Editor

Seldom can the news be spun as "good" when a biotech firm gets back a Phase II drug from its big-pharma partner, even when the return of rights comes with a $17 million payment, as happened last week in the case of Exelixis Inc., which regained the small molecule MET inhibitor XL184 from Bristol-Myers Squibb Co.

But sometimes the adjective fits. On the heels of positive data with XL184 presented at the American Society of Clinical Oncology meeting, South San Francisco-based Exelixis said BMS, of New York, said that "given the recent progress," the two firms were "not able to align on the scope, breadth and pace of ongoing clinical development," and Exelixis now has "the opportunity to advance the program as originally envisioned," banking $17 million.

In late 2008, Exelixis signed the deal with BMS that brought $195 million up front for rights to cancer programs in a move that the former said would leave it independent of the capital markets for at least three years. Shares of Exelixis rose more than 32 percent on the news. (See BioWorld Today, Dec. 15, 2008.)

XL184 is Exelixis' most advanced candidate, and the firm said in a press release that it "need[s] to rapidly develop the compound in indications justified by the data, including medullary thyroid cancer, glioblastoma, and potentially some of the major tumor types being evaluated in the randomized discontinuation trial," adding that the firm has "the resources to take XL184 forward on our own for some time and we see several attractive longer term options."

J.P. Morgan analyst Cory Kasimov, holding to his "neutral" rating on Exelixis shares, wrote in a research report that he was surprised by the news, especially given the "increasingly optimistic outlook for this candidate post-ASCO." Though Exelixis "in the long run, may indeed be better off because of this decision, but in the near term many unknowns remain," Kasimov wrote. "No matter the desired pace of development, we do not believe Bristol would relinquish rights to any drug that they felt had substantial potential. Moreover, we struggle to find recent examples where assets returned by large pharma partners (for non-FTC reasons) become a major eventual success."

Edward A. Tenthoff with Piper Jaffray was much more sanguine, calling the news a "big positive" for Exelixis. The firm not only offered positive Phase II data on XL184 in refractory glioblastoma at ASCO, with plans to begin a pivotal study and file an NDA by 2013, but also has a fast path to market with the candidate in medullary thyroid cancer - pivotal data and an NDA filing are due next year - plus broader potential other tumor types. Tenthoff repeated his "overweight" rating on Exelixis shares, raising to price target from $7 to $9. The company's stock (NASDAQ:EXEL) was selling at about $3.70 last week.

Analyst George Farmer with Canaccord Genuity, though, called the BMS move unambiguously negative for Exelixis. "While clinical data support the activity of this compound in medullary thyroid cancer [very small indication] and glioblastoma [a larger indication], in our view, the return of this program creates uncertainty [and] increases risk," he wrote in a research report, while putting all development costs, at least for now, on the shoulders of Exelixis. Farmer reiterated his "hold" rating with a price target of $4, lowered from $5.

The spurning by BMS is the second bout of big-pharma turn-away in the past few years for Exelixis. In the fall of 2008, London-based GlaxoSmithKline plc - after optioning rights to another candidate, XL880, the year before - decided to pass on a second compound under the six-year deal. But the company called that good news, too, since the top contender to be optioned at the time was none other than XL184, which inhibits not only MET but RET and VEGFR2. (See BioWorld Today, Oct. 24, 2008.)