Small development-stage biotechnology firms are still facing serious extrinsic problems. The challenges come not from their management, technologies and products, but from the negative investors who incessantly bet against firms either without justification or based on premature and superficial judgment of new molecular entity drugs aiming at unusual targets. A couple of weeks ago, to make its point that betting on the biotech firms is risky, the Barron’s picked up on this issue, stating that short sellers can negatively impact biotechnology companies, especially those that have yet to market their first product.
Investing against the publicly traded firms remains a reasonable practice as long as it is confined to betting against overvalued stocks, bad managements, or on evidence-based information that implies gloomy expectations. Yet, the same practice becomes unfair and damaging when the primary motive is self-serving. Tactics used to beat stocks include fabricating terrifying stories, magnifying negligible problems, and exaggerating small setbacks that are intrinsic components of trial and error in scientific experimentation. Another negative tactic is creating bizarre concepts for advocating weird patterns for selling, e.g. "sell on good news," or "sell on each announcement of quarterly results." Of course for development-stage firms, "sell on good news" means "sell on all news, good and bad" and "sell on all quarterly results" accomplishes the same for these firms, which have yet to market products. As a result, small biotechnology firms that possess clinical evidence-based promising products remain undervalued. Currently, top choices are firms that have far-reaching therapeutics having at least one product in final-phase trial. We selected 10 firms that fit this description. In this issue we deal with Exelixis (EXEL).
Like most development-stage biotech firms, Exelixis suffered the results of imbalanced evaluations, deliberate unfair judgments and sincere, but rushed judgments. The firm was established over a state-of-the-art drug discovery technology and scientists with substantial expertise in drug discovery and design. Exelixis choice of therapeutic targets is an up to date outcome of the biological revolution that offered tremendous information on the genome, stirring scientists entrepreneurs to design and develop fast and advanced equipment for gene sequencing, analysis, results’ interpretations and applications. Exelixis used these advanced tools to build a rich pipeline with products that target the most recently validated key mediators of cancer, including MET receptor tyrosine kinase, VEGFR2, PI3K, mTOR, Cdc7 and HSP90.
Exelixis’ lead drug XL184 has a story to tell. The firm designed this product to antagonize two targets: MET and VEGFR2 receptor tyrosine kinases simultaneously. Both targets are overexpressed on a variety of advanced stage cancers and are known to be involved in malignant cell proliferation, migration, invasion, and angiogenesis. Although targeting several receptors with a single product is not a new concept, yet, targeting these two specific receptors simultaneously raises concerns about the risk of the expected overlapping anti-angiogenesis action. Added to the fact that MET was never recognized as a driver of prostate cancer and no tyrosine kinase inhibitor has ever been considered for this indication, XL184 looked intriguing if not suspicious as a safe cancer therapeutic. Scientists and honest analysts raised questions about the possible side effects, and about the value of a MET antagonist as a prostate cancer therapeutic. Yet, unlike analysts serving their own agendas, the fair scientists and analysts sopped short of speculating on the trials’ outcomes like those whose aim is to serve their own agendas through promoting their pessimistic views as a scientific reality.
For a while, the firm’s critics looked like they were precise in their doubt about a successful outcome of XL184. In June 2010, Bristol-Myers Squibb (BMS) abandoned the development of XL184, which led speculators to believe that BMS must be convinced that the drug would not make it to approval, instigating a stock sell-off. EXEL lost around 40% of its value. A couple of months later, though, a chain of exciting results about XL184’s efficacy trials for metastatic cancers caused the stock to recuperate 20% of its losses. In November 2010 the positive momentum increased in intensity and speed, as BMS entered into an agreement with Exelixis on some other programs (Exelixis’ small-molecule TGR5 agonist program and a collaboration agreement on Exelixis’ ROR antagonists). Investors interpreted these agreements as an indication of BMS’s confidence in Exelixis’ science and technology. The stock price rallied and the rally intensified with the exciting news about the results on metastatic prostate cancer and the near filing of NDA for thyroid cancers.
It was simplistic to believe that Exelixis would overlook the causes for concern raised by XL184 double targeting. The fact is that Exelixis had many reasons for developing XL184. The firm’s decision was made after painstaking preclinical in vitro and in vivo studies, which confirmed that upregulation of MET occurs simultaneously with cancer invasiveness following anti-VEGF therapy. They had reason to believe that if MET action were not antagonized, it would constitute a major mechanism of cancer resistance to treatments. Results of clinical trial confirmed this hypothesis, as XL184 demonstrated it has, indeed, improved the outcome of metastatic cancers resistant to therapeutics, which is a great deal. XL184 is now in Phase III trials for medullary thyroid cancer (MTC), in Phase II trials for recurrent glioblastoma, metastatic castration-resistant prostate cancer, and ovarian cancer. The drug is also in Phase I for renal cell carcinoma.
In MTC, XL184 has almost reached the finish line. Preclinical testing demonstrate the drug strongly inhibits cell proliferation in MTC cell lines harboring activated RET oncogene. Pharmacodynamic studies had previously demonstrated substantial inhibition of RET and MET phosphorylation in MTC xenograft tumors. In clinical trials, the drug demonstrated statistically significant efficacy results and tolerable side effects. The FDA granted XL184 orphan drug designation for MTC and for anaplastic thyroid carcinoma and metastatic or locally advanced papillary thyroid cancer. Final Phase III results will be released in a couple of months and filing for approval is scheduled for the second half of 2011.
In a cohort of ovarian cancer patients, XL184 shrank tumors in 81%, and stabilized the disease in 48% of patients. The overall week-12 disease control rate was 64%. The activity of XL184 in both platinum-sensitive and platinum-resistant/refractory cancer was very promising. For soft tissue lesions, tumor shrinkage was observed in 69% of patients, and the disease was stabilized in 74% of cases.
The recent intriguing and unprecedented optimistic news for XL184 came from trials on metastatic prostate cancer. XL184 results were obviously and undeniably exciting. In a cohort of patients with prostate cancer, 95% achieved complete or partial resolution of metastatic bone lesions. Viewing the bone scans before and after the treatment was like seeing a miracle; scans taken after the treatment could not detect any metastasis on patients whose previous scans demonstrated substantial spread. Another sort of a miraculous performance was the disappearance of the pain of cancer metastasis to bone. Yes, the patients were able to stop taking painkillers.
The stock is in a positive momentum. Its hesitation and negative performance until November 2010 was clearly a result of a mere pessimistic speculation. The rally that followed, though, was motivated by excellent news and concrete positive results coming from clinical trials. More important is that the expected prohibitive side effects were not as prohibitive as expected, but were tolerated by the patients who otherwise would have no other life-saving option. The stock’s positive momentum is expected to continue with some profit taking on and off. A renewed rally is expected to occur as XL184 nears approval for thyroid cancer. A huge rally would follow when more positive results of XL184 on metastatic prostate cancer emerge from further clinical trials.
When XL184 hits the market for MTC, it would change the dynamics of the XL184 approval for other cancers. As more confirming positive results emerge from XL184 clinical trials on metastatic prostate cancer emerge, the drug would likely be granted expedited approval or even early approval. Approvals for ovarian cancer and other tumors would be faster and easier. With regard to the firm’s cash, trust us, what’s available in the firm’s coffers is sufficient to take the firm through its first drug approval. This is without mentioning payments expected from collaborators, especially BMS. As you know by now, Exelixis is not a loner. The firm has more products in its pipeline and more ongoing clinical trials than many other biotech firms, small and large. The same applies to the number of collaborators and licensees.
Disclosure: We are long EXEL.