After experiencing a dismal September and sliding quite a bit over the last few weeks after a rebound, Exelixis (NASDAQ: EXEL) stock enjoyed a big bounce on Thursday. The biotech announced its third-quarter results after the market closed on the prior day. And those results were very good, with Exelixis reporting 126% year-over-year revenue growth and trouncing Wall Street earnings estimates.
Obviously, the biotech's third-quarter performance generated plenty of enthusiasm among investors. There's more to the story, though. Here are three underlying reasons behind Exelixis stock's resurgence. (Quotes courtesy of S&P Global Market Intelligence.)
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1. Cabometyx is capturing a higher market share
Those glowing financial numbers in the third quarter stemmed from an impressive jump in sales for Cabometyx. The drug generated sales of $90.4 million, nearly 60% of Exelixis' total revenue in the quarter. How the biotech grew those sales provided plenty of confidence in its ability to perform even better in the future.
Exelixis Senior Vice President of Commercial Patrick Haley said Cabometyx now has 38% market share in the second-line and later renal cell carcinoma (RCC) indications. That's up from a 35% market share in the second quarter of 2017 and 30% market share in the first quarter. This steady progress indicates that Exelixis' strategy of first targeting high-volume prescribers then expanding the prescriber base is working very well.
It's important to remember that Exelixis is going head to head with formidable sales organizations. Pfizer maintains one of the largest sales forces in the industry and has been highly successful in marketing its RCC drug Sutent. Novartis claims a significant chunk of the RCC market with its chemotherapy Votrient. Bristol-Myers Squibb (NYSE: BMY) is also making headway with Opdivo. The fact that Cabometyx is performing so well shows how well received it is by oncologists -- and that Exelixis' sales force is doing a great job positioning it against much larger rivals.
2. Everyone expects another approval in February
If we were just talking about Cabometyx gaining momentum in the second-line and later RCC settings, Exelixis stock wouldn't be where it is today. The "story behind the story" with the company's third-quarter results and subsequent jump in its share price is that investors are banking on similar success for Cabometyx in treating first-line RCC.
Pretty much everyone who follows Exelixis expects the U.S. Food and Drug Administration (FDA) to approve this new indication for Cabometyx in February. They also understand, as Patrick Haley noted in the company's third-quarter conference call, that the first-line indication has almost as many patients as the second- and third-line RCC indications combined.
Haley stated that "there are many synergies that will accelerate a potential launch in first-line RCC." He pointed out that the same prescribers in the second-line and later RCC indications where Exelixis has flourished also prescribe in the first-line indication. Exelixis' sales team already has relationships with many of these physicians. Equally important, these physicians already know Cabometyx. Exelixis' demonstrated ability to market the drug to this prescriber base bodes well for a presumed launch next year for the larger first-line RCC indication.
3. Buying into the vision
Although the focus for now is primarily on Cabometyx in RCC, the opportunities for Exelixis are much larger than the one disease. After reporting good news from its late-stage Celestial clinical trial a few weeks ago, the company plans to file for approval of Cabometyx in treating advanced hepatocellular carcinoma (HCC), the most common form of liver cancer, in the first quarter of 2018.
There's also a lot of potential for Cabometyx in combination therapies. Bristol-Myers Squibb is evaluating the drug in combination with its immunotherapies Opdivo and Yervoy for treatment of first-line RCC and advanced HCC. Roche (NASDAQOTH: RHHBY) is studying a combo of its Tecentriq and Cabometyx in treating first-line RCC and bladder cancer. Multiple other investigator-sponsored studies are also in progress exploring the use of Cabometyx in treating additional types of cancer.
Exelixis also hopes to receive positive news from a late-stage study being conducted by Roche evaluating Cotellic in combination with Tecentriq in treating third-line colorectal cancer. Results are expected from this study in the first half of 2018. Roche also has other studies in progress featuring combinations of its drugs along with Cotellic in treating breast cancer and melanoma.
Michael Morrissey, Exelixis' CEO, reminded analysts on the quarterly conference call that "we've talked about cabo from really almost from day one as being a potential franchise molecule, meaning that it had the opportunity or the ability to have broad activity in multiple indications, either as a single agent or in combination. And that's still the vision."
Investors appear to be buying into this vision and viewing Exelixis as a biotech ready to take the next step upward. I suspect the bounce for the stock could be just beginning.
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