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If you invest in Exelixis, Inc. (EXEL), you better be a believer. You should believe in cabozantinib, also known as XL184, or Cometriq. Cabozantinib is a small molecule inhibitor of the tyrosine kinases c-Met and VEGFR2, that has been shown to reduce tumor growth, metastasis, and angiogenesis.

There has been plenty of excitement about cabozantinib in oncology circles. The drug has been described to work "like a Star Wars-type cloaking device." Results have been described as "unprecedented."

If you invest in Exelixis, you should be a long-term investor, and a patient one, at that.

Two years ago, the market was very fond of Exelixis. In March 2011, Exelixis shares were trading for over $11 a share. The company's market cap ranged from $1.2B to $1.4B.

Two years later, Exelixis shares are selling in the $4 range and the company's market cap is in the $850M range.

What happened?

The first major hit to Exelixis shares occurred on June 6, 2011, Exelixis shares fell 20% after the company reported data indicating that cabozantinib caused the deaths of six patients in a clinical trial. Exelixis shares plummeted despite the news that the interim results from a study found that cabozantinib shrank bone malignancies from prostate cancer in 76% of patients, and reduced the risk of disease progression or death by 87%.

Exelixis shares were also impacted by new trial results showing that a rival drug - Bayer's (OTCPK:BAYRY) and the Norwegian bio tech firm, Algeta's (OTCPK:ALGZF) prostate cancer drug, Alpharadin (radium-223), helped patients live longer.

Exelixis CEO Michael Morrissey said that cabozantinib's safety statistics were similar to those of other targeted cancer therapies.

At this time, Exelixis stock was hovering in the $9.00 per share range, only to sink to the $8 per share range in July 2011, and then fall to the $6 to $7 per share range in August and September 2011. In October, Exelixis shares plunged again to rest in the $5 range, until October 24, 2011 when Exelixis shares were up 18% after the company announced that it would ask the US Food and Drug Administration (FDA) for permission to begin a rolling submission of data toward the marketing application of cabozantinib in advanced medullary thyroid cancer (MTC).

The drug significantly improved median progression-free survival (PFS) in patients suffering from MTC to 11.2 months versus four months for those on placebo in a clinical trial called EXAM. EXAM, is being conducted under a special protocol assessment (SPA) agreement with the FDA. A SPA provides a company with a written agreement from the FDA that the design and analysis of a clinical trial are adequate to support a marketing application submission with the agency.

On November 1, 2011, Exelixis stock fell the most in 11 years after the company failed to agree with the FDA after months of negotiation. Exelixis was seeking a SPA with the agency that would accept pain reduction as an acceptable endpoint for approval of the drug as a prostate cancer treatment. The FDA seemed to be considerably more concerned about overall patient survival. As a result, Exelixis announced the company would study overall survival in an additional trial. The additional trial would not only cost investors a considerable amount of money, but delay the regulatory approval process for the drug.

With few exceptions, Exelixis stock has remained in the $4 to $5 price range ever since, despite receiving FDA for their lead drug. Cometriq (cabozantinib) was approved by the FDA in November 2012 for the treatment of medullary thyroid cancer.

On November 29, 2012, the FDA approved cabozantinib to treat advanced medullary thyroid cancer (AMTC). AMTC attacks thyroid cells that maintain calcium levels in the blood.

AMTC is a rare disease that is difficult to treat. The National Cancer Institute estimates that there are approximately 2,250 people in the United States with AMTC, About 500 to 700 people reach the advanced stage of MTC every year.

In April 2011, the FDA approved AstraZeneca's (AZN) Caprelsa (vandetanib) for the same indication, but the agency had major concerns about the side effects associated with the drug. Caprelsa labels contain "black box warnings" for QT prolongation, Torsades de pointes, and sudden death. To make matters worse, only prescribers who are certified through the Caprelsa Risk Evaluation and Mitigation Strategy (REMS) program, a restricted distribution program, are allowed to prescribe and dispense the drug.

Although REMS certification is not necessary for a physician to prescribe Cometriq, the drug also contains black box warnings regarding risks for internal bleeding and fistulas or perforations of the colon. Other warnings include dangers of birth defects and miscarriages if women become pregnant while taking cabozantinib, wasting of the jawbone, blood pressure spikes, brain swelling symptoms, heart attacks and strokes, and kidney and liver dysfunction.

The FDA completed review of Cometriq's (cabozantinib) application in six months under the agency's priority review program. This program provides for an expedited six-month review for drugs that may offer major advances in treatment or that provide a treatment when no adequate therapy exists. Cabozantinib also received orphan-product designation by the FDA because it is intended to treat a rare disease or condition.

The safety and effectiveness of cabozantinib were established in a clinical study involving 330 patients with medullary thyroid cancer. Treatment with cabozantinib increased the length of time a patient lived without the cancer progressing (progression-free survival) and, in some patients, reduced the size of tumors (response rate).

Patients who were given cabozantinib lived an average of 11.2 months without tumor growth compared with an average of four months in patients receiving a sugar pill (placebo). Results also showed that 27% of patients treated with cabozantinib had reductions in tumor size lasting an average of nearly 15 months, while patients who received a placebo saw no reductions. Treatment with cabozantinib did not extend patients' lives.

The most common side effects of cabozantinib are diarrhea; inflammation or sores of the mouth; redness, pain, or swelling of the digits (hand-foot syndrome); weight loss; loss of appetite; nausea; fatigue; oral pain; graying or loss of hair color; bad taste; new or worsening high blood pressure; abdominal pain and constipation. The most common laboratory abnormalities included increases in liver enzymes, low calcium and phosphorus, decreased white blood cells and platelets.

On January 24, 2013, Exelixis announced the commercial availability of Cometriq (cabozantinib) for the treatment of patients with progressive, metastatic MTC.

The approval of cabozantinib in AMTC was the first step to achieve the company's goal of improving the lives of cancer patients to build a cabozantinib franchise that includes large indications such as prostate cancer.

Transitioning Into More Lucrative Markets

On May 3, 2012, Exelixis announced a broad expansion of the cabozantinib (Cometriq) clinical development program under a Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute's Cancer Therapy Evaluation Program, with the approval of the initial program of 13 proposed clinical trials under the agreement.

The CRADA provides for funding for as many as 20 active clinical trials each year for a five-year period, which Exelixis believes will enable a broad expansion of the cabozantinib development program in a cost-efficient manner. When initiated, these trials will substantially increase the number of indications and disease settings in which cabozantinib is being investigated, and will aid in prioritizing the next set of pivotal trials. Exelixis also has an Investigator-Sponsored Trial program that is generating additional data on cabozantinib in a variety of treatment settings.

Prostate Cancer

According to the US Centers for Disease Control and Prevention (CDC), aside from non-melanoma skin cancer, prostate cancer is the most common cancer among men in the United States. It is also one of the leading causes of cancer death among men of all races and Hispanic origin populations.

In 2009 (the most recent year numbers are available), 206,640 men in the United States were diagnosed with prostate cancer and 28,088 men in the United States died from the disease.

According to the pharmaceutical and healthcare research and advisory firm, Decision Resources, the prostate cancer drug market will more than double, increasing from $4.1 billion in 2011 to $9.1 billion in 2021 in the United States, France, Germany, Italy, Spain, the United Kingdom and Japan. The firm believes that near-term market growth will be partially driven by market expansion of Johnson & Johnson/Janssen Biotech/Janssen-Cilag's (JNJ), Zytiga (abiraterone acetate) and the uptake of Medivation's (MDVN) and Astellas Pharma's (OTCPK:ALPMY) Xtandi (enzalutamide).

Decision Resources also found that the improved overall survival associated with new drug launches will result in the number of men living with metastatic prostate cancer to exceed 500,000 in 2016, from a current level of 436,000.

On May 30, 2012, Exelixis announced the initiation of COMET-1, a Phase III pivotal trial testing the effectiveness of cabozantinib in men with metastatic castration-resistant prostate cancer (mCRPC). The primary endpoint for COMET-1 is overall survival (OS) in mCRPC patients who have had disease progression after treatment with docetaxel and abiraterone acetate (Zytiga) and/or MDV3100, also known as Xtandi or enzalutamide. COMET-1 is being conducted because there is an unmet need for therapies that demonstrate survival benefits for patients that have received both chemotherapy and either MDV3100 or abiraterone.

Exelixis expects data from COMET-1 to be available in the first half of 2014.

Cabozantinib is also being evaluated for its ability to reduce pain associated with prostate cancer bone metastases in the COMET-2 Phase III trial. The primary endpoint of COMET-2 is the confirmed pain response at Week 12. The study will determine whether there is a higher rate of pain relief with cabozantinib in comparison to mitoxantrone plus prednisone. More than 50% of men with bone metastases report pain classified as "clinically significant," despite taking narcotic analgesics. COMET-2 is being conducted because there is a medical need for treatments that may relieve the pain.

There is reason for investors and prostate cancer patients to have high hopes for cabozantinib.

On December 4, 2012, University of Michigan Comprehensive Cancer Center announced results that found Cometriq demonstrated rapid effects on prostate cancer that had metastasized to bone.

The study was comprised of 171 men with prostate cancer whose tumors no longer responded to hormone-based therapies. All of the patients were treated with cabozantinib for 12 weeks. At that point, they were randomly assigned to receive continued cabozantinib or placebo. The randomization was stopped early, however, because of the beneficial effects of cabozantinib seen on bone scans, and because patients receiving placebo progressed more quickly than did those that remained on the study drug.

Among the 31 patients who underwent randomization, cancer progressed after a median period of 23.9 weeks in patients treated with cabozantinib, compared with a median period of 5.9 weeks in placebo-treated patients.

About two-thirds of patients treated with the drug showed improvements on their bone scans, with 12% achieving complete resolution of uptake on the scans.

According to the researchers, cabozantinib targets two important pathways linked to the growth and spread of prostate cancer. The drug had the most effect on tumors that had spread to bone, which is the major site where prostate cancer spreads. These tumors are often difficult to treat once they become resistant to hormone-based therapies.

In addition to the improvements seen on bone scans, 67% of patients with bone pain reported an improvement in pain control, and 56% of patients decreased the use of or eliminated narcotic painkillers after treatment with cabozantinib.

The results were published in the November 19, 2012 edition of the Journal of Clinical Oncology.

According to the American Cancer Society, 238,590 American men will be diagnosed with prostate cancer in 2012, and 29,720 will die from the disease.

Cabozantinib is also being studied in clinical trials as a potential treatment for ovarian cancer, melanoma, breast cancer, non-small cell lung cancer, hepatocellular cancer and kidney cancer.

Ovarian Cancer

According to the CDC, about 20,000 women in the United States get ovarian cancer each year. Among women in the United States, ovarian cancer is the eighth most common cancer and the fifth leading cause of cancer death, after lung and bronchus, breast, colorectal, and pancreatic cancers. Ovarian cancer causes more deaths than any other cancer of the female reproductive system, but it accounts for only about 3% of all cancers in women.

In 2009, (the most recent year numbers are available), 20,460 women in the United States were diagnosed with ovarian cancer, and 14,436 women in the United States died from ovarian cancer.

The Ovarian Cancer National Alliance reports that the mortality rates for ovarian cancer have not improved in 40 years, although other cancers have shown a marked reduction in mortality, due to early detection tests and improved treatments. Unfortunately, such advances have not occurred with ovarian cancer, which is still the deadliest of all gynecologic cancers.

The market research firm, Decision Resources, predicts that the ovarian cancer drug market will increase from $460 million in 2011 to $1.4 billion in 2021 in the United States, France, Germany, Italy, Spain, the United Kingdom and Japan.

The results from a Phase II clinical trial evaluating cabozantinib in 70 ovarian cancer patients with advanced disease were released at the 2011 ASCO annual meeting. More than 50% of patients treated with cabozantinib had disease control at the three months follow-up mark. Researchers also found that patients with progressive disease on placebo had stable disease when they were changed to cabozantinib.

In January 2013, Exelixis announced that the company plans to initiate Phase III pivotal trials of cabozantinib in advanced hepatocellular cancer (HCC) and metastatic renal cell cancer (RCC).

Breast Cancer

According to the CDC, aside from non-melanoma skin cancer, breast cancer is the most common cancer among women in the United States. It is also one of the leading causes of cancer death among women of all races and Hispanic origin populations.

In 2009, 211,731 women in the United States were diagnosed with breast cancer, and 40,676 women in the United States died from breast cancer.

According to the information service company, Global Information Inc. (GII), there are 351 companies plus partners who are developing 479 drugs targeting breast cancer across 247 different targets. In addition, there were seven suspended drugs and another 185 drugs where development has been ceased.

GII found that breast cancer drugs accounted for $10.2 billion in 2011 and should total $11.2 billion in 2016, a compound annual growth rate of 1.9%.

Cabozantinib works by inhibiting several different proteins which are believed to be involved in breast cancer tumor growth, its ability to spread, and its ability to form new blood vessels.

Participants are being recruited for a Phase II trial of "Cabozantinib in Women With Metastatic Hormone-Receptor-Positive Breast Cancer With Involvement of Bone." The study is being sponsored by Massachusetts General Hospital with Exelixis as collaborator. The trial is being conducted at some of the nation's premier cancer facilities including the Dana Faber Cancer Institute, Beth Israel Deaconess Medical Center, and Memorial Sloan Kettering Cancer Center.

The primary outcome measure of the trial is bone scan response rate. The study will evaluate the bone scan response rate in patients with hormone-receptor-positive breast cancer with bone metastases receiving cabozantinib. Bone scan response rate will be defined as "the percentage of patients experiencing a complete resolution or significant improvement in the bone scan."

Secondary measures include overall response rate, overall survival, progression free survival, effects on bone and tumor markers, skeletal-related event rates.

In December 2011, Exelixis announced results from a Phase II trial that found "encouraging clinical activity" in patients with metastatic breast cancer who received cabozantinib treatment.

In the study, 45 patients with previously treated estrogen receptor-positive, triple negative, or inflammatory metastatic breast cancer were enrolled. Bone metastases were reported in 73% of patients and visceral metastases were reported in 82% of patients. The patient population was heavily pretreated, with 87% having received at least 3 lines of prior therapy.

The study found six patients (14%) had a confirmed partial response, 26 patients (59%) had stable disease, and nine patients (20%) had progressive disease (PD). The Week 12 disease control rate (week 12 SD or PR) was 48%. Ten patients had available bone scans at baseline and at least one post-baseline bone scan and of these, four patients (40%) achieved partial resolution of their metastatic bone lesions on bone scan by week 12. Additionally, among 12 patients who entered the study with bone metastases and bone pain, five patients experienced improvement in pain at Week 6 or Week 12 per investigator report. Additionally, two of 11 patients who were taking narcotic medication for bone pain at baseline were able to decrease or discontinue these medications.

Overall, bone is the most common site to which breast cancer metastasizes, and the site of first metastasis in approximately 50% of patients with breast cancer. Up to 75% of patients with metastatic breast cancer will develop bone metastases during the course of their disease and this number is even higher among those with hormone receptor-positive disease. For 20%-25% of patients with metastatic breast cancer, especially those with hormone receptor-positive disease, bone will be their only site of metastatic involvement. Bone metastases in women with breast cancer are associated with considerable morbidity including hypercalcemia, increased fracture risk, need for surgery or radiotherapy, spinal cord compression and significant pain.

Some authorities believe that there is some rationale to support the study of cabozantinib in ER-positive breast cancer with bone metastases because researchers have found impressive bone scans and bone pain responses in trials evaluating cabozantinib in breast cancer. Some experts also believe that cabozantinib should be studied in patients with triple-negative breast cancer (TNBC).

Melanoma

According to the National Cancer Institute, there will be an estimated 76,690 new cases and 9,480 deaths from melanoma in the United States in 2013.

The research firm, Decision Resources, forecasts that the malignant melanoma drug market will increase more than seven-fold over the next decade, growing from $210 million in 2010 to $1.5 billion in 2020 in the United States, France, Germany, Italy, Spain, the United Kingdom and Japan.

Cabozantinib was tested in a randomized Phase II trial in patients with metastatic cutaneous/mucosal (70%) and ocular (30%) melanoma. The study randomized 77 previously-treated patients with a known BRAF mutation in 32%. An objective response was observed in 60% of patients.

The National Cancer Institute also plans to conduct a Phase I clinical trial studying cabozantinib as a treatment for melanoma.

Non-Small Cell Lung Cancer

Non-small cell lung cancer (NSCLC) accounts for approximately 85% of all lung cancers. The American Cancer Society's estimates for lung cancer in the United States for 2013 are about 228,190 new cases of lung cancer will be diagnosed, and there will be an estimated 159,480 deaths from lung cancer.

According to Transparency Market Research, the NSCLC will increase from $4.3 billion in 2009 to $6.9 billion in 2019 and the market is growing with a compound annual growth rate of 4.84% from 2009 to 2019.

Memorial Sloan Kettering Cancer Center is sponsoring a Phase II clinical trial to ascertain what effects cabozantinib in patients whose tumors have a gene called KIF5B/RET. KIF5B/RET is an abnormal gene that leads to lung cancer cell growth. Sloan Kettering is currently enrolling in the trial that is expected to be completed in July 2015.

Mounting evidence suggests that the presence of the KIF5B/RET fusion may signify a new molecular subset of the disease. Cabozantinib is a potent inhibitor of RET that has shown strong clinical activity in another RET-driven cancer.

On September 30, 2012, Exelixis reported preliminary data from an ongoing Phase 1 dose escalation study of cabozantinib conducted at the National Cancer Center Hospital in Tokyo, Japan. The trial consisted of 14 patients with a variety of solid tumors. Of these patients, five had NSCLC.

Researchers found that four NSCLC patients had a complete partial response. All five NSCLC patients had tumor regression ranging from 33% to 41%.

Hepatocellular Cancer

Hepatocellular carcinoma is the most common type of liver cancer. Hepatocellular carcinoma is now the third leading cause of cancer deaths worldwide, with over 500,000 people affected.

companiesandmarkets.com predicts the global liver cancer drug market will increase at a compound annual growth rate of 8.1%. The firm found that the value of the market was $374.3 million in 2011, and will reach a market value of $644.3 million by 2018.

On January 4, 2012, Exelixis reported positive preliminary data from a cohort of hepatocellular carcinoma patients participating in the ongoing Phase II randomized discontinuation trial of cabozantinib. The data are from a trial evaluating the activity of cabozantinib in multiple tumor types. The results include data from 41 patients with advanced HCC.

The week 12 disease control rate was 68%. Evidence of objective tumor regression was observed in 78% of patients, including those with or without prior sorafenib therapy. The best radiologic response in the lead-in stage of the study for 36 patients with at least one post-baseline measurement was confirmed partial response in two patients and stable disease in 32 patients. One additional patient had a partial response that was confirmed after the patient completed the lead-in stage and proceeded to the randomized component of the trial. Median progression-free survival was 4.2 months, and was similar for sorafenib-pretreated and sorafenib-naïve patients.

Kidney Cancer

The American Cancer Society estimates that about 65,150 new cases of kidney cancer will occur this year, and about 13,680 people (8,780 men and 4,900 women) will die from this disease.

TechNavio's analysts forecast the global kidney cancer drugs market to grow at a compound annual growth rate of 13.4 percent over the period 2012-2016. According to TechNavio, AVEO Pharmaceuticals (AVEO), Bayer AG, GlaxoSmithKline (GSK), Hoffmann-La Roche Ltd., Novartis AG (NVS), and Pfizer Inc (PFE) currently dominate the market.

Exelixis hopes cabozantinib will prove to a viable renal cancer treatment.

On June 3, 2012, Exelixis revealed positive updated interim data from an ongoing phase Ib trial of cabozantinib in 25 patients with metastatic refractory renal cell carcinoma.

The study endpoints included safety, tolerability, and anti-tumor activity.

Tumor regression was observed in 19 of 21 patients, or 90 percent. Best overall response was determined per RECIST criteria with 7 of 25 patients, or 28 percent, showing a confirmed partial response.

Researchers also noted that 13 additional patients, or 52% had stable disease as their best response, and only a single patient demonstrated evidence of primary refractoriness to cabozantinib with a best overall response of progressive disease. The rate of disease control at week 16 for all 25 patients is 72%.

Median progression-free survival was estimated to be 14.7 months. Median overall survival had not yet been reached after median follow-up of 14.7 months. The estimated one year survival rate was 60%. Seven patients remain on study and progression free with treatment durations ranging up to 21.8+ months.

A randomized Phase II trial in first-line RCC using a 60 mg dose is planned under the company's Cooperative Research and Development Agreement with the National Cancer Institute's Cancer Therapy Evaluation Program and should provide further insight into cabozantinib's clinical and commercial potential in this indication.

Collaborations

The company's early-stage discovery and research expertise has generated multiple compounds and programs that target key pathways in cancer and metabolic diseases. Exelixis has established collaborations with Bristol-Myers Squibb Company (BMY), Genentech, Inc. (a wholly-owned member of the Roche Group (OTCQX:RHHBY), GlaxoSmithKline, Sanofi (SNY), Merck (MRK) and Daiichi-Sankyo Company Limited, for a variety of compounds and programs.

By out-licensing these compounds or programs to a partner for further development and commercialization, the company usually has no further unfunded cost obligations related to such compounds or programs and may be entitled to receive research funding, milestones and royalties or a share of profits from commercialization.

Finances

On February 21, 2013, Exelixis reported financial results for the fourth quarter and year ended December 31, 2012.

Revenues for the quarter ended December 31, 2012 were $7.8 million, compared to $93.3 million for the comparable period in 2011.

For the year ended December 31, 2012, revenues were $47.5 million compared to $289.6 million for the year ended December 31, 2011.

Revenue decreases for both the quarter and year were primarily due to extraordinary one-time revenue events as the result of: the acceleration of license revenue as a result of the termination of the company's agreement with Bristol Myers-Squibb Company for XL281 in October 2011, the termination in December 2011 of the company's PI3K discovery collaboration with Sanofi, and the transfer in April 2011 of substantially all development activities pertaining to XL147 and XL765 to Sanofi.

The net loss for the quarter ended December 31, 2012 was $52.2 million, or $0.28 per share, compared to $46.3 million, or $0.35 per share, basic, for the comparable period in 2011.

The net loss for the year ended December 31, 2012 was ($147.6) million, or ($0.92) per share, compared to $75.7 million, or $0.60 per share, basic, for the year ended December 31, 2011.

The company had cash and cash equivalents, short- and long-term investments and short- and long-term restricted cash and investments totaling $634.0 million at December 31, 2012, compared to $283.7 million at December 31, 2011.

For the full-year 2013, Exelixis expects contract and license revenue of approximately $16 million. The company is not providing guidance on expected revenue from Cometriq product sales at this time. The company expects total costs and expenses in the range of $200 million to $230 million, including non-cash expenses of approximately $16 to $18 million related primarily to stock-based compensation expense. Exelixis further expects interest expense of approximately $45 million, which includes non-cash charges of $26 million. Exelixis expects its cash and cash equivalents, short- and long-term investments and short- and long-term restricted cash and investments to be approximately $400 million at the end of 2013.

Conclusion: Buy

Founded in 1994, the company has spent nearly 20 years working to find a treatment for cancers and other diseases.

Exelixis's first FDA approval was an important milestone for the company. Exelixis's primary objective in 2013 is to execute on the broad cabozantinib clinical development program, including its COMET pivotal trial program in metastatic, castration-resistant prostate cancer (CRPC).

In Phase I and Phase II trials, cabozantinib has demonstrated clinical activity in multiple indications including ovarian cancer, breast cancer, differentiated thyroid cancer, metastatic melanoma, hepatocellular carcinoma, glioblastoma, renal cell carcinoma, and non-small cell lung cancer. Cabozantinib is currently being studied in over 30 clinical trials.

In Exelixis-sponsored trials, cabozantinib has shown signs of tumor shrinkage in 12 of 13 tumor types studied, including medullary thyroid, prostate, breast, ovarian, and non-small cell lung cancer, melanoma, and hepatocellular carcinoma.

I recommend Exelixis buy for the long-term, patient investor.

Source: Where Is Exelixis In The Cancer Therapeutics Market?