Roche recently disclosed a decision to start phase III with GDC-0973 (formerly XL518), a MEK inhibitor licensed from Exelixis (EXEL) to Genentech 6 years ago. The trial is expected to start next month, and will evaluate GDC-0973 in combination with Roche's Zelboraf in patients with BRAF-mutated melanoma. This is an extremely positive catalyst for Exelixis, who now has a second drug in pivotal studies with a high likelihood of success and a substantial market opportunity.

Large commercial opportunity - The commercial opportunity for GDC-0973 in advanced melanoma is ~$1.5B globally, based on pricing and sales estimates for Zelboraf. MEK inhibitors have potential for many additional cancers, including lung and ovarian cancer.

Favorable deal terms - Deal entails a profit share agreement and an option for Exelixis to co-promote the drug in the US. Exelixis is eligible for additional milestones and royalties on ex-US sales.

Short timelines - The phase III trial will start next month with progression-free survival as the primary endpoint. Enrollment should be very quick, given Roche's experience in the indication (Zelboraf was the 1st approved drug for BRAF-mutated melanoma) and the fact that melanoma patients are routinely screened for BRAF status and treated with Zelboraf. Top line results could be available in mid-2014, and Roche expects to submit the combination for approval in 2014.

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