection based on PSMA expression (they presented preliminary results at AACR), I prefer waiting. Their partnered program are much more interesting because they involve novel drugs and mechanisms.

    Christian – Re SRNE, I looked at them a couple of months ago. They claim to have a best in class PD-1 mAb and they have some newer targets but their antibody pipeline is way too early imo.



  13. Ohad, is Midostaurin a competitor to AMBI’s drug in AML? Will Midostaurin make it more difficult for AMBI to recruit for the trial? Would you compare the the two drugs?


  14. I Listened to the Array conf call today and no mention of Arry 502 on call or on slides, not even as 2014 catalyst. Also no questions regarding it from any of the analysts. I find it weird considering that without an asthma or ex US filasenib deal, they will have to dilute to fund the p3 520 trial. Do you think it was intentionally left out as a deal is already in place?


  15. Richard – Midostaurin appears less effective and more toxic compared to quizartinib. I don’t view it as a real competitor, although there are a couple of next gen compounds which should be viewed as competitors.

    Manish – Don’t know how to interpret that. I always prefer to assume a more conservative scenario of no deal for ARRY-502.



  16. Hey Ohad
    I just read something about Juno Therapeautics, seems like the super-group start-up focussed on immunooncology… CARs and CAR-Ts technology.
    What do you think of this approach? It seems that NVS is the other big player.


  17. Hey Ohad
    one more immuno-oncology question!
    What about CDX-1401, the dendric cell vaccine… in combination with Yervoy? CLDX are going to test it in combination with other drugs. Seems they have a lot of expectation for this antibody-based drug.


  18. Ohad
    I was surprised by the market reaction to SGEN results. I read the transcript but didn’t see anything dramatic to justify >11% drop. Is it related to ECYT disaster?


  19. Dan – Indeed CARs are a very promising class of treatments. The third leader in this field is Kite Pharma (in which we [Pontifax] are investors…).


    Not sure about CDX-401, I don’t think it’s in anybody’s models.

    Manish – Thanks! It was still depressing to see ECYT’s p3 halted so early for futility. There wasn’t even a PFS signal 😦

    andre – Agree about the reaction to SGEN results. Don’t think it is related to ECYT’s meltdown, if anything it’s IMGN which should experience “collateral” damage because of their folate receptor ADC. Will elaborate more on this topic as part of a new post tomorrow.



  20. What do you think of the recent Phase 1b Data for Cobimetinib in Combination with Vemurafenib? Look good for upcoming Cobimetinib data in current phase 3?


  21. The numbers are impressive but these small single arm studies always over-estimate a drug’s true effect. In other words, it’s hard to conclude anything definitive.



  22. Hi Ohad,

    Any chance on putting out a new piece on Exelixis in light of recent developments? What are your thoughts on its current valuation ($1.50 or $300mil market cap)?


  23. Ohad

    Am new here and noticed you have been spot on on many bios. Congrats!

    I think exel has good risk/rewards below $2. What is your thought? Roche CEO just said cobi/Zel got fast track for US.

    How do you assess success of METEOR and if succes, what type of sales could we expect from that?



  24. zoomilk – Thanks, unfortunately EXEL has not been a success story to date. I agree in principle that EXEL has a good risk/reward here but until they solve the debt issue I don’t see the stock going anywhere.
    Even if you ignore the RCC and HCC programs, cabo in MTC and RET+ NSCLC plus the profit share from cobimetinib should generate sales of >$200M.
    With respect to likelihood of technical success for METEOR, I would go with 30% based on the strong p2 data but also lack of randomized data in this setting.



  25. Thank you chad

    What break down of sales are you assuming for

    Rev for MTC (?$60M?)
    Roylaty from Cobi/Zel outside US
    Rev from Cobi/Zel in US
    Rev for RET+ NSCLC (Is this a sure thing?)



  26. Below are conservative assumptions (lower than depicted above). The RET+ NSCLC is not a sure thing but early indications were promising. The company was supposed to start a p2 study but I haven’t heard anything on that front for months.

    Rev for MTC – 50
    Roylaty from Cobi/Zel outside US – 30
    Rev from Cobi/Zel in US – 70
    Rev for RET+ NSCLC (Is this a sure thing?) – 50



  27. Thanks Ohad

    My estimates were higher, but based on your numbers, $3 is conservative, $5 fair and $8 is lofty.

    I do not think debt is a big issue. I got into this stock at $1.5 and I am seeing in it acting quite well. It could be that you have been in this stock for a long time and think that the debt issue might be what is holding this back. I think the more likely scenario is high pessimism and frustration that has led to excellent entry point for a relatively low risk/high reward situation.



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