Exelixis – Renal cancer data are too good to ignore

As followers of this blog know, I have been a long term Exelixis (EXEL) bull for many years but to date the stock has been one of my biggest losers. Despite this experience and although I have been proven wrong on Exelixis in the past, I feel the recent P3 success in renal cancer makes it an attractive story based on (for the first time ever) good visibility on a significant commercial opportunity and a differentiated product profile.

Positive data in a competitive indication

Last month Exelixis announced positive results for cabozantinib (cabo, marketed as Cometriq) in previously treated renal cancer (RCC). The drug led to a statistically significant improvement in progression-free survival (PFS) with a strong overall survival trend vs. Afinitor, a standard of care drug for 2nd line renal cancer. Although actual numbers were not disclosed, the magnitude of effect appears impressive based on hazard ratios of 0.58 and 0.67 for PFS and overall survival, respectively.

While approval of cabo for RCC is almost certain, this does not guarantee good market performance given the abundance of treatment options and the introduction of PD-1 antibodies, which is expected to make the market even more crowded. Still, based on the limited data published by Exelixis, cabo has the potential to become a dominant RCC drug (especially in PD-1 failures) given its unique clinical profile.

Cabo may be a differentiated agent

There are two approved agents for RCC patients who failed Sutent: Pfizer’s (PFE) Inlyta and Novartis’ (NVS) Afinitor. Both demonstrate a median PFS of approximately 5 months without an overall survival benefit (may be explained by crossover in the Afinitor study). Although the drugs differ significantly in terms of side effects, they have a similar market share (~35% each) with combined annual sales of ~$800M.

Exelixis did not report the median PFS for cabo and Afinitor but disclosed that the Afinitor arm performed as expected. Assuming a “homogeneous” separation of the curves, it is plausible cabozantinib led to a ~3.5-month benefit over Afinitor (8.5 vs. 5 months), which is not only clinically meaningful but probably the highest PFS reported to date in 2nd line RCC. If cabo’s survival signal is corroborated by the final analysis (expected in 2016), it will become the only small molecule with a survival benefit in its label in 2nd line RCC. (see table below)

2nd line RCC agents

Still a significant opportunity beyond PD-1

On the same morning that  Exelixis announced the RCC results BMS (BMY) also announced that its PD-1 antibody (Opdivo) demonstrated an overall survival benefit  in a similar setting (2nd line RCC with Afinitor as a control). No details were given but the market reaction reflects investors’ concerns regarding cabo’s ability to compete with Opdivo. P2 data for Opdivo in 2nd line RCC demonstrated disappointing response rate (~21%) and PFS (~4 months) but a promising overall survival (~25 months), which is dramatically better than the typical 15 months usually seen in 2nd line RCC patients.

PD-1 antibodies will likely become the standard of care in 2nd line RCC and may eventually be used as a first line treatment (alone or in combination with Yervoy). Importantly, experience to date clearly shows that in contrast to melanoma (where cure rates are significant) the vast majority of renal cancer patients eventually progress and require additional treatment options. At ASCO 2014, when Opdivo’s P2 was first presented, 149 of 168 patients who received Opdivo discontinued treatment primarily due to progression. These patients (who failed both Sutent and PD-1) may represent cabo’s primary indication.

2nd line RCC represents a significant commercial opportunity with at least 25,000 patients who are eligible for treatment in developed countries. An average treatment cost of $50K per patient translates to a market opportunity of 1.25B. This is illustrated by the $800M Afinitor and Inlyta (which capture 70% of the market) generated in 2014.

Historically, the introduction of new drugs for cancer has expanded the overall market as it turned lethal diseases to more chronic conditions. This leads to an expanded target population, creation of new treatment lines and extension of treatment duration per patient (cabo can generate $80K per patient assuming treatment duration of 8 months).

A 30% market share of the previously treated RCC market translates to annual sales of $600M, which should be achievable given cabo’s superiority over currently approved drugs and the survival benefit (if corroborated).

$750M in risk-mitigated opportunities for cabo and cobi

In my opinion, the market ignores cabo’s potential to generate $600M in RCC plus ~$50M in medullary thyroid cancer for which it is currently approved. Exelixis also has co-promotion rights for Roche’s MEK inhibitor that is expected to reach the market next year for BRAF+ melanoma. As cobimetinib (cobi) will be the second MEK inhibitor approved for this indication, expectations are low but the drug could still generate $100M for Exelixis via direct sales and royalties. Both cabo and cobi are being evaluated in multiple clinical trials, which may expand the drugs’ addressable market.

The RCC data also makes Exelixis an acquisition target as the company holds global rights for a differentiated oncology product and co-marketing rights for another small product with some upside potential (especially in KRAS+ lung cancer). Applying a sales multiple of 4 on $750M in peak sales, Exelixis could be acquired for $3B, which represents more than 100% upside from the current valuation. This price excludes future optionality with both products.

Portfolio updates 

We are adding a new position in Exelixis ahead of full RCC data presentation later this year.

We are adding a second position in Esperion (ESPR) following weakness surrounding Praluent’s labeling. Esperion’s value proposition (oral drug with a new MOA, a 20%+ LDL reduction and an effect on hsCRP) remains unchanged, and so are the primary risks around  long term safety and combinability with other agents.

We are initiating new positions in Aurinia (AUPH) and Genocea Biosciences (GNCA) on which I will try to elaborate in the future.

Lastly, we are adding a second position in ProShares UltraShort Nasdaq Biotech (BIS).

Portfolio holdings – August 2, 2015

Portfolio - Aug 2 2015 - after changes

biotech etfs - Aug 2 2015

64 thoughts on “Exelixis – Renal cancer data are too good to ignore

  1. Hi Ohad,
    It is refreshing to read your excellent blog. Very helpful and informative!!

    What’s your take on the FMI results.They attributed 3 factors for the miss:
    (1) no reimbursement progress with its MAC (Medicare Administrative Contractor) and National Gev Services (NGS): (2) the knock-on effect from (1) on non-Medicare business, and (3) competitive ‘noise’
    Not sure what 2 and 3 are, but (1) seams to be a big red flag for the management.
    On the plus side – liquid biopsy on schedule with 4Q15 availability for pharma partners.


  2. andre (FMI) – To me, these challenges are not that disturbing as it’s ok to have regulatory delays and competition is something to expect. What I am worried about is the way the company managed expectations and presented their performance in the last Q report.
    I plan to hold for now, hoping for a recovery in the coming Qs after expectations have been reset.

    Kenny (ONTY) – I wasn’t that excited with the data they presented this year but there was clearly some excitement in the market. I am still on the sidelines.

    rodolfo (EXEL) – even though HCC is a very tough indication I am cautiously optimistic following the OS signal in RCC and the fact that Nexavar is approved for both RCC and HCC. I am still concerned about cabo’s safety profile in this patient population (given the experience with Inlyta).



  3. Minh (CLVS) – Agree, this is a great example of validating a hypothesis via a sophisticated and creative trial design. The link provides a good review of the rationale for why PARP inhibitors may work in HRD tumors although the data are not new.



  4. Hi Ohad,

    Nice summary of the indication and the results. Given the large amount of positive data from ASCO, do you think Cabo has a chance in NSCLC?

    It seems to have a lead in RET fusion positive NSCLC with an NCCN compendium listing and ~44% ORR in P2. There was also compelling data in EGFR mutant patients post erlotinib but they may need to slot in after the T790m drugs there. Finally there was data in wild type EGFR patients where it showed a stat-sig overall survival benefit versus Erlotinib. It seems like this is a huge opportunity but the question is, what control should be used in any trial that they run with new agents like Nivolumab taking center stage?



  5. Hey Ohad
    incy crushing results…
    Also, any opinion on kbio s program on anti-ephA3? Any value there or likelihood od positive outcomes?


  6. lgonber (ESPR) – I doubt they will have anything meaningful to share that wasn’t disclosed at the investor event.

    Michael (BPMC) – Yes, a very attractive platform and approach, the only issue is the high valuation for a company that just started P1…

    Alex – Yes will do that shortly.

    Wildbiftek (EXEL) – For the moment I don’t include any NSCLC sales given the changing landscape across different subtypes (RET, EGFR+, EGFR-, pdl1 +/-). The RET response rate was somewhat disappointing (although they clearly see activity and one group reported a CR with cabo) with Roche’s compound as a more selective agent. The trial withTarceva was a very positive surprise but I am not sure what would be the next steps, Tarceva is approved as 2nd line option but not sure this setting is relevant anymore plus PD-1 antibodies will be commonly used, most companies use Taxotere as a control arm.

    Dan (INCY, KBIO) – Good results for Jakafi, great company but valuation has gotten too high imo.
    Re KBIO – I am not optimistic about this agent as monotherapy treatment in MDS. They saw some responses but not sure if selecting EphA3+ patients will get the enrichment they need. Still, valuation is so low that expectations are zero.



  7. Hi Ohad,

    CNAT has been hit hard. Currently with $86M market cap. Do you see any reason for the drop? OCAT too more than 30% since you added to your portfolio. Would you add here?
    Thanks as always,


  8. In regards to biotechs that have unexpectedly moved quite high or doubled, I have sometimes sold 1/2 my position, and continued to hold the rest. This strategy worked reasonably well with FMI, where I allowed 1/2 my position to be taken over around $50, and held the rest. Not the greatest result, but preferable over holding it all.


  9. Chris (CNAT/OCAT) – Both are very high risk early biotechs. I wouldn’t add before more de-risking occurs.

    mike (EXEL) – Thanks. We’ll have to wait a couple of months to see actual data.

    Howard (FMI) – This is also what I did with FMI at the time (sold a third of the position), this provides some (very limited) comfort.



  10. Richard (ARQL) – I thought the Akt update was extremely positive, 5/20 patients had responses and all responders had Akt/PI3K mutations which implicates the activity is mechanism related. This is very preliminary and response duration is unknown but such an efficacy profile appears differentiated from other Akt inhibitors.



  11. Agreed on ARQL Ohad. I continue to hold a very small position in ARQL and was giving some thought to selling but will continue to hold after the CC. They also noted that their 2nd gen Akt inhibitor may be in position to enter clinic by the end of the year I believe. They claim they know what a best-in-class Akt inhibitor looks like now and I’m assuming that’s what they believe the 2nd gen version will be (but early data on the initial Akt seems promising and it will be interesting to see the data in Proteus syndrome).


  12. mcbio (ARQL) – From what I understand they are setting the stage for splitting indications between rare genetic diseases and oncology. I wouldn’t expect the new Akt to be superior given 092’s results in oncology so far.



  13. Ohad,

    Is the debt of EXEL still a concern? They just had a 135m fund raising but the debt is more than 300M as you mentioned earlier.



  14. Cloud (EXEL) – Yes it’s definitely a concern but the RCC data trump this concern because now they have a lucrative asset. The way I see it, the debt issue cam be resolved by a licensing deal for ex-US rights or an acquisition (more likely imo) in the coming 6 months.

    Chris (ARGX) – From a technology and scientific perspective very inteersting capabilities. From a pipeline standpoint, I couldn’t get find a program with exciting prospects and near term catalysts. Therefore I decided to wait on the sidelines.



  15. Ohad
    Any reason to be troubled by TRVN’s disclosure today that they increased the patient “on demand dosing” from .1mg to .35mg at their interim assessment of the phase IIb TRV-130 trial. On the one hand safety must look pretty good with the .1mg dose for them to more than triple it but does it leave a concern that the efficacy may not have been what they were hoping for?
    Thanks Ohad for all your continued postings and expertise.


  16. Hi Ohad
    I was just wondering what your thoughts were on $JUNO,$BITI,$CEMP and $TTPH? With the current market being bearish do you think these might be at good entry levels with short term catalysts?



  17. Den (NVTA) – Sorry don’t know them well.

    cloudy (XNPT) – Based on their P1 data and clinical experience with Fumaderm is psoriasis I expect a positive outcome. Safety profile and PD will be very interesting to see.

    Declan (TRVN) – It am not sure the decision was efficacy driven, imo it was more about safety/tolerability and this means the lower dose was well tolerated. I don’t see how the company could have made this decision based on efficacy and stay blinded to the data.. Just listened to the recent webcast at Wedbush and turns out they unblinded the trial so they had efficacy data at the time of decision. Don’t know how to interpret that…. on the one hand it sounds like they had a signal based on their remarks and optimism about P3 but on the other perhaps they weren’t satisfied with efficacy and wanted to get something better.

    Alex (CLDX) – Not sure… I would wait as the next major readout is only next year now that accelerated approval is off the table.

    Dave – I like BITI even though this is not a disease modifying approach, still familiarizing myself with the field.

    Alex (OCAT) – Dry AMD data is Q2 2016, i think.



  18. Hi Ohad, have you heard about AVXL and its Alzheimers drug? This sounds like a very interesting story – almost too good to be real…
    Thanks, Marc


  19. Hello,

    Ia ppreciate all yuor work on the articles as well as answering people’s questions, truly a great service.

    My question to you, have you looked in Flexion Therapeutics before? Ticker: FLXN . They have a new osteoarthritis drug FX006 that just completed enrollment in Phase 3. Only 500M market cap too.



  20. MRNS

    Hi Ohad,
    MRNS just announced sale of up to $35 million at market price through JMP from time to time in any ways including selling into open market.
    It went up from $8 to $21 in 2 months without any news. Clinical indication for planned IV formulation still has not been revealed. In view of low float, I assume this is all engineered by MM and it costed so little and easy for them to support pps at this level $17.75. I’d like to hear your thought on this.


  21. Alex – Sorry, don’t know them well.

    Marc (AVXL) – Don’t know them well enough but it’s refreshing to see a new approach for AD and other diseases. Very early stage and valuation is low, definitely a stock to follow.

    Robby (FLXN) – I think they have a high likelihood of approval and valuation is reasonable. Will look to add prior to P3 data.

    Gene (MRNS) – It’s hard to analyze the recent fluctuations, at the end of the day clinical data will dictate the stock movement later this year or early next year.

    n0cturne (FGEN) – Data look good, stock is on my watchlist but I will wait for a better entry point.

    cg (AAVL) – Indeed a major blow. Although they are traded around cash levels I would wait to get more clarity on dev plan.

    Kenny (BXLT) – Don’t know them well but I wouldn’t pay what Shire offered.



  22. Hi Ohad, KPTI with a brutal drop in the last week following managements disclosure of sepsis issues associated with selinexor. I wonder, is this a buying opportunity? But, maybe the risks are to high and the situation ist not clear yet?



  23. Ohad, any thoughts on Oxigene (OXGN)? Recently named Dr. Bill Schweiterman as CEO. Good hire. Will start Phase III in ovarian soon. Selling at near-cash levels.


  24. Hi Ohad,

    what do you think of NLNK? They also have a partnership with Genentech for the development of a IDO pathway inhibitor, NLG919.

    Not sure about valuation but good pipelone imo.



  25. Hi Ohad

    Given the latest news for ESPR, would you expect a takeover until end of the year? Or “only” a collaboration with another company?

    Many thanks


  26. Hubert (KPTI) – I have them on my watch list but plan to wait until we get more clarity on the safety profile. Activity in AML as monotherapy has been modest to begin with and I am not sure if teh current regimen is a viable one. The more interesting aspect is data in myeloma where efficacy with dex was very encouraging and safety issues are less dominant so will consider adding before ASH (December).

    Richard (OXGN) – Sorry don’t know them well.

    n0cturne (NLNK) – imo too expensive even if one is super bullish on IDO as a target. I don’t think the cancer vaccine will demonstrate a benefit in pancreatic cancer.

    Kevin (ESPR) – I think a buyout makes more sense at these levels, not sure about timing.



  27. Hi Ohad, what is your take on recent moves in ESPR? I got in at $60 and took profits at $76, just at close before the PR with FDA meeting came out. The minutes of the meeting said just wat I expected and I believe, what most of reasonable investors would expect: CVOT análisis hasnt got to be completed for approval and labeling will be at first for secondary, as it is for REGN drug. Why the selloff after news? Dont tell me people expected primary wide label. I dont buy it. People who did the DD are reallistic. AMGN will most probably get label for secondary too. What is your explanation.? I am thinking on getting back in but dont understand what the sentiment on this stock is that akward. Thank you


  28. Lgonber (ESPR) – I completely agree with your assessment, there was no reason to assume ESPR will get a different treatment than what AMGN and REGN got. There is a lot of noise and volatility but this doesn’t change the big picture of having an oral drug with a ~25% LDL reduction and an hsCRP effect. Primary risk going forward is long term safety but I expect a deal long before P3 data.



  29. Hi Ohad
    Your Trevena piece noted that they company did not provide complete safety data from the previous Bunionectomy study. There was a recent decent Seeking Alpha piece discussing the increased dosage in the phase IIb trial where the author refers to the TRVN S-1 page 89 for some safety data. If you have not seen it previously the links to the S-1 and the Seeking Alpha article are below



    All the best


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