Exelixis Axes 70% of Workforce as Cancer Drug Flops, Shares Routed

Xconomy San Francisco — 

When Exelixis won FDA approval of a drug called cabozantinib in 2012, it was supposed to represent the first step towards a franchise. The South San Francisco-based company’s drug was approved to treat a small group of patients with a certain form of thyroid cancer, but its big opportunity lay further ahead, in big studies Exelixis was running in the competitive and lucrative field of prostate cancer.

The results of the first one of those studies have finally come in. But unfortunately for Exelixis (NASDAQ: EXEL), they aren’t pretty—and a large part of the company’s workforce is paying the price.

Exelixis late Monday said that cabozantinib failed to meet its goal of extending the lives of very sick prostate cancer patients—those who’ve already been treated with docetaxel (a chemotherapy drug) and either abiraterone (Zytiga, sold by New Brunswick, NJ-based Johnson & Johnson), or enzalutamide (Xtandi, San Francisco-based Medivation and Astellas Pharma)—in a Phase 3 trial. Patients taking cabozantinib in the study lived a median of 11 months, compared to 9.8 months for a comparator group taking the steroid prednisone, but the difference wasn’t statistically significant.

The so-called COMET-1 study bombed so badly that Exelixis has also stopped enrolling patients in a second prostate cancer trial, COMET-2, and decided to restructure and lay off 160 employees, or 70 percent of its workforce.

Exelixis shares plummeted more than 50 percent in pre-market trading. The restructuring will leave the company with around 70 total employees.

The company will hold a conference call this morning to discuss the results of the study.

Cabozantinib already had a rocky history before this study, but it represented Exelixis’ best shot to generate big revenue. Exelixis designed the drug to halt two processes that allow cancer to progress: angiogenesis, or the formation of blood vessels that help tumors grow; and metastasis, or the spread of tumor cells to other parts of the body.

New York-based Bristol-Myers Squibb paid Exelixis $195 million in 2009 to co-develop cabozantinib (then known as XL 184) and a second drug candidate, but it bailed on the Exelixis drug less than two years later. At the time, Bristol was becoming more enamored with its cancer immunotherapy drug ipilimumab (now known as Yervoy), and the two companies said in a statement at the time that they couldn’t agree on the “scope, breadth and pace” of cabozantinib’s development. Then-CEO George Scangos left Exelixis shortly thereafter to run Cambridge, MA-based Biogen Idec (NASDAQ: BIIB), and was replaced by R&D president Michael Morrissey, who heads Exelixis to this day.

Under Morrissey, Exelixis forged ahead with cabozantinib without Bristol’s help (though the two did subsequently cut a different deal with Bristol on some different drug targets), and finally achieved some success a few years later, when the FDA approved the drug to treat metastatic medullary thyroid cancer.

The disease represents just 4 percent of thyroid cancers, though, and Exelixis derived just $15 million in sales from the drug in 2013. Prostate cancer represents a much bigger opportunity, and has become an extremely competitive field as a number of treatments for the disease like abiraterone and enzalutamide have burst onto the scene over the past few years. Exelixis has been hoping to find a niche among those treatments, which is why the results of COMET-1 and COMET-2 were so important to its future.

That plan appears to be toast now. With the bad results in, Exelixis will now throw in the towel on prostate cancer, and focus on the remaining cabozantinib studies it’s running in kidney and liver cancer. It’ll take on a $6 million-$8 million restructuring charge as it axes a majority of its workforce, leaving it enough cash to get to the top-line results of the kidney cancer study, which are expected next year.

“We have thoughtfully prepared for this scenario and the resulting very difficult decisions,” Morrissey said in a statement. “The workforce reduction we have announced today is necessary to significantly reduce our corporate operating expenses. I would like to personally express my deep appreciation to the talented and dedicated Exelixis employees who will be impacted by these actions, both for their commitment to Exelixis and for their tremendous contributions to patients with cancer.”

Exelixis still has a partnership in place with Roche/Genentech for a drug candidate called cobimetinib that is being developed as a melanoma treatment. Roche said in July that it plans to seek FDA approval of the drug.