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Rounds Report: Exelixis Rallied Due To Positive Earnings While Achaogen Is Set For A Strong Comeback

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Includes: AKAO, EXEL, IBB, INCY, XBI
by: BioSci Capital Partners
Summary

The overall bioscience market receded for the second consecutive days. Exelixis broke the trend to rally aggressively due to the Q1 2018 earnings.

Despite much volatility, there are substantial unlocked values in the cabozantinib franchises.

Achaogen is set for an aggressive comeback subsequent to its mixed ADCOM results.

We just keep our heads down and handle the headwinds and tailwinds as best we can, and take the result after a period of years. - Charlie Munger

Trading Analytics

Welcome to the edition of Integrated BioSci Rounds Report for May 03, 2018. As usual, we’ll elucidate notable trading analytics for the day, recent insider transactions, and interesting market developments. Without further ado, let’s take an overall assessment of the bioscience space. As follows, the iShares of NASDAQ Biotechnology Index (NASDAQ:IBB) traded down $1.40 (-1.36%) at $101.28. Moreover, the SPDR S&P Biotech (NYSE:XBI) exchanged hands $1.53 lower at $85.92 (for 1.75% losses). It’s likely that investors were trading with the negative sentiment for the day. Regardless of the daily inclination, there are substantial prospects in the bioscience sector: one that delivers hope for patients while rewarding supporters with gargantuan wealth in the long haul.

Figure 1: Notable BioSci movers. (Source: Morningstar)

Moving to specific equities, Exelixis (NASDAQ:EXEL) - a company based in San Francisco CA, focusing on the development and commercialization of molecules to improve the outcomes and care for patients afflicted by life-threatening cancers - won the highlight spot for the day. The stock experienced a robust rally to increase by $1.60 at $22.22 (for +7.76% profits). Already launched to treat two highly resistant cancers (advanced renal cell carcinoma and progressive medullary thyroid cancer), cabozantinib is being further investigated in nearly 20 different cancer indications. As the first-line treatment for advanced RCC, the aforesaid molecule works by attacking multiple cancer targets (MET, AXL, VEGF receptors, and RET) - involved in the various processes (angiogenesis, metastasis, tumor angiogenesis, drug resistance and the maintenance of tumor environment).

On May 02, Exelixis reported the strong earnings for Q1 2018. Commenting on the recent development, the President and CEO (Dr. Michael Morrissey) enthused,

In Q1 2018, Exelixis continued to make significant progress in the ongoing commercialization of Cabometyx (cabozantinib) for advanced renal cell carcinoma. Following the FDA approval for its expanded indication in advanced first-line renal cell carcinoma, our team immediately began promoting Cabometyx across all lines of therapy for this patient population, resulting in further uptake from prescribers at both major academic institutions and in the community setting. The resulting growth in US sales, as well as the increasing collaboration revenues from our various partners, were important contributors to our strong financial performance during the quarter, leading to net income of $115.9M (or $0.37 per share on a fully diluted basis).

Bioscience Catalysts

It is worthwhile to go over the recent binary catalyst for Achaogen (NASDAQ:AKAO) that occurred on May 02. Accordingly, the lead drug plazomicin - a next-generation aminoglycoside to potentially treat complicated urinary tract infection (“cUTI”) and bloodstream infection (“BSI”) - went to the advisory committee (“ADCOM”). Accordingly, the experts voted with the unanimous decision (15-0) in favor of the approval of plazomicin for cUTI. Nevertheless, there were only 4 out of 11 members who voted for its approval re BSI. We stated in the Alpha-Intelligence,

Despite the robust fundamentals, perhaps investors overreacted (and misinterpreted the favorable event). It’s imperative for shareholders to be cognizant that the FDA is not required to follow the ADCOM recommendations that, in and of itself, are strictly guidance. In addition, the regulatory hurdles for stellar drugs (especially antibiotics to tackle the increasing resistance) are already lowered. Moreover, the FDA Commissioner (Dr. Scott Gottlieb) approved far more medicines in the history of the FDA in the past year. Furthermore, Dr. Gottlieb shortened the approval time by approximately a year and a half. With the industry tailwinds, there is a highly favorable chance that plazomicin will earn approvals for both cUTI and BSI on June 25. Therefore, the stock can be catapulted up to the $20 to $24 price target post-approval.

Final Remarks

Despite the weak overall trading for the day, key firms under our coverage traded northbound. Exelixis procured significant profits due to the earnings upbeat. On the longer horizon, we expect the stock to gain further momentum, as it is powering by the excellent management team and a stellar molecule. And, the vast number of cancer indications for the cabozantinib franchise to post positive data. Last but not least, the temporary decline in Achaogen can be a highly prudent entry point for the opportunistic investors.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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