Exelixis Shares Fall Most Ever on Prostate Drug Study Rules

Exelixis Inc. (EXEL), a biotechnology company with no approved products, plunged the most in 11 years after failing to agree with U.S. regulators on special rules for a study of its experimental prostate cancer drug.

Instead, the company will begin a late-stage clinical trial of the treatment, cabozantinib, by year’s end under the “normal regulatory framework,” Chief Executive Officer Michael Morrissey said yesterday in a statement. Exelixis and the Food and Drug Administration couldn’t reach agreement on how the study should be conducted and its results measured, he said. The company will begin a second trial in 2012 to look at overall survival rates compared with patients on the steroid prednisone.

Exelixis dropped 40 percent to $4.62 at the close in New York, the biggest single-day decline since the South San Francisco, California-based company first sold shares in April 2000.

At issue is whether showing pain reduction -- rather than survival -- is enough to convince the FDA that the drug should be approved, said Edward Tenthoff, a senior research analyst with Piper Jaffray & Co. in New York, in a telephone interview.

Approval Requirement

“The FDA has definitively been moving toward overall survival as an end point for the approval process,” Tenthoff said. “I don’t think this kills the company, but it obviously increases capital need and risk.”

The studies are part of the third and final phase of testing usually required for U.S. regulatory approval.

Piper Jaffray downgraded its rating to “neutral” from “overweight” and lowered its price target to $5 from $12.

Exelixis had $313 million in cash at the end of the third quarter, Frank Karbe, the company’s chief financial officer, said Oct. 27 during a conference call after the company’s earnings were released.

The company is “working through all the numbers right now,” though Exelixis is still in a strong position to proceed, Morrissey said yesterday during a call with analysts.

Maged Shenouda, an analyst at Stifel Nicolaus & Co., wrote in a note to clients today that he anticipates Exelixis’ prostate cancer drug will be approved in 2016, and may generate sales of $467 million in 2017 and $699 million in 2018. The lack of an agreement pushes potential approval out further than analysts expected.

In the trial scheduled to begin this year, Exelixis plans to study 246 patients who receive the experimental drug or mitoxantrone. The primary goal will be to alleviate bone pain, and researchers also will attempt to demonstrate there is no negative impact on survival for the cabozantinib arm, the company said.

Exelixis also is studying cabozantinib in thyroid cancer and has said it would apply for marketing approval of the drug for that use in the first quarter of 2012.

To contact the reporters on this story: Ryan Flinn in San Francisco at rflinn@bloomberg.net; Anna Edney in Washington at aedney@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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