"I figure the Nivo HCC trials have become the recruiting priority, and Cabo's placebo controlled trial has taken a recruitment backseat to the clinical tsunami of perceived PD-1 success."
The Nivo trial is in front line vs Sorafenib so it isn't competing for the same indication. Celestial requires prior Sorafenib treatment. There are not many trials competing for the same patients. If Lenvatinib and Nivo both succeed the space will be more crowded. We'll see what happens soon enough I think both those trials read out this year.
"Please confirm, I heard differently. I thought the analyst asked him if it would be final data and he replied "data". I would feel much better if you are 100% confident it is final data in 2017, which means there should an eminent read-out."
Analyst: Final data in 17?
MM: Data, in 17.
Can't say for 100% sure whether he means interim or final. If we go by common industry usage, it means final analysis, but this is biotech, so I can't guarantee what he means. He heard the question and surely realized he didn't give a definitive answer.
Without having any idea how the enrolment has gone it is impossible to make a good guess at the timing for the analyses. It's modeled for Cabo 10.8 months vs placebo 8.2 months. I'm guessing the time interval between the analyses will be fairly tight, maybe 4-5 months apart. As long as they announce when the first interim has come and gone, that will give us a heads up for the 2nd.
"Yesterday, CEO said no interim data until 2017.
But their 4 Q presentation says topline data in 2017."
EXEL has never updated the enrolment status of Celestial. We have no idea how far along they are. The only guidance was to expect the final analysis topline result in 2017. The Cowen analyst was persistent and got MM to say it was the final analysis in 2017 and not the interims. That is consistent with the clinicaltrialsdotgov website which lists the estimate for locking the data set as October 2016. Those estimates are often off by months. For instance Meteor was listed as locking the data set in Sep 2015 and it actually happened in May/June 2015. The Exam trial estimated completion was revised later multiple times. The October listing for Celestial has never been revised, it may or may not be a reliable estimate.
If the final analysis is n 2017, then it is likely one or both of the interims may occur in 2016. One more thing, MM confirmed that a press release will be issued when the interims occur, irrespective of the outcomes. This too is consistent with past practice. Full enrolment ill be revealed by the recruitment status on the clinicltrials website when it occurs or the company may issue a press release.
"...he insinuated that the METEOR survival data was being held back for ASCO. "
I noticed that also. The only problem is that there is a better than even chance RCC is approved before ASCO and the data is published on the revised label.
"However, whatever she's seeing in the Nivo/Ipi/Cabo combo trial is being played very close to the vest. Not a word can I find..."
That part is understandable. No leaks means greater interest when she finally does the first publication of results. She's building her reputation as a KOL and playing by the rules.
"The rationale appears intact, but we've all seen rationale fly south..."
The theoretical rational is intact but the clinical evidence is pretty thin. I've said before that the NCI trial is not really designed to answer the important question, is Cabo/Nivo better than Nivo or Cabo. Perhaps she thinks she already knows and is leapfrogging ahead to Cabo/Nivo/Ipi vs Cabo/Nivo. I don't know. Regardless there will still be response rates, duration of response, waterfall plots and other data so perhaps the answer can be ferreted out indirectly.
"I'd like to see a Cabo/Cobi combo trial - perhaps in CRC or a lung indication."
Coupled with a biomarker test the idea has merit, but Cobi is a Roche drug now. They call the shots on clinical development and they seem more inclined to match it up with drugs already in their pipeline.
One thing that might help explain the sell off is MM's comments on Cobi. He basically acknowledged that melanoma has turned into a very competitive space and Cobi revenue opportunities may depend more on developing other indications rather than promoting melanoma.
Just finished listening and I'm still digesting it. Here's the thing that stood out most to me. They aren't sure what comes next, except to say that they think it will be some kind of PD1 combination with Cabo. Perhaps I was naïve, but I thought they would be all set to launch one or two pivotal trials as soon as they solved their liquidity issues. I'm still trying to decide how to think about this. One theory I like is that they want to stall until they have the Apollo results and a positive read out from the Celestial 2nd interim and sell the company to BMS or Roche or Glaxo with Cabo/PD1 synergy as the predominant value driver. I dunno.
Obviously I got a fill at $3.95 and it was my biggest buy. It slides more tomorrow I'll probably hold my nose and buy more.
"Exelixis hasn't disclosed the magnitude of the overall survival (OS) benefit in the Meteor trial. "We plan to present the OS data at a major medical meeting later this year," Morrissey said."
Let's talk about this as it keeps coming up. When the interim result was released in July, EXEL disclosed the PFS statistics, the OS hazard ratio, and the OS p value. That data made it clear that reaching statsig OS on the next analysis was an inevitability. The HR was slightly better than that reported for Nivo: Cabo =.67 vs Nivo =.73 (lower is better). Because the Meteor survival data was immature, median survival information was not available, but the KM curve for OS was published. KM curves do chage with the accumulation of more data, but looking at the curve that was published, if one were to assume the existing trends continue and extend the result, it appears as if the Cabo arm enjoys about a 3-4 month advantage over the Ever arm and the EVER curves looks like the median will occur at around 16-17 months. The Nivo OS medians were 25.0 months for Nivo vs 19.6 months for Ever.
EXEL did not hold back the median survival statistic because they are saving it to surprise us later, they simply did not want to have the good news dulled by the obvious comparison to the Nivo result. In the meantime they can continue to emphasize the hat trick, statsig OS, PFS, and ORR.
Let's all be realistic here, Nivo is going to be the most commonly prescribed 2nd line treatment, followed by Cabo. Cabo has an slightly better HR, but Nivo has BMS marketing, immunotherapy hype, and a better side effect profile.
When the OS data is presented, the market will not be disappointed to see 20 months vs 16.5 months (or thereabouts), it's already discounted in the current valuation placed on EXEL and has been for some time. The joint venture was a much bigger development than the interim OS result. I am building back up a core position again. Bought @ 4.12, 4.04 and order in @3.95.
It's going to be a tough day. I am not a fan of the cancer vaccine companies. There has been a lot of money lost there. With the FDA's breakthrough endorsement, I thought CLDX might break the trend, but I guess not.
"up on no news"
I think this is just a bit of a delayed reaction to the JV. I've seen it before, both here and with other companies. Sometimes the market needs a day or two to think about a development and decide if it is good, bad, or neutral.
Just looking at the fundamentals here, I think EXEL should outperform the sector for a while and the pps will catch up to a more deserving level. If we ever get some guidance on Celestial, the anticipation of those results should also help push the pps a bit.
On CaboSun, the best we can realistically hope for is statsig PFS superiority or perhaps a good trend in that direction. Median frontline survival is somewhere around 30 months. This trial has not been running long enough to show anything meaningful in that regard. This will become relevant if/when Sunitinib is displaced as the frontline standard of care and will complete with cabo for 2nd line patients coming off PD1 therapy.
"Ernie : don't you think with the number of partners it would be difficult for takeoverRespect your answer"
No. Virtually every pharma website and annual report has a section devoted to "partnerships." It has not stopped deals in the past and will not prevent a deal for EXEL. I've said before and still believe that the period following a successful Celestial unblinding could be a likely time for a deal.
"...great OS results.."
If you take only one thing away from this post, pay attention. When you digest a new piece of news, always ask yourself, was this anticipated and does it match the expectation going in. After the result of the interim was released in July, with the OS p value and HR included in the press release, not reaching an eventual statig OS became a near impossibility. The OS result was inevitable. The glaring thing missing, was the duration of median survival. So, yes, reaching a statsig OS is a "great" thing, but all the confirmation did was match an expectation and the missing duration is viewed as conceding that it is less than that posted by Nivo and L/E.
FWIW I am back in, but not with as much conviction as I have had previously. I still see the flaws, but they are not so glaring at a PPS of $4 as opposed to $6. The positive story here is that I believe the value of the two drugs in the approved and soon to be approved indications exceeds the market cap plus debt making the company an attractive takeover candidate and also leaving room for appreciation if Celestial reads out positively.
"But when you sold at $5.30..." Forgive my hubris, my last sale was in the $5.60's, but I was actively selling all the way down from the $6.30's, more often than not in the premarket or aftermarket, where for some reason the upside pops seem to be exaggerated. We saw the aftermarket jump to $6.20 after the JV deal.
"..the issue associated with the converts and the debt was in place back then too. At the time you lamented the lack of a JV deal among other things and the possible need for a secondary because of it. . So fast forward less than 3 months later, they have that deal."
I've often talked about the news flow, before it occurred, during it, and after it. Starting with the Meteor results in July and through December, there was a series of announcements, some outcomes more predictable than others, but almost all of them turned out positively. Another thing of note, when there is a secondary in this company, it often sets a temporary floor because it is perceived to be a good entry point. I explained my sale in January when I did it. The stock was yo-yoing from $5.40 to mid sixes. We reached the end of the end of the news flow and the stock was sliding again and the likelihood of another "good news" event to prop it back up was lacking. I have always had a love/hate relationship with this company as an investment and frankly it was something of a relief to scratch it off my portfolio for a while.
' 'Logic' would say, hey the SP should now reflect all this. Like I said, the Convert issue never went away, and in so many ways, EXEL is in a much better shape. What has changed that dramatically from December that could possibly explain the current languishing SP down over 30%?'
Some things can't be explained away with pure fundamental analysis. The market as a whole was overextended and biotechnology in particular was due for a correction.
It narrows the prospective list of candidates a bit. Companies centered on the European market would be less likely to acquire a primarily US asset. That said, it doesn't substantially diminish the prospect of an eventual purchase of the company. Keeping the US/Canada market in house preserves the large majority of the company's value for a takeover.
"My point is that this hedged short position could get squeezed (albeit only in exceptional circumstances) and that Exelixis has more options now when it comes to retiring some debt."
The converts can only be retired early is the stock trades above $6.90 for an extended period. The company would then be able to call the notes for cash redemption. However, the bondholders could opt for conversion rather than redemption and take possession of the stock (the obvious thing to do if the current share price is greater than $5.31). If that bond was hedged by a short position, taking possession of the stock cancels out the short and there is no corresponding open market transaction to cause a squeeze.
The Silicon Valley loan will get paid by the restricted cash on deposit there when the loan is due. The Deerfield $104 million loan is another animal. It can be paid in stock or cash or rolled over. If by that time EXEL is cash flush, they can consider paying it off. That would be 2018. By that time the Celestial results will be in and the revenue picture will be more apparent.
If, EXEL is still a stand alone independent company by 2018 and 2019, they will likely be reconstituting their R&D and will be burning at a higher rate than presently. In that scenario they will be hoping for enough stock price appreciation to be able to retire all of the long term debt with equity.
I think a more likely scenario is a sale of the company after Celestial reads out.
So where am I going with all this? When a particular investment like EXEL does not perform to expectation, it is convenient and expedient to look for some outside influence that is causing that failure to perform. I am not a fan of investment bankers and hedge funds, but they are not the source of EXEL's failure to live up to expectations. This company has a cumulative deficit of $1.9 billion dollars. All of that money came from the sale of equity and borrowing. It still has a considerable debt overhang which will eventually result in big cash outlays, more dilution, refinancing on negative terms or a combination of all three.
That said, I also own the stock again. I bought it expecting it to go up, but I'm not surprised that it is where it is today. The continuing influence of the converts is not due to some behind the scenes manipulation by con artists but simply the fact that the $287.5 million bill comes due in a little over 3 years.
Converts give their owners hedging opportunities. A simple example follows. The converts pay a 4.25% coupon and converts at $5.31 in 2019. A bondholder can short the stock above $5.31, locks in a capital gain, and continue to collect the coupon. At expiration, if he receives stock, he uses it to cancel out the short. If he receives cash, it is because the share price is less than $5.31. He gets his full initial outlay back, has collected the coupon and his short position has a profit. It only works if the short can be placed at a share price higher than the eventual conversion. Since the initial issuance of the converts the share price has been above $5.31 numerous times and I would guess that much of the large outstanding short position in EXEL is held by convert holders. A convert hedged by a short also can be profitable in a bankruptcy. The initial position is protected by the short and the bond gives its owner a superior position for a claim on residual assets.
Putting on a hedge undoubtedly exerts a downward influence on share price. However, once the hedge is in place any additional shorting is not protected by the bond position. Besides the converts, EXEL has also had several secondaries and each has resulted in an increased short position, dilution and depressed share price. Unhedged short position holders have a vested interest in holding down the share price. Besides propaganda, the only real way to put a cap on a rally is to short more. It can be argued that strategic shorting at opportune moments can hold down share price and increase short profit, but every short sale will eventually result in a purchase to cover and the net outcome will eventually cancel out. Short sale statistics are reported biweekly. The net increase or decrease tells whether short sellers were a positive or negative influence on share price.
Let's talk about the Converts a bit. first they need to be viewed in the context of the overall balance sheet. EXEL has the following obligations.
An $80 million line of credit from Silicon Valley Bank due May 31, 2017.
The Silicon Valley Bank agreement requires EXEL to maintain a cash balance of $81.6 million on deposit. This $81.6 million is included as a cash asset on various financial documents, but it is for all intents and purposes it is essentially dead money until the underlying obligation is paid.
A $104 million Deerfield note due July 1, 2018 yielding 15%. Additionally, Deerfield received warrants to purchase 1 million shares with a strike price of $3,445 expiring in 2018. The Deerfield note can be paid in cash or stock.
The $287.5 million Converts due Aug 15, 2019. Conversion price is $5.31.with coupon yielding 4.25%. On Aug 15, 2019 EXEL is obligated to redeem any remaining outstanding notes with cash. Starting May 15, 2019, holders may redeem their notes for stock at a conversion rate equal to $5.31 per share. It is only advantageous to convert if the market price of EXEL shares exceeds $5.31.
As of 12/31/15, EXEL had $253 million in cash, of which because of the Silicon Agreement, $169 million was available for operations. The $200 million from Ipsen is banked and an additional $80 million in EU approval and first sales can be relied on. Operating expenses for 2016 are projected between $240 and $270 (call it $250). So that means operating cash at the nd of 2016 is (169+280-250) $199 million plus sales. I estimate 2016 sales of $150 million. That means EXEL will enter 2017 with $350 million in usable cash, That's enough to cover their 65% portion of 2 large phase 3 trials and no more.
EXEL has breathing room, but that's about it. Retiring debt early is not a rational option at this point in time and the Deerfield note has a prepayment penalty and the converts can only be called early if the stock performs exceptionally well.
"Anyway, where do you think we are heading with an approval on June 22? Do we get to go back to the $5-$7?"
The approval is already discounted in the current share price. Even so, a good time to sell would be about 30 minutes after the approval is announced. I also think it is likely the approval will come before June.
If the sector recovers, we could see EXEL in the $5's without much in the way of news. I think it more likely though that the next move is dependent on Celestial results. The first interim doesn't have much power, but they might get lucky on the second interim, It's hard to pin down the timing, but perhaps 4th Q this year. We'll see.
Last October I posted that a reasonable expectation for EX-US rights to Cabo would be $350 up front plus royalties. They got $200 plus another $80 for approval and first sales plus $60 for HCC and they still have Japan to partner away. I'd also mentioned a 50/50 split on future trials and they got 65/35 plus the possibility of more from a Japanese partner. So the deal they got is certainly close to what I felt Cabo could command in the market place. I would have preferred a deal with a company with a PD1 drug in the pipeline, but that might have been an unrealistic expectation.
This probably takes worries of a secondary off the table for at least a year. It was interesting to me that they were vague about where the next clinical trial will be. Gisela mentioned wanting to see the Apollo trial dosing results. So they are obviously thinking in terms of a Nivo/Cabo combination, probably in NSCLC. It certainly has the potential to be a successful combination, but the price tag for the reimbursement agencies is going to cause a stir.
Cotellic is not looking like it will be a big contributor to the bottom line. EXEL's share of the 4th quarter loss was $16 mill. At that rate, breakeven may take a while.
I'm back in in the $3.80's. Not sure if this is a short term trade or something more strategic.
Obviously the Ipsen deal, I'll do a separate post on it later.
Not much color on the progress of Celestial. Not sure what that means but my best guess is that enrolment progress is slower than what they projected or would like to see. Results in 2017, but not sure if they mean interim or final anlysis.
Sales on Cabo were nearly $10 mill in the 4th quarter. I'm certain some of that is due to off label sales for NSCLC and perhaps RCC, but how much is uncertain. I think its safe to say MTC and off label sales will selttle in at $40-50 mill per year.
No real mention of any new trials. I'd really like to see them lock up RET and ROS 1 NSCLC with an SPA. More practices are doing full profile genetic evaluation of newly diagnosed NSCLC patients and as this happens the economics become more attractive to pursue a full FDA approval.
I get the feeling Cotellic is going to be slow to make inroads on D/T. Novartis has a big headstart and it may be difficult to get practices to switch away from a drug they've been using for nearly 2 years.
I tried to pick some up in the $3.80's this morning, but I was too slow. We'll see what happens.