Exelixis, Inc. (NASDAQ:EXEL) just announced top-line results from the final analysis of its COMET-1 Phase 3 pivotal trial of cabozantinib (Cometriq) in men with metastatic castration-resistant prostate cancer (mCRPC) whose disease progressed after treatment with docetaxel as well as abiraterone and/or enzalutamide. Unfortunately, the trial did not meet its primary endpoint of demonstrating a statistically significant increase in overall survival compared to control patients treated with standard prednisone therapy. While the results were in a favorable direction, they weren't strong enough to meet the statistical cutpoints required for success. The main statistic, which has sent the stock plummeting 54% at the time of this writing is that the median overall survival for the cabozantinib arm of the trial was 11.0 months versus 9.8 months for the prednisone arm. This resulted in a hazard ratio of 0.90 (95% CI 0.76, 1.06). The secondary endpoint of progression-free survival (which has never been used as a basis for approving a prostate cancer drug) was 5.5 months for the cabozantinib arm of the trial versus 2.8 months for the prednisone arm. These results were significant, generating a hazard ratio of 0.50 (95% CI 0.42, 0.60).
In an article I published a few weeks ago, I had argued that Exelixis had the potential for significant upside given the number of trials it had underway. I believed that the COMET-1 data would be positive. Well, they were, but not nearly enough to be considered successful. I cautioned that the risks were high. I stated:
"If the data is sound, the stock could skyrocket. But if it comes up short, shares will get crushed. With cash being such an issue, Exelixis really does need some of the Phase 3 trials to have excellent outcomes. The biggest catalyst will be the final Phase 3 COMET-1 data."
Well, clearly with shares down 54% the catalyst was a huge negative for the stock. COMET-1 needed success. Now the stock is in fire sale mode. Could it rebound? Yes, but it will need near perfect data in other upcoming trials. Because of the outcome of COMET-1, Exelixis will now cut its staff by 70% to save cash. These cost cutting measures are designed to reduce cash burn, which to me was the biggest risk of this company. In order for this stock to rebound, it will need some excellent top line results from its clinical trials of cabozantinib in metastatic renal cell carcinoma (the METEOR trial) and advanced hepatocellular carcinoma (the CELESTIAL trial). The METEOR trial data is expected in 2015, whereas the CELESTIAL data is expected in 2017. I stand behind my original analysis, despite the COMET-1 outcome. Now, for the stock to recover, the company will need stellar data releases and must address its cash issue. My thesis has changed from one that was moderate risk high reward, to very high risk and the potential for high reward. Exelixis is now trading at all-time lows. I for one believe that selling at these levels would be a mistake, despite the terribly disappointing news. Finally, although I cautioned about the risk in my article, I am now wearing egg on my face for this recommendation. Upcoming catalysts that could move the stock higher, besides data releases, will come in the form of reduced cash burn updates and any further partnerships the company can manage. There is also the off-chance of some role of Cometriq in prostate cancer, but that remains to be seen.
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