Exelixis Prepares for ASCO 2013, Stock Stays Rangebound Print E-mail
By Brian Wilson-Lead Contributor   
Thursday, 23 May 2013 22:20

One of the biopharmaceutical companies that has been lagging the stellar performance of its peers is Exelixis (NADSAQ: EXEL), developer of the compound cabozantinib. Cabo, which was FDA approved last year for the treatment of medullary thyroid cancer (MTC), is now being marketed under the trade name COMETRIQ. In the company’s reported Q1 2013 earnings release on May 7th, the company was able to present some early results for the drug’s performance on the open market although it’s difficult to accurately interpret a drug’s intrinsic monetary potential with only a few weeks of sales data and estimates on the drug’s penetration into a market.

For Q1 2013 the company reported $1.86 M in product revenues. Given the company’s estimates that they could be treating up to 500-700 MTC patients within the current FDA-approved indication, we can infer that there is a $50 to $70 M market potential here, given that the average MTC patient should generate about $100,000 for Exelixis out of a typical regimen. There is also the opportunity that the drug has in Europe within the partnership that was established with Swedish Orphan Biovitrum (Sobi), which should generate additional revenue from a large external market.

The MTC market could prove to be a very valuable niche market, although I’ve stated before that cabozantinib will truly make or break the valuation of Exelixis in the prostate cancer market, which realistically represents hundreds of millions in revenues compared to tens of millions in the MTC market. Exelixis also intends to try cabozantinib in the tough hepatocellular carcinoma (HCC) and renal cell carcinoma (RCC) indications. Phase III trials for both indications are expected to start in Q3 2012.

The metastatic castration-resistant prostate cancer (mCRPC) indication will be built on the results of the COMET-1 and COMET-2 phase III trials, which are ongoing and should have top line results in 2014. While the company didn’t give any extra details, it seems plausible based on the estimated completion time for the trials that they will present the results at ASCO 2014. If this turns out to be true, investors should know whether or not cabozantinib will meet its primary endpoints in overall survival (OS) and pain reduction (for COMET-1 and COMET-2 respectively) one year from now.

Until then, it’s likely that EXEL will favor its approximate trading range of $4-5 per share, presuming that the broader market doesn’t make any drastic moves. Exelixis has not shown a very high correlation to the broader market or the biotech sector as a whole, presumably because traders are generally waiting for a catalyst that is still quite far away (the COMET-1 and -2 data release).

Exelixis now has a market capitalization $877 M, although I think there is substantial upside to be realized if the company succeeds in late stage trials for mCRPC – perhaps as much as an additional 100% given that cabozantinib continues healthy expansion in the MTC indication.

The company’s financial position is also pretty good, although the substantial R&D budget (which is likely to increase as the company begins enrollment into the Phase III HCC and RCC trials) and money allocated for sales will overwhelm revenues generated from the commercialization of COMETRIQ for most (if not all) of its lifespan. However, the company reported $567 M in cash as of March 31st of 2013.

The reported burn rate for Q1 2013 was $45 M. While I expect this to increase due to rising interest expenses and the aforementioned spike in R&D that should be the result of large HCC and RCC trials, Exelixis should not be financially stressed until 2015. This provides more than enough time for the company to report the results of COMET-1 and COMET-2 (perhaps the full results even), which should either induce an appreciable rally in the stock or a drop in reaction to data.

Going forward, investors who are interested in the stock will have some extra material to digest during ASCO 2013 where the company will have 1 oral presentation and eight poster presentations. I think the one that may receive the most attention is Abstract 5026, which should include analysis of the shocking bone scan images that were taken during a Phase II trial implying that cabozantinib shrinks these lesions over time, although there will be other data presented as well (including data that could support the commercialization efforts in the MTC indication).

In terms of mechanism of action, cabozantinib is certainly “unique”, although it fulfills a familiar function at the same time. It is an inhibitor of both VEGFR2 (Vascular endothelial growth factor receptor 2) and c-MET, as well as RET. Both of these pathways are used by cancer cells for the sake of proliferation, although the VEGF receptors already see enormous attention from cancer drug developers. Regarding VEGFR2 in particular, we already saw success with GlaxoSmithKline’s pazopanib. What makes cabozantinib interesting is the targeting of the MET protein pathway, which has not been made available until the introduction of COMETRIQ into the market earlier this year. Other compounds have also lacked the success that cabozantinib has seen in previous clinical trials.

So for now, it’s generally agreed that investors are hungriest for information on COMET-1 and -2. Like mentioned earlier, it seems that EXEL will stay rangebound until the big news comes. Wall Street analysts generally don’t have strong opinions on the stock, which makes sense given the company’s situation.

disclosure: long

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