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Exelixis (EXEL) Reports Wider-than-Expected Loss in Q1

Exelixis, Inc. EXEL posted a first-quarter 2016 loss of 27 cents, wider than both the Zacks Consensus Estimate of 25 cents and the year-ago loss of 18 cents.

However, net revenue came in at $15.4 million, up 64.3% year over year, which easily surpassed the Zacks Consensus Estimate of $9 million.

Quarter in Detail

Exelixis lead drug, Cometriq, is approved for the treatment of progressive, metastatic medullary thyroid cancer.

Of total revenue, $9.1 million came from the sale of Cometriq. The company earned $5.0 million of contract revenues for a milestone earned from Merck & Co. Inc. MRK in the first quarter of 2016 related to their worldwide license agreement for the PI3K-delta program, and $1.2 million of license revenues recognized from the upfront payment from its collaboration and license agreement with Ipsen Pharma SAS.

We remind investors that Exelixis has an exclusive licensing agreement with Ipsen for the commercialization and further development of cabozantinib. Per the terms of the agreement, Ipsen will enjoy exclusive commercialization rights for current and potential future indications of the drug outside the U.S., Canada and Japan. The companies will jointly work on the development of cabozantinib for current and potential future indications.

In the reported quarter, research and development expenses increased 29.8% to $28.9 million primarily due to higher stock-based compensation expense, personnel-related expenses resulting from an increase in headcount, and consulting and outside services for medical affairs and drug safety.

Likewise, selling, general and administrative expenses jumped to $34.9 million from $9.5 million due to higher personnel-related expenses resulting from an increase in headcount, which in turn, was due to the expansion of the sales force in the U.S., along with higher marketing expenses, including expenses for Cotellic under the company’s collaboration agreement with Genentech, a subsidiary of Roche Holdings RHHBY.

Pipeline Update

Cabozantinib is marketed in the capsule form as Cometriq for progressive, metastatic MTC. Exelixis was evaluating a tablet formulation of cabozantinib, distinct from the capsule form, for advanced renal cell carcinoma (RCC) in the METEOR trial. The company received a significant boost in Apr 2016 when the FDA approved the tablet formulation under the brand name, Cabometyx, for the treatment of RCC in patients who have received prior anti-angiogenic therapy.

The European Medicines Agency (EMA) has accepted to review a Marketing Authorisation Application (MAA) for Cabometyx for the same indication. Upon a potential approval, the drug would be marketed in the EU by Exelixis’ partner, Ipsen.

Meanwhile, Exelixis is evaluating cabozantinib in the CELESTIAL trial for advanced hepatocellular carcinoma. The company anticipates top-line results from the CELESTIAL study in 2017.

Exelixis is also working with its partner Genentech to commercialize the other drug in its portfolio, Cotellic, in the U.S. We note the drug was approved in the U.S. in Nov 2015 for the treatment for patients with a BRAF V600E or V600K mutation-positive advanced melanoma, in combination with Zelboraf.

2016 Guidance

Exelixis expects operating expenses around $240–$270 million. This includes about $30 million of incremental, non-cash, stock-based compensation expenses.

Our Take

Although Exelixis reported a wider loss in the first quarter, the revenue beat was encouraging. The FDA approval of Cabometyx is a major boost for the company and will propel the top line in the forthcoming quarters. The successful commercialization of Cotellic in the U.S. will also boost the top line. However, expenses are expected to increase as the company prepares for the commercialization of Cabometyx in the U.S.

Exelixis currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the healthcare sector is Shire plc SHPG with a Zacks Rank #2 (Buy).

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