London-based GlaxoSmithKline plc licensed the first of three possible options in its 2002 deal with Exelixis Inc., gaining exclusive rights to XL880, a small molecule that recently demonstrated impressive Phase II data in kidney cancer and also is being evaluated mid-stage trials in gastric and head and neck cancer.

Terms of the deal call for GSK to pay South San Francisco-based Exelixis a $35 million selection milestone, which Exelixis will use to repay an advance GSK made to the biotech firm in 2005. Upon successful commercialization of the XL880, Exelixis would receive double-digit royalties on product sales and will retain certain co-promotion rights in North America.

Though the milestone will not affect the company's top-line revenue for the year, GSK's opt-in means that the big pharma firm will take over development costs of XL880, freeing up Exelixis' cash resources for other pipeline products, analyst Joel Sendek, of New York-based Lazard Capital Markets LLC, stated in a research note.

Sendek estimates U.S. launch for XL880 in papillary renal-cell carcinoma in 2011, though there remains "uncertainty as to how GSK will prioritize the program," and expects Exelixis to benefit from 15 percent royalties on product sales once the drug hits the market.

XL880, a MET inhibitor, has generated some promising data so far. Most recently, the company reported results from an ongoing Phase II study in renal-cell carcinoma at the American Association for Cancer Research, National Cancer Institute and European Organization for Research and Treatment of Cancer (AACR-NCI-EORTC) conference in San Francisco. Those data show that, of 19 evaluable patients with papillary renal-cell carcinoma treated with XL880, an inhibitor of MET and vascular endothelial growth factor receptor 2 (VEGFR2) kinases, 15 (79 percent) have had a decrease in tumor size (4-33 percent), including one patient with a partial response. All 19 patients with at least one post-baseline tumor assessment have shown stable disease for at least three months, and of those, 12 have had stable disease for six months to more than 15 months.

Exelixis submitted XL880's data package to GSK in September, as part of the companies' collaboration, which covers seven Exelixis compounds and their back-up and follow-up compounds. Of those, GSK can opt to license three. If GSK exercises its remaining two options, Exelixis could receive a total of $130 million in milestones, plus royalties.

In July, GSK passed on the first compound submitted by Exelixis, XL647, a receptor tyrosine kinase inhibitor aimed at inhibiting epidermal growth factor receptor (EGFR), HER2 and VEGFR. At that time, executives from Exelixis said the drug continued to show promise. The company plans to move into pivotal studies next year. (See BioWorld Today, July 27, 2007.)

Exelixis, which reported a net loss of $13.7 million, or 14 cents per share for the third quarter, had cash, marketable securities and investments totaling $297.6 million as of Sept. 30.

The company's stock (NASDAQ:EXEL) rose 75 cents, or 9 percent, Friday to close at $9.61.