Exelixis failed its phase 3 metastatic prostate cancer trial---one analysts response

In a report issued today, Cowen analyst Eric Schmidt downgraded Exelixis (NASDQ:EXEL) to Market Perform (from Outperform), following failure of cabozantinib to extend overall survival in pivotal COMET-1 trial. Exelixis announced a substantial restructuring that should provide the company with enough of a cash runway to get to Phase III data on cabozantinib in RCC (expected in 2015). No price target was given.

Schmidt noted: “Cabozantinib’s potential opportunity in prostate cancer was the basis for our Outperform recommendation on EXEL shares. With this thesis now discredited, we are moving to the sidelines. While we think cabozantinib has a reasonable chance of success in RCC, that market is more competitive, and investors are unlikely to ascribe cabo much value in this secondary indication until data are in hand. Exelixis also holds 30-50% U.S. ownership of Roche’s cobimetinib (melanoma filing in combination with Zelboraf expected by YE). However the U.S. market for BRAF negative melanoma is small and shrinking. Meanwhile, Exelixis’s balance sheet is weak. As of June 30, the company held cash of $352MM and debt of $462MM (most of which is due in 2018 and 2019 assuming the company picks up its option to extend the Deerfield loan). Hence, near flawless execution in RCC may be needed to maintain significant value in the company’s equity.”