Exelixis Stock Forecast: Biotech Bonanza?

Exelixis Stock Forecast: Biotechnology stocks tend to be a high risk-high reward industry. Investors are often drawn to them because they want to invest in a type of biotech solution that resolves or treats a type of condition. Betting on these niche stocks can be incredibly lucrative, but there is always a risk. That promising drug that addresses whatever headline-generating condition may not get FDA approval or get anywhere close – and then what?

Investing in Biotech Companies

This means that you need to really do your research and evaluate whether the company you are considering is worth your investment.

In general, you will want to look at whether a biotech company has support. Many of them are backed by important investors or larger companies.

If the one you are considering has this support, that could be an encouraging sign. Likewise, pay attention to how much financial backing the company in question has and the amount of debt it has accrued.

Further, consider the products the company is developing. Look at the drugs they have in their pipeline – these are the drugs in development.

Some biotech companies put their eggs in one basket while others have more than one product under development. Also, consider whether they have any products on the market. Finally, look at who is leading the company. Good management can make a real difference.

Let’s look at a biotech stock in more detail – Exelixis [EXEL]

What Does Exelixis Do?

Exelixis is a biotechnology that focuses on oncology, specifically cancers that are hard to treat. Its mission is to develop effective drugs that are also tolerable by the patients they treat.

The company was founded in 1994. Since then, it has had four products successfully reach regulatory approval. Two of these drugs – CABOMETYX and COMETRIQ – were derived from an inhibitor of tyrosine kinases called cabozantinib. It is Exelixis’s flagship molecule.

·       CABOMETYX is a treatment for advanced renal cell carcinoma (RCC) as well as hepatocellular carcinoma (HCC) that has not responded well to other treatments.

·       COMETRIQ is a medication for medullary thyroid cancer (MTC) that has been diagnosed as progressive and metastatic.

According to the company’s annual report, cabozantinib is the standard of care for these conditions.

The revenues these drugs have generated for the company combined with certain collaboration agreements have helped Exelixis grow and maintain a healthy cash position while allowing the company to reinvest in research and development.

Exelixis is in the process of investigating the use of the substance alone and as a part of other therapies in a bid to develop other treatments. The company is expanding its development program around cabozantinib.

Exelixis also has two other drugs in its portfolio – COTELLIC and MINNEBRO.

·       COTELLIC is used in advanced melanoma treatments. It is marketed through a collaboration with A member of the Roche Group called Genentech.

·       MINNEBRO treats hypertension by blocking the mineralocorticoid receptor (MR). It is primarily used in Japan where it is licensed to a company there called Daiichi Sankyo.

Is Exelixis a Buy?

So far, the company’s lead drug, CABOMETYX, is performing well and the company has several other cabozantinib-based drugs in its pipeline.

The total market for RCC products is around 14,000 patients in the US. Sutent and Afintor are currently leading the market, but CABOMETYX could take over some of their business.

The company also has an agreement with a European partner – Ipsen – that has led to the drug getting approval for treating adults with RCC in the EU.

This development further increases the available market as well as the brand profile of the drug.

Exelixis is aggressively testing the use of cabozantinib. It has nearly four dozen clinical studies in process and is testing multiple indications.

Exelixis is also collaborating with Bristol-Myers Squibb, Merck, and Takeda on different projects. These strategic agreements could help Exelixis earn considerable royalties and licensing fees.

What are the Risks of Buying Exelixis?

The ability of Exelixis to grow and thrive is largely going to depend on the success it finds with CABOMETYX and the future success of other drugs that leverage the cabozantinib platform.

It needs to be less risky and/or more beneficial than other alternatives. If the platform falls flat or revenue decreases, Exelixis will be forced to reduce its operating expenses just to remain afloat.

To a degree, Exelixis also has to make sure that it can attract revenue from the sales of CABOMETYX and other cabozantinib-related drugs.

Developing the drug is only part of the problem. Even after FDA approval (or approval from whichever governing body in a given country), Exelixis still has to convince physicians to prescribe the drug and insurance companies to cover it.

Perceived effectiveness and safety are just as paramount as pricing and the willingness of insurance companies to cover the cost of the drug.

Without a price that is affordable or sufficient coverage from health insurance companies, Exelixis could find that it makes an effective product that only a few people can afford, and that business model would not allow the biotech company to thrive.

Finally, keep in mind that all the clever development and powerful sales initiatives in the world cannot make up for issues relating to business scaling and product distribution.

Availability of the treatment is critical. Exelixis will need to ensure that end users can readily get its products.

Exelixis Stock Forecast Summary

Exelixis is focusing on a very targeted niche, but that doesn’t mean it is the only company to do so.

The field of oncology is changing rapidly with each technological advancement. Companies you have never heard of could end up being at the forefront of this niche going forward.

Add to this the risk that a larger company or big pharma that is collaborating with a smaller firm will have considerably more resources to develop effective treatments for the conditions Exelixis has emphasized and there is a very real risk that this biotech company could miss the mark.

It could also be at the forefront of the best new treatments. Investors should stay wary and do their research.

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.