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EXELIXIS: Fear based on mind reading vs. reality.

Prohost Biotech - Monday, June 28, 2010
Following Exelixis (EXEL) press release, which announced that it has regained full rights from Bristol-Myers Squibb (BMY) to its cancer drug XL184, the firm’s stock plummeted. In the press release, Exelixis stated that BMS’ priorities made it difficult for BMS to align on the scope, breadth and pace of the ongoing clinical development of XL184 as agreed upon in the original agreement. Those who instigated the sell-off did not buy Exelixis’ explanation and were more comfortable with the notion that BMS decided to walk away from XL184, probably because of bad news about the drug. Their reasoning was that a giant pharmaceutical company like BMS, which focuses on building an impressive advanced oncology pipeline would not let a promising multi-targeted cancer drug in late phase trials slip from its hands without a significant reason. BMS did not allude to any bad reason or any reason at all for its decision. It did not comment on Exelixis’ explanation and did not deny it. 

Although investors’ speculation and their spontaneous response, instigating the selling of the stock, are not irrational, they were not supported by evidence-based knowledge, or facts. Their best speculation was that if BMS doubts the drug’s promises the least of what they can do is the same as BMS did, i.e., abandoning investing in Exelixis. The sell-off was triggered by a pyramid of suppositions that have no concrete proof.  

Now that the acute fear has subsided and Exelixis stock price bottomed, other investors and, probably, some of those who sold the stock, might like to take a deep breath and reexamine the whole situation in a more professional and rational way. It is not unreasonable for investors to try to find out good investment opportunities in bottomed stocks.

To find out whether the stock selling based on the sellers’ reading of BMS’ mind is correct, or a mistake, we resorted to history, which tells that many large pharmaceutical firms have abandoned the development of drugs that have become best sellers when other firms continued developing them. Looking at the drug itself and the history of its performance in clinical trials, we see XL184 as not only the most advanced product in Exelixis pipeline, but is also the most advanced MET inhibitor. MET pathway has long been recognized as a master switch and drug target in cancer progression. MET is mutationally activated in hereditary and sporadic papillary renal cell carcinoma and some head and neck cancers. It is either over-expressed or activated in the absence of mutation in glioblastomas, breast carcinomas, gastric cancers and other solid tumors. MET amplification has been demonstrated in some NSCLCs.

XL184 also targets and inhibits VEGFR2, which leads to starving the tumors of oxygen through the antiangiogenic effect. Expression of VEGF occurs in various cancers and has been associated with prognostic significance. Targeting the VEGF receptor has already demonstrated efficacy as anti-cancer strategy in multiple tumors. Dual targeting of MET and VEGFR2 blocks two of the major mechanisms tumors use to overcome hypoxia.

In addition, XL184 inhibits RET, which is identified in multiple endocrine tumors and familial medullary thyroid carcinoma. Activated RET is involved in regulating cell proliferation, migration, differentiation, and survival. It is activated in papillary thyroid cancer (PTC) and in both familial and sporadic forms of medullary thyroid cancer (MTC).

These unique combination of actions makes XL184 capable of causing antiangiogenic, antiproliferative, and antiinvasive effects in tumors – all have been confirmed in preclinical cancer models and in some clinical trial results. 

At ASCO 2010 Annual Meeting, the developers reported that in phase 1 trials on patients with  medullary thyroid cancer, XL184 demonstrated a 29% response rate, with a median duration of response that had not yet been reached, with a range of 4 to 35+ months. They also reported that in a phase 2 clinical trial on patients with the nasty glioblastoma, XL184 demonstrated a 30% response rate when dosed at 125 mg daily, with a median duration of response of 5.1 months. Data were presented showing that the drug demonstrated objective responses in patients with refractory melanoma, non-small cell lung cancer (NSCLC) (both as a single agent and in combination with erlotinib), hepatocellular carcinoma, prostate and ovarian cancers in an ongoing adaptive randomized discontinuation trial (RDT).

The above results were announced by the developing firms prior to their divorce. They are encouraging.  Do we have any concrete reason to doubt them? We personally don’t. All what we see now is a unique drug that targets three very important pathways of a multitude of cancers. About future plans, the drug will be in the hands of the FDA for approval of its first indication, thyroid cancer, in 2011. Exelixis expects to initiate a phase 3 pivotal trial in recurrent glioblastoma in the year-end 2010 time frame and to prioritize tumor types from the RDT in 2011 to add more cancers to the drug indications.

This is how we see the story.
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