This New Data Could Push Exelixis' Cabometyx Over $1 Billion in Peak Annual Sales

What a difference 17 months makes -- and I say this as a shareholder of Exelixis stock for more than two years.

Flashing back to 2014, Exelixis, a company focused solely on developing cancer therapies, had high hopes for its lead compound, cabozantinib, as a treatment for metastatic castration-resistant prostate cancer. Considering that prostate cancer is the second-most commonly diagnosed cancer, the hope had been that positive clinical data from its late-stage COMET studies would propel sales, profits, and Exelixis' share price higher. Unfortunately, the COMET trials burned up: Cabozantinib (brand names Cometriq and Cabometyx) failed to generate a statistically significant improvement in overall survival relative to the placebo. This dealt a crushing blow to the share price, and it cast doubt about Exelixis' ability to expand Cometriq beyond the treatment of metastatic medullary thyroid cancer, a rare disease, and Cometriq's only approved indication at the time.

Today, things have changed in a big way.

Cabometyx spreads its wings

In an expected move, the Food and Drug Administration approved Cabometyx in April for the treatment of second-line renal cell carcinoma after the drug delivered a statistically significant improvements in progression-free survival, the primary endpoint of the trial, as well as overall survival and response rates. Median progression-free survival nearly doubled to 7.4 months from 3.8 months for standard of care Afinitor, while median overall survival improved 4.9 months to 21.4 months compared to 16.5 for Afinitor.

Image source: Exelixis.

On top of delivering outstanding data in the METEOR trials, Exelixis also announced a licensing deal for Cabometyx in all countries except the U.S., Canada, and Japan, with Ipsen that netted it $200 million in upfront cash, as well as a $60 million milestone payment now that Cabometyx is approved. Exelixis stands to make $50 million more if its CELESTIAL trials for hepatocellular carcinoma succeed and the FDA expands Cabometyx's label once more, after which it could earn $545 million in additional sales-based milestones, as well as royalties that cap out at 26%.

In simpler terms, money worries are about to be a thing of the past for Exelixis.

But Exelixis isn't stopping there. Earlier this week, it announced results from its midstage CABOSUN trial in patients with previously untreated advanced renal cell carcinoma. Going head-to-head against Pfizer's standard-of-care treatment, Sutent, Cabometyx showed a statistically significant improvement in progression-free survival. No specific PFS data was mentioned in Exelixis' press release, but it nonetheless marks the first time cabozantinib has demonstrated superiority over a first-line, standard-of-care treatment. The next step for Exelixis is to consult with the FDA, likely to design a larger phase 3 study where PFS or overall survival will be the primary endpoint.

Even though we don't have specific data from CABOSUN as of yet, this is extremely exciting news since it could help Cabometyx move out from behind the shadow of competing drugs for renal cell carcinoma.

Opdivo: friend or foe?

You might expect that Pfizer's Sutent and Novartis' Afinitor woud be Exelixis' prime competition, but you'd be wrong. Exelixis is most strongly contending with Bristol-Myers Squibb's cancer immunotherapy Opdivo, which tallied $704 million quarterly sales during the first quarter despite being on pharmacy shelves only about a year and a half.

Image source: Bristol-Myers Squibb.

Bristol-Myers' cancer immunotherapy, which works by supercharging the immune system to locate and destroy cancer cells, has been gobbling up market share in second-line renal cell carcinoma, and many analysts expect Cabometyx to take a seat behind Opdivo in line to treat RCC patients. Opdivo is also less expensive on a wholesale basis than Cabometyx ($143,000 vs. $165,000 per year).

Then again, Exelixis justifies its price based on being the only RCC therapy to hit statistical significance in improving PFS, overall survival, and objective response rate. More importantly, if Exelixis can garner first-line approval before Opdivo, it could be in position to take significant first-line market share of its own. Of course, we should keep in mind that Bristol-Myers is also angling for earlier-stage indications, too, with Opdivo in its CHECKMATE-214 trial in combination with Yervoy.

Yet are the two drugs really foes? Opdivo and Cabometyx are also being tested as a combination therapy in a phase 1b study with data due out later this year. If the data suggests that the combination of Opdivo and Cabometyx works more effectively than each drug by itself, we could be looking at a new standard of care, and far more revenue for Exelixis.

Cabometyx's path to $1 billion in annual sales

I should state, once more, that I'm a shareholder in Exelixis, so there's going to be some clear hopeful bias in these estimates; but I suspect Exelixis' lead drug could hit $1 billion in peak annual sales over the next five to seven years.

Image source: National Cancer Institute.

My assumption is based simply on Cabometyx garnering 10% market share in each indication that it's approved to treat, or may effectively treat. According to estimates from Transparency Market Research, which pegged the kidney cancer drug market at $2.6 billion in 2013, kidney cancer drug sales are expected to hit $4.5 billion in 2020. If Exelixis has 10% of the second-line market, we're probably looking at around $400 million in peak annual sales.

However, if Cabometyx also eventually expands its label to include the larger first-line patient pool, and it's able to garner a 10% share of that market, we would, presumably, be looking at an additional $400 million to $500 million in peak annual sales. Overall,that adds up to $800 million to $900 million in peak annual sales. This is on top of the roughly $60 million to $75 million it can likely generate annually from sales of Cometriq for advanced medullary thyroid cancer. This puts Cabometyx right on the border of blockbuster drug status (i.e., $1 billion+ in sales).

If Cabometyx shines in the CELESTIAL trials for hepatocellular carcinoma, then I'd surmise its chances of hitting $1 billion in peak annual sales would jump further. Datamonitor Healthcare is predicting sales growth of 172% in liver cancer drug sales between 2013 and 2019 to approximately $1.4 billion. Once more, if Cabometyx slides in to take 10% market share (assuming positive overall survival data in CELESTIAL), it could bring in $140 million annually based on this estimate.

Added together, we're looking at $1 billion to $1.1 billion in peak annual sales if everything goes well, and perhaps more if its phase 1b study in combination with Opdivo proves to be an even more effective RCC-fighting therapy.

To quote my colleague Brian Orelli, Exelixis appears potentially ready for "blastoff," and shareholders have Cabometyx to thank for it.

The article This New Data Could Push Exelixis' Cabometyx Over $1 Billion in Peak Annual Sales originally appeared on Fool.com.

Sean Williamsowns shares of Exelixis, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool recommends Exelixis. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.