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Exelixis Plunges as FDA Refuses to Sign Off on Drug Study


The company is going forward with a human trial for cabozantinib that measures pain reduction in men with advanced prostate cancer, but possible approval of the drug may be pushed out until 2016.

In one week, cancer drug developer Exelixis (EXEL) went from riding high on expectations for its experimental treatment to losing more than a third of its market value as the company can't come to terms with government folks on how to test its product.

Exelixis says that it's going forward with a final stage of testing its drug cabozantinib for bone pain in prostate cancer patients. The company was counting on the US Food and Drug Administration signing off on the design of a clinical trial of the drug using pain reduction as an endpoint.

Specifically, the company was seeking a written agreement with the FDA that the design of its study and, most importantly, the goal of reducing pain was acceptable for possible US approval of the drug. No dice. The FDA has questions about gauging pain and it appears the agency may be more concerned about overall survival of patients taking the drug. Exelixis plans to study survival in another study next year but completing that trial in addition to its study on pain reduction before winning approval will cost a lot of money and delays the process.

"Given the previous feedback we had received, this outcome is both surprising and unexpected," Exelixis CEO Michael Morrissey told investors and analysts on a call Monday night.

Indeed, last Thursday, Morrissey told investors on another call that "we remain confident that we will secure" an agreement from the FDA. Now investors are losing confidence in Exelixis.

Shares of the company dropped more than 36% to $4.83 Tuesday morning. The stock traded above $12 a share in February.

"Demonstrating both a pain and overall survival benefit in two separate studies could be the best strategy for (cabozantinib) positioning in a market of rapidly accumulating competing drugs," Canaccord Genuity analyst George Farmer says in a note this morning.

Farmer, who rates the stock a hold, says the time it will take to complete the studies and move the drug toward a possible approval will take longer than some investors have been hoping. He predicts a possible approval date of 2016 and a 40% chance of the drug being cleared for sale.

The problem, Farmer says, is that the company may need to raise more money. He predicts Exelixis will have $277 million in cash by the end of the year.

Just last week, Exelixis' stock was rising on very encouraging news for cabozantinib for another form of cancer -- thyroid. While prostate cancer is a much bigger market, the study showed the potential of the Exelixis drug, which is being tested for multiple types of cancer. (See Exelixis Rises on Cancer Drug Study.) If eventually approved for multiple uses, cabozantinib potentially can be a blockbuster some day.

Some analysts, including Farmer, felt the stock had gotten ahead of itself. The company's market cap surged to almost $1 billion. And while cabozantinib still has its fans, it appears investors are going to have to wait longer and shoulder more risk of the drug being approved for prostate cancer.

The agreement Exelixis was seeking with the FDA is known as a special protocol assessment. While it's not a binding contract, it basically says the agency is going along with the frame of a drug study, and it's assumed there's a good chance of the drug being approved in a relatively timely period (a late-stage study usually takes at least three years to complete).

"While we were surprised and disappointed by this news, we do not believe that the strategic value of cabozantinib has been diminished," William Blair analyst John Sonnier says in a note Tuesday morning.

Twitter: @brettchase

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