Exelixis Needs To Move Away From Its Overdependence On Cabozantinib

Summary

• Cabo is a blockbuster drug, but there are potential headwinds.
• EXEL needs to find other assets and move them to late stages.
• With XL092, Exelixis is starting to do just that.
• Looking for more investing ideas like this one? Get them exclusively at The Total Pharma Tracker. Learn More »

FatCamera/E+ via Getty Images

The trouble with Exelixis (NASDAQ:EXEL) is that while it is spending $650mn annually running various trials with cabozantinib, cabo's composition of matter patent is set to expire in 2026; and MSN has already filed an ANDA for a generic polymorph version of cabo. That means, despite cabo being a $1+bn blockbuster drug, the company may not be able to recover its costs - technically speaking - of those trials. On the other hand, in the off chance that Exelixis gets relief for its patent estate, we cannot suggest that they stop all those trials and concentrate simply on minting money off cabo for as long as it can. That seems to be the key dilemma surrounding Exelixis.

Exelixis is testing cabozantinib in every possible indication. There are over a 100 studies running in various phases. Phase 3 trials are running in 8 indications - genitourinary (GU) cancers, gastrointestinal (GI) cancers, thyroid cancers, lung cancer, and neuroendocrine tumors (NET) & carcinoid. Besides, there are dozens of phase 2 trials. Some of these are company-sponsored, some are paid for by collaborators. The company expects topline pivotal data from various COSMIC and CONTACT pivotal trials for cabozantinib in 2022. COSMIC 313 is in a pivotal phase 3 targeting 1L RCC. Just 2 weeks ago, this trial toplined positive data, meeting its PFS goal.

CONTACT-03 is a pivotal phase 3 trial testing cabo in combination with atezolizumab (TECENTRIQ®) in patients with inoperable, locally advanced or metastatic renal cell carcinoma (RCC) who progressed during or following treatment with an immune checkpoint inhibitor as the immediate preceding therapy. This study is ongoing. CONTACT-01 and 02 are targeting NSCLC and mCRPC respectively.

As I noted in an earlier article:

Despite spending billions in cabo's development, the company has not been able to expand its cabo label into a major new market so far. This is, I believe, the one thing that is keeping EXEL stock stagnant.

Besides cabo, the company has two other assets that have emerged from its drug discovery program. These are XLO92 and XL888, and a few others. XLO92 is a next-generation oral tyrosine kinase inhibitor that targets key signal transduction pathways in tumors, including VEGF receptors, MET, and other kinases implicated in cancer's growth and spread. This asset just entered a phase 3 program in June, titled ​​"Study of XL092 + Atezolizumab vs Regorafenib in Subjects With Metastatic Colorectal Cancer." It is currently running a phase 1b trial in various solid tumors.

A collaboration with Aurigene has yielded XL102, a small molecule inhibitor of cyclin-dependent kinase 7 (CDK7), which entered clinical trials in January 2021, and XL114, a novel anti-cancer compound that inhibits the CBM signaling pathway.

Moving away from small molecules and into biologics, the company collaborates with Iconic Therapeutics to develop XB002, a tissue factor-targeting antibody-drug conjugate (ADC) program, which is in an ongoing phase 1 trial that was initiated in the second quarter of 2021.

While Exelixis is working hard to create additional revenue pathways and move away from its overdependence of cabo, the latter is still its principal asset, and the emergence of generic onslaught against it does not do Exelixis any good. The company is in a legal battle against MSN for generic cabozantinib. From what I see, it appears that EXEL will win on the '473 patent which expires in 2026, but lose on the '776 patent which expires in 2030. However, as expected, EXEL is counter suing on infringement of the '339 patent, which expires in 2032. MSN has agreed on infringement on 3 patents, and the case now boils down to validity, which is a slightly tougher nut to crack for generic companies. Read Zachary Silbersher's blog on the case here. I interviewed Mr Silbersher two years ago on Amarin, and I intend to ask for his opinion on EXEL as well… stay tuned.

Financials

EXEL has a market cap just shy of $7bn and a cash reserve of $2bn as of March 2022. They will provide Q2 earnings update in a few days. In the previous quarter, the company made $355mn in revenue, most of it from cabo. Research and development expenses for the quarter ended March 31, 2022 were $156.7 million, while selling, general and administrative expenses were $102.9 million. The company has enough cash to last it a couple of years.

Bottomline

The one event that will completely destroy EXEL is if it loses against MSN; however, because they were able to keep two cases separate, an outcome is still two years away. Other things that erode its value are flat data from trials, huge expenses, constant stock-based compensation to insiders, and so on. However, despite all these, EXEL has done quite well for me in the past few months. I intend to keep holding for a few more quarters.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of EXEL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Derek Syph]

@avisGreat arti@Avisol Capital Partners

Patent issue is big. MSN is smart to file ANDA now so they are ready to launch 2026 if possible.

EXEL seems like a frustrating company to me ... seems they should have soldout long ago or focused on buying rather than building new drugs at high costs.

If ever a midvap pharma needed an activist this is that company.

@ $21 you said "However, despite all these, EXEL has done quite well for me in the past few months. I intend to keep holding for a few more quarters."

NOW AT $16...

AS ALWAYS sell the rips it seems... trade around biopharma positions.

[User 123456]

"the attorney's attention should be focused solely on the client under the duties of loyalty and candor." - U.S. District Judge James Donato decision in Zachary Silbersher v. Valeant Pharmaceuticals, et al, (dated May 11, 2020, page 17)

More details: zacharysilbersher.com

[wired4sales]

Time is not on their side. no way that 092 or 888 gets approval before the patent runs out on cabo. Mgmt will continue to bleed the treasury dry thru options until the golden goose is dead. by the time MMM and co realises this it will be to late to get anything if they decide to sell the company on the open market. They do have a poison pill in the case of a hostile takeover, so a buyout will never happen.

[toptrader99]

@wired4sales What are the details of the poison pill and when does a friendly takeover, rather than hostile matter?

[Philipp Stuelcken]

I continue to be a bit confused why EXEL should run so many trials of Cabo in early stages when the patent will expire in a few years and there is no chance that these products become aproved before. Either they have a great plan or they are just wasting so much money.

[Avisol Capital Partners]

@Philipp Stuelcken They are wasting money. They should focus on creating new assets while they have time.

[tkarl]

@Philipp Stuelcken EXEL has publicly stated for at least a year, that they are no longer initiating new Cabo trials. The trials that you mention are ongoing and simply take time.