Few stocks have performed as well as Exelixis (NASDAQ: EXEL) has in 2016. The biotech's share price has nearly tripled this year. Will Exelixis be able to carry this tremendous momentum in to 2017? Mike Morrissey, Exelixis' CEO, spoke at the Stifel Healthcare Conference this week and laid out his view of the biotech's opportunities and challenges. Here are three things Morrissey thinks Exelixis must do to survive and thrive.
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1. Turn cabozantinibinto a winning franchise
Exelixis sellskinase inhibitor cabozantinib under two brand names -- Cometriq and Cabometyx. Cometriq won regulatory approval in the U.S. in 2012 for treatingmedullary thyroid cancer (MTC), a rare type of thyroid cancer. Cabometyx gained U.S. approval as a second-line treatment of kidney cancer in April 2016 and obtained European approval five months later. Morrissey said that the challenge for Exelixis now is to turn cabozantinib into a winning franchise.
In its first full quarter on the market, Cabometyx generated sales of$31.2 million. Morrissey said that Exelixis is pleased "but not satisfied" with the launch so far. Because kidney cancer is more common than MTC, Cabometyx should surpass sales for Cometriq.
Morrissey admitted that the main hurdle for Cabometyx is "competing against the big guys," mentioning Pfizer (NYSE: PFE), Bristol-Myers Squibb (NYSE: BMY), and Novartis by name. Pfizer's Sutent is widely considered to be the standard of care for kidney cancer. Bristol's Opdivo, though, is coming on strong. Novartis has a blockbuster kidney cancer drug with Afinitor.
Cabometyx is already pulling in around 20% market share as a second-line treatment for kidney cancer and 35% as a third-line treatment, according to Morrissey. What's more promising is that the drugcame out on top in a late-stage study matching up head-to-head against Sutent as a first-line kidney cancer therapy.
Exelixis appears to be well-positioned to take some market share away from Pfizer and is probably already doing so in the second-line market versus Novartis. Bristol has its own late-stage study stacking Opdivo in combination with Yervoy against Sutent as a first-line treatment. However, that study won't conclude until 2019.
2. Expand beyond "Cabo"
Morrissey doesn't want Exelixis to be a one-trick pony, though. The biotech licensed cobimetinib to Roche (NASDAQOTH: RHHBY). Roche won regulatory approval for the drug in 2015 in combination with Zelboraf as a treatment for advanced melanoma. So far, Exelixis hasn't made a lot of money from royalties on cobimetinib, but Morrissey said that he's "not surprised by the slow start."
Roche recently announced the initiation of two other late-stage studies with cobimetinib in combination with other drugs targeting treatment of metastatic melanoma. Morrissey said he remains excited about the potential for cobimetinib and looks forward to results from the new clinical trials.
There's a real possibility that Exelixis could be on the hunt to beef up its pipeline. Morrissey indicated that the biotech would be interested in assets that are "asymetrically valued" or undervalued by the current owner. He stated that business development activity with immuno-oncology candidates is "hyper-competitive" but there are opportunities elsewhere.
3. Watch spending
Exelixis is in great shape financially, especially compared to past years. The biotech reported cash, cash equivalents, and short- and long-term investments pus long-term restricted cash and investments totaling$379.6 millionat the end of the third quarter.
Don't expect Exelixis to spend like crazy, though. Morrissey said that he wants "to keep a close eye on expenses" while growing revenue. He realizes that Exelixis doesn't have the kind of cash to compete well against big drugmakers in licensing new pipeline candidates. That's why he prefers a kind of "Moneyball" approach -- looking for undervalued opportunities.
Exelixis has a real winner on its hands withCabometyx. It wouldn't be surprising for other drugmakers to knock on the door for potential combination treatment opportunities.
I wouldn't count on Exelixis' stock nearly tripling next year like it did in 2016. However, the stock should continue to perform well -- especially with the political uncertainties removed following the U.S. elections. Surviving and thriving shouldn't be too difficult for this up-and-coming biotech.
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