Buying more Exelixis following positive renal cancer data

The past six months have been quite frustrating for Exelixis (EXEL) investors (myself included). The company had a string of positive announcements for cabozantinib (cabo) and Roche-partnered cobimetinib (Cotellic) including positive overall survival readouts for both drugs. Since the July announcement on the METEOR study in renal cancer, the stock is up only 16% despite having a wholly owned drug with a blockbuster potential, imminent approval and significant label expansion potential.

Market skepticism was best examplified by the mute reaction to last week’s announcement about cabo leading to an overall survival benefit in the METEOR study, probably the most meaningful announcement in the company’s history. Overall sentiment around biotech certainly isn’t helping Exelixis but it seems that market is more skeptical than ever about cabo’s commercial potential in renal cancer.

The bear case for cabo

The bear case for cabo in renal cancer (RCC) assumes Opdivo will take the majority of 2nd/3rd line renal cancer market based on its proven survival benefit (Exelixis still hasn’t provided actual survival numbers) which will be hard to beat and a better safety profile.

Exelixis’ press release stated there was a “highly statistically significant and clinically meaningful increase in OS”. Cross-trial comparison of the interim OS curve in METEOR with Opdivo’s survival curve demonstrates a similar pattern up to 1 year (data were too immature to conclude anything beyond that time point). Based on this, the language in the PR and the strong updated PFS data last month, cabo has a reasonable chance of demonstrating a strong survival benefit, perhaps even similar to that of Opdivo (5.4 months, HR=0.73). Full results will be presented at ASCO 2016 (June) but if cabo gets approved before that, the label might include actual survival numbers.

 nivo P3

Source: N Engl J Med. 2015 Nov 5;373(19):1803-13.

cabo P3

Source: N Engl J Med. 2015 Nov 5;373(19):1814-23.

Not a zero-sum game

While I also expect Opdivo to become the cornerstone of RCC treatment, I still think cabo is going to be a dominant drug with good market penetration in Opdivo-failures who will need additional treatment options (Opdivo is not curative and eventually all patients progress).  Investors understandably want to know how cabo’s survival benefit stack up against that of Opdivo but in my opinion this question has little relevance in the real world where RCC patients are treated sequentially with multiple agents. The introduction of two highly effective drugs will only augment this trend, as patients now have better options.

Historically, an RCC patient was treated with a 1st line kinase inhibitor (Sutent or Votrient) that kept the disease under control for a median of ~10 months. After that, physicians had very little to offer patients with multiple agents that provide a ~4 month PFS without proven OS benefit (20 months life expectancy). Today for the first time, patients have two drugs that prolong survival including one drug that keeps the disease from progressing for 7.4 months (an almost doubling compared to available drugs). Even if we assume Opdivo takes 100% of the 2nd line market, I find it hard to believe that physicians will not use cabo extensively as a third line option based on its compelling clinical profile (today they are using other less effective agents for third line patients)

Significant market opportunity

Third line renal cancer represents a significant opportunity. Of the estimated ~40k metastatic RCC patients in developed countries who are treated in the first line setting, ~23k are expected to receive second line treatment. This figure will probably grow as now there are 2 drugs with a clear survival benefit for pre-treated RCC (so far drugs were mildly active and no OS benefit).

Assuming Opdivo or other PD-(L)1 antibodies take the lion share of second line RCC and cabo is restricted to third line patients, cabo could be given  to 10k patients using conservative assumptions. An average cost of $70,000 per patient translates to $700M in RCC sales. Adding $150M in combined global revenues for cabo in MTC  and cobimetinib, (Roche’s MEK inhibitor for which Exelixis has co-promotion rights in the US) in melanoma, Exelixis is looking at a de-risked revenue stream of $850M per year. This figure excludes label expansion potential for both drugs in significant indications like liver cancer for cabo (P3 readout next year) and KRAS+ lung cancer in combination with Roche’s PD-L1 antibody for cobimetinib.

Portfolio updates

I am adding a second position in Exelixis ahead of an eventful 1H:16 which should include FDA/EMA approval, positive survival data in renal cancer and a lucrative deal (licensing or acquisition). Assuming conversion of all convertible debt (worst case scenario because a portion may be repaid in cash), the company has ~347M shares on a fully diluted basis which translates to a market cap of ~$1.6B. Using a 3x multiple on peak sales, adding ~$500M in cash (assuming debt conversion) and $250M for pipeline results in a valuation of $3.3B, representing a 100% upside.

Going forward, I still prefer to have limited exposure to biotech as I expect negative sentiment to continue in 2016. My biggest holdings right now are cash (~30% of portfolio) and  ProShares UltraShort Nasdaq Biotech (BIS) (~25% of portfolio), which is unfortunately and unsurprisingly my most profitable position so far in 2016.

Portfolio holdings – February 7, 2016

portfolio holdings - 7-2-2016 - after changes

biotech etfs - 7-2-2016

84 thoughts on “Buying more Exelixis following positive renal cancer data

  1. Wildbiftek (EXEL/MDVN) – Agree about the deal being very lucrative comparing to other deals. There are obviously good things in having a partner that is very dependent on your drug for future growth but it’s still a more risky bet imo.

    dan (EXEL) – I intend to hold the stock and if shares go lower I may want to add. Catalysts going forward are FDA approval (potentially this month) and OS data. Beyond that we will have to wait to Q4 to have an idea about the launch in RCC. A deal for Japan is also possible but less important imo.

    Kevin –

    FATE – Sorry, don’t know them well.
    EDIT -I don’t have plans to get in anytime soon. Gene editing has huge potential but too early for me as an investor, especially with $1B market cap.

    QURE/ONCE – I have multiple gene therapy companies on my watchlist including these two. I think it’s definitely a field to have exposure to, hard to select specific stocks so prefer to have a basket (BLUE, ONCE,QURE, VYGR, AGTC, AAVL etc.). Gene editing is a competitive approach to gene therapy in many cases but it’s too early to draw any definitive conclusions.

    Richard Baker (ARQL) – I think the HCC trial has a low likelihood of success (will be happy to be proven wrong) because the P2 MET+ subset analysis included a small sample size and the drug has been shown to have other activities beyond MET which casts a doubt on whether the activity is MET driven.



  2. Hi Ohad

    MGNX has also come down considerably, though just broke the recent sharp downtrend (like quite a few others) – does the current valuation look attractive to you?

    Many thanks


  3. Ohad, if possible, could you comment on what you like about BLCM? I see that BPX-501 so far shows low infection-related mortality and also that the safety switch works, but I see some people believe physicians will not choose haplo transplant over autologous (BLUE) as even a minimal chance of infection/GVHD is unacceptable for b-thal or sickle cell. I am interested in both companies, but still struggle to decide. Thank you, Hiroshi


  4. Alex (EXEL) – Agree, stock is weak and investor confidence appears tarnished. Perhaps people are worried about the OS numbers. The large pile of convertible debt certainly isn’t helping, if I were them I would start paying back some of it with the $260M from Ipsen.

    Richard Baker (DNAI) – Yes I am tracking it but don’t plan to get in soon. Their preliminary clinical data were definitely provocative in the signal they saw in DLBCL (both depth and duration of responses). I am worried by the lack of additional data beyond the 4 original DLBCL patients plus I am not sure how they can differentiate their drug from venetoclax.

    Kevin (MGNX) – Still to expensive imo. I have high hopes for the CD33 DART but results will probably come only at ASH s no rush there.

    Hiroshi (BLCM) – What I like in BLCM is that they have a clinical proof of concept for the their safety switch, which also bodes well for the activation switch in CARs.
    The issue of BLUE vs. allo transplant will never be a clear cit decision imo as in many cases (MDS, oncology) gene therapy is irrelevant. In addition, i remains to be seen if BLUE’s approach will have sufficiently effective in SCD.



  5. Ohad

    Can you give me a sense of your feelings toward biotech in general.sector has corrected 35% on the Ibb and the Xbi even you look out further this year do you see a reversal or more sideways action.


  6. Dave (TGTX ) – I am still skeptic about their ability to compete in a very crowded market, especially their CD20 antibody. They have 100M but are burning a lot of cash on their aggressive development program, probably will have to raise $$$ soon.

    Dan (CLDX) – Very depressing… I intend to wait for now.

    Dan S. (XENE, MRNS) – Overall both companies look on track to generating important data in 2016. High risk but I plan on owning both going into data readouts.

    Alex (MCRB) – Unfortunately most microbiome companies are still private. MCRB is a great company but valuation too high imo.

    Dave (IBB/XBI) – Very hard to say…. I still feel a lot of companies are overvalued and that the pricing environment in the US is only becoming tougher.



  7. Hey Ohad
    VCEL has positive results on pII congestive heart failure, what CLDN could not achieve… any opinions on the company or the results implications? valuation is still low. Thanks


  8. Hi Ohad,

    Any thoughts on Cabo’s prospects in NSCLC? Do you think it’s better to spend a little here and there to lock up various sub-indications like RET fusion+, post Crizotinib ROS1, and various MET mutation NSCLC (~$40-50mm each indication for a P2 in the style of the recent Crizotinib ROS1 approval) or is it better to go all out and risk a larger trial (~$150mm w/ Ipsen dealing $50mm) in wild-type?

    I think the only reasonable wt indication will be a combo with a PD-(L)1 inhibitor vs Nivolumab, now that the NCCN has rejected Cabo’s P2 results in combination w/ Erlotinib (See NSCL‐19 in the following document):

    The feasibility of latter is awaiting the safety profile Andrea Apolo’s results of Cabo w/ Nivolumab despite its target being GU tumors. Do you know of any other more promising wt-NSCLC treatments that could throw such a plan off course?


  9. P.S. A similar document under the “Kidney/Testicular Cancers Panel” shows that both Nivolumab and Cabozantinib were given category 1 designation in 2nd line RCC whereas Lenvatinib/Everolimus was voted down for insufficient evidence. L/E doesn’t look like it will be relevant until at least its Phase 3 is completed.

    I think this gives some clarity to the commercial situation in this indication.


  10. hey Ohad
    GWPH up big on positive pivotal in epileptic seizures… their drug is marijuana based… they have several other programs, many overlapping with MRNS and SAGE? what are the implications?


  11. Ohad

    Do you feel the political climate regarding drug prices works to favor a ESPR if there compound is effective in phase 111 trials in that the pricing would be advantageous to the alternative treatments?


  12. Hello Ohad ! Do you have an opinion on ROCHE? I have always been interested in them since they absorbed GENENTECH. They seem to be very well positioned in the cancer Diagnostic business with FMI etc. Now they seem to be moving on ALL fronts with the recent collaborations with BPMC and KITE.I would appreciate any insight you might have!


  13. Dan/Richard (VCEL/EGLT) – Sorry, not familiar with these two.

    Wildbiftek (EXEL) – Cabo clearly has activity in RET+ NSCLC but it might be inferior to more selective agents such alectinib or newcomers from LOXO, BPMC. Clinical data to date is encouraging but not exceptional so not sure about potential in this indication. Same goes for ROS1.
    Most activity in NSCLC today (especially with kinase inhibitors) is in molecularly defined subsets (KRAS,ALK,ROS,RET,AXL,MET, BRAF etc.). For WT NSCLC there are a lot of immunotherapy trials but so far I haven’t seen anything groundbreaking.
    I don’t think any drug can be approved for RCC without a P3 study, especially not in combination with an approved agent.

    Dan (GWPH/SAGE/MRNS) – Good to have some good news for a change… In general I don’t think there will necessarily be direct competition across every epileptic indication. Given the different MOAs, it is easy to envision all drugs being used in some patients/subsets.

    Dave (ESPR) – I don’t see a major impact because ETC-1002 will probably be used in different patients (those who require milder LDL reductions).

    Bouschka – Sorry, not tracking big pharmas. Agree about deals with FMI and BPMC as highly valuable.

    Alex – Sorry, don’t know them.



  14. $ARQL Did the interim analysis include futility analysis or they just continued ? Given that it is a placebo controlled trial they should have succeeded by now so it might actually be not so good news that the trial did not get stopped.

    What do you think ?


  15. Peter (INFI) – The news from GILD’s Zydelig are disconcerting because it might be a class effect + INFI’s drug does not seem to be differentiated.

    curiousgeorge (ARQL) – From what I understand there was no futility analysis so there is not a lot of impact on likelihood of success imo. The fact the study was not stopped due to a negative effect (higher mortality on the active arm) is a slight positive though.

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



  16. Alex (INFI) – I am somewhat skeptical regarding PI3K-gamma Inhibition for immuno-oncology.

    andre (SAGE) – While I agree with their comment about data generated in single arm trials, I think the efficacy signals in SRSE and PPD are too strong to be a coincidence (especially given the described disease severity).



  17. What is your opinion on CLDX at this point? Yes, Rintega is dead, but the rest of the pipeline should not totally be ignored, IMO. $290 in cash should carry them through the next two years.



  18. Chris (TRVN) – I don’t have high expectations from this program, I own the stock solely based on the pain franchise.

    Richard Baker (CLDX) – Good question… The CD27 and GPNMB ADC clearly have some value but I prefer to wait on th sidelines for now.



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