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Exelixis, Inc. (EXEL - Snapshot Report) recently announced that it has received a notice from its partner, Roche Holding (RHHBY - Analyst Report), regarding the development of their oncology candidate, GDC-0973 (XL518). The notice states that patient dosing has commenced in a phase III study evaluating GDC-0973 in combination with Roche’s Zelboraf (vemurafenib).

The multicenter, randomized, double-blind, placebo-controlled phase III trial will evaluate the safety and efficacy of GDC-0973 in combination with Zelboraf versus Zelboraf alone in treatment naïve BRAFV600 mutation positive patients with malignant melanoma (skin cancer).

We note that Zelboraf is already approved for BRAFV600 mutation positive patients with metastatic melanoma in the US (Aug 2011) and the EU (Feb 2012).

Exelixis and Genentech, later acquired by Roche, entered into an agreement to co-develop GDC-0973 in 2006.

As per the agreement, Exelixis will receive 50% of US profits/losses of GDC-0973. However, Exelixis’ share of profits/losses will decrease as GDC-0973 sales will increase. The company will bear the marketing and commercialization costs in the US equally with Roche. Exelixis will also receive royalties on net sales of GDC-0973 in ex-US territories.

We note that Exelixis has an option to co-promote GDC-0973 in the US. The company can exercise this option within Jan 2014 (within 12 months from the receipt of aforementioned notice).

We currently have a Neutral recommendation on Exelixis. The stock carries a Zacks Rank #3 (Hold) in the short run.

Pharma stocks, which currently look attractive, are Targacept Inc. (TRGT - Snapshot Report) and Valeant Pharmaceuticals (VRX - Analyst Report). Both the companies carry a Zacks Rank #1 (Strong Buy).

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