Shares of Exelixis Inc. lost nearly $1 on news that partner GlaxoSmithKline plc declined to license XL647 for further development, despite adamant reassurances from company executives that the drug is on track after yielding promising proof-of-concept data in non-small-cell lung cancer.
Exelixis, which regains worldwide rights to the compound, plans to move into pivotal studies in the first half of next year, and is "excited" about the possibility of XL647 becoming its first commercial program, said Frank Karbe, executive vice president and chief financial officer.
"It's the best outcome for Exelixis and the best outcome for GSK," he added. "I know that's the kind of thing companies always say, but in this case it's actually true."
Not that Wall Street was completely convinced. The company's stock (NASDAQ:EXEL) slid 8.7 percent, or 96 cents, Thursday to close at $10.07, and that drop hinged mainly on concerns that data from the proof-of-concept study might not have been sufficient to keep GSK's interest. Analyst Han Li, of Houston-based Stanford Group Co., who downgraded the company to "hold," wrote in research note that it's likely that "mediocre activity in lung cancer or limited market potential prompted GSK's decision."
According to the company, however, that's not the case. Exelixis President and CEO George Scangos told investors during a conference call that XL648 has "an excellent data set," and that "we continue to see durable responses" in a first-line Phase II trial in NSCLC. The problem is that more specific data won't be disclosed until September when the company presents at a lung cancer conference in Korea.
"So obviously, the initial reaction [to GSK's decision not to license XL647] is that something's got to be wrong with the drug," Karbe told BioWorld Today, "and it's difficult to defend that without putting the data out there."
Exelixis believes that GSK "very much liked" XL647, a receptor tyrosine kinase inhibitor aimed at inhibiting epidermal growth factor receptor (EGFR), HER2 and vascular endothelial growth factor receptor (VEGFR2), Karbe said, but that GSK decided against pursuing its development "after they looked at it in context with their overall portfolio in oncology," as well as in context with the companies' overall 2002 collaboration.
That deal involves the development of up to 10 compounds, from which GSK is permitted to select two or three for further development at the conclusion of Phase IIa proof-of-concept studies, in exchange for milestones and royalties. Any program declined by GSK remains in the hands of Exelixis, which is free to develop the drug on its own or with a partner, though it would pay a 3 percent royalty rate on net product sales.
XL647 was the first compound submitted, and GSK "came to the conclusion not to use it as one of their picks," Karbe said. It's a decision that makes sense given that GSK already has a kinase inhibitor with similar mechanisms of action.
The London-based firm gained FDA approval in March for Tykerb (lapatinib), which inhibits both EGFR and HER2, in metastatic breast cancer, and the drug is in ongoing trials in other cancer indications.
Exelixis anticipates submitting two more compounds for GSK's consideration later this year, potentially XL880 and XL784, both of which are in Phase II. XL880, which is designed to inhibit both MET and EGFR, is in development to treat renal-cell carcinoma, gastric cancer and head and neck cancer. XL784, an inhibitor of the ADAM-10 metalloprotease enzyme, is in testing in patients with proteinuria associated with diabetic nephropathy.
In the meantime, South San Francisco-based Exelixis plans to "hit the ground running" with XL647, expecting to start Phase III trials in 2008, Karbe said. And funding the program should not be a problem, since "we have several financing options, including our agreement with Symphony Capital."
That 2005 deal calls for Symphony, through specially formed funding vehicle Symphony Evolution, to gain rights to three Exelixis compounds - XL647, XL784 and XL999, another drug in development for lung cancer - in exchange for providing up to $80 million in funding over a four-year period. Exelixis has the option of repurchasing the compounds, pending success in the clinic. (See BioWorld Today, June 14, 2005.)
To date, Karbe said, the deal with Symphony just passed the two-year mark. There is still nearly $45 million remaining in the agreement, and the company has "ample time to come up with how to repurchase the programs." XL784 and XL999 also are included in the GSK collaboration, so if the pharma firm opts to license either or both of those, Exelixis would be able to use the subsequent milestone payments to cover repurchasing costs.
The company also might consider partnering XL647 outside the U.S. or signing another financing arrangement, Karbe said.
Exelixis, which has not yet reported its second-quarter earnings, posted a net loss of $24.2 million, or 25 cents per share, for the first quarter of 2007. As of March 31, the company's cash, which included investments from Symphony, totaled about $305.9 million.