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Pros and Cons of Pfizer (PFE) Buying Exelixis (EXEL)

12/1/2016 5:58:37 AM

Pros and Cons of Pfizer Buying Exelixis December 1, 2016
By Mark Terry, Breaking News Staff

Exelixis (EXEL) is turning out to be a powerhouse this year. In particular, its Cabometyx (cabozantinib) to treat advanced renal cell carcinoma (RCCC) as a second-line treatment, is starting to cut into Pfizer (PFE)’s dominance in that market. Todd Campbell, writing for The Motley Fool, presents arguments for why Pfizer might consider buying Exelixis.

In October, at the European Society for Medical Oncology (ESMO) meeting, Exelixis presented data from its CABOSUN Phase II clinical trial of cabozantinib in previously treated advanced renal cell carcinoma (RCC) with intermediate- or poor-risk disease. The drug was compared to Pfizer’s Sutent (sunitinib). Exelixis’s drug proved to be the winner.

The median progression-free survival (PFS) for patients on cabozantinib was 8.2 months. The PFS for patients on sunitinib was 5.6 months. The results demonstrated a 31 percent decrease in disease progression or death in patients on cabometyx compared to patients on Sutent.

The U.S. Food and Drug Administrated (FDA) approved Cabometyx in advanced RCC in early 2016, and has eaten up about 20 percent of the market share for second-line treatment and about 35 percent for the third-line. If the FDA approves it for first-line treatment, it’ll be battling Pfizer head-to-head. And since the CABOSUN Phase II trial was so positive, it seems likely it will get that approval.

Campbell notes that in the first nine months of this year, Sutent brought in $823 million. Pfizer’s plan is to expand the drug’s use beyond advanced RCC into treatment for all RCC patients. Pfizer reported in October that the drug “significantly delayed disease progression in RCC patients who took it as an adjunct therapy after undergoing surgery.”
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The median disease-free survival for patients on Sutent was 6.8 years compared to 5.6 years in patients on placebo. Campbell writes, “Pfizer executives plan to discuss these results with regulators, and if Sutent eventually gets a green light for use in these patients, then it could offset any market share losses to Cabometyx in the first-line advanced RCC setting.”

And Pfizer also has another renal cancer drug, Inlyta, that with checkpoint inhibitors could potentially be first-line treatment for advanced RCC patients. If the studies work out, Pfizer could battle back against Cabometyx.

Or, Pfizer could buy Exelixis, which would take care of the competition part. Campbell writes, “Given Pfizer’s racking up over a billion dollars in sales per year from Sutent and its doubling down on its exposure to oncology via both R&D and mergers and acquisitions, it’s not a stretch to wonder if management would consider acquiring Exelixis rather than battling it.”

Short-term risk posed by Cabometyx for first-line treatment would be gone. And if its trials on Inlyta don’t come together, it would be protected. And it would bolster Pfizer’s second- and third-line share of the advanced RCC market. It would also benefit from the work Exelixis is doing on liver cancer.

In addition, Campbell points out, Pfizer would have a stake in Cotellic, a drug for melanoma patients Exelixis co-developed with Roche.

So, there are the reasons for buying Exelixis. The biggest reason not to? Cost.

Applying the same math that had Pfizer paying 11 times forward sales for Medivation, then Pfizer would probably pay about $4.9 billion for Exelixis. Exelixis was one of the top five performing biotech stocks this year, and is projecting this year’s growth rate at about 34 percent.

As a result, particularly with its own research programs showing promise in the advance RCC market, a Pfizer acquisition may be a longshot.

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