Mike Morrissey had plenty of headaches when he took over as CEO of South San Francisco-based Exelixis (NASDAQ: EXEL).
Two weeks before he took the job, Bristol-Myers Squibb (NYSE: BMY) dropped a bomb by saying it was walking away from its 50 percent ownership stake in Exelixis‘ most important cancer drug candidate. CEO George Scangos had just resigned to take the CEO post at Weston, MA-based Biogen Idec (NASDAQ: BIIB). Employees were still a bit rattled by the layoffs of 270 colleagues—about 40 percent of the staff— announced three months earlier. The stock fell from $4.58 before the Bristol deal unraveled to as low as $2.86 at one point in August.
“There were a few months that were really challenging, and really shook us to the core,” Morrissey says.
Exelixis generated at least a little bit more confidence last week when it struck a new partnership with Bristol for a couple of early-stage drug candidates for diabetes and inflammatory disorders. But an even bigger test will come next month. The company is gathering data from a clinical trial of XL184, its most advanced treatment in development for cancer, the same drug that Bristol-Myers decided to bail out on.
Plenty of people, inside and outside the company, have been asking why an experienced group like Bristol would give up on a drug like XL184 if it was really hot stuff. It wasn’t really enough for Morrissey or any other senior manager to say he still believed in the product. So Exelixis is now getting ready to do the only thing it can to counter perceptions that there must be something wrong with the drug. The company is gearing up to present hard data from more patients, followed up over a longer period of time, at a scientific medical meeting where it hopes to make a splash with an influential audience. The key presentation will be at the EORTC-NCI-AACR conference in Berlin, Germany.
More than 300 patients had enrolled in this study when I met with Morrissey at his office in late September, as the company was gathering data for its next big medical meeting. He was clearly trying to build up expectations that this drug is going to make a comeback in November.
“We were in the penalty box for a while, and we have to work our way out of it,” Morrissey says.
Morrissey, a Harvard-trained chemist, has been one of the central players at Exelixis during its rise over the past decade as one of the more prolific drug discovery engines in biotech. The company hasn’t developed an FDA approved drug on its own, but it has assembled a blue-chip roster of partners in Genentech, Pfizer, GlaxoSmithKline, Bristol-Myers, Sanofi-Aventis, Boehinger Ingelheim, and Daiichi-Sankyo. The six clinical-stage drug candidates in its pipeline today are aimed at specifically blocking many of the hot molecular targets in cancer research today—MET, VEGFR2, the PI3 Kinase pathway, hedgehog, and heat shock protein 90.
Once upon a time, Wall Street may have given biotech companies top-dollar valuations when they could ink big-money partnerships around exciting science. But the past two years of economic anxiety have put an end to that kind of high-flying optimism. Exelixis decided to consolidate its resources around its lead compounds in development late last year, and anointed XL184 as the top candidate that would drive its value in the future.
The drug is designed specifically to inhibit MET and VEGF receptor 2. It’s an interesting concept because it provides a dual mechanism to block molecular signaling pathways tumors use to grow and resist chemotherapy, and to form new blood vessels.
Interim results earlier this year from a mid-stage clinical trial showed the drug has at least some activity. The study looked at a high dose and low dose of the Exelixis drug in patients with relapsed forms of brain cancer (glioblastoma). Researchers found that 11 of 37 patients (30 percent) on the low dose, who hadn’t been treated before with an anti-VEGF therapy, had at least a partial response. The data, presented at the American Society of Clinical Oncology (ASCO), was “very competitive” with other treatments, Morrissey says.
Still, it wasn’t enough to light the fire of Bristol-Myers. The drug giant was basking in the glowing reviews it got at the same ASCO meeting for ipilimumab, an immune-based treatment for melanoma that has spread through the body. That drug was one of the stars of the show at ASCO, when Bristol-Myers showed in a study that patients lived a median time of about 10 months, compared with 6.4 months for those in a control group. After two years, about one out of four people who got the drug (23 percent) were alive, compared with one out of seven (14 percent) on the comparison treatment.
As ipilimumab became more of a high priority, Bristol and Exelixis found they couldn’t agree on the “scope, breadth and pace of the ongoing clinical development of XL184,″ according to a June statement. So Bristol walked away, leaving Exelixis with 100 percent ownership of the asset, and responsible for 100 percent of the development costs.
Exelixis’s board spent the summer thinking through a lot of different strategic options for XL184, Morrissey says. One of those options is to find a new partner to help push the drug through the costly final stages of development.
The catch is that since Bristol walked away, the perception of XL184 is that it is a “distressed asset,” Morrissey says. So if Exelixis is going to get top dollar from another partner, it will need to hold onto the drug for a while longer to prove its doubters wrong.
That’s what makes the upcoming meeting in Germany so important. Exelixis plans to present data from a study known the randomized discontinuation trial (RDT) with nine different tumor types, Morrissey says. The trial is designed to give researchers an early read on the specific tumor types that appear more susceptible to the drug, so the trial can narrow in on the best possible uses, and move quickly ahead, Morrissey says. The trial enrolled patients with ovarian cancer, pancreatic cancer, non-small cell lung cancer, small cell lung cancer, gastric cancer, breast cancer, liver cancer (hepatocellular carcinoma), prostate cancer, and melanoma.
It has definitely not been the easiest sell for Morrissey. He held small meetings, big group meetings, and all-staff company meetings over the summer to try to boost morale around the company after the string of setbacks.
“My focus was to re-energize, re-stabilize the employee base, and get them all focused on the good stuff we are doing,” Morrissey says. “I wanted to be open, transparent, and say ‘We can control this stuff, and we can’t control this other stuff, so let’s engage and get cranking.'”
All this kind of bullish talk could be seen as just that, talk, but Morrissey has gone a bit further than that. He put his money where his mouth is, buying 30,000 shares of Exelixis stock at prices of between $2.92 and $2.98, during one of the company’s low points on August 13. He bought the shares on the open market, instead of waiting for the next round of employee stock options. For people who like to follow insider stock buying and selling as a barometer of a company’s progress, this one looks like a head-slapper in hindsight. The Exelixis CEO has seen his latest batches shares climb to $4.81 at yesterday’s close.
If Exelixis can lay out a compelling case for the future of XL184 at next month’s medical meeting, then maybe Morrissey will be able to truly spin the story forward about the future of this drug and the markets it might someday address. For now, Exelixis is working behind the scenes, with a “swat team” to make sure it has really timely, high impact results to show cancer researchers next month.
“Bristol-Myers is a high-quality group, so it was fair for people to ask questions about why they gave (XL184) back, and what it means,” Morrissey says. “I can’t really convince investors or anybody else unless I have new data, and I say ‘here it is,’ you can decide for yourselves.”